# ![](media/image1.png){width="1.1402777777777777in" height="1.0611111111111111in"}U.S. Department of Housing and Urban Development {#u.s.-department-of-housing-and-urban-development .unnumbered}

Office of Community Planning and Development

Community Development Block Grant Program

## Managing CDBG 

### A Guidebook for 

Grantees on Subrecipient

##### Oversight

#### 

#### ![](media/image2.jpeg){width="7.75in" height="3.75in"}*March 2005*

**HUD-2005-03-CPD**
http://www.hud.gov/offices/cpd/communitydevelopment/library/index.cfm

**MANAGING CDBG:**

**A GUIDEBOOK FOR ENTITLEMENT GRANTEES**

**ON SUBRECIPIENT OVERSIGHT**

U.S. Department of Housing and Urban Development

Office of Community Planning and Development

Community Development Block Grant Program

Updated Reprint

March 2005

**TABLE OF CONTENTS**

**Background** vi

**CHAPTER 1: INTRODUCTION**

> INTRODUCTION 1-2
>
> WHAT IS THIS GUIDEBOOK ABOUT? 1-2
>
> KEY MANAGEMENT CONCEPTS 1-4
>
> WHO ARE CDBG SUBRECIPIENTS? 1-5
>
> HOW DO SUBRECIPIENTS DIFFER FROM THE GRANTEE\'S EMPLOYEES? 1-6
>
> HOW DO SUBRECIPIENTS DIFFER FROM CONTRACTORS? 1-7
>
> WHAT TYPES OF ACTIVITIES DO SUBRECIPIENTS CARRY OUT? 1-8
>
> CONTINUING GRANTEE RESPONSIBILITY 1-8
>
> TYPES OF MONITORING ISSUES 1-9
>
> HOW IS THIS GUIDEBOOK ORGANIZED? 1-9
>
> USING THIS GUIDEBOOK 1-10

**CHAPTER 1: APPENDIX**

-   Summary of National Objectives 1-14

-   Statement of Eligible and Ineligible Activities 1-22

**CHAPTER 2: PRE-AWARD ASSESSMENT**

> INTRODUCTION 2-2
>
> FACTORS IN A PRE-AWARD ASSESSMENT 2-3
>
> MODELS FOR PERFORMING PRE-AWARD ASSESSMENTS AND

SELECTING SUBRECIPIENTS 2-6

> A MIXTURE OF APPROACHES 2-10
>
> DEALING WITH A SCARCITY OF QUALIFIED ORGANIZATIONS 2-11

**CHAPTER 2: APPENDIX**

-   Sample Subrecipient Application Package 2-14

-   Basic Elements of a Subrecipient Application for Funding and\
    Applicable Federal Regulations 2-23

-   Subrecipient Selection Checklist 2-24

-   Application Rating System 2-25

-   Risk Analysis Matrix 2-27

**CHAPTER 3: SUBRECIPIENT AGREEMENTS**

> INTRODUCTION 3-2
>
> MINIMUM HUD REQUIREMENTS 3-3
>
> WRITTEN AGREEMENT AS A MANAGEMENT TOOL 3-5
>
> WRITTEN AGREEMENT AS A TRAINING TOOL 3-6
>
> COMMON PROBLEMS WITH SUBRECIPIENT AGREEMENTS 3-6
>
> SUMMARY 3-8

**CHAPTER 3: APPENDIX**

-   Subrecipient Agreement Checklist 3-12

-   Citations for the Basic Elements of a Subrecipient Agreement 3-13

-   Other Program Requirements 3-14

-   Sample Subrecipient Agreement 3-15

-   Sample Scopes of Service

> Public Service Activities 3-34
>
> Housing Rehabilitation Activities 3-37
>
> Special Economic Development Job Creation Activities 3-43

**CHAPTER 4: ORIENTATION, TRAINING, AND TECHNICAL ASSISTANCE**

> INTRODUCTION 4-2
>
> ORIENTATION SESSIONS 4-3
>
> TRAINING SESSIONS 4-6
>
> TRAINING DESIGN CRITERIA 4-8
>
> TECHNICAL ASSISTANCE 4-9
>
> MEASURING SUBRECIPIENT PROGRESS 4-11

**CHAPTER 4: APPENDIX**

-   Sample Training Curriculum on Relocation, Real Property Acquisition,
    and

> One-for-One Housing Replacement in CDBG Projects 4-15

-   Sample Handout: Summary of Major Differences Between 104(d) and URA

> Relocation Assistance 4-20

-   Sample List of Written Materials 4-22

**CHAPTER 5: MONITORING STRATEGIES AND PROCEDURES**

> INTRODUCTION 5-2
>
> THE MONITORING PROCESS 5-4
>
> PREPARATION FOR THE MONITORING VISIT 5-7
>
> CONDUCTING THE MONITORING VISIT 5-8
>
> ADDITIONAL SOURCES OF EVALUATION INFORMATION 5-11
>
> SUMMARY 5-12

**CHAPTER 5: APPENDIX**

-   Summary of Monitoring Objectives 5-15

-   HUD Monitoring Review of Grantee Oversight of Subrecipients 5-16

-   Checklist for On-site Monitoring of a Subrecipient 5-21

-   Outline for a Subrecipient Monitoring Workbook 5-25

-   Example of a Grantee Monitoring Letter to a Subrecipient 5-33

-   Review of IPA Audit Reports 5-37

**CHAPTER 6: SYSTEMS AND PROCEDURES FOR TRACKING**

> **SUBRECIPIENT PROGRESS**
>
> INTRODUCTION - RATIONALE AND BENEFITS
>
> OF EFFECTIVE TRACKING 6-2
>
> SIX KEY ELEMENTS OF INFORMATION SYSTEMS:
>
> PRINCIPLES AND PRIORITIES 6-3
>
> INFORMATION FOR PERFORMANCE MONITORING 6-8
>
> THREE LEVELS OF PROGRAM TRACKING SYSTEMS 6-12
>
> Level 1: Periodic Reporting for Individual Subrecipients 6-13
>
> Level 2: Accumulating Data About Groups of Subrecipients 6-14
>
> Level 3: Integrated Financial and Program Management Systems 6-16
>
> DEALING WITH COMMON PROBLEMS 6-17
>
> SUMMARY 6-20

**CHAPTER 6: APPENDIX**

-   Overview: Purpose of Tracking Information 6-23

-   Documentation to be Maintained 6-24

-   Consolidated Annual Performance and Evaluation Report Information
    6-27

-   Sample Monthly Report and Voucher Document 6-31

**CHAPTER 7: FOLLOW-UP PROCEDURES**

> INTRODUCTION 7-2
>
> BASIC FOLLOW-UP PRINCIPLES 7-3
>
> FOLLOW-UP IN A CHANGING REGULATORY ENVIRONMENT 7-4
>
> THE INFLUENCE OF POLITICS 7-5
>
> REWARDING SUPERIOR OR IMPROVED PERFORMANCE 7-6
>
> LEARNING FROM MISTAKES 7-7
>
> THE PRINCIPLE OF PROGRESSIVE SANCTIONS 7-8
>
> Stage I: Early Warning/Early Response 7-9
>
> Stage II: Intervention for More Serious or Persistent Problems 7-10
>
> Stage III: Red Alert 7-11

####### 

####### SUMMARY 7-11

**CHAPTER 7: APPENDIX**

-   Common Subrecipient Monitoring Problems

> Program Income 7-16
>
> Economic Development 7-19

**CHAPTER 8: HUD'S OFFICE OF THE INSPECTOR GENERAL**

> INTRODUCTION: WHY SHOULD YOU READ THIS CHAPTER? 8-2
>
> WHAT ARE THE POWERS OF THE HUD INSPECTOR GENERAL? 8-3
>
> WHAT PROCEDURE MUST THE OIG FOLLOW IN
>
> CONDUCTING AN AUDIT? 8-5
>
> WHAT GENERAL AUDITING STANDARDS MUST THE OIG FOLLOW? 8-7
>
> SPECIFIC STANDARDS FOR FIELD WORK AND REPORTING 8-8
>
> WHAT IS THE PROCESS FOR RESOLVING AUDIT FINDINGS? 8-9
>
> TYPICAL SCHEDULE FOR RESOLUTION 8-10
>
> SUMMARY 8-11

**CHAPTER 8: APPENDIX**

-   Audit Response Checklist 8-14

**BACKGROUND**

Not long after the Community Development Block Grant (CDBG) program,
administered by the Department of Housing and Urban Development (HUD),
got underway in 1975, grantees began using independent governmental
agencies and non-profit organizations to carry out certain activities.
The enabling legislation authorized the use of such entities because of
their involvement in a number of the programs that preceded CDBG, most
notably the Model Cities and Urban Renewal/NDP programs. Initially,
non-profits were employed as CDBG subrecipients by only a few grantees,
primarily to undertake residential rehabilitation and some public
services in deteriorated neighborhoods. As the program and the grantees
matured, and as non-profits proliferated, grantees began using
subrecipients more frequently and for a wider range of activities,
including economic development.

The growing involvement of subrecipients brought with it a number of
problems. HUD monitors often found that grantees were unaware of what
their subrecipients were using CDBG funds for and subrecipients could
not produce documentation showing how Federal rules were being met. By
the end of the 1980's, HUD's Inspector General declared that the lack of
proper management of subrecipients in the CDBG program constituted a
"material weakness." HUD knew that it had to find tools to enable its
grantees to deal with this growing problem.

