[Federal Register Volume 59, Number 157 (Tuesday, August 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19981]
[[Page Unknown]]
[Federal Register: August 16, 1994]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Community Planning and
Development
[Docket No. N-94-3801; FR 3750-N-01]
Notice of Funding Availability (NOFA) and Program Guidelines for
the Economic Development Initiative (EDI)
AGENCY: Office of the Assistant Secretary for Community Planning and
Development, HUD.
SUMMARY: This NOFA announces the availability of funds for grants under
Section 108(q) of the Housing and Community Development Act of 1974, as
amended. HUD reserves the right to award grants under this NOFA up to
the maximum amount authorized by law. As of the date of this NOFA and
subject to funding availability, HUD intends to award at least $19
million in EDI funds.
Communities which may obtain Section 108 loan guarantee commitments
to carry out qualifying projects also may be eligible under this NOFA
to receive EDI grants to enhance the security of the guaranteed loan or
to improve the feasibility of proposed projects through techniques such
as interest rate subsides, loan loss reserves, etc. The NOFA sets out
program guidelines which will govern the application, application
review, and award process for EDI grants.
DATES: Applications are due in HUD Headquarters at the address stated
below under Addresses, by September 16, 1994, 4:30 pm Eastern Daylight
time. HUD will not accept applications that are submitted to HUD via
facsimile (FAX) transmission.
ADDRESSES: Completed applications should be submitted to the Office of
Community Planning and Development, Department of Housing and Urban
Development, 451 Seventh Street SW., room 7180, Washington, DC 20410.
Interested persons are invited to submit comments on the program
guidelines for the Economic Development Initiative. Comments should be
submitted to the Office of the General Counsel, Rules Docket Clerk,
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.
FOR FURTHER INFORMATION CONTACT: Paul Webster, Director, Financial
Management Division, Office of Block Grant Assistance, Department of
Housing and Urban Development, room 7178, Washington, DC 20410.
Telephone (202) 708-1871. The TDD number is (202) 708-2565. (These are
not toll-free numbers.)
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act Statement
The information collection requirements contained in this NOFA have
been submitted to the Office of Management and Budget (OMB) for review
under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520). The
Department has requested that OMB complete its review within 10 days
from the date of this publication. No person may be subjected to a
penalty for failure to comply with these information collection
requirements until they have been approved and assigned an OMB control
number. The OMB control number, when assigned, will be announced by
separate notice in the Federal Register.
I. Purpose and Substantive Description
(A) Authority. Title I, Housing and Community Development Act of
1974, as amended, (42 U.S.C. 5301-5320) (the ``Act''); 24 CFR part 570.
(B) Definitions.
CDBG funds means, in addition to those funds specified at
Sec. 570.3(e), grant funds received pursuant to Section 108(q).
Economic Development Initiative (EDI) means the provision of
economic development grant assistance under Section 108(q) of the Act,
as authorized by Section 232 of the Multifamily Housing Property
Disposition Reform Act of 1994 (P.L. 103-233) (the ``1994 Act'').
Economic development project means an activity or activities
(including mixed use projects with housing components) that are
eligible under the Act and under 24 CFR Sec. 570.703, and that increase
economic opportunity for persons of low- and moderate-income or that
stimulate or retain businesses or jobs or that otherwise lead to
economic revitalization.
Unless otherwise defined herein, terms defined in 24 CFR part 570
and used in this NOFA shall have the respective meanings given thereto
in that part.
(C) Background.
EDI is intended to complement and enhance the Section 108 Loan
Guarantee program (see 24 CFR Secs. 570.700-710 for regulations
governing the Section 108 program). This provision of the Community
Development Block Grant (CDBG) program provides communities with a
source of financing for economic development, housing rehabilitation,
and large scale physical development projects. HUD is authorized
pursuant to Section 108 to guarantee notes issued by CDBG entitlement
communities and nonentitlement units of general local government
eligible to receive funds under the State CDBG program. Regulations
governing the Section 108 program are found at 24 CFR part 570, subpart
M.
