Program Income Job Aid

Job Aid
How to Budget and Account for Program Income
For the TN Nonprofit Arts & Culture Recovery Fund Grants

REVISED 6/7/2022


TN Nonprofit Arts & Culture Recovery Fund (Recovery Fund) grant funds come from the U.S. Department of Treasury, not the National Endowment for the Arts, and were subject to different guidance related to Program Income until the U.S. Department of Treasury gave new guidance received by TN Arts Commission on June 2, 2022. 

Per earlier guidance, program income directly generated from federally supported activities had to be deducted from total allowable costs to determine the net allowable costs. NOW, any program income directly generated from Recovery grant funds must be used for the purposes and under the conditions of the award.

When budgeting TN Nonprofit Arts & Culture Recovery Fund grants, consider:

  • If the activities supported by the federal Recovery Fund grant directly generate program income, you will need to calculate the amount of directly generated program income based on a cost allocation plan, report the program income amount and document that the program income was used for Recovery Fund grant allowable costs.
  • However, if the activities supported by the federal Recovery Fund grant do not directly generate program income, ie are for Operating Support, no special allocation, tracking and reporting will be necessary. Operating Support is defined as day-to-day business expenses or operating costs that do not directly generate revenue.
  • Per April 2022 Compliance Supplement to 2 CFR Part 200, Appendix XI, 4-21.027, auditors are not expected to test compliance with the program income requirement. https://www.whitehouse.gov/wp-content/uploads/2022/05/2022-Compliance-Supplement_PDF_Rev_05.11.22.pdf

Background. As noted in the Tennessee Arts Commission grant guidelines published December 20, 2021 “Program Income: If awarded, grantees may be expected to calculate, document, and record program income earned through arts activities and services funded through this grant. Further guidance on program income requirements will be forthcoming.”

The federal guidance that governs is the Compliance and Reporting Guidance for State and Local Fiscal Recovery Funds Version 3.0 dated February 28, 2022 and the OMB Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. https://www.ecfr.gov/current/title-2/subtitle-A/chapter-II/part-200

https://www.whitehouse.gov/wp-content/uploads/2022/05/2022-Compliance-Supplement_PDF_Rev_05.11.22.pdf

https://home.treasury.gov/system/files/136/SLFRF-Final-Rule-FAQ.pdf


The Guidance. From the Uniform Guidance 200.307: “Non-Federal entities are encouraged to earn income to defray program costs where appropriate” and “Ordinarily program income must be deducted from total allowable costs to determine the net allowable costs. Program income must be used for current costs unless the Federal awarding agency authorizes otherwise.”

https://www.ecfr.gov/current/title-2/subtitle-A/chapter-II/part-200/subpart-A/subject-group-ECFR2a6a0087862fd2c/section-200.1

HOWEVER, the U.S. Treasury Final Rule FAQ page 48 received by the Tennessee Arts Commission on June 2, 2022, provides:

13.11. How does Treasury treat program income?

Per 2 CFR 200.307, Treasury is specifying here that recipients may add program income to the Federal award. Any program income generated from SLFRF funds must be used for the purposes and under the conditions of the Federal award. Program income includes but is not limited to income from fees for services performed, the use or rental of real or personal property acquired under federal awards, the sale of commodities or items fabricated under a federal award, license fees and royalties on patents and copyrights, and principal and interest on loans made with federal award funds. Interest earned on advances of federal funds is not program income. For more information on what constitutes “Program Income” please see 2 CFR 200.1.

https://home.treasury.gov/system/files/136/SLFRF-Final-Rule-FAQ.pdf

Program income means gross income earned by the non-Federal entity that is directly generated by a supported activity or earned as a result of the Federal award during the period of performance except as provided in § 200.307(f).


Balancing Mission, Expediency, Transparency & Accountability.  Federal guidance (SLFRF) states “Swift and effective implementation is vital, and recipients [including TN Arts Commission] must balance facilitating simple and rapid program access widely across the community and maintaining a robust documentation and compliance regime.”

The purpose of the TN Nonprofit Arts & Culture Recovery Fund grants is to support recovery from pandemic-related economic harm. Because deducting program income directly generated from federally supported activities arguably conflicts with the program purpose, the Tennessee Arts Commission is pleased that the U.S. Treasury clarified program income treatment to be consistent with the grant purpose.

PROGRAM INCOME FREQUENTLY ASKED QUESTIONS

What supported activities would not directly generate revenue and not be subject to calculation, tracking and reporting of program income? 