In response to this concern, this Guidebook and its companion materials,
[Playing by the Rules: A Handbook for CDBG Subrecipients on
Administrative Systems]{.underline} and [Training CDBG Subrecipients in
Administrative Systems,]{.underline} were originally published in August
of 1993 and made available to entitlement cities and urban counties
participating in the CDBG program. Shortly following publication, the
Guidebooks were also used as the centerpiece for training entitlement
communities in the proper management of subrecipients.

Since their publication in 1993, there have been a number of significant
changes in CDBG program rules and policies. Some of the most notable
include: the transformation of the CDBG Final Statement into the
Consolidated Plan and the Grantee Performance Report into the
Consolidated Annual Performance and Evaluation Report (CAPER); the
introduction of Community-Based Development Organizations (CBDOs) to
replace what had been referred to in the CDBG program as "special
subrecipients"; revisions to the requirements for handling CDBG program
income (especially interest earned on a "revolving fund"); the addition
of several new eligible uses of CDBG funds (e.g., homeownership
assistance and microenterprise assistance); a substantial number of
changes in the requirements concerning the use of CDBG funds for special
economic development activities; and the incorporation of OMB Circulars
A-102 and A-110 into the HUD Common Rule at 24 [Code of Federal
Regulations]{.underline} (CFR) Parts 84 and 85. These changes have been
integrated into the updated editions of all three publications being
issued. The fundamental advice provided in the Guidebooks as they were
originally published focused on managing subrecipients in the CDBG
Entitlement program and that function remains unchanged in this update.
All three publications are available on the HUD Web site at
*www.hud.gov/offices/cpd/communitydevelopment/library/index.cfm*.

Experience has shown that activities undertaken by subrecipients are
still potentially high risk. Many subrecipients have excellent
intentions, but use volunteers or inexperienced staff who don't know
Federal requirements. In our efforts to promote timely expenditure of
CDBG funds, we found that delays in subrecipient activities were also a
cause for grantee failure to comply with the timeliness requirements at
24 CFR 570.902.

Over ten years have passed since CPD first issued these three
publications dealing with subrecipients. This material is now being
updated because of the changes in program requirements mentioned above,
as well as the fact that grantees and subrecipients have experienced
staff turnover, and new subrecipients are participating in the program.
Therefore, it is again time to focus grantee attention on their
responsibilities for subrecipient oversight and to encourage grantees to
take a fresh look at their internal processes for subrecipient
selection, training, management, reporting, and monitoring. Since these
publications are on the HUD Web site, grantees will find it easier to
distribute materials and to conduct training for their subrecipients.
Furthermore, the sound management practices advocated in the Guidebooks
will also serve to assist both grantees in developing performance
management systems and subrecipients in meeting the performance measures
for project implementation. Such grantee actions will result in improved
delivery of CDBG programs to the low- and moderate-income residents in
the community.

**DISCLAIMER**

***The recommendations and interpretations offered in this Guidebook are
meant to [supplement]{.underline}, not replace, the formal regulations
and policies of the Community Development Block Grant Entitlement
program. In areas of doubt, readers are advised to consult the
applicable regulations.***

**CHAPTER 1**

**INTRODUCTION**

**CONTENTS**

> INTRODUCTION 1-2
>
> WHAT IS THIS GUIDEBOOK ABOUT? 1-2
>
> KEY MANAGEMENT CONCEPTS 1-4
>
> WHO ARE CDBG SUBRECIPIENTS? 1-5
>
> HOW DO SUBRECIPIENTS DIFFER FROM THE GRANTEE\'S EMPLOYEES? 1-6
>
> HOW DO SUBRECIPIENTS DIFFER FROM CONTRACTORS? 1-7
>
> WHAT TYPES OF ACTIVITIES DO SUBRECIPIENTS CARRY OUT? 1-8
>
> CONTINUING GRANTEE RESPONSIBILITY 1-8
>
> TYPES OF MONITORING ISSUES 1-9
>
> HOW IS THIS GUIDEBOOK ORGANIZED? 1-9
>
> USING THIS GUIDEBOOK 1-10

**APPENDIX**

-   Summary of National Objectives 1-14

-   Summary of Eligible and Ineligible Activities 1-22

**CHAPTER 1**

**INTRODUCTION**

**A Tale of Two Cities---Part 1**

*It was the worst of times in the city and Annette Freeman, the Director
of Community Development, was worried. Her Housing Programs Manager had
just moved away to take another position. The City Council was demanding
to know what was happening in the West Side rehab project. For three
years the project had been one of the Mayor\'s favorites, run by a
fledgling Community Development Corporation (CDC) that was short on
experience, but long on activism. It was always "making great progress,"
and always seemed "about to get the main program under way." The
Director felt she had "a firm understanding" with the CDC's Executive
Director about when the design and demonstration phase would end, when
the training would be finished, and when full construction would begin.
But now the press (and the Council) had begun asking for proof of
progress and performance. An editorial asked, "Just what has the city
bought for \$600,000 of Federal funds in three years?" Nobody in her
agency could demonstrate any tangible accomplishments (apart from three
model apartments), and the CDC's books were a complete mess. Where had
all the money gone? Worse still, the Inspector General was coming to
town.*

## INTRODUCTION

##  Is it the "the best of times" or "the worst of times" for your Community Development Block Grant (CDBG) program? Most of us working with CDBG have seen both. There is nothing so rewarding as watching a declining neighborhood turn around in response to a non-profit sponsor\'s well-run community development program. It is also distressing to watch program resources flow down the drain through mismanagement, abuse or lack of attention.

**WHAT IS THIS GUIDEBOOK ABOUT?**

This Guidebook has two basic purposes:

-   **To help you, the CDBG practitioner, improve your management and
    oversight of subrecipient activities; and**

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-   **To help you (and your subrecipients) stay out of trouble.**

Doing both at the same time is getting tougher every day. In the face of
rising costs, Federal funds have either remained stable or declined, and
new regulations require that CD staff do a lot more work, with less time
and less money.

This Guidebook is designed to help you make better use of your scarce
CDBG resources and avoid common pitfalls in managing and monitoring
subrecipients while you get the job done.

Almost all local CDBG programs use subrecipients to carry out community
development activities. The term "subrecipient" is frequently used to
refer to the non-profit sponsors of activities that receive CDBG funds
from a local government for their programs. However, there are three
distinct types of subrecipients: public agencies, private non-profit
sponsors, and a limited number of private for-profit sponsors.

The goal of this Guidebook is to describe ways in which you, as a CDBG
Entitlement grantee, can improve your systems for selecting, training,
managing, monitoring and supporting your subrecipients. The purpose of
such improvements is not simply to comply with Federal regulations and
avoid audit hassles, but also to improve your subrecipients\'
performance in delivering services to the community. The CDBG funds that
you provide to subrecipients are like investments, which have to be
carefully managed. By using the methods and practices discussed in this
Guidebook, you should be able to obtain a greater return from that CDBG
investment.

There are very real costs to poor subrecipient performance and lack of
compliance with regulations. These include wasted program funds, adverse
publicity, reduced staff morale and increased turnover, lost
opportunities, disallowed costs, potential grant reduction, and greater
administrative burdens to repair the damage that might have been avoided
initially with proper monitoring. Therefore, throughout this Guidebook
we point out approaches that will allow you to strengthen and streamline
your oversight systems, perhaps even free up precious staff time.

**The Guidebook provides practical solutions developed by your peers.
Our focus is on solutions, not problems.**

The Guidebook provides examples of monitoring systems and procedures
that have been used successfully in other communities that you can adopt
with minor revisions without "re-inventing the wheel."

The over 1,000 CDBG Entitlement recipients have acquired a wealth of
expertise directed toward community improvement. This Guidebook is
designed to allow you, as either an experienced or a novice CDBG
practitioner, to see what other programs have done, and to take
advantage of their learning to solve your own unique problems.

**WHAT ARE THE KEY MANAGEMENT CONCEPTS UNDERLYING THIS GUIDEBOOK?**

A central theme of this Guidebook is that effective CDBG programs depend
upon ***cooperative***, ***problem-solving relationships*** between
grantees and subrecipients. Too often, program monitoring requirements
and other regulations seem to set up an "us-them" adversarial situation
between the monitor and the entity being reviewed, leading to
"management by intimidation."

This is unnecessary and can be destructive. Monitoring that focuses
largely on uncovering errors and assigning blame tends to make
subrecipients defensive or resentful; it increases their resistance to
taking corrective action or improving their performance. This often
means that grantees spend more time "looking for mistakes" and less time
solving problems. It can also mean that subrecipients spend more energy
hiding problems, than finding solutions. **It is far better to fix the
problem than to fix the blame.** Subrecipients are partners, not
adversaries.

**Service and Support, Not**

**Command and Control**

To achieve this partnership approach, the Guidebook recommends you
develop a leadership style focused on providing service and management
support to subrecipients, rather than a relationship that uses
monitoring to assert a "command and control" regimen over subrecipient
activities. The first style assumes that subrecipients want to do a good
job, and that they are neither stupid nor incompetent. Subrecipients are
both "providers" of services to the community and "customers" for
**your** resources, information, and technical support. ***You succeed
when your customers succeed.***

**Focus on Continuous Improvement**

You should view monitoring as an opportunity to provide ***ongoing
technical assistance and support*** with the goal of helping your
subrecipients achieve their goals and improve their services. If your
subrecipients fail, no matter where the fault lies, that failure
reflects poorly on you, as well as on them. If they succeed, you both
benefit.

**Improved Communications**

An effective service and support strategy also requires ***open and
consistent communications.*** It begins with a complete understanding of
what you and your subrecipients want to achieve, and what the rules of
the program are. It ends with recognition for achievement and
acknowledgement of mistakes. A centerpiece of the management process is
to remove barriers to communication.

