Head Start Program

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration For Children and Families

45 CFR Part 1309

RIN 0970-AB31

Head Start Program

AGENCY: Administration on Children, Youth and Families (ACYF),

Administration for Children and Families (ACF).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Administration on Children, Youth and Families is issuing

this Notice of Proposed Rulemaking to implement a new statutory

provision that authorizes Head Start grantees to use grant funds to

purchase facilities in which to operate Head Start programs.

DATES: In order to be considered, comments on this proposed rule must

be received on or before January 30, 1995.

ADDRESSES: Please address comments to the Associate Commissioner, Head

Start Bureau, Administration for Children, Youth and Families, P.O. Box

1182, Washington, D.C. 20013. Beginning 14 days after close of the

comment period, comments will be available for public inspection in

Room 2219, 330 C Street S.W., Washington, D.C. 20201, Monday through

Friday between the hours of 9 a.m. and 4 p.m.

FOR FURTHER INFORMATION CONTACT:

Douglas Klafehn, Deputy Associate Commissioner, Head Start Bureau,

Administration for Children, Youth and Families, P.O. Box 1182,

Washington, D.C. 20013; (202) 205-8569.

SUPPLEMENTARY INFORMATION:

I. Program Purpose

Head Start is authorized under the Head Start Act (42 U.S.C. 9801

et seq.). It is a national program providing comprehensive

developmental services primarily to low-income preschool children, age

three to the age of compulsory school attendance, and their families.

To help enrolled children achieve their full potential, Head Start

programs provide comprehensive health, nutritional, educational, social

and other services. Additionally, Head Start programs are required to

provide for the direct participation of the parents of enrolled

children in the development, conduct, and direction of local programs.

Parents also receive training and education to foster their

understanding of and involvement in the development of their children.

In fiscal year 1993, Head Start served 720,000 children through a

network of almost 2,000 grantees and delegate agencies.

While Head Start is intended to serve primarily children whose

families have incomes at or below the poverty line, or who receive

public assistance, Head Start policy permits up to 10 percent of the

children in local programs to be from families who do not meet these

low-income criteria. The Act also requires that a minimum of 10 percent

of the enrollment opportunities in each program be made available to

children with disabilities. Such children are expected to participate

in the full range of Head Start services and activities with their non-

disabled peers and to receive needed special education and related

services.

II. Summary of the Proposed Regulation

The authority for this Notice of Proposed Rulemaking (NPRM) is

section 644(f) of the Head Start Act (42 U.S.C. 9839). Paragraph (f)

was added by Public Law 102-401, the Head Start Improvement Act of

1992. It directs the Secretary to establish uniform procedures for Head

Start agencies to request approval to purchase facilities and

authorizes grantees to apply for grant funds to purchase facilities to

carry out Head Start programs. Additional authority is found in section

644(c) of the Head Start Act, which mandates the Secretary to prescribe

rules or regulations to supplement section 644(f). The ability of

grantees to purchase facilities as discussed in this NPRM is subject to

the availability of funds.

The Act specifies that grantees applying to use grant funds to

purchase facilities must submit an application which contains the

following information: (1) A description of the site of the facility

proposed to be purchased; (2) the plans and specifications of such

facility; (3) information demonstrating that the proposed purchase will

result in savings when compared to the costs that would be incurred to

acquire the use of an alternative facility to carry out such program,

or that the lack of alternative facilities will prevent the operation

of the program; and (4) such other information and assurances as the

Secretary may require.

Since the passage of Public Law 102-401, section 644(f) of the Head

Start Act was amended further by Public Law 103-218, the ``Technology-

Related Assistance for Individuals with Disabilities Amendment of

1993''. This amendment provides that grantees may request approval of

previously purchased facilities for use for Head Start programs. In

accordance with the amendment, requests for retroactive approval can be

for facilities purchased after December 31, 1986. In order to obtain

approval, the grantee will be required to submit an application that

provides the same information as prospective applicants.

On May 18, 1994, the President signed into law the Human Services

Amendments of 1994 (Pub. L. 103-252) which, among other actions,

reauthorized the Head Start Act for fiscal years 1995 through 1998.

This statute amended section 644(g) to the Head Start Act to allow the

Secretary, under certain circumstances, to authorize the use of Head

Start grant funds for the construction of Head Start facilities. The

statute requires the Secretary to establish uniform procedures for Head

Start agencies to follow in requesting approval to use Federal funds in

such a manner. This NPRM does not include those procedures, since the

statutory change occurred too close to the date of publication of this

NPRM to allow their development. The construction procedures will be

promulgated in a subsequent NPRM.

The proposed rule:

Specifies what information must be included in the written

application grantees must submit to request to use grant funds to

purchase a facility, including what must be included in the cost

comparison which grantees must submit as part of their application;

Requires certain measures to be taken to protect the

Federal interest in real property purchased in whole or in part with

grant funds;

Requires that grantees which acquire facilities with grant

funds obtain specified types of insurance and maintain the property

acquired in a manner consistent with the purpose for which funds were

provided and in compliance with applicable building codes and

standards; and

Includes within the definition of ``facility'' modular

units, and requires grantees which seek funding to purchase a modular

unit to comply with these regulations, which include provisions

applicable only to the purchase of modular units.

