Flood Control Works – 705(c)

Appeal Brief

Summary Paragraph

Between April 17 and April 30, 2016, flooding caused widespread damage throughout Harris County (Applicant).  As a result, FEMA obligated Project Worksheet (PW) 197, to provide funding for damages at the Agricultural Extension Building (Facility).  FEMA disbursed funding for the project but the Grantee never drew down the funds.  Subsequently, FEMA discovered the Facility was located on land leased from the United States Army Corps of Engineers (USACE).  After review of the lease, FEMA issued a determination memorandum finding that all damage caused by the flooding was ineligible for funding.  FEMA found the damage ineligible because the lease placed the responsibility for any damage caused by flooding on the Applicant and held the Federal Government not responsible.  FEMA deobligated all previously awarded costs, reducing PW 197 to zero dollars.  On appeal, FEMA issued a Final Request for Information (RFI) stating that the Applicant had not demonstrated that the Facility was eligible for funding in light of the lease with USACE.  The Final RFI also stated that the Applicant had not shown that the criteria set forth in Section 705(c) of the Stafford Act had been satisfied, which would have barred FEMA from recovering the funds.  The Applicant responded with the same arguments made on first appeal without addressing Section 705(c).  The FEMA Region VI RA issued a first appeal decision denying the appeal.  The RA found that the USACE lease language clearly holds the Applicant responsible for any damage that occurs as a result of flooding – regardless of the cause.  Moreover, FEMA was not barred from recovering costs under Section 705(c) because the Grantee never drew down any of the disbursed funding.  In its second appeal, the Applicant argues that the situation in which it incurred damage differs from prior appeals issued by FEMA under similar cirmumstances.  Secondly, the Applicant claims that FEMA is stretching Section 705(c) to improperly recover funds.  Upon review, FEMA finds that the work required as a result of the flood damage fell is not eligible for Public Assistance funding and Section 705(c) does not bar FEMA from recovering funds.

Authorities and Second Appeals

• Stafford Act §§ 406(a)(1)(A), 705(c).
• City of San Bruno v. FEMA, 181 F. Supp. 1010, 1015-16 (N.D. Cal. 2001).
• City of Clarksville, FEMA-1909-DR-TN PWs 2826 and 5011 (Dec. 18, 2015); White House Util. Dist., FEMA-1909-DR-TN (Aug. 15, 2013); City of Forsyth¸ FEMA-1412-DR-MO (June 20, 2003); San Bernardino Cty., FEMA-1203-DR-CA (Apr. 20, 2001).
• Recovery Policy FP 205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures.

Headnotes

• The Stafford Act grants FEMA discretionary authority to fund disaster related projects.
  • Per prior second appeal decisions, FEMA does not obligate funding for projects which were located on USACE property where the Applicant had notice of the flooding risk, and then assumed that risk.
• According to FEMA Recovery Policy FP 205-081-2, FEMA is only barred from recovering obligated funds under Section 705(c) when all three elements of the Section’s test are met.
  • FEMA obligated funds to the Grantee but the Grantee never drew down on those funds, thus, the first element of the test was not satisfied and FEMA was not barred from recovering the funds.

Conclusion  (Appeal decision issued 5/31/2019)

The language in the lease provided the Applicant notice that the Facility was at risk for flooding and that the Federal Government would not be responsible for any damages that may occur as a result. With such notice, the Applicant assumed the risk and thus, FEMA will not provide funding for the Facility. Additionally, because the Grantee never drew down the funds disbursed by FEMA, the first element of the Section 705(c) test was not met, and FEMA was not barred from deobligating and recovering the funds. Therefore, the appeal is denied.

Appeal Letter

Appeal Analysis

Background

Between April 17 and April 30, 2016, severe storms and flooding caused widespread damage throughout several counties in Texas, including Harris County (Applicant).  As a result of the flooding, FEMA obligated Project Worksheet (197), approving $131,187.62 in total project costs to repair an Agricultural Extension Building (Facility).[1]  FEMA subsequently disbursed funds to the Texas Department of Public Safety (Grantee).  However, before the Grantee drew down the funds, FEMA discovered that the Facility in question was located on property owned by the United States Army Corps of Engineers (USACE) and leased to the Applicant.  The governing lease stated that, “the United States shall not be responsible for the damage to property . . . [a]rising from or incident to the flooding of said premises by the Government or flooding from any other cause.”[2]  Based on this language, FEMA issued a determination memorandum finding that all work was ineligible for Public Assistance (PA) funding and subsequently deobligated all previously awarded funding, reducing obligated costs to zero dollars.