Accordingly, this Guidebook emphasizes the support that you can provide
your subrecipients to help them meet their performance and compliance
goals.

**Think Prevention**

Successful subrecipient programs begin with plans that anticipate
potential problems before they occur and with management strategies that
emphasize prevention, not cure. This means:

-   **Pre-award Screening, Risk Assessment, and Orientation**

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-   **Strong Written Agreements**

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-   **Performance Standards**

Implementing strong subrecipient **screening, risk assessment,
selection, and orientation** procedures (before awarding funds);

Negotiating a consistent and thorough **award agreement** with every
subrecipient; and

Establishing a clear and coherent set of **performance standards** for
tracking the accomplishment of each activity described in the agreement.

Performance standards define how progress will be measured,
accomplishments rewarded, and (by implication) when and how sanctions
may be imposed. With clear agreements and appropriate performance
standards, you and your subrecipients will find monitoring less
burdensome and more effective for achieving both performance objectives
and regulatory compliance.

**Focus on Process**

Almost every CDBG activity involves a goal-oriented process that unfolds
over time. ***The quality of the process*** matters as much as the goal
itself. The quality of services delivered by a subrecipient cannot be
assured by your intervention at the end of the process, when it is too
late. Rather, you should seize every opportunity to help subrecipients
continuously modify and improve the quality of their activities
**before** major problems develop. In this way, monitoring can be aimed
simultaneously at:

-   meeting program regulations;

-   measuring progress toward performance goals;

-   improving the product or the service being delivered; and

-   assuring timely delivery of benefits to low- and moderate-income
    persons.

For example, many grantees find it helpful to define intermediate
(three-month) objectives for all new subrecipient activities, so that
both achievements and weaknesses can be measured early in the process.
By this means, they avoid having to document poorly managed programs at
the end of the fiscal year, after resources have already been squandered
and momentum lost.

#### WHO ARE CDBG SUBRECIPIENTS?

Subrecipients (sometimes referred to as "subgrantees") are entities that
are **provided** CDBG funds by a grantee **for their use** in carrying
out agreed-upon, eligible activities. There are three basic kinds of
subrecipients:

**Governmental Agencies**

***Governmental agencies*** are public agencies, commissions, or
authorities that are **independent** of the grantee's government (for
example, a public housing authority or a park district). Grantee public
agencies undertaking CDBG assisted activities are subject to the same
requirements as are applicable to subrecipients (§570.501(a)).

**Private Non-profits**

***Private non-profits*** are usually, but not always, corporations,
associations, agencies, or faith-based organizations with non-profit
status under the Internal Revenue Code (Section 501(c)(3)), usually with
a board of directors and an executive director in charge of daily
administration. Examples of private non-profits include private social
services agencies (such as those providing job training or counseling,
or day care providers), community development corporations, faith-based
housing development groups, and operators of homeless shelters.

**Private For-profits**

A limited number of ***private, for-profit entities*** can qualify as
subrecipients when facilitating economic development by assisting
microenterprises under the provisions of 24 CFR S70.201(o).

**CDBOs**

***Community Based Development Organizations*** (CBDOs) authorized under
§570.204 to carry out special activities such as economic development or
new housing construction are not subrecipients unless so designated by
the grantee. Because CBDOs present some of the same problems as
subrecipients, most of the advice in this Guidebook is also applicable
to CBDOs.

#### HOW DO SUBRECIPIENTS DIFFER FROM THE GRANTEE\'S EMPLOYEES?

####  Another way of understanding the definition of subrecipient is to contrast these organizations with your own "employees" or with a "contractor" hired as part of your local CDBG program.

Under the CDBG regulations, a grantee\'s "employees" refer to persons
working for the unit of general local government that receives CDBG
funds directly from HUD.

For a "metropolitan city," this would mean all city employees, so that
even if components of the local CDBG program were "farmed out" to many
different city departments, HUD considers all these departments and
their staff to be "employees" of the grantee. However, if the city
chooses to run its CDBG housing rehabilitation program through the
municipality's ***independent*** redevelopment authority, for purposes
of the CDBG program, the authority would be considered a subrecipient.

In the case of urban counties, "employees" means the county\'s employees
but not the employees of those jurisdictions involved in the cooperation
agreement (for example, the cities and towns included within the urban
county). For the purposes of monitoring local governments that are part
of an urban county, they and their related agencies, while considered to
be part of the grantee, are treated like subrecipients.

**Inter-agency Agreements**

Neither procurement contracts nor Subrecipient Agreements are required
by HUD regulations when CDBG activities are carried out by various
departments or other organizational units **within** the grantee's
government itself. However, because 570.501(a) provides that local
governments are subject to the same requirements as subrecipients,
inter-agency or inter-departmental agreements should include the same
provisions as required in a Subrecipient Agreement. In addition, all
"employees" responsible for CDBG activities, that is, other departments
within the unit of local government carrying out activities with CDBG
funds, are subject to the same regulations as the grantee for the
particular activities undertaken.

**HOW DO SUBRECIPIENTS DIFFER FROM CONTRACTORS?**

While a subrecipient can be **designated** by the grantee, contractors
must be selected through a **competitive procurement process.** However,
other than rules relating to bonding, insurance, prevailing wages and
other such provisions, most of the standard Federal administrative and
monitoring requirements (described in 24 CFR Parts 84 and 85, as
applicable) do **not** apply to contractors, once the procurement
process is complete. Those regulations, however, must be followed, as
applicable, by all subrecipients.

Under most circumstances the distinction between a contractor and a
subrecipient is clear. A development firm hired to build a new senior
center is a contractor. A community development corporation running
senior service programs at the center is a subrecipient. However, there
can be some tricky cases. For example, if a non-profit day care provider
is **hired** by a grantee (after a procurement process) to provide day
care services to a lower-income neighborhood, the non-profit is a
**contractor** in this instance, even though the grantee could have
chosen to designate the non-profit as a subrecipient to carry out the
very same activity. The difference lies in the procurement process and
in the administrative and monitoring requirements for subrecipients.

**Other Special Cases**

There are also situations where the private for-profit or non-profit
organization receiving CDBG funds is **neither a contractor nor a
subrecipient.** These are cases where the organization is not an
intermediary acting for the grantee, but, instead, is receiving
assistance itself as a beneficiary under the program. Examples include a
non-profit receiving a housing rehabilitation grant or loan to improve
property it owns, a non-profit organization or a business receiving
relocation assistance, or a for-profit business receiving a loan to buy
equipment.

The bottom line is that the procurement process tends to be more
rigorous for contractors, while the administrative and monitoring
requirements tend to be greater for subrecipients.

**WHAT TYPES OF ACTIVITIES DO SUBRECIPIENTS CARRY OUT?**

One of the primary reasons the CDBG program was created was to assure
that local governments would have the flexibility to address the broad
diversity of needs within lower-income neighborhoods. Given this
diversity, it is not surprising that, while most programs use
subrecipients, there are a great many differences in the way they are
used and the number of activities subrecipients carry out in a local
CDBG program. The larger the number of subrecipients, however, the
greater the management skill required by the grantee to oversee and
support these organizations.

**CONTINUING GRANTEE RESPONSIBILITY**

Some grantees may delegate the administration of their entire CDBG
allocation to a subrecipient such as to a local housing or redevelopment
authority, whereas others utilize only a single subrecipient to carry
out a minor activity as part of their overall program. However, even if
a grantee turns its entire CDBG program over to a subrecipient
organization, the grantee still remains accountable for the
administration and monitoring of those funds. There is no provision in
the law or the regulations governing the CDBG program that would permit
a grantee to give up this responsibility, including responsibility for
Federal environmental requirements. **Therefore, if a grantee chooses to
turn the administration of its CDBG program over to a subrecipient, it
must still have mechanisms in place to determine compliance by the
subrecipient with all program requirements.**

**TYPES OF MONITORING**

**ISSUES**

The monitoring of subrecipients covers a very broad range of
administrative, program, and fiscal issues. Certain of these monitoring
issues are relevant to all activities, for example, the need to document
compliance with National Objectives and to establish the eligibility of
activities to be undertaken.

In other cases, however, the problems are **specific to a particular
activity**, such as the proper use of escrow accounts in housing
rehabilitation activities, or demonstrating that economic development
assistance provided to a for-profit business is properly underwritten,
or observing proper procedures in the use of "float-funded activities"
by subrecipients.

This Guidebook addresses both:

-   Generic subrecipient issues that cross all activities and affect
    fiscal, regulatory, and programmatic performance; and

-   Activity-specific issues, with strategies and solutions for
    addressing particular, hard-to-solve problems.

**HOW IS THIS GUIDEBOOK ORGANIZED?**

The Guidebook presents the major steps in selecting, training, managing,
monitoring and supporting subrecipients; together, these elements
constitute the basic components of a subrecipient oversight system. Each
section in the Guidebook presents:

-   the **minimum standards** for regulatory compliance and
    **performance measures** for program delivery that will help you
    design and manage that element of your oversight system;

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-   **"best practices"** based on actual experiences of CDBG
    communities; and,

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-   **management strategies for helping subrecipients** improve
    efficiency and boost performance.

Particularly note the **Appendix** to this chapter that presents a
summary of the National Objectives of the CDBG program as well as an
outline of eligible and ineligible CDBG activities.

**Chapter 2** focuses on the assessment and selection (or re-selection)
of subrecipients before awarding a subgrant.

**Chapter 3** presents recommendations for drafting realistic and useful
Subrecipient Agreements.

**Chapter 4** focuses on how you can use orientation, training, and
technical assistance programs to anticipate and resolve monitoring
issues among your subrecipients.