III. Section by Section Discussion of the NPRM

Section 1309.2--Approval of Previously Purchased Facilities

In Sec. 1309.2, we propose to require Head Start grantees that want

to request retroactive approval for facilities purchased after December

31, 1986 and before October 7, 1992 (effective date of earlier Head

Start amendment to section 644(f) of the Head Start Act in Pub. L. 102-

401), to submit an application that conforms to the requirements of

part 1309 and the Head Start Act.

Section 1309.3--Definitions

Section 1309.2 provides definitions of the terms used in the

proposed rule. Key words and phrases defined include ``facility''

(defined as real property or a modular unit appropriate for use by a

grantee to carry out a Head Start program); ``purchase'' a facility

(defined to mean buy an existing facility, either outright or through a

mortgage); ``modular unit'' (defined as a prefabricated portable

structure moved to a site for use by a Head Start grantee to carry out

a Head Start program); and ``alternative facility'' (the facility with

which the cost comparison required as part of the application is made).

Section 1309.10--Application

This section specifies the information which grantees must provide

in applications to use grant funds to purchase facilities. In addition

to the statutory requirements (see section 644(f)(2) (A) through (D) of

the Head Start Act) we propose that the grantee provide information on

how the purchase of the facility will affect program operations in a

number of important areas, information on renovations necessary to make

the facility suitable for use as a Head Start program, and assurances

of compliance with several relevant Federal statutes. We propose these

additional requirements because the purchase of a facility will have

implications, both fiscal and programmatic, across a large number of

areas of concern to ACF and the grantee. The process of developing the

application will require the grantee to think about and address the

myriad consequences of such a significant undertaking, and the

information required by this section will give ACF the data needed to

thoroughly evaluate the application.

Section 1309.10 provides that grantees must state the intended uses

of the facility, provide assurance that the facility complies with

licensing and code requirements and the access requirements of the

Americans with Disabilities Act, if applicable, and section 504 of the

Rehabilitation Act of 1973, state what renovations must be made to the

building proposed to be purchased, and include statements on the effect

that purchase of a facility would have on non-Federal share

requirements, the 15 percent limitation on administrative costs, and

the grantee's ability to collaborate with other child care, social

services and health providers.

Section 1309.10(g), which requires grantees claiming that a lack of

alternative facilities would prevent operation of the program to state

how it determined that there is a lack of alternative facilities, is

necessary to implement section 644(f)(2)(C)(ii) of the Head Start Act.

A showing by the grantee that the lack of alternative facilities will

prevent operation of the program is one of the two statutory bases for

approving a grantee's application to purchase a facility. The statement

required by Sec. 1309.10(g) should be supported, whenever possible, by

a letter from a licensed real estate professional in the grantee's

service area.

The engineer who provides the certification required under

Sec. 1309.10(j) should refer to the Head Start Performance Standard on

facilities' safety (45 CFR 1304.2-3(a)), which provides minimum

physical requirements for Head Start facilities.

With respect to the limitation on administrative costs,

Sec. 1309.10(k) exempts one-time fees and expenses necessary to the

purchase, such as the down payment, renovation expenses, and attorney,

engineer, and appraiser fees, from the administrative cost limitation.

This puts into effect a 1992 amendment to the Head Start Act which

added the phrase ``exempt as provided in subsection (f)'' to the

beginning of section 644(b) of the Act. We interpret the addition of

this phrase as indicating Congress' desire that the administrative cost

limitation not operate to bar the purchase of facilities by grantees

which would otherwise qualify to use grant funds to purchase a facility

under section 644(f) of the Act. Expenses related to the facility which

arise after the purchase, such as mortgage payments and maintenance

costs, may be subject to the 15 percent limitation on administrative

costs found in the Act and implemented in 45 CFR part 1301. A

determination of whether these expenses are classifiable as

administration or program costs will depend on the facts of the

particular situation and the rules laid out in part 1301.

Section 1309.10(n) provides that applicants must include in their

application an assessment of the environmental impact of the proposed

acquisition on the human environment if it involves significant

renovation or a significant change in land use, including substantial

increases in traffic in the surrounding area due to the provision of

Head Start transportation services. ACF's view is that there are

incidental changes in land use which by their nature have no

environmental impact and applicants should not be required to provide

information in response to paragraph (n) in such situations. Applicants

with questions about whether a particular effect is significant enough

to trigger the requirement in this provision should consult ACF staff.

Section 1309.11--Cost Comparison

Section 1309.11 details what grantees must include in the cost

comparison part of the application. The cost comparison requires that

the grantee submit a detailed estimate of the cost of the proposed

facility and the cost of obtaining an alternative facility in the

grantee's service area. All costs of purchase, including any renovation

costs that would be necessary, must be identified, and one-time and

ongoing costs must be separately delineated.

