[Federal Register Volume 60, Number 217 (Thursday, November 9, 1995)]
[Rules and Regulations]
[Pages 56892-56918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27488]
[[Page 56891]]
_______________________________________________________________________
Part IV
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Parts 91 and 570
Community Development Block Grant Programs; Correction of Identified
Deficiencies and Updates; Final Rule
Federal Register / Vol. 60, No. 217 / Thursday, November 9, 1995 /
Rules and Regulations
[[Page 56892]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Community Planning and
Development
24 CFR Parts 91 and 570
[Docket No. FR-2905-F-02]
RIN 2506-AB24
Community Development Block Grant Program; Correction of
Identified Deficiencies and Updates; Final Rule
AGENCY: Office of the Assistant Secretary for Community Planning and
Development, HUD.
ACTION: Final rule.
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SUMMARY: This final rule corrects identified deficiencies in the
Community Development Block Grant (CDBG) program, implements relevant
portions of the Cranston-Gonzalez National Affordable Housing Act,
amends the CDBG conflict of interest provisions, implements statutory
changes from the Housing and Community Development Act of 1987 and the
Appropriations Act of 1989, and provides criteria for performance
reviews and timely expenditure of funds under the CDBG program.
This rule also furthers goals of reinventing government by
incorporating public input in rulemaking, providing performance
standards, and clarifying regulatory language. Very few of this rule's
provisions impose any additional burden on grantees, and these are
designed to increase program accountability, primarily in areas
identified by the Inspector General as material weaknesses or other
serious recurrent audit issues.
EFFECTIVE DATE: December 11, 1995.
FOR FURTHER INFORMATION CONTACT: Deirdre Maguire-Zinni, Director,
Entitlement Communities Division, Room 7282, Department of Housing and
Urban Development, 451 Seventh Street, S.W., Washington, DC 20410,
telephone number (202) 708-1577. A telecommunications device for deaf
persons (TDD) is available at (202) 708-2565. FAX inquiries (but not
comments on the rule) may be sent to Ms. Maguire-Zinni at (202) 708-
2575. (These telephone numbers are not toll-free.)
SUPPLEMENTARY INFORMATION:
I. Paperwork Reduction Act Statement
The information collection requirements for the Community
Development Block Grant (CDBG) program have been approved by the Office
of Management and Budget under the Paperwork Reduction Act of 1980, and
have been assigned OMB Control Number 2506-0077. This rule does not
contain additional information collection requirements.
II. Background
The CDBG program is a key component of HUD's legislative
reinvention proposal, the American Community Partnerships Act. By its
nature, the CDBG program places responsibility for meeting program
requirements squarely on the recipients entitled to receive and
administer the grants. Because the CDBG regulations are the primary
program guidance issued by HUD, program practitioners refer to them
often (unlike other Federal regulations, the primary readers of which
are often attorneys). Therefore, this rule, which updates the CDBG
regulations to reflect significant statutory enhancements since 1987,
furthers the reinvention of government, and of HUD in particular, by
providing local CDBG decisionmakers the advantage of regulatory and
statutory flexibility to design and use their CDBG program resources.
This rule also contains several provisions that enhance grantee
accountability to national program and financial performance standards.
For example: the definition of ``income'' helps ensure that low- and
moderate-income persons are served; the consolidated plan performance
criteria will guide assessment of the extent to which grantees are
carrying out their consolidated plans; and revolving loan fund and
other related changes ensure that funds are not unduly sheltered from
United States Treasury requirements.
Several of the provisions of this final rule were published for
comment as a proposed rule on August 10, 1994 (59 FR 41196). As further
discussed below, these provisions were designed to correct program
deficiencies identified by HUD's Office of Inspector General (OIG), HUD
staff, and HUD clients. The August 10, 1994 proposed rule included: a
flexible definition of ``income'' for families and households; a change
in calculating the planning and administration limitation; new
revolving fund requirements to remove the special protection from
drawdown requirements afforded program income in revolving funds; a
clarification limiting the scope of the definition of ``ineligible
income payments'' in 24 CFR 570.207(b)(4); a description of ``float-
funded'' activities in the action plan; a specification of three
situations in which income earned on grant funds must be remitted to
the U.S. Treasury; a requirement of a determination of benefit when
CDBG funds are used outside the jurisdiction of the recipient; and
performance standards to replace the Housing Assistance Plan (HAP)
standards at Sec. 570.903, for determining whether a grantee has
carried out its consolidated plan housing strategy (formerly
Comprehensive Housing Affordability Strategy (CHAS)).
The preamble to the August 10, 1994 proposed rule stated that any
differences between the rule and the Consolidated Plan final rule,
published on January 5, 1995 (60 FR 1878), would be resolved at the
final rule stage. In making the resolution, HUD included some of the
provisions of the August 10, 1994 proposed rule in the Consolidated
Plan final rule. These pieces include incorporation of some of the
final statement requirements into the consolidated plan and language at
Sec. 91.220 describing CDBG program-specific requirements for the
action plan, including some language on float-funded activities. HUD
also incorporated the provision in the August 10, 1994 proposed rule
regarding delay of the grant when performance reports are delinquent
into the Consolidated Plan final rule at Sec. 91.520(f). In addition,
HUD has adjusted terms and approaches in both rules to conform to the
consolidated plan process.
Two provisions of this final rule were published for comment as a
proposed rule on November 12, 1993 (58 FR 60088) regarding performance
reviews, timely expenditure of CDBG funds, sanctions, and due process
hearings. As further discussed below, this final rule only includes the
provisions from the November 12, 1993 rule on performance standards and
timely expenditure of CDBG funds.
Four of the provisions of this final rule were published for
comment as an interim rule on June 17, 1992 (57 FR 27116). The June 17,
1992 interim rule implemented relevant portions of the Cranston-
Gonzalez National Affordable Housing Act (Pub. L. 101-625, approved
November 28, 1990) (the NAHA). The June 17, 1992 interim rule included:
enhancing the calculation of the public services limitation by
permitting CDBG entitlement recipients to include certain program
income in the base amount of CDBG funds from which the funds available
for public services are calculated; limiting the reach of the conflict
of interest provisions; and responding to grantee requests by
broadening the forms in which funds may be provided to subrecipients
for their use.
[[Page 56893]]
Several other provisions of this final rule were published for
comment as a proposed rule on March 28, 1990 (55 FR 11556). The March
28, 1990 proposed rule implemented: section 511 of the Housing and
Community Development Act of 1987 (Pub. L. 100-242, approved February
5, 1988) (the 1987 Act) regarding the availability of CDBG funds for
Uniform Emergency Telephone Number Systems; and relevant portions of
the Department of Housing and Urban Development--Independent Agencies
Appropriations Act of 1989 (Pub. L. 100-404, approved August 19, 1988)
(the Appropriations Act).
As further discussed below, this final rule also implements
statutory provisions that require little or no regulatory elaboration.
This rule implements three provisions of the Multifamily Housing
Property Disposition Reform Act of 1994 (Pub. L. 103-233, approved
April 11, 1994): (1) section 207, regarding the use of CDBG funds to
pay for administration of the HOME program and (2) authorization of a
housing services eligibility category; and (3) section 234, permitting
statutory waivers for activities designed to address a Federally
declared disaster.
In addition, this rule implements the following provisions of the
NAHA that require little or no regulatory elaboration: (1) section
902(a), regarding the overall benefit of 70 percent; (2) section 903,
regarding city and county classification; and (3) section 912,
regarding discrimination on the basis of religion. HUD included certain
other self-implementing changes from the NAHA in the Consolidated Plan
final rule, published in the Federal Register on January 5, 1995 (60 FR
1878).
This rule also implements changes from the Housing and Community
Development Act of 1992 (Pub. L. 102-550, approved October 28, 1992)
that require little or no regulatory elaboration: (1) section 807(a),
regarding separate eligibility categories for provision of technical
assistance to public or private entities and assistance to institutions
of higher education for carrying out eligible activities; (2) section
807(b), regarding the extension of the authority to use CDBG funds for
direct homeownership assistance for a specified additional period; (3)
section 807(c)(1), regarding recipient and subrecipient capacity
building to carry out microenterprise activities; (4) section 807(e),
regarding amendments to the current restrictions on areas in which CDBG
funds may be used for code enforcement to take into account privately
funded development in addition to publicly funded development; and (5)
section 809, permitting as eligible administrative expenses the costs
of establishing and administering Federally approved Empowerment Zones
and Enterprise Communities.
Finally, as further described below, the rule contains
miscellaneous technical updates and corrections to the CDBG
Entitlement, State, Small Cities, and Insular Areas provisions.
III. Provisions From the August 10, 1994 Proposed Rule
HUD received 45 comments on the August 10, 1994 proposed rule. The
following discussion summarizes those comments.
A. Definition of ``Income''
The CDBG program is unique among HUD's major programs in needing a
definition of income that will be familiar and useful to private
businesses and others outside the industry of housing service
providers, and that will be useful when measuring benefit for an
activity that will serve an area generally. This rule furthers the
reinvention of HUD by providing a great deal of administrative
flexibility while improving accountability in an area of identified
weakness. This flexibility is provided in the design of the definition
as well as in the documentation requirements (which are unaffected by
this rule). Grantees may choose to assess participant income in one of
three ways based on the cash or asset elements included in either the
Section 8, Internal Revenue Service, or Census definitions of income.
The existing documentation requirements permit participants to self-
certify their family incomes or to substitute documentation of their
qualification in a Federal or State program that has income
qualifications at least as rigorous as the selected definition.
Standardizing the definitions ensures that citizens are treated fairly,
and retaining the current documentation requirements continues to
provide significant administrative flexibility to grantees. Further,
grantees still retain the responsibility for determining how much
assistance to provide.
HUD received eighteen comments on the proposed definition of
income, including comments from five urban counties, four metropolitan
cities, three national public interest groups, two low-income citizens
advocacy groups, two single city nonprofit housing rehabilitation
groups, one State, and one regional community development group. Twelve
of the commenters were generally in favor of the new, flexible
definition. Almost without exception, the commenters requested that if
HUD implemented the proposed definition, HUD should permit a fourth
option. The commenters suggested that this fourth option be either: (1)
to qualify automatically an individual already qualified under a means-
tested program, or (2) to allow each grantee to develop its own
definition, to be approved by HUD. Some confusion about the difference
between the documentation and definition provisions was apparent in the
comments on these points.
The two low-income advocates generally endorsed the definition of
income as proposed, although one requested additional clarification of
two points. The first point involves clarification of the language
proposed in paragraph (2) of the definition. By ``integrally related
activities of the same type,'' HUD intended to denote, for example, a
program of single family rehabilitation lending activities (which are
generally grouped for reporting purposes), a ``bundle'' of public
services provided through a single program to the same clientele (such
as services provided during transitional housing to the homeless), or a
portfolio of commercial loans made by a particular subrecipient. If the
grantee administers a community-wide single family rehabilitation loan
program, it should use the same definition of household income or
family income (as applicable) in evaluating each loan in that program.
HUD does not intend the phrase ``integrally related activities of
the same type'' to denote activities that are part of the same
``project,'' because many community development projects are for mixed
uses and mixed purposes. For example, a three-story building may have
public parking in the basement, commercial space and a community center
on the ground floor, and affordable housing in the upper stories. This
is all one construction project, but with distinct activities serving
different populations and meeting distinct national objectives within
the CDBG program. Further, while the term ``project'' is used
throughout the HOME program, it is only used for limited purposes in
the CDBG program (for example, under Secs. 570.203 and 570.204 and for
environmental and Davis-Bacon purposes).
Ideally, HUD would like each grantee to select one definition for
all its CDBG activities, or at least for purposes of meeting each
income-based national objective category. However, as described in the
preamble to the August 10, 1994 proposed rule, HUD recognizes that this
would be administratively difficult and not useful for many grantees.
[[Page 56894]]
Some commenters appeared to confuse definition and documentation
issues. Both advocacy groups suggested that the rule require, in
Sec. 570.3, that none of the three definitions be used if the
assistance was to be provided to a person who provides documentation of
income-eligibility for another program ``recognized as more rigorous
than CDBG.'' This suggestion mixes the definition of income at
Sec. 570.3 and the documentation of income at Sec. 570.506(b). The
definition of income merely describes the assets (if any), salaries,
and other income flows that must be considered in determining income.
The documentation requirements describe how to verify income at the
time assistance is provided. Therefore, if a person provides
documentation from another means-tested program to show that the
necessary elements (and possibly more than those elements) were
considered, and affirms that his/her financial status remains the same
at the time the CDBG assistance is provided, then HUD would find this
acceptable.
The groups also requested that Aid to Families with Dependent
Children (AFDC) and Supplemental Security Income (SSI) be added to the
definitions of ``programs at least as restrictive'' at Sec. 570.506.
HUD has decided to add neither, however, because the programs listed at
that point are illustrative. Documentation from any means-tested
program may be used if the grantee determines that the program's
elements and thresholds are at least as restrictive as the CDBG
definition being used for the activity.
Five grantees, one public interest group, and two nonprofits
requested that a fourth option be added to permit grantees to develop
their own definitions, or to continue using the definitions they had
been using. Because HUD intends to limit the variation in definitions
of income, HUD did not adopt these suggestions. However, as noted
above, if a person is participating in a means-tested State or Federal
program at least as restrictive as CDBG with regard to income elements
and thresholds, documentation of qualification for that program may be
used to determine CDBG income eligibility.
One grantee and two of its nonprofit subrecipients apparently
misconceived how the IRS and Census definitions are to be used. These
commenters apparently thought HUD meant that the Census or tax form, as
completed at the time required for Census or tax purposes, should be
used to determine CDBG income eligibility--even when the CDBG
assistance was provided months or years after an individual completed
the form. In almost all cases, neither of these documents alone would
accurately represent the level of income of the family or household at
the time CDBG assistance is provided. Instead, the familiar terms used
on these forms will help each person receiving assistance to understand
which cash and asset values to consider before making the certification
required by Sec. 570.506 as to their current family or household (not
individual) income, as appropriate. Although the IRS 1040 form is often
used to report individual income, not family or household income, that
form provides a familiar way to show people which kinds of income are
to be considered. One commenter asked whether the IRS short form could
be used. Any form can be used, provided the grantee ensures that the
information is current and that all sources of income covered by the
selected definition are considered in making income eligibility
determinations.
Finally, several commenters to the August 10, 1994 proposed rule
and to the Consolidated Plan proposed rule requested that the terms
used for the various income groups be conformed among the regulations
for the CDBG program, the consolidated plan, and other programs. After
discussion, HUD decided to use the existing CDBG terms in the
regulations for both the CDBG program and the consolidated plan. In the
consolidated plan HUD added two additional terms--''middle-income,'' to
denote families whose income is 80 to 95 percent of median income, and
``very low-income'' to denote families whose income is below 30 percent
of median income. HUD did not need to make changes in this rule to
accommodate this decision.
B. Calculation of the Planning and Administration Limitation
HUD's original proposal was to rule out source-year based
calculation of the spending limit and to require program-year based
calculation based on expenditures. In response to the comments and in
adherence with the principles of reinventing government, HUD changed
the rule at this final stage to make the calculation more accommodating
of costs (notably planning costs) which may unexpectedly cross program
year boundaries. HUD retained the regulatory provision specifying the
calculation method in the regulations instead of using less binding
guidance materials, because abuse in this area would decrease funds
available directly to improve the lives of low- and moderate-income
persons and to rebuild their communities.
HUD received thirteen comments on the proposed change to the
language describing the calculation of the limitation on planning and
administration expenditures. Two commenters, both low-income citizens
advocacy groups, supported the change. One group commented that the
change would ``inhibit grantees from playing shell games'' with
administrative funds. Both commenters felt that this change would make
it harder for grantees to hide from citizens the exact amount of funds
used for administering the program each year. One major metropolitan
city commented that the change would not affect it.
Three metropolitan cities, three counties, one State, and three
public interest groups submitted opposing comments. As one public
interest group commented: ``Although the source year method of
calculation is infrequently used by CDBG grantees, those who do use it
find the proposed change extremely detrimental.'' Almost every one of
these commenters cited the disruption that could be caused to the
calculation by a large contract (such as a planning contract)
unexpectedly extending into another program year. Several commenters
disagreed with the reasons HUD proposed the language change, stating
that if the performance report did not support source-year funding, it
should be modified. One commenter pointed out that program income can
simply be sourced to the year in which it is received. The State
commenter agreed with HUD's decision to rule out the source-year method
as inherently arbitrary. It argued, however, that it may be necessary
when apportioning expenditures among agencies with ``varied non-CDBG
funding sources,'' and the source-year method might also be the most
efficient way to govern and track expenditures by other entities. An
urban county and the interest groups made similar arguments.
The opposing commenters suggested a variety of solutions. One
suggestion was to drop the proposed change entirely. However, this
suggestion does not address the issues that led HUD to propose the
change in the first place or the issues raised by the advocacy
organizations in their comments. Another suggestion was to permit
grantees that use this method of accounting to submit to an audit to
determine whether they are using the method correctly, and to submit
the results of any audit in their favor to HUD for approval to use this
method. Another suggestion was to base the cap calculation on the
amount ``committed''
[[Page 56895]]
for administration during the program year, rather than the amount
expended. A variation of this suggestion was that the grantee count
expenditures when the activity was to be carried out by its own staff
and count commitments when the activities were to be carried out by a
subrecipient, a contractor, or, in the case of the State, another
agency.
In the past, HUD has based the planning and administrative
limitation on expenditures because many, if not most, of the
expenditures for these activities are for the grantee's own staff on
payroll. Prediction and management of annual payroll expenses is a
normal part of the budgeting process. Therefore, the expenditure basis
of the cap is not a burden for most grantees, but rather is the
simplest method of calculating and governing the cap. According to HUD
data, some grantees also have an unused margin each year.
In drafting the final rule, HUD rejected suggestions allowing
grantees to calculate 20 percent of each annual grant, and to use this
amount in the current year or to carry it over into future grant years
until the entire amount was expended. This could have the effect of
making expenditure of the maximum possible for program administration
costs the norm. Any funds spent on program administration are not being
spent on activities that more directly implement the purposes of the
Housing and Community Development Act of 1974 (the Act). However, HUD
agrees with commenters who argued that even with proper management,
planning and administrative contracts can occasionally involve
expenditures occurring in a year other than the one in which the costs
were budgeted. HUD also agrees that an expenditures-only test ignores
the difficulties in managing the precise period when a contractor or
subrecipient will actually expend funds. Therefore, this rule changes
the cap calculation by basing it on annual obligations (rather than
expenditures) for purposes of calculating the 20 percent cap. At the
end of the program year, grantees will reconcile these amounts using
the same method now used for reconciling the public services
limitation, which is currently calculated based on obligations. (While
the base for the public services cap includes the amount of program
income received during the previous program year, the base for the
planning and administration cap uses the current year's program
income.) Using this approach, a grantee that does not obligate any
planning and administrative funds before expending them is still
treated as though the requirement is based on expenditures rather than
obligations, while a grantee that requires some additional flexibility
will have it.