**Chapter 5** discusses monitoring strategies and procedures.

**Chapter 6** describes reporting systems and other information tools
for tracking subrecipient progress in both fiscal and programmatic
terms.

**Chapter 7** details strategies you can use to follow up on
subrecipient problems that were identified during monitoring.

**Chapter 8** outlines the Inspector General audit process and the steps
you should take to reduce the likelihood of negative findings.

**USING THIS GUIDEBOOK**

This Guidebook is intended to serve as a working tool for helping you
monitor your subrecipients. Consequently, you may want to read
individual chapters or sections of chapters as they are needed. To
enable you to identify the relevant sections for any particular issue,
the Guidebook includes several features:

-   General **Table of Contents;**

-   **Brief examples or "vignettes"** describing actual problems
    experienced by CDBG grantees and how they were solved;

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-   Notations in the **left-hand column** identify **important issues**
    described in more detail in the text;

-   Discussion of some of the **"pros" and "cons"** of different options
    for addressing particular issues;

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-   Highlights of how **different kinds of grantees** address particular
    monitoring responsibilities; and

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-   **Appendices** at the end of each chapter that contain summaries of
    **key regulations,** **sample agreements, checklists, forms,
    reports** and **training curricula.**

Finally, you are encouraged to make use of the blank page at the end of
each chapter to jot down notes, ideas, telephone numbers of contact
persons, or whatever else will make the Guidebook useful to you.

**A Tale of Two Cities---Part 2**

*It was the best of times for this Midwest city. Three years ago,
Jeanette Thompson, the Director of the City\'s Community Development
Agency (CDA) had helped organize a coalition of four non-profit CDCs to
design and operate a broad variety of economic development activities in
the Round Hill section of town. The careful selection of these
organizations from over 20 applicants and the thorough planning that had
gone into their programs, was now beginning to pay off. Using a Section
108 loan, the coalition had banded together to purchase and rehabilitate
two abandoned industrial properties in the City\'s largest empowerment
zone. Here they established job training programs in conjunction with a
low-rent, microenterprise development center. The economic success of
the latter had made it possible for the coalition to make timely
payments on its Section 108 loan.*

*The City's role had been that of facilitator and program monitor, but
in reality, Ms. Thompson had not had to solve very many problems. For
example, the CDA had required at the beginning that all prospective
subrecipients demonstrate their competence in using a simple but
thorough record-keeping and accounting system that paralleled the City's
own system used to prepare its Consolidated Annual Performance and
Evaluation Reports. The CDA was then able to track the monthly progress
of each separate activity undertaken by the CDCs. In addition, the tight
Subrecipient Agreements negotiated with the four CDCs made very clear
the City's performance and schedule expectations. For their part, the
CDCs tracked their own progress on a regular basis, maintained accurate
and up-to-date financial records, and demonstrated they were in charge
of their own destiny. They had become the owners of a financially
successful industrial park that was providing jobs to low- and
moderate-income residents of the neighborhood and paying its own way.*

**NOTES:**

CHAPTER 1: APPENDIX

-   Summary of National Objectives 1-14

-   Summary of Eligible and Ineligible Activities 1-22

#### SUMMARY OF NATIONAL OBJECTIVES

#### 

#### 

  -----------------------------------------------------------------------------------------------------------------------------------
  ***This section summarizes the National Objectives of the Community Development Block Grant Program contained in the Code of
  Federal Regulations, Title 24, Part 570, Sections 570.200(a)(2) and (3), 570.208(a)-(d), and 570.506. For a more complete
  description, consult the regulations and the [Community Development Block Grant Program Guide to National Objectives & Eligible
  Activities for Entitlement Communities]{.underline} (Desk Guide) on the HUD Web site at
  [www.hud.gov/offices/cpd/communitydevelopment/library](http://www.hud.gov/offices/cpd/communitydevelopment/library)/index.cfm.***

  -----------------------------------------------------------------------------------------------------------------------------------

**NATIONAL OBJECTIVES**

Each activity, except planning and administrative activities, must meet
one of the CDBG program\'s three broad National Objectives:

1.  Benefit low- and moderate-income persons,

2.  Aid in the prevention or elimination of slums or blight, or

3.  Meet community development needs having a particular urgency.

At least 70 percent of the grantee\'s overall expenditures during a
one-, two- or three-year period (specified by the grantee) must be used
for activities that benefit low- and moderate-income persons.

**1. [Activities benefiting low- and moderate-income
persons]{.underline}**

a\) [**Area benefit** **activities**]{.underline}

> An activity, the benefits of which are available to ***all*** the
> residents in a particular area, where at least 51 percent of the
> residents are low- and moderate-income persons. The service area must
> be primarily residential, and the activity must meet the identified
> needs of low- and moderate-income persons. Examples include: street
> improvements, water and sewer lines, neighborhood facilities, and
> facade improvements in neighborhood commercial districts. Such an
> activity must meet one of the following qualifying criteria:

(1) Fifty-one percent of the persons residing in the service area are
    low and moderate income, supported by the most recently available
    decennial census information, together with the Section 8 income
    limits that would have applied at the time the income information
    was collected by the Census Bureau. (HUD provides grantees with
    information by census tract and block group that may be used to
    determine this percentage); or

(2) Fifty-one percent of the persons residing in the service area are
    low- and moderate-income residents supported by a current survey of
    the residents of the service area ***if*** the recipient believes
    that the census data do not reflect current relative income levels
    in an area, **or** where census boundaries do not coincide
    sufficiently well with the service area of an activity. The survey
    results must meet statistical reliability standards and be approved
    by HUD; or

(3) [Under the Exception Criteria]{.underline}, a service area that
    contains less than 51 percent low- and moderate-income residents
    will be considered to meet this National Objective if the proportion
    of low- and moderate-income persons in the area is within the
    ***highest quartile*** of all areas in the recipient\'s jurisdiction
    in terms of the degree of concentration of such persons. HUD will
    determine the lowest proportion a recipient may use to qualify an
    area for this purpose.

> **Records to be maintained:**

-   Boundaries of the service area;

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-   Data showing the percent of low- and moderate-income persons
    residing in the service area; and

-   Data showing that the area qualifies under the exception rule if the
    percent of low- and moderate-income persons in the service area is
    less than 51 percent. Specific data requirements for the
    Consolidated Annual Performance and Evaluation Report (CAPER) can be
    found in the Appendix to Chapter 6, CAPER Information.

b\) **[Limited clientele activities]{.underline}**

(1) An activity that benefits a limited clientele, at least 51 percent
    of whom are low- and moderate-income persons. Examples include:
    construction of a senior center; public services for the homeless;
    meals on wheels for the elderly; and construction of job training
    facilities for the handicapped. The activity must meet one of the
    following qualifying criteria:

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(a) The activity must exclusively serve a group of persons in any one or
    a combination of categories generally presumed to be principally low
    and moderate income: abused children, battered spouses, elderly
    persons, adults meeting the definition of "severely disabled" in the
    Bureau of Census's [Current Population Reports]{.underline},
    homeless persons, illiterate adults, persons living with AIDS, and
    migrant farm workers; or

(b) Information must be required on family size and income to document
    that at least

> 51 percent of the clientele are persons whose family income does not
> exceed Section 8 low- and moderate-income limits; or

(c) The activity must have income eligibility requirements that limit
    the activity exclusively to low- and moderate-income persons; or

(d) The activities must be of such nature and in such location that it
    may be reasonably concluded that the activity\'s clientele will
    primarily be low- and moderate-income persons.

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(2) A special project that serves to remove material and architectural
    barriers that restrict the mobility and accessibility of elderly
    persons or of adults meeting the definition of "severely disabled"
    in the Bureau of Census's [Current Population Reports]{.underline}
    will qualify if it is restricted, to the extent practicable, to the
    removal of such barriers by assisting:

-   the reconstruction of a public improvement or facility, or portion
    thereof, that does not serve an area that is predominantly low and
    moderate income;

-   the rehabilitation of a privately owned non-residential building or
    improvement that does not serve an area that is predominantly low or
    moderate income or create or retain jobs primarily for low- and
    moderate-income persons; or,

-   the rehabilitation of the common areas of a residential structure
    that is not principally occupied by low- and moderate-income
    households.

> **Records to be maintained:**
>
> One of the following types of documentation must be kept for each
> activity:

-   Documentation showing that the activity is designed for and used by
    a segment of the population presumed by HUD to be principally low
    and moderate income; or

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-   Documentation describing how the nature and, if applicable, the
    location of the activity establishes that it will primarily benefit
    low- and moderate-income persons; or

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-   Date showing the size and annual income of the family of each person
    receiving the benefit; or

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-   Data showing that the activity is a special project removing
    accessibility barriers in the limited cases described above.

c)  [**Housing** **activities**]{.underline}

> An activity carried out for the purpose of providing or improving
> permanent residential structures which, upon completion, will be
> principally occupied by low- and moderate-income households. Examples
> include: property acquisition or rehabilitation of property for
> permanent housing; conversion of non-residential structures into
> permanent housing; and new housing construction. The activity must
> meet the following qualifying criteria:

(1) One-unit structures must be occupied by low- and moderate-income
    households.

(2) Two-unit structures must have at least one unit occupied by a low-
    and

> moderate-income household.

(3) Structures containing more than two units must have at least 51
    percent of the units occupied by low- and moderate-income
    households.

(4) Rental buildings under common ownership and management that are
    located on the same or contiguous properties may be considered as a
    single structure.

(5) For rental housing, occupancy by low- and moderate-income households
    must be at affordable rents, consistent with standards adopted and
    publicized by the CDBG grantee for determining "affordable rent"
    levels.