The cost comparison will generally be made between the grantee's

current facility and the facility the grantee proposes to purchase. If,

however, the grantee has an existing facility but it is shown to the

satisfaction of the responsible HHS official that the facility is

inadequate to ensure the operation of a program in full compliance with

the Head Start Performance Standards (see 45 CFR part 1304 and related

guidance), then the cost of the proposed facility may be compared to

the cost of an available, appropriate facility of comparable size for

rent in the grantee's community. Without this provision grantees which

have the use of inadequate but inexpensive (or free) facilities would

never be able to show that they can achieve the required cost savings

by purchasing a facility. For example, a program may be housed in a

church basement for which the grantee pays little or no rent. The

program must take down and put away all of its equipment every Friday

and reassemble the equipment every Monday because the church uses the

same space for its own needs on the weekend. In addition, the basement

is poorly ventilated and too small for the program's needs. The

grantee's current space costs are so low, however, that it would not be

able to demonstrate the cost savings required by the statute if it were

required to compare its current rent to the cost of the facility it

proposes to purchase. In this case the grantee, upon showing to the

satisfaction of the responsible HHS official the inadequacy of its

current facility, may compare the cost of the proposed facility to the

cost of rental space in the community which would be suitable for use

as a Head Start facility.

In the cast of a request for approval of a previously purchased

facility, the grantee must compare the cost of the facility (including

any renovations made since the purchase) to the cost of rental of an

alternative facility.

If the grantee has no facility (for example, in the cast of a

grantee whose lease has expired) or if the grantee will operate its

current facility after it purchases the new facility, then the

comparison is between the proposed facility and an available,

appropriate facility of comparable size for rent in the grantee's

community. Substantiation of the availability and cost of appropriate

rental properties in the grantee's service area will normally require a

letter or other documentation from a local real estate professional.

For facilities other than modular units, the period of the cost

comparison is twenty years. We have chosen this period to insure

simplicity and consistency in the preparation and review of this very

important part of the application. In deciding on twenty years as the

period of comparison we have taken into consideration a number of

factors, realizing that the circumstances of every application will be

different. These factors include the expected useful life of the

facilities which will be purchased, the indeterminate nature of the

Head Start grant itself, and the period of the loan most grantees will

need to purchase a facility. The cost comparison should be based on

present conditions and be expressed in constant dollars, without taking

inflation into account.

The period of cost comparison for modular units is ten years. We

chose a shorter time period for modular units because the span of use

for such units is generally less than for a non-modular unit facility.

Section 1309.11(f) deals with situations in which the proposed

facility is to be used for purposes in addition to the operation of the

Head Start program. Shared ownership of facilities purchased with grant

funds is prohibited but a grantee may charge for the use of a facility

that is not needed for its operation of the Head Start program. Such

charge for use of the facility must conform with the Office of

Management and Budget Cost Principles.

Section 1309.20--Title

The requirement found in Sec. 1309.20 is derived from existing

regulations applicable to grantee purchases of real property. These are

found in 45 CFR 74.133 and 92.31. In jurisdictions in which title to

mortgaged property passes to the mortgage lender, the possession by the

grantee of equitable title satisfies this section.

Section 1309.21--Recording of Federal Interest and Other Protection of

Federal Interest

The requirements of 45 CFR 74.134 and 92.31 on use and disposition

of property, transfer of title, and determination of the Federal share

of property at disposition apply to grantees using Head Start funds to

purchase facilities. The provisions of this section supplement those

provisions.

The Federal government has an interest in property purchased with

Head Start grant funds. The purpose of the requirements of this

section, which include the requirement that grantees which purchase

real property with grant funds file a notice of Federal interest in

appropriate local records, is to safeguard the Federal interest in the

property in the event that the grantee seeks to sell, lease, or

encumber the property. The provisions of Sec. 1309.21(a), as a rule,

would not apply to modular units which are attached to land owned by

someone other than the grantee.

The provisions of Sec. 1309.21(e), on notification of a default on

the part of a grantee under a mortgage, covers both real property

mortgages an chattel mortgages that may be obtained for the purchase of

modular units. It sets forth provisions for protection of Federal

interests that the mortgage agreement and the security agreement,

whichever is applicable, must contain.

Section 1309.22--Insurance, Bonding and Maintenance

This section, like the previous section, has as its purpose

protection of the Federal interest in real property purchased in whole

or in part with grant funds. The requirement that grantees which

purchase real property obtain title and hazard insurance, and also

maintain the property in a manner consistent with the purposes for

which it was purchased, is reasonable and necessary to protect the

Federal interest.

Section 1309.30--Modular Units--General

Modular units are considered as facilities for the purpose of this

regulation, and the purchase of a modular unit is subject to all the

requirements of this Part. In several instances, however, the rules

which apply to the purchase of facilities generally would not be

appropriate to the purchase of modular units. Sections 1309.31,

1309.32, 1309.33, and 1309.34 contain provisions applicable to the

special circumstances of modular unit purchases.

Section 1309.31--Site Description

The requirements of this section are in addition to the

requirements for the site description information in Sec. 1309.10(b) of

this part. This section requires an application for the purchase of a

modular unit to state where the modular unit will be installed and

whether the land on which the unit will be placed must be purchased by

the grantee. A grantee proposing to purchase a modular unit may or may

not own land on which to install the unit. If the grantee does not own

the land, the application must state who owns the land, and whether an

easement, right-of-way or rental of land is necessary to provide access

to the modular unit.