C. Revolving Funds and Returning Excess Program Income
HUD proposed the revolving loan fund (RLF) and return of program
income provisions in response to Inspector General findings. HUD is
making these changes to ensure that recipients of Federal resources
meet certain responsibilities (in this case demonstrating fiscal
responsibility and not unnecessarily increasing the Federal deficit) in
return for the Federal assistance, which is one of the principles of
reinventing government. The proposed rule language would have
eliminated the provision that sheltered money in RLFs from the
requirement that no additional funds be drawn down from the line of
credit when CDBG funds are already on hand.
HUD received 31 comments from groups and individuals regarding the
revolving loan fund proposed changes. Fourteen metropolitan cities,
four urban counties, three national interest groups, three community-
based nonprofit organizations, two regional community development
groups, two States, two local HUD program officers, and one low-income
citizens advocacy group were included among the commenters. All
commenters opposed the changes. Many of the comments linked the
proposed revolving loan fund changes to the proposed rule to require
grantee- or subrecipient-held program funds in excess of one-twelfth of
the grant amount to be returned to the line of credit.
HUD has considered all the comments and finds some of them
persuasive. However, several commenters apparently misunderstood how
the proposed changes would work and were concerned that HUD was
striking at the activities typically funded by RLFs, instead of just
adjusting the RLF mechanism. This in turn led to confusion of the
issues associated with permitting revolving funds to shelter program
income. However, HUD did not propose to eliminate revolving loan funds,
and HUD agrees that the activities typically carried out through
revolving funds (e.g., housing rehabilitation) serve vital program
purposes.
Any activity carried out under a revolving fund can be carried out
through the normal CDBG delivery mechanism. The basic question,
therefore, is whether the revolving fund structure, per se, serves a
vital program purpose. Under the proposed rule, principal and interest
payments for loans in a revolving fund would have been held in the
grantee's general program account, while RLF accounts would have been
kept separately. In effect, the proposed changes would have made the
grantee the ``bank'' in which the RLF was held. HUD did not contemplate
changes to the budgeting of RLF amounts in the final statement (now
called the action plan), so comments claiming that the changes would
increase the difficulty of securing funding during the local budgeting
process seem misplaced. Even under existing rules, program income to
RLFs must be projected for citizens who are then able to comment on
whether to propose another use for the funds.
Other comments include those described in the following paragraphs.
All of the following comments were expressed to some degree by more
than one commenter. Several commenters asserted that the proposed rule
changes would cause enough additional delay and expense that
administration of RLFs would become time prohibitive. For instance,
commenters remarked that RLFs held in local financial institutions can
provide access time as short as one day; such short access times are
often critical to small and minority contractors carrying out CDBG
activities. One commenter remarked that management of its own RLF by a
neighborhood- or community-based nonprofit organization empowers the
organization. Allowing it to manage and keep its own funds teaches the
skills that foster successful, sustainable organizations. Other
commenters added that if a financial institution is used as a
depository, it often can be persuaded to provide other benefits.
Commenters also argued that the proposed changes will increase
administrative costs to the RLF administrator caused by constant
passing back and forth of small amounts of money, resulting in fewer
CDBG dollars being used to assist activities.
In response, HUD agrees that it would be more advantageous for a
number of reasons to keep loan repayments in a separate account and not
``mix'' it with other program income, the use of which has not been
predetermined. This convenience does justify some expense to taxpayers.
Many commenters suggested as an alternative to the proposed rule
that HUD require a minimum expenditure from a revolving fund in a year,
or a maximum carryover percentage from year to year. One commenter, a
local HUD program officer, suggested a single system that at least
partly addresses the issues behind both the RLF proposal and the return
of grant funds proposal.
[[Page 56896]]
Because many of the commenters indicated linkages between the RLF and
return of excess program income proposals, the comments and issues
related to the return of excess program income proposal are discussed
immediately below, followed by the description of the final regulatory
provisions adopted in response to comments on both proposals.
The proposal to require return of excess program income drew 17
comments opposing it in whole or in part. The commenters included six
metropolitan cities, four urban counties, three public interest groups,
one low-income citizens advocacy group, one local HUD program officer,
one community-based nonprofit organization, and one State. The
strongest opposition came from those who interpreted the language to
mean that, on an ongoing basis, as a grantee accumulated in its program
account an amount greater than one-twelfth of its annual grant amount,
that amount must be remitted to the grantee's CDBG line of credit. This
is what HUD originally intended. Several commenters expressed intense
objection to this proposal, based on the costs of administering such a
complex system and passing small amounts of funds back and forth. Three
commenters stated that such a system would be a significant
disincentive to carrying out the revenue-producing activities that
currently generate approximately $450 million in additional funds for
community development activities annually.
Several commenters suggested that the funds should be required to
be remitted only at specific intervals, such as quarterly or annually.
This process would establish CDBG balances and allow HUD to be certain
that large sums were not being held unused, in violation of Treasury
guidelines. One commenter, the HUD program officer, linked the concept
of an annual remittance of funds on hand to his suggestion for how to
better manage RLFs. This commenter suggested that all unexpended funds,
except those needed immediately, those in RLFs, or those resulting from
legal lump-sum drawdowns, be remitted to the line of credit annually
near the beginning of the program year to establish a beginning
balance. Under this proposal, with this one exception, program income
received during the program year would be treated as it is now. At the
time of the remittance, the recipient would describe to HUD the exact
amount of funds in each RLF. The HUD program officer further proposed
annual RLF expenditure and carryover standards, which, if violated,
would result in HUD requiring the grantee to dissolve the RLF.
HUD is yielding to the unanimous view of the commenters that RLFs
are an important CDBG tool by retaining a specific provision for RLFs
in this final rule. The RLF provision in this final rule accommodates
the suggestions of the commenters while substantially addressing the
original problem, the loss of revenue to the U.S. Treasury. The final
rule provides that cash balances of each RLF must be held in an
interest-bearing account, and that any interest earned by funds
accumulating in this account must be remitted annually, at the end of
each program year, to the Treasury. This remittance will partially
offset the cost to the Treasury of removing RLF funds from the general
requirement that funds on hand must be used before any draws to the
Treasury. Interest paid by borrowers on loans made from the RLF will
remain program income and may be used as part of the RLF for further
lending.
Furthermore, in response to comments on the return of grant funds
proposal, HUD modified the rule to require all program income cash
balances or investments thereof in excess of one-twelfth of the grant
or subgrant amount--except for those needed immediately, those in RLFs,
those resulting from lump-sum drawdowns authorized under Sec. 570.513,
and those invested or held as additional security for a Section 108
loan guarantee--be remitted to the CDBG line of credit annually. This
remittance will take place as soon as practicable following the end of
the grantee's program year. HUD expects that all such remittances will
be complete within 60 days following the end of a grantee's program
year. The amount to be remitted will be calculated based on the total
program income balances (with the exceptions above) held by the grantee
and all of its subrecipients as of the last day of the grantee's
program year. While the rule requires at Sec. 570.503(b)(3) that
subrecipient agreements include a provision allowing the grantee to
require subrecipient remittance of program income cash balances or
investments at the end of the program year, the grantee is responsible
for determining whether amounts held by any subrecipient or
subrecipients are sufficiently large that such remittance will be
necessary to enable it to meet the requirement at
Sec. 570.504(b)(2)(iii). HUD anticipates that information describing
the exact amount of any program income cash balances and investments
thereof that the rule permits grantees to retain will be provided to
HUD by the grantee as part of the annual performance report.
D. Income Payments
The income payments provision of this final rule follows the
principles of reinventing government by clarifying and limiting
burdensome regulations; the rule allows grantees more options for
empowering program participants. On the effective date of this rule,
downpayment assistance (other than that authorized by Sec. 570.201(n)),
and loans for subsistence will be eligible public services, rather than
ineligible income payments. Only subsistence grants will remain CDBG-
ineligible.
HUD received 17 comments on the new definition of prohibited income
payments. The commenters included five urban counties, four
metropolitan cities, three public interest groups, two HUD program
officers, two low-income citizens advocacy groups, and one State. Only
the two HUD program officers opposed the change entirely.
First, one of the HUD program officers was concerned that loans for
income payments would often be made to those who could not or would not
make payments. Since grants are ineligible, this program officer asked
what HUD's position would be on the eligibility of a subsistence loan
activity that appeared from its results to be a grant activity. HUD
recognizes that loans for small amounts for subsistence activities are
risky. However, some grantees have had success in offering people the
responsibility of loan repayments along with subsistence assistance.
Grantees are responsible for meeting program requirements. If a loan
program default rate is unusually high, HUD would examine the system
the grantee has in place to ensure payment, and in this case, to ensure
eligibility. If such a system was absent or faulty, HUD would recommend
and, if necessary, enforce corrective actions.
The other program officer's objection was that other programs exist
to provide for subsistence and downpayment assistance, and that it is
inappropriate for the CDBG program to allow such activities. HUD
acknowledges that the regulatory prohibition against direct-to-the-
individual subsistence-type income payments exists, in part, because
other large programs, such as food stamps, Aid to Families with
Dependent Children (AFDC), Section 8, and Social Security are designed
to provide such assistance. None of these programs, however, provides
general assistance in the form of loans or is linked to an overall
community development program. Further, since such loans in the CDBG
program are subject to the 15
[[Page 56897]]
percent cap on public services obligations, their use will be limited.
In response to similar comments on downpayment assistance activities,
HUD believes it is clear that the amount required to meet the need for
downpayment assistance for low- and moderate-income persons exceeds the
amount of funds available under all HUD's programs within its Office of
Community Planning and Development (CPD). HUD strongly supports
expanding the resources available for homeownership, and many grantees
have already found CDBG useful for this purpose.
Five commenters opposed the placement of downpayment assistance in
the public services category upon its removal from the income payment
category, although all agreed that it is not an income payment. Some
suggested other placements for it, such as the economic development,
rehabilitation, or acquisition categories. HUD understands the
commenters' desire to keep downpayment assistance unencumbered by the
public service cap, and agrees that the category is not a perfect fit.
However, downpayment assistance also clearly does not belong under
economic development, as it is defined in the CDBG regulations.
Assisting acquisition by an individual homebuyer for the purpose of
rehabilitation is already eligible, but activities not associated with
rehabilitation do not fit in Sec. 570.202. Furthermore, the law limits
the eligibility of acquisition for purposes other than economic
development or rehabilitation to grantees and other public or private
nonprofit entities. Downpayment assistance may also be carried out by
qualified Community-Based Development Organizations (CBDOs) as part of
a Sec. 570.204 eligible activity (such activities will generally be
subject to the annual limitation on public services obligations).
Some of the commenters may have objected to changing the
eligibility of downpayment assistance because they believed that HUD
was indicating that such activities could meet the national objective
of benefit to low- and moderate income persons under the criteria at
Sec. 570.208(a)(2)--Limited clientele activities. However, application
of the limited clientele criteria would allow downpayment assistance
qualifying under Sec. 570.201(e) to be provided to a substantial
percentage (up to 49 percent) of above-income persons even if it is not
part of a neighborhood revitalization effort. The more appropriate low-
and moderate-income category to apply is Sec. 570.208(a)(3)--Housing
activities. For clarification, HUD modified the second sentence of that
section to include acquisition or rehabilitation by an individual
homebuyer on the exemplary list of activities covered by that
provision.
In terms of eligibility, downpayment assistance fits best as part
of the temporary category at Sec. 570.201(n)--Direct homeownership
assistance. The eligibility for this activity expired on its ``sunset''
date of October 1, 1995. However, HUD has requested that Congress amend
the statute to reinstate the activity's eligibility. One commenter, a
public interest group, objected to HUD allowing downpayment assistance
as a public service because this would remove pressure from Congress to
delete the sunset provision on direct homeownership assistance (a broad
category that includes downpayment assistance) as a separate activity.
However, HUD believes that downpayment assistance is useful to grantees
in meeting the needs of their residents and therefore has decided to
make this activity eligible under CDBG (although it is constrained by
the public services cap).
Four commenters requested that child care be removed from the list
of prohibited income payments. One wanted ongoing ``scholarship''
payments made to a family, organization, or institution for medical and
child care made eligible. HUD agrees that scholarships for child care
should be eligible and is removing child care from the list of
ineligible subsistence payments. However, the grantee must design a
system that ensures that any cash payment made to a family for child
care (or any purpose) is actually used as the grantee intended. To this
end, HUD recommends that, whenever possible, payments for such purposes
are made in the form of vouchers or payments directly to the provider.
One commenter wanted clarification that loans for housing
rehabilitation are not public services. Loans for housing
rehabilitation are eligible under Sec. 570.202 as rehabilitation
activities. Such loans are not eligible as public services. This
includes loans and downpayments to assist acquisition for the purpose
of rehabilitation.
The two advocacy groups wanted emergency one-time payments to be
changed to emergency payments made over no longer than a three-month
period. HUD agrees and has made the suggested change. Further, HUD
wants to clarify that, under the language of this rule, payments to
help a family or individual meet one emergency do not preclude such
assistance being provided to the same family or individual at some
later, not immediately sequential, point in time to meet a different
emergency. The commenters also wanted the preamble language stating
that loans for subsistence would not be considered income payments to
be stated in the regulation, along with language in Sec. 570.207
stating that downpayment assistance was no longer prohibited by that
paragraph. HUD has adopted the first half of the suggestion at
Sec. 570.201 by adjusting the specific activity list. However, adding
language in Sec. 570.207 would be redundant.
E. Float-Funded Activities
Float-funded activities use undisbursed funds in the line of credit
and the CDBG program account that are budgeted in action plans for one
or more other activities that do not need the funds immediately. HUD
included the provision governing float-funded activities in the
proposed rule at the urging of the Office of Inspector General, which
had identified serious repeated findings of program mismanagement in
two audits of interim financing carried out during the 1980s.
In the proposed rule, HUD added criteria for float-funded
activities in the final statement section of the regulations. These
criteria included citizen participation and security requirements
necessary to offset the risks of float-funding. In this final rule,
because HUD incorporated basic final statement requirements into the
regulations for the consolidated plan (24 CFR part 91), the float-
funded activities language is the bulk of the language remaining in
Sec. 570.301.
HUD received 11 comments with respect to these proposed
requirements. Three public interest groups representing community
development practitioners, three urban counties, two low-income
advocacy organizations, two large metropolitan cities, and a local HUD
Community Planning and Development program officer responded. Seven of
the commenters, including the HUD program officer, wanted the 2.5-year
time limit for the duration of a float-funded activity either removed,
lengthened, or modified by adding a provision permitting exceptions to
the limit in certain cases. One advocacy organization suggested the
2.5-year limit might be too long, but admitted a lack of experience
with the issue area. The other two commenters, a city and a county,
generally supported HUD's proposed changes. The county characterized
the rule as ``logical and sufficient.''
[[Page 56898]]
In the preamble to the proposed rule, HUD noted that among the
primary risks to the CDBG program inherent in the float funding process
are, first, that the float-funded activity will not generate sufficient
program income to allow for timely undertaking of previously budgeted
activities. HUD also noted that in undertaking a float-funded activity
from which funds will not return for use for previously budgeted
activities for a particularly long time period, grantees apparently
assume that they will receive sufficient additional CDBG funds in
future years to continue funding those previously budgeted activities
until the float-funded activity generates program income. HUD further
noted that grantees are only authorized to use such a funding technique
(e.g., relying on future CDBG funds to backstop a large loan for a
particular activity in the present) under the Section 108 Loan
Guarantee program. Although one commenter, a city, stated that an
irrevocable letter of credit removes the first risk, HUD's experience
is that this is not always the case. Most of the commenters did accept
the 2.5-year limit as the general rule or as a guideline. However, in
response to comments, HUD is clarifying that, while it expects most
float-funded activities will conform to the 2.5-year requirement, a
float-funded loan may be extended, reissued, or ``rolled over'' by
treating it as though it were a new float-funded activity and showing
that it meets all the same requirements that apply to float funding.
(In the past, HUD equated float extensions and rollovers with
refinancing existing indebtedness, which is not generally allowed under
the CDBG program.)
The advocacy organizations suggested a variety of special action
plan amendment procedures for float-funded activities, including the
following requirements: relating changes to consolidated plan
priorities, focusing citizen participation on the area or neighborhood
that would have benefited from a defaulted or canceled float-funded
project, and reprogramming action within 30 days of learning of the
delay or default. HUD has long held that float-funded activities must
meet all the same requirements that apply to CDBG-assisted activities
generally, and the proposed rule added additional requirements only in
response to the identified primary risks to the program stemming from
the float-funding process. The suggested additional citizen
participation requirements far exceed the existing requirements
covering all CDBG activities. Therefore HUD is not adopting these
suggested changes.
One of the public interest groups asked HUD to clarify that the
rule did not mean that each float-funded activity be identified
separately in the action plan, but rather that such activities be
identified by eligibility category, as many other activities may be
designated (e.g., community-wide single family rehabilitation loan
programs). However, to ensure that citizens are properly informed, HUD
does intend that each float-funded activity be identified separately in
the action plan.
Another of the public interest groups stated that the income stream
from an activity can be difficult to predict, and it requested
information on how HUD would treat a grantee who carried out a float
activity that exceeded the 2.5-year limit. In response, HUD suggests
that activities appropriate for float funding be evaluated for the
predictability of their income streams, with only more predictable
activities being so funded. HUD further notes that the corrective
actions permitted to HUD under the CDBG program vary from issuing a
letter of warning to enforcing a grant reduction. The local HUD offices
(in the case of float-funded activities, usually in conjunction with
Headquarters) will assess each deficiency and design a corrective
action to prevent a continuation of the performance deficiency,
mitigate the adverse consequences of the deficiency, and prevent a
recurrence of the deficiency. As noted above, the rule does provide for
float-funded activities to be extended, reissued, or rolled-over,
provided certain requirements are met.
Two grantees responded to the request for comment on whether a
limit should also be set on the proportion of a grantee's funds that
could be used for float funding. Both grantees responded that there
should be no limit, stating that the other proposed requirements were
sufficient to address the identified risks. Therefore, HUD will impose
no such limit at this time.
One commenter, a grantee, suggested that the rule permit the action
plan covering the float-funded activity to describe the characteristics
of the lender that will provide an irrevocable letter of credit, rather
that providing the actual lender's name. The commenter also suggested
describing the maximum and minimum terms for the letter of credit in
the action plan, because the terms may change somewhat when the deal is
negotiated after the action plan is amended. HUD finds no problem with
this approach if the language used is as specific as possible.
Therefore, any grantee choosing this approach should contact its local
HUD office for guidance in developing a suitable description.
Another commenter, the local HUD program officer, suggested that
the action plan break out the identified float payment amount into
principal and interest, so that citizens can tell whether the activity
will ``make money.'' This rule requires at Sec. 570.301(b) that each
float-funded activity be individually listed in the action plan, and
that the ``full amount'' of income expected to be generated by that
activity must be shown (the latter requirement is also included in the
consolidated plan regulations at 24 CFR 91.225(g)(1)(ii)(D)). These
requirements will permit citizens to determine easily whether the
activity is expected to ``make money.'' The rule language is also
easily adaptable to float-funded activities that do not involve loans.
