[Federal Register Volume 59, Number 153 (Wednesday, August 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19228]
[[Page Unknown]]
[Federal Register: August 10, 1994]
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Part IX
Department of Housing and Urban Development
_______________________________________________________________________
Office of the Assistant Secretary for Community Planning and
Development
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24 CFR Part 570
Community Development Block Grant Program; Miscellaneous Amendments to
Correct Identified Deficiencies; Proposed Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Community Planning and
Development
24 CFR Part 570
[Docket No. R-94-1701; FR-2772-P-01]
RIN 2506-AB01
Community Development Block Grant Program; Miscellaneous
Amendments to Correct Identified Deficiencies
AGENCY: Office of the Assistant Secretary for Community Planning and
Development, HUD.
ACTION: Proposed rule.
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SUMMARY: This rule contains: a proposed definition of ``income'' for
families and households, a proposed change in the calculation of the
planning and administration limitation; a proposed change removing the
special protection afforded program income in revolving funds; a
proposed change to the Sec. 570.207(b)(4) definition of ineligible
income payments; a proposed change to reorganize the section of the
rule describing the statement of community development objectives, to
prescribe the manner of its submission, to permit consolidation of
amendment submissions, and to add a provision for describing ``float-
funded'' activities in the statement; a proposed change specifying
three situations in which income earned on grant funds must be remitted
to the U.S. Treasury; a proposed change restricting use of CDBG funds
outside the jurisdiction of the recipient; a proposed change to require
transfer of excess program income to the line of credit; a proposed
change to authorize the Department to delay making a CDBG grant to any
community whose Grantee Performance Report (GPR), at the time the grant
is to be awarded, has not been submitted in a manner consistent with
the GPR Form Instructions; and proposed performance standards to
replace the Housing Assistance Plan (HAP) standards at Sec. 570.903,
for determining whether a grantee has carried out its certification
concerning following its Comprehensive Housing Affordability Strategy
(CHAS).
Most of the described changes are proposed in response to problems
HUD has identified in its administration of the program. Many of these
proposals are the direct recommendations or suggestions of the
Department's Inspector General.
DATES: Comments due date: October 11, 1994.
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule to the Rules Docket Clerk, Office of General
Counsel, Room 10276, Department of Housing and Urban Development, 451
Seventh Street SW, Washington, DC 20410. Communications should refer to
the above docket number and title. A copy of each communication
submitted will be available for public inspection during regular
business hours at the above address.
FOR FURTHER INFORMATION CONTACT: Deirdre Maguire-Zinni, Acting
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 Mr. Broughman at (202) 708-
2575. (These telephone numbers are not toll-free.)
SUPPLEMENTARY INFORMATION:
Background
This proposed rule would revise the Community Development Block
Grant Program (24 CFR Part 570) to respond to perceived problems and
abuses HUD has identified in the program. This rule contains: 1) a
proposed definition of ``income'' for families and households that will
continue to allow some grantee discretion in the selection of a
definition while setting the parameters of the choices; 2) a proposed
change in the calculation of the planning and administration limitation
to establish the specific, exclusive method for calculation; 3) a
proposed change removing the special protection afforded program income
in revolving funds; 4) a proposed change to Sec. 570.207(b)(4)
clarifying the definition of ineligible income payments and lessening
its coverage; 5) a proposed change to reorganize the section of the
rule describing the statement of community development objectives, to
prescribe its content and the manner of its submission, to permit
consolidation of amendment submissions, and to add a provision for
describing how ``float-funded'' activities must be shown in the
statement; 6) a proposed change to specify when income earned on grant
funds must be remitted to the U.S. Treasury; 7) a proposed change
restricting use of CDBG funds outside the jurisdiction of the recipient
to instances in which such use will principally benefit residents of
the recipient; 8) a proposed change that will remove an incentive for
grantees to make loans to earn income by requiring transfer of excess
program income to the line of credit; 9) a proposed change to authorize
the Department to delay making a CDBG grant to any community whose
Grantee Performance Report (GPR), at the time the grant is to be
awarded, has not been submitted in a manner consistent with the GPR
Form Instructions; and 10) proposed performance standards to replace
the Housing Assistance Plan (HAP) standards at Sec. 570.903, for
determining whether a grantee has carried out its certification
concerning following its Comprehensive Housing Affordability Strategy
(CHAS). Many of these proposals are the direct recommendations or
suggestions of the Department's Inspector General.
The Department recently published consolidated submission and
reporting requirements, in another proposed rule. Differences between
this program-specific rule and that more broad-based rule be resolved
before final regulations are issued.
Definition of Income
Changes are proposed at 24 CFR 570.3. This proposed rule would for
the first time define what constitutes income for purposes of
determining whether persons or households qualify as low or moderate
income under the CDBG program. To preserve the flexibility of the
program while ensuring greater uniformity in the critical program issue
of determining the extent to which low- and moderate-income persons
benefit from CDBG-funded activities, the Department is proposing that
the grantee be required to select either of the Section 8, Census Long
Form, or IRS Adjusted Gross definitions of what is income for each type
of activity benefiting low- and moderate-income persons. (The rule
makes slight modifications to the Section 8 definition to bring it into
accord with the CDBG program purposes.) The option to choose a
definition does not apply to activities that qualify for the low- and
moderate-income area benefit criteria in Sec. 570.208(a)(1) except when
the recipient carries out a survey. Activities qualifying under
Sec. 570.208(a)(1) generally must use the area income data, which is
taken from the decennial census and supplied to recipients by HUD.
HUD believes a definition of income is desirable to ensure that
when CDBG funds are used to address the national objective of
benefiting persons of low and moderate income, those deemed to benefit
are actually low- and moderate-income persons. The Department
repeatedly has received questions about the definition of income, and
is aware of the potential for abuse in this area.
In 1984, HUD proposed definitions of low- and moderate-income
household, low- and moderate-income person, low-income household, low-
income person, moderate-income household, and moderate-income person
that included a reference to the definition of income under the Section
8 Housing Assistance Payments program at 24 CFR Part 813. As the
September 6, 1988, preamble to the Final Rule stemming from that
proposal noted:
The majority of commenters objected to the reference * * *
because they concluded that grantees would be required to calculate
income eligibility for the CDBG program in exactly the same manner
as for the Section 8 program. Several commenters pointed out that
the use of the Section 8 methodology would make many low- and
moderate-income homeowners ineligible for rehabilitation activities
and for jobs created by economic development projects. This was the
case, commenters said, because under Section 8 procedures real
property assets are considered in determining income levels.
