Number range CHAPTER**DEPARTMENT OF COMMERCE**

**CFDA 11.300 GRANTS FOR PUBLIC WORKS AND ECONOMIC DEVELOPMENT
FACILITIES**

**CFDA 11.307 ECONOMIC ADJUSTMENT ASSISTANCE**

**I. PROGRAM OBJECTIVES**

The Economic Development Administration (EDA) awards grants through its
Public Works and Economic Development (Public Works) program to assist
the Nation's most distressed communities: (1) revitalize and expand
their physical and economic infrastructure and (2) provide support for
the creation or retention of jobs for area residents by helping eligible
recipients with their efforts to promote the economic development of
their local economies. The primary goal of these awards is the creation
of new, or the retention of existing, long-term private sector job
opportunities in communities experiencing significant economic distress
as evidenced by high unemployment, underemployment, low per capita
income, outmigration, or a special need arising from actual or
threatened severe unemployment or severe changes in local economic
conditions. Public Works grants may include construction and related
activities, such as acquisition, design and engineering, and related
machinery and equipment.

The objective of EDA's Economic Adjustment Assistance program is to
address the needs of communities experiencing adverse economic changes
that may occur suddenly or over time, including, but not limited to,
those caused by military base closures or realignments, depletion of
natural resources, Presidentially-declared disasters or emergencies, or
international trade. Economic Adjustment Assistance awards may be used
to develop a comprehensive economic development strategy (CEDS) or other
strategy to alleviate long-term economic deterioration or a sudden and
severe economic dislocation, or to fund a project implementing that CEDS
or other strategy, including grants for construction and grants for
Revolving Loan Funds (RLFs). EDA grants to capitalize or recapitalize
RLFs are most commonly used for business lending, but may also fund
public infrastructure or other authorized purposes involving lending.

**II. PROGRAM PROCEDURES**

A recipient of a Public Works or Economic Adjustment Assistance grant is
required to provide a matching share. The required matching share varies
on a grant-by-grant basis and is set forth in the grant award. Prior to
EDA approving the matching share, the recipient must demonstrate to
EDA's satisfaction that the matching share is committed to the project,
available as needed, and not conditioned or encumbered in any way that
would preclude its use consistent with the requirements of the grant
award (42 USC 3144-3146; Sections 300.3 and 301.5).

Section 302 of the Public Works and Economic Development Act of 1965, as
amended (PWEDA, 42 USC 3121 *et seq*.), sets forth a CEDS requirement
for Public Works and Economic Adjustment Assistance grants, except for
planning projects (i.e., strategy grants) under the Economic Adjustment
Assistance program.

RLF recipients must manage RLFs in accordance with an RLF Plan approved
by EDA. The RLF Plan must be approved by the RLF recipient's governing
board prior to the initial disbursement of EDA funds. RLF recipients are
responsible for ensuring that borrowers are aware of and comply with
applicable Federal statutory and regulatory requirements.

**Source of Governing Requirements**

The programs are authorized by PWEDA, as amended by the Economic
Development Administration Reauthorization Act of 2004 (Pub. L.
108-373). Interim final rule provisions with respect to Public Works
awards and Economic Adjustment Assistance awards are effective as of
October 1, 2005. All section citations contained herein refer to
sections of the interim final rule (70 FR 47002). A final rule will be
codified at 13 CFR part 300 *et seq*.

**Availability of Other Program Information**

Other program information is available on the Internet at
[http://www.eda.gov](http://www.eda.gov/).

**III. COMPLIANCE REQUIREMENTS**

**In developing the audit procedures to test compliance with the
requirements for a Federal program, the auditor should first look to
Part 2, Matrix of Compliance Requirements, to identify which of the 14
types of compliance requirements described in Part 3 are applicable and
then look to Parts 3 and 4 for the details of the requirements.**