The program officer also suggested that HUD allow in the rule for
HUD approval of grantee-proposed methods, other than those described in
the rule, of securing the repayment of the float funding. HUD accepted
this proposal, so long as the method ensures fund availability within
30 days of default or shortfall. This approval can be made in writing
by the appropriate local HUD office, in advance of carrying out the
float-funded activity.
F. Using CDBG Funds Outside the Grantee's Jurisdiction
HUD included this provision in this rule as a result of the
Inspector General's audit findings regarding grantees loaning funds to
other jurisdictions rather than using the funds in their own. The
proposed language would have added a new Sec. 570.309 to require that,
prior to using CDBG funds to assist projects outside jurisdiction
boundaries, grantees make a determination that the principal benefit of
the activities will accrue to persons residing within jurisdiction
boundaries.
HUD received 13 comments on this portion of the proposed rule, nine
of which expressed some opposition. Those opposed included four urban
counties, one State, one national public interest group, one regional
nonprofit organization, and one large metropolitan city. An advocacy
group and a national public interest group supported the proposal with
little additional comment. A metropolitan city and an urban county
neither supported nor opposed the proposed change, but requested
clarification on its effects. In addition, HUD received one comment
from a local HUD program officer opposing the rule as proposed and
raising some related issues.
[[Page 56899]]
The opposition to this proposal was primarily based on the chilling
effect the commenters felt this proposal would have on projects that
were jointly funded by cities and counties. The large metropolitan city
argued that this change would increase the isolation of central cities.
One urban county argued that all economies are linked--there are
indirect effects of development and long-term benefits to an area from
an activity, even one outside the county's jurisdiction. HUD's concern
should be assuring that a national objective is met. Several grantees
requested that different activities, such as water and sewer
developments, that are expected to result in jobs be excluded from the
requirement.
One public interest group cited a February 7, 1986 HUD memorandum
signed by former Assistant Secretary for Community Planning and
Development Moran. The Moran memorandum discussed an issue raised by an
urban county using CDBG funds in cities within the county, but outside
the jurisdiction of the urban county. As stated in that memorandum, HUD
believes that the determination of to whom and how an activity will
provide benefit is best left to the county. At that time, HUD had not
yet come across any grantee that appeared to be regularly spending CDBG
funds outside its jurisdiction. Since that time, several grantees have
loaned their CDBG funds to nonparticipating or nonentitled
jurisdictions, or have used CDBG funds outside their jurisdictions,
despite pressing need for facilities and services within their own
jurisdictions.
The CDBG formula results in grant awards to communities to benefit
the residents whose poverty and housing needs determined (via the
formula) the amount of funding. HUD has noticed that, particularly in
large urban counties, citizens can easily be unaware of the boundaries
of the urban county for purposes of the CDBG program when it differs
from the boundaries of the county as a whole, and may not be aware that
funds that were supposed to benefit one community are being spent to
benefit another. Since HUD is aware that activities located outside a
grantee's jurisdiction may indeed provide substantial benefits to the
citizens within the jurisdiction, the rule does not prohibit such
activities. The rule simply requires that the grantee consider whom the
funds will benefit and make a determination. HUD will not question the
determination unless it is clearly unreasonable. The rule does not
limit the amount or percentage of funds that may assist such an
activity, and should not affect joint efforts by cities and counties to
benefit their residents.
Several commenters noted that ``principal'' benefit would be
difficult to determine in certain cases. For example, the amount of
benefit to ascribe to each jurisdiction participating in joint
affirmative fair housing activities might not be easily assigned. In
response, HUD has adjusted the final rule to require a determination
that the activity was necessary to meet the purposes of the Act and
community development objectives of the recipient, and that
``reasonable'' benefits will accrue to the residents of the recipient.
The recipient is free to determine the reasonableness of the benefits
in such case.
HUD received an inquiry from a large metropolitan city about
whether this rule change would block affirmative fair housing efforts
to develop minority housing outside of areas of minority concentration.
In response, HUD definitely does not believe that this provision will
cause any such problem, especially as HUD has adjusted the provision in
this final rule.
One commenter, the HUD program officer, raised issues about the
difficulty of monitoring this provision. The purpose of this provision
is to ensure that, in funding an activity outside its boundaries, the
recipient has properly considered the purposes for which it was awarded
the funds. In most cases, HUD monitoring will simply involve making
certain that the determination has been made. Only when the HUD monitor
believes that the likely extent of the benefits to residents within the
jurisdiction is clearly not commensurate with the amount of funds spent
on the activity should it be raised as an issue with the recipient. For
example, a loan of CDBG funds to another jurisdiction for an activity
that would provide little or no benefit to the recipient's residents
would be very likely to provoke a challenge from HUD.
G. Remission of Grant Funds
This provision responds to Inspector General findings and
implements a General Accounting Office (GAO) opinion that income
generated by an ineligible CDBG-assisted activity must be returned to
the U.S. Treasury. Since, in the context of the GAO opinion,
eligibility includes meeting a national objective, this provision
should invoke a sharpened grantee focus on successful outcomes--
interest generated from CDBG-funded loans may only be kept by the
grantee when the national objective requirements are achieved.
HUD received four comments on this portion of the proposed rule. A
low-income advocacy group commented simply that it supported the
change. Another commenter, a State, had no objection, but suggested the
language ``or fail substantially to meet any other requirement of this
part'' was overly broad. However, HUD is retaining this language, as it
is standard language throughout the CDBG regulations in similar
situations.
A large metropolitan city requested a clarification on whether
return of interest is possible with CDBG funds. It gave an example of
an economic development loan that was supposed to meet the national
objective of low- and moderate-income jobs, but does not. The commenter
stated: ``Auditors declare the loan ineligible because no national
objective was met. Can the City identify CDBG funds and pay HUD the
interest earned, or is the grantee expected to use non-federal funds
for repayment?'' If a grantee received interest that is required to be
remitted to HUD pursuant to Sec. 570.500(a)(2) and used the interest
for payment of the costs of carrying out activities in its CDBG
program, it may remit CDBG funds (grants or program income) to HUD.
Grants should not be used for this purpose, however, if program income
is available. The commenter also wanted to know whether it is correct
in presuming that only interest, not principal, need be repaid in such
a case. The rule requires the interest to be remitted to the Treasury;
there is no recovery of principal amounts required for this purpose. If
HUD advises reimbursement of the principal amount using local funds,
any such payments would be available for use by the grantee under CDBG
rules and would not go to the Treasury.
One commenter, a public interest group, wants HUD to pay more
attention to the initial use for an eligible activity. HUD understands
the commenter to be objecting to consideration of the national
objective outcome in determining whether funds should be remitted.
However, this rule provides that if a grantee makes a loan that is
found not to meet a national objective, the interest may not be
retained by the grantee, whether the loan was eligible in a more narrow
sense or not. HUD intends to continue emphasizing loan programs that
are outcome-oriented.
H. Consolidated Plan Performance Standard
This rule provides performance criteria for implementing the
consolidated plan. This is important because every CDBG grantee must
certify, before receiving its annual grant, that it is carrying out its
consolidated plan--not just for its CDBG activities,
[[Page 56900]]
but for all programs and actions covered by the plan. Without a
published, regulatory performance standard, grantees are unlikely to
understand the significance of this certification.
HUD received six comments on this portion of the proposed rule.
Also, several entities commenting on the Consolidated Plan final rule,
published on January 5, 1995 (60 FR 1878), asked what standard HUD
would use to judge whether a grantee had ``carried out'' its
consolidated plan. HUD placed the standard in this rule because the
standard is driven by a CDBG-specific certification (see
Sec. 91.225(b)(3)) required by statute to be made before CDBG funds can
be awarded. A grantee making the certification affirms that it is
following its consolidated plan--in its entirety, not just the CDBG
portions--and that each CDBG-assisted activity will be consistent with
the plan. Failure to follow the consolidated plan can result in loss of
future CDBG funds. Parts of the Stewart B. McKinney Homeless Assistance
Act, including the Emergency Shelter Grants program, are governed by a
similar certification (Sec. 91.225(c)(9)), so forfeit of these funds
may also be possible if the consolidated plan is not followed.
One national public interest group commented that the proposed
standard is vague. The commenter requested clarification of the
standard and conformance of the standard with the consolidated plan.
HUD agrees that the proposed standard is general; it designed the
criteria to cover broad categories of actions (to pursue and use
resources, to make certifications of consistency, to take promised
actions, and to refrain from obstructionism) that HUD considers most
important in ensuring each plan is implemented. Within these
categories, the standard will be as general or as vague as the
descriptions of actions contained in each community plan. The same
grounds that led HUD to adopt custom-tailoring of each plan to the
needs and priorities of each community also led HUD to decide that the
suitable policy for administering the certification was to hold each
community to the standard of action the community set for itself in its
consolidated plan. The HUD review will be carried out by the same local
HUD office that is responsible for approving the plan. HUD made no
change to the rule as a result of this comment.
Two low-income advocacy organizations asked HUD to make grantees
``follow'' the consolidated plan by allocating fair share based on
needs. As HUD noted in the preamble to the Consolidated Plan final
rule, HUD declines this suggestion. HUD's goal for the consolidated
plan is to provide the framework for communities to have meaningful
plans. HUD does not wish to substitute its judgment for locally
developed plans and priorities framed through the strengthened citizen
participation process.
A national public interest organization and an urban county
commented that the proposed standard of taking all promised actions is
too high and inappropriate. Instead, they suggest a ``due diligence''
clause. HUD believes a standard that all promised actions should be
carried out will strengthen the consolidated plan process by
strengthening the confidence of citizens that the grantee really
intends to implement the actions described in the plan. The regulation
allows for consideration of events beyond the control of the grantee
and for grantee rebuttal of HUD reviews. Therefore, HUD made no change
in response to these comments.
One metropolitan city suggested this section be eliminated as
unnecessary. HUD agrees that this section would be unnecessary if the
certification was not to be reviewed. However, section 104(e) of the
Act requires HUD to review a grantee's performance to determine, among
other things, whether a grantee has ``carried out * * * its
certifications.'' Without some standard for performance review, the
consolidated plan would be an empty exercise. HUD has the
responsibility to ensure that each grantee meets all program
requirements, including the certification. Grantees have the right to
know against what standard their performance will be judged.
IV. Provisions From the November 12, 1993 Proposed Rule on
Sanctions
HUD published for comment two provisions of this final rule as a
proposed rule on November 12, 1993 (58 FR 60088). This proposed rule
covered performance reviews, timely expenditure of CDBG funds,
sanctions, and due process hearings. HUD has included the first two
topics in this final rule, but has withdrawn the other two topics.
After thoroughly considering the comments on the November 12, 1993
proposed rule, HUD decided to adjust its approach to these issues, and
HUD will be publishing another proposed rule in these areas shortly.
Therefore, this rule reflects the following changes to subpart O of
part 570--Performance Reviews. HUD has withdrawn its changes to
Secs. 570.907-913 and plans to repropose changes to these sections.
A. Performance Review Procedures
In order to clarify the relationship between HUD's review
procedures and HUD's process for resolving findings of deficiencies,
this final rule amends several of the elements of the performance
review procedures under Sec. 570.900 to: clarify what the primary
information sources will be for such reviews; provide the recipient
that has failed to comply with a program requirement an opportunity to
provide additional information; and indicate what initial actions HUD
may take.
B. Timely Performance
With respect to entitlement recipients, this final rule revises and
clarifies how HUD will review to determine if CDBG-funded activities
are being carried out in a timely manner.
HUD received two comments, both from grantees. One commenter
suggested that the measurement of timely performance be taken at a date
coincident with consolidated planning or reporting. Another commenter
recommended that program income not be coupled with the balance in the
line of credit because of the effect of balloon repayments on
timeliness calculations. This final rule at Sec. 570.902 indicates that
HUD will not only consider a recipient's line of credit balance but
also its program income on hand 60 days prior to the end of the program
year, as well as any evidence that lack of timeliness resulted from
factors beyond the grantee's reasonable control, believing that
generally a grantee should be able to plan and budget for the use of
scheduled loan repayments, including balloon repayments. HUD has
decided to continue measuring timeliness 60 days prior to the end of
the program year so that program progress can be considered prior to
the next grant award.
V. Provisions From the June 17, 1992 Interim Rule
A. Public Services Cap
This provision expands the public services limitation and rewards
entrepreneurial grantees by allowing a portion of program income to be
included in the amount available for public services. This increases
the amount of funds available for public services for grantees that
earn program income, and furthers government reinvention by maximizing
the grantees' options for fund use.
HUD received three comments on this portion of the rule. One
grantee suggested that the program income used in the calculation
should come from the time period that ends one year before
[[Page 56901]]
the beginning of the program year for which the cap is being
determined. HUD had considered this option prior to publication of the
interim rule, but rejected the time period as being overly remote from
the time period for which the action plan was being prepared. The other
two comments supported counting program income from the program year
immediately preceding the year for which the cap is being determined.
HUD selected this method for the final rule.
B. Conflict of Interest
This rule also incorporates a change to the prohibition against
conflicts of interest in the use of CDBG funds. This change furthers
government reinvention by clarifying regulatory requirements and by
limiting regulatory burdens. The conflict of interest provisions of
this rule include coverage of the subrecipient relationships that are
central to CDBG, but that are not as common in programs outside HUD's
Office of Community Planning and Development. (The regulation does not
apply to conflicts in regard to procurement contracts, which are
covered by 24 CFR part 85.) As described in the preamble to the June
17, 1992 interim rule (57 FR 27117-18), HUD believes that the conflict
rules should be limited to the prohibition of situations that provide a
financial interest or benefit.
HUD received three outside comments on the new provision, two from
national community development organizations and one from a city
official. All the commenters supported the change, believing that the
new regulation is sufficient without requiring further definition or
restriction. One commenter, employed as a community development
director in a CDBG entitlement community, offered personal experience
that his ability to serve on the boards of nonprofit corporations was
an effective use of his time. The commenter cited his belief that it
ensures better use of CDBG funds and compliance with Federal mandates
as the CDBG-funded activities are carried out. Both national
organizations expressed hope that amending the conflict of interest
regulation is a sign that HUD is moving away from ``overregulation of
public officials'' who are involved with nonprofit subrecipients. These
two commenters believe that serving on such organizations' boards has a
positive public benefit to the grantee, the subrecipient, and HUD.
In addition, HUD received comments from two local HUD offices, one
from an office manager and another from a community planning and
development director. Although both agreed that the use of the word
``personal'' has created difficulty, one was concerned that its removal
may undermine HUD's efforts to eliminate improper lobbying and
influence peddling. The other supported the proposed change.
Both HUD commenters offered additional points for consideration.
First, both expressed concern about the introductory phrase at
Sec. 570.611(b): ``Except for the use of CDBG funds to pay salaries and
other related administrative or personnel costs. * * *'' One commenter
felt that persons outside HUD read the phrase literally, and that the
phrase could appear, by itself, to allow current board members of a
CDBG subrecipient routinely to request CDBG-paid employment with that
subrecipient and to be considered routinely for open positions, without
prior approval from HUD.
The other HUD commenter believed the application of this exception
to the grantee and its subrecipients is not clear. This commenter
expressed concern that the exception implies that subrecipient board
members or city directors would be allowed to hire family members as
staff, and that other forms of nepotism or preferential treatment could
occur (absent any local civil service rules to the contrary). The
commenter described a situation in which the paid director of a
nonprofit subrecipient leased space in a building he owned to the
nonprofit for its offices. Both his salary and the rent were paid with
CDBG funds. While the field office interpreted this as a conflict, this
could have been considered ``related administrative costs'' excepted
under the rule's introductory phrase, instead of a situation that
requires a request for an exception under the provisions of
Sec. 570.611(d) and (e). Both commenters recommended that HUD add
clarifying language expressly to indicate that receipt of a salary by
an existing CDBG-funded staff person for performing eligible activities
is not to be considered, in itself, a prohibited interest or benefit
under Sec. 570.611.
Since the existing introductory language at Sec. 570.611(b) appears
to cause confusion, HUD has deleted it. Although the commenters
suggested changing or adding clarifying language, HUD decided that the
existing restrictions at Sec. 570.206 (Program administration costs)
along with Sec. 570.611 are sufficient to prevent inappropriate
situations. Exceptions can be handled through the mechanism in
Sec. 570.611(d).
HUD received a second comment about Sec. 570.611(b), specifically
the phrase ``may obtain a financial interest or benefit from a CDBG-
assisted activity.'' The commenter expressed concern that a strict
interpretation could prohibit a covered person in a subrecipient entity
from obtaining an interest or benefit from any CDBG funded activity,
not just the one(s) administered by the subrecipient. Although such an
extreme interpretation is possible, generally a subrecipient employee
is restricted to just the activity run by the subrecipient (although a
city employee would be restricted from any CDBG activity). Thus, HUD
made no change in the current language.
A third commenter raised the suggestion that HUD should replace the
words ``contract, subcontract'' in Sec. 570.611(b) with words such as
``subrecipient agreements.'' This commenter remarked that the current
terminology confuses the application of these rules, since procurement
activities are covered in other regulations (in 24 CFR parts 84 and
85). Since the word ``agreement'' is already in Sec. 570.611 (in the
same phrase), it is not appropriate to follow this suggestion.
``Contract'' and ``subcontract,'' as defined words, are appropriate to
use in part 570 as well as parts 84 and 85, and in OMB Circular A-110.
A fourth commenter suggested that the phrase ``family or business
ties'' in Sec. 570.611(b) needs an expanded definition. This commenter
expressed concern that, without more definition, it is unclear whether
``immediate family,'' as defined in 24 CFR 85.36, is intended. The
commenter argued that, in some communities with histories of extended
family ties, it could be difficult to avoid a conflict. Similarly, the
commenter expressed concern that, without definition, the business ties
between, for example, an individual and the family doctor would be
construed to pose the same conflict of interest concern as those
between members of a partnership in a business. In response to this
concern, HUD has amended Sec. 570.611(b) to include the word
``immediate'' to clarify the extent of family to be covered. HUD has
left the term ``business'' unchanged, however, on the basis that the
exception provisions will allow for the necessary distinction.
A fifth comment concerned the existing language at Sec. 570.611(c)
(Persons covered). By not including the word ``of'' at the beginning of
the final phrase, ``subrecipients that are receiving funds under this
part,'' the commenter argued that a subrecipient would not include in
the regulation's coverage the same persons as those ``of the recipient,
or of any designated public agencies.'' It
[[Page 56902]]
could instead be construed only to mean the subrecipient as an entity
and not its employees as individuals. HUD has therefore amended the
rule at the beginning of that final phrase, ``subrecipients that,'' to
commence with the word ``of,'' to be consistent with the other two
types of entities covered.
