§ 4300.87. Occupancy.
(a) The Department will participate in the cost of occupancy expenses.
(b) The Department will participate in the costs for buildings and offices rented or leased by an agency for use by programs operated under contract with the county.
(1) The parties shall be unrelated and continue to be unrelated. If an agency enters into a sale and leaseback agreement with an unrelated purchaser, the Department will not participate in the cost of rent under this subsection.
(2) The amount of rent charged to a given program shall be prorated in direct relation to the amount of space utilized by the program. The cost of rent for any facility may not exceed the rental charge published for the general public for similar space in that geographical area.
(3) If it does exceed the rental charge to the general public, the Department will participate in these costs only if the rental charge is explicitly approved by the appropriate county authority.
(c) The Department will participate in payments in lieu of rent for offices and buildings owned by an agency or related party and used for programs operated under contract with the county or county joinder. The amount charged to a given program shall be prorated in direct relation to the amount of space and time utilized by the program.
(1) The policies for reimbursing payments in lieu of rent are intended to accomplish three general purposes:
(i) To recognize and participate in the costs of an agency acquiring real estate.
(ii) To encourage the continued use of owned real estate in the county program.
(iii) To participate in the acquisition costs of a property only once, based on the property value when originally purchased or constructed by the agency.
(2) The Department will financially participate in payments in lieu of rent for agency owned real estate, for which the agency holds title. The payments may include costs related to down payments, closing costs, principal and interest for mortgaged real estate and continuing participation allowances. The Department will financially participate in lease-purchase agreements and seller financed mortgages between unrelated parties when the costs conform to the same kind or type of costs allowable for mortgaged real estate.
(i) The Department will participate in the cost of a downpayment required by a lending institution for obtaining a mortgage for the purchase of real estate. The mortgage shall be based on a property value not to exceed the lesser of cost or fair market value at the time of original purchase or construction by the agency. The fair market value shall be determined by an appraisal from an individual who holds at least one of the following designations approved by the Society of Real Estate Appraisers: Senior Real Property Appraiser, Senior Residential Appraiser, Senior Real Estate Analyst or Member of the American Institute of Real Estate Appraisers.
(ii) The Department will participate in a downpayment not to exceed 25% of the property value. Real estate purchased with a downpayment reimbursed by the Department shall be used in the county program for at least 5 years. If the real estate is not used for 5 years, the part of the downpayment funded by the county, proportionately equal to the remaining unused time in the 5 year period, shall be refunded by the agency to the county program.
(iii) Agencies may fund downpayments for real estate from their own resources. The Department will participate in an allowance to recognize the agency’s equity in the properties. The allowance may not exceed an amount equal to an 8.0% rate of return on the original downpayment. The Department will participate in an allowance during the period in which principal and interest are reimbursed for the amortization of a mortgage. See subparagraph (iv). The Department will not participate in this downpayment allowance for debt-free real estate, but will participate in an allowance under subparagraph (vii).
(iv) The Department will participate in the costs of principal and interest related to the amortization of a mortgage. The mortgage shall be based on a property value determined under subparagraph (i).
(v) For a mortgage with a term of 15 years or more, the Department will participate in the actual cost of principal and interest.
(vi) For a mortgage with a term of less than 15 years, the Department will participate in the actual cost of principal and interest less the amount which the total cost of principal, interest and major renovations and improvements exceeds the fair rental value of the property. The fair rental value shall be determined by appraisal. It shall be the average of two independent appraisals obtained by the provider, with the approval of the county. Appraisals shall be in writing and specify the valuation approach, as well as other components, used in the estimation of fair rental value. The appraisal shall be obtained from an individual holding at least one of the designations identified in subparagraph (i). In situations where providers are required to locate in deteriorating or blighted areas and shall comply with costly licensing requirements and after good faith efforts were made to secure a mortgage of 15 years or more, the Department will entertain requests for waivers of this subparagraph when submitted under § 4300.11 (relating to waivers).
(vii) The Department will reimburse a continuing participation allowance for the use of space in debt-free real estate. The continuing participation allowance may not exceed an amount equal to an 8.0% rate of return on the total of the property value as determined according to subparagraph (i) plus the cost of renovations and improvements to the property. The cost of renovations and improvements shall be the documented actual cost of the renovation or improvement at the time of its completion.
(viii) The Department will participate in principal and interest or a continuing participation allowance when an agency discontinues operations of a facility and commences operations at a new facility. The Department’s participation is limited to principal and interest on debt in excess of the property value of the new facility less the net equity most recently determined for the old facility. Property value is determined under subparagraph (i). Net equity is obtained by reducing property value by the documented selling costs and outstanding debt.
(ix) The Department will participate in the costs of refinancing real estate when the purpose is to reduce real estate debt expenses. The Department’s participation in new mortgages is limited to principal and interest payments on a principal amount not exceeding the remaining principal balance of the previous mortgage. The Department will not participate in remortgage costs which exceed the costs to the county program under the previous mortgage, either during the contract period or over the term of the mortgage. This subparagraph applies to transactions which are executed after July 1, 1987. The Department will participate in the cost of refinancing real estate for purposes other than reducing real estate debt expenses only with the prior written approval of the Secretary or a designee.
(x) The Department will participate in the cost of liquidating debt prior to completion of the term of a mortgage. The agency shall obtain approval of the appropriate county authority and commit the property to continued use by the county program over the life of the original mortgage. The Department will not participate in a continuing participation allowance according to subparagraph (vii) for the property until after the life of the original mortgage. If a property reimbursed under this subparagraph is removed from use in the county program before the end of the original mortgage life, the agency shall reimburse the county program a part of the cost of liquidating the debt which is proportionately equal to the remaining unused time in the life of the original mortgage.
(d) Renovations are considered to be an adaptation of available space within a completed structure. Improvements extend the life or increase the productivity of the asset. Repairs and maintenance are considered to be those activities which either restore an asset to, or maintain it at, its normal or expected service life.
(1) The Department will participate in costs classified as renovations, improvements or repairs and maintenance. A classification is further defined for reimbursement purposes as minor if the cost is $10,000 or less, and major if the cost exceeds $10,000. Within a classification, the determination of costs as minor or major shall be on a per property basis. For example, renovation costs for an individual property may not otherwise be broken down to avoid being defined as major renovations.
(2) Minor renovations, improvements or repairs and maintenance may be expensed or amortized.
(3) Major renovations, improvements or repairs and maintenance may be amortized or expensed and shall be used in the county program for at least 5 years. If they are not used for 5 years, that part of the major renovations, improvements or repairs funded by the county, proportionately equal to the remaining unused time in the 5 year period, shall be refunded by the agency to the county program.
(e) The Department will participate in the cost of utilities such as heat, electric, water, sewage and fuel necessary for occupancy of a building.
(f) The Department will participate in the cost of required occupancy related taxes. The Department will not participate in penalties resulting from delinquent tax payments, including legal fees.
(g) The Department will participate in the costs of real estate purchased and owned by counties, authorities or nonprofit corporations created by counties to acquire and manage real estate, and made available to contracted agencies for use in providing services. The Department will participate in the costs according to the allowable cost standards identified in § 4300.48 (relating to occupancy) for occupancy and occupancy related costs.
Cross References This section cited in 55 Pa. Code § 4300.81 (relating to applicability); 55 Pa. Code § 4300.111 (relating to applicability); 55 Pa. Code § 4300.114 (relating to agency schedule of charges); 55 Pa. Code § 4300.115 (relating to Department established fees); and 55 Pa. Code § 4300.116 (relating to county negotiated fees).
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