U.S. Department of Housing and Urban Development

Community Planning and Development

Special Attention of: Notice CPD-97-1

All CPD Division Directors

All State Coordinators Issued: February 4, 1997

All State CDBG Grantees Expires: February 4, 1998

Cross References:

Subject: CDBG Community Revitalization Strategies in the State CDBG
PROGRAM

PURPOSE

This Notice outlines the process for state implementation of the

revitalization strategy area concept. \[The October 22, 1996, State

CDBG Program interim rule amends Sect 91.315(e)(2) of the Consolidated

Plan regulations to allow Community Revitalization Strategies.\] It

describes the parameters within which states may design their

implementation approach, the procedures for state submission of their

process description statement, and the process for HUD\'s approval of

states, process descriptions.

In recent years, HUD\'s Office of Community Planning and

Development (CPD) has stressed a coordinated marshalling of resources

to facilitate grantees\' ability to engage in comprehensive community

revitalization strategies. Comprehensive community revitalization

strategies seek to create partnerships among federal and local

governments, the private sector, community organizations and local

residents. The Department seeks to create communities of opportunity

in distressed areas by stimulating the reinvestment of human and

economic capital and by economically empowering low-income residents.

on their own, a number of states have adopted \"holistic\" approaches to

community development in administering the State CDBG program.

The Department recognizes the fundamental necessity of partnering

in problem-solving in order to achieve much greater success in

community revitalization efforts. Many citizens, unhappy with their

residential environments, have generally had three options available

to them: pack up and move to a more satisfactory environment; change

the unsatisfactory aspects of their communities; or stoically accept

their living conditions.

DGBS: Distribution: W-3-1

2

The continuing decline and widespread disinvestment in many

communities and the spill-over effects in surrounding areas point to a

need for a different approach to rebuilding communities. HUD believes

that no effort will succeed without the support of all of the

community actors. Successful revitalization strategies are those that

bring together the community\'s stakeholders to forge partnerships

that:

o obtain commitments to community building;

o make communities attractive for investments, thereby

creating a market for profits;

o generate community participation to ensure that the benefits

of economic activity are reinvested in the community for

long-term development;

o support the use of nonprofit intermediary institutions

(e.g., Community Development Corporations \[CDCs\], Community

Development Financial Institutions \[CDFIs\], community

housing development organizations \[CHDOs under the HOME

program\], and religious institutions) to bridge gaps between

local government agencies, the business community, community

groups, and residents;

o foster the growth of resident-based initiatives to identify

and address their housing, economic and human services

needs;

o coordinate the delivery of various local, state and Federal

resources; and

o support initiatives to move unemployed people from public

assistance into jobs.

The participation of all of the stakeholders, particularly

residents, in the development of a comprehensive revitalization

strategy enhances the chances of its successful implementation by

bringing all of the affected parties into the process from the

beginning, thus gaining participants\' trust and garnering needed

financial support. This approach also recognizes that the complexity

of the causes of community decline requires a multi-pronged

coordinated approach. The value of this approach has been borne out

in the strategic planning process that many communities participated

in during the development of their federal Empowerment Zone/Enterprise

Community applications.

3

B. REGULATORY FRAMEWORK AND INCENTIVES

HUD encourages states to adopt a comprehensive revitalization

strategy approach to the use of State Community Development Block

Grant (CDBG) resources by units of general local government. The

Department seeks to stimulate the development of Community

Revitalization Strategies by offering certain incentives for units of

local government receiving State CDBG funding. These incentives are

described in amendments to the CDBG regulations at [24 CFR
570](http://www.hud.gov/offices/cpd/communitydevelopment/rulesandregs/regulations/index.cfm)
which

were published in the Federal Register on October 22, 1996. They are

as follows:

\(1\) Job Creation/Retention as Low/Moderate Income Area Benefit:

Job creation/retention activities undertaken pursuant to a

revitalization strategy may be qualified as meeting area

benefit requirements, thus eliminating the need for a

business to track the income of persons that take, or are

considered for, such jobs \[[24 CFR
570.483](http://www.hud.gov/offices/cpd/communitydevelopment/rulesandregs/regulations/subi/570483.cfm)(b)(1)(v)
and

(e)(5)(i)\];

\(2\) Aggregation of Housing Units: Housing units assisted

pursuant to a revitalization strategy may be considered to

be part of a single structure for purposes of applying the

low- and moderate-income national objective criteria, thus

providing greater flexibility to carry out housing programs

that revitalize a community \[24 CFR 570.483(b)(3) and

(e)(5)(ii));

\(3\) Aggregate Public Benefit Standard Exemption: Economic

development activities carried out under a strategy may, at

the grantee\'s option, be exempt from the aggregate public

benefit standards, thus increasing flexibility for program