**A.** **Activities Allowed or Unallowed**

1\. *Activities Allowed*

> The grant budget and grant agreement will specify the purpose or use
> of funds which include the following:
>
> a\. Construction grants can be made for the acquisition or development
> of land and improvements for use for a public works, public service,
> or development facility. Construction grants can also be made for the
> acquisition, design and engineering, construction, rehabilitation,
> alteration, expansion, or improvement of such a facility, including
> related machinery and equipment (42 USC 3141; 42 USC 3149; and
> Sections 305.2(a) and 307.3).
>
> b\. RLF grants may be made for the establishment or recapitalization
> of an RLF, usually for business development, but RLF grants may also
> fund public infrastructure or other authorized purposes involving
> lending (42 USC 3149; and Section 307.7).
>
> c\. Other activities that can be funded under the Economic Adjustment
> Assistance program (in addition to grants for construction and RLFs)
> are grants for CEDS (or other strategy) development and grants for
> CEDS (or other strategy) implementation, which include market or
> industry research and analysis, technical assistance, public services,
> training, and other activities as justified by the strategy which meet
> applicable statutory and regulatory requirements (42 USC 3149; and
> Section 307.3).
>
> d\. A recipient of a Public Works grant may directly expend the grant
> funds or, with prior EDA approval, may redistribute such grant
> assistance in the form of a subgrant to another eligible recipient to
> fund required components of the scope of work approved for the project
> (42 USC 3154c; Section 309.1).
>
> e\. A recipient of an Economic Adjustment Assistance grant may
> directly expend the grant funds or, with prior EDA approval, may
> redistribute such grant assistance in the form of (i) a subgrant to
> another eligible recipient that qualifies for an Economic Adjustment
> Assistance award or (ii) a loan or other appropriate assistance to
> non-profit and private for-profit entities (42 USC 3154c; Section
> 309.2).

2\. *Activities Unallowed*

> RLF capital (as defined in Section 307.8) may not be used to:
>
> a\. Acquire an equity position in a private business (Section
> 307.18(b)(1)).
>
> b\. Subsidize interest payments on an existing RLF loan (Section
> 307.18(b)(2)).
>
> c\. Provide the equity contribution required of borrowers under other
> Federal loan programs (Section 307.18(b)(3)).
>
> d\. Enable an RLF borrower to acquire an interest in a business unless
> there is a sufficient justification and documentation showing the need
> for RLF financing (Section 307.18(b)(4)).
>
> e\. Provide RLF loans to a borrower for the purpose of investing in
> interest‑bearing accounts or other investments not related to the RLF
> (Section 307.18(b)(5)).
>
> f\. Refinance existing debt unless (i) the RLF recipient sufficiently
> demonstrates in the loan documentation a "sound economic
> justification" for the refinancing (e.g., the refinancing will support
> additional capital investment intended to increase business
> activities); for this purpose, reducing the risk of loss to an
> existing lender(s) or lowering the cost of financing to a borrower
> shall not, without other indicia, constitute a "sound economic
> justification"; or (ii) RLF capital will finance the purchase of the
> rights of a prior lien holder during a foreclosure action which is
> necessary to preclude a significant loss on an RLF loan (Section
> 307.18(b)(6)).

**C. Cash Management**

> 1\. Number range CHAPTERUnless otherwise specified in a special award
> condition, the method of payment for an award for an infrastructure
> construction project is generally through reimbursement (using Form
> ED-113, *Outlay Report and Request for Reimbursement for Construction
> Programs*) for costs incurred. Prior to disbursing grant funds for an
> infrastructure construction project, EDA also must receive an invoice
> from the recipient. EDA may approve the disbursement of funds prior to
> the tender of all construction contracts if the recipient can
> demonstrate that a severe hardship will result without such approval
> (Section 305.9(b)).
>
> 2\. Grant funds also are made available to RLF recipients on a
> reimbursement basis (when an obligation is incurred by the RLF
> recipient at the time of loan approval and loan announcement). An RLF
> recipient must request a disbursement only to close a loan or disburse
> RLF funds to a borrower (i.e., when the intent is to disburse the
> funds within fourteen (14) days of receipt). The RLF recipient must
> disburse the grant funds to a borrower within thirty (30) days of
> receipt of the funds. Any grant funds not disbursed within the thirty
> (30) day period must be returned to EDA. An RLF recipient is required
> to submit a written request for continued use of grant funds beyond a
> missed disbursement deadline. The amount of disbursed grant funds
> cannot exceed the difference, if any, between the RLF capital and the
> amount of a new loan, less the amount, if any, of the matching share
> required to be disbursed concurrent with the grant funds. However, RLF
> income held to cover eligible administrative expenses need not be
> disbursed in order to draw additional grant funds (Section 307.16).

**D. Davis-Bacon Act**

> All laborers and mechanics employed by contractors or subcontractors
> on construction projects receiving EDA grant assistance shall be paid
> at rates not less than those prevailing on similar construction in the
> locality, as determined by the Secretary of Labor in accordance with
> subchapter IV of chapter 31 of title 40, United States Code (42 USC
> 3212; and Section 302.13).