Additionally, assistance provided under this NOFA is subject to the
requirements of section 3 of the Housing and Urban Development Act of
1968, and the implementing regulations in 24 CFR part 135, as amended
by an interim rule published on June 30, 1994 (59 FR 33866). Section 3
requires that to the greatest extent feasible, and consistent with
Federal, State, and local laws and regulations, job training,
employment and other contracting opportunities generated from certain
HUD financial assistance be directed to low- and very-low income
persons. The eligible activities for which funding is provided under
this NOFA are consistent with the objectives of section 3. Public
entities awarded funds under this NOFA and that intend to use the funds
for housing rehabilitation, housing construction, or other public
construction should consult the regulations published on June 30, 1994,
to determine applicable requirements.
The Section 108 program is authorized at $2.054 billion in loan
guarantee authority in Fiscal Year 1994. Under this program communities
and (States, if applicable) pledge future years' CDBG allocations as
security for loans guaranteed by HUD. The full faith and credit of the
United States is pledged to the payment of all guarantees made under
Section 108. The Section 108 program, however, does not require CDBG
funds to be escrowed for loan repayment, which means that the community
can continue to spend its existing allocation for other CDBG purposes,
unless needed for loan repayment. Further, EDI minimizes the potential
loss of future CDBG allocations by lowering the cost of borrowing under
Section 108, reducing the risk that the pledged annual CDBG allocation
would be required to fund repayment shortfall, and enhancing the
ability of communities to leverage federal resources and private funds.
An EDI grant can reduce the risk to future CDBG funds:
(1) By strengthening the economic feasibility of the projects
financed with Section 108 funds (and thereby increasing the probability
that the project will generate enough cash to repay the guaranteed
loan),
(2) By directly enhancing the security of the guaranteed loan, or
(3) Through a combination of these risk mitigation techniques.
HUD envisions that the following project structures could be typical.
Provision of financing to for-profit businesses at a below market
rate--While the rates on loans guaranteed under Section 108 are only
slightly above the rates on comparable U.S. Treasury obligations, they
may nonetheless be higher than can be afforded by many businesses. The
EDI grant can be used to make Section 108 financing affordable, as
illustrated in the following example:
A public entity wishes to make financing available for businesses
located in a distressed neighborhood. The public entity applies for
Section 108/EDI assistance to carry out a $5.75 million economic
development (ED) program. The ED loans will be funded from a financing
package that includes a $5,000,000 Section 108 loan and a $750,000 EDI
grant. If the rate on the Section 108 loan is 7.25 percent and the term
is 15 years, the rate on the ED loans can be reduced to 5.1 percent (a
level which is approximately 30% lower than the Section 108 rate).
Thus, the EDI grant serves to ``buy down'' the interest rate on the ED
loans, thus reducing the income the business needs to generate to
provide program income to the public entity to repay the Section 108
loan. (Note that the extent to which rates on ED loans can be reduced
depends on the maturity of the Section 108 loan and the amount of the
EDI grant.)
Direct enhancement of the security of the Section 108 loan--The EDI
grant can be used to cover the cost of providing enhanced security. An
example of how the EDI grant can be used for this purpose is by using
the grant funds to cover the cost of a standby letter of credit, issued
in favor of HUD. This letter of credit will be available to fund
amounts due on the Section 108 loan if other sources fail to
materialize and will, thus, serve to protect the public entity's future
CDBG funds.
Funding reserves--The cash flow generated by an economic
development project may be expected to be relatively thin in the early
stages of the project. The EDI grant can make it possible for debt
service or operating reserves to be established in a way that does not
jeopardize the economic feasibility of the project.
An example is a supermarket or neighborhood shopping area that is
designed to provide basic services to and jobs in a distressed
neighborhood. The public entity must be prepared for a period after
completion during which space in that shopping center is not fully
leased. It may therefore require the developer to establish with a
trustee a reserve account (or accounts) that would be available to
cover operating expenses and/or debt service during the lease-up
period. While such reserves are commonplace, their cost may be so high
as to make an already risky neighborhood shopping center project
economically infeasible. The increased cost resulting from establishing
such reserves may be defrayed by the EDI grant. As with the letter of
credit example above, the reserves protect the CDBG program against the
risk that CDBG funds will have to be used to cover shortfalls in the
intended source for repayment of the Section 108 loan.
Over-collateralizing the Section 108 loan--The use of EDI grant
funds may be structured in appropriate cases so as to improve the
chances that cash flow will be sufficient to cover debt service on the
Section 108 loan and directly enhance the guaranteed loan. One
technique for accomplishing this approach is over-collateralization of
the Section 108 loan.
