# PURPOSE

The purpose of this Notice is to provide information and guidance to
State and Entitlement Community Development Block Grant (CDBG) grantees
and subrecipients, Rural Housing and Economic Development (RHED)
grantees, HOME participating jurisdictions and subrecipients in the four
border states on best practices in distributing these funds to
communities with substandard living conditions along the U.S./Mexico
border, commonly known as "*colonias*". The Notice focuses on five
issues: Contract for Deed conversion, alternative building technologies,
needed infrastructure, individual development accounts and Self-Help/One
Stop service centers.

# BACKGROUND

The Department of Housing and Urban Development defines a "*colonia*" as
any identifiable community, outside of a Metropolitan Statistical Area
with a population exceeding one million, that is within 150 miles of the
U.S.-Mexico border in Arizona, California, New Mexico, and Texas and
that has a lack of a potable water supply, inadequate sewage systems,
and a shortage of decent, safe and sanitary housing. While all of the
Southwest border states have *colonias* present to varying degrees,
Texas has by far the greatest number of *colonias* and largest *colonia*
population; and thus the largest amount of resources, data and
historical information.

HUD's primary tools for helping these communities in the quest for safe,
sanitary housing are the Community Development Block Grant (CDBG) and
HOME programs. Due to the geographic isolation of the vast majority of
*colonias*, almost all CDBG funds spent in *colonias* are administered
through the State CDBG program. While these funds are primarily spent in
non-entitlement areas, State CDBG program regulations also allow
spending in metropolitan areas of less than one million people, such as
Hidalgo County, Texas. Although States are afforded maximum feasible
deference in choosing which projects and grantees to fund with CDBG
dollars, the Cranston-Gonzalez National Affordable Housing Act (NAHA)
established the *Colonia* Set-Aside, which mandated that Texas, New
Mexico, California and Arizona spend up to 10% of their FY 1991 CDBG
grant on projects that benefit *colonias*. For FY 1992 through FY 1994,
the statute authorized HUD, in consultation with representatives of the
*colonias*, to determine an appropriate set-aside percentage, not
exceeding 10 percent, for each of the four states. The set-aside was
voluntary in FY 1995; it was required by the HUD Appropriations Act in
FY 1996, and made permanent by the 1997 HUD Appropriations Act. Since
1997, HUD has established the *Colonias* Set-Aside for Texas, New Mexico
and Arizona at 10%, while the set-aside for California has fluctuated
between two and five percent during those years. To learn more about the
*Colonias* Set-Aside, visit HUD's website at:
[<http://www.hud.gov/offices/cpd/communitydevelopment/programs/colonias/cdbgcolonias.cfm>]{.underline}

Over the past ten years, HUD has expended a significant amount of
resources on "ad hoc" efforts to provide programs and services to
*colonias*, with generally positive results. The Department remains
dedicated to lessening the poverty and distressed living conditions of
these communities by improving the utilization of existing resources,
and by coordinating the efforts of the various programs within HUD that
work with *colonias*. For example, in February 2001, the Department
established the Task Force on the Southwest Border Region, *Colonias*
and Migrant/Farmworker Communities---comprised of representatives from
each of the major HUD organizations---to facilitate this goal.

With the recommendations of the Task Force in mind, this Notice has been
issued in order to provide guidance on the use of CDBG, HOME and other
funds in five areas that promise the most efficient use of resources:

> 1\) Contract for Deed Conversion Programs
>
> 2\) Alternative Building Technologies
>
> 3\) Needed Infrastructure
>
> 4\) Individual Development Accounts
>
> 5\) Self-Help and One-Stop Services Centers

# SECTION 1: CONTRACT FOR DEED CONVERSION

According to the Texas Secretary of State's Office,, most home financing
within the *colonias* in Texas has occurred through the contract for
deed financing mechanism, also known as a land contract or an
installment land contract. In addition, anecdotal evidence suggests that
a significant amount of colonia home financing within the other
Southwest border states use this same financing mechanism, although less
is known about non-traditional lending in Arizona, New Mexico and
California. A contract for deed is similar to a mortgage loan in that it
allows a buyer to purchase a parcel of land from a seller. Unlike a
mortgage loan, however, the buyer does not receive title to the land
until the full price, with interest, has been paid.

The seeming advantage of contract for deed financing is that the buyer
is able to enter into a contract to purchase the land even if he or she
possesses bad or insufficient credit and is unable to provide a
substantial downpayment. This type of financing also enables a seller to
face little risk in financing the purchase, since traditionally these
contracts were not recorded with the county clerk. If the buyer fell
behind in making payments, the seller could repossess the land within 45
days without going through the normal foreclosure process, and could
even claim any improvements made on the property.

In an attempt to address the problem with contracts for deed
arrangements in the *colonias*, the State of Texas has made great
strides in recent years to protect the interest of *colonia* residents
by enacting legislation that has made contract for deed financing less
desirable for unscrupulous developers. Through the state's *Colonia*
Fair Land Sales Act of 1995, sellers are required to record and counties
are required to keep track of contracts for deed, thus making it more
difficult for sellers to repossess land for only one or two missed
payments. This legislation also requires sellers to provide a statement
of available services, such as water, sewer, and other infrastructure,
ending the practice whereby a developer would attest to having services
available that actually were not present at the time the contract was
signed, or promising services which they never intended to provide.
Finally, this legislation required sellers to provide an annual
statement of the buyer's account.

