Comment Submitted by Marcia J. Sigal, The Council of State Community Development Agencies (COSCDA)

Attached please find comments on this proposed rule from COSCDA Regulations Division Office of General Counsel U.S. Department of Housing and Urban Development 451 Seventh St., S.W. Room 10276 Washington, D.C. 20410-0500 Re: Comments on Proposed Rule Docket No FR-5181-P-01; RIM 2506-AC22 24 CFR Part 570 State Community Development Block Grant Program: Proposed Rule, Administrative Rule Changes Dear Sir or Madam: The Council of State Community Development Agencies (COSCDA) submits is comments below regarding the above referenced proposed rule. COSCDA is the national organization which represents State community development agencies that administer the State CDBG program. The comments on the proposed rule reflect the input of our members regarding their support for or concerns over implementation of provisions in this rule. COSCDA thanks the Department for the opportunity to provide this input and offers our commitment to work with the staff to find constructive solutions to the issues and challenges raised in this comment letter. Section 570.489(a) Fungibility between the Administrative Fee and Technical Assistance COSCDA supports this new provision in the State CDBG program rules. However, there is a tremendous need to increase the administrative fees for the State CDBG program. In light of existing requirements and rising personnel costs, COSCDA members have requested that the State administrative fees be increased to 5 percent. COSCDA calls on the Department to work with States and Congress to increase the administrative fees for the State CDBG program. Section 570.489(b) Pre-Agreement Costs COSCDA supports this provision and thanks the Department for this clarification. Section 570.489 (e) Program Income Reporting on Program Income and Revolving Loan Funds In many states, use of locally administered revolving loan funds funded by the CDBG program has made a significant impact on economic development and housing in the State. However, many of these local partners (local governments or non-profit organizations) are small organizations that do not have the administrative capacity to readily comply with the proposed rule change on reporting program income. In addition, many states believe that the rule’s proposed requirement for reporting program income receipts from revolving loans funds established since 1991 will be an excessive administrative burden for their CDBG staff. States point to this newly proposed requirement, which will indeed increase the need for administrative staff in many states, as further documentation for the need for a higher administrative fee. Again, COSCDA asks that the Department support such an increase, and submit a request to Congress to make the necessary statutory changes which will increase administrative fees for the State CDBG program to 5 percent of the annual formula allocation. It should be noted that many states do not believe that receipting program income in IDIS would be a way to increase the administrative fees, as has been suggested in our prior discussions about this issue with the Department. Many states do not want to take any of that funding away from the local level because they need it too! COSCDA asks the Department to remember that the Inspector General’s Office has already raised the issue of administrative capacity, in terms of enough staff, for existing requirements. Most State agencies believe that they currently do not have adequate time to focus on results and provide assistance to local governments and non-profits that are helping low and moderate income households and meeting critical local community development needs. Some states have suggested that HUD require that tabulated data be entered into IDIS rather than individual loan receipts. This is an idea COSCDA strongly encourages the Department to pursue, in that the goals of the proposed provision would be met, e.g. beneficiaries would be counted and the dollar amount of loans would be accounted for, while relieving the administrative burden on both the local and State grantees. Other ideas to ease the burden on the local level would be to require reporting annually, rather than quarterly, and allow for states to phase in compliance, giving additional time for localities to at least try to increase their capacity so that they may comply with the new requirements. HUD may also want to consider rules to allow states to more easily remove the local RLF administrator’s ties to the HUD funds. Threshold for Program Income We appreciate the recognition that an increase in the threshold for program income exemption is appropriate. However, the threshold needs to be further raised to $50,000 in light of the existing undue administrative burden on states. Many states have minimum threshold for grant awards to avoid requiring burdensome requirements for very small grants. The same principles would apply to program income and $50,000 is more appropriate than $35,000. Definition of Program Income COSCDA supports and appreciates that the definition of program income excludes the sale of real property as program income if sold 5 years after the grant agreement is closed, and funds generated by projects administered by non- profit entities. State Monitoring and Administration of Program Income (Conditions of Program Income at the Local Level) Certain language in the proposed rule regarding states taking program income back from the local grantee is causing confusion and may be objectionable. We agree that the statutory language does not prohibit a state from requiring local governments to return program income if it is spending the program income in violation of other CDBG requirements or if such funds are not being spent in a timely manner. However, the proposed language that says that if program income on hand exceeds projected cash needs for the reasonably near future, the state may require the local government to return all or part of the program income to the state “ until such time as the program income is needed by the local government.” Is this meant to be a requirement or at the state’s option? Would this provision require the state to spend program income first by obligating those funds to other local governments, yet “reserving” funds for the local government that created the problem? The determination to allow a local government to retain program income should be made only if there is a plan for timely obligation and expenditure of funds. The proposed rule should not prescribe how the state should handle such situations. If the local government does not have a plan for spending the program income in a timely manner then the state should have the ability to recapture the funds without further obligation to return them. The language included in the proposed rule to address the problem of untimely program income expenditures is cumbersome, excessive, prescriptive and confusing. A state should be given maximum feasible deference to determine appropriate sanctions when a local government is found to be in non compliance with program requirements. Such sanctions are dependent on a variety of factors that do not need to be included in the action plan. The better solution is to give the state the option of approving a local government’s request to retain income to carry out the same activity only if it demonstrates the capacity and a plan to do so in a timely manner and in compliance with program requirements. Regional or State Wide Revolving Loan Funds Many states support the provisions in the proposed rule regarding regional revolving or State-wide revolving loan funds. These provisions would allow states the opportunity to partner or contract with regional entities to administer the fund (s) on behalf of the states, and can create economies of scales and efficiencies that would ease administrative burden on both the State and participating local governments. Section 570.489 (m) Audits This provision seems to say that states are responsible for making their grantees be in compliance with the Single Audit Act. The state cannot be responsible for this! States would be willing to ensure that CDBG grants are awarded only to localities that can provide professional certification (from an auditor) that they are in compliance. Section 570.490 Recordkeeping. Listing the loan receipts in both IDIS and the paper PER are unnecessary and burdensome as well. Until the PER is automated, States object to the provision proposed in Section 570.490 which would require listing all program income from revolving loan programs manually in the paper PER. Moreover, a summary of revolving loan activity is all that should be required in the PER, paper or electronic. Section 570.486 Activities Benefiting Funds in Entitlement Areas The proposed rule on activities benefiting other jurisdictions or entitlement areas do not seem to really clarify the regulations. Are States allowed to expend funds in entitlement areas or not? Is proportional distribution allowed and if so how is it determined? How is incidental benefit to be defined? COSCDA stands ready to work with the Department to make these program rule changes workable for states. Please feel free to contact Dianne Taylor, COSCDA’s Executive Director, at 202-293-5820 to discuss these matters further. Sincerely, Marcia J. Sigal Director, Community and Economic Development