**F. Equipment and Real Property Management**

> Except as otherwise authorized by EDA, property acquired or improved
> with EDA grant assistance for construction projects cannot be used to
> secure a mortgage or deed of trust or in any way collateralized or
> otherwise encumbered. An encumbrance includes but is not limited to
> easements, rights-of-way or other restrictions on the use of any
> property. (Section 314.6(a)).

**G. Matching, Level of Effort, Earmarking**

> **1. Matching**
>
> The required matching share varies on a grant-by-grant basis and is
> set forth in the grant award (42 USC 3144-3146; Sections 300.3 and
> 301.5).
>
> **2. Level of Effort** - Not Applicable
>
> **3. Earmarking** - Not Applicable

**L. Reporting**

> **1. Financial Reporting**
>
> a\. SF-269, *Financial Status Report* - Applicable
>
> b\. SF-270, *Request for Advance or Reimbursement* - Applicable
>
> c\. SF-271, *Outlay Report and Request for Reimbursement for
> Construction Programs* (ED-113) (*OMB No. 0610-0096*), which contains
> substantially the same information that is used in lieu of the SF-271.
>
> d\. SF-272, *Federal Cash Transactions Report* - Applicable
>
> **2. Performance Reporting** - Not Applicable
>
> **3. Special Reporting**
>
> a\. ED-209S, *Semi-Annual Report for EDA-Funded RLF Grants* and
> ED‑209A, *Annual Report for EDA-Funded RLF Grants* *(OMB No.
> 0610-0095)* -- All RLF recipients are required to submit Form ED-209S
> for the periods ending March 30 and September 30, unless EDA has
> approved the substitution of an annual Form ED-209A (covering the
> period ending September 30) upon the written request of the RLF
> recipient (Section 307.14(a)).
>
> *Key Line Items* - The following line items contain critical
> information:
>
> [ED-209S]{.underline} [ED-209A]{.underline}
>
> \(1\) Line I-A-6 Line C-16 *Total Active Loans*
>
> \(2\) Line III-C-14 Line A-6 *Current Level or RLF Base Capital*
>
> \(3\) Line III-D-20 NA *Current Balance Available as a Percent of Base
> Capital*
>
> \(4\) NA Line A-11 *RLF Capital Utilization Rate*
>
> \(5\) Line V-C-9 NA *Amount of RLF Income Earned in the most recent
> 12-month period*
>
> \(6\) Line V-C-11 NA *Percentage of RLF Income used for Administrative
> Costs*
>
> b\. ED-209I, *RLF Income and Expense Statement* *(OMB No. 0610-0095)*
> -- RLF recipients electing to use either 50 percent or more (or more
> than \$100,000) of RLF income to cover all or part of an RLF's
> administrative expenses must submit annually a completed Form ED-209I
> (Section 307.14(c)) (see also III.N.1, "Increase to RLF Capital
> Base").

*Key Line Items* - The following line items contain critical
information:

\(1\) *RLF Income*

> \(2\) *Expenses Charged to RLF Income (2.a through 2.l)*
>
> \(3\) *Total Expenses (sum of 2.a through 2.l)*
>
> \(4\) *Net RLF Income (1 minus 3)*
>
> \(5\) *Cumulative Net RLF Income*
>
> \(6\) *Expenses as % of RLF Income (3/1)*
>
> \(7\) *For the current 12-month period, provide an estimate of
> projected RLF Income and the percentage expected to be used for RLF
> administrative expenses*.

**N. Special Tests and Provisions**

> **1. Increases to RLF Capital Base**
>
> **Compliance Requirements** - RLF income includes all interest earned
> on outstanding loan principal, interest earned on accounts holding
> idle RLF funds, loan fees and other loan-related earnings. RLF income
> does not include repayment of RLF loan principal and any interest
> remitted to the U.S. Treasury pursuant to a sequestration of excess
> funds. In accounting for RLF income, any proceeds from the sale,
> collection, or liquidation of a defaulted RLF loan, up to the amount
> of the unpaid principal, will be treated as RLF principal and placed
> into the RLF capital base for lending purposes only. Any proceeds in
> excess of the unpaid principal will be treated as RLF income (Sections
> 307.8 and 307.12).
>
> RLF income may fund administrative expenses, provided the following
> conditions are met: (1) the RLF income and the administrative expense
> are earned in the same 12-month reporting period; (2) RLF income that
> is not used for administrative expenses during the 12-month reporting
> period must be added to the RLF capital base and made available for
> lending activities; (3) RLF income cannot be withdrawn from the RLF
> capital base in a subsequent reporting period for any use other than
> lending without the prior written consent of EDA; and (4) the
> recipient completes an RLF Income and Expense Statement (Section
> 307.12(a)).
>
> RLF capital includes the aggregate amount of cash held by the RLF
> recipient from any of the following sources: grant funds, matching
> share, repayment of principal from RLF loans, and RLF income.
> Generally, RLF capital must be used for the purpose of making RLF
> loans that are consistent with an RLF Plan or other purposes approved
> by EDA (Sections 307.8 and 307.18(a)).
>
> **Audit Objective** - Determine whether (1) all the conditions for RLF
> income to be used to fund administrative expenses were satisfied, (2)
> RLF income not used for administrative expenses was added to the RLF
> capital base for lending activities, and (3) repayments of principal
> on RLF loans were placed in the RLF capital base for re-lending.