First Appeal

The Applicant filed its first appeal on April 6, 2018, seeking $631,187.62 in costs deemed ineligible.  The Applicant argued first that FEMA was not in existence in 1965, when the original lease between the Applicant and USACE went into effect.  Therefore, the Applicant contends that the inclusion of the “U.S. Government” in the lease language did not include FEMA and as such it would have been impossible to contemplate the application of the lease language with respect to PA funding.  The Applicant claims that, while FEMA previously decided not to provide PA funding in situations where language in a lease stipulates that the Applicant is the party responsible for subsequent damage, this situation is different.  Second, the Applicant maintains that FEMA’s policy would act retroactively on a contractual term that the parties could not have contemplated at the time of signing the lease and as such, FEMA’s policy changes the consequences of a past action by applying new law to an old contract.  The Grantee forwarded the appeal to FEMA on April 6, 2018, reiterating the same arguments made by the Applicant.

On July 30, 2018, FEMA issued a Final Request for Information (RFI), stating that the administrative record was insufficient to support the appeal.  The Final RFI noted specifically that the Applicant had not demonstrated that the Facility in question was eligible for PA funding in light of the language included in the lease with USACE.  The RFI also stated that the Applicant had not provided documentation to show the criteria set forth in Section 705(c) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) had been satisfied. The Applicant replied to the Final RFI on August 31, 2018, restating the same arguments made in the first appeal, but did not address the Section 705(c) issue.

The FEMA Region VI Regional Administrator (RA) issued the first appeal decision on December 11, 2018, denying the appeal.  The RA found that after reviewing the USACE lease, the language clearly holds the Applicant responsible for any damage that occurs as a result of flooding, regardless of the cause.  Further, the RA found that this language indicates that there is a substantial risk of flooding and indicates that the legally responsible party (the Applicant) was aware of, and accepted, the risk of such an event.  Therefore, the RA found that in light of FEMA’s discretionary authority to award or deny PA funding, the work was ineligible.

Additionally, the RA found that Section 705(c) of the Stafford Act did not bar FEMA from recovering funding because not all three of the Section’s criteria were met.  The RA found that a payment had not occurred because the Grantee never drew down the funding, therefore the first criterion was not satisfied.  Thus, FEMA was not barred from deobligating the previously awarded costs.

Second Appeal

On February 15, 2019, the Applicant filed its second appeal.  The Applicant contends that the situation in which it incurred damage differs from prior instances where FEMA issued second appeals on the same issue.  The Applicant responds to several second appeal decisions referenced in the first appeal decision, arguing that, based on different variables present in its situation, FEMA should approve its requested costs and grant the appeal.[3]  Secondly, the Applicant claims that FEMA is stretching the interpretation of Section 705(c) to inappropriately recover the funds it disbursed.  The argument follows that FEMA paid the money to the Grantee via electronic transfer to Smartlink and therefore approved payment pursuant to an approved agreement.  It argues that FEMA is using a previously unknown policy position to take back funds which FEMA previously deemed eligible and disbursed, funds which had simply not yet been drawn down.  The Grantee forwarded the appeal on February 26, 2019, asking FEMA to approve all costs in the amount of $631,187.62.

Discussion

USACE Lease

The Stafford Act authorizes FEMA to provide federal assistance to a local government for the repair, restoration, reconstruction, or replacement of a facility damaged by a declared disaster.[4]  While FEMA is authorized to provide reimbursement to eligible applicants, the Stafford Act does not require FEMA to provide PA reimbursement; meaning FEMA’s authority is discretionary.[5]  Therefore, FEMA has the discretion to withhold PA for facilities which are understood by applicants to be subject to intentional or natural flooding.[6]  

In the past, FEMA has denied PA funding to restore facilities located on land owned by USACE, in particular when the instrument leasing USACE land to a different party includes provisions that identify risks to the facility and hold the Federal Government harmless.[7]  On their face, hold harmless clauses do not apply to federal grant assistance programs such as the FEMA PA program.[8]  However, FEMA considers hold harmless provisions when evaluating the inherent level of risk and as evidence of the state or local government’s awareness and acceptance of risk.[9]

FEMA reviews each project on a case-by-case basis and determines eligibility using the terms of the legal instrument.[10]  If the governing legal instrument includes language that clearly holds the applicant responsible for any flood damage that occurs to its facilities due to USACE actions or inactions, and/or any other causes specified in the legal instrument, FEMA will deny PA funding for the project because inclusion of such language indicates that the risk of damage is great, and that the owner of the facility is aware of and has assumed it, should damage occur.[11] 