An example is the project which involves the joint use of a Section
108 loan and EDI grant to fund a loan pool project. For instance, a
community might borrow $5 million under Section 108 and obtain an EDI
grant of $500,000. It can then make $5.5 million in loans to various
businesses at a rate equal to or greater than the rate on the Section
108 loan. The total loan pool of $5.5 million would be pledged to the
repayment of the $5 million Section 108 loan. Since the program income
from the $5.5 million will be greater than the debt service on the
Section 108 loan, the community can accumulate a loss reserve that will
further mitigate the risk to future CDBG funds. This kind of loan pool
project has the added benefit of reducing the risk to future CDBG funds
through diversification of the community's loan portfolio.
(D) Timing of Grant Awards
EDI applications will be evaluated concurrently with requests for
Section 108 guarantee commitments or for the approval of amendments to
previously approved Section 108 applications that will be enhanced by
the EDI assistance. (See II.B. of this NOFA.)
(E) Limitations on Grant Amounts
HUD expects to approve EDI grant amounts with respect to any
application generally in the range of 7 to 15 percent of the related
Section 108 guaranteed loan. In certain instances HUD may award more
than 15 percent of the related Section 108 loan. Applicants, however,
cannot request grants exceeding 15 percent. In the case of requested
amendments, the EDI assistance will be determined on the increased
amount of Section 108 loan guarantee assistance. HUD reserves the right
to determine a maximum amount of any EDI award per project and to
modify requests, accordingly.
(F) Eligibility to Apply for Grant Assistance
Any public entity eligible to apply for loan guarantee assistance
pursuant to Sec. 570.702 may apply for grant assistance under Section
108(q). Eligible applicants are entitlement units of general local
government and nonentitlement units of general local government
eligible to receive loan guarantees under Sec. 570.702.
(G) Eligible Activities
EDI grant funds may be used for:
(1) Activities listed at Sec. 570.703, provided such activities are
carried out as part of an economic development project.
(2) Payment of costs of private financial guaranty insurance
policies, letters of credit, or other credit enhancements for the notes
or other obligations guaranteed by HUD pursuant to Section 108,
provided such notes or obligations are used to finance an economic
development project. Such enhancements shall be specified in the
contract required by Sec. 570.705(b)(1), and shall be satisfactory in
form and substance to HUD for security purposes.
II. The Application Process
Public entities seeking EDI assistance must make a specific request
for that assistance, in accordance with this NOFA. The EDI application
shall be accompanied by a request for a Section 108 loan guarantee
commitment, as further described in Section II.B. of this NOFA below.
Application guidelines for the Section 108 program are found at
Sec. 570.704.
(A) Timing of Submission
Applications for EDI assistance shall be received at HUD
Headquarters at the address listed above at ``Addresses'' by September
16, 1994 by 4:30 p.m. Eastern Daylight time. HUD will not accept
applications which are submitted to HUD via facsimile (FAX)
transmission.
(B) Submission Requirements
The EDI application shall be accompanied by a request for loan
guarantee assistance under Section 108. The request for Section 108
loan guarantee can be either:
(1) A formal application for Section 108 loan guarantee, including
the documents listed at Sec. 570.704(b);
(2) A description, not to exceed three (3) pages, of a Section 108
loan guarantee application to be submitted within one month of a notice
of EDI selection (EDI awards will be conditioned on approval of actual
Section 108 loan commitments). This description must be sufficient to
support the basic eligibility of the proposed project or activities for
Section 108 assistance;
(3) A copy of a Section 108 loan guarantee application which was
approved after the date of this NOFA; or
(4) A request for a Section 108 loan guarantee amendment (analogous
to subparagraph (1) or (2) above) which proposes to increase the amount
of a previously approved application. However, a Section 108 loan
guarantee application approved before the date of this NOFA is not
eligible for EDI awards.
In addition, the public entity shall submit for EDI grant
assistance the following:
(i) SF 424, Application for Federal Assistance.
(ii) The certification regarding lobbying required under 24 CFR
part 87 (Appendix A).
(iii) A narrative statement describing the activities that will be
carried out with the EDI grant funds and explaining how the use of EDI
grant funds meets the criteria in paragraph II.(C) below. The narrative
statement shall not exceed one 8.5'' by 11'' page for the description
of the activities to be carried out with the EDI grant funds and one
page for each of the listed selection criteria.
