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Seliger’s Quick Guide to the Concept of “Program Income” in Developing Federal Grant Budgets

Almost all federal budgets require applicants to complete the ever-popular SF-424, which has been the cover page for federal grant applications since the Carter administration. The “SF” stands for “Standard Form,” but at the link you’ll find many variants of this “standard” form (don’t ask why). Regardless of the version, the SF-424 includes sub-forms, including the SF-424A, which is a summary of federal “Object Cost Categories.” The “Program Income” Object Cost Category is found near the bottom of every SF-424A.

The Program Income Object Cost Category represents revenue generated by grant implementation, but in most cases it’s a bad idea to declare any Program Income on the SF-424A. Even if Program Income exists, you shouldn’t list it because Program Income is in effect a deduction from the grant request. Let’s say that the Boys and Girls Club of Milaca, Minnesota* is seeking a grant to provide mentoring services for at-risk kids. All Boys and Girls Clubs charge nominal membership dues and/or user fees, although the dues/fees are often waived for various reasons. Still, Clubs charge dues/user fees to support operations and to make parents/caregivers** feel they’re paying for something. People value something they pay for, even when they pay very little, much more than something they don’t. Our applicant Boys and Girls Club would probably want to try to get the parents/caregivers of mentees (yes—this is right word) to pay dues, but this should never be shown on a SF-424A.

We’ll explain why by using a thought experiment.

Assume the mentor program grant request is $200,000. If $5,000 is shown as Program Income from dues, what is the size of the grant needed to implement the project? The answer is of course $195,000.

Almost all grant budgets are based on a “but for” or “gap” analysis—in other words, but for the grant, the project cannot be implemented or the grant represents the missing funding gap (see also our post on the dreaded supplantation concept). For most human services proposals, the grant always equals the size of the “but for” or “gap.” In addition to helping build the need argument, most federal agencies don’t want program income to be included in the proposal budget, as such income would also need to be tracked during project implementation. This would complicate reporting. The legal fiction is that there is no Program Income; both applicants and federal funding agencies usually agree to look the other way.

As in most grant writing generalities, there are exceptions to the No Program Income rule I’ve just illustrated. A good example is a HRSA Section 330 proposal budget for primary health care, which must show income for third-party payers like Medicaid and private insurance. Another example is the HUD Section 202 affordable housing development program. In Section 202 budgets, Section 8 rental income must be shown to demonstrate project feasibility. Affordable housing grants use the “but for” and/or gap analysis in supporting cash flow statements. Unlike privately funded market rate housing cash flow statements, however, which show an excess of income over expenses to prove feasibility, publicly funded affordable housing cash flow statements always show infeasibility. The infeasibility must be solved, or the gap closed, by the grant request.

Our advice to clients regarding Program Income is always, “when in doubt, leave it out,” but we’re just lowly grant writing consultants and our clients are free to ignore our advice, which they often do.

For example, last year we wrote a Family & Youth Services Bureau (FYSB) Transitional Living Program (TLP) for Homeless & Runaway Youth proposal for a very large homeless youth services provider in a big midwest city. Our client, like most similar faith-based homeless services providers, charges nominal rent to homeless youth living in their transitional housing facility and also requires that the residents work part time.

While this may be a good policy to encourage self-reliance among homeless youth, it’s a very bad idea to include this Program Income in the TLP SF-424A. TLP grants are supposed to help youth with no resources whatsoever and to house the most needy—not the ones who can work part-time or somehow have money for rent.

It was very difficult getting our client to understand this conundrum until we pointed out that they were inadvertently proving they didn’t need the grant amount requested, while opening themselves up to being seen as “cherry picking” the best homeless youth clients. I’ll leave the perils of implied cherry-picking in grant writing to another post, but cherry-picking is also usually a fast way to the exit in grant seeking.

If you want to include program income anyway, you should at least increase the total program budget so that the grant amount requested remains at the maximum allowable amount.


* When I was a kid growing up in Minneapolis in the late 50s, my dad was a big wrestling fan and I often accompanied him to watch wresting matches live at the very dingy Minneapolis Auditorium. One of my favorite wrestlers was Tiny Mills, “King of the Lumberjacks.” Tiny was kind of a good bad guy and was always introduced as being “formerly from Alberta, Canada, but now hailing from Milaca, Minnesota.” For some reason I found this endlessly amusing, only learning later as a teen going on road trips that Milaca is actually a charming town in North Central Minnesota on the way to the beautiful Lake Mille Lacs.

** In writing proposals about at-risk children and youth, always refer to them as having “parents/caregivers,” not just “parents,” to account for those living with grandparents or in foster care.

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