Attorney General's Opinion
Attorney General Richard Blumenthal
September 28, 1998
George F. Wandrak
Acting Executive Director
Division of Special Revenue
555 Russell Road
Newington, CT 06111
Dear Mr. Wandrak:
This is in response to your request for opinion pertaining to reimbursement of regulatory costs under the Mashantucket Pequot Gaming Procedures, 56 Fed. Reg. 24996 (May 31, 1991) (Procedures). You ask whether the Procedures, which allow you to assess the Mashantucket Pequot Tribe (Tribe) for "reasonable and necessary costs" of regulating and investigating operations at Foxwoods, include reimbursement of indirect as well as direct costs. For the following reasons, we answer your question in the affirmative.
Section 11 of the Procedures, as you point out, provides for State assessment for State costs of oversight. This section provides, in pertinent part, as follows:
(a) Imposition of assessment for State regulatory expenditures. The State shall annually make an assessment sufficient to compensate the State for the reasonable and necessary costs of regulating gaming operations and conducting law enforcement investigations pursuant to this compact. Such assessment shall include any costs of fringe benefits for personnel due and owing to the State Comptroller and shall be net of fees received with respect to the submission of gaming service enterprise registrations pursuant to section 6 of this compact.
Procedures, Sec. 11(a).
The Procedures do not define the term "reasonable and necessary costs." These are not technical terms, having at all times the same meaning, but general or descriptive terms which may have varying meanings according to the circumstances used. Boston Molasses v. Molasses Distributors Corp., 274 Mass. 589, 594, 175 N.E. 150 (1931). In this circumstance, these terms were proposed by the State during the compact negotiation/litigation process required by the Indian Gaming Regulatory Act (IGRA). 25 U.S.C. § 2710(d)(7)(B)(iv). The assessment language was intended to cover the costs of licensing and regulating gaming "in such amounts as are necessary to defray the costs of regulating such activity." 25 U.S.C. § 2710(d)(3)(c)(iii). Pursuant to IGRA these terms were prescribed by the Secretary of the Interior in lieu of a compact. 25 U.S.C. § 2710(d)(7)(B)(vii).
In this context, it is clear that these terms were intended to reimburse the State for the additional and on-going expenses it would be expected to incur as a consequence of performing its duties under the Procedures. In defining this term in a variety of comparable circumstances, this term repeatedly has been found to require reimbursement of not only direct costs,1 but indirect costs2 as well. This result is based on proper and accepted accounting practices which include indirect as well as direct costs when calculating costs where the term is otherwise undefined. See e.g., Gordon Form Lathe Co. v. Ford Motor Co., 133 F.2d 487, 500 (6th Cir. 1943) (manufacturing); Allis-Chalmers Mfg. Co. v. United States, 165 F.2d 495, 497 (7th Cir. 1948) (government program of reimbursement); Pacific Portland Cement Co. v. Westvaco Chlorine Products Corp., 77 F.Supp. 406, 409 (N.D. Cal. 1948) (contract for sale); B.F. Goodrich v. Betkoski, 99 F.3d 505, 528 (2nd Cir. 1996) (environmental cleanup); NTN Rearing Corp. of America v. United States, 747 F.Supp. 726, 743 (CIT 1990) (Tariff Act valuations). The use of direct and indirect costs in calculating total costs comports with standard accounting practices. United States v. R.W. Meyer, Inc., 889 F.2d 1497, 1504 (6th Cir. 1989) citing C. Horngren & G. Foster, Cost Accounting: A Managerial Emphasis, 20-36 (6th Ed. 1987).
Moreover, as you point out, in the specific field of reimbursement of government program costs, the general rule is that indirect as well as direct costs are chargeable unless the specific program directs otherwise. See Office of Management and Budget Circular A-87, Cost Principles for State, Local and Indian Tribal Governments (Rev. 5/4/95 as further amended 8/29/97), 62 Fed. Reg. 45934 (1997), Attachment A. The rules established in Budget Circular A-87 are specifically applicable to federally recognized Indian Tribal governments, such as the Mashantucket Pequot Tribe. These rules are reiterated in light of Connecticut government financial reporting systems in the Indirect Cost and Fringe Benefit Recovery Procedures Manual (Office of the Comptroller, 1991), Attachment B.
Therefore, in response to your question, under the Procedures, we believe that your agency should make an assessment sufficient to compensate the State for the reasonable and necessary costs of regulating gaming operations and conducting your agency's investigations which includes indirect as well as direct costs. The agency should employ the prevailing proper and accepted accounting practices in arriving at the assessment. Your agency should consult with your accountants in identifying how to make the calculations.
Very truly yours,
Robert F. Vacchelli
Assistant Attorney General
1 Direct costs, in the context of State agency charges, are defined as follows:
Direct Costs are those which are incurred for, and can be identified with, the specific projects, programs, or activities of an agency or institution and can be charged directly to such activities with a reasonable degree of accuracy and without an excessive amount of accounting effort. Examples include such costs as the salary and fringe benefits of an individual working on a specific project, travel costs for the purpose of a program, or computer time billed to a project.
Indirect Cost and Fringe Benefit Recovery Procedures Manual (Office of the State Comptroller, 1991).
2 Indirect costs, in the context of State agency charges, are defined as follows:
Indirect Costs, in contrast, are those that have been incurred for purposes common to a number or to all of the specific projects, programs, or activities of an agency or institution, but which cannot be identified and charged directly to such projects, programs, or activities with a reasonable degree of accuracy and/or without an unreasonable amount of accounting effort.