(6) Assistance to reduce the development cost of the new construction of
    non-elderly, multi-unit rental structures may qualify if: (a) at
    least 20 percent of the units are occupied by low- and
    moderate-income households; (b) where low- and moderate-income
    occupancy is between 20 percent and 51 percent, the CDBG proportion
    of the total development costs (including the costs of all work from
    design and engineering through completion of the physical
    improvements and, if integral to the project, the costs of
    acquisition) is no greater than the proportion of units occupied by
    low- and moderate-income households.

> **Records to be maintained:**

-   A copy of the written agreement with each landlord or developer
    receiving CDBG assistance indicating the total number of dwelling
    units in each multi-unit structure assisted and the number of those
    units that will be occupied by low- and moderate-income households
    after assistance.

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-   The total cost of the activity, including both CDBG and non-CDBG
    funds.

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-   For each unit occupied by a low- and moderate-income household, the
    size, ethnicity, and income of the household.

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-   For rental housing only:

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-   Rent charged (or to be charged) after assistance, for each dwelling
    unit in each structure assisted; and

-   Information as necessary to show the affordability of units occupied
    (or to be occupied) by low- and moderate-income households pursuant
    to criteria established and made public by the grantee.

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-   For each property acquired on which there are no structures,
    evidence of commitments ensuring that the above criteria will be met
    when the structures are built.

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-   Where applicable, records documenting that the activity qualified
    under the exception allowed for new construction of non-elderly,
    multi-unit, rental housing.

d)  [**Job creation or retention activities**]{.underline}

> An activity designed to create or retain permanent jobs where at least
> 51 percent of that, computed on a full-time equivalent (FTE) basis,
> involve the employment of low- and moderate-income persons.
> Potentially eligible activities include: construction by the grantee
> of a business incubator designed to offer space and assistance to new
> firms to help them become viable small businesses; loans to pay for
> the expansion of a plant or factory; and assistance to a business to
> prevent closure and a resultant loss of jobs for low- and
> moderate-income persons. As a general rule, each assisted business
> shall be considered to be a separate activity for purposes of
> determining whether the activity qualifies. However, in certain cases,
> such as where CDBG funds are used to acquire, develop or improve real
> property (e.g., a business incubator or an industrial park), the
> requirement may be met by measuring jobs in the aggregate for all the
> businesses that locate on the property, provided such businesses are
> not otherwise assisted by CDBG funds. Additionally, where CDBG funds
> are used to pay for the staff and overhead costs of an entity making
> loans to businesses from non-CDBG funds, this requirement may be met
> by aggregating the jobs created or retained by all of the businesses
> receiving loans during each program year. Finally, a job
> creation/retention activity undertaken pursuant to the strategy for a
> HUD-approved Neighborhood Revitalization Strategy Area may be
> considered to meet the low/moderate area benefit National Objective
> under 570.208(d)(5)(i).
>
> Jobs may be taken by low- and moderate-income persons or made
> available to such persons. Jobs are only considered to be ***available
> to*** low- or moderate-income persons when:

(1) Special skills that can only be acquired with substantial training
    or work experience or education beyond high school are not a
    prerequisite to fill such jobs, or the business agrees to hire
    unqualified persons and provide training; and

(2) Local government and/or the assisted business take actions to ensure
    that low- and moderate-income persons receive ***first
    consideration*** for filling such jobs.

> **Records to be maintained for benefit based on job creation:**
>
> Where the grantee chooses to document that at least ***51 percent of
> the jobs will be*** ***available to*** low- and moderate-income
> persons, documentation for each assisted business shall include:

-   A copy of a written agreement, containing:

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-   A commitment by the business that it will make at least 51 percent
    of the FTE jobs available to low- and moderate-income persons and
    will provide training for any of those jobs requiring special skills
    or education;

-   A listing by job title of the permanent jobs to be created,
    indicating which jobs will be available to low- and moderate-income
    persons, which jobs require special skills or education, and which
    jobs are part-time; and,

-   A description of the actions to be taken by the grantee and business
    to ensure that low- and moderate-income persons receive ***first
    consideration*** for these jobs; and

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-   A listing by job title of the permanent jobs filled, and which jobs
    were available to low- and moderate-income persons, as well as a
    description of how first consideration was given to any such persons
    for these jobs. The description shall include what type of hiring
    process was used; the names of the low- and moderate-income persons
    interviewed for each such job; and those hired.

**or**

> Where the grantee chooses to document that at least ***51 percent of
> the jobs will be*** ***held by*** low- and moderate-income persons,
> documentation for each assisted business shall include:

-   A copy of a written agreement, containing:

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-   A commitment by the business that at least 51 percent of the jobs
    created, on a full-time equivalent basis, will be held by low- and
    moderate-income persons; and,

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-   A listing by job title of the permanent jobs to be created
    (identifying which are part-time, if any).

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-   A listing by job title of the permanent jobs filled and which jobs
    were ***initially taken** by* low- and moderate-income persons; and

-   For each low- and moderate-income person hired, information on the
    size and annual income of the person\'s family prior to the time the
    person was hired for the job, or evidence that the person may be
    presumed to be low or moderate income based on the location of the
    business or the person's residence \[see §570.208(a)(4)(iv)\].

> **For benefit based on job retention, the following documentation must
> be kept:**

-   Evidence that in the absence of CDBG assistance, the jobs would be
    lost; and,

-   For each business assisted, a listing by job title of permanent jobs
    retained, indicating which of those jobs are part-time and (where it
    is known) which are held by low- and moderate-income persons at the
    time the assistance is provided; and,

-   Where applicable, identification of any of the retained jobs (other
    than those known to be held by low- and moderate-income persons)
    that are projected to become available to low- and moderate-income
    persons through job turnover within two years of the time CDBG
    assistance is provided, and information on how the turnover
    projections were calculated; and,

-   For each retained job claimed to be held by a low- and
    moderate-income person, information on the size and annual income of
    the person\'s family, or evidence that the person may be presumed to
    be low or moderate income based on the location of the business or
    the person's residence \[see §570.208(a)(4)(iv)\]; and,

-   For jobs claimed to be available to low- and moderate-income persons
    based on job turnover: a description covering the items required for
    "available to" jobs identified above; a listing of each job that has
    turned over to date, indicating which of those jobs were either
    taken by, or made available to low- and moderate-income persons; and
    a description of how "first consideration" was given to low- and
    moderate-income persons for those jobs.

> **2. [Activities that aid in the prevention or elimination of slums or
> blight]{.underline}**

a)  **[Activities to address *slums or blight* on an *area*
    basis]{.underline}**

> An activity that aids in the prevention or elimination of slums or
> blight in a designated area. Examples include: assistance to
> commercial or industrial businesses, public facilities or
> improvements, and code enforcement **in a blighted neighborhood.** The
> activity must meet ***all*** of the following qualifying criteria:

(1) The area, delineated by the grantee, must meet a definition of a
    slum, blighted, deteriorated or deteriorating area under state or
    local law;

(2) There must be a substantial number of deteriorated or deteriorating
    buildings throughout the area, or the public improvements are in a
    general state of deterioration;

(3) The activity must address one or more of the conditions that
    contributed to the deterioration of the area; and

(4) If rehabilitation of residential buildings not occupied by low- and
    moderate-income households is undertaken, each such building
    rehabilitated must be considered substandard under local definition
    before rehabilitation, and ***all deficiencies making a building
    substandard must be corrected** **before less critical work on the
    building may be undertaken. ***

> **Records to be maintained:**

-   Boundaries of the area.

-   A description of the conditions that qualified the area at the time
    of its designation in sufficient detail to demonstrate how the area
    met the qualifying criteria.

-   For each residential rehabilitation activity:

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-   A local definition of \'substandard\' that must be at least as
    stringent as the housing quality standards used in the Section 8
    Housing Assistance Payment Program - Existing Housing; and

-   A pre-rehabilitation inspection report describing the deficiencies
    in each structure to be rehabilitated; and

-   Details and scope of CDBG-assisted rehabilitation, by structure

b)  [**Activities** **to address *slums or blight* on a *spot*
    basis**]{.underline}

> An activity that aids in the prevention or elimination of slums or
> blight ***outside of a slum or blighted area***. Examples include:
> elimination of faulty wiring, falling plaster, or other similar
> conditions that are detrimental to all potential occupants; historic
> preservation of a deteriorated public facility; and demolition of a
> vacant, deteriorated, abandoned building. The activity must meet the
> following qualifying criteria:

(1) The activity must be designed to eliminate ***specific conditions of
    blight or physical decay*** on a spot basis; and

(2) The activity must be limited to ***acquisition, clearance,
    relocation, historic preservation, and/or rehabilitation of
    buildings***. Rehabilitation is limited to the extent necessary to
    eliminate specific conditions ***detrimental to public health and
    safety.***

> **Records to be maintained:**

-   A description of the specific condition of blight or physical decay
    treated;

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-   For rehabilitation carried out under this category, a description of
    the structure, including:

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-   The specific conditions detrimental to public health and safety that
    were identified; and

-   Details and scope of the CDBG-assisted rehabilitation.

c)  [**Activities** **to address** ***slums or blight* in an** ***urban
    renewal area***]{.underline}

> An activity that aids in the elimination or prevention of slums or
> blight in an urban renewal area. The activity must meet the following
> qualifying criteria:

(1) The activity must be located within a Federally designated ***urban
    renewal project area or Neighborhood Development Program (NDP)
    action area;*** and,

(2) The activity must be ***necessary to complete the urban renewal
    plan***, then in effect, including ***initial*** land redevelopment
    permitted by the plan.