Moreover, to address some of the more problematic contracts for deed
executed before 1995, the Texas Department of Housing and Community
Affairs (TDHCA), Office of *Colonia* Initiatives has spent over \$7
million in HOME money and committed \$9 million overall, for the
conversion of hundreds of contracts for deed. This initiative will be
discussed in more detail below, under "Ways in which CDBG and HOME can
be used."

The statutory instruments for conveyances and mortgages of real property
in the Southwest border states, among others, include grant deed,
warranty deed, trust deed and quitclaim deed. The latter perhaps seems
to be more problematic than the former types for California and New
Mexico *colonias.* The quitclaim deed is a deed by which the grantor
transfers only the interest, or the amount of ownership in the property
described in the quitclaim, the grantor has at the time of conveyance.
This type of deed has no expressed or implied warranty that the grantor
owns the property or any interest in it. In essence, a quitclaim deed
says "I am conveying all the interest that I have in the property
described in this quitclaim."

Regardless of the type of deed arrangement established throughout the
*colonias*, there are clear problems in the inability of residents to
establish clear titles or declare legal ownership of real property. Lack
of a marketable title can inhibit buyers from participating in
lower-cost, government-supported financing programs. Therefore, it is
important to identify the particular financing problems in each state to
establish an adequate remedy for *colonia* residents to achieve full
legal homeownership.

**Ways in which CDBG and HOME can be used**

The State of Texas has made much use of the HOME program for contract
for deed conversions since 1998. As of last year, the Office of
*Colonia* Initiatives (OCI) had converted more than 350 contracts for
deed into lower interest mortgages, using HOME funds and money from a
state bond initiative passed in 1998. OCI accomplishes these conversions
with the help of units of general local government (UGLGs), public
housing authorities, nonprofits and for-profit entities, which gather
eligible applicants to participate in the program and provide completed
packets to OCI for review. For an applicant who is selected for
conversion, OCI pays the remainder of his or her contract for deed to
the seller, and then becomes the mortgagee to the loan, which may be
0-4% interest for up to 10 years. In addition, the applicant may be
given a deferred forgivable loan for up to \$15,000 for costs associated
with bringing the unit up to Colonia Housing Standards (CHS). These
standards were set by HUD in 1996 in response to a plea from the State
of Texas to make HOME funds more accessible to colonias. Normally, HOME
regulations require that housing which is assisted with HOME funds at a
minimum must meet Section 8 housing quality standards. Due to the
extremely poor condition of most housing stock in the colonias, HUD
approved the CHS in order to make HOME funds stretch further.

While the HOME program has been widely used in Texas, states have made
little use of CDBG funds for the purpose of contract for deed
conversion. In 2001, OCI spent part of their CDBG Technical Assistance
set-aside funds to host three capacity-building seminars to provide
mortgage conversion education for *colonia* residents in Hidalgo, El
Paso, Webb and Starr counties. While Texas has spent almost \$14 million
since 1996 to fund five *Colonia* Self-Help Centers---which are designed
to provide on-site technical assistance to *colonia* residents on many
issues, including contract for deed conversion---states have not spent
CDBG funds on the actual conversion of contracts for deed or the
activities required for conversion, such as surveying, re-platting or
legal services.

A large number of conversions are delayed by the fact that surveys are
often poorly performed or non-existent and plats are often not recorded
with the county clerk's office. Surveying and platting are required by
virtually all lending institutions before a loan can be processed, which
makes this step one of vital importance. The provision of legal services
to facilitate contract for deed conversions to traditional mortgages is
an eligible Public Service activity in the CDBG program.

A colonia advocacy group that can serve as a success model is Community
Resource Group, Inc., which has received two HUD grants that are making
a difference in the lives of 1,000 colonia residents of Starr County,
Texas. CRG, Inc. has leveraged additional funds from USDA, TDHCA and
other national and local foundations. The group has provided clear
marketable titles to 2,392 lots for colonia families. CRG, Inc. is the
court-appointed receiver in the largest title regularization efforts in
the country. The HUD grants were funded through the Office of Rural
Housing and Economic Development (RHED), of which more is discussed in
Section II.

# 

# SECTION II- ALTERNATIVE BUILDING TECHNOLOGIES

Overall, housing in *colonia* settlements can pose striking contrasts
and is often difficult to characterize because it is so diverse. Many of
the housing units in newer *colonia* areas are primarily substandard
structures built by residents using available materials such as
cardboard, shells of old buses, cinder block or wood. In contrast,
housing conditions in some older colonias tend to be in better condition
because residents have had more time to improve them, and thus are often
indistinguishable from *non-colonia* neighborhoods.

There is an ever-growing need for affordable housing in today's
*colonias*. In June 2000, a survey among 96 *colonias* in six border
counties, sponsored by the Texas Department of Health, indicated that
almost half of the *colonia* households in Texas make less than \$834 a
month. Compounding the problem is the fact that the border population in
some counties is growing at nearly double the state's average, far
outstripping the availability of safe, affordable homes.

Grantees can use CDBG to fund a variety of housing projects, ranging
from minor rehabilitation of an existing home to new construction of
housing (if carried out by a nonprofit organization serving the
development needs of the communities in nonentitlement areas). In 1980,
the Housing and Community Development Act, as amended, was amended to
emphasize the program's role in improving energy efficiency by expanding
categories of eligibility to include design features and improvements
that promote energy efficiency, public facilities such as utilities,
rehabilitation of buildings which promote energy efficiency, energy
conservation as a public service and grants to neighborhood-based
nonprofit organizations to carry out energy conservation.