Another commenter expressed concern that handling exceptions on a
``case-by-case basis'' has created a time-consuming exercise for both
HUD and grantees in responding to the current regulation, which the
commenter found to be too broad and vague. This commenter offered a
number of suggestions, including allowing grantees to establish
procedures ``in a manner acceptable to HUD,'' exempting specific
members and officials of subrecipients from persons covered, and
separating the regulations applicable to the grantees from those
applicable to subrecipients. HUD has clarified the conflict of interest
provision in this rule, which should eliminate many of the exception
cases that would now come to HUD for a determination. The exception
thresholds in this rule continue to include a determination by the
recipient's attorney that the conflict in question does not violate
local or State standards. HUD does not believe, however, that
permitting grant recipients to exempt some of their employees or
subrecipient employees from CDBG conflict of interest provisions is in
the best interests of the CDBG program.
In reviewing the comments, HUD determined that, although no further
substantive changes to the regulation at Sec. 570.611 are necessary,
some editorial reorganization of Sec. 570.611(d) would further clarify
the exception requirements. Therefore, this final rule adjusts the
language at Sec. 570.611(b) as specified above, and makes additional
adjustments to Sec. 570.611 (d) and (e).
C. Loans to Subrecipients
This provision expands the ways CDBG assistance may be provided to
subrecipients. It follows the principles of government reinvention by
increasing grantee flexibility.
HUD received four comments on this provision. Two of the four
commenters, an urban county and a public interest group, requested HUD
to permit the urban county to make loans to units of general local
government participating under an urban county consortium. The
commenters gave the following reasons for this proposal: (1) the change
would enhance program options and creativity; (2) the change would
allow the grantee greater leverage in monitoring an activity and
provide more opportunity for reusing funds; and (3) grants could be
continued to communities experiencing widespread distress, but loans
could be provided to better-off communities capable of repayment as an
incentive to serve low-income areas.
HUD understands that the commenters would like the units of
government participating in an urban county to be subrecipients for
almost all purposes. However, since the urban county is simply a
jurisdiction composed of a group of local governments (including a
county) joined into one entity for the purpose of receiving a CDBG
entitlement, any loan by the administering entity (the county
government) to a member of the jurisdiction is a loan by the urban
county to itself, and, as such, is not permissible.
HUD has adjusted Sec. 570.500(c), defining ``subrecipient'' to
clarify that a subrecipient may receive funds from the recipient or
from another subrecipient.
D. Program Income Generated by Loans to Subrecipients
The intent of this provision is to permit grantees to accept loan
payments derived from program income from subrecipients while
eliminating any double-counting of program income received through that
process. HUD received two comments on the revisions to program income
in relation to loans to subrecipients, one from an urban county and one
from a national public interest organization. HUD made no changes to
the rule as the result of these comments.
One commenter objected to excluding from the calculation of total
program income received any loan repayments received by grantees from
subrecipients when such payments are made from program income received
by the subrecipient. The commenter stated that while it may be
appropriate in some cases for the repayment of principal to be
classified as a ``return or transfer of grant funds,'' interest
payments should always be treated as new income. The comment suggests a
misunderstanding of what HUD intended by the new Sec. 570.500(a)(3).
This section does not classify loan repayments to grantees by
subrecipients using program income as a ``return of grant funds,'' as
that term is generally used in the CDBG program. It classifies them as
``transfer[s] of program income.''
If the funds used by a subrecipient to make principal or interest
payments on a CDBG loan it received from a grantee consist solely of
program income received by the subrecipient, no amount of those
payments to the grantee represents ``new income'' to the grantee's CDBG
program as a whole. If, however, the subrecipient uses non-CDBG funds
to make the principal or interest payments, those payments to the
grantee are ``new income'' to the CDBG program. The new
Sec. 570.500(a)(3) does not affect the treatment of such payments.
VI. Provisions From the March 28, 1990 Proposed Rule
HUD received a number of comments on the March 28, 1990 proposed
rule. This final rule will not be implementing citizen participation
changes resulting from the Housing and Community Development Act of
1987. These changes were included in the Consolidated Plan final rule,
published on January 5, 1995 (60 FR 1878). Additional CDBG citizen
participation changes, most notably requirements regarding float-funded
activities, were published in the August 10, 1994 proposed rule
discussed above. This rule will also not be implementing the
substantial reconstruction provision of the March 28, 1990 proposed
rule at this time, because pending legislative proposals would make
this change unnecessary.
A. Use of CDBG Funds for Assisting Certain Uniform Emergency Telephone
Number Systems
This provision increases grantee flexibility by implementing a new
eligibility provision. HUD received nine comments on the proposed
provisions implementing this use of CDBG funds. Two of the commenters
were national organizations, one of them having an interest in the
administration of the CDBG program generally, and the other
representing persons involved in administering emergency number
systems. Three of those commenting were officials of urban county grant
recipients under the CDBG program. Two others represented law
enforcement agencies that would presumably be involved in a uniform
emergency number system. The remaining two commenters were from
Congress--one Senator and one Representative. The commenters generally
did not provide a basis for changing the proposed provisions, and the
final rule reflects only minor clarifying changes to the proposed rule.
Two of the commenters argued that the information that grantees
would be required to submit to HUD for approval under these provisions
for the use of CDBG funds for uniform emergency telephone number
systems (ETNS) would be too costly and impractical, especially for
large metropolitan cities and urban counties. They believed that
[[Page 56903]]
since grantees can only use CDBG funds under this provision for the
activity for two years, it would not be worth the expenditure of time
and effort to gather and submit the proposed material. HUD acknowledges
this possibility, but has been unable to identify any other more
suitable ways to determine that the proposed activity meets all of the
requirements set forth in the Act. The Act requires HUD to determine
that at least 51 percent of the users of the system in question will be
low- and moderate-income persons. It is not possible for HUD to make
such a determination without factual information about the system and
its likely users. Since the commenters did not offer any other
approaches for HUD to consider, the final rule does not vary much from
the proposal.
However, some of the commenters appeared to misunderstand how the
proposed provision would operate in the CDBG program. The proposal
would only come into play with respect to those emergency number
systems that serve a geographical area that does not contain a high
enough percentage of low- and moderate-income persons to qualify under
the present regulations. (See Sec. 570.208(a)(1) as it existed before
this rule.) For emergency systems serving areas having percentages of
such persons amounting to 51 percent or more, or where the service
area's percentage is less than 51 percent but still falls within the
community's ``highest quartile'' (see Sec. 570.208(a)(1)(ii)), there
would be no need for the grantee to submit information to HUD or for
HUD to make any of the determinations called for in this rule.
One commenter believed the requirement that the CDBG contribution
to the cost of the system be limited in proportion to the percentage of
low- and moderate-income persons residing in the service area
constituted a ``method and perhaps a test of proportional accounting.''
This may have been a reference to HUD's announced intention several
years ago to seek legislation aimed at changing the benefit accounting
method for the program, which HUD subsequently decided not to pursue.
However, HUD derived this portion of the proposed rule directly from
the statute, and does not have any intention to change the method of
accounting used generally in the CDBG program.
Two commenters suggested that HUD adopt a rule on the use of CDBG
funds for ETNS that would allow all communities the opportunity to use
funds to develop, establish, and operate ETNS to meet their own
specific needs. The commenters were concerned that the proposed rule
limited the usage to communities in which more than 51 percent of the
residents of the area were low- and moderate-income (except for those
communities covered by the ``highest quartile'' provision in the
regulations). However, this is not the case. HUD designed the proposed
rule to allow communities to use CDBG funds for ETNS in areas in which
less than 51 percent of the residents are low- and moderate-income, if
51 percent of the users of the system will be low- and moderate-income.
(In making this determination, HUD will assume that the distribution of
income among the callers generally reflects the distribution of income
among the entire population residing in the same area where the callers
reside.)
For example, a community has an ETNS that covers three census
tracts (tracts A, B, and C) with low- and moderate-income residents
consisting of 20 percent for tract A, 80 percent for tract B, and 40
percent for tract C. (The percentages of low- and moderate-income
persons are derived by dividing the total number of low- and moderate-
income persons per census tract by the total number of persons within
the census tract.) A total of 95 calls were received: 15 calls from
tract A, 50 from tract B, and 30 from tract C. HUD would presume that 3
of the calls from tract A, 40 calls from tract B, and 12 calls from
tract C were from low- and moderate-income persons (20% x 15 = 3;
80% x 50 = 40; and 40% x 30 = 12). Thus, HUD would consider 55 of the
95 calls to be from low- and moderate-income persons, which is
equivalent to 57.89 percent, exceeding the minimum required threshold
of 51 percent.
One commenter, a rural county, suggested that rural communities be
allowed to apply directly to HUD for CDBG funds for ETNS. The Housing
and Community Development Act of 1974 requires States to distribute
CDBG funds to nonentitled areas, unless a State has elected not to
carry out the CDBG program. Only two States, Hawaii and New York, have
made such an election. Therefore, nonentitled communities may not
receive funds directly from HUD in the other States. This commenter
also stated that grants for ETNS in the rural counties in its State had
not been included in the State's most recent final statement. Because
this provision has not yet been made a part of the regulations, a State
would not have been expected to include activities qualifying under
this provision in its final statement. For years, however, States have
been able to make grants to be used for ETNS serving areas in which at
least 51 percent of the residents are low- and moderate-income.
Another commenter sought clarification concerning the extent to
which CDBG funds may be used to support an ETNS. The statute itself
limits the percentage of the total cost of the ETNS development,
establishment, or operation that is to be provided using CDBG funds to
be no higher than the percentage of low- and moderate-income persons
residing in the area served by the system. For example, using the same
hypothetical situation as described above, assume that the grantee's
jurisdiction consists of three census tracts (tract A having 20
percent, tract B having 80 percent, and tract C having 40 percent low-
and moderate-income persons), and that the ETNS would serve the entire
community. Also assume that tracts A and C each contain 100 people,
while tract B contains only 80. Thus, the number of low- and moderate-
income persons residing in these tracts would be 20 persons in tract A,
64 in tract B, and 40 in tract C. The total number of low- and
moderate-income persons in the service area would be 124 out of a total
of 280 persons. The percentage of low- and moderate-income persons in
the service area would then equal 44.3 percent. CDBG funds for
developing, establishing, and operating an ETNS during a one- or two-
year period could therefore not exceed 44.3 percent of the total cost
of developing, establishing, or operating the system. If it is assumed
that the grantee only wanted to assist the operation of the system for
one year, and that such an operation would cost $100,000 in total, CDBG
funds in an amount not to exceed $44,300 could be used for this
purpose.
The same commenter also asked what research had been done before
the proposed rule was developed, arguing that the guidelines would have
been quite different had research been done regarding what segment of
the population actually used ETNS. HUD sought information from various
State, local, and national organizations before developing the proposed
rule. None of them was aware of any data already available that would
demonstrate that any particular percentage of the total users of an
ETNS would likely be of low or moderate income. In fact, one national
organization suggested that interested communities should be required
to gather data over a three-year period to determine the
characteristics of the system's users. HUD determined, however, that
such a requirement would be unnecessarily onerous for grantees, and
decided instead that one year's
[[Page 56904]]
experience would be adequate for this purpose.
One of the commenters, a grantee, sought clarification on several
issues not related to applying for approval of an ETNS under the
proposed provisions. Noting apparent inconsistencies in the preamble to
the proposed rule, the grantee asked which HUD office was to be making
the required HUD determinations that: (1) The system will contribute
substantially to the safety of the residents of the area served by the
system; (2) not less than 51 percent of the use of the system will be
by persons of low- and moderate-income; and (3) other Federal funds
received by the recipient are not available for the development,
establishment, and operation of the system due to the insufficiency of
the amount of the funds, restrictions on the use of the funds, or the
prior commitment of the funds for other purposes by the recipient. This
determination is to be made by the appropriate local HUD office.
This commenter also asked about HUD's definition of ``emergency
services.'' HUD did not propose a definition of emergency services,
believing that communities would only include services that involve
emergency situations under their respective ETNS. HUD believes the
emergency services that would typically be included in an ETNS are
police, fire, and ambulance services. However, it recognizes that
larger communities could be expected to include others, such as a
suicide hotline. The same commenter also argued that, particularly in
some rural communities, information on the number of calls received
over the preceding 12-month period and the location from which those
calls were made may not be available. This final rule provides that the
grantee is to submit ``information that serves as a basis for HUD to
determine whether 51 percent of the use of the system will be by low-
and moderate-income persons.'' The information on past users discussed
by the commenter is to be supplied ``as available.'' HUD is unaware of
any basis upon which it could make the required determination about the
income levels of likely users of a ETNS other than that specified in
the rule. However, the grantee may submit whatever it believes could be
used for this purpose, and HUD will review it as necessary to make a
judgment about its usefulness. Since HUD expects that a grantee not
having the past-use data mentioned in the rule may contemplate
expending considerable effort to acquire other data for submission to
HUD for this purpose, the rule suggests that the grantee make known its
planned methodology to HUD in advance, in order to find out if HUD
would consider the planned methodology to be acceptable as a basis for
making its required determination.
The same commenter also recommended that the requirement that 51
percent of the users be low- and moderate-income should be reduced,
pointing to the provision in Sec. 570.208(a)(3)(i)(B) that permits as
little as 20 percent occupancy by low- and moderate-income residents in
cases in which CDBG funds are used to assist newly constructed,
multifamily, nonelderly rental housing. However, the statute provides
specific requirements for activities that benefit an area generally,
such as an ETNS. These requirements are more exacting than those
required for housing activities. For an ETNS that cannot qualify under
the provisions in the regulations as they existed before this rule, the
requirement to determine that at least 51 percent of the users will be
low- and moderate-income persons is statutory and cannot be changed by
regulation.
The commenter also thought that HUD should consider permitting ETNS
to be carried out in Urban Development Action Grant (UDAG) eligible
areas, because these areas qualify as distressed communities. However,
the UDAG program has been terminated, and HUD no longer determines
community distress levels for that program. Moreover, a designation of
UDAG eligibility could not necessarily be substituted for the
determination of income status of the likely users of an ETNS for the
community, which the statute requires for this purpose.
One commenter stated that, given the regulatory requirements in the
proposed rule, it was unlikely that significant amounts of CDBG funds
would be spent on ETNS. While this may be the case, HUD does not have
flexibility under the statute to reduce the requirements associated
with this provision to increase the likelihood of use of CDBG funds.
B. Use of CDBG Funds To Pay Special Assessments
This provision increases grantee flexibility, furthering the
principles of reinventing government, by allowing assistance for an
eligible activity to consist solely of special assessments made on
behalf of low- and moderate-income households. HUD received four
comments on this proposed provision. None of the comments provided a
basis for changing the rule. One commenter suggested that when CDBG
funds are used just for the special assessments and are not used to pay
for the construction of the public improvement directly, the project
should not be subject to all the requirements of the CDBG program, such
as Davis-Bacon and citizen participation. However, there is no
eligibility category under which CDBG funds can be used for paying a
special assessment except for the eligibility of the improvement for
which the assessment is made. Thus, even when the only form of CDBG
usage assisting a public improvement is in paying for special
assessments levied for that improvement, all of the CDBG program rules
are triggered with respect to the construction (see
Sec. 570.200(c)(3)).
Two commenters suggested that HUD amend this provision to limit the
use of CDBG funds for the payment of assessments. One suggested that it
should be limited to payments on behalf of low-income households,
instead of both low- and moderate-income households, in order to avoid
the use of CDBG funds in what they described as the ``better parts of
town.'' However, the statutory provision itself authorizes the use of
funds for both categories of households, and HUD does not believe there
is a need to so limit the regulatory provision. The second commenter
suggested that the rule allow the use of CDBG funds to pay for the
assessments for the very lowest-income households among those assessed,
without having to pay the assessments on behalf of all of the low- and
moderate-income households involved. To the degree that the statute
allows, the regulations do provide for an exception only with respect
to moderate-income households in certain circumstances. Given the clear
statutory provisions, HUD cannot allow additional payment limitations
based on income.
VII. Statutory Amendment Provisions
Title I of the Housing and Community Development Act (the Act) has
been amended a number of times since 1987. Several self-implementing
changes to the Act affecting the CDBG program are included in this rule
merely to conform the regulations with statutory provisions. This
furthers government reinvention by bringing the CDBG rule current with
all its authorizing legislation, as grantees have requested. An updated
entitlement CDBG rule will simplify program administration for CDBG
entitlement grantee staff who currently must research back and forth
among various statutes and outdated regulations, handbooks, and
guidance to determine activity eligibility and program standards. The
statutory additions largely increase grantee options and enhance CDBG
flexibility.
[[Page 56905]]
A. National Affordable Housing Act
Subtitle A of title IX of the Cranston-Gonzalez National Affordable
Housing Act (Pub. L. 101-625, approved November 28, 1990) (the NAHA)
amends the Housing and Community Development Act of 1974 (the Act).
Section 903 of the NAHA amends section 102 of the Act, which includes
the definitions of ``metropolitan city'' and ``urban county.'' HUD has
amended the definition of ``metropolitan city'' in Sec. 570.3 to
reflect the statute. No amendment is needed to the definition of
``urban county'' in Sec. 570.3, because the regulation includes any
other county eligible under section 102(a)(6) of the Act.
Section 904 of the NAHA amends section 102(a)(12) of the Act, which
includes the definition of ``extent of growth lag,'' to provide for
boundary changes for a metropolitan city or urban county as a result of
annexation. HUD has amended Sec. 570.3 to add the new statutory
language. In Sec. 570.3, however, HUD refers to the more appropriate
1990 census, rather than the 1980 census to which section 102(a)(12)
refers. This modification is required by section 102(b) of the Act.
Section 912 of the NAHA amends section 109 of the Act to prohibit
discrimination on the basis of religion. HUD has amended Sec. 570.602
to add the term ``religion.''
B. Housing and Community Development Act of 1992
Section 807 of the Housing and Community Development Act of 1992
(Pub. L. 102-550, approved October 28, 1992) (the 1992 Act) amends
section 105(a) of the Act to establish two new categories of eligible
CDBG activities: the provision of technical assistance to public or
private entities to increase their capacity to carry out eligible
neighborhood revitalization or economic development activities as
outlined in a new Sec. 570.201(p), and the provision of assistance to
institutions of higher education for carrying out eligible activities.
Provision of technical assistance to public or nonprofit entities
to increase their capacity to carry out eligible neighborhood
revitalization or economic development activities is specifically
exempted from the 20 percent limitation on planning and administrative
costs under Secs. 570.205 and 570.206. Since this new provision became
effective upon enactment, any costs incurred after October 28, 1992 for
building such capacity should be considered eligible under the new
provision and not subject to the 20 percent limitation, provided that
the use of such funds after the effective date can be shown to meet one
of the national objectives.