At the time the referenced definitions were proposed, HUD only
intended to reflect the requirements at section 102(a)(20) of the
Housing and Community Development Act of 1974 (the Act) that the income
limits established for CDBG purposes must be equivalent to those used
in the Section 8 program. Therefore, the proposed reference to the
definition of annual income at part 813 was removed in the Final Rule,
and the following was added: ``The method for determining income under
the Section 8 Housing Assistance Payments program need not be used for
this purpose.'' This rule proposes to remove the quoted sentence
wherever it appears. The definitions proposed in this rule would be
used in calculating incomes of individual families and households to be
applied against the established income limits in determining whether
such families and households are low or moderate income under the CDBG
program.
The Inspector General has repeatedly expressed its preference that
the CDBG program have an easily verifiable definition of income to
standardize income qualification across the country and to help limit
the risk of abuse in this area.
In developing a proposed definition, the Department decided to
review a number of Federal definitions already in use by grantees and
beneficiaries before beginning completely anew. Use of an established
definition should pose fewer training problems and lower changeover
costs for grantees, as well as offering the potential of ``doubling
up'' on verifications. Before proposing the definition in this rule,
the Department reviewed the definitions used under Section 8, Aid for
Families with Dependent Children (AFDC), Food Stamps, National Student
Lunch, and Food Distribution Programs, and the Census and IRS
definitions of income. In selecting the approach proposed in this rule,
HUD used the following criteria in judging the various definitions
reviewed: comprehensiveness (covered most sources/fewest exclusions);
verifiability; familiarity of the definition to HUD staff, grantees and
beneficiaries; fit with the objectives and practices of the CDBG
program; and ease of administration. The three definitions that HUD
believes most closely meet the above criteria are the Section 8
definition, the Census definition, and the IRS Adjusted Gross Income
definition.
One option considered was a modified Section 8 definition of annual
income. The Section 8 definition is second to the IRS definition in
comprehensiveness of income sources considered and its exclusions are
close to the other aid program definitions. (Census has no exclusions,
and IRS has a very limited number.) Agencies verifying income under the
Section 8 definition could validate beneficiaries' income by direct
contact with employers or assistance agencies. This definition is
familiar to many HUD staff and the housing staff of many CDBG grantees.
While it may be familiar to persons administering housing-related
assistance under the CDBG program, it is less likely to be familiar to
grantee and subrecipient staff administering economic development and
public service activities. Because the CDBG program considers income of
the family or household at the time assistance is provided, ease of
administration primarily means ease in explaining the definition to the
beneficiary and calculating income. (Considering income at the time
assistance is provided means that the annual income of the family or
household, as applicable, should be projected based on the prevailing
rate of income of each person at the time assistance is provided.) The
Section 8 definition, with a fairly large number of exclusions from
income, can take some time to explain and calculate. In particular,
estimating the value of Net Family Assets and calculating the income
attributable to the assets in excess of $5000 can sometimes be
difficult. For example, if a grantee wants to provide an economic
development loan to a business for working capital, and intends to meet
the national objective of low- and moderate-income job creation and
retention, each of the benefiting employees would have to undergo an
assets review if the use of the section 8 definition were to be
mandatory. Note that the need to apply the Net Family Asset calculation
is probably perfunctory in the Section 8 (rental assistance) program
since persons receiving a rental subsidy are not likely to own a house
and few would have many other includable assets. On the other hand, it
is arguable that, from the standpoint of the objectives of the CDBG
program, inclusion of some part of the value of major non-income
producing assets would be desirable to help focus assistance on the
more needy, particularly with respect to the elderly who may not have
much annual income but have high value assets.
The Census definition reviewed was that used for the decennial
census so called ``long form.'' It has both the fewest inclusions and
the fewest exclusions of the definitions reviewed. All of the
inclusions except ``net income from operation of a business'' could be
easily verified by contacting employers and assistance agencies. There
are no exclusions. Grantee and HUD staff and beneficiaries are not
likely to be familiar with the definition, unless they have recently
completed a census long-form questionnaire. It is noteworthy that
income based on the Census definition is used by HUD for CDBG formula
allocation and low- and moderate-income summary data by Census tract
and block group. The definition would probably be easy to explain to
beneficiaries and to calculate, and would likely be the simplest
definition to use for an income survey for determining the percent of
low- and moderate-income persons in an area. The definition does not
attribute income to ownership of non-income-producing assets.
The IRS definition of ``adjusted gross income'' on IRS Form 1040
has the largest number of inclusions and a very small number of
adjustments. Adjusted gross income can be verified by calling employers
and assistance agencies, as well as by reviewing actual tax returns
(that, although they may not be submitted to the IRS at the same time
as the assistance was provided, can provide a validity check for the
income reported by the beneficiary then). The IRS definition is very
likely to be familiar to grantee and HUD staff, and to most
beneficiaries. While it is not designed to calculate family or
household income (including dependents), it can easily be adapted. For
some beneficiaries, calculating all the inclusions (such as business
income or loss) may be difficult. With few exclusions to consider, the
definition should be moderately easy to explain and administer. A
further advantage of the IRS definition is that agencies can easily
take advantage of inexpensive off-the-shelf software to automate and
document its use. This definition also does not attribute income to
ownership of non-income-producing assets. This definition is likely to
be the easiest to administer for special economic development
activities in cases in which the assisted business is collecting income
information. Most of these businesses will not be familiar with any
federal income definition other than that of the IRS.
In this rule, the Department is proposing that a recipient be
allowed to select and use the Section 8, Census, or IRS Adjusted Gross
Income definition for each of its CDBG activity types. (A grantee could
also elect to use one definition for all its activity types.) When the
CDBG activity is homeowner rehabilitation, the net value of the primary
residence of the beneficiary may be excluded from Net Family Assets
where the recipient is using the Section 8 definition. As noted, all
CDBG entitlement recipients would be required to use one of the three
definitions for each activity. For administrative reasons, the
Department recommends, but does not propose to require, use of the
modified Section 8 definition for housing and housing-related
activities, especially those that are also assisted by other HUD
programs (such as HOME or HOPE or Section 8). Also, the Department is
aware that grantees may follow somewhat different standards when
computing relocation payments.