Self-help projects, such as those organized by the non-profit
organization Proyecto Azteca in Texas and funded by the HOME program,
have been successful in building affordable housing. Since residents
provide their own labor, project organizers can afford to use
alternative building technologies that are more labor-intensive but use
less expensive materials than traditional construction techniques. For
instance, modern contractors shy away from using "Cob" construction
(described in detail below) because it is very labor-intensive and has a
long construction time. Yet, in the U.S./Mexico border region, where
labor can be self-provided, dry seasons are well defined and clay soil
is plentiful, the "Cob" construction technique seems particularly
appropriate.

The HOME program supports the Affordable Sustainability Technical
Assistance (ASTA) web site
([[http://www.homeasta.org/]{.underline}](http://www.homeasta.org/)),
which serves the needs of the affordable housing developer by providing
step-by-step recommendations on how to make single-family home
construction projects more sustainable in the areas of resource and
energy use. This web site provides an overview of the principles of
sustainable design, case studies on their application and links to other
alternative building technologies, including cob and straw-bale
construction.

Another HUD resource for states seeking information on alternative
building technologies is the website of the "Partnership for Advancing
Technology in Housing", also known as PATH. Its six goals are: increased
housing affordability; lower construction costs; reduced monthly cost;
fewer construction injuries; lower disaster losses; and accelerated
development and increased market acceptance of new housing technologies.
PATH is administered by HUD through the Office of Policy Development and
Research (PD&R), and includes as its members: major housing and research
agencies in the Federal government; leaders in the manufacture of
homebuilding products; innovators in the homebuilding and contracting
industry; researchers from diverse backgrounds; and officials from
financial, regulatory and insurance groups. PATH looks at the issues and
institutional problems related to technology development in the housing
industry, and strives for viable cost-effective solutions.

Listed below are just a few of the technologies researched by PATH that
may be of use in *colonia* housing projects. Some of these construction
methods do not meet the building codes in every state; however, it is
always possible that such codes might be changed or waived to
accommodate the need for safe, decent and affordable housing in these
areas. To learn more, go to the PATH website at:
[[http://www.pathnet.org/]{.underline}](http://www.pathnet.org/)

**Cob Construction**

The word "cob" comes from an English root meaning *a lump or rounded
mass*. Cob buildings utilize prepared earth shaped into lumps to be
applied by hand. Placed atop a sturdy foundation, cob dries to become a
sound, stone-like, load-bearing assembly. It has been used worldwide
since at least the 11^th^ century as an inexpensive, abundant
homebuilding approach. Developed societies have tended to abandon cob
construction due to its being labor intensive and having long
construction times. However, because cob can produce a more natural,
solidly built structure than conventional wood framing, there is a
renewed interest in this form of construction.

Cob construction allows owners to build their own homes at little cost.
Cob structures are solid, acoustically sound, and capable of maintaining
a comfortable interior temperature even during the drastic temperature
and humidity swings that occur along the border. Cob may be fabricated
without need for machinery, reducing construction costs in the U.S. to
between \$7 and \$15 per square foot wall area (not including labor).

As noted earlier, cob construction may not meet local building codes.
Currently, the only building-code-approved location for load-bearing cob
in the U.S. is New Mexico. Regulators in some states do, however,
approve such applications with certification from an engineer or
architect. With heightened interest in the search for affordable
building technologies, it is likely that more homebuilders will utilize
this technique.

**Rammed Earth Construction**

This type of wall construction turns soil into sedimentary rock in
minutes, using high pressures and heavy equipment. Raw material
consisting of 70 percent sand and 30 percent clay is placed into
concrete forming panels fitted with a steel frame and special plywood
inset. Material is placed in the form by lifts, which are the masonry
equivalent of courses. Eight inches of material is loaded into the forms
and subsequently compressed with pneumatic tampers to five inches in
height. Another lift is placed atop the first lift, and the process is
repeated until the walls are about six inches from the top of the forms.
The forms are removed immediately after a wall section has been rammed
to begin the curing process.

Rammed earth-constructed walls are well suited to the Southwestern
United States due to their insulating effect. Buildings are slower to
heat up in the summer sun, and retain heat because the thermal mass is
very slow to give up its heat. The real efficiency lies not in the
insulation ability, but in the structure's ability to reduce interior
temperature swings.

**Straw-Bale Construction**

Straw-bale construction is not a new technology; it has been around in
the U.S. since the turn of the century. Straw is a cheap, renewable
resource that provides excellent thermal insulation, is easy to use as a
building material, and allows for a great deal of flexibility and
creativity for the designer and builder. A typical 2,000 square feet
house requires about 300 medium sized bales, which cost only \$2-\$4 per
bale.

Straw bales are laid end to end with overlapping joints, just like
bricks. The roof is placed on the straw walls, which are compressed by
the weight (thus improving the insulating ability). Wire mesh and stucco
are then applied, making the wall weatherproof, fire-resistant and
pest-free. While it's not intended for all areas, straw bale
construction is a viable alternative method especially in dry climates.
Straw bale construction can also help cut energy consumption costs, by
as much as 30% compared to traditional building materials.

New Mexico, where straw bale construction is fairly common, is among one
of the very few states that have granted approval for this type of
construction. Generally, where approval has been given, it has been for
the in-fill type of construction---where a frame is incorporated into
the structure to carry the loads and the bales are used to fill in
between the structural members---and not the load-bearing type. Many
local authorities are dealing with applications for building straw-bale
homes on a case-by-case basis.