Section 1309.32--Statement of Procurement Procedure

In the case of the proposed purchase of a modular unit the Regional

Office will not be able to rely on an appraisal of the property to

satisfy itself that the purchase price of the property is fair and

reasonable. This section requires a grantee proposing to purchase a

modular unit to include in its application a statement describing the

procurement procedures which will be used to purchase the modular unit,

including the specifications to be used in making the procurement and

assurance that the requirements in 45 CFR parts 74 and 92 have been

met. This information will be the basis for ACF's evaluation that the

purchase price of the modular unit is fair and reasonable.

Section 1309.33--Inspection

Modular unit installations, unlike conventional buildings, cannot

be adequately inspected before the purchase of the unit, because the

unit is not moved to the site and installed until after purchase.

Therefore, the pre-purchase inspection by a licensed engineer called

for in Sec. 1309.10(j) cannot apply to the purchase of a modular unit.

This section adapts the need for an inspection to the circumstances of

a modular unit purchase by requiring an engineer's inspection within 15

calendar days of the unit's installation and submission of the

engineer's inspection report to HHS within 30 days of the inspection.

Section 1309.34--Costs of Installation of Modular Unit

This section makes clear that all necessary and reasonable costs

incurred by the grantee in connection with the installation of a

modular unit are payable with grant funds.

Section 1309.40--Copies of Documents

The requirement of this section that certified copies of specified

legal documents related to the purchase of real property or the

discharge of any debt secured by the real property be submitted to ACF

is intended to provide the information necessary to maintain adequate

records of the real property purchased by Head Start grantees in which

the Federal government has an interest.

Section 1309.41--Record Retention

The requirement that records pertinent to the purchase and debt be

retained by the grantee for the period of its ownership plus three

years is based on 45 CFR parts 74 and 92.

Section 1309.42--Audit of Mortgage; Five Year Appraisal

This section includes provisions intended to provide information

which the Federal Government will need to keep current its records on

real property in which it has an interest.

Section 1309.43--Use of Grant Funds to Pay Fees

This section authorizes the use of grant funds to pay the

professional fees and related costs necessary to the purchase of real

property, with the prior, written approval of the responsible HHS

official.

Section 1309.44--Program Income

This section, which requires that program income derived from

facilities purchased with grant funds be deducted from the total

allowable costs of the budget period in which it was produced, is based

on 45 CFR 74.42(b) and (c) and 45 CFR 92.25(g).

Section 1309.45--Independent Analysis

This section proposes to allow the responsible HHS official the

option of obtaining an independent professional analysis of the cost

comparison submitted by a grantee pursuant to Sec. 1309.11 and the

statement under Sec. 1309.10(g) that a lack of facilities will prevent

operation of the program.

IV. Impact Analysis

Executive Order 12866

Executive Order 12866 requires that regulations be drafted to

ensure that they are consistent with the priorities and principles set

forth in the Executive Order. The Department has determined that this

rule is consistent with these priorities and principles. This Notice of

Proposed Rulemaking implements the statutory authority for Head Start

grantees to apply to use grant funds to purchase facilities. Congress

made no additional appropriation to fund this new authority, however,

and so any money spent toward the purchase of facilities for Head Start

programs is money that would have been spent otherwise by the program

or other programs from the same appropriation amount.

Regulatory Flexibility Act of 1980

The Regulatory Flexibility Act (5 U.S.C. CH. 6) requires the

Federal government to anticipate and reduce the impact of rules and

paperwork requirements on small businesses. For each rule with a

``significant economic impact on a substantial number of small

entities'' an analysis must be prepared describing the rule's impact on

small entities. Small entities are defined by the Act to include small

businesses, small non-profit organizations and small governmental

entities. While these regulations would affect small entities, they

would not affect a substantial number. For this reason, the Secretary

certifies that this rule will not have a significant impact on

substantial numbers of small entities.

Paperwork Reduction Act

Under the Paperwork Reduction Act of 1980, Public Law 96-511, all

Departments are required to submit to the Office of Management and

Budget (OMB) for review and approval any reporting or record-keeping

requirement inherent in a proposed or final rule. This NPRM contains

information collection and record-keeping requirements in

Secs. 1309.10, 1309.40 and 1309.41 which will be submitted to OMB for

review and approval in accordance with section 3504(h) of the Paperwork

Reduction Act.

Organizations and individuals desiring to submit comments on the

information collection and recordkeeping requirements should direct

them to the agency official designated for this purpose, whose name

appears in this preamble, and to the Office of Information and

Regulatory Affairs, OMB, New Executive Office Building (Room 3002),

Washington, DC 20503, Attention: Desk Officer ACF/HHS.

List of Subjects in 45 CFR Part 1309

Acquisition, Facilities purchase, Head start, Real property.

(Catalog of Federal Domestic Assistance Program Number 93.600,

Project Head Start)

Dated: May 10, 1994.

Mary Jo Bane,

Assistant Secretary for Children and Families.

Approved: August 19, 1994.

Donna E. Shalala,

Secretary.

For the reasons set forth in the Preamble, 45 CFR chapter XIII is

proposed to be amended by adding part 1309 as follows:

PART 1309--HEAD START FACILITIES PURCHASE

Subpart A--General

Sec.