This rule would not change the requirements at Sec. 570.506(b)
regarding records to be maintained when information on income by family
size is required. That is, the grantee could still elect to keep
records to show either that 1) the person assisted qualified under
another assistance program with income qualification standards at least
as restrictive as the CDBG definitions, 2) a copy of a verifiable
certification (based on one of the three proposed definitions) from the
assisted person was obtained, or 3) the person was referred from an
agency that determined the individual's income status and maintains
appropriate documentation.
One further note: this rule does not propose to require recipients
to use a particular standard procedure for determining the amount of
benefit to be provided, such as that used in HUD's housing programs for
determining a family's contribution toward rent. This rule only
specifies what components must be included in the calculation of
income. Each recipient remains free to determine the level of benefit,
such as the amount of rehabilitation subsidy, it considers to be
necessary and reasonable for each CDBG-assisted activity.
Calculating the Planning and Administration Limitation
This proposed rule includes changes at Sec. 570.200(g). The
language at Sec. 570.200(g) on the 20 percent limitation on
expenditures for planning and administration for entitlement recipients
would be revised to establish the specific, exclusive method for
calculation of this limitation. While the vast majority of entitlement
recipients have followed the guidelines in the current rules for
calculating expenditures without regard to the source year of funds
used to pay for such costs, some recipients have continued to claim
compliance based on individual source years. Recipients would no longer
be allowed to demonstrate compliance by apportioning planning and
administrative expenses to each source year of CDBG funds.
The Department has determined that it is no longer advisable to
allow entitlement recipients to meet this requirement on a ``source
year'' basis for the following reasons:
a) The Grantee Performance Report (GPR), HUD's principal tool for
determining compliance with the 20 percent limitation, does not track
expenditures on a source year basis; and,
b) the Department has concluded that the allocation of expenditures
for program administration against individual activities is inherently
arbitrary, and thus is likely to result in an inaccurate measure of how
much of the total expenditures for administration in a given year
applies to any individual activity. For example, a recipient may have
spent $100,000 administering an ongoing rehabilitation loan program in
FY 1992. The money used to fund the loans in FY 1992 included grant
funds received in FY 1992 and previous years, and program income from
repayments of loans received over multiple years. To make the
calculations necessary to allocate the $100,000 expenditure for program
administration on a source year basis, the recipient must assign each
dollar spent for making loans that year to a source year. Such
assignment is a cumbersome, difficult task fraught with the potential
for error. With this proposed regulation, HUD would assure the
uniformity of the procedures used by all entitlements, and further
ensure that the administrative and planning limitation will be
calculated in the most efficient way.
Prohibition of Income Payments
The prohibition against income payments at Sec. 570.207(b)(4) in
the current rule was principally intended to keep CDBG funds from
providing ongoing cash payments directly to individuals to provide for
their subsistence. For example, this would include making monthly
payments to an individual to allow that individual to pay for housing,
food, clothes, day care, or utilities. However, the Department has
determined that the current provision goes too far beyond that
objective. The proposed redefinition at Sec. 570.207(b)(4) reflects
this determination. The Department has further determined that,
although downpayment assistance is listed as an example of an income
payment in the current rule, a one-time payment for downpayment
assistance should not be classified as an income payment for these
purposes. Therefore, under this proposed rule downpayment assistance to
individual homebuyers would be provided with CDBG in one of three ways:
(1) under the Direct Homeownership provision of the National Affordable
Housing Act (NAHA) (currently due to terminate in October, 1994); (2)
under Sec. 570.202(b)(1) to assist acquisition for the purpose of
rehabilitation; or (3) under Sec. 570.201(e) as an eligible public
service activity. The Department has also determined that loans to
individuals to provide for their subsistence are not ongoing cash
payments and therefore proposes that they be considered eligible public
services rather than income payments. A conforming change is also being
proposed in Sec. 570.201(e).
Reorganization, Standard Submission, and Float-Funded Activities in the
Statement of Community Development Objectives (Final Statement)
This portion of the rule proposes several changes at Sec. 570.301
to the requirements for the statement of community development
objectives, generally known as the final statement, that grantees are
required to submit to HUD in order to receive their grants. On March
28, 1990, HUD published a proposed regulation to implement certain
statutory changes to the CDBG program made in the Housing and Community
Development Act of 1987 (Pub. L. 100-242, approved February 5, 1988)
and the Department of Housing and Urban Development--Independent
Agencies Appropriations Act of 1989 (Pub. L. 100-404, approved August
19, 1988). A final rule implementing these 1987 changes has not yet
been issued. Section 570.301 is among the sections of the CDBG rule
that will be altered from the rule presently in effect in the
forthcoming final rule. This proposed rule deals with and clarifies
matters that were not addressed by the previous proposed rule. Readers
should note that the text proposed here for Sec. 570.301(c) was
developed on the premise that the basic requirements of Sec. 570.301
(a) and (b), as published in the previous proposed rule, will be
similar to those expected to be published in the final rule. The
Department recently published consolidated submission requirements, in
another proposed rule. Differences between this program-specific rule
and that more broad-based rule will be resolved before final
regulations are issued.
In this rule, first, for clarity, the rule would be reorganized
into sections on sources and uses of funds, content of the statement,
citizen participation, and float-funded activities. Second, the final
statement would be required to be submitted in a manner prescribed by
HUD. Third, the details concerning required content and citizen
participation would be more clearly specified. Fourth, the rule would
permit final statement amendments to be submitted to HUD in
consolidated form at the end of the program year. Finally, float-funded
activities and the circumstances under which they would be authorized
would be defined and a procedure described for identifying such
activities in the statement.
The second and third changes, which would require the final
statement to contain certain specific details and to be submitted in a
manner prescribed by HUD, are intended to serve four purposes. First,
citizens would be better able to follow CDBG activities through the
entire program cycle because the prescribed submission would share many
common elements with the grantee performance report (GPR). Second, a
standard submission would ensure that all citizens receive a comparable
basic level of information on all proposed activities. Third, standard
submissions would improve the efficiency of HUD's processing of the
final statement, and its ability to train grantee and HUD staff on
final statement requirements. Finally, making the final statement
submission standard for all grantees would facilitate automation of the
statement, linking that automation to an automated GPR. Ultimately,
this automation could save grantees and HUD much time and effort, while
preserving grantee flexibility in deciding how funds will be used.