> **Records to be maintained:**

-   A copy of the Urban Renewal Plan, in effect at the time the CDBG
    activity is carried out, including maps and supporting
    documentation.

**3. [Activities designed to meet *urgent community development
needs*]{.underline}**

> An activity designed to alleviate existing conditions that have a
> particular urgency. Examples include reconstruction of water and sewer
> lines destroyed by major catastrophes or emergencies such as floods or
> tornadoes. The activity must meet the following qualifying criteria:

a)  The existing conditions must pose a ***serious and immediate threat
    to the health or welfare*** of the community;

b)  The existing conditions are of ***recent origin*** or recently
    became urgent (generally within the past 18 months);

c)  The grantee is ***unable to finance*** the activity on its own; and

d)  ***Other sources of funding are not available***.

> **Records to be maintained:**

-   Documentation concerning the nature and degree of seriousness of the
    condition requiring assistance;

Evidence that the grantee certified that the CDBG activity was designed
to address the urgent need;

-   Information on the timing of the development of the serious
    condition; and

-   Evidence confirming that other financial resources to alleviate the
    need were not available.

**4. [Additional Criteria ]{.underline}**

a.  According to 24 CFR 570.208(d), where the assisted activity is
    ***acquisition of real property***, a preliminary determination of
    whether the activity addresses a National Objective may be based on
    the planned use of the property after acquisition. The documentation
    required depends on planned use.

b.  ***Where acquisition is for the purpose of clearance*** that will
    eliminate specific conditions of blight or physical decay, ***the
    clearance activity will be considered the actual use of the
    property.*** However, any subsequent use or disposition of the
    cleared property is treated as "change of use" under §570.505.

#### STATEMENT OF ELIGIBLE AND INELIGIBLE COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM ACTIVITIES

  -----------------------------------------------------------------------
  ***This is a summary of certain activities that are eligible and
  ineligible for assistance under the Community Development Block Grant
  (CDBG) program pursuant to the governing regulations in the Code of
  Federal Regulations, Title 24, Part 570, Sections 570.200-570.207. For
  a more complete description, the regulations should be consulted. [The
  Community Development Block Grant
  ProgramEntitlementCommunities]{.underline}(Desk Guide) W at
  www.hud.gov/offices/cpd/communitydevelopment/library/index.cfm.***

  -----------------------------------------------------------------------

**[General Policies - §570.200]{.underline}**

The primary objective of the CDBG Program is the development of viable
urban communities, by providing decent housing and a suitable living
environment, and expanding economic opportunities, principally for
persons of low and moderate income. Funds must be used to carry out
activities that will meet one of the three broad National Objectives:
benefit low- and moderate-income persons; aid in the prevention or
elimination of slums or blight; or meet other community development
needs having a particular urgency. At least 70 percent of the total CDBG
funds expended must be used for activities that benefit low- and
moderate-income persons, over a one-, two-, or three-year period
(selected by the grantee).

**[Basic Eligible Activities - §570.201]{.underline}**

(a) Acquisition in whole or in part by purchase, long-term lease,
    donation, or otherwise, of real property for any public purpose,
    subject to the limitations of §570.207.

(b) Disposition of real property acquired with CDBG funds through sale,
    lease or donation, or otherwise; or its retention for public
    purposes.

(c) Acquisition, construction, reconstruction, rehabilitation or
    installation of public facilities and improvements, ***except
    buildings for the general conduct of government***. Activities may
    include:

-   Design features and improvements that promote energy efficiency; and

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-   Architectural design features and treatments intended to enhance the
    aesthetic quality of facilities and improvements.

> Eligible facilities include those serving persons having special needs
> such as homeless shelters; convalescent homes; hospitals; nursing
> homes; battered spouse shelters; halfway houses for run-away children,
> drug offenders or parolees; group homes for the developmentally
> disabled; and temporary housing for disaster victims.
>
> In certain cases, non-profit entities and subrecipients (including
> CBDOs qualifying under §570.204) may acquire title to public
> facilities; when owned by non-profit entities or other such
> subrecipients, such facilities must be operated so as to be open for
> use by the general public during all normal hours of operation.

(d) Clearance, demolition, removal of buildings and improvements, and
    movement of structures to other sites. Demolition of HUD-assisted or
    HUD-owned housing units may be undertaken only with the prior
    approval of HUD. CDBG funds may also be used for physical removal of
    environmental contaminants or treatment of such contaminants to
    render them harmless.

(e) Provision of public services (including labor, supplies and
    materials) such as those concerned with employment, crime
    prevention, child care, health care, education, homebuyer down
    payment assistance, public safety, fair housing counseling,
    recreation, senior citizens, homeless persons, drug abuse counseling
    and treatment, and energy conservation counseling and testing. The
    services must meet each of the following criteria:

-   The service must either be new or a quantifiable increase in the
    level of a service above that which has been provided with state or
    local funds in the previous twelve calendar months; and

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-   The amount obligated for public services shall not exceed 15 percent
    of the annual grant, plus 15 percent of the program income received
    by the grantee and its subrecipients during the previous program
    year.

(f) Interim assistance to correct objectively determinable signs of
    physical deterioration in areas where immediate action is necessary
    and where permanent improvements will be carried out as soon as
    practicable; or to alleviate emergency conditions threatening the
    public health and safety and requiring immediate resolution.

(g) Payment of the non-Federal share required in connection with a
    Federal grant-in-aid program undertaken as part of CDBG activities.

(h) Completion of urban renewal projects funded under Title I of the
    Housing Act of 1949, as amended.

(i) Relocation payments and assistance to displaced individuals,
    families, businesses, non-profit organizations, and farm operations.

(j) Payment to housing owners for losses of rental income incurred in
    holding units for persons displaced by relocation activities.

(k) Payment of costs in support of activities eligible for funding under
    the HOME program.

(l) Acquisition, construction, reconstruction, rehabilitation or
    installation of the distribution lines and facilities of privately
    owned utilities.

(m) CDBG may be used for the construction of housing assisted under
    Section 17 of the U.S. Housing Act of 1937.

(n) Direct assistance to facilitate and expand low- and moderate-income
    homeownership by subsidizing mortgage rates and principal amounts,
    financing the acquisition of housing occupied by low- and
    moderate-income persons, acquiring guarantees of financing obtained
    from private lenders, providing up to 50 percent of down payment, or
    paying reasonable closing costs.

(o) Microenterprise Assistance

    1.  The provision of assistance to facilitate economic development
        by:

-   Providing credit and financial support, for the establishment,
    stabilization, and expansion of microenterprises;

-   Providing technical assistance, advice, and business support
    services to owners of microenterprises and persons developing
    microenterprises; and

-   Providing general support, including peer support programs,
    counseling, child care, transportation and other similar services to
    owners of microenterprises and persons developing microenterprises.

    1.  Services provided under this eligibility category are not
        subject to the restrictions on public services contained in
        570.201(e).

    2.  "Persons developing microenterprises" are persons who have
        expressed interest and who are, or after an initial screening
        process, are expected to be, actively working toward developing
        businesses, each of which is expected to be a microenterprise at
        the time it is formed. A "microenterprise" is a business having
        five or fewer employees, at least one of whom is the owner.

(p) Provision of technical assistance to public or non-profit entities
    to increase their capacity to carry out eligible neighborhood
    revitalization or economic development activities, provided:

-   The recipient determines, prior to the provision of the assistance,
    that the activity for which it is attempting to build capacity would
    be eligible for CDBG assistance; and

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-   The National Objective claimed by the grantee can reasonably be
    expected to be met once the entity has received the technical
    assistance and undertakes the activity.

> Capacity building for private or public entities (including grantees)
> for other purposes may be eligible under §570.205.

**[Eligible Rehabilitation and Preservation Activities -
§570.202]{.underline}**

(a) Assistance to rehabilitate:

-   Privately owned residential buildings and improvements;

-   Low-income public housing and other publicly owned residential
    buildings and improvements;

-   Publicly and privately owned commercial or industrial buildings,
    except that assistance is limited to improvements to the exterior of
    the building and the correction of code violations;

-   Non-profit owned, non-residential buildings and improvements not
    eligible under 570.201(c); and

-   Manufactured housing, when such housing is considered part of the
    community\'s permanent housing stock.

(b) Financial assistance through grants, loans, loan guarantees,
    interest supplements, or other means may be provided for
    rehabilitation activities for the buildings described above,
    including:

-   Assistance to private individuals and entities, including
    profit-making and non-profit organizations, to acquire for the
    purposes of rehabilitation, and to rehabilitate properties for use
    or resale for residential purposes;

-   Labor, materials, and other rehabilitation costs, including repair,
    replacement of principal fixtures and components, installation of
    security devices, and renovation of existing structures;

-   Loans for refinancing existing indebtedness secured by a property
    being rehabilitated, if the grantee determines that the financing is
    appropriate to achieve its community development objectives;

-   Improvements to increase the efficient use of energy;

-   Improvements to increase the efficient use of water;

-   Connection of residential structures to water distribution or local
    sewer collection lines;

-   Initial homeowner warranty premiums, hazard insurance premiums,
    flood insurance premiums and lead-based paint testing and abatement,
    for rehabilitation carried out with CDBG funds;

-   Acquisition of tools to be lent to carry out rehabilitation;

-   Rehabilitation services related to assisting participants in
    CDBG-funded rehabilitation activities (such as rehabilitation
    counseling, energy auditing, preparation of work specifications,
    loan processing, and inspection);

-   Rehabilitation of housing under Section 17 of the U.S. Housing Act
    of 1937; and

-   Lead-based paint hazard evaluation and reduction.