1309.1 Purpose and application.

1309.2 Approval of previously purchased facilities.

1309.3 Definitions.

Subpart B--Application Procedures

1309.10 Application.

1309.11 Cost comparison.

Subpart C--Protection of Federal Interest

1309.20 Title.

1309.21 Recording of Federal interest and other protection of

Federal interest.

1309.22 Insurance, bonding, and maintenance.

Subpart D--Modular Units

1309.30 General.

1309.31 Site description.

1309.32 Statement of procurement procedure.

1309.33 Inspection.

1309.34 Costs of installation of modular unit.

Subpart E--Other Administrative Provisions

1309.40 Copies of documents.

1309.41 Record retention.

1309.42 Audit of mortgage; Five year appraisal.

1309.43 Use of grant funds to pay fees.

1309.44 Program income.

1309.45 Independent analysis.

Authority: 42 U.S.C. 9801 et seq.

Subpart A--General

Sec. 1309.1 Purpose and application.

This part prescribes regulations implementing section 644(f) of the

Head Start Act, 42 U.S.C. 9801 et seq., as it applies to grantees

operating Head Start programs under the Act. It prescribes the

procedures for applying for Head Start grant funds to purchase

facilities in which to operate Head Start programs, and the conditions

under which grant funds may be awarded to purchase facilities. It also

specifies the measures which must be taken to protect the Federal

interest in real property purchased with Head Start grant funds.

Sec. 1309.2 Approval of previously purchased facilities.

Head Start grantees which purchased facilities after December 31,

1986, and before October 7, 1992, may request retroactive approval of

the purchase by submitting an application which conforms to the

requirements of this part and the Act. Grant funds may be used only to

pay facility purchase costs incurred after the responsible HHS official

grants an application for approval of a previously purchased facility.

Sec. 1309.3 Definitions.

As used in this part,

ACF means the Administration for Children and Families in the

Department of Health and Human Services, and includes the Regional

Offices.

Acquired with grant funds means purchased in whole or in part with

Head Start grant funds and refers to payments made with grant funds in

satisfaction of a mortgage agreement (both principal and interest), as

a down payment, for professional fees, for closing costs, and for any

other costs associated with the purchase of the property that are usual

and customary for the locality.

Act means the Head Start Act, 42 U.S.C. section 9801, et seq.

ACYF means the Administration on Children, Youth and Families in

the Department of Health and Human Services.

Alternative facility means the facility with which the grantee must

make the cost comparison required in the application.

Facility means real property or a modular unit appropriate for use

by a Head Start grantee to carry out a Head Start program.

Grant funds means Federal financial assistance received by a

grantee from ACF to administer a Head Start program pursuant to the

Head Start Act.

Grantee means the local public or private non-profit agency which

has been designated as a Head Start agency under 42 U.S.C. 9836 and

which has been granted financial assistance by the responsible HHS

official to operate a Head Start program.

Modular Unit means a prefabricated portable structure moved to a

site for use by a Head Start grantee to carry out a Head Start program.

Purchase a facility means buy an existing facility, either outright

or through a mortgage.

Real Property means land, including land improvements, structures

and appurtenances thereto, excluding movable machinery and equipment.

Responsible HHS official means the official who is authorized to

make the grant of financial assistance to operate a Head Start program,

or such official's designee.

Useful life means the period during which a facility is capable of

being used as a Head Start facility.

Subpart B--Application Procedures

Sec. 1309.10 Application.

A grantee which proposes to use grant funds to acquire a facility

or requests approval of the previous purchase of a facility must submit

a written application to the application to the responsible HHS

official. The application must include the following information:

(a) A legal description of the site of the proposed or previously

purchased facility, and an explanation of the appropriateness of the

location to the grantee's service area, including a statement of the

effect that purchase of the facility has had and will have on the

transportation of children to the program, on the grantee's ability to

collaborate with other child care, social services and health

providers, and on all other program activities and services.

(b) Plans and specifications of the proposed or previously

purchased facility, including information on the size and type of

structure, the number and a description of the rooms, and the lot on

which the building is located (including the space available for a

playground and for parking).

(c) The cost comparison described in Sec. 1309.11.

(d) If renovations are necessary to make the proposed facility

suitable for use to carry out the Head Start program, a description of

the renovations, and the plans and specifications required by paragraph

(b) of this section for the facility as it will be after renovations

are complete.

(e) The intended uses of the proposed or previously purchased

facility, including information demonstrating that the facility will be

used principally as a Head Start center, or a direct support facility

for a Head Start program. (A Head Start center, or a direct support

facility for a Head Start program means a facility used for direct Head

Start services to children and their families, or administrative or

other activities necessary to the conduct of the Head Start program.)

If the facility is to be used for purposes other than the operation of

the Head Start program, the grantee must state what portion of the

facility is to be used for such other purposes.

(f) Assurance that the facility complies (or will comply after

completion of the renovations described in paragraph (d) of this

section) with local licensing and code requirements, the access

requirements of the Americans with Disabilities Act (ADA), if

applicable, and section 504 of the Rehabilitation Act of 1973. The

grantee also will assure that it has met the requirements of the Flood

Disaster Protection Act of 1973, if applicable.