The fourth change, allowing consolidation of amendment submissions,
is being proposed for the sake of increased efficiency for grantees.
The final change is being proposed because of difficulties
experienced by HUD with management of ``float'' activities, including
those identified in the Inspector General's audit of CDBG interim
financing. For purposes of this section, an activity that uses
undisbursed funds in the line of credit or program account that have
been previously budgeted in a final statement for one or more
activities that do not need the funds immediately would be called a
``float-funded activity.'' HUD has long held that a float-funded
activity must meet all of the same requirements that apply to CDBG-
assisted activities generally. However, the regulations have been
silent on managing these activities. After review, the Department has
determined that 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 in a timely manner to allow for
timely undertaking of previously budgeted activities. Second, if
proposed float-funded activities and the possible consequences of their
default are not disclosed to citizens in sufficient detail, they will
not be afforded sufficient information to fully understand how they may
be affected by each activity, and thus not have the opportunity to
object to such a use of the funds. Third, in undertaking a float-funded
activity that exceeds a certain size or duration, grantees apparently
assume that they will receive sufficient additional CDBG funds in
future years to continue funding previously budgeted activities until
the float-funded activity generates program income. However, grantees
are only authorized to use such a funding technique (e.g. banking on
future CDBG funds as assurance to backstop a large loan for a
particular activity in the present) under the section 108 Loan
Guarantee program.
The proposed rule would either eliminate the first risk by
requiring one of two forms of guarantee for the float funds, or limit
it by requiring a commitment for timely identification of specific
previously budgeted activities that would be deleted. The second risk
would be limited by requiring more detailed information to be provided
to citizens on each float-funded activity. The third factor would be
minimized by limiting CDBG float-funded activities to those that are
expected to generate program income within a period of time defined in
the regulation. The proposed time limit was selected keeping the
standards at Sec. 570.902(a) in mind. Sixty days prior to the end of
any program year, the amount of CDBG funds in the line of credit should
be no more than 1.5 times the amount of the current grant amount. Then,
at the beginning of any program year, with the new grant in the line of
credit, the maximum amount in the line of credit could be as much as
2.5 times the annual grant amount. Therefore, 2.5 years was selected as
the maximum duration of any float-funded activity, since this is the
maximum time period that a grantee could be reasonably certain of
having CDBG funds available absent additional appropriations. The
Department requests comment on these provisions and also whether the
rule should additionally specify a limit on the proportion of a
grantee's funds that it could use for float-funded activities at any
one period in time.
Spending Funds Outside the Jurisdiction of the Recipient
This portion of the proposed rule would add a new Sec. 570.309. In
the early years of the CDBG program, HUD would likely find an
application that proposed spending CDBG funds outside of the
jurisdiction of the grantee to be plainly inappropriate to address the
identified needs of the jurisdiction. Under the statute then, such a
finding was the basis for HUD to disapprove the application. Since
1981, the regulations have been silent on this matter, but the
Department has ruled in several cases that a grantee's decision to
spend CDBG funds outside the jurisdiction was allowable. The Department
now believes that it would be helpful to state clearly the
circumstances under which this practice is allowed in order to remove
any uncertainty on the part of grantees and auditors. The limitation
proposed (i.e. that the principal benefit of such an activity must be
for residents of the jurisdiction of the recipient) is important to
ensure that the community's share of the national appropriation of
entitlement funds, which is based on the community's relative share of
needs, is expended in a manner that addresses the needs for which the
funds were provided. What would be precluded by this change is the
lending of CDBG funds to entities outside the grantee's jurisdiction
when the principal benefit to the jurisdiction would be interest earned
on the loan. Thus an urban county would not be authorized to loan funds
to non-participating units of general local government within the
boundaries of the county unless the urban county could make the
required determination that the activity (without regard to the use of
the interest expected to be earned on a loan made for the activity)
would principally benefit citizens within the urban county.
Revolving Funds
This portion of the proposed rule includes changes at
Secs. 570.500(a)(1)(viii), 570.502(a)(5), 570.500(b), and
570.504(b)(2)(i). A revolving fund is defined at Sec. 570.500(b) to
mean ``* * * a separate fund (with a set of accounts that are
independent of other program accounts) established for the purpose of
carrying out specific activities which, in turn, generate payments to
the fund in carrying out the same activities.'' Revolving funds are
used most frequently in connection with rehabilitation and economic
development projects that involve loans.
Revolving funds are established and administered typically in the
following manner. A loan is made with CDBG funds (e.g., to a private
property owner to rehabilitate her home). Payments on that loan (i.e.,
principal or interest, or both) constitute program income that is
credited as CDBG program income on the grantee's books and held in an
account independent of other program accounts. The program income in
that account, including interest earned on the funds while on deposit
pending their re-use, becomes the source of financing for additional
loans of the same type (e.g., housing rehabilitation). Hence, the term
``revolving fund'' has been used to describe such a fund.
Of course, much of the same objective could be achieved without the
need to establish an independent account. Loan payments could simply be
placed in the grantee's general CDBG account. (The entity used for
other CDBG funds would vary from community to community; however, CDBG
funds are often budgeted and accounted for in a special revenue fund.)
Program income generated by a particular activity could be earmarked in
advance for use in carrying out additional transactions (e.g., loans)
involving the same kind of activity (e.g., housing rehabilitation).
However, the use of a revolving fund has another advantage over the
fund used to budget and account for other CDBG funds, besides the fact
that the community does not have to reconsider the use of program
income generated by a particular activity following its receipt. The
second advantage is the special treatment given program income in
revolving funds under the current CDBG regulations. A recipient that
establishes a revolving fund to carry out a particular activity must
substantially disburse any program income in that fund before making
additional cash withdrawals from the Treasury for the same kind of
activity; however, the recipient may make additional withdrawals from
the Treasury for other activities before substantially disbursing the
program income from the revolving fund. This authority appears to have
created an incentive for some grantees to create revolving funds to
shelter the program income on hand from cash withdrawal requirements
and to earn interest income from the investment of the program income
pending its use for the revolving fund activity. There is also some
indication that it has created the incentive for some grantees to delay
the reuse of the funds, since the longer the funds stay in the account
the more interest they earn while on deposit.