**Suggested Audit Procedures**

> a\. Verify that the amounts recorded in the financial records include
> RLF income and repayments of principal on RLF loans.
>
> b\. Ascertain if RLF income not used for administrative expenses was
> added to the RLF capital base.
>
> c\. Ascertain if repayments of principal on RLF loans were placed into
> the RLF capital base.
>
> **2. Loan Requirements**
>
> **Compliance Requirements** - The following requirements apply to RLF
> loans:
>
> a\. RLFs must operate in accordance with generally accepted accounting
> principles (GAAP). Within sixty (60) days prior to the initial
> disbursement of EDA funds, an independent accountant familiar with the
> RLF recipient's accounting system must certify to EDA and the RLF
> recipient that such system is adequate to identify, safeguard and
> account for all RLF capital, outstanding RLF loans and other RLF
> operations (Section 307.15(a) and (b)).
>
> b\. Prior to the disbursement of any EDA funds, the RLF recipient must
> certify that standard RLF loan documents necessary or advisable for
> lending are in place and that these documents have been reviewed by
> its legal counsel for adequacy and compliance with the terms and
> conditions of the grant and applicable State and local law. The
> standard loan documents include, at a minimum, the (1) loan
> application, (2) loan agreement, (3) promissory note, (4) security
> agreement(s), (5) deed of trust or mortgage (if applicable), (6)
> agreement of prior lien holder (if applicable), and (7) guaranty
> agreement (for officers or owners of corporate borrowers, if
> applicable) (Section 307.15(b)(2)).
>
> c\. An RLF recipient must make loans to implement and assist economic
> activity only within its EDA-approved lending area, as defined in the
> special terms and conditions of the grant award and the RLF Plan
> (Section 307.11).
>
> d\. Unless otherwise provided in the grant agreement or modified in
> writing by EDA, a borrower is not eligible for RLF financing if credit
> is otherwise available on terms and conditions that permit the
> completion or successful operation of the activity to be financed. The
> RLF recipient is responsible for determining that each borrower meets
> this requirement and for documenting the basis for its determination
> in the loan documents for each RLF loan (Section 307.18(c)).
>
> **Audit Objective** - Determine whether (1) the required standard loan
> documents were completed for the RLF loans; (2) an independent
> accountant certified to EDA and to the RLF recipient that the
> accounting system is adequate to identify, safeguard and account for
> all RLF operations; (3) the financed activity is located in an
> EDA-approved lending area; and (4) there is loan documentation to
> support that credit was not otherwise available to the borrower.