(g) If the grantee is claiming that the lack of alternative

facilities will prevent or would have prevented operation of the

program, a statement of how it was determined that there is or was a

lack of alternative facilities. If a grantee requesting approval of the

previous purchase of a facility is unable to provide such a statement

based on circumstances which existed at the time of the purchase, the

grantee may use present conditions as a basis for making the

determination.

(h) The terms of any proposed or existing loan(s) related to the

purchase of the facility and the repayment plans.

(i) A statement of the effect that the purchase of the facility or

the approval of a previous purchase of a facility would have on the

grantee's meeting of the non-Federal share requirement of section

640(b) of the Head Start Act, including whether the grantee is seeking

a waiver of its non-Federal share obligation under that section of the

Act.

(j) Certification by a licensed engineer that the building is

structurally sound and safe for use as a Head Start facility. If

renovations are necessary to make the facility suitable for use to

carry out a Head Start program, the application must include a

certification by a licensed engineer as to the cost and technical

appropriateness of the proposed renovation.

(k) A statement of the effect that the purchase of a facility or

the approval of a purchase of a facility would have on the grantee's

ability to meet the limitation on development and administrative costs

of section 644(b) of the Head Start Act. One-time fees and expenses

necessary to the purchase, such as the down payment, the cost of

necessary renovation, and fees paid to attorneys, engineers, and

appraisers, are not subject to the limitation on administrative costs.

(l) A proposed schedule for acquisition, renovation and occupancy

of the facility.

(m) Reasonable assurances that the applicant will obtain or has

obtained, in the case of an application for the approval of a previous

purchase of a facility, a fee simple or such other estate or interest

in the site sufficient to assure undisturbed use and possession for the

purpose of operating the Head Start program for the useful life of the

facility. If the grantee proposes to purchase or has previously

purchased a facility without also purchasing the land on which the

facility is situated, the application must describe the easement, right

of way or land rental it will obtain or has obtained to allow it

sufficient access to the facility.

(n) An assessment of the impact of the proposed acquisition on the

human environment if it involves significant renovation or a

significant change in land use, including substantial increases in

traffic in the surrounding area due to the provision of Head Start

transportation services, pursuant to section 102(2)(C) of the National

Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C) and its

implementing regulations (40 CFR parts 1500-1508), and such information

as may be necessary to comply with the National Historic Preservation

Act of 1966 (16 U.S.C. 470f).

(o) Assurance that the grantee will comply with the requirements of

the Uniform Relocation Assistance and Real Property Acquisition

Policies Act of 1970, as amended (42 U.S.C. 4601 et seq. and 45 CFR

part 15), and information about the costs that may be incurred due to

compliance with this Act.

(p) A statement of the share of the cost of purchase that will be

paid with grant funds.

(q) For a grantee seeking approval of a previous purchase, a

statement of the extent to which it has attempted to comply and will be

able to comply with the provisions of Sec. 1309.21(e) of this part.

Sec. 1309.11 Cost comparison.

(a) A grantee proposing to purchase with grant funds or to receive

approval for a previous purchase of a facility must submit a detailed

estimate of the cost of the proposed facility and any necessary

renovations, or the cost of the previously purchased facility and any

necessary renovations, and must compare the cost of purchasing the

proposed facility or the cost of the previously purchased facility to

the cost of rental of an alternative facility.

(b) All costs of purchase and ownership must be identified,

including, but not limited to, professional fees, renovation costs,

moving expenses, additional transportation costs, maintenance, taxes,

insurance, and easements, rights of way or land rentals. An independent

appraisal of the current value of the facility proposed to be purchased

or previously purchased, made by a professional appraiser, must be

included.

(c) The comparison described in paragraph (a) of this section must

compare the cost of the proposed facility to the cost of the facility

currently used by the grantee (if one exists), except where it is shown

to the satisfaction of the responsible HHS official that the grantee's

existing facility is inadequate. If the grantee's current facility is

deemed to have been inadequate by the responsible HHS official, or if

the grantee has no current facility, or if the grantee intends to

continue to use its current facility after it purchases the new

facility, the alternative facility shall be a facility (or facilities)

of comparable size, suitable for use as a Head Start facility (or which

can be made suitable through renovation, the cost of which shall be

included in the cost comparison), available for rent in the grantee's

service area. In the case of an application for approval of the

previous purchase of a facility, the cost of the present facility must

be compared to the cost of the facility used by the grantee before

purchase of its current facility. If the facility used by the grantee

before the purchase of its present facility was deemed inadequate by

the responsible HHS official, or if the grantee had no previous

facility, of if the grantee continued to use its previous facility

after it purchased the current facility, the alternative facility shall

be an available, appropriate facility (or facilities) of comparable

size that was available for rent in the grantee's service area at the

time of its purchase of the current facility.

(d) The grantee must separately delineate the following expenses in

the application:

(1) One-time costs, including, but not limited to, the down

payment, professional fees, moving expenses, the cost of site

preparation and installation of a modular unit, and the costs of

necessary renovations; and

(2) Ongoing costs, including, but not limited to, mortgage

payments, insurance premiums, maintenance costs, and property taxes. If

the grantee is exempt from the payment of property taxes, this fact

must be stated.