The HUD Inspector General has identified a number of cases where
funds in a revolving account were clearly not being used in a timely
manner. Because of the fact that the grantees involved were allowed to
leave the funds in a revolving account and to draw funds from their
lines of credit to meet their cash needs for other CDBG assisted
activities, this has resulted in additional, and seemingly unwarranted,
cost to the U.S. Treasury. HUD is generally in favor of the use of
revolving funds, since it is a sensible way to program funds to meet
ongoing needs, such as housing rehabilitation and business assistance.
However, it must also be concerned about avoiding unnecessary costs to
the Treasury. Under this proposed rule, recipients would no longer be
authorized to shelter program income in revolving funds. The proposed
rule would require that all program income, including program income in
a revolving fund, be disbursed before further cash withdrawals are made
from the U.S. Treasury.
The changes made by this rule would not preclude the use of funds
in a revolving manner. However, the Department recognizes that
compliance with the proposed rule's requirement that all program income
be disbursed before additional cash withdrawals are permitted would
make administration of revolving funds more complicated. This
additional complexity may, as a practical matter, make revolving funds
infeasible for some grantees.
Other options that HUD believes might be used to address the
problem include:
(1) limiting the amount of program income in any revolving fund to
the amount that could be expected to be needed for funding the activity
within a certain time period (such as 30 days); and
(2) limiting the number of revolving funds per recipient.
However, each of these has a drawback. A limitation on the amount
allowed in a revolving account would mean additional administrative
burden for both the grantee and HUD to ensure compliance with such a
limitation. A limit on the number of revolving funds might pose an
undesirable restriction on a grantee's capacity to address its needs in
the most sensible way. Because of these problems and since these
options would still permit funds to be withdrawn from the Treasury for
other purposes while program income is available to the recipient, they
were not selected to be proposed for this rule.
The Department requests comments on this proposed provision that
explain how the benefits of using revolving funds as they are under
current rules might be considered to outweigh the costs to the U.S.
Treasury. Comments are particularly solicited that would identify the
advantages of the current system that go beyond the obvious ones of
administrative convenience and the additional interest income earned by
a grantee as a result of the investment of program income while
sheltered in a revolving account. Specifically, the Department would be
interested in determining the amount of any additional program costs
that might result from administering revolving fund activities under
this proposed rule so that cost could be compared with the likely
savings to the Treasury.
Therefore, the changes proposed in this rule would remove the
language at Secs. 570.504(b)(2)(i) and (ii) that permits recipients to
shelter program income in revolving funds. The proposed rule would
require all program income to be substantially disbursed before
additional cash withdrawals were made. The reference at
Sec. 570.500(a)(1)(viii) to interest earned in revolving funds would be
removed, and the subparagraph would be reserved. The definition of
revolving fund at Sec. 570.500(b) would be removed and the paragraph
reserved.
Income Earned on Grant Funds
The proposed rule includes a change at Sec. 570.500(a)(2)
concerning interest earned on ineligible loans and reimbursed funds.
This change is one of several in this rule resulting from the HUD
Inspector General's review of the CDBG program. It also reflects a
recent decision by the Comptroller General of the United States (issued
May 11, 1992) with respect to interest earned on unauthorized loans of
Federal grant funds.
This proposed rule specifies three situations in which income
earned on grant funds must be remitted to HUD for transmittal to the
U.S. Treasury. The first is interest earned from the investment of the
initial proceeds of a grant advance by the U.S. Treasury (e.g., funds
wire-transferred to a recipient pursuant to a withdrawal from its line
of credit for a grant). The second situation is income (e.g., interest)
earned on loans or forms of assistance made 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 fail substantially to meet any other
requirement of this part. The third situation is interest earned on
amounts that have been reimbursed pursuant to Sec. 570.910(b)(5) prior
to the funds being used for eligible purposes.
Return of Excess Program Income
This portion of the proposed rule includes changes at
Sec. 570.504(b)(2) and Sec. 570.503(b)(3). Under the current rules,
there is an incentive for a recipient to make quick turnaround loans--
even if the recipient does not earn interest on the loans. By making
such a loan, the recipient, in effect, quickly changes the nature of
the funds to program income. It may then place them in its program
account and earn interest pending the use of the funds to meet cash
needs of the program. The proposed changes would remove an incentive
for recipients to make loans to earn income rather than using the funds
strictly for community development purposes. The rule does this by
requiring all program income held by an entitlement recipient that is
in excess of one-twelfth of the most recent grant made pursuant to
Sec. 570.304 to be remitted to HUD to be restored to the recipient's
line of credit, and by requiring that each subrecipient agreement
specify that any program income held by the subrecipient that is in
excess of one-twelfth of its estimated annual expenditure of CDBG funds
be remitted to the recipient (thus, if the subrecipient agreement is
for a twelve-month period, the amount of program income would be one-
twelfth of the agreement amount).
Grant Delays for GPRs that are Inconsistent with Instructions
This portion of the proposed rule includes changes at
Secs. 570.304, 570.900 and 570.910. The Department considers the
Grantee Performance Report (GPR) to be the foundation of HUD's ability
to fulfill the statutory requirement that it review each grantee's
performance at least annually. Some time ago, the Department, through
its Financial Management Task Force, determined that it needed to take
action against grantees that failed to submit reports in the prescribed
forms in a timely manner. To accomplish this, the Task Force
recommended that HUD amend the CDBG regulations to authorize HUD to
hold back on making grants in cases where previous GPRs have not been
submitted in a manner consistent with GPR Form Instructions. The
purpose of the rule is to bring pressure to bear on grantees that are
seriously delinquent in this matter. The language of the rule would
only affect the most egregious cases, because a GPR is due nine months
before the next grant is made. (For example, City X ends its program
year 15 on June 30, 1993. HUD then makes the grant for program year 16
on July 1. The city's GPR for program year 15 will be due on September
30, 1993. If that GPR is not properly submitted by June 30, 1994, this
rule would allow HUD to delay making the program year 17 CDBG grant,
otherwise due on July 1, 1994, until the overdue report is properly
submitted.) The rule would not permit delaying the grant simply because
the GPR was submitted late, if it is submitted in proper form by the
time the new grant is to be made, although persistent lateness by a
grantee could be addressed through the use of the sanctions provisions
at Secs. 570.910, 570.911, and 570.913.
