OMB tells states how to recoup costs of administering stimulus

The Office of Management and Budget on Monday outlined the process by which states can get reimbursed for managing federal Recovery Act grants, addressing concerns raised by some state officials in recent weeks.

OMB Circular A-87, "Cost Principles for State, Local and Indian Tribal Governments," allows state grantees to recoup administrative expenses through the State-wide Cost Allocation Plan, the administration said in a memorandum. SWCAP requests for reimbursements are sent to the Health and Human Services Department annually for review and approval.

"A majority of Recovery Act dollars are disbursed by the states, who thus play a central role in the prudent, timely and transparent expenditure of Recovery funds," wrote OMB Director Peter R. Orszag. "It is therefore critical that state governments quickly and effectively build the necessary administrative capacities to meet their reporting and other responsibilities under the act.

Unlike other grant recipients such as colleges or universities, which generally recover administrative costs up-front, states often are reimbursed for such expenses after the fact, Orszag said.

"This process can have the unintended consequence of preventing state governments from obtaining the necessary resources to build quickly administrative capacities to meet the important new oversight, reporting and audit requirements of the Recovery Act," he said.

The memo explained that SWCAP costs can be submitted as either "centralized services," which refer to budgeted or estimated costs, or direct "billed services."

In both cases, the costs should not exceed 0.5 percent of the total Recovery Act funds received by the state, the guidance stated.

"Both options … provide flexibility for states to recoup the administrative costs related to Recovery Act activities more quickly than would be permitted under the traditional SWCAP process," the memo said.

Meanwhile, a bill introduced in April by the leaders of the House Oversight and Government Reform Committee would allow state and local governments to set aside 0.5 percent of their Recovery Act dollars for data collection, audits, planning, and management and oversight of contracts and grants. The committee marked up the bill (H.R. 2182) in early May.