# U.S. Department of Housing and Urban Development

COMMUNITY PLANNING AND DEVELOPMENT

**Special Attention of:** **Notice CPD 01-10**

All CPD Office Directors

All CPD Field Office Directors Issued: June 19, 2001

Field Economic Development Specialists

All CDBG Entitlement Communities and States Expires: June 19, 2002

> Cross References:

**SUBJECT:** Section 108 Program - Clarifying Guidance on Certain
Aspects of the Section 108 Loan Guarantee Program

**I.** **Introduction**

The purpose of this notice is to provide clarifying programmatic
guidance on certain aspects of the Section 108 loan guarantee program.
The need to provide this information was recommended by the HUD Office
of Inspector General (OIG) during audits of the Section 108 program. The
information provided pertains to the need to (A) explain to citizens how
assistance to for-profit businesses will meet the regulatory requirement
that such assistance is appropriate, (B) describe the conditions needed
for an activity to qualify as meeting the slums or blight component of
the national objectives on. a spot basis, (C) provide sufficient
information to citizens so they can make informed decisions about the
proposed activity, and (D) educate the public and media about the
Section 108 activity so that unwarranted criticism does not occur.

**II.** **Programmatic Guidance on** the **Section 108 Program**

A. For-Profit Regulatory Appropriateness Requirement

Communities are reminded that when they prepare applications for the
Section 108 loan guarantee program that call for assistance to
for-profit businesses, they need to explain to citizens how the activity
meets the regulatory requirement that the assistance is appropriate. As
provided at 24 CFR  570.203(b), communities may use Community
Development Block Grant (CDBG) funds to assist for-profit businesses
only where such assistance is \"appropriate\" to carry out an economic
development project. (The term \"CDBG funds\" includes funds received by
a community in the form of grants, proceeds from the issuance of a note
guaranteed under Section 108, and program income.) Generally, it is
HUD\'s position that assistance to a for-profit business would be deemed
appropriate, if the activity complies with public benefit standards set
forth at 24 CFR  570.209(b).

**Distribution: W-3-1**

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B. Slums or Blight on a Spot Basis

The regulatory basis for the national objective of addressing slums or
blight on a spot basis is found at 24 CFR  570.208(b)(2). In the past
CPD has not felt it necessary to further define the conditions needed to
meet the slums or blight national objective on a spot basis. This
position was taken because the wide range of potential conditions do not
lend themselves to a more detailed regulatory definition.

> Our position not to amend the regulatory standards to further define
> spot blight remains the same. However, we feel that more can be done
> to advise the public on how the Section 108 loan guarantee project
> meets the slums or blight national objective on a spot basis.
> Communities should ensure that the proposed application, which must be
> published and made available for review and comment by affected
> citizens, explains how the determination was made that the national
> objective will be met. Additional guidance to help communities in
> making this determination can be found in the \"Addressing Slums or
> Blight on a Spot Basis\" section of the [Guide to National Objectives
> and Eligible Activities for Entitlement Communities]{.underline}. This
> document is a HUD CDBG publication.

In addition, the community needs to ensure that the public is aware that
the community still meets the primary CDBG objective that at least 70
percent of total expenditures, including Section 108 loan proceeds,
benefit low and moderate income persons. When citizens know that there
is a reasonable basis for the activity, and that the activity meets the
basic objectives of the program, they may be more likely to support the
funding of the elimination of slums and blight on a spot basis.

C. Information to Citizens

Regulations pertaining to citizen participation are included in 24 CFR
570.704. These regulations detail the types of information that must be
provided to citizens during the application process. When communities
prepare applications for the Section 108 program they need to provide
citizens with sufficient information for them to make informed decisions
about the project, without disclosing information protected by Federal,
state and local privacy laws.

> In concert with, or in addition to information already required, the
> HUD OIG recommended that communities make the information listed below
> available to citizens. The HUD OIG felt that if the application
> includes such appropriate details, citizens will not have to rely on
> other sources such as newspaper articles to form opinions or to make
> decisions about the project. We agree and ask that communities make it
> available to citizens. This information is as follows:

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-   Details of the project being funded with Section 108 and on other
    related projects that are needed to make the Section 108 loan
    guarantee project feasible and meet a national objective, so that
    the public:

\- is aware of the total extent of the project and the sources of
revenue and profit for the developer,

\- knows how the national objective will be met, and,

-   can help decide the corporate welfare issues.

    -   The identity of entities participating in the projects.

## D. Educating the Public and the Media

Misunderstandings about the Section 108 program can lead to unwarranted
criticisms from the media and the public. We encourage CPD field offices
and communities to consider using information statements such as those
shown below, if applicable, in responding to media and public concerns.

-   The Section 108 loan program is a loan guarantee program, not a
    grant program, and uses loan proceeds for its financing. The program
    is intended to provide communities with a source of financing for
    leveraging economic development, housing rehabilitation, public
    facilities, and other large scale physical development projects. The
    program is typically, although not required to be, used for projects
    that generate revenues which can be used to repay the loan.
    Therefore, the program should not prevent the use of a community\'s
    CDBG funds for other worthy projects that primarily benefit low and
    moderate income persons.

-   Generally, the same regulations governing the use of CDBG grants
    govern the use of the guaranteed loan proceeds, including national
    objectives and other requirements. However, not all CDBG eligible
    activities are eligible for Section 108 loan guarantee assistance.
    Section 108 eligible activities are limited to those listed at 24
    CFR  570.703. Section 108 loan guarantee proceeds must actually be
    used for one of the eligible activities in that Section of the CFR.
    Also, Section 108 loan proceeds must be included for purposes of
    determining that a community meets the test that at least 70 percent
    of their CDBG funds benefit low and moderate income persons.

-   As long as a community\'s Section 108 application and project meet
    all program requirements, and Section 108 loan guarantee authority
    is available, HUD has no basis for disapproving the application.