CHAS Performance Standards for CDBG Entitlements
This proposed rule describes the review standards HUD proposes to
use in determining whether a CDBG entitlement recipient is following a
current HUD-approved Comprehensive Housing Affordability Strategy
(CHAS), as it is required to certify under Sec. 570.303(l). These
standards would replace those for the Housing Assistance Plan (HAP)
that itself has been replaced by the CHAS.
The proposed standards relate to the CHAS implementation process.
Thus, a grantee would be held accountable for taking all planned
actions to meet CHAS goals; and for pursuing all resources it indicated
it would pursue. To assure that each community's non-profit and other
housing developers that may apply to HUD for assistance are fairly
considered for certifications of consistency with the CHAS, where such
a certification is a prerequisite for application, a grantee would be
expected to provide certifications of consistency in a fair and
impartial manner that furthers attainment of the purposes and
objectives of the grantee's housing strategy. The final specific
standard is that no grantee may hinder implementation of the CHAS by
action or willful inaction.
Failure on the part of a grantee to meet its annual CHAS goals for
persons and households to be assisted would not, in itself, constitute
failure to follow the CHAS. While the Department would like to see
every CHAS goal met, it is more concerned that the process of
developing and implementing the CHAS be carried out in a manner that
furthers achievement of the goal of the National Affordable Housing
Act--that every American family be able to afford a decent home in a
suitable environment. To this end, the proposed CHAS performance
standards for entitlement recipients will focus on the CHAS
implementation process, and, initially, if this process has been
adequately followed, a lack of results would be viewed as signalling a
need for further technical assistance or for modifying the CHAS. (See
the recently published proposed rule for a Consolidated Plan, which
would replace the CHAS.)
Other Matters
Environmental Impact
A Finding of No Significant Impact with respect to the environment
has been made in accordance with HUD regulations at 24 CFR part 50,
which implement section 102(2)(C) of the National Environmental Policy
Act of 1969. The Finding of No Significant Impact is available for
public inspection during regular business hours in the Office of the
Rules Docket Clerk, Office of General Counsel, Department of Housing
and Urban Development, Room 10276, 451 Seventh Street SW., Washington,
DC 20410.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this proposed rule before publication and
by approving it certifies that this proposed rule does not have a
significant economic impact on a substantial number of small entities.
The proposed rule is limited to the effecting of relatively minor
procedural amendments within the structure of the CDBG program
regulations.
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 proposed 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 proposed rule is not subject to review under the
order. The proposed rule is limited to making relatively minor,
procedural amendments within the structure of the CDBG program
regulations.
Executive Order 12606, the Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this proposed rule does
not have potential for significant impact on 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 proposed rule, as
those policies and programs relate to family concerns.
Regulatory Agenda
This proposed rule was listed as item number 1633 in the
Department's Semiannual Agenda of Regulations published on April 25,
1994 (59 FR 20424, 20457) in accordance with Executive Order 12866 and
the Regulatory Flexibility Act.
List of Subjects in 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, the Department proposes to amend 24 CFR part 570 as
follows:
PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS
1. The authority citation for part 570 would continue to read as
follows:
Authority: 42 U.S.C. 3535(d) and 5300-5320.
2. Section 570.3 would be amended to add a new definition of
``Income;'' and to revise the definitions of ``Low and moderate income
household or low- income household,'' ``Low and moderate income person
or low-income person,'' ``Low-income household,'' ``Low-income
person,'' ``Moderate income household,'' and ``Moderate income person''
to read as follows:
Sec. 570.3 Definitions.
* * * * *
Income, for the purpose of determining whether a family or
household is low- or moderate-income under subpart C of this part, is
defined as follows:
(1)(i) The definition of annual income under the Section 8 Housing
Assistance Payments program at 24 CFR part 813 (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);
(ii) Income as reported under the Census long-form for the 1990
decennial Census. This definition includes:
(A) Wages, salaries, tips, commissions, etc.;
(B) Self-employment income from own non-farm 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 Administration payments, unemployment compensation, and
alimony; or
(iii) Adjusted gross income as defined for purposes of reporting
under IRS Form 1040 for individual Federal income tax purposes.
(2) The annual income of the family or household, as applicable,
should be projected based on the prevailing rate of income of each
person at the time assistance is provided for the individual, family or
household, and shall include income from all family or household
members. Income or asset enhancement derived from the CDBG-assisted
activity shall not be considered in calculating income. Grantees may
select any of the three listed definitions for each activity, except
that integrally related activities of the same type and having the same
qualifications as those set forth in Sec. 570.208(a), shall use the
same definition of annual income. The option to choose a definition
does not apply to activities that qualify under Sec. 570.208(a)(1)
except when the recipient carries out a survey. Activities qualifying
under Sec. 570.208(a)(1) generally must use the area income data
supplied to recipients by HUD.
* * * * *
Low and moderate income household or low-income household means a
household having an income equal to or less than the Section 8 low
income limits established by HUD.
Low and moderate income person or low-income person means a member
of a family which has an income equal to or less than the Section 8 low
income limits 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 limits established by HUD.
Low-income person means a member of a family which has an income
equal to or less than the Section 8 very low income limits established
by HUD. Unrelated individuals shall be considered as one-person
families for this purpose.
* * * * *
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 which 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.
* * * * *
3. In Sec. 570.200, paragraph (g) would be revised to read as
follows:
Sec. 570.200 General policies.
* * * * *
(g) Limitation on planning and administrative costs. No more than
20 percent of the sum of any grant, plus 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 shall conform with this requirement by limiting
expenditures for planning and administration during a program year to
an amount that does not exceed 20 percent of the sum of its entitlement
grant made for that program year (if any) plus the program income
received during that program year.
* * * * *
4. In Sec. 570.201, paragraph (e) introductory text would be
revised to read as follows:
Sec. 570.201 Basic eligible activities.