(e) For proposed purchases and for approvals of previously

purchased facilities the period of the comparison is twenty years

except that for the purchase of a modular unit the period of comparison

is ten years. For a proposed purchase the period of comparison begins

on the date on which the proposal is made; for approvals of previous

purchases the period of comparison begins on the date the purchase of

the facility took place.

(f) If the facility is to be used for purposes in addition to the

operation of the Head Start program, charges for use of the part of the

facility used for such other purposes must be made by the grantee, in

accordance with the applicable Office of Management and Budget cost

principles.

Subpart C--Protection of Federal Interest

Sec. 1309.20 Title.

Title to facilities acquired with grant funds vests with the

grantee upon acquisition, subject to the provisions of this part.

Sec. 1309.21 Recording of Federal interest and other protection of

Federal interest.

(a) Immediately upon purchasing a facility with grant funds or

after receiving approval of a previous facility purchase, the grantee

shall record a Notice of Federal Interest in the appropriate official

records for the jurisdiction in which the facility is located. The

Notice shall include the following information:

(1) The date of the award of grant funds for the purchase of the

property to be used as a Head Start facility, and the address and legal

description of the property to be purchased;

(2) That the grant incorporated conditions which include

restriction on the use of the property and provide for a Federal

interest in the property;

(3) That the property may not be used for any purpose inconsistent

with that authorized by the Head Start Act and applicable regulations;

(4) That the property may not be mortgaged or used as collateral,

or sold otherwise transferred to another party, without the written

permission of the Secretary, DHHS (or employee who has the authority to

give this permission on behalf of DHHS);

(5) That these grant conditions and requirements cannot be altered

or nullified through a transfer of ownership; and

(6) The name (including signature) and title of the person who

completed the Notice for the grantee agency, and the date of the

Notice.

(b) Facilities acquired with grant funds may not be sold, leased,

conveyed, transferred, assigned, mortgaged or in any other manner

encumbered by the grantee except as expressly authorized in writing by

the responsible HHS official.

(c) Use of the facility during its useful life for other than the

purpose for which the facility was funded, without the express written

approval of the responsible HHS official, is prohibited.

(d) Modular units which are purchased with grant funds and which

are not permanently affixed to land, or which are affixed to land which

is not owned by the grantee, must have posted in a conspicuous place

the following notice: ``On (date), the Department of Health and Human

Services (DHHS) awarded (grant number) to (Name of grantee). The grant

provided Federal funds for conduct of a Head Start program, including

purchase of this modular unit. The grant incorporated conditions which

included restrictions on the use and disposition of this property, and

provided for a continuing Federal interest in the property.

Specifically, the property may not be used for any purpose other than

the purpose for which the facility was funded, without the express

written approval of the responsible DHHS official, or sold or

transferred to another party without the written permission of the

Secretary, DHHS (or employee who has the authority to give this

permission on behalf of DHHS). These conditions are in accordance with

the statutory provisions set forth in 42 United States Code, section

9839; the regulatory provisions set forth in 45 CFR, part 1309, 45 CFR

part 74 and 45 CFR part 92; and Administration for Children and

Families grants policy.''

(e) The grantee must provide the responsible HHS official with both

telephonic and written notification of a default of any description on

the part of the grantee under a real property or chattel mortgage. The

mortgage agreement or security agreement in the case of a modular unit

which is proposed to be purchased under a chattel mortgage, shall

specifically allow in the case of default that ACF or its designee may

assume the role of mortgagor or debtor and continue to make payments.

The mortgage agreement or security agreement shall further provide

that, in the case HHS (or its designee) chooses not to assume the role

of mortgagor or debtor in the case of default, the mortgagee or

creditor shall pay ACF an amount equal to the share of the sales

proceeds otherwise due the grantee (mortgagor or debtor) times the

Federal share of the property. Additionally, the agreement shall

provide that the mortgagee or creditor must notify ACF at least 30 days

prior to initiating foreclosure action. Any ACF assignment of the

facility and mortgage responsibilities to any party, other than ACF,

will be subject to prior approval of the mortgagee or creditor. A

grantee seeking approval of the use of grant funds to purchase a

previously acquired facility must attempt to comply, to the greatest

extent possible, with the requirements of this paragraph.

(f) Grantees must meet all of the requirements in 45 CFR parts 74

and 92 pertaining to the purchase and disposition of real property, or

the use and disposal of equipment, as appropriate.

Sec. 1309.22 Insurance, bonding, and maintenance.

(a) The grantee shall obtain the following forms of insurance at

the time of acquiring a facility or receiving approval for the previous

purchase of a facility:

(1) A title insurance policy which insures the fee interest in the

facility for an amount not less than the full appraised value as

approved by ACF, which contains an endorsement identifying ACF as a

loss payee that will reimburse ACF is the title fails; and

(2) An insurance policy which insures from risk of partial and

total physical destruction the full appraised value as approved by ACF.

The insurance policy is to be maintained for the period of time the

facility is owned by the grantee.

