At times, Federal grantees reconsider the wisdom of applying for, and spending, Federal grant dollars. Unfortunately, the result of such reconsideration is a demand by the Federal grantor to repay the grant funds already spent.

A grantee facing this predictable Federal decision-making has a number of options before pulling out the peoples’ checkbook (or running to court). A grantee, particularly a State, may have a number of ways to significantly pare down any announced “debt” of the United States.

  • Ask for, and conditionally accept, any agency “offer” and use it as a base for negotiations and claims.
  • Make all good faith claims possible under the subject program (e.g., whether housing, environmental, transportation, and the like). These can act like sponges to offset some of the federal debt repayment. A State will have a broader range of options here, versus a city, county, or special district.
  • Ditto on making claims where Federal funding might presently be absent, but the costs would have been funded if monies were available. Make “dry grant” requests, where the eligible, but unfunded, amounts might also act to offset federal claims.
  • Inventory every conceivable grant claim, in every federally-sponsored program, that the grantee might make – then make them. By this point, the message is clear, if a grantee is acting as a “debtor” then all steps must be taken to simply reduce the potential debt.
  • Treat the “termination”, if applicable, as a government-directed one (i.e., as a de facto termination for convenience). If so, then the grantee and Federal government must negotiate the terms of the termination.
  • Consider claiming that Federal repayment demands are inconsistent with the Debt Collection Act, in that it makes the political entity non-viable economically, or even bankrupt. A grantee can always argue, with sufficient proofs, that it simply cannot repay a Federal debt and can seek relief accordingly. Further, if the grantee is a State, it is important to note that States cannot file under bankruptcy law, so it should be placed into bankruptcy, involuntarily, by Federal collection action.
  • Alternatively, offer a very limited repayment amount, which would form the basis for future government negotiations.
  • Further, a grantee might offer an “in-kind” contribution, at least for part of the repayment amount.
  • Seek to have included within an appropriations bill direction to the affected Federal agency that its final decision on the dispute for grant XXX will be that made by the grantee. After all, this is Congress’ money, and it can decide to direct a Federal grantor’s decision to be that of its grantee.