(C) Selection Criteria
All applications will be considered for selection based on the
following criteria that demonstrate the quality of the proposed
project, and the applicant's creativity, capacity and commitment to
maximize the use of the EDI funds, in accordance with the purposes of
the Act.
(1) Distress--(up to 20 points). The level of distress in the
immediate community to be served and/or the jurisdiction applying for
assistance. This may include factors indicative of distress such as
poverty, income, unemployment, drug use, homelessness and other
indicators of distress.
(2) Extent of need for assistance--(up to 15 points). This may
include factors such as:
(i) Projects costs and financial requirements.
(ii) The amount of any debt service or operating reserve accounts
to be established in connection with the economic development project.
(iii) The reasonableness of the costs of any credit enhancement
paid with EDI grant funds.
(iv) The amount of program income (if any) to be received each year
during the repayment period for the guaranteed loan.
(v) Interest rates on those loans to third parties (other than
subrecipients) (either as an absolute rate or as a plus/minus spread to
the Section 108 rate).
(vi) Underwriting guidelines used (or expected to be used) in
determining project feasibility
(vii) Other relevant information
(3) The extent to which the proposed activities effectively support
important National interests--(up to 15 points). These activities
include:
(i) The provision of jobs for low- and moderate-income individuals
with special consideration for participants in any of the following
programs: Jobs Training Partnership Act (JTPA), Jobs Opportunities for
Basic Skills (JOBS), or Aid to Families with Dependent Children (AFDC);
(ii) The provision of jobs for participants in Unemployment
Insurance programs;
(iii) The provision of jobs for residents of Public and Indian
Housing or other assisted housing units;
(iv) The provision of jobs for homeless persons;
(v) The provision of jobs that provide clear opportunities for
promotion for low- and moderate-income individuals, such as through the
provision of training;
(vi) The establishment, stabilization, or expansion of
microenterprises that employ low- and moderate-income individuals;
(vii) The stabilization or revitalization of a neighborhood that is
predominantly low and moderate income;
(viii) The provision of assistance to a community development
financial institution whose service area is predominantly low and
moderate income;
(ix) The provision of assistance to a neighborhood-based nonprofit
organization serving a neighborhood that is predominantly low and
moderate income;
(x) The provision of employment opportunities that are an integral
component of a community's strategy to promote spatial deconcentration
of low- and moderate-income and minority families;
(xi) The provision of assistance to business(es) that operate(s)
within a census tract (or block numbering area) that has at least 20
percent of its residents who are in poverty; or
(xii) Other innovative approaches that provide substantial benefit
to low-and moderate-income persons.
(4) Quality of the plan--(up to 45 points). HUD will consider the
quality of the plan, including but not limited to the extent to which
the applicant's proposed plan for the EDI grant/Section 108 loan
guarantee will address its described need in the applicant's immediate
community and/or its jurisdiction, and the extent to which the plan is
logically, feasibly, and substantially likely to achieve its stated
purpose.
(5) The capacity or potential of the public entity to successfully
carry out the plan--(up to 15 points). This may include factors such as
the public entity's performance in the administration of its CDBG
program; its previous experience, if any, in administering a section
108 loan guarantee; its performance and capacity in carrying out
economic development projects; its ability to conduct prudent
underwriting; and its capacity to manage and service loans made with
the guaranteed loan funds or EDI grant funds.
(6) The extent to which the proposed plan follows a comprehensive
and coordinated approach in addressing the community and economic
development needs of the public entity and furthers neighborhood
revitalization--(up to 20 points).
(7) Innovation and creativity--(up to 20 points). The extent to
which the applicant incorporated innovation and/or creativity in the
design and proposed implementation of the proposed activities carried
out with Section 108/EDI funds.
HUD, in its discretion, may choose to award EDI assistance to a
lower rated approvable application over a higher rated application in
order to increase the level of geographic diversity of grants approved
under this part.
Timing of grant awards--In most cases, EDI grants will be obligated
contemporaneously with HUD approval of the related Section 108 loan
guarantee commitment. However, the EDI grant may be awarded prior to
HUD approval of the Section 108 commitment if HUD determines that such
award will further the purposes of the Act. EDI funds shall not be
disbursed to the public entity before the issuance of the related
Section 108 guaranteed obligations.
