Section 105(l) Leases of the Indian Self-Determination and Education Assistance Act (ISDEAA) allows Tribes and Tribal organizations (Tribes) to be compensated for costs incurred while carrying out their ISDEAA self-determination or self-governance at Tribal facilities.
Tribes can enter into such facility cost agreements with the Bureau of Indian Affairs (BIA), Bureau of Indian Education (BIE), and Indian Health Services (IHS), when those facilities are used to carry out programs, services, functions, and activities (PFSAs contracts).
If your Tribe uses its own facility, regardless of whether you hold the title, have a leasehold interest, or have a trust interest in the facility to operate BIA, IHS, and BIE programs, you have substantial incentive to negotiate a 105(l) lease agreement.
What Does the 105(l) Lease Pay for?
The lease may compensate the Tribe for the following costs, excluding duplicate costs.
- Depreciation and use allowance
- Contributions to a reserve for replacement of facilities
- Principal and interest
- Operation and maintenance expenses, including but not limited to water, sewage, utilities, fuel, insurance, fire protection, and so forth
- Scheduled and unscheduled maintenance like replacing floor coverings, lighting fixtures, or repainting
- Security services and management fees
- Building and equipment repairs
- Alterations needed to meet contract requirements
- Fair market rental for buildings or portions of buildings and land, excluding federal share of building construction or acquisition costs or fair market rental for buildings constructed with federal funds, excluding fee or profit, and for land
- Other reasonable expenses
Considerations Before Negotiations
Before you begin your lease negotiations with the BIA, IHS, or BIE, you’ll want to prepare a detailed list of your true costs to operate the PFSAs in the facility, including other costs you want to include in the lease, such as depreciation and reserve for replacement costs. You’ll need to identify the actual prior year costs recorded in your general ledger.
You’ll also need to conduct an analysis of the prevailing rental prices in the geographic area that compares the facility’s size to help negotiate the fair market rental pricing. There may be costs that you’ve already been reimbursed for within the operations and maintenance funding and contract support costs under your existing ISDEAA agreement or Public Law (PL) 100-297 grant. You’ll want to identify those costs to avoid double dipping as the funding for the lease comes from the same agencies.
BIA and IHS have templates for the 105(l) lease agreements, lease compensation calculations, and documentation checklists. We recommend working with your attorneys as you initiate your lease negotiations with the agencies.
Successful negotiations can significantly increase funding for your Tribal facilities used to carry out ISDEAA agreements and PL 100-297 grants and reduce the need to subsidize costs from your general funds.
Accounting for 105(l) Lease Revenue
Typically, the compensation your Tribe would receive from 105(l) leases is to reimburse costs that have already been incurred. This funding would be part of your amended ISDEAA agreement or PL 100-297 grant. While there aren’t any specific agency instructions on use restrictions for these revenues, if those costs were originally paid with your Tribe’s unrestricted general funds, then the lease revenues would likely be considered unrestricted funding.
However, if those costs were originally paid by federal funding or program income, then the lease revenues would have the same restrictions as the original funding source.
Reserve funds for replacement of facilities must be accounted for as a capital project fund or a special revenue fund. Such funds may be invested in accordance with the laws, regulations, and policies of the Tribe subject to the terms of the lease or the ISDEAA agreement.
Governmental Accounting Standards Board Statement No. 87 (GASB 87) and 105(l) Leases
GASB 87 defines a lease as “a contract that conveys control of the right to use another entity's nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction.”
For section 105(l) leases, in most cases a Tribe (lessor) isn’t conveying the right to use its building to the federal agency (lessee), as the Tribe is itself operating the PFSAs in its building. In such cases, a Section 105(l) lease wouldn’t meet the definition of a lease under GASB 87, in which case the standard wouldn’t apply.
We’re Here to Help
If you have any questions about ISDEAA Section 105(l) leases, please contact your Moss Adams professional. You can also visit our Tribal & Gaming Practice for additional resources.