**Straw-Based Building Products**

Since straw is largely a by-product of food crops, with 200 million tons
being produced each year, homebuilding products made from it are cheaper
than wood and more environmentally friendly. At the factory, the straw
is transformed into a wood-like product by compressing it under high
temperatures that bond the straw fibers together. A high-quality finish
can be applied to the outside of the panel to provide a surface fit for
exposed applications. To create a stronger, structural panel, the straw
board can be sandwiched between two oriented strand boards. Straw boards
are resistant to fire, termites and water, and are available in sizes
ranging from 2 inches to 4 inches in thickness. In addition, straw
boards are usually in compliance with local building codes.

HUD's Office of Policy Development and Research is continuing to advance
efforts to promote alternative building technologies. Currently, PD&R is
working on two research projects; the first will examine traditional
construction techniques in the *colonias* to test their energy
performance and construction durability; and the second project will be
to develop a guidebook of basic construction techniques, including straw
bale, for housing developers in the *colonias*. In addition, a PATH
Demonstration project is currently being developed with the Brownsville
Community Development Corporation (Texas) to design and construct, over
a period of time, a number of homes that will meet local building codes,
are energy efficient and are cost effective.

**Additional Funding Sources for Alternative Building Technologies**

HUD's *Rural Housing and Economic Development* *(RHED)* program awards
funds competitively, on an annual basis, through a selection process
conducted by HUD in consultation with the U.S. Department of
Agriculture. Among the list of eligible activities is the application of
innovative construction methods encouraging building design, which
reflects terrain, climate and availability of indigenous materials. In
FY 2003 RHED awarded grants totaling \$25 million to fund capacity
building and support for innovative rural housing and economic
development. The House and Senate Appropriation Committees have
recommended funding at the same level for FY 2004. For more information,
contact the Office of RHED at 202-708-2035.

The Housing Opportunities for Persons with AIDS (HOPWA) program is
another tool for helping colonias in the quest for safe, sanitary
housing. The HOPWA program was created in 1992 to provide states and
localities with the resources and incentives to devise long-term
comprehensive strategies for meeting the housing and supportive services
needs of low-income persons with HIV/AIDS and their families. Ninety
percent of HOPWA's annual appropriation dollars are distributed to
states and localities under a formula that is based on AIDS surveillance
information from the Centers for Disease Control and Prevention. For
2003 the HOPWA appropriation totaled over \$290 million dollars. Ten
percent of HOPWA funds are made available each year through a national
competition.

The U.S. Department of Agriculture, Rural Housing Service (RHS) also
provides the Rural Housing Demonstration Program, a loan program for
low-income borrowers to purchase innovative housing units and systems
that do not meet existing published standards, rules, regulations or
policies. The intended effect is to increase the availability of
affordable rural housing for low-income families through innovative
designs and systems. Funding made available for this program in FY 2003
totaled \$1million. RHS anticipates the availability of \$1 million for
new demonstration projects for FY 2004. Alternative building
technologies can also be financed through the RHS *502 Mutual Self Help
Housing* program (more information on which is provided in the Self-Help
Housing section). However, houses constructed through this program must
meet the voluntary national building code, adopted by states, and meet
RHS thermal and site standards. For further information about these
programs, contact RHS at 202-720-1474 or visit their web site at:
[[http://www.hud.gov/offices/cpd/economicdevelopment/programs/rhed/index.cfm]{.underline}](http://www.hud.gov/offices/cpd/economicdevelopment/programs/rhed/index.cfm)

In addition, the U.S. Department of Energy (DOE) Weatherization Program
can be a source of funding for reducing energy and other operating
costs. While the services funded through the Weatherization program are
delivered by local agencies, the funding is distributed through state
governments. For more information on Weatherization assistance, call DOE
at 1-800-DOE-3732 or visit their web site at:
[[http://www.eere.energy.gov/weatherization/]{.underline}](http://www.eere.energy.gov/weatherization/).

# 

# SECTION III- NEEDED INFRASTRUCTURE

Inadequate or non-existent infrastructure continues to be a problem for
the *colonias*. Among the most pressing infrastructure needs are the
availability and access to safe, clean drinking water, sanitary sewage
treatment systems, better roads and adequate drainage.

A study conducted by the New Mexico State University, Center for Latin
American and Border Studies, concluded that while 92% of New Mexico's
*colonias* have drinking water systems, most tend to be old and in need
of repair and/or upgrade. The systems also lack sufficient pressure for
fire-fighting purposes.

Many c*olonia* residents are forced to buy water by buckets or drums or
use potentially contaminated wells. As of June 2000, only 54 percent of
Texas *colonia* residents surveyed by the Texas Department of Health had
sewer service and more than 50 percent drank water from sources other
than taps. Among those residents not connected to a sewer system, septic
tanks and cesspools are the only viable option, and these systems are
often improperly installed. The poor quality of colonia roads, which are
often unpaved and covered with caliche---a hard soil layer cemented by
calcium carbonate---or other materials that inhibit drainage, makes the
situation worse. During heavy rains, the water collects due to poor
drainage, backs up into the improperly installed septic systems and
leaves raw sewage to pool on the ground or seep into the water supply.

Providing clean, safe water along the border is also hindered by the
lack of sufficient wastewater treatment facilities. Border communities
often discharge untreated water into rivers and canals. According to a
1992 EPA report, 27 million gallons of untreated wastewater is
discharged into the Rio Grande each day just in the Laredo/Nuevo Laredo
area alone. Residents are forced to buy water in 50-gallon drums because
the wells are too polluted with sewage run-off.