Since this provision of the statute clarifies that the capacity
building must be linked to CDBG-eligible neighborhood revitalization or
economic development activities, a grantee must determine the
eligibility of the activity for which it is attempting to build
capacity. It must also determine which national objective can
reasonably be expected to be met once the entity has received the
technical assistance and undertakes the activity. For example, a
grantee may provide CDBG record-keeping, work write-up, loan
underwriting, and rehabilitation inspection training to a nonprofit
organization that anticipates carrying out a housing rehabilitation
loan program. The grantee's contract with the nonprofit should identify
the eligible activity and the national objective expected to be met by
the rehabilitation program that is to be undertaken as a result of this
capacity building effort. In determining the national objective to be
met, the grantee should: (1) Review the nature of the organization, the
type and eligibility of the activity expected to be carried out, the
location of the activity, and the entity's expected (or traditional)
clientele; and (2) as a result of the review, have a reasonable
expectation that the activity to be undertaken by the nonprofit entity
would comply with a national objective. For example, the grantee might
reasonably conclude that the contemplated activity would meet the
national objective of benefit to low- and moderate-income persons based
on a review of the nonprofit's charter that showed the organization's
activities would be directed toward and benefit the low- and moderate-
income persons in the neighborhood in which it operates. HUD makes
conforming changes to reflect the recipient determinations at
Secs. 570.200(e) and 570.506(c).
The 1992 Act also added a new paragraph 105(a)(22) to the Act.
CDBG funds may now be used by colleges and universities that have the
demonstrated capacity to use the funds for eligible activities. HUD
intends to permit grantees to make this determination of demonstrated
capacity using their own judgment. A grantee determination is the most
effective way to meet this requirement, since the grantee is most
familiar with the entities to which it proposes to give CDBG funds and
is therefore in the best position to make a judgment of capacity. This
rule adds a new paragraph Sec. 570.201(q), and makes conforming changes
to reflect the recipient determinations at Secs. 570.200(e) and
570.506(c).
Section 807(b) of the 1992 Act amended section 907(b)(2) of the
NAHA by extending the date that use of funds for direct homeownership
assistance is eligible under the CDBG program to October 1, 1994. In
addition, the date to which the Secretary of HUD may, under certain
circumstances, extend such eligibility was changed to October 1, 1995.
HUD received three comments in response to the publication of the
direct homeownership assistance provision in the June 17, 1992 interim
rule. All three commenters supported the extension. Two commenters
recommended extending it beyond the original NAHA date of October 1,
1992 and making it a permanent eligible use of CDBG funds. HUD
published a Federal Register notice on September 30, 1994 (59 FR 49954)
extending the provision to October 1, 1995, and this final rule amends
the regulations to reflect that date. Although the provision terminated
when the extension period ended, HUD has requested that Congress change
the statute to reinstate the activity's eligibility. Thus, HUD has
retained the provision for now, although it is not in effect. HUD also
made a conforming change to Sec. 570.506.
Section 807(c)(1) of the 1992 Act amended section 105(g)(2) of the
Act to authorize training, technical assistance, or other support
services to increase the capacity of small businesses,
microenterprises, the recipient, or subrecipient to carry out CDBG
economic development activities. These costs were not to be included in
the limitation on administration and planning expenditures. This
provision was effective upon enactment. The Economic Development
Guidelines, published on January 5, 1995 (60 FR 1922), incorporated
into the CDBG regulations at Sec. 570.201(o) the portions of the
statute dealing with the microenterprises. This rule adds a new
Sec. 570.201(o)(4), allowing capacity building for the grantee and
subrecipient as microenterprise activities.
Section 807(e) of the 1992 Act amended section 105(a)(3) of the Act
with respect to the current restrictions on areas in which CDBG funds
may be used for code enforcement activities, and now permits grantees
to take into account privately funded development. Previously, CDBG-
funded code enforcement was only permitted in deteriorated or
deteriorating areas in which such enforcement, together with public
improvements and services to be provided, would be expected to arrest
the decline of the area. This rule
[[Page 56906]]
amends Sec. 570.202(c) to permit consideration of private improvements
in determining areas in which CDBG-assisted code enforcement may be
provided. Section 570.202(c) now also clarifies that only the costs of
inspections, not the costs of any improvements done as a result, are
eligible in this category.
Section 809 of the 1992 Act amends section 105(a)(13) of the Act to
make eligible the use of CDBG funds to pay for the reasonable
administrative costs related to establishing and administering a
Federally approved Enterprise Zone. While this authority became
effective upon enactment, its utility is dependent on the implementing
regulations at 24 CFR part 597, published January 12, 1995 (60 FR
3434), for the Federal Empowerment Zone and Enterprise Community
legislation. This rule adds a new paragraph (i) to Sec. 570.206 to
provide authority for such costs for officially designated Federal
Empowerment Zones and Enterprise Communities (EZ/EC).
C. Residential Lead-Based Paint Hazard Reduction Act of 1992
The Residential Lead-Based Paint Hazard Reduction Act of 1992 is
title X of the 1992 Act. This final rule includes one statutory
provision from this Act requiring little or no regulatory elaboration.
The provision allows for evaluation and reduction of lead-based paint
hazards as a separate activity. While reduction of lead-based paint
hazards has always been a CDBG-eligible activity (provided the activity
could meet a national objective), evaluation was heretofore only
eligible in conjunction with a rehabilitation activity. Section
570.202(f) provides authority for evaluation as a rehabilitation
activity in itself.
D. Multifamily Housing Property Disposition Reform Act
The Multifamily Housing Property Disposition Reform Act of 1994
(Pub. L. 103-233, approved April 11, 1994) (the 1994 Act) included two
eligibility enhancements and expanded CDBG waiver authority for
disaster areas. Section 234 of the 1994 Act added section 122 to the
Act to provide flexibility to the CDBG program for disaster areas. This
rule adds this provision to the regulatory waiver provisions at
Sec. 570.5. When a CDBG recipient designates its CDBG funds to address
the damage in an area for which the President has declared a disaster
under title IV of the Robert T. Stafford Disaster Relief and Emergency
Assistance Act (42 U.S.C. 5170-5189b), the Secretary may suspend all
requirements for purposes of assistance under section 106 of the Act
for that area, except for those related to public notice of funding
availability, nondiscrimination, fair housing, labor standards,
environmental standards, and requirements that activities benefit
persons of low- and moderate-income.
To use this provision, a CDBG recipient may designate funds from
existing or future grants to address damage in a Presidentially
declared disaster area and request the Secretary to waive provisions of
law or regulation for the purpose of making such funds available for
disaster recovery purposes. Local HUD offices receiving disaster
recovery waiver requests will expedite the forwarding of such requests,
together with local office reviews and recommendations, to the
Assistant Secretary for Community Planning and Development for
consideration.
Assuming HUD grants the waivers, the activities being carried out
with the designated funds would operate under different requirements
than the regular CDBG program. Therefore, the grantee will be required
to annotate its performance report in such a way that activities for
which waivers have been granted are distinguishable from regular
program activities. Also, the grantee will be required to annotate and
describe the activity in such a way in its annual action plan or
amended action plan, as appropriate, that the activity is clearly
distinguishable as a designated disaster recovery activity.
Section 207 of the 1994 Act also amended section 105(a)(13) of the
Act to allow payment of reasonable administrative costs and carrying
charges related to administering the HOME program under title II of the
NAHA. This provision is included together with the EZ/EC provision at
Sec. 570.206(i). The costs covered by these provisions do not include
planning costs under Sec. 570.205. All administrative costs, whether
used to administer the EZ/EC, HOME, or CDBG programs, are summed before
applying the CDBG 20 percent limit on planning and administration
expenditures. Activities may not be carried out under Sec. 570.206(g),
which currently is not available because of its link to a Housing
Assistance Plan (HAP) that is no longer in effect for any grantees. HUD
is currently exploring possible ways to update this provision.
Section 207 of the 1994 Act also amended section 105(a)(21) of the
Act, authorizing housing services, such as housing counseling in
connection with tenant-based rental assistance and affordable housing
projects assisted under title II of the NAHA, energy auditing,
preparation of work specifications, loan processing, inspections,
tenant selection, management of tenant-based rental assistance, and
other services related to assisting owners, tenants, contractors, and
other entities participating or seeking to participate in housing
activities assisted under title II of the NAHA.
These activities have been eligible since the enactment of CDBG
amendments in 1992, but otherwise ineligible CDBG assistance in support
of the HOME program was subject to the 20 percent limit on
administrative and planning expenditures. The current amendment removes
this restriction. This rule includes this provision at Sec. 570.201(k).
Any costs of delivering the housing services made eligible under
the amended section 105(a)(21) are eligible. CDBG grantees using the
two programs together should be reminded that the eligibility and
benefit requirements of the two programs differ, that the HOME term
``project'' and the CDBG term ``activity'' are not synonymous, and that
care should be exercised in management and documentation of blended
activities. To simplify this process, this rule adds a new paragraph at
Sec. 570.208(a)(3)(iii), which states that when CDBG funds are used for
housing services eligible under Sec. 570.201(k), such funds shall be
considered to benefit low- and moderate-income persons when the housing
for which the services are provided is to be occupied by low- and
moderate-income households. Documentation demonstrating that the HOME
project (or projects) supported by the CDBG housing services activity
meets the HOME income targeting criteria at 24 CFR 92.252 and 92.254
should be sufficient to demonstrate compliance with this provision.
VIII. Miscellaneous Technical Updates and Corrections
This rule replaces the obsolete references in subpart J to OMB
Circular A-110 with references to 24 CFR part 84, and this rule updates
the references to OMB Circular A-87 to reflect recent revisions to that
document. In conjunction with this update, HUD is clarifying and
broadening the rule at Sec. 570.200(h) defining pre-agreement (now pre-
award) costs. The current CDBG rule authorizes a few types of costs
that may be incurred prior to execution of the annual grant agreement;
this rule permits grantees to incur any cost that meets certain
standards (e.g., the activity is included
[[Page 56907]]
in the consolidated plan and citizens have been informed) and then
charge the costs to the grant after the effective date of the grant
agreement. Further, until now when a cost was not one of the types
specified in the rule, the grantee had to request a pre-agreement cost
waiver from HUD Headquarters. Under this rule, a grantee wishing to
incur a cost that does not meet the new, broader standards may request
certain pre-award cost exceptions from the local HUD office. This
change furthers reinvention by providing local jurisdictions greater
flexibility to determine use of resources and by devolving
responsibility for decisionmaking to the local offices, thereby greatly
limiting the number of cases that will need the Assistant Secretary's
approval.
Another technical change is to replace the term ``handicapped'' in
Secs. 570.208 and 570.506 with terms compatible with available income
data on persons with a disability provided by the Bureau of the Census'
Current Population Reports. The data, issued in 1993 from the Survey of
Income and Program Participation, provide a basis for a national
presumption that adults meeting the Census criteria for severe
disability meet the low- and moderate-income national objective under
the CDBG program. The Census definition of severe disability only
applies in the CDBG program for purposes of making presumptions about
income levels for groups of disabled persons; it does not apply for
purposes of meeting responsibilities under section 504 of the
Rehabilitation Act of 1973, the Americans With Disabilities Act, or the
Architectural Barriers Act. Therefore, HUD is changing the terminology
in this rule to clarify the distinction between the income presumption
provision and the civil rights requirements. Also, this rule adds the
term ``persons living with AIDS'' to Sec. 570.208(a)(2)(i)(A), because
reliable national data has become available from the Center for Disease
Control in Atlanta to support a reasonable presumption that at least 51
percent of such persons in a given geographic area are low- and
moderate-income. This rule also clarifies provisions under which the
use of CDBG funds is authorized for the removal of barriers to
accessibility for elderly and disabled persons. Section 105(a)(5) of
the Act makes eligible the use of program funds for special projects
directed to the removal of material and architectural barriers that
restrict the mobility and accessibility of elderly and handicapped
persons. Under current law and regulation, this provision has very
limited usefulness and has caused confusion. HUD believes that it is
important that the rules clearly state how CDBG funds may be used for
barrier removal. The real questions arise with respect to national
objective compliance. Virtually all public facilities and improvements
serve an area generally and are thus subject to the limitations imposed
by section 105(c)(2) of the Act. This provision states that activities
that serve an area generally may be considered to address the national
objective of benefit to low- and moderate-income persons only if the
percentage of residents in the service area who are of such income
meets certain minimum levels. In the regulations, this limitation is
implemented at Sec. 570.208(a)(1). Where accessibility barriers exist
in a facility or improvement that serves an area that does not meet
this requirement, the use of CDBG funds to remove such barriers can be
problematic. Many years ago, to provide a way to authorize the use of
CDBG funds to remove barriers in such cases, Sec. 570.208(a)(2) was
added to the regulations allowing use of CDBG funds for the following
to be considered to meet the national objective of benefit to low- and
moderate-income persons:
``(ii) A special project directed to removal of material and
architectural barriers which restrict the mobility and accessibility
of elderly or handicapped persons to publicly owned and privately
owned non-residential buildings, facilities and improvements and the
common areas of residential structures containing more than one
dwelling unit.''
This presumption assumes that the principal benefit will go to elderly
and disabled persons, and that the general public will not also benefit
substantially from the activity, since if it did the activity might not
meet the general rule that the majority of the beneficiaries must be
low- and moderate-income persons. A number of recent policy cases have
arisen from grantee confusion about the current language. To clarify
the eligibility of architectural barrier removal, this rule removes the
separate eligibility category at Sec. 570.201(k) and describes in
Sec. 570.201(c) and Sec. 570.202(b) that architectural barrier removal
is an eligible activity. This rule also changes Sec. 570.208(a)(2) to
clarify in which circumstances the limited clientele presumption may be
applied to such activities.
Another technical change at Secs. 570.304(a), 570.429(g), and 24
CFR 91.500 restores language inadvertently deleted by the Consolidated
Plan final rule, and clarifies that HUD retains authority under the
CDBG program to require additional assurances from grantees when
substantial evidence exists that a certification of future performance
is not valid. This CDBG authority is in addition to the current
Consolidated Plan final rule (based on the Comprehensive Housing
Affordability Strategy statutory language) that simply provides for
certifications to be wholly accepted or wholly rejected. Requiring
additional assurances and potentially delaying or limiting the
grantee's access to funds may trigger CDBG due process hearing
requirements. Therefore HUD will coordinate such actions between HUD
local offices and Headquarters.
Another technical change reinstates the applicability of the
Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157) (the ABA) to
the CDBG Entitlement program. The ABA requires certain Federal and
Federally funded buildings and other facilities to be designed,
constructed, or altered in accordance with standards that ensure
accessibility to, and use by, persons with physical disabilities. HUD's
original regulations implementing the CDBG program required compliance
with accessibility standards issued pursuant to the ABA. (See former 24
CFR 570.606, 39 FR 40148, November 13, 1974; 42 FR 33020, June 28,
1977.) By final rule published September 23, 1983, and made effective
November 2, 1983 (48 FR 43538), HUD amended its regulations governing
the CDBG program to reflect changes made in the Act by the Housing and
Community Development Act of 1980 (Pub. L. 96-399, approved October 8,
1980), and the Housing and Community Development Amendments of 1981
(Pub. L. 97-35, approved August 13, 1981). The purpose of the amending
regulations, as noted by HUD in the proposed rule published October 4,
1982 (47 FR 43900), was to eliminate requirements not mandated by
statute. On this basis, HUD eliminated the requirement that the CDBG
program comply with the ABA accessibility standards (47 FR 43909, 48 FR
43549). HUD stated that the CDBG program was not statutorily subject to
the accessibility standards of the ABA because the CDBG statute does
not provide authority for imposing design, construction, or alteration
standards on CDBG-funded facilities, as required by section 4151(3) of
the ABA, and that it had imposed the ABA standards on the CDBG program
as an administratively adopted requirement (47 FR 43909). HUD noted,
however, that some facilities constructed or altered with CDBG
assistance would remain subject to accessibility standards
[[Page 56908]]
by reason of the applicability of section 504 of the Rehabilitation Act
of 1973.
Since HUD's decision in 1983 to remove compliance with the ABA as a
CDBG program requirement, two significant events caused HUD to
reconsider this decision. The first event was the passage of the Fair
Housing Amendments Act of 1988 (Pub. L. 100-430, approved September 13,
1988) (Fair Housing Act), which amended Title VIII of the Civil Rights
Act of 1968 to add prohibitions against discrimination in housing on
the basis of handicap and familial status. The Fair Housing Act also
made it unlawful to design and construct certain multifamily dwellings
for first occupancy after March 13, 1991 in a manner that makes them
inaccessible to persons with disabilities. Further, the Fair Housing
Act made it unlawful to refuse to permit, at the expense of the person
with a disability, reasonable modifications to existing premises
occupied or to be occupied by such person if such modifications are
necessary to afford such person full enjoyment of the premises.
The second event was the passage of the Americans with Disabilities
Act (Pub. L. 101-336, approved July 26, 1990) (ADA), which provides
comprehensive civil rights to individuals with disabilities in the
areas of employment, public accommodations, State and local government
services, and telecommunications. The ADA provides that discrimination
includes a failure to design and construct facilities for first
occupancy no later than January 26, 1993 that are readily accessible to
and usable by individuals with disabilities. Further, the ADA requires
the removal of architectural barriers and communication barriers that
are structural in nature in existing facilities, where such removal is
readily achievable--that is, easily accomplishable and able to be
carried out without much difficulty or expense. (See the final rule
implementing the ADA published by the Department of Justice on July 26,
1991 (56 FR 35544, 35568)).
The Fair Housing Act and the ADA indicate a clear policy that
housing and commercial facilities and public accommodations should be
``readily accessible and usable by'' individuals with disabilities. In
light of these developments and to foster consistency in the
administration of HUD's programs, this final rule reinstates compliance
with the ABA as a CDBG program requirement.
Compliance with the requirements of the ABA will be applicable to
funds allocated or reallocated under the CDBG Entitlement, State, and
HUD-administered Small Cities programs and the Section 108 Loan
Guarantee program, after the effective date of this final rule.
Assisted facilities must meet the requirements of the Uniform Federal
Accessibility Standards for alterations if the alterations are financed
in whole or in part by CDBG funds made available after the effective
date of this final rule. Although alterations made without the use of
Federal funds would not have to comply with the accessibility
requirements of the ABA, alterations made to these facilities, in most
instances, will have to comply with the accessibility requirements of
the public accommodations provisions of the ADA. This final rule makes
this regulatory change at Sec. 570.614(a).
This final rule also provides a specific listing at Sec. 570.614(b)
for the ADA. The ADA is (and has been) covered by the grantee's annual
certification that it will comply with ``applicable laws.'' The
addition of the specific provision highlighting the ADA is being made
for consistency with other applicable laws for which HUD has
enforcement responsibilities. The Federal Communications Commission has
enforcement authority for enforcing the portion of the ADA applicable
to emergency telephone numbering systems (the CDBG-eligibility of which
is highlighted and enhanced in this regulation) and to common carriers.
This final rule replaces an obsolete reference to the Small Cities
Application in Sec. 570.405(e) on Insular Areas with a requirement that
insular area applicants submit a final application and certifications
to the appropriate HUD office in a form prescribed by HUD. This rule
clarifies how HUD-administered Small Cities in New York will be treated
under the consolidated plan. Section 570.423(a) has been revised to
state clearly that New York HUD-administered Small Cities applicants
that submit an abbreviated consolidated plan must prepare and publish a
proposed application and comply with the citizen participation
requirements of Sec. 570.431 whether or not their application contains
housing activities. HUD has previously determined that the Insular area
grantees were subject to Sec. 570.200(a)(3), which requires compliance
with the primary objective of the Act. HUD is specifically adding
insular areas recipients to this section to enhance clarity.