(b) The grantee shall submit copies of such insurance policies to

ACF within five days of acquiring the facility or receiving approval

for the previous purchase of a facility. If the grantee has not

received the policies in time to submit copies within this period, it

shall submit evidence that it has obtained the appropriate insurance

policies within five days of acquiring the facility or receiving

approval for the previous purchase of a facility, and it shall submit

copies of the policies within five days of its receipt of them.

(c) The grantee must maintain facilities acquired with grant funds

in a manner consistent with the purposes for which the funds were

provided and in compliance with State and local government property

standards and building codes for the useful life of the facility.

Subpart D--Modular Units

Sec. 1309.30 General.

In addition to the special requirements of Secs. 1309.31-1309.34 of

this part, the proposed purchase or request for approval of a previous

purchase of a modular unit is subject to all of the requirements of

this part with the following exceptions:

(a) Section 1309.10(j) of this part, regarding certification by a

licensed engineer, does not apply to the proposed purchase or requests

for approval of a previous purchase of modular units; and

(b) Section 1309.21(a) of this part does not apply to the proposal

or requests for approval of a previous purchase of modular units if the

land on which the unit is installed is not owned by the grantee.

Sec. 1309.31 Site description.

An application for the purchase or approval of a previous purchase

of a modular unit must state specifically where the modular unit will

be installed, and whether the land on which the modular unit will be

installed must be purchased by the grantee. If the grantee does not

propose to purchase land on which to install the modular unit or if the

previously purchased modular unit is located on land not owned by the

grantee, the application must state who owns the land on which the

modular unit is or will be situated and describe the easement, right-

of-way or land rental it will obtain or has obtained to allow it

sufficient access to the modular unit.

Sec. 1309.32 Statement of procurement procedure.

(a) An application for the purchase of a modular unit must include

a statement describing the procedures which will be used by the grantee

to purchase the modular unit.

(b) This statement must include a copy of the specifications for

the unit which is proposed to be purchased and assurance that the

grantee will comply with procurement procedures in 45 CFR parts 74 and

92, including assurance that all transactions will be conducted in a

manner to provide, to the maximum extent practical, open and free

competition. A grantee requesting approval of a previous purchase of a

modular unit also must include a copy of the specifications for its

unit.

Sec. 1309.33 Inspection.

Instead of the certification by a licensed engineer required by

Sec. 1309.10(j), a grantee which purchases a modular unit with grant

funds or receives approval of a previous purchase must have the modular

unit inspected by a licensed engineer within 15 calendar days of its

installation or approval of a previous purchase, and must submit to the

responsible HHS official the engineer's inspection report within 30

calendar days of the inspection.

Sec. 1309.34 Costs of installation of modular unit.

Consistent with the cost principles referred to in 45 CFR part 74

and 45 CFR part 92, all reasonable costs necessary to the installation

of a modular unit the purchase of which has been approved by the

responsible HHS official are payable with grant funds. Such costs

include, but are not limited to, payments for public utility hook-ups,

site surveys and soil investigations.

Subpart E--Other Administrative Provisions

Sec. 1309.40 Copies of documents.

Certified copies of the deed, loan instrument, mortgage, and any

other legal documents related to the purchase of the facility or to the

discharge of any debt secured by the facility must be submitted to the

responsible HHS official within ten days of their execution.

Sec. 1309.41 Record retention.

All records pertinent to the purchase of a facility must be

retained by the grantee for a period equal to the period of the

grantee's ownership of the facility plus three years.

Sec. 1309.42 Audit of mortgage; Five year appraisal.

Any audit of a grantee which has purchased a facility with grant

funds shall include an audit of any mortgage or encumbrance on the

facility. The audit must be supplemented by an independent appraisal of

the value of the facility at least once every five years. Reasonable

and necessary fees for this audit and appraisal are payable with grant

funds.

Sec. 1309.43 Use of grant funds to pay fees.

Consistent with the cost principles referred to in 45 CFR part 74

and 45 CFR part 92, reasonable fees and costs associated with and

necessary to the purchase of a facility (including reasonable and

necessary fees and costs incurred prior to the submission of an

application under Sec. 1309.10 of this part or prior to the purchase of

the facility) are payable with grant funds, but require prior, written

approval of the responsible HHS official.

Sec. 1309.44 Program income.

Income from the sale of equipment or real property purchased in

whole or in part with grant funds is subject to the provisions of 45

CFR parts 74 and 92 governing such income. All other program income

derived from a facility purchased with grant funds (including rent

referred to in Sec. 1309.11(f) of this part) must be deducted from the

total allowable costs of the budget period in which the income was

produced.

Sec. 1309.45 Independent analysis.

(a) The responsible HHS official may obtain an independent analysis

of the cost comparison submitted by the grantee pursuant to

Sec. 1309.11 of this part, or the statement under Sec. 1309.10(g) of

this part, or both, if, in the judgment of the official, such an

analysis is necessary to adequately review a proposal submitted under

this Part.

(b) The analysis shall be made by a qualified real estate

professional in the community in which the property, proposed to be

purchased is situated, and shall be in writing.

(c) Section 1309.43 of this part applies to payment of the cost of

the analysis.

[FR Doc. 94-29555 Filed 11-30-94; 8:45 am]

BILLING CODE 4184-01-M