III. Technical Assistance
To the extent permitted by law, HUD may advise applicants of
technical deficiencies in the EDI applications and permit them to be
corrected. Due to the requirements of the HUD Reform Act, HUD staff is
limited in the assistance it is permitted to provide regarding
applications for EDI grants. The assistance and advice that can be
provide includes such activities as explaining and responding to
questions about program regulations, identification of those parts of
an application that need substantive improvement, the dates by which
decisions will be made and procedures that are required to be performed
to process an application. This term, however, does not include
advising the applicant how to make those improvements.
In addition, any information published in the Federal Register and
in this NOFA and any information that has been made public through a
means other than the Federal Register or NOFA, may be discussed.
HUD staff will be available throughout the EDI application period
to provide extensive advice and assistance, as is currently provided,
to develop 108 loan applications since the 108 program is not subject
to the HUD Reform Act. Staff providing such assistance may provide
technical advice to the EDI selection panel but in no case will such
staff participate in the panel's voting process for EDI awards under
this NOFA.
IV. 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, implementing section 102(2)(C) of the
National Environmental Policy Act of 1969 (42 U.S.C. 4332). The Finding
of No Significant Impact is available for public inspection and copying
between 7:30 a.m. and 5:30 p.m. weekdays at the Office of the Rules
Docket Clerk, 451 Seventh Street, SW., Room 10276, Washington, DC
20410.
Federalism. The General Counsel, as the Designated Official under
section 6(a) of Executive Order 12612, Federalism, has determined that
this NOFA will not have substantial, direct effects on States, on their
political subdivisions, or on their relationship with the Federal
Government, or on the distribution of power and responsibilities
between them and other levels of government. While the NOFA offers
financial assistance to units of general local government, none of its
provisions will have an effect on the relationship between the Federal
Government and the States, or the States' political subdivisions.
Family. The General Counsel, as the Designated Official for
Executive Order 12606, The Family, has determined that the policies
announced in this NOFA would not have the potential for significant
impact on family formation, maintenance and general well-being within
the meaning of the Order. No significant change in existing HUD
policies and programs will result from issuance of this NOFA, as those
policies and programs relate to family concerns.
Prohibition Against Lobbying Activities. The use of funds awarded
under this NOFA is subject to the disclosure requirements and
prohibitions of section 319 of the Department of Interior and Related
Agencies Appropriations Act for Fiscal Year 1990 (31 U.S.C. 1352) and
the implementing regulations at 24 CFR part 87. These authorities
prohibit recipients of Federal contracts, grants, or loans from using
appropriated funds for lobbying the Executive or Legislative Branches
of the Federal Government in connection with a specific contract,
grant, or loan. The prohibition also covers the awarding of contracts,
grants, cooperative agreements, or loans unless the recipient has made
an acceptable certification regarding lobbying. Under 24 CFR part 87,
applicants, recipients, and subrecipients of assistance exceeding
$100,000 must certify that no Federal funds have been or will be spent
on lobbying activities in connection with the assistance.
Prohibition Against Lobbying of HUD Personnel. Section 13 of the
Department of Housing and Urban Development Act (42 U.S.C. 3537b)
contains two provisions dealing with efforts to influence HUD's
decisions with respect to financial assistance. The first imposes
disclosure requirements on those who are typically involved in these
efforts--those who pay others to influence the award of assistance or
the taking of a management action by the Department and those who are
paid to provide the influence. The second restricts the payment of fees
to those who are paid to influence the award of HUD assistance, if the
fees are tied to the number of housing units received or are based on
the amount of assistance received, or if they are contingent upon the
receipt of assistance. HUD's regulation implementing section 13 is
codified at 24 CFR part 86. If readers are involved in any efforts to
influence the Department in these ways, they are urged to read the
final rule, particularly the examples contained in Appendix A of the
rule. Appendix A of this rule contains examples of activities covered
by this rule.
Any questions concerning the rule should be directed to the Office
of Ethics, Room 2158, Department of Housing and Urban Development, 451
Seventh Street SW., Washington DC 20410-3000. Telephone: (202) 708-3815
(voice/TDD). (This is not a toll-free number.) Forms necessary for
compliance with the rule may be obtained from the local HUD Office.
Dated: August 10, 1994.
Andrew Cuomo,
Assistant Secretary for Community, Planning and Development.
[FR Doc. 94-19981 Filed 8-15-94; 8:45 am]
BILLING CODE 4210-29-P