Here, the second appeal review centers on section 10 of the lease between the USACE and the Applicant.  The lease reads:

The United States shall not be responsible for damages to property or injuries to persons which may arise from or be incident to the exercise of the privileges herein granted, or for damages to the property of the lease, or for damages to the property or injuries to the person of the lessee’s officers, agents, servants, or employees or others who may be on said premises at their invitation or the invitation of any one of them, arising from or incident to the flooding of said premises by the Government or flooding from any other cause, or arising from or incident to any other governmental activities on the said premises.[12]

This language plainly states that the United States “shall not be responsible” for any damages that arise due to flooding whether a result of actions by the Federal Government or because of any other cause.  

In its second appeal, the Applicant cites to several prior second appeals that FEMA has issued and argues that there are meaningful distinctions between those cases and this one.  First, the Applicant cites White House Utility District,  and claims that the language in the instrument between that applicant and the USACE held the Federal Government harmless for all flooding damage in a way that does not occur in this case.  However, upon analysis FEMA finds that the language in the Applicant’s lease produces the same outcome as that in White House Utility District.  The Applicant’s lease clearly states that the Federal Government is not responsible for any damage that may occur as a result of flooding; thus, per its discretionary authority, FEMA finds that this served as adequate notice and that the Applicant assumed the risk. 

Second, the Applicant cites to City of Forsyth.  Here the Applicant again claims that the language included in the lease agreement between the City of Forsyth and USACE is more expansive than that included in this case.  FEMA, using its discretionary authority, interprets the language in question here as providing the Applicant the same type of notice that the City of Forsyth received.  With this notice, the Applicants in both situations were aware of the risk that flooding could occur, and by signing the lease, assumed that risk.

Finally, the Applicant argues that the facts in this case closely mirror those in City of Clarksville.[13]  However, in City of Clarksville, the language in question specifically held the Federal Government not responsible only for damage caused “by any action of the United States.”  The damage in that situation arose from natural flooding as opposed to any action of USACE.  Therefore, FEMA provided PA funding because the language did not relieve the Federal Government of responsibility for damage caused by natural flooding.  This is a meaningful distinction as the lease in question here clearly states that the Federal Government is not responsible for any damage caused “by the government or flooding from any other cause.”  

After consideration and evaluation of the Applicant’s lease, FEMA finds that the Applicant was aware of and assumed an inherent level of risk associated with operating facilities within Addicks Reservoir, and its arguments in comparing previous second appeals are unpersuasive.  Therefore, based upon the above, FEMA is using its discretion to withhold PA funds.

Stafford Act Section 705(c)

Section 705(c) of the Stafford Act bars FEMA from deobligating any payment to a State or local

government if: (1) the payment was authorized by an approved agreement specifying the costs,

(2) the costs were reasonable, and (3) the purpose of the grant was accomplished. FEMA issued

FP 205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures, (FP-205-081-2), to establish the criteria necessary to implement Section 705.[14]  If all three conditions of Section 705(c) are met, FEMA is prohibited from recouping grant funds even if it later determines that it made an error in determining eligibility.[15]  According to FP- 205-081-2, a “payment,” as described in the first criterion of Section 705(c), occurs when the Grantee draws down funds which FEMA disbursed to it via Smartlink.[16]

Section 705(c) bars FEMA from deobligating and recovering previously disbursed funds when the Applicant can show that all three elements of the test are met.  First, the Applicant must show that a payment was made; this only occurs once FEMA disburses the funds and the Grantee draws down those funds from Smartlink.  However, the Applicant concedes FEMA made the funds available in SmartLink and it does not dispute that the Grantee had not drawn down the funds prior to FEMA deobligating the funding.[17]  As the Grantee did not draw down the funds before FEMA deobligated them, there was no payment made as defined by FP-205-081-2.  Therefore, the first element of the Section 705(c) test was not satisfied, and FEMA is not barred from deobligating and recovering the previously awarded funds for this project.

Conclusion

The language in the lease provided the Applicant notice that the facilities were at risk for flooding and that the Federal Government would not be responsible for any damages that may occur as a result.  With such notice, the Applicant assumed the risk, thus, FEMA will not provide PA funding for the Facility.  Additionally, because the Grantee never drew down the funds disbursed by FEMA, the first element of the Section 705(c) test was not met, and FEMA was not barred from deobligating and recovering the funds.  Therefore, the appeal is denied.