IX. Other Matters
A. Executive Order 12866
The Office of Management and Budget (OMB) reviewed this rule under
Executive Order 12866, Regulatory Planning and Review, issued by the
President on September 30, 1993. Any changes made in this rule
subsequent to its submission to OMB are identified in this docket file,
which is available for public inspection between 7:30 a.m. and 5:30
p.m. weekdays in the Office of the Rules Docket Clerk, Office of the
General Counsel, Room 10276, Department of Housing and Urban
Development, 451 Seventh Street, SW, Washington, DC 20410-0500.
B. Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this rule before publication and by
approving it certifies that this rule does not have a significant
economic impact on a substantial number of small entities. This rule
does not affect the portion of the CDBG regulations that affects small
entities.
C. Environmental Impact
A Finding of No Significant Impact with respect to the environment
was made in accordance with HUD regulations in 24 CFR part 50 that
implement section 102(2)(C) of the National Environmental Policy Act of
1969 (42 U.S.C. 4332). The finding is available for public inspection
between 7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules
Docket Clerk at the address provided under the section of this preamble
entitled ``Executive Order 12866.''
D. Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that the policies
contained in this rule will not have substantial direct effects on
States or their political subdivisions, or the relationship between the
Federal government and the States, or on the distribution of power and
responsibilities among the various levels of government. As a result,
the rule is not subject to review under the Order. This rule is limited
to implementing statutory provisions and responding to identified
deficiencies in the CDBG program.
E. Executive Order 12606, The Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this rule does not have
potential for significant impact on
[[Page 56909]]
family formation, maintenance, and general well-being, and thus is not
subject to review under the Order. No significant change in existing
HUD policies or programs will result from promulgation of this rule, as
those policies and programs relate to family concerns.
List of Subjects
24 CFR Part 91
Aged, Grant programs--housing and community development, Homeless,
Individuals with disabilities, Low and moderate income housing,
Reporting and recordkeeping requirements.
24 CFR Part 570
Administrative practice and procedure, American Samoa, Community
development block grants, Grant programs--education, Grant programs--
housing and community development, Guam, Indians, Lead poisoning, Loan
programs--housing and community development, Low and moderate income
housing, New communities, Northern Mariana Islands, Pacific Islands
Trust Territory, Pockets of poverty, Puerto Rico, Reporting and
recordkeeping requirements, Small cities, Student aid, Virgin Islands.
Accordingly, 24 CFR part 91 is amended; and part 570 is amended by
adopting the interim rule published June 17, 1992 (57 FR 27116) as
final, and is further amended, as follows:
PART 91--CONSOLIDATED SUBMISSIONS FOR COMMUNITY PLANNING AND
DEVELOPMENT PROGRAMS
1. The authority citation for part 91 continues to read as follows:
Authority: 42 U.S.C. 3535(d), 3601-3619, 5301-5315, 11331-11388,
12701-12711, 12741-12756, and 12901-12912.
2. Section 91.500 is amended by revising paragraph (b) introductory
text to read as follows:
Sec. 91.500 HUD approval action.
* * * * *
(b) Standard of review. HUD may disapprove a plan or a portion of a
plan if it is inconsistent with the purposes of the Cranston-Gonzalez
National Affordable Housing Act (42 U.S.C. 12703), if it is
substantially incomplete, or, in the case of certifications applicable
to the CDBG program under Sec. 91.225 (a) and (b), if it is not
satisfactory to the Secretary in accordance with Sec. 570.304 or
Sec. 570.429(g) of this title, as applicable. The following are
examples of consolidated plans that are substantially incomplete:
* * * * *
PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS
3. The authority citation for part 570 continues to read as
follows:
Authority: 42 U.S.C. 3535(d) and 5300-5320.
4. Section 570.2 is amended by revising the second sentence to read
as follows:
Sec. 570.2 Primary objective.
* * * Consistent with this primary objective, not less than 70
percent of CDBG funds received by the grantee under subparts D, F, and
M of this part, and under section 108(q) of the Housing and Community
Development Act of 1974 shall be used in accordance with the applicable
requirements for activities that benefit persons of low and moderate
income.
5. Section 570.3 is amended by revising the definitions of ``CDBG
funds'', ``Extent of growth lag'', ``Low- and moderate-income
household'', ``Low- and moderate-income person'', ``Low-income
household'', ``Low-income person'', ``Metropolitan city'', ``Moderate-
income household'', and ``Moderate-income person'', and by adding a new
definition of ``Income'' in alphabetical order, to read as follows:
Sec. 570.3 Definitions.
* * * * *
CDBG funds means Community Development Block Grant funds, including
funds received in the form of grants under subparts D or F of this
part, funds awarded under section 108(q) of the Housing and Community
Development Act of 1974, loans guaranteed under subpart M of this part,
urban renewal surplus grant funds under subpart N of this part, and
program income as defined in Sec. 570.500(a).
* * * * *
Extent of growth lag means the number of persons who would have
been residents in a metropolitan city or urban county, in excess of the
current population of the metropolitan city or urban county, if such
metropolitan city or urban county had a population growth rate between
1960 and the date of the most recent population count available from
the United States Bureau of the Census referable to the same point or
period in time equal to the population growth rate for that period of
all metropolitan cities. Where the boundaries for a metropolitan city
or urban county used for the 1990 census have changed as a result of
annexation, the current population used to compute extent of growth lag
shall be adjusted by multiplying the current population by the ratio of
the population based on the 1990 census within the boundaries used for
the 1990 census to the population based on the 1990 census within the
current boundaries.
* * * * *
Income. For the purpose of determining whether a family or
household is low- and moderate-income under subpart C of this part,
grantees may select any of the three definitions listed below for each
activity, except that integrally related activities of the same type
and qualifying under the same paragraph of Sec. 570.208(a) shall use
the same definition of income. The option to choose a definition does
not apply to activities that qualify under Sec. 570.208(a)(1) (Area
benefit activities), except when the recipient carries out a survey
under Sec. 570.208(a)(1)(iv). Activities qualifying under
Sec. 570.208(a)(1) generally must use the area income data supplied to
recipients by HUD. The three definitions are as follows:
(1)(i) ``Annual income'' as defined under the Section 8 Housing
Assistance Payments program at 24 CFR 813.106 (except that if the CDBG
assistance being provided is homeowner rehabilitation under
Sec. 570.202, the value of the homeowner's primary residence may be
excluded from any calculation of Net Family Assets); or
(ii) Annual Income as reported under the Census long-form for the
most recent available decennial Census. This definition includes:
(A) Wages, salaries, tips, commissions, etc.;
(B) Self-employment income from own nonfarm business, including
proprietorships and partnerships;
(C) Farm self-employment income;
(D) Interest, dividends, net rental income, or income from estates
or trusts;
(E) Social Security or railroad retirement;
(F) Supplemental Security Income, Aid to Families with Dependent
Children, or other public assistance or public welfare programs;
(G) Retirement, survivor, or disability pensions; and
(H) Any other sources of income received regularly, including
Veterans' (VA) payments, unemployment compensation, and alimony; or
(iii) Adjusted gross income as defined for purposes of reporting
under Internal Revenue Service (IRS) Form 1040 for individual Federal
annual income tax purposes.
[[Page 56910]]
(2) Estimate the annual income of a family or household by
projecting the prevailing rate of income of each person at the time
assistance is provided for the individual, family, or household (as
applicable). Estimated annual income shall include income from all
family or household members, as applicable. Income or asset enhancement
derived from the CDBG-assisted activity shall not be considered in
calculating estimated annual income.
* * * * *
Low- and moderate-income household means a household having an
income equal to or less than the Section 8 low-income limit established
by HUD.
Low- and moderate-income person means a member of a family having
an income equal to or less than the Section 8 low-income limit
established by HUD. Unrelated individuals will be considered as one-
person families for this purpose.
Low-income household means a household having an income equal to or
less than the Section 8 very low-income limit established by HUD.
Low-income person means a member of a family that has an income
equal to or less than the Section 8 very low-income limit established
by HUD. Unrelated individuals shall be considered as one-person
families for this purpose.
* * * * *
Metropolitan city means:
(1) A city within a metropolitan area that is the central city of
such area, as defined and used by the Office of Management and Budget.
(2) Any other city within a metropolitan area that has a population
of 50,000 or more.
(3)(i) Any city that was classified as a metropolitan city for at
least two years pursuant to paragraph (1) or (2) of this definition
shall remain classified as a metropolitan city.
(ii) Any unit of general local government that becomes eligible to
be classified as a metropolitan city, and was not classified as a
metropolitan city in the immediately preceding fiscal year, may, upon
submission of written notification to HUD, defer its classification as
a metropolitan city for all purposes under the Act, if it elects to
have its population included in an urban county.
(iii) Notwithstanding paragraph (3)(i) of this definition, a city
may elect not to retain its classification as a metropolitan city.
(iv) Any city classified as a metropolitan city under this
definition, and that no longer qualifies as a metropolitan city in a
fiscal year beginning after fiscal year 1989, shall retain its
classification as a metropolitan city for the fiscal year in which the
city ceases to qualify, and for the succeeding fiscal year, except that
in the succeeding fiscal year the amount of the grant to that city
shall be 50 percent of the amount calculated under section 106(b) of
the Act, the remaining 50 percent shall be added to the amount
allocated under section 106(d) of the Act to the State in which the
city is located, and the city shall be eligible, in that succeeding
fiscal year, to receive a distribution from the State allocation under
section 106(d) of the Act.
* * * * *
Moderate-income household means a household having an income equal
to or less than the Section 8 low-income limit and greater than the
Section 8 very low-income limit, established by HUD.
Moderate-income person means a member of a family that has an
income equal to or less than the Section 8 low-income limit and greater
than the Section 8 very low-income limit, established by HUD. Unrelated
individuals shall be considered as one-person families for this
purpose.
* * * * *
6. Section 570.5 is revised to read as follows:
Sec. 570.5 Waivers.
(a) The Secretary may waive any requirement of this part not
required by law whenever it is determined that undue hardship will
result from applying the requirement and when application of the
requirement would adversely affect the purposes of the Act.
(b) For funds designated under this part by a recipient to address
the damage in an area for which the President has declared a disaster
under title IV of the Robert T. Stafford Disaster Relief and Emergency
Assistance Act (42 U.S.C. 5170-5189b), the Secretary may suspend all
requirements for purposes of assistance under section 106 of the Act
for that area, except for those related to public notice of funding
availability, nondiscrimination, fair housing, labor standards,
environmental standards, and requirements that activities benefit
persons of low- and moderate-income.
7. Section 570.200 is amended by revising the second sentence of
paragraph (a)(3), paragraph (a)(5), the second sentence of paragraph
(d)(1), the third sentence of paragraph (e), and paragraphs (g) and
(h), to read as follows:
Sec. 570.200 General policies.
(a) * * *
(3) Compliance with the primary objective. * * * Consistent with
this objective, Entitlement, HUD-administered Small Cities, and Insular
area recipients must ensure that, over a period of time specified in
their certification not to exceed three years, not less than 70 percent
of the aggregate of CDBG fund expenditures shall be for activities
meeting the criteria under Sec. 570.208(a) or Sec. 570.208(d)(5) or (6)
for benefiting low- and moderate-income persons. * * *
* * * * *
(5) Cost principles. Costs incurred, whether charged on a direct or
an indirect basis, must be in conformance with OMB Circulars A-87,
``Cost Principles for State, Local and Indian Tribal Governments''; A-
122, ``Cost Principles for Non-profit Organizations''; or A-21, ``Cost
Principles for Educational Institutions,'' as applicable.\1\ All items
of cost listed in Attachment B of these Circulars that require prior
Federal agency approval are allowable without prior approval of HUD to
the extent they comply with the general policies and principles stated
in Attachment A of such circulars and are otherwise eligible under this
subpart C, except for the following:
\1\ These circulars are available from the American Communities
Center by calling the following toll-free numbers: (800) 998-9999 or
(800) 483-2209 (TDD).
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(i) Depreciation methods for fixed assets shall not be changed
without HUD's specific approval or, if charged through a cost
allocation plan, the Federal cognizant agency.
(ii) Fines and penalties (including punitive damages) are
unallowable costs to the CDBG program.
(iii) Pre-award costs are limited to those authorized under
paragraph (h) of this section.
* * * * *
(d) * * *
(1) Employer-employee type of relationship. * * * In no event,
however, shall such compensation exceed the equivalent of the daily
rate paid for Level IV of the Executive Schedule. * * *
* * * * *
(e) Recipient determinations required as a condition of
eligibility. * * * A written determination is required for any activity
carried out under the authority of Secs. 570.201(f), 570.201(i)(2),
570.201(p), 570.201(q), 570.202(b)(3), 570.202(f)(2), 570.206(f),
570.209, and 570.309.
* * * * *
(g) Limitation on planning and administrative costs. No more than
20 percent of the sum of any grant, plus
[[Page 56911]]
program income, shall be expended for planning and program
administrative costs, as defined in Secs. 570.205 and 507.206,
respectively. Recipients of entitlement grants under subpart D of this
part shall conform with this requirement by limiting the amount of CDBG
funds obligated for planning plus administration during each program
year to an amount no greater than 20 percent of the sum of its
entitlement grant made for that program year (if any) plus the program
income received by the recipient and its subrecipients (if any) during
that program year.
(h) Reimbursement for pre-award costs. The effective date of the
grant agreement is the program year start date or the date that the
consolidated plan is received by HUD, whichever is later. For a Section
108 loan guarantee, the effective date of the grant agreement is the
date of HUD execution of the grant agreement amendment for the
particular loan guarantee commitment.
(1) Prior to the effective date of the grant agreement, a recipient
may incur costs or may authorize a subrecipient to incur costs, and
then after the effective date of the grant agreement pay for those
costs using its CDBG funds, provided that:
(i) The activity for which the costs are being incurred is included
in a consolidated plan action plan or an amended consolidated plan
action plan (or application under subpart M of this part) prior to the
costs being incurred;
(ii) Citizens are advised of the extent to which these pre-award
costs will affect future grants;
(iii) The costs and activities funded are in compliance with the
requirements of this part and with the Environmental Review Procedures
stated in 24 CFR part 58;
(iv) The activity for which payment is being made complies with the
statutory and regulatory provisions in effect at the time the costs are
paid for with CDBG funds;
(v) CDBG payment will be made during a time no longer than the next
two program years following the effective date of the grant agreement
or amendment in which the activity is first included; and
(vi) The total amount of pre-award costs to be paid during any
program year pursuant to this provision is no more than the greater of
25 percent of the amount of the grant made for that year or $300,000.
(2) Upon the written request of the recipient, HUD may authorize
payment of pre-award costs for activities that do not meet the criteria
at paragraph (h)(1)(v) or (h)(1)(vi) of this section, if HUD
determines, in writing, that there is good cause for granting an
exception upon consideration of the following factors, as applicable:
(i) Whether granting the authority would result in a significant
contribution to the goals and purposes of the CDBG program;
(ii) Whether failure to grant the authority would result in undue
hardship to the recipient or beneficiaries of the activity;
(iii) Whether granting the authority would not result in a
violation of a statutory provision or any other regulatory provision;
(iv) Whether circumstances are clearly beyond the recipient's
control; or
(v) Any other relevant considerations.
* * * * *
8. Section 570.201 is amended by adding a parenthetical sentence
following the first full sentence in paragraph (c); by revising the
first two sentences of the introductory text of paragraph (e),
paragraph (k), and the introductory text of paragraph (n); and by
adding new paragraphs (o)(4), (p), and (q) to read as follows:
Sec. 570.201 Basic eligible activities.
* * * * *
(c) * * * (However, activities under this paragraph may be directed
to the removal of material and architectural barriers that restrict the
mobility and accessibility of elderly or severely disabled persons to
public facilities and improvements, including those provided for in
Sec. 570.207(a)(1).) * * *
* * * * *
(e) Public services. Provision of public services (including labor,
supplies, and materials) including but not limited to those concerned
with employment, crime prevention, child care, health, drug abuse,
education, fair housing counseling, energy conservation, welfare (but
excluding the provision of income payments identified under
Sec. 570.207(b)(4)), homebuyer downpayment assistance, or recreational
needs. To be eligible for CDBG assistance, a public service must be
either a new service or a quantifiable increase in the level of an
existing service above that which has been provided by or on behalf of
the unit of general local government (through funds raised by the unit
or received by the unit from the State in which it is located) in the
12 calendar months before the submission of the action plan. * * *
* * * * *
(k) Housing services. Housing services, as provided in section
105(a)(21) of the Act (42 U.S.C. 5305(a)(21)).
* * * * *
(n) Homeownership assistance. Until October 1, 1995, CDBG funds may
be used to provide direct homeownership assistance to low- and
moderate-income households to:
* * * * *
(o) * * *
(4) Assistance under this paragraph (o) may also include training,
technical assistance, or other support services to increase the
capacity of the recipient or subrecipient to carry out the activities
under this paragraph (o).
(p) Technical assistance. Provision of technical assistance to
public or nonprofit entities to increase the capacity of such entities
to carry out eligible neighborhood revitalization or economic
development activities. (The recipient must determine, prior to the
provision of the assistance, that the activity for which it is
attempting to build capacity would be eligible for assistance under
this subpart C, and that the national objective claimed by the grantee
for this assistance can reasonably be expected to be met once the
entity has received the technical assistance and undertakes the
activity.) Capacity building for private or public entities (including
grantees) for other purposes may be eligible under Sec. 570.205.
(q) Assistance to institutions of higher education. Provision of
assistance by the recipient to institutions of higher education when
the grantee determines that such an institution has demonstrated a
capacity to carry out eligible activities under this subpart C.
9. Section 570.202 is amended by:
a. Removing ``and'' at the end of paragraph (a)(3);
b. Redesignating paragraph (a)(4) as paragraph (a)(5);
c. Adding a new paragraph (a)(4);
d. Removing ``and'' at the end of paragraph (b)(9), and removing
the period at the end of paragraph (b)(10) and adding ``; and'' in its
place;
e. Adding new paragraphs (b)(11) and (f); and
f. Revising paragraph (c), to read as follows:
Sec. 570.202 Eligible rehabilitation and preservation activities.
(a) * * *
(4) Nonprofit-owned nonresidential buildings and improvements not
eligible under Sec. 570.201(c); and
* * * * *
(b) * * *
(11) Improvements designed to remove material and architectural
[[Page 56912]]
barriers that restrict the mobility and accessibility of elderly or
severely disabled persons to buildings and improvements eligible for
assistance under paragraph (a) of this section.
(c) Code enforcement. Costs incurred for inspection for code
violations and enforcement of codes (e.g., salaries and related
expenses of code enforcement inspectors and legal proceedings, but not
including the cost of correcting the violations) in deteriorating or
deteriorated areas when such enforcement together with public or
private improvements, rehabilitation, or services to be provided may be
expected to arrest the decline of the area.