* * * * *
(e) Public services. Provision of public services (including labor,
supplies, and materials) that are directed toward improving the
community's public services and facilities, 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. In order to be eligible for CDBG assistance, a
public service must meet each of the following criteria:
* * * * *
5. In Sec. 570.207, paragraph (b)(4) would be revised to read as
follows:
Sec. 570.207 Ineligible activities.
* * * * *
(b) * * *
(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), day care or utilities, but excludes one-time emergency
payments made to the provider of such items or services on behalf of an
individual or family.
6. Section 570.301 would be amended by revising the section heading
and paragraph (c) to read as follows:
Sec. 570.301 Presubmission and citizen participation requirements.
* * * * *
(c) Develop a statement of community development objectives and
projected use of funds annually. The principal purpose of the statement
is for the grantee to describe to HUD and its citizens how it plans to
use CDBG funds. When completed and submitted to HUD, it is known as the
final statement. The grantee must amend its final statement whenever it
decides not to carry out an activity described in the final statement,
to carry out an activity not already included in the final statement,
or to change substantially the purpose, scope, location, or
beneficiaries of an activity described in the statement. The statement
and any amendments must be prepared in accordance with the following:
(1) Sources and uses. All available CDBG funds must be identified
and accounted for in the statement by clearly identifying the source
and planned use of all CDBG funds that the grantee expects to receive
during the upcoming program year, plus any CDBG funds received in the
current program year that are not included in the current year's final
statement.
(i) The sources of CDBG funds to be included in the statement are:
(A) The annual grant to be received for that grant year;
(B) Program income expected to be received during that program
year;
(C) Program income received during the preceding program year that
has not been included in a final statement;
(D) Program income expected to be received during the program year
and in future program years from float-funded activities described in
the final statement (the amount of such income and the year(s) in which
it is expected to be received must be identified and the grantee must
also explain how it will respond to any delays in the receipt of such
future year income (as required in paragraph (c)(4) of this section);
(E) Program income expected to be received during that program year
from a float-funded activity that was described in an identified
preceding final statement;
(F) Surplus funds from any urban renewal settlement for community
development and housing activities; and
(G) Any grant funds returned to the line of credit, the planned use
of which has not been included in a final statement.
(ii) The use of all such CDBG funds must be identified for specific
activities and allowable contingencies, as described in paragraph
(c)(2).
(2) Content. The statement must be submitted in the manner
prescribed by HUD and must, at minimum, describe:
(i) The community development objectives the grantee proposes to
pursue;
(ii) The community development activities the grantee proposes to
carry out with anticipated CDBG funds to address its community
development objectives.
(A) The statement must show how all of the funds expected to be
available during the program year are expected to be used. This means
that all of the funds identified under the sources section must be
programmed for use in specific activities, except for any program
income identified in the statement as stemming from a float-funded
activity identified in a final statement from a preceding program year,
and except that an amount not to exceed ten percent of such total
available funds may be identified for the contingency of cost overruns
in any of the activities contained in the statement.
(B) An activity may not be included in a final statement, whether
originally or by amendment, unless the activity was previously
described in the proposed statement, or a proposed amendment to the
final statement, and has been properly subject to citizen participation
under paragraph (c)(3) of this section. Neither may an activity be
included in a form that has been substantially modified from the form
in which it was made known to citizens pursuant to paragraph (c)(3).
This means that, although the grantee has the final say as to which
activities are selected for funding, it cannot elect to include a new
or substantially modified activity that has not been subject to or
derived from the process of citizen review.
(iii) Each activity must be described in sufficient detail,
including the specific regulatory provisions under which it is eligible
and is expected to meet a national objective, the amount of funds
expected to be used, the location of the activity, the amount of
program income expected to be generated, and when such income is
expected to be available for use. The description must be in sufficient
detail to permit a clear understanding of the nature of the activity
and to allow citizens to determine the degree to which they may be
affected. 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 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. The
statement may include an ``urgent needs'' activity (one that is not
expected to qualify under Sec. 570.208 (a) or (b)) only if the grantee
identifies the activity in the statement and certifies that the
activity is designed to meet other community development needs having a
particular urgency because existing conditions pose a serious and
immediate threat to the health or welfare of the community and other
financial resources are not available.
(iv) The statement must also describe where citizens may obtain
additional information about activities described in the statement.
(v) Float-funded activities, described in paragraph (c)(4) of this
section, must be specifically identified as such in the statement.
(3) Citizen participation. (i) Statement. The grantee must prepare
a statement identifying in the detail prescribed in paragraph (c)(2)
the activities it proposes to carry out, and must publish the statement
community-wide to afford affected citizens an opportunity to examine
the statement and to provide comments on it. Publishing the proposed
statement in a newspaper of general circulation will be considered to
constitute community-wide publication. Simply publishing a notice that
the statement is available in public libraries is not adequate for this
purpose, unless such publication is accompanied by a broad distribution
of the statement among neighborhood or similar citizen groups
representing virtually all areas of the community whose residents are
predominantly low and moderate income or that are blighted. After
comment on the proposed statement has been received, the grantee must
consider the comments and make such modifications to the proposed
statement as the grantee considers appropriate. Upon completion, the
grantee must make the final statement available to the public.
(ii) Amendment. Before amending a final statement, the grantee must
provide for citizen participation concerning proposed amendments. The
grantee must provide citizens a reasonable amount of time to consider a
proposed amendment and shall consider any citizens' comments and may
make such modifications to the proposed amendment as the grantee
considers appropriate. Upon completion, the grantee must make the
amendment available to the public and must submit to HUD a description
of changes adopted. The grantee may submit a copy of each statement
amendment to HUD as it occurs, or the grantee may simply notify HUD in
writing that the amendment has been made and, at the end of the program
year, submit copies of all amendments made during the year. Letters
notifying HUD of amendments and those transmitting copies of amendments
must be signed by the official representative of the grantee authorized
to take such action.
(4) 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 for one or more other activities that
do not need the funds immediately, subject to the limitations described
in paragraph (c)(4). Such funds shall be referred to as the ``float''
for purposes of this section. 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 statement or amend the final statement for
the current program year. For purposes of this section, an activity
that uses such funds will be called a ``float-funded activity.'' Each
float-funded activity must be individually listed and described as such
in the statement.