A 1995 study by the Texas Water Development Board (TWDB) estimated that
there are 428 *colonias* with about 81,000 people in need of potable
water facilities, and 1,195 *colonias* with about 232,000 people in need
of wastewater treatment facilities throughout the State of Texas. In
1996, a TWDB survey projected a conservative estimate of \$776.7 million
needed for bringing water and wastewater service to its economically
distressed areas, which are primarily along the border. This estimate
does not include the cost of individual hookups, indoor plumbing, or
water supply acquisition.

Even when *colonias* have water and wastewater lines nearby, many
residents cannot afford the \$700-\$800 hookup fee and cannot qualify
for the hook-up unless it is part of the overall rehabilitation of their
homes. For instance, even though HUD allows the State of Texas to meet
the less stringent Colonia Housing Standards for rehabilitation of
homes, all of those standards must still be met for a project to satisfy
HOME funding requirements. While this mandate makes sense within the
context of HOME's mission of providing safe, decent and affordable
housing, it often delays the provision of water and sewer services to
*colonia* residents because it forces jurisdictions to spend limited
resources to completely rehabilitate one house at a time rather than
provide more limited assistance to a greater number of houses. The CDBG
program, however, can serve as a complement to the HOME program since
hook-up fees can be funded through CDBG without accompanying
rehabilitation. Grantees should bear these facts in mind when developing
their Consolidated Plans and Method of Distribution.

It is also important to acknowledge that the challenges faced by states
and local governments go beyond allocating money for water systems.
First, there are some limitations to making large financial investments
to provide water and wastewater hookups for housing structures that are
economically unfeasible to rehabilitate. Second, even when water systems
are made available, some *colonia* residents may still not be able to
afford the forthcoming utility bills on an ongoing basis. Finally, some
homeowners may fear that increased requirements for connections to
services could potentially drive up their housing cost, leaving them
without an affordable housing option. These challenges are not only very
real, but also difficult to overcome. Nevertheless, progress has been
made to improve living conditions for *colonia* residents.

States have recognized that in order to improve living conditions
throughout the *colonias*, they must first start by making available
basic water and wastewater service to residents. As shown below, over
the past several years most states have spent the majority of their CDBG
*Colonias* Set-Aside funding on water, sewer and street infrastructure
improvements.

+-------------+-----------------------+------------------+-------------+
| # State     | # Water/Sewer/Street  | # Total Colonias | #           |
|             |                       |                  |  Percentage |
|             | **CDBG                | # C              |             |
|             | Expenditures\***      | DBG Expenditures | # Water/S   |
|             |                       |                  | ewer/Street |
+-------------+-----------------------+------------------+-------------+
| Arizona     | \$3,078,168           | \$9,557,232      | 32.2%       |
+-------------+-----------------------+------------------+-------------+
| California  | \$12,616,000          | \$13,216,000     | 95.5%       |
+-------------+-----------------------+------------------+-------------+
| New Mexico  | \$13,375,683          | \$13,650,683     | 98.0%       |
+-------------+-----------------------+------------------+-------------+
| Texas       | \$60,821,374          | \$88,738,542     | 68.5%       |
+-------------+-----------------------+------------------+-------------+

\*Between 1991 and 2001, except for Arizona (1997-2001)

In addition to CDBG grant funding, eligible public entities may utilize
HUD's Section 108 loan guarantee program to finance a wide range of
activities in *colonia* areas. Section 108 is the loan guarantee
provision of the CDBG program that enables entitlement public entities
to borrow up to 5 times their most recent CDBG allocation and
nonentitlement public entities, i.e. UGLGs, to borrow (in the aggregate)
up to 5 times the most recent CDBG allocation for the applicable state.

In addition to the standard range of economic development, housing and
infrastructure activities allowable under the Section 108 program,
Congress enacted in 1994 a specific eligibility provision applicable to
*colonias* to authorize the acquisition, construction, reconstruction,
rehabilitation or installation of public works and site improvements
that serve *colonias*. Listed below are the maximum Section 108
borrowing authority levels for each of the four border states based on
FY 2003 CDBG allocations:

# State FY 2003 CDBG Max. Section 108 Authority

Arizona \$ x 5 = \$

\$13,637,000 \$68,185,000

California \$ x 5 = \$

\$50,828,000 \$254,140,000

New Mexico \$ x 5 = \$

\$16,728,000 \$83,640,000

Texas \$ x 5 = \$

\$85,267,000 \$426,335,000

In order for nonentitlement public entities to utilize the Section 108
program, States must include that option in their annual CDBG Action
Plan and must establish the process for approving applications developed
by nonentitlement UGLGs and for providing the required pledge of State
CDBG funds. Under the Section 108 program, nonentitlement UGLGs apply
directly to HUD for the loan guarantee assistance. However, the
application must contain a certification by the State that it will
pledge, as required by statute, its CDBG funds as security for the loan
guarantee.

