GM 16-50

HHS Proposed Rule on Grants Would Affect ISDEAA; Comments Requested by August 12

On July 13, 2016, the Department of Health and Human Services (HHS) published a notice of proposed rulemaking to, among other things, make the HHS regulations governing audits and cost principles for HHS grants at 45 C.F.R. Part 75, Subparts E and F, apply to Indian Self-Determination and Education Act (ISDEAA) contracts and compacts. In addition, the proposed rulemaking would add language to Part 75 “clarifying” the application of § 450j-1(f) of the ISDEAA to cost disallowances. This proposed rulemaking would add new regulatory requirements to ISDEAA contracting and compacting contrary to the ISDEAA and its implementing regulations. Comments on the proposed rule are due by 5:00pm on August 12, 2016.

As background we note that the Office of Management and Budget (OMB) adopted Uniform Administrative Requirements, Cost Principles, and Audit Requirements to supersede and streamline the OMB Circulars. These OMB Uniform Requirements were published as “final guidance” to federal agencies on December 26, 2013 (78 Federal Register 78590). This OMB “guidance” is not a regulation. However, federal agencies may adopt the OMB guidance as agency regulations with modifications to meet specific agency needs. The Secretary of HHS adopted the OMB Uniform Requirements, with specific HHS modifications, as a regulation governing HHS grant awards codified at 45 C.F.R. Part 75. For additional information on the Uniform Administrative Requirements, please see our General Memoranda 15-085 of December 11, 2015 and 14-004 of January 13, 2014.

The proposed rulemaking would amend § 75.102 of Part 75 to make Subparts E and F of Part 75 governing audits and cost principles applicable to ISDEAA contracts, compacts, and funding agreements, including § 75.505 Sanctions enforceable through remedies in § 75.371. Section 75.102 would also be amended to clarify what “cost disallowances” are subject to the one year restriction on remedies in § 450j-1(f) of the ISDEAA.

Section 107 of the ISDEAA, 25 U.S.C. § 450k, provides that the Secretaries of HHS and Interior may not promulgate any regulation relating to self-determination contracts except as authorized in that section. Regulations must be negotiated with tribes and tribal organizations under negotiated rulemaking procedures and adopted as a single set of regulations in title 25 of the Code of Federal Regulations. The Secretaries of HHS and Interior adopted joint regulations governing self-determination contracting codified at 25 C.F.R. Part 900.

This joint regulation at § 900.40(b) provides for evaluation of tribal management systems by an independent auditor through the single agency audit report that is required by § 450c(f) of the ISDEAA and OMB Circular A-128. Section 900.45(e) provides that the tribal financial system shall be sufficient to determine the reasonableness, allowability, and allocability of self-determination contract costs based upon the terms of the self-determination contract and applicable OMB Circulars. However, § 900.37 provides that: “The only provisions of OMB Circulars and the only provisions of the ‘common rule’ that apply to self-determination contracts are the provisions adopted in these regulations, those expressly required or codified in the Act, and those negotiated and agreed to in a self-determination contract.”

With respect to self-governance, § 506(c) of the ISDEAA, 25 U.S.C. § 458aaa-5(c), governs audits and cost principles applicable to self-governance compacts and funding agreements. Subsection 506(c)(1) requires single agency audit reports. Subsection 506(c)(2) requires an Indian tribe to apply cost principles under the applicable Office of Management and Budget circular, except as modified by section 450j-1, other provisions of law, or by any exemptions granted by the Office of Management and Budget. However, “No other audit or accounting standards shall be required by the Secretary.”

Section 517 of the ISDEAA, 25 U.S.C. § 458aaa-16, authorizes the Secretary to issue regulations under negotiated rulemaking procedures but only within a certain time period. The Secretary (HHS) promulgated regulations codified at 42 C.F.R. Part 137 prior to the expiration of the Secretary’s rulemaking authority. Sections 137.165 – 137.173 of those regulations provide for single agency audits and application of OMB Circulars consistent with § 506(c). Proposing to make ISDEAA contracts, compacts, and funding agreements subject to the HHS grant regulations, and defining the scope of § 450j-1(f) by adding a provision to the HHS grant regulations exceeds the Secretary’s rulemaking authority that is restricted by the ISDEAA.

Publishing this proposed rulemaking affecting tribes and tribal organizations without adequate consultation violates the President’s Executive Order and Department policies requiring consultation. Executive Order 13175 requires federal agencies to consult with tribal officials in the development of “Federal policies that have tribal implications.” The term “policies that have tribal implications” includes regulations that have a substantial effect on one or more Indian tribes. The Executive Order requires consultation prior to publishing a proposed rule affecting tribes and tribal organizations. Consultation cannot be equated with the opportunity to comment afforded to the general public by the Administrative Procedure Act at 5 U.S.C. § 553.

We note that the proposed rulemaking also includes other proposed changes to the HHS’s grant rules that do not target ISDEAA contracts, compacts, and funding agreements. These are:

• Clarified language regarding the applicability of certain payment provisions to states under 45 CFR Part 75, such as the necessity that states expend refunds and rebates before drawing down additional grant funds.

• Codification of the permissive authority of HHS awarding agencies to require public access to manuscripts, publications, and data produced under an award, consistent with applicable law.

• Codification of HHS’s policy that any payments or assessments imposed under 26 U.S.C. 5000A(b) as a result of any failure to maintain minimum essential coverage as required by 26 U.S.C. 5000A(a) are not allowable costs under any grant. HHS also proposes to codify this provision in the context of payments for failure to offer health coverage to employees and seeks comments from the public on this issue.

• Codification of HHS’s policy that training grants be restricted to a maximum eight percent indirect cost rate. The proposed rule extends this limitation to foreign organizations and foreign public entities.

• Codification of HHS’s non-discrimination policy in the service grants context.

• Codification of HHS’s interpretation of the Supreme Court decisions in U.S. v. Windsor, 133 S. Ct. 2675 (2013) and Obergefell v. Hodges, 135 S. Ct. 2584 (2015), which ensures that same-sex spouses, marriages, and households are treated the same as their opposite-sex equivalents in terms of determining beneficiary eligibility or participation in grant-related activities.

The July 13 FEDERAL REGISTER notice is available here:

Comments on the proposed rule should refer to file code 0991-AC06, and may be submitted electronically at . Please let us know if we may be of assistance in preparing comments prior to the August 12 deadline for HHS’s proposed rulemaking, particularly as it would affect ISDEAA agreements.