* * * * *
(f) Lead-based paint hazard evaluation and reduction. Lead-based
paint hazard evaluation and reduction as defined in section 1004 of the
Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C.
4851b).
10. Section 570.206 is amended by adding paragraph (i) to read as
follows:
Sec. 570.206 Program administration costs.
* * * * *
(i) Whether or not such activities are otherwise assisted by funds
provided under this part, reasonable costs equivalent to those
described in paragraphs (a), (b), (e), and (f) of this section for
overall program management of:
(1) A Federally designated Empowerment Zone or Enterprise
Community; and
(2) The HOME program under title II of the Cranston-Gonzalez
National Affordable Housing Act (42 U.S.C. 12701 note).
11. Section 570.207 is amended by:
a. Amending the second sentence of paragraph (a)(1) by removing the
citation ``Sec. 570.201(k)'' and by adding in its place the citation
``Sec. 570.201(c)''; and
b. Revising the first sentence of paragraph (b)(2)(i) and paragraph
(b)(4), to read as follows:
Sec. 570.207 Ineligible activities.
* * * * *
(b) * * *
(2) * * *
(i) Maintenance and repair of publicly owned streets, parks,
playgrounds, water and sewer facilities, neighborhood facilities,
senior centers, centers for persons with a disabilities, parking and
other public facilities and improvements. * * *
* * * * *
(4) Income payments. The general rule is that CDBG funds may not be
used for income payments. For purposes of the CDBG program, ``income
payments'' means a series of subsistence-type grant payments made to an
individual or family for items such as food, clothing, housing (rent or
mortgage), or utilities, but excludes emergency grant payments made
over a period of up to three consecutive months to the provider of such
items or services on behalf of an individual or family.
12. Section 570.208 is amended by:
a. Redesignating paragraphs (a)(1)(iii), (a)(1)(iv), and (a)(1)(v)
as paragraphs (a)(1)(v), (a)(1)(vi), and (a)(1)(vii), respectively;
b. Adding new paragraphs (a)(1)(iii), (a)(1)(iv), and (a)(3)(iii);
c. Revising the second sentence of paragraph (a)(2)(i)(A),
paragraph (a)(2)(ii), and the second sentence of paragraph (a)(3)
introductory text;
d. Amending the second sentence of paragraph (a)(4)(vi)(F)(2) by
removing the phrase ``final statement'' and by adding in its place the
phrase ``action plan under part 91 of this title''; and
e. Amending paragraphs (d)(5)(i), (d)(6)(i), and (d)(7) by removing
the citation ``paragraph (a)(1)(v) of this section'' and by adding in
its place the citation ``paragraph (a)(1)(vii) of this section''; to
read as follows:
Sec. 570.208 Criteria for national objectives.
(a) * * *
(1) * * *
(iii) An activity to develop, establish, and operate for up to two
years after the establishment of, a uniform emergency telephone number
system serving an area having less than the percentage of low- and
moderate-income residents required under paragraph (a)(1)(i) of this
section or (as applicable) paragraph (a)(1)(ii) of this section,
provided the recipient obtains prior HUD approval. To obtain such
approval, the recipient must:
(A) Demonstrate that the system will contribute significantly to
the safety of the residents of the area. The request for approval must
include a list of the emergency services that will participate in the
emergency telephone number system;
(B) Submit information that serves as a basis for HUD to determine
whether at least 51 percent of the use of the system will be by low-
and moderate-income persons. As available, the recipient must provide
information that identifies the total number of calls actually received
over the preceding 12-month period for each of the emergency services
to be covered by the emergency telephone number system and relates
those calls to the geographic segment (expressed as nearly as possible
in terms of census tracts, enumeration districts, block groups, or
combinations thereof that are contained within the segment) of the
service area from which the calls were generated. In analyzing this
data to meet the requirements of this section, HUD will assume that the
distribution of income among the callers generally reflects the income
characteristics of the general population residing in the same
geographic area where the callers reside. If HUD can conclude that the
users have primarily consisted of low- and moderate-income persons, no
further submission is needed by the recipient. If a recipient plans to
make other submissions for this purpose, it may request that HUD review
its planned methodology before expending the effort to acquire the
information it expects to use to make its case;
(C) Demonstrate that other Federal funds received by the recipient
are insufficient or unavailable for a uniform emergency telephone
number system. For this purpose, the recipient must submit a statement
explaining whether the lack of funds is due to the insufficiency of the
amount of the available funds, restrictions on the use of such funds,
or the prior commitment of funds by the recipient for other purposes;
and
(D) Demonstrate that the percentage of the total costs of the
system paid for by CDBG funds does not exceed the percentage of low-
and moderate-income persons in the service area of the system. For this
purpose, the recipient must include a description of the boundaries of
the service area of the emergency telephone number system, the census
divisions that fall within the boundaries of the service area (census
tracts or enumeration districts), the total number of persons and the
total number of low- and moderate-income persons within each census
division, the percentage of low- and moderate-income persons within the
service area, and the total cost of the system.
(iv) An activity for which the assistance to a public improvement
that provides benefits to all the residents of an area is limited to
paying special assessments (as defined in Sec. 570.200(c)) levied
against residential properties owned and occupied by persons of low and
moderate income.
* * * * *
(2) * * *
(i) * * *
(A) * * * Activities that exclusively serve a group of persons in
any one or a combination of the following categories may be presumed to
benefit persons, 51 percent of whom are low- and moderate-income:
abused children, battered spouses, elderly persons, adults meeting the
Bureau of the Census'
[[Page 56913]]
Current Population Reports definition of ``severely disabled,''
homeless persons, illiterate adults, persons living with AIDS, and
migrant farm workers; or
* * * * *
(ii) An activity that serves to remove material or architectural
barriers to the mobility or accessibility of elderly persons or of
adults meeting the Bureau of the Census' Current Population Reports
definition of ``severely disabled'' will be presumed to qualify under
this criterion if it is restricted, to the extent practicable, to the
removal of such barriers by assisting:
(A) The reconstruction of a public facility or improvement, or
portion thereof, that does not qualify under paragraph (a)(1) of this
section;
(B) The rehabilitation of a privately owned nonresidential building
or improvement that does not qualify under paragraph (a) (1) or (4) of
this section; or
(C) The rehabilitation of the common areas of a residential
structure that contains more than one dwelling unit and that does not
qualify under paragraph (a)(3) of this section.
* * * * *
(3) * * * This would include, but not necessarily be limited to,
the acquisition or rehabilitation of property by the recipient, a
subrecipient, a developer, an individual homebuyer, or an individual
homeowner; conversion of nonresidential structures; and new housing
construction. * * *
* * * * *
(iii) When CDBG funds are used for housing services eligible under
Sec. 570.201(k), such funds shall be considered to benefit low- and
moderate-income persons if the housing units for which the services are
provided are HOME-assisted and the requirements at 24 CFR 92.252 or
92.254 are met.
* * * * *
13. Section 570.301 is added to read as follows:
Sec. 570.301 Activity locations and float-funding.
The consolidated plan, action plan, and amendment submission
requirements referred to in this section are those in 24 CFR part 91.
(a) For activities for which the grantee has not yet decided on a
specific location, such as when the grantee is allocating an amount of
funds to be used for making loans or grants to businesses or for
residential rehabilitation, the description in the action plan or any
amendment shall identify who may apply for the assistance, the process
by which the grantee expects to select who will receive the assistance
(including selection criteria), and how much and under what terms the
assistance will be provided, or in the case of a planned public
facility or improvement, how it expects to determine its location.
(b) Float-funded activities and guarantees. A recipient may use
undisbursed funds in the line of credit and its CDBG program account
that are budgeted in statements or action plans for one or more other
activities that do not need the funds immediately, subject to the
limitations described below. Such funds shall be referred to as the
``float'' for purposes of this section and the action plan. Each
activity carried out using the float must meet all of the same
requirements that apply to CDBG-assisted activities generally, and must
be expected to produce program income in an amount at least equal to
the amount of the float so used. Whenever the recipient proposes to
fund an activity with the float, it must include the activity in its
action plan or amend the action plan for the current program year. For
purposes of this section, an activity that uses such funds will be
called a ``float-funded activity.''
(1) Each float-funded activity must be individually listed and
described as such in the action plan.
(2)(i) The expected time period between obligation of assistance
for a float-funded activity and receipt of program income in an amount
at least equal to the full amount drawn from the float to fund the
activity may not exceed 2.5 years. An activity from which program
income sufficient to recover the full amount of the float assistance is
expected to be generated more than 2.5 years after obligation may not
be funded from the float, but may be included in an action plan if it
is funded from CDBG funds other than the float (e.g., grant funds or
proceeds from an approved Section 108 loan guarantee).
(ii) Any extension of the repayment period for a float-funded
activity shall be considered to be a new float-funded activity for
these purposes and may be implemented by the grantee only if the
extension is made subject to the same limitations and requirements as
apply to a new float-funded activity.
(3) Unlike other projected program income, the full amount of
income expected to be generated by a float-funded activity must be
shown as a source of program income in the action plan containing the
activity, whether or not some or all of the income is expected to be
received in a future program year (in accordance with 24 CFR
91.220(g)(1)(ii)(D)).
(4) The recipient must also clearly declare in the action plan that
identifies the float-funded activity the recipient's commitment to
undertake one of the following options:
(i) Amend or delete activities in an amount equal to any default or
failure to produce sufficient income in a timely manner. If the
recipient makes this choice, it must include a description of the
process it will use to select the activities to be amended or deleted
and how it will involve citizens in that process; and it must amend the
applicable statement(s) or action plan(s) showing those amendments or
deletions promptly upon determining that the float-funded activity will
not generate sufficient or timely program income;
(ii) Obtain an irrevocable line of credit from a commercial lender
for the full amount of the float-funded activity and describe the
lender and terms of such line of credit in the action plan that
identifies the float-funded activity. To qualify for this purpose, such
line of credit must be unconditionally available to the recipient in
the amount of any shortfall within 30 days of the date that the float-
funded activity fails to generate the projected amount of program
income on schedule;
(iii) Transfer general local government funds in the full amount of
any default or shortfall to the CDBG line of credit within 30 days of
the float-funded activity's failure to generate the projected amount of
the program income on schedule; or
(iv) A method approved in writing by HUD for securing timely return
of the amount of the float funding. Such method must ensure that funds
are available to meet any default or shortfall within 30 days of the
float-funded activity's failure to generate the projected amount of the
program income on schedule.
(5) When preparing an action plan for a year in which program
income is expected to be received from a float-funded activity, and
such program income has been shown in a prior statement or action plan,
the current action plan shall identify the expected income and explain
that the planned use of the income has already been described in prior
statements or action plans, and shall identify the statements or action
plans in which such descriptions may be found.
14. Section 570.304 is amended by revising paragraph (a) and by
removing paragraph (d) to read as follows:
Sec. 570.304 Making of grants.
(a) Approval of grant. HUD will approve a grant if the
jurisdiction's submissions have been made and approved in accordance
with 24 CFR part 91, and the certifications required
[[Page 56914]]
therein are satisfactory to the Secretary. The certifications will be
satisfactory to the Secretary for this purpose unless the Secretary has
determined pursuant to subpart O of this part that the grantee has not
complied with the requirements of this part, has failed to carry out
its consolidated plan as provided under Sec. 570.903, or has determined
that there is evidence, not directly involving the grantee's past
performance under this program, that tends to challenge in a
substantial manner the grantee's certification of future performance.
If the Secretary makes any such determination, however, further
assurances may be required to be submitted by the grantee as the
Secretary may deem warranted or necessary to find the grantee's
certification satisfactory.
* * * * *
15. Section 570.309 is added to subpart D to read as follows:
Sec. 570.309 Restriction on location of activities.
CDBG funds may assist an activity outside the jurisdiction of the
grantee only if the grantee determines that such an activity is
necessary to further the purposes of the Act and the recipient's
community development objectives, and that reasonable benefits from the
activity will accrue to residents within the jurisdiction of the
grantee. The grantee shall document the basis for such determination
prior to providing CDBG funds for the activity.
16. Section 570.405 is amended by revising paragraph (e)(2), by
redesignating paragraph (e)(3) as paragraph (e)(4), and by adding a new
paragraph (e)(3) to read as follows:
Sec. 570.405 The insular areas.
* * * * *
(e) * * *
(2) Applicants shall prepare and publish or post a proposed
application in accordance with the citizen participation requirements
of paragraph (h) of this section.
(3) Applicants shall submit to HUD a final application containing
its community development objectives and activities. This application
shall be submitted to the appropriate HUD office, together with the
required certifications, in a form prescribed by HUD.
* * * * *
17. Section 570.423 is amended by revising paragraph (a) to read as
follows:
Sec. 570.423 Application for the HUD-administered New York Small
Cities Grants.
(a) Proposed application. The applicant shall prepare and publish a
proposed application and comply with the citizen participation
requirements as described in Sec. 570.431. The applicant should follow
the citizen participation requirements of 24 CFR part 91 if it submits
a complete consolidated plan.
* * * * *
18. Section 570.429 is amended by revising paragraph (g) to read as
follows:
Sec. 570.429 Hawaii general and grant requirements.
* * * * *
(g) Application approval. HUD will approve an application if the
jurisdiction's submissions have been made and approved in accordance
with 24 CFR part 91 and the certifications required therein are
satisfactory to the Secretary. The certifications will be satisfactory
to the Secretary for this purpose unless the Secretary has determined
pursuant to subpart O of this part that the grantee has not complied
with the requirements of this part, has failed to carry out its
consolidated plan as provided under Sec. 570.903, or has determined
that there is evidence, not directly involving the grantee's past
performance under this program, that tends to challenge in a
substantial manner the grantee's certification of future performance.
If the Secretary makes any such determination, however, further
assurances may be required to be submitted by the grantee as the
Secretary may deem warranted or necessary to find the grantee's
certification satisfactory.
* * * * *
19. Section 570.500 is amended by removing and reserving paragraph
(a)(1)(viii); by revising paragraphs (a)(2), (a)(3), and (c); by adding
a new paragraph (a)(5); and by adding two sentences to the end of
paragraph (b), to read as follows:
Sec. 570.500 Definitions.
(a) * * *
(1) * * *
(viii) [Reserved];
* * * * *
(2) Program income does not include income earned (except for
interest described in Sec. 570.513) on grant advances from the U.S.
Treasury. The following items of income earned on grant advances must
be remitted to HUD for transmittal to the U.S. Treasury, and will not
be reallocated under section 106(c) or (d) of the Act:
(i) Interest earned from the investment of the initial proceeds of
a grant advance by the U.S. Treasury;
(ii) Interest earned on loans or other forms of assistance provided
with CDBG funds that are used for activities determined by HUD either
to be ineligible or to fail to meet a national objective in accordance
with the requirements of subpart C of this part, or that fail
substantially to meet any other requirement of this part; and
(iii) Interest earned on the investment of amounts reimbursed to
the CDBG program account prior to the use of the reimbursed funds for
eligible purposes.
(3) The calculation of the amount of program income for the
recipient's CDBG program as a whole (i.e., comprising activities
carried out by a grantee and its subrecipients) shall exclude payments
made by subrecipients of principal and/or interest on CDBG-funded loans
received from grantees if such payments are made using program income
received by the subrecipient. (By making such payments, the
subrecipient shall be deemed to have transferred program income to the
grantee.) The amount of program income derived from this calculation
shall be used for reporting purposes, for purposes of applying the
requirement under Sec. 570.504(b)(2)(iii), and in determining
limitations on planning and administration and public services
activities to be paid for with CDBG funds.
* * * * *
(5) Examples of other receipts that are not considered program
income are proceeds from fund raising activities carried out by
subrecipients receiving CDBG assistance (the costs of fundraising are
generally unallowable under the applicable OMB circulars referenced in
24 CFR 84.27), funds collected through special assessments used to
recover the non-CDBG portion of a public improvement, and proceeds from
the disposition of real property acquired or improved with CDBG funds
when the disposition occurs after the applicable time period specified
in Sec. 570.503(b)(8) for subrecipient-controlled property, or in
Sec. 570.505 for recipient-controlled property.
(b) * * * Each revolving loan fund's cash balance must be held in
an interest-bearing account, and any interest paid on CDBG funds held
in this account shall be considered interest earned on grant advances
and must be remitted to HUD for transmittal to the U.S. Treasury no
less frequently than annually. (Interest paid by borrowers on eligible
loans made from the revolving loan fund shall be program income and
treated accordingly.)
(c) Subrecipient means a public or private nonprofit agency,
authority, or organization, or a for-profit entity authorized under
Sec. 570.201(o), receiving CDBG funds from the recipient or
[[Page 56915]]
another subrecipient to undertake activities eligible for such
assistance under subpart C of this part. The term excludes an entity
receiving CDBG funds from the recipient under the authority of
Sec. 570.204, unless the grantee explicitly designates it as a
subrecipient. The term includes a public agency designated by a unit of
general local government to receive a loan guarantee under subpart M of
this part, but does not include contractors providing supplies,
equipment, construction, or services subject to the procurement
requirements in 24 CFR 85.36 or 84.40, as applicable.
20. Section 570.502 is amended by revising the introductory text of
paragraph (a) and by revising paragraph (b), to read as follows:
Sec. 570.502 Applicability of uniform administrative requirements.
(a) Recipients and subrecipients that are governmental entities
(including public agencies) shall comply with the requirements and
standards of OMB Circular No. A-87, ``Cost Principles for State, Local,
and Indian Tribal Governments''; OMB Circular A-128, ``Audits of State
and Local Governments'' (implemented at 24 CFR part 44); and with the
following sections of 24 CFR part 85 ``Uniform Administrative
Requirements for Grants and Cooperative Agreements to State and Local
Governments'' or the related CDBG provision, as specified in this
paragraph:
* * * * *
(b) Subrecipients, except subrecipients that are governmental
entities, shall comply with the requirements and standards of OMB
Circular No. A-122, ``Cost Principles for Non-profit Organizations,''
or OMB Circular No. A-21, ``Cost Principles for Educational
Institutions,'' as applicable, and OMB Circular A-133, ``Audits of
Institutions of Higher Education and Other Nonprofit Institutions'' (as
set forth in 24 CFR part 45). Audits shall be conducted annually. Such
subrecipients shall also comply with the following provisions of the
Uniform Administrative requirements of OMB Circular A-110 (implemented
at 24 CFR part 84, ``Uniform Administrative Requirements for Grants and
Agreements With Institutions of Higher Education, Hospitals and Other
Non-Profit Organizations'') or the related CDBG provision, as specified
in this paragraph:
(1) Subpart A--``General'';
(2) Subpart B--``Pre-Award Requirements,'' except for Sec. 84.12,
``Forms for Applying for Federal Assistance'';
(3) Subpart C--``Post-Award Requirements,'' except for:
(i) Section 84.22, ``Payment Requirements.'' Grantees shall follow
the standards of Secs. 85.20(b)(7) and 85.21 in making payments to
subrecipients;
(ii) Section 84.23, ``Cost Sharing and Matching'';
(iii) Section 84.24, ``Program Income.'' In lieu of Sec. 84.24,
CDBG subrecipients shall follow Sec. 570.504;
(iv) Section 84.25, ``Revision of Budget and Program Plans'';
(v) Section 84.32, ``Real Property.'' In lieu of Sec. 84.32, CDBG
subrecipients shall follow Sec. 570.505;
(vi) Section 84.34(g), ``Equipment.'' In lieu of the disposition
provisions of Sec. 84.34(g), the following applies:
(A) In all cases in which equipment is sold, the proceeds shall be
program income (prorated to reflect the extent to which CDBG funds were
used to acquire the equipment); and
(B) Equipment not needed by the subrecipient for CDBG activities
shall be transferred to the recipient for the CDBG program or shall be
retained after compensating the recipient;
(vii) Section 84.51 (b), (c), (d), (e), (f), (g), and (h),
``Monitoring and Reporting Program Performance'';
(viii) Section 84.52, ``Financial Reporting'';
(ix) Section 84.53(b), ``Retention and access requirements for
records.'' Section 84.53(b) applies with the following exceptions:
(A) The retention period referenced in Sec. 84.53(b) pertaining to
individual CDBG activities shall be four years; and
(B) The retention period starts from the date of submission of the
annual performance and evaluation report, as prescribed in 24 CFR
91.520, in which the specific activity is reported on for the final
time rather than from the date of submission of the final expenditure
report for the award;
(x) Section 84.61, ``Termination.'' In lieu of the provisions of
Sec. 84.61, CDBG subrecipients shall comply with Sec. 570.503(b)(7);
and
(4) Subpart D--``After-the-Award Requirements,'' except for
Sec. 84.71, ``Closeout Procedures.''