(i) The expected duration 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. A loan for a longer term may not be
funded from the float, but may be included in a statement 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) Unlike other projected program income, the full amount of
income expected to be generated by a float-funded activity must be
shown in the sources section of the statement containing the activity
whether or not some or all of the income is expected to be received in
a future program year. To justify the inclusion of activities that
exceed the sources of funds shown in the statement as expected to be
received in the program year covered by the statement, and to assure
that citizens can clearly understand the risks inherent in undertaking
such a float-funded activity, the recipient must specify in the sources
section of the statement the total amount of program income expected to
be received and the month(s) and year(s) that it expects the float-
funded activity to generate each portion of such program income.
(iii) To help citizens assess the degree of risk to activities they
support in case the float-funded activity fails to generate program
income as scheduled, the recipient must also clearly declare its
commitment to undertake one of the following options in the statement
that identifies the float-funded activity. The recipient may commit
either to:
(A) Amend or delete activities in an amount equal to any default or
failure to produce sufficient income in a timely manner. If the grantee
makes this choice, it must include a description of the process it will
use to select the activities to be amended or deleted, how it will
involve citizens in that process, and it must amend the applicable
statement(s) showing those amendments or deletions promptly upon
determining that the float-funded activity will not generate sufficient
or timely program income; or
(B) 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 statement 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; or
(C) 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.
(iv) When preparing a statement 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, the sources section
of the current statement shall identify the expected income and explain
that the planned use of the income has already been described in prior
statements, and shall identify the statements in which such description
may be found.
* * * * *
7. Section 570.304 would be amended by adding a new paragraph
(a)(4) to read as follows:
Sec. 570.304 Making of grants.
(a) * * *
(4) GPR submissions. All previously due GPRs that have not been
submitted to HUD in the prescribed manner are properly submitted.
* * * * *
8. A new Sec. 570.309 would be added 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 the principal benefit of
such an activity will be for residents within the jurisdiction of the
grantee. The grantee shall document the basis for any such
determination.
9. Section 570.500 would be amended by removing and reserving
paragraphs (a)(1)(viii) and (b), and by revising paragraphs (a)(2) and
(a)(3), to read as follows:
Sec. 570.500 Definitions.
* * * * *
(a) * * *
(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) Income (e.g., 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 pursuant to Sec. 570.910(b)(5) prior to the
use of the reimbursed funds for eligible purposes.
(3) Examples of other receipts that are not considered program
income are proceeds from fund raising activities carried out by
subrecipients receiving CDBG assistance; 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) of this part
for subrecipient-controlled property, or in Sec. 570.505 of this part
for recipient-controlled property.
* * * * *
10. In Sec. 570.502, paragraph (a)(5) would be revised to read as
follows:
Sec. 570.502 Applicability of uniform administrative requirements.
(a) * * *
(5) Section 85.21 of this title, ``Payment,'' except for
Sec. 85.21(f)(1) of this title and as modified by Sec. 570.513;
* * * * *
11. In Sec. 570.503, paragraph (b)(3) would be revised 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 the subrecipient's estimated annual expenditure of CDBG funds
and that any program income held by the subrecipient that is in excess
of one-twelfth of that estimate be remitted to the recipient.
* * * * *
12. In Sec. 570.504, paragraph (b)(2) would be revised 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:
(i) Program income in excess of one-twelfth of the most recent
grant made pursuant to Sec. 570.304 shall be remitted to HUD to be
restored to the recipient's line of credit;
(ii) Substantially all other program income shall be disbursed for
eligible activities before additional cash withdrawals are made from
the U.S. Treasury.
* * * * *
13. In Sec. 570.900, paragraph (b)(3) would be revised to read as
follows:
Sec. 570.900 General.
* * * * *
(b) * * *
(3) In conducting performance reviews, HUD will rely primarily on
information obtained from the recipient's performance report, records
maintained, findings from on-site monitoring, audit reports, and the
status of the line of credit. Where applicable, the Department may also
consider relevant information pertaining to a recipient's performance
gained from other sources, including litigation, citizen comments and
other information provided by 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. A recipient's failure to submit a performance
report in the prescribed manner may result in a finding that the
recipient has substantially failed to meet the requirements of the
program.
* * * * *
14. Section 570.903 would be revised to read as follows:
Sec. 570.903 Review to determine if the recipient is meeting its CHAS
responsibilities.
(a) Review timing and purpose. HUD will review an entitlement grant
recipient's CHAS performance prior to acceptance of a grant recipient's
annual certification under Sec. 570.303(l) to determine whether the
recipient followed its HUD-approved CHAS for the most recently
completed fiscal year, and that any housing activities assisted with
CDBG funds during that period were consistent with that CHAS.
(b) Following a CHAS. The recipient has taken all of the planned
actions, and has met the goals described in its annual plan. This
includes, but is not limited to:
(1) Pursuing all resources identified in its investment plan which
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 in
its investment plan that it would support application by other
entities, in a fair and impartial manner; and
(3) Not hindering implementation of the CHAS by action or wilful
inaction.
(c) Disapproval. If HUD determines that an entitlement grant
recipient has not met the criteria outlined in paragraph (b) of this
section, the recipient will be notified and provided up to 45 days to
demonstrate to the satisfaction of the Secretary that it has followed
its CHAS, considering all relevant circumstances and the recipient's
actions and lack of actions affecting the provision of housing covered
by the CHAS 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 should describe:
(1) Any factors beyond the control of the recipient that prevented
it from following its CHAS and any actions the recipient plans to take
to alleviate such factors; and
(2) Actions taken by the recipient, if any, beyond those described
in the CHAS performance report to facilitate following the CHAS,
including the effects of such actions.
15. Section 570.910 would be amended by adding a new paragraph
(b)(9) to read as follows:
Sec. 570.910 Corrective and remedial actions.
* * * * *
(b) * * *
(9) In the case of an entitlement recipient which has failed to
submit a previously due performance report in the prescribed manner,
delay making the grant until any outstanding performance report has
been properly submitted to HUD.
Dated: July 29, 1994.
Andrew Cuomo,
Assistant Secretary for Community Planning and Development.
[FR Doc. 94-19228 Filed 8-9-94; 8:45 am]
BILLING CODE 4210-29-P