Loans under Section 108 may be for terms up to 20 years and principal
repayment schedules and additional loan collateral are negotiable with
HUD. Interim and permanent financing is provided. Interest rates on
permanent loans are determined when the loans are sold at public
offering. The interest rates generally are a few basis points above U.S.
Treasury obligations of similar maturity to the principal amount of the
Section 108 guaranteed loan. For more information regarding the Section
108 loan guarantee program, call your CPD representative or go to the
HUD web site at:

[[http://www.hud.gov/offices/cpd/communitydevelopment/programs/108/index.cfm]{.underline}](http://www.hud.gov/offices/cpd/communitydevelopment/programs/108/index.cfm)**.**

**Other Federal Resources**

Given the disproportionate ratio of available funds to infrastructure
needs, coupled with the limitations on using HOME and CDBG, it is
essential to combine funding from multiple sources to comprehensively
address the infrastructure needs in the *colonias.* The agencies listed
below can be used as funding sources to provide water and sanitation
facilities to rural areas, including *colonias*:

1.  **U.S. Environmental Protection Agency (EPA):** EPA provides the
    largest amount of funding for small communities trying to design and
    build wastewater systems. EPA currently funds several programs that
    border communities are eligible for, including: a) the C*olonias
    Wastewater Assistance Program*, which can be used to fund the
    planning, design and construction of wastewater facilities, make
    indoor plumbing improvements, and provide household connections to
    water and sewer facilities for low-income residents; b) the *Clean
    Water State Revolving Fund* program, which provides grants to states
    to capitalize loan funds to build wastewater facilities, with states
    providing a 20% match; c) the *Hardship Grants Program for Rural
    Communities*, which provides outright grants to disadvantaged rural
    communities (fewer than 3,000 residents) to address their wastewater
    needs; and d) the *Drinking Water State Revolving Fund (DWSRF)*
    program, which provides grants to states to capitalize loan funds
    for the installation and replacement of failing treatment
    facilities, eligible storage facilities and transmission and
    distribution systems. Small communities are given special
    consideration for *DWSRF*. For more information on the *Colonias
    Wastewater Assistance Program*, call 214-665-7149; for more
    information on the other programs, call 202-260-2268.

2.  **U.S. Department of Agriculture (USDA):** The USDA *Rural Utilities
    Service Water and Waste Disposal Program* provides loans and grants
    to rural communities (10,000 or fewer residents) for water,
    wastewater, solid waste and storm drainage projects. The funds are
    administered locally by state and area Rural Development offices,
    and may be used to install, repair, improve or expand rural
    wastewater disposal facilities. Only communities unable to get
    credit elsewhere at reasonable rates are eligible. For contact
    information, call 202-690-2670.

3.  **U.S. Department of Commerce:** The U.S. Department of Commerce,
    Economic Development Administration (EDA) provides grants to
    economically distressed areas for public works projects, including
    water and wastewater facilities. Eligible projects must promote
    economic development, create long-term jobs, and benefit low-income
    persons or the long-term unemployed. EDA grants usually cover 50
    percent of project costs, but grants of up to 80 percent are
    available for severely distressed communities. For more information,
    call 202-482-5265.

4.  **U.S. Department of Health and Human Services:** The Office of
    Community Services (OCS), Administration for Children and Families,
    located within the U.S. Department of Health and Human Services,
    annually issues Requests for Proposals from applicants capable of
    providing training and technical assistance on a region-wide basis
    within the United States to help small, rural, low-income
    communities in the construction or repair/rehabilitation of water
    and wastewater systems. For the last several years, six major
    applicant organizations have been the principal successful
    competitors for the available grant funds. The primary six technical
    assistance organizations are known as *Rural Community Assistance
    Programs (R-CAPs)*. At the present time, annual OCS grant funding
    provided through *R-CAPs* is approximately \$835 million. For more
    information, call R-CAP, Inc. at (202) 408-1273, or visit their web
    site at:
    [[http://www.rcap.org/]{.underline}](http://www.rcap.org/)**.**

In addition to the Federal agency resources listed above, communities
can enhance their capacity to address urgent water and wastewater
problems through the use of the *Small Towns Environment Program (STEP)*
developed by the Rensselaerville Institute. *STEP* is a collaborative,
community-driven approach that challenges the traditional role of
government involvement in solving community needs. This self-help
approach encourages community members to pull together local resources,
including human, material and financial, to significantly reduce the
costs associated with bringing clean, safe water and wastewater systems
to small towns. The State of Texas has carried out several successful
*STEP* projects and continues to support ongoing initiatives. Funding
for the Texas program is made available through the use of the CDBG
program and Texas Water Development Board funds. For further information
about *STEP*, contact the Texas Office of Rural Community Affairs at
(512) 475-3900, or visit the Rensselaerville Institute web site at:
[[http://www.rinstitute.org/]{.underline}](http://www.rinstitute.org/).

Additionally, the North American Development Bank (NADB) and its sister
institution, the Border Environment Cooperation Commission (BECC),
created under the auspices of the North American Free Trade Agreement,
can serve as a viable resource for financing infrastructure projects
throughout the *colonias*. NADB's mission is to serve as "a partner and
catalyst in communities along the U.S.-Mexico border in order to enhance
the affordability, financing, long-term development and effective
operation of infrastructure that promotes a clean, healthy environment
for the citizens of the region." All NADB-financed projects must be
certified by the BECC, be related to potable water supply, wastewater
treatment or municipal solid waste management and be located within the
border region. For further information, visit the NADB web site at:
[[http://www.nadbank.org/]{.underline}](http://www.nadbank.org/).

**SECTION IV- INDIVIDUAL DEVELOPMENT ACCOUNTS**

Individual Development Accounts (IDAs) are dedicated saving accounts
that can only be used for purchasing a home, paying for education or job
training expenses, or capitalizing a small business. These accounts,
which are generally managed by community organizations, are held at
local financial institutions in the name of the individual participant.
Contributions are made by individual participants over a pre-established
time period and are matched using both private and public sources.

Developing individual assets can be an effective tool in improving the
quality of life for *colonia* residents. IDAs can help *colonia*
families build wealth and achieve economic independence, while also
improving their current living conditions. The CDBG and HOME programs
can both be used to provide matching contributions when used for the
purposes outlined below.