(c) Code enforcement in deteriorating or deteriorated areas where such
    enforcement, together with public or private improvements,
    rehabilitation, and services to be provided, may be expected to
    arrest the decline of such areas.

(d) Rehabilitation, preservation or restoration of publicly or privately
    owned historic properties, except for buildings used for the general
    conduct of government.

(e) Renovation of closed schools or other buildings for use as an
    eligible public facility or housing.

**[Special Economic Development Activities - §570.203]{.underline}**

Special economic development activities include:

(a) The acquisition, construction, reconstruction, rehabilitation or
    installation of commercial or industrial buildings, structures, and
    other real property equipment and improvements, including railroad
    spurs or similar extensions. Such activities may be carried out by
    the recipient or public or private non-profit subrecipients.

(b) The provision of assistance to a private for-profit business, for
    any activity where the assistance is appropriate to carry out an
    economic development project, excluding those described as
    ineligible in §570.207(a).

(c) Economic development services in connection with activities eligible
    under this section, including, but not limited to, outreach efforts
    to market available forms of assistance; screening of applicants;
    reviewing and underwriting applications for assistance; preparation
    of all necessary agreements; management of assisted activities; and
    the screening, referral, and placement of applicants for employment
    opportunities generated by CDBG-eligible economic development
    activities, including the costs of providing necessary training for
    persons filling those positions.

> Note: Guidelines for selecting activities to assist under this
> paragraph are provided at §570.209. The recipient must ensure that the
> appropriate level of public benefit will be derived pursuant to those
> guidelines before obligating funds under this authority. Special
> activities authorized under this section do not include assistance for
> the construction of new housing.

**[Special Activities by Community-Based Development Organizations
(CBDOs) - §570.204]{.underline}**

(a) ***Eligible activities.*** The recipient may provide CDBG funds as
    grants or loans to any CBDO qualified under this section to carry
    out a neighborhood revitalization, community economic development,
    or energy conservation project. The funded project activities may
    include those listed as eligible under 24 CFR 570 Subpart C, and,
    except as described below in paragraph (b), activities not otherwise
    listed as eligible under that subpart. For purposes of qualifying as
    a project under paragraphs (a)(1), (a)(2), and (a)(3) of this
    section, the funded activity or activities may be considered either
    alone or in concert with other project activities either being
    carried out or for which funding has been committed. For purposes of
    this section:

    1.  *A neighborhood revitalization project* includes activities of
        sufficient size and scope to have an impact on the decline of a
        geographic location within the jurisdiction of a unit of general
        local government (but not the entire jurisdiction) designated in
        comprehensive plans, ordinances, or other local documents as a
        neighborhood, village, or similar geographical designation; or
        the entire jurisdiction of a unit of general local government
        that is under 25,000 population;

    2.  *A community economic development project* includes activities
        that increase economic opportunity, principally for persons of
        low and moderate income, or that stimulate or retain businesses
        or permanent jobs, including projects that include one or more
        such activities that are clearly needed to address a lack of
        affordable housing accessible to existing or planned jobs and
        those activities specified at 24 CFR 91.1(a)(1)(iii);

    3.  *An energy conservation project* includes activities that
        address energy conservation, principally for the benefit of the
        residents of the recipient\'s jurisdiction; and

    4.  To *carry out a project* means that the CBDO undertakes the
        funded activities directly or through contract with an entity
        other than the grantee, or through the provision of financial
        assistance for activities in which it retains a direct and
        controlling involvement and responsibilities.

(b) ***Ineligible activities**.* Notwithstanding that CBDOs may carry
    out activities that are not otherwise eligible, they are not
    authorized to:

    1.  Carry out an activity described as ineligible in §570.207(a);

    2.  Carry out public services that do not meet the requirements of
        §570.201(e), except that:

        i.  services carried out under this section that are
            specifically designed to increase economic opportunities
            through job training and placement and other employment
            support services; and

        ii. services of any type carried out under this section pursuant
            to a Neighborhood Revitalization Strategy approved by HUD,
            shall not be subject to the limitations in §570.201(e)(1) or
            (2), as applicable;

    3.  Provide assistance to special economic development activities
        that would otherwise be eligible under §570.203 that do not meet
        the guideline requirements of §570.209; or

    4.  Carry out an activity that would otherwise be eligible under
        §570.205 or §570.206, but that would result in the recipient\'s
        exceeding the planning and admin cap.

(c) ***Eligible CBDOs***

    1.  A CBDO qualifying under this section is an organization that has
        the following characteristics:

        i.  Is an association or corporation organized under State or
            local law to engage in community development activities
            (which may include housing and economic development
            activities) primarily within an identified geographic area
            of operation within the jurisdiction of the recipient, or in
            the case of an urban county, the jurisdiction of the county;
            and

        ii. Has as its primary purpose the improvement of the physical,
            economic or social environment of its geographic area of
            operation by addressing one or more critical problems of the
            area, with particular attention to the needs of persons of
            low and moderate income; and

        iii. May be either non-profit or for-profit, provided any
             monetary profits to its shareholders or members must be
             only incidental to its operations; and

        iv. Maintains at least 51 percent of its governing body\'s
            membership for low- and moderate-income residents of its
            geographic area of operation, owners or senior officers of
            private establishments and other institutions located in and
            serving its geographic area of operation, or representatives
            of low- and moderate-income neighborhood organizations
            located in its geographic area of operation; and

        v.  Is not an agency or instrumentality of the recipient and
            does not permit more than one-third of the membership of its
            governing body to be appointed by, or to consist of, elected
            or other public officials or employees or officials of an
            ineligible entity (even though such persons may be otherwise
            qualified under paragraph (c)(1)(iv)); and

        vi. Except as otherwise authorized in paragraph (c)(1)(v),
            requires the members of its governing body to be nominated
            and approved by the general membership of the organization,
            or by its permanent governing body; and

        vii. Is not subject to requirements under which its assets
             revert to the recipient upon dissolution; and

        viii. Is free to contract for goods and services from vendors of
              its own choosing.

    2.  A CBDO that does not meet the above eligibility criteria may
        also qualify as an eligible entity under this section if it
        meets one of the following requirements:

        i.  Is an entity organized pursuant to section 301(d) of the
            Small Business Investment Act of 1958 (15 U.S.C. 681(d)),
            including those that are profit making; or

        ii. Is an SBA approved Section 501 State Development Company or
            Section 502 Local Development Company, or an SBA Certified
            Section 503 Company under the Small Business Investment Act
            of 1958, as amended; or

        iii. Is a Community Housing Development Organization (CHDO)
             under 24 CFR 92.2, designated as a CHDO by the HOME
             Investment Partnerships program participating jurisdiction,
             with a geographic area of operation of no more than one
             neighborhood, and has received HOME funds under 24 CFR
             92.300 or is expected to receive HOME funds as described in
             and documented in accordance with 24 CFR 92.300(e).

    3.  A CBDO that does not qualify under paragraphs (c)(1) or (2) of
        this section may also be determined to qualify as an eligible
        entity if the recipient demonstrates to the satisfaction of HUD,
        through the provision of information regarding the
        organization\'s charter and by-laws, that the organization is
        sufficiently similar in purpose, function, and scope to those
        entities qualifying paragraph (c)(1) or (c)(2) of this section.

**[Eligible Planning, Urban Environmental Design and
Policy-Planning-Management-Capacity Building Activities -
§570.205]{.underline}**

1.  Planning activities such as data gathering, studies, analyses,
    preparation of plans, and identification of actions that will
    implement such plans.

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1.  Activities designed to improve the grantee\'s capacity to plan and
    manage programs and activities.

**[Eligible Administrative Costs - §570.206]{.underline}**

(a) Reasonable costs of overall program management, coordination,
    monitoring, and evaluation, including:

-   Staff salaries, wages, and related costs;

-   Travel costs;

-   Administrative services such as general legal, accounting and audit
    services performed under third party contracts; and

-   Other goods and services required for administration of the program.

(b) Provision of information and other resources to residents and
    citizen organizations participating in the planning, implementation,
    or assessment of activities being assisted with CDBG funds.

(c) Provision of fair housing counseling services and activities.

(d) Indirect costs.

(e) Preparation of applications for Federal programs where the grantee
    determines such activities are necessary or appropriate to achieve
    its community development needs.

**[Ineligible Activities - §570.207]{.underline}**

(a) The following activities may not be assisted with CDBG funds:

-   Buildings used for the general conduct of government;

-   General government expenses; and

-   Political activities.

(b) The following activities may not be assisted unless certain criteria
    are met or they are carried out under the authority of *§570.203 or
    §570.204*:

-   Purchase of construction equipment; purchase of furnishings and
    personal property, unless part of a public service activity or
    necessary for use by a grantee in the administration of the CDBG
    program;

-   Repair, operation and maintenance of public facilities, improvements
    and services, except expenses associated with eligible public
    service activities, interim assistance, and office space for CDBG
    program staff;

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-   New housing construction, except under the special provisions
    provided §570.207(b)(3)(i)-(ii); and

-   Income payments of a subsistence nature.