**Suggested Audit Procedures**

> Test a sample of RLF loan files and ascertain if:
>
> a\. The standard loan documents were properly completed.
>
> b\. The financed activity is located in an EDA-approved lending area.
>
> c\. The RLF recipient documents in the RLF loan file that that credit
> was not otherwise available to the borrower.
>
> **3. Addition of Lending Areas; Merger of RLFs**
>
> a\. An RLF recipient may add an additional lending area to its
> existing lending area to create a new lending area only with EDA's
> prior written approval and subject to the following conditions: (1)
> EDA has disbursed the full amount of the award to the RLF recipient;
> (2) the additional lending area must fulfill the economic distress
> criteria for Economic Adjustment Assistance grants; (3) prior to EDA's
> disbursement of additional funds to the RLF recipient, EDA determines
> a new grant rate for the new lending area; (4) the RLF recipient shows
> that the additional lending area is consistent with its CEDS, or
> modifies its CEDS for any additional lending area; (5) the RLF
> recipient modifies its RLF Plan to incorporate the additional lending
> area and revises its lending strategy; and (6) the RLF recipient
> fulfills any other conditions reasonably requested by EDA (42 USC
> 3149; and Section 307.11(a)).
>
> b\. EDA may provide written approval for a single RLF recipient to
> merge its RLFs, provided the following conditions are satisfied: (1)
> it meets the requirements to obtain annual report status; (2) it
> demonstrates a rational basis for undertaking the merger and the
> borrower criteria identified in the different RLF Plans are
> compatible, or will be compatible, for all RLFs to be consolidated;
> (3) it amends and consolidates its RLF Plan to account for the merger
> of RLFs; (4) it fulfills any other conditions reasonably requested by
> EDA; and (5) prior to EDA's disbursement of additional funds, EDA
> determines a new grant rate for the new lending area (42 USC 3149; and
> Section 307.11(b)(1)).
>
> c\. EDA may provide written approval for multiple RLF recipients to
> merge their RLFs, provided the following conditions are satisfied: (1)
> the surviving RLF recipient meets the requirements to obtain annual
> report status; (2) the surviving RLF recipient amends and consolidates
> its RLF Plan to account for the merger of RLFs; (3) prior to EDA's
> disbursement of additional funds to the surviving RLF recipient, EDA
> determines a new grant rate for the new lending area; (4) EDA provides
> written approval of the merger agreement(s), modifications and
> revisions to the RLF Plans; (5) all applicable RLF grant assets of the
> discharging RLF recipient(s) transfer to the surviving RLF recipient
> as of the merger's effective date; and (6) the surviving RLF recipient
> becomes fully responsible for administration of the RLF grant assets
> transferred and fulfills all surviving RLF grant requirements and any
> other conditions reasonably requested by EDA (42 USC 3149; and Section
> 307.11(b)(2)).
>
> **Audit Objectives** - Determine whether (1) EDA has provided prior
> written approval to an RLF recipient, permitting it to (a) create a
> new lending area or (b) merge two or more of its EDA-funded RLFs into
> one surviving RLF; (2) the applicable preconditions have been
> fulfilled; and (3) EDA has provided prior written approval to two or
> more RLF recipients to consolidate their EDA-funded RLFs into one
> surviving RLF.

**Suggested Audit Procedures**

a.  Verify that the RLF recipient has evidence of EDA's prior written
    approval for the creation of a new lending area or the merger of
    RLFs.

b.  Ascertain if the RLF recipient has modified its CEDS to account for
    an additional lending area, if necessary.

c.  Ascertain if the RLF recipient has amended and/or consolidated, as
    necessary, its RLF Plan to account for a new lending area or merger
    of RLFs.

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4.  **RLF Loan Portfolio Sales and Securitizations**

> With prior approval from EDA, an RLF recipient may enter into a sale
> or a securitization of all or a portion of its RLF loan portfolio,
> provided it: (1) uses all the proceeds of any sale or a securitization
> to make additional RLF loans; and (2) requests EDA to subordinate its
> interest in all or a portion of any RLF loan portfolio sold or
> securitized (42 USC 3149; and Section 307.19).
>
> **Audit Objectives** -- In the event an RLF recipient has sold or
> securitized RLF loans, verify whether it (1) requested EDA's prior
> approval and (2) used all the proceeds from the sale or securitization
> to make additional RLF loans.

**Suggested Audit Procedures**

a.  Verify that the RLF recipient has a written record demonstrating
    EDA's approval to sell or securitize all or a portion of its RLF
    loan portfolio.

b.  Ascertain that all the proceeds from the sale or securitization (net
    of reasonable transactions costs) were used to make additional RLF
    loans.

    **IV. OTHER INFORMATION**

> For the RLF part of the Economic Adjustment Assistance program,
> calculation of Federal awards expended for determining when an audit
> is required under OMB Circular A-133 and determining Type A programs
> shall consider the following:
>
> 1\. Balance of RLF loans outstanding at the end of the fiscal year,
> plus
>
> 2\. Cash and investment balance in the RLF at the end of the fiscal
> year, plus
>
> 3\. Administrative expenses paid out of RLF income during the fiscal
> year.
>
> Only the Federal share (which excludes the matching share) of the RLF
> shall be used in this determination. Federal awards expended for the
> RLF part of the Economic Adjustment Assistance program shall be added
> to other Federal awards expended to determine total Federal awards
> expended for the program.
>
> See Appendix VI for information concerning a Hurricane Katrina-related
> waiver.