The federal government encourages grantees to earn program income whenever possible as a way to defray program costs. Program income may be used to meet cost sharing or matching requirements or add to the funds already committed to the grant. The University of Oregon (UO) is accountable for the use of such income in accordance with the Office of Management and Budget 2 CFR Part 200.
Program income may come from a number of sources, both federal and non-federal; the following are typical examples:
- Sale of publications, videos, or other items developed under an award,
- Fees for services performed, e.g., lab analyses, diagnostic evaluations, etc.,
- Fees from participants, e.g., workshops, training programs, etc., and
- Fees from use or rental of property/equipment acquired with grant funds.
Program income is the gross income generated by the funded activity. The UO can deduct the costs of generating program income only when specifically permitted under the federal agency’s regulations or the terms of a specific award.
Some sources of income are excluded from the definition of program income and thereby exempt from federal restrictions. Examples include:
- Interest on cash advances from federal agencies. Such cash is considered to belong to the federal government.
- Copyright and patent royalties and license fees received as a result of the funded activity, unless provided otherwise in the agreement.
- Proceeds from sale of real property and equipment, which is governed by 2 CFR Part 200.
Alternatives for the use of program income
The federal government provides three options for the expenditure of program income. Each of these three options is illustrated below for a project budget of $100,000, with 80% participation by the federal sponsor and 20% participation by the recipient; program income is estimated to be $10,000.
- The additive alternative. Using the additive alternative, which also must be specifically approved by the sponsor, program income is used to supplement funds already committed to the project by both the sponsor and the recipient. For research awards, the additive method will apply if no other method is stipulated in the sponsor’s regulations or in the terms of the specific agreement (i.e., this is the default method for research awards).
EXAMPLE: Program Income = $ 10,000
Recipient Share = 20,000
Sponsor Share = 80,000
Total Project Costs = $ 110,000 - The matching alternative. Using the matching alternative, which must be specifically approved by the sponsor, program income is applied to the recipient share only.
EXAMPLE: Program Income = $ 10,000
Recipient Share = 10,000
Sponsor Share = 80,000
Total Project Cost = $ 100,000 - The deductive alternative. Unless the sponsoring agency’s regulations or the terms of the agreement provide otherwise, the deductive alternative is the option in effect (i.e., the default option), except for research agreements. Under the deductive alternative method, income is applied toward the allowable project costs during the period of the grant to reduce the net cost of the shares of both the federal sponsor and the recipient.
EXAMPLE: Program Income = $ 10,000
Recipient Share = 18,000 (apply 20% of income)
Sponsor Share = 72,000 (apply 80% of income)
Total Project Cost = $ 100,000
Showing program income in proposal budgets
The most important factor in correctly accounting for program income is to structure the proposal budget in a way which accurately reflects the intended use of the income.
- To increase the amount of funds already committed to the project by the sponsor and the UO (additive alternative). For research awards, the additive method will apply automatically unless the sponsoring agency indicates one of the other options in the terms and conditions of the specific award or in their regulations.
- To reduce the UO’s share of the project cost (matching alternative); or
- To reduce the total cost of the project (deductive alternative). Under the deductive method, a grantee subtracts program income from total project costs to determine the new allowable costs on which the federal share of costs is based. This is the default method for non-research activities.
The method for using program income detailed in the proposal budget must then be reflected in the award, or the default methods described above will apply. If the sponsor approves either the matching or additive alternatives in the award, the UO must account for any program income in excess of the approved limits in accordance with the deductive alternative, unless the sponsor approves an increase of the limit.
Accounting for program income
A unique Fund Organization Program (FOP) or Fund Organization Program Activity (FOPA) must be created for each grant that generates Program Income. If the grant agreement stipulates the "matching" method for use of Program Income the Program Income Index should include the Activity code of the grant in the Activity code field (FOPA). The program code for all Program Income indices must use "XPINC" where "X" equals the first number in the grants program code.
UO's obligation to the federal government
As required in the sponsored award, program income is reported to the sponsor annually and/or at the end of the award via a standard financial report (e.g., federal financial report) or a separate program income report (e.g., NSF annual consolidated program income report). Prior to the financial reporting due date, SPS post-award SPAs will coordinate with the department/unit to verify the total program income amount to be reported according to the sponsor-required program income accounting method.
Unless federal sponsoring agency regulations or the terms of an award provide otherwise, the UO has no obligation to the federal government for program income earned after the end of the grant period. In applications for renewal or continuation grants which are generating program income, such income will generally need to be reflected on the grant applications. Check sponsor guidelines for specific requirements.
Recipients shall have no obligation to the federal government with respect to program income earned from license fees and royalties for copyrighted material, patents, patent applications, trademarks, and inventions produced under an award. However, Patent and Trademark Amendments (35 U.S.C.18) apply to inventions made under an experimental, developmental, or research award.