**[Guidelines for Evaluating and Selecting Economic Development
Projects - §570.209]{.underline}**

The following guidelines are provided to assist the recipient to
evaluate and select activities to be carried out for economic
development purposes. Specifically, these guidelines are applicable to
activities that are eligible for CDBG assistance under 570.203. These
guidelines also apply to activities carried out under the authority of
570.204 that would otherwise be eligible under 570.203, were it not for
the involvement of a Community-Based Development Organization (CBDO).
(This would include activities where a CBDO makes loans to for-profit
businesses.) These guidelines are composed of two components: guidelines
for evaluating project costs and financial requirements; and standards
for evaluating public benefit. **The standards for evaluating public
benefit are mandatory, but the guidelines for evaluating projects costs
and financial requirements are not.**

a.  **Guidelines and Objectives for Evaluating Project Costs and
    Financial Requirements.** HUD has developed guidelines that are
    designed to provide the recipient with a framework for financially
    underwriting and selecting CDBG-assisted economic development
    projects that are financially viable and will make the most
    effective use of the CDBG funds. These guidelines, also referred to
    as the underwriting guidelines, are published as Appendix A to 24
    CFR Part 570. The use of the underwriting guidelines published by
    HUD is not mandatory. However, grantees electing not to use these
    guidelines would be expected to conduct basic financial underwriting
    prior to the provision of CDBG financial assistance to a for-profit
    business. Where appropriate, HUD\'s underwriting guidelines
    recognize that different levels of review are appropriate to take
    into account differences in the size and scope of a proposed
    project, and in the case of a microenterprise or other small
    business to take into account the differences in the capacity and
    level of sophistication among businesses of differing sizes.
    Recipients are encouraged, when they develop their own programs and
    underwriting criteria, to also take these factors into account. The
    objectives of the underwriting guidelines are to ensure:

    1.  That project costs are reasonable;

    2.  That all sources of project financing are committed;

    3.  That to the extent practicable, CDBG funds are not substituted
        for non-Federal financial support;

    4.  That the project is financially feasible;

    5.  That to the extent practicable, the return on the owner\'s
        equity investment will not be unreasonably high; and

    6.  That to the extent practicable, CDBG funds are disbursed on a
        *pro rata* basis with other finances provided to the project.

b.  **Standards for Evaluating Public Benefit.** The grantee is
    responsible for making sure that at least a minimum level of public
    benefit is obtained from the expenditure of CDBG funds under the
    categories of eligibility governed by these guidelines. The
    standards set forth below identify the types of public benefit that
    will be recognized for this purpose and the minimum level of each
    that must be obtained for the amount of CDBG funds used. Unlike the
    guidelines for project costs and financial requirements covered
    under paragraph (a) of this section, the use of the standards for
    public benefit is mandatory. Certain public facilities and
    improvements eligible under 570.201(c) of the regulations, which are
    undertaken for economic development purposes, are also subject to
    these standards, as specified in 570.208(a)(4)(vi)(F)(2).

    1.  Standards for activities in the aggregate. Activities covered by
        these guidelines must, in the aggregate, either:

        i.  Create or retain at least one full-time equivalent,
            permanent job per \$35,000 of CDBG funds used; or

        ii. Provide goods or services to residents of an area, such that
            the number of low- and moderate-income persons residing in
            the areas served by the assisted businesses amounts to at
            least one low- and moderate- income person per \$350 of CDBG
            funds used.

    2.  Applying the aggregate standards.

        i.  A metropolitan city or an urban county shall apply the
            aggregate standards under paragraph (b)(1) of this section
            to all applicable activities for which CDBG funds are first
            obligated within each single CDBG program year, without
            regard to the source year of the funds used for the
            activities. A grantee under the HUD-Administered Small
            Cities or Insular Areas CDBG programs shall apply the
            aggregate standards under paragraph (b)(1) of this section
            to all funds obligated for applicable activities from a
            given grant; program income obligated for applicable
            activities will, for these purposes, be aggregated with the
            most recent open grant. For any time period in which a
            community has no open HUD-Administered or Insular Areas
            grants, the aggregate standards shall be applied to all
            applicable activities for which program income is obligated
            during that period.

        ii. The grantee shall apply the aggregate standards to the
            number of jobs to be created/retained, or to the number of
            persons residing in the area served (as applicable), as
            determined at the time funds are obligated to activities.

        iii. Where an activity is expected both to create or retain jobs
             and to provide goods or services to residents of an area,
             the grantee may elect to count the activity under either
             the jobs standard or the area residents standard, but not
             both.

        iv. Where CDBG assistance for an activity is limited to job
            training and placement and/or other employment support
            services, the jobs assisted with CDBG funds shall be
            considered to be created or retained jobs for the purposes
            of applying the aggregate standards.

        v.  Any activity subject to these guidelines that meets one or
            more of the following criteria may, at the grantee\'s
            option, be excluded from the aggregate standards described
            in paragraph (b)(1) of this section:

            A.  Provides jobs exclusively for unemployed persons or
                participants in one or more of the following programs:

                1.  Jobs Training Partnership Act (JTPA);

                2.  Jobs Opportunities for Basic Skills (JOBS); or

                3.  Aid to Families with Dependent Children (AFDC);

            B.  Provides jobs predominantly for residents of Public and
                Indian Housing units;

            C.  Provides jobs predominantly for homeless persons;

            D.  Provides jobs predominantly for low-skilled, low- and
                moderate- income persons, where the business agrees to
                provide clear opportunities for promotion and economic
                advancement, such as through the provision of training;

            E.  Provides jobs predominantly for persons residing within
                a census tract (or block numbering area) that has at
                least 20 percent of its residents who are in poverty;

            F.  Provides assistance to business(es) that operate(s)
                within a census tract (or block numbering area) that has
                at least 20 percent of its residents who are in poverty;

            G.  Stabilizes or revitalizes a neighborhood that has at
                least 70 percent of its residents who are low and
                moderate income;

            H.  Provides assistance to a Community Development Financial
                Institution that serves an area that is predominantly
                low- and moderate-income;

            I.  Provides assistance to a Community-Based Development
                Organization serving a neighborhood that has at least 70
                percent of its residents who are low and moderate
                income;

            J.  Provides employment opportunities that are an integral
                component of a project designed to promote spatial
                deconcentration of low- and moderate-income and minority
                persons;

            K.  With prior HUD approval, provides substantial benefit to
                low-income persons through other innovative approaches;

            L.  Provides services to the residents of an area pursuant
                to a strategy approved by HUD under the provisions of 24
                CFR 91.215(e);

            M.  Creates or retains jobs through businesses assisted in
                an area pursuant to a strategy approved by HUD under the
                provisions of 24 CFR 91.215(e).

    3.  Standards for individual activities. Any activity subject to
        these guidelines that falls into one or more of the following
        categories will be considered by HUD to provide insufficient
        public benefit, and **therefore may, under no circumstances, be
        assisted with CDBG funds:**

        i.  The amount of CDBG assistance exceeds either of the
            following, as applicable:

            A.  \$50,000 per full-time equivalent, permanent job created
                or retained; or

            B.  \$1,000 per low- and moderate-income person to which
                goods or services are provided by the activity.

        ii. The activity consists of or includes any of the following:

            A.  General promotion of the community as a whole (as
                opposed to the promotion of specific areas and
                programs);

            B.  Assistance to professional sports teams;

            C.  Assistance to privately owned recreational facilities
                that serve a predominantly higher-income clientele,
                where the recreational benefit to users or members
                clearly outweighs employment or other benefits to low-
                and moderate-income persons;

            D.  Acquisition of land for which the specific proposed use
                has not yet been identified; and

            E.  Assistance to a for-profit business while that business
                or any other business owned by the same person(s) or
                entity(ies) is the subject of unresolved findings of
                noncompliance relating to previous CDBG assistance
                provided by the recipient.

    4.  Applying the individual activity standards.

        i.  Where an activity is expected both to create or retain jobs
            and to provide goods or services to residents of an area, it
            will be disqualified only if the amount of CDBG assistance
            exceeds both of the amounts in paragraph (b)(3)(i) of this
            section.

        ii. The individual activity standards in paragraph (b)(3)(i) of
            this section shall be applied to the number of jobs to be
            created or retained, or to the number of persons residing in
            the area served (as applicable), as determined at the time
            funds are obligated to activities.

        iii. Where CDBG assistance for an activity is limited to job
             training and placement and/or other employment support
             services, the jobs assisted with CDBG funds shall be
             considered to be created or retained jobs for the purposes
             of applying the individual activity standards in paragraph
             (b)(3)(i) of this section.

c.  **Amendments to economic development projects after review
    determinations**. If, after the grantee enters into a contract to
    provide assistance to a project, the scope or financial elements of
    the project change to the extent that a significant contract
    amendment is appropriate, the project should be reevaluated under
    these and the recipient\'s guidelines. (This would include, for
    example, situations where the business requests a change in the
    amount or terms of assistance being provided, or an extension to the
    loan payment period required in the contract.) If a reevaluation of
    the project indicates that the financial elements and public benefit
    to be derived have also substantially changed, the recipient should
    make appropriate adjustments in the amount, type, terms or
    conditions of CDBG assistance that has been offered, to reflect the
    impact of the substantial change. (For example, if a change in the
    project elements results in a substantial reduction of the total
    project costs, it may be appropriate for the recipient to reduce the
    amount of total CDBG assistance.) If the amount of CDBG assistance
    provided to the project is increased, the amended project must still
    comply with the public benefit standards under paragraph (b) of this
    section.

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a.  **Documentation.** The grantee must maintain sufficient records to
    demonstrate the level of public benefit, based on the above
    standards, that is actually achieved upon completion of the
    CDBG-assisted economic development activity(ies) and how that
    compares to the level of such benefit anticipated when the CDBG
    assistance was obligated. If the grantee\'s actual results show a
    pattern of substantial variation from anticipated results, the
    grantee is expected to take all actions reasonably within its
    control to improve the accuracy of its projections. If the actual
    results demonstrate that the recipient has failed the public benefit
    standards, HUD may require the recipient to meet more stringent
    standards in future years as appropriate.