# Using CDBG Funds for IDAs 

The use of CDBG for IDAs is not an eligible activity in and of itself.
However, the purposes for which the funds in an IDA are to be used---to
buy a home, start a business, or pay for education/job training---are
eligible activities under the CDBG program. Therefore, CDBG may be used
as a required match for IDAs, as discussed below, when the family or
household of the individual for whom the IDA is established is
determined to be low or moderate-income *prior* to assistance being
provided:

1\. To purchase a home: homeownership assistance meeting the low and
moderate-income benefit housing national objective.

> 2\. To pay education or job training expenses: public service under
> the low and moderate-income benefit limited clientele national
> objective.
>
> 3\. To capitalize a small business (i.e., 5 or fewer employees
> including the owner/developer): micro enterprise assistance under the
> low and moderate-income benefit limited clientele national objective
> based on the owner/developer's family size/income.

Specific guidance in using Community Development Block Grant funds to
assist IDAs (including eligibility, U.S. Treasury requirements,
cancellation, reporting and compliance information) can be found in CPD
Notice 01-12, issued August 14, 2001, through:
[[http://www.hudclips.org/]{.underline}](http://www.hudclips.org/).

**Using HOME Funds for IDAs**

HOME funds may be used as down payment assistance along with an IDA when
the purpose of the IDA is to purchase a home, but the guidance provided
above **cannot** be applied to the use of HOME funds. HOME has a
statutory requirement that funds must be invested in affordable housing
within 15 days of draw down from Treasury. Therefore, HOME funds may not
be deposited in an IDA. To learn more, a participating jurisdiction
interested in using HOME funds for an IDA program should refer to the
HOMEfires Policy Newsletter, Vol. 1, No. 8, issued June 1998 by the
Office of Affordable Housing Programs. You may access HOMEfires
newsletters at the following website:
[[http://www.hud.gov/offices/cpd/affordablehousing/library/homefires]{.underline}](http://www.hud.gov/offices/cpd/affordablehousing/library/homefires)**.**

**Additional Funding Sources for IDAs**

The U.S. Department of Health and Human Services, Administration for
Children and Families, Office of Community Services (OCS) provides
competitive grants to establish, implement and participate in the
evaluation of demonstration projects that will offer IDAs to lower
income individuals and families. Although current and future awards are
contingent upon the outcome of the competition and availability of
funding, OCS anticipates the availability of approximately \$16 million
dollars for funding approximately 50 new projects, including grants to
existing grantees, in FY2003. Additional information can be obtained
through the OCS website at:
[[http://www.acf.dhhs.gov/programs/ocs/]{.underline}](http://www.acf.dhhs.gov/programs/ocs/).

In addition, the Treasury Department's Community Development Financial
Institutions (CDFI) Fund provides critically needed capital and
financial services to financial institutions located within low-income
urban, rural and Native American communities, who then use this capital
to establish IDAs, among other uses.

# 

# SECTION V: SELF-HELP AND ONE-STOP SERVICE CENTERS

Because of the diversity of issues that *colonia* residents are faced
with in their quest for affordable housing, combined with the increasing
number of Federal, state, and non-profit organizations that are becoming
involved in their plight, there is the possibility for confusion and
duplication of efforts. HUD, therefore, strongly supports the creation
of on-site technical assistance centers that can integrate programs,
coordinate activities and more efficiently allocate resources. Self
Help/One-Stop service centers can be designed to co-locate a wide range
of services including construction training, contract for deed
conversion assistance and home financing education. Using CDBG in tandem
with a Section 108 guaranteed loan can fund construction of these
facilities, and the centers' operating costs can be paid for with CDBG
under the "Public Service" eligibility category.

The State of Texas has been very innovative in the creation of Self-Help
centers, and they may serve as a model for other states to follow. In
1995, the Texas Legislature directed the establishment of five *colonia*
Self-Help Centers (SHCs) in the six border counties with the highest
*colonia* population---El Paso, Webb, Starr, Hidalgo and
Willacy/Cameron. Each SHC is responsible for managing and overseeing
five *colonia* communities within its county. Operation of the *colonia*
SHCs is carried out through a local nonprofit organization, local
community action agency or local housing authority.

The law that established the SHCs also required the establishment of an
oversight committee, known as the *Colonia* Resident Advisory Committee,
to advise the Texas Department of Housing and Community Affairs (TDHCA)
on the needs of *colonia* residents. Each county selects two residents
to serve on this committee, with the stipulation that one of those
residents must reside in a *colonia* serviced by a SHC. These members
then meet 30 days prior to making an award to a *colonia* SHC. TDHCA has
reported great success with this framework. The committee structure has
been instrumental in voicing the concerns of residents and developing
useful tools and programs to address *colonia* residents' needs.

Funded by an additional 2.5% beyond the State of Texas 10% CDBG
*Colonia* Set-Aside, the SHCs serve 28 designated *colonias* with
approximately 10,000 *colonia* residents as beneficiaries. Some of the
technical assistance services offered to residents include:
rehabilitation; new construction; surveying and platting; construction
skills training; tool library access for self-help construction; housing
finance; credit and debt counseling; grant writing; infrastructure
construction and access; and contract for deed conversions. Although
primarily funded through CDBG, Self-Help Centers are encouraged to find
additional funding sources.