Audit costs

Any of the following activities that DO NOT result in ticket sales or other earned revenue.  Example: performances or exhibits offered free of charge as a public service and/or as a way to reach underserved populations

  • Activities that involve and promote professional artists, especially Tennessee artists
  • Visiting artists conducting master classes
  • Workshops, festivals, and conferences
  • Public performances, productions, and exhibitions produced by the applicant
  • Exhibitions of art by professional and folk artists, especially Tennessee artists
  • Activities involving and promoting folk and traditional artists
  • Touring/presenting activities that bring professional and/or traditional folk performers to communities across the state

Promotion, publicity, and newsletters

Administrative and artistic staff support for positions that do not directly generate earned income

Research and documentation as part of an arts activity or program development

Consultancies and residencies for administrative and artistic activities that do not generate revenue

The development of long-range planning documents

Improved program accessibility for underserved constituencies, e.g. children, people living in rural communities or isolated settings, people living with disabilities, people of color, and senior citizens

Art in public places

Extensions of literary initiatives, journals with continuing publication, or juried anthologies

Apprenticeship programs

Computer software/training

Technical/production support not tied to specific revenue generating activities

Technical assistance activities

Office or other space rental not tied to specific revenue generating activities

Janitorial service and general physical plant maintenance

Permanent equipment purchases

What supported activities would directly generate revenue, resulting in program income that must be calculated, tracked and reported? 

Any of the following, or other allowable, activities that result in ticket sales or other earned revenue

  • Activities that involve and promote professional artists, especially Tennessee artists
  • Visiting artists conducting master classes artists
  • Workshops, festivals, and conferences
  • Public performances, productions, and exhibitions produced by the applicant
  • Exhibitions of art by professional and folk artists, especially Tennessee artists
  • Activities involving and promoting folk and traditional artists
  • Touring/presenting activities that bring professional and/or traditional folk performers to communities across the state
  • Technical/production support

Are Contributions and (other) Grant Revenue considered Program Income?  No.

Contributions and other grant revenue are not program income so would not be subject to deduction.

How do we determine if staff and/or contract positions are considered program income generating?

Every organization is different. The Tennessee Arts Commission does not intend to implement this requirement by imposing the burden of a complex system of classifying and tracking every activity by every staff person every minute of every day. Reasonable judgment should be applied in determining how to implement this federal requirement.

Some factors to consider in thinking about whether Recovery Fund support for all or part of a particular position would trigger proportional deduction of program income could include:

Operating Support.  Consider which positions support day-to-day business operations that do not directly generate revenue such as bookkeeping, procurement, HR, security, janitorial, building maintenance, office management, volunteer management, executive management, planning, research.

Without which nothing.  What personnel activities are absolutely required for revenue generating activities?   Which are not?

Majority of time. Without requiring a complex system of time-keeping and activity classifications, consider which staff spend the bulk of their time on program income generating activities and which do not.

Infrastructure/ongoing operations. Will work products (costumes, sets, exhibits) of staff become part of the organization’s infrastructure/ongoing operations?

Time horizon. Will work products of staff be used for productions outside the period of the grant, ie not for program income generating activities?   In some orgs, the artistic director is planning ahead, ie working on future seasons outside the period of the grant.  Time spent on those activities is not generating program income during the grant period.

What should I think about for my revised budget for the TN Nonprofit Arts & Culture Recovery Fund grant?

Program income is not a factor if federal funds are spent on operating costs that do not directly generate income. Please revise your budget to exclude grant activities that directly generate revenue.  Otherwise you will need to track, allocate and report program income from requests for funds.

Tips for Consideration in Developing Revised Budget

  • Review proposed budget to consider how much of the award, if any, is proposed to support activities that would directly generate program income
  • If your award is less than requested, consider spending reductions from any revenue-generating activities
  • Consider actual FY2022 expenses to date.
  • Review profit/loss report expenditure categories to consider operating costs vs. direct program income generating activities
  • Your organization may have one or more other FY2022 Arts Commission Grants, which allow for program income without grant deductions. For other FY2022 Grants, consider utilizing the FY2022 Grantee Guidance allowing for flexibility in spending due to the pandemic. Please work with your assigned program directors for best distribution of grant awards to cover expenses.

What happens if our organization generates program income directly from some of the activities supported by this grant?

If your organization plans to spend or spends TN Nonprofit Arts & Culture Recovery Fund money on activities that directly generate program income, your organization needs to develop a cost allocation plan to assure consistent treatment of revenues and expenditures and proper calculation of program income directly generated from the federal award. Cost allocation plans will vary depending on organization business models and no one size fits all, but an example is below. A copy of your organization’s cost allocation plan will need to be retained on file to determine if program income was correctly calculated and deducted.  Any program income directly generated from activities supported by Recovery grant funds must be expended for allowable costs under the grant guidelines.

TIP: Plan to use some non-program income generating Recovery Act funds for professional accounting support to develop a cost allocation plan if needed and/or provide other accounting support if needed.