21. Section 570.503 is amended by revising paragraph (b)(3) to read
as follows:
Sec. 570.503 Agreements with subrecipients.
* * * * *
(b) * * *
(3) Program income. The agreement shall include the program income
requirements set forth in Sec. 570.504(c). The agreement shall also
specify that, at the end of the program year, the grantee may require
remittance of all or part of any program income balances (including
investments thereof) held by the subrecipient (except those needed for
immediate cash needs, cash balances of a revolving loan fund, cash
balances from a lump sum drawdown, or cash or investments held for
Section 108 security needs).
* * * * *
22. Section 570.504 is amended by revising the introductory text of
paragraph (b)(2) and by adding a new paragraph (b)(2)(iii), to read as
follows:
Sec. 570.504 Program income.
* * * * *
(b) * * *
(2) If the recipient chooses to retain program income, that program
income shall be disposed of as follows:
* * * * *
(iii) At the end of each program year, the aggregate amount of
program income cash balances and any investment thereof (except those
needed for immediate cash needs, cash balances of a revolving loan
fund, cash balances from a lump-sum drawdown, or cash or investments
held for Section 108 loan guarantee security needs) that, as of the
last day of the program year, exceeds one-twelfth of the most recent
grant made pursuant to Sec. 570.304 shall be remitted to HUD as soon as
practicable thereafter, to be placed in the recipient's line of credit.
This provision applies to program income cash balances and investments
thereof held by the grantee and its subrecipients. (This provision
shall be applied for the first time at the end of the program year for
which Federal Fiscal Year 1996 funds are provided.)
* * * * *
23. Section 570.506 is amended by:
a. Revising paragraphs (b)(3)(i) and (c);
b. Removing ``and'' at the end of paragraph (b)(4)(v), removing the
period at the end of paragraph (b)(4)(vi) and adding a semicolon in its
place; and
c. Adding paragraphs (b)(4)(vii) and (b)(4)(viii), to read as
follows:
Sec. 570.506 Records to be maintained.
* * * * *
(b) * * *
(3) * * *
(i) Documentation establishing that the facility or service is
designed for the particular needs of or used exclusively by senior
citizens, adults meeting the Bureau of the Census' Current Population
Reports definition of ``severely disabled,'' persons living with AIDS,
battered spouses, abused children, the homeless, illiterate adults, or
migrant farm workers, for which the
[[Page 56916]]
regulations provide a presumption concerning the extent to which low-
and moderate-income persons benefit; or
* * * * *
(4) * * *
(vii) For any homebuyer assistance activity qualifying under
Secs. 570.201(e), 570.201(n), or 570.204, identification of the
applicable eligibility paragraph and evidence that the activity meets
the eligibility criteria for that provision; for any such activity
qualifying under Sec. 570.208(a), the size and income of each
homebuyer's household; and
(viii) For a Sec. 570.201(k) housing services activity,
identification of the HOME project(s) or assistance that the housing
services activity supports, and evidence that project(s) or assistance
meet the HOME program income targeting requirements at 24 CFR 92.252 or
92.254.
* * * * *
(c) Records that demonstrate that the recipient has made the
determinations required as a condition of eligibility of certain
activities, as prescribed in Secs. 570.201(f), 570.201(i)(2),
570.201(p), 570.201(q), 570.202(b)(3), 570.202(f)(2) 570.206(f),
570.209, and 570.309.
* * * * *
Sec. 570.600 [Amended]
24. In Sec. 570.600, the last sentence of paragraph (a) is amended
by removing the citation ``Sec. 570.496'' and by adding in its place a
citation ``Sec. 570.487''.
Sec. 570.602 [Amended]
25. Section 570.602 is amended in paragraphs (a), (b)(1), (b)(2),
(b)(3), (b)(4)(i), and (b)(4)(ii), by adding the phrase ``religion,''
before the phrase ``national origin'' wherever it appears.
26. Section 570.606 is amended by:
a. Revising paragraph (b)(2)(i)(A);
b. Amending the first sentence of paragraph (c)(1)(iii)(G) by
removing the phrase ``HUD-approved Comprehensive Housing Affordability
Strategy'' and by adding in its place the phrase ``HUD-approved
consolidated plan'';
c. Amending the second sentence of paragraph (c)(1)(iii)(G) by
removing the phrase ``a Housing Assistance Plan'' and by adding in its
place the phrase ``a consolidated plan'';
d. Amending the last sentence of paragraph (c)(1)(iv)(A) by
removing the phrase ``HUD-approved Comprehensive Housing Affordability
Strategy'' and by adding in its place the phrase ``HUD-approved
consolidated plan'';
e. Revising paragraph (c)(3)(ii)(A)(1), to read as follows:
Sec. 570.606 Displacement, relocation, acquisition, and replacement of
housing.
* * * * *
(b) * * *
(2) * * *
(i) * * *
(A) After notice by the grantee to move permanently from the
property, if the move occurs after the initial official submission to
HUD for grant, loan, or loan guarantee funds under this part that are
later provided or granted.
* * * * *
(c) * * *
(3) * * *
(ii) * * *
(A) * * *
(1) After notice by the grantee to move permanently from the
property, if the move occurs after the initial official submission to
HUD for grant, loan, or loan guarantee funds under this part that are
later provided or granted.
* * * * *
27. Section 570.610 is revised to read as follows:
Sec. 570.610 Uniform administrative requirements and cost principles.
The recipient, its agencies or instrumentalities, and subrecipients
shall comply with the policies, guidelines, and requirements of 24 CFR
part 85 and OMB Circulars A-87, A-110 (implemented at 24 CFR part 84),
A-122, A-133 (implemented at 24 CFR part 45), and A-128 2
(implemented at 24 CFR part 44), as applicable, as they relate to the
acceptance and use of Federal funds under this part. The applicable
sections of 24 CFR parts 84 and 85 are set forth at Sec. 570.502.
\2\ See footnote 1 at Sec. 570.200(a)(5).
---------------------------------------------------------------------------
28. Section 570.611 is revised to read as follows:
Sec. 570.611 Conflict of interest.
(a) Applicability. (1) In the procurement of supplies, equipment,
construction, and services by recipients and by subrecipients, the
conflict of interest provisions in 24 CFR 85.36 and 24 CFR 84.42,
respectively, shall apply.
(2) In all cases not governed by 24 CFR 85.36 and 84.42, the
provisions of this section shall apply. Such cases include the
acquisition and disposition of real property and the provision of
assistance by the recipient or by its subrecipients to individuals,
businesses, and other private entities under eligible activities that
authorize such assistance (e.g., rehabilitation, preservation, and
other improvements of private properties or facilities pursuant to
Sec. 570.202; or grants, loans, and other assistance to businesses,
individuals, and other private entities pursuant to Secs. 570.203,
570.204, 570.455, or 570.703(i)).
(b) Conflicts prohibited. The general rule is that no persons
described in paragraph (c) of this section who exercise or have
exercised any functions or responsibilities with respect to CDBG
activities assisted under this part, or who are in a position to
participate in a decisionmaking process or gain inside information with
regard to such activities, may obtain a financial interest or benefit
from a CDBG-assisted activity, or have a financial interest in any
contract, subcontract, or agreement with respect to a CDBG-assisted
activity, or with respect to the proceeds of the CDBG-assisted
activity, either for themselves or those with whom they have business
or immediate family ties, during their tenure or for one year
thereafter. For the UDAG program, the above restrictions shall apply to
all activities that are a part of the UDAG project, and shall cover any
such financial interest or benefit during, or at any time after, such
person's tenure.
(c) Persons covered. The conflict of interest provisions of
paragraph (b) of this section apply to any person who is an employee,
agent, consultant, officer, or elected official or appointed official
of the recipient, or of any designated public agencies, or of
subrecipients that are receiving funds under this part.
(d) Exceptions. Upon the written request of the recipient, HUD may
grant an exception to the provisions of paragraph (b) of this section
on a case-by-case basis when it has satisfactorily met the threshold
requirements of (d)(1) of this section, taking into account the
cumulative effects of paragraph (d)(2) of this section.
(1) Threshold requirements. HUD will consider an exception only
after the recipient has provided the following documentation:
(i) A disclosure of the nature of the conflict, accompanied by an
assurance that there has been public disclosure of the conflict and a
description of how the public disclosure was made; and
(ii) An opinion of the recipient's attorney that the interest for
which the exception is sought would not violate State or local law.
(2) Factors to be considered for exceptions. In determining whether
to grant a requested exception after the recipient has satisfactorily
met the requirements of paragraph (d)(1) of this section, HUD shall
conclude that such an exception will serve to further the purposes of
the Act and the effective and efficient administration of the
recipient's program or project, taking into account the cumulative
effect of the following factors, as applicable:
(i) Whether the exception would provide a significant cost benefit
or an essential degree of expertise to the
[[Page 56917]]
program or project that would otherwise not be available;
(ii) Whether an opportunity was provided for open competitive
bidding or negotiation;
(iii) Whether the person affected is a member of a group or class
of low- or moderate-income persons intended to be the beneficiaries of
the assisted activity, and the exception will permit such person to
receive generally the same interests or benefits as are being made
available or provided to the group or class;
(iv) Whether the affected person has withdrawn from his or her
functions or responsibilities, or the decisionmaking process with
respect to the specific assisted activity in question;
(v) Whether the interest or benefit was present before the affected
person was in a position as described in paragraph (b) of this section;
(vi) Whether undue hardship will result either to the recipient or
the person affected when weighed against the public interest served by
avoiding the prohibited conflict; and
(vii) Any other relevant considerations.
29. Section 570.614 is added to subpart K, to read as follows:
Sec. 570.614 Architectural Barriers Act and the Americans with
Disabilities Act.
(a) The Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157)
requires certain Federal and Federally funded buildings and other
facilities to be designed, constructed, or altered in accordance with
standards that insure accessibility to, and use by, physically
handicapped people. A building or facility designed, constructed, or
altered with funds allocated or reallocated under this part after
December 11, 1995 and that meets the definition of ``residential
structure'' as defined in 24 CFR 40.2 or the definition of ``building''
as defined in 41 CFR 101-19.602(a) is subject to the requirements of
the Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157) and shall
comply with the Uniform Federal Accessibility Standards (Appendix A to
24 CFR part 40 for residential structures, and Appendix A to 41 CFR
part 101-19, subpart 101-19.6, for general type buildings).
(b) The Americans with Disabilities Act (42 U.S.C. 12131; 47 U.S.C.
155, 201, 218 and 225) (ADA) provides comprehensive civil rights to
individuals with disabilities in the areas of employment, public
accommodations, State and local government services, and
telecommunications. It further provides that discrimination includes a
failure to design and construct facilities for first occupancy no later
than January 26, 1993 that are readily accessible to and usable by
individuals with disabilities. Further, the ADA requires the removal of
architectural barriers and communication barriers that are structural
in nature in existing facilities, where such removal is readily
achievable--that is, easily accomplishable and able to be carried out
without much difficulty or expense.
30. Section 570.900 is amended by revising paragraphs (b)(3),
(b)(5), and (b)(6) to read as follows:
Sec. 570.900 General.
* * * * *
(b) * * *
(3) In conducting performance reviews, HUD will primarily rely on
information obtained from the recipient's performance report, records
maintained, findings from monitoring, grantee and subrecipient audits,
audits and surveys conducted by the HUD Inspector General, and
financial data regarding the amount of funds remaining in the line of
credit plus program income. HUD may also consider relevant information
pertaining to a recipient's performance gained from other sources,
including litigation, citizen comments, and other information provided
by or concerning the recipient. A recipient's failure to maintain
records in the prescribed manner may result in a finding that the
recipient has failed to meet the applicable requirement to which the
record pertains.
* * * * *
(5) If HUD finds that a recipient has failed to comply with a
program requirement or has failed to meet a performance criterion in
Sec. 570.902 or Sec. 570.903, HUD will give the recipient an
opportunity to provide additional information concerning the finding.
(6) If, after considering any additional information submitted by a
recipient, HUD determines to uphold the finding, HUD may advise the
recipient to undertake appropriate corrective or remedial actions as
specified in Sec. 570.910. HUD will consider the recipient's capacity
as described in Sec. 570.905 prior to selecting the corrective or
remedial actions.
* * * * *
31. In Sec. 570.901, paragraph (a) is amended by removing the
phrase ``60 percent'' and by adding in its place the phrase ``70
percent''; and paragraph (e) is revised, to read as follows:
Sec. 570.901 Review for compliance with the primary and national
objectives and other program requirements.
* * * * *
(e) For HUD-administered small cities grants only, the citizen
participation requirements at Sec. 570.431, the amendment requirements
at Sec. 570.427 (New York HUD-administered small cities) or
Sec. 570.430(f) (Hawaii HUD-administered small cities), and the
displacement policy requirements of Sec. 570.606;
* * * * *
32. Section 570.902 is amended by revising paragraph (a) to read as
follows:
Sec. 570.902 Review to determine if CDBG funded activities are being
carried out in a timely manner.
* * * * *
(a) Entitlement recipients. (1) Before the funding of the next
annual grant and absent contrary evidence satisfactory to HUD, HUD will
consider an entitlement recipient to be failing to carry out its CDBG
activities in a timely manner if:
(i) Sixty days prior to the end of the grantee's current program
year, the amount of entitlement grant funds available to the recipient
under grant agreements but undisbursed by the U.S. Treasury is more
than 1.5 times the entitlement grant amount for its current program
year; and
(ii) The grantee fails to demonstrate to HUD's satisfaction that
the lack of timeliness has resulted from factors beyond the grantee's
reasonable control.
(2) Notwithstanding that the amount of funds in the line of credit
indicates that the recipient is carrying out its activities in a timely
manner pursuant to paragraph (a)(1) of this section, HUD may determine
that the recipient is not carrying out its activities in a timely
manner if:
(i) The amount of CDBG program income the recipient has on hand 60
days prior to the end of its current program year, together with the
amount of funds in its CDBG line of credit, exceeds 1.5 times the
entitlement grant amount for its current program year; and
(ii) The grantee fails to demonstrate to HUD's satisfaction that
the lack of timeliness has resulted from factors beyond the grantee's
reasonable control.
(3) In determining the appropriate corrective action to take with
respect to a HUD determination that a recipient is not carrying out its
activities in a timely manner pursuant to paragraphs (a)(1) or (a)(2)
of this section, HUD will consider the likelihood that the recipient
will expend a sufficient amount of funds over the next program year to
reduce the amount of unexpended funds to a level that will fall within
the standard
[[Page 56918]]
described in paragraph (a)(1) of this section when HUD next measures
the grantee's timeliness performance. For these purposes, HUD will take
into account the extent to which funds on hand have been obligated by
the recipient and its subrecipients for specific activities at the time
the finding is made and other relevant information.
* * * * *
33. Section 570.903 is revised to read as follows:
Sec. 570.903 Review to determine if the recipient is meeting its
consolidated plan responsibilities.
The consolidated plan, action plan, and amendment submission
requirements referred to in this section are in 24 CFR part 91.
(a) Review timing and purpose. HUD will review the consolidated
plan performance of each entitlement and Hawaii HUD-administered small
cities grant recipient prior to acceptance of a grant recipient's
annual certification under 24 CFR 91.225(b)(3) to determine whether the
recipient followed its HUD-approved consolidated plan for the most
recently completed program year, and whether activities assisted with
CDBG funds during that period were consistent with that consolidated
plan, except that grantees are not bound by the consolidated plan with
respect to the use or distribution of CDBG funds to meet nonhousing
community development needs.
(b) Following a consolidated plan. The recipient will be considered
to be following its consolidated plan if it has taken all of the
planned actions described in its action plan. This includes, but is not
limited to:
(1) Pursuing all resources that the grantee indicated it would
pursue;
(2) Providing certifications of consistency, when requested to do
so by applicants for HUD programs for which the grantee indicated that
it would support application by other entities, in a fair and impartial
manner; and
(3) Not hindering implementation of the consolidated plan by action
or willful inaction.
(c) Disapproval. If HUD determines that a recipient has not met the
criteria outlined in paragraph (b) of this section, HUD will notify the
recipient and provide the recipient up to 45 days to demonstrate to the
satisfaction of the Secretary that it has followed its consolidated
plan. HUD will consider all relevant circumstances and the recipient's
actions and lack of actions affecting the provision of assistance
covered by the consolidated plan within its jurisdiction. Failure to so
demonstrate in a timely manner will be cause for HUD to find that the
recipient has failed to meet its certification. A complete and specific
response by the recipient shall describe:
(1) Any factors beyond the control of the recipient that prevented
it from following its consolidated plan, and any actions the recipient
has taken or plans to take to alleviate such factors; and
(2) Actions taken by the recipient, if any, beyond those described
in the consolidated plan performance report to facilitate following the
consolidated plan, including the effects of such actions.
(d) New York HUD-administered Small Cities. New York HUD-
administered grantees shall follow the provisions of paragraph (b) of
this section for their abbreviated or full consolidated plan to the
extent that the provisions of paragraph (b) of this section are
applicable. If the grantee does not comply with the requirements of
paragraph (b) of this section, and does not provide HUD with an
acceptable explanation, HUD may decide, in accordance with the
requirements of the notice of fund availability, that the grantee does
not meet threshold requirements to apply for a new small cities grant.
Dated: October 30, 1995.
Andrew M. Cuomo,
Assistant Secretary for Community Planning and Development.
[FR Doc. 95-27488 Filed 11-8-95; 8:45 am]
BILLING CODE 4210-29-P