# Self-Help Housing and Homeownership Assistance

Proyecto Azteca, a nonprofit organization operating out of Hidalgo
County, Texas, was one of the first organizations to establish a SHC.
Since 1991, Proyecto Azteca has helped 80 *colonia* families build their
own homes. Through their program, Proyecto Azteca is able to provide
homeownership opportunities to families with incomes less than \$4,500,
with mortgage payments of between \$67 and \$90 monthly. After helping
applicants secure mortgage loans to pay off *colonia* lot purchase
balances (up to \$6,000), the nonprofit organization lends the tools
necessary for an owner to build their own home, using their own labor.
The houses are built at Proyecto Azteca's building site, and are then
moved to the family's lot. Averaging about four months to complete, the
3-bedroom, 1-bath wooden frame houses are designed by volunteer
architects and meet all of the locally established building codes and
standards.

Lower Valley Housing Corporation (LVHC), located in El Paso County,
Texas, is another example of how self-help housing programs can better
the lives of colonia residents. Through the "Mutual Self-Help
Construction" program, LVHC has constructed 360 homes since 1990, using
8-12 families who build over 65 percent of their own homes. Using
self-help labor, LVHC is able to offer 3-bedroom homes for only
\$42,000, with no down payment and monthly payments of only \$321,
including taxes and insurance.

In the State of Arizona, nonprofit organizations such as Housing America
Corporation and Comité de Bienestar have successfully leveraged USDA's
*Mutual Self-Help Housing* program with HUD's *Rural Housing and
Economic Development* (RHED) program to provide homeownership assistance
to *colonia* residents. Comité de Bienestar used USDA funding to provide
homeownership assistance in the form of revolving loans, forgivable
loans for construction costs and grants for mortgage closing costs. In
Mutual Self-Help housing, local sponsors help families qualify for a
subsidized *Rural Housing Services Section 502* loan. The families find
available land, and then form groups of six to ten families. With a
construction supervisor, families help build each other's houses,
contributing 65 percent of the labor required, over an eight-month
period. The Housing America Corporation used HUD funds to assist
families in *colonia* areas in Yuma County with homeownership counseling
and downpayment and closing cost assistance.

In the State of California, the Coachella Valley Housing Coalition
(CVHC) has assisted 801 families through its *Mutual Self-Help Program*
since 1987*.* Using RHED and USDA funds, CVHC uses self-help methods to
construct attractive 3- and 4-bedroom houses with two-car garages, tile
roofs and tile floors. CVHC reports that the mutual self-help building
process gives neighborhoods a very strong sense of community;
consequently, homes are seldom sold and are generally well-maintained.
While one of the largest producers of self-help housing in the country,
CVHC consistently has more demand than resources. Since 1987, the
organization has received over 10,000 pre-applications for assistance.

HUD has also worked in partnership with the Housing Assistance Council
(HAC). HAC employs a "sweat equity" construction method to assist
low-income rural families in becoming homeowners, and also provides
loans, technical assistance, training and research to a variety of
public, nonprofit and private organizations throughout rural America,
with special emphasis on high-needs regions like the Southwest border
area. In 1998, HAC was awarded a \$1 million dollar grant from HUD's
*Colonias* Initiative grant competition for the purpose of providing
technical assistance to and capacity building to community-based
nonprofits working in *colonias*. HAC also used \$300,000 of this grant
to provide 0% interest "seed loans" to support affordable housing in
*colonias*. The success of this partnership can be seen in the increased
capacity of community-based nonprofits to carry out activities with
multiple funding sources.

Finally, HUD's Self-Help Homeownership Opportunity Program (SHOP)
provides funds, through an annual competition, to national and regional
nonprofit organizations and consortia that in turn funnel these funds to
local affiliate organizations for land acquisition and infrastructure
improvements for the development of self-help housing. The construction
of housing units is funded through public and private sources, which
frequently include HOME, CDBG and USDA Rural Housing Service funds. The
contribution of labor provided by the homeowners and other volunteers
greatly reduces the homebuyer's mortgage. Homebuyers are required to
provide a minimum of 200 hours of labor on their own homes.
Approximately \$25.1 million is available for the FY03 SHOP competition,
and approximately \$65 million is proposed for FY04. Among the current
grantees, both HAC and Arizona-based PPEP Microbusiness and Housing
Development Corporation provide funds to affiliates in the colonias.

# 

# CONCLUSION

Clearly, the goal of providing safe, decent and affordable housing to
*colonia* residents is a difficult one, fraught with challenges that
will require cooperation among agencies from both within and between
each layer of government. The plight of the *colonias* is not merely an
issue of housing, or infrastructure, or debt financing; it is all of
these issues, and many more, combined. Conversion of contracts-for-deed
is of limited benefit to residents if the homes do not pass local
building codes; rehabilitating or constructing housing is insufficient
if there are no water or sewer lines with which to connect; and it is of
no value to run water and sewer lines to a house with no connections.

Grantees must be creative in combining funds from the various Federal
and state programs available to the *colonias*. For example, a
successful project might utilize EPA and USDA funds to bring water and
sewer lines to a *colonia*, while HUD's HOME funds are used to make its
houses more livable, and its CDBG funds used to fill in the gaps. HUD
hopes that this Notice will serve to stimulate a new inter- and
intra-governmental approach to solving this problem, and that grantees
will make an extra effort to coordinate and concentrate its funding
sources so that they are being used as effectively as possible.

To find out more about *colonia* and farm-worker issues, visit HUD's
website at:
[[http://www.hud.gov/groups/colonias.cfm]{.underline}](http://www.hud.gov/groups/colonias.cfm).

HUD also provides a toolkit for practitioners looking for funding
sources or ideas for improving services to farmworkers and people living
in colonias. This toolkit can be found at:
[[http://www.hud.gov/swborders]{.underline}](http://www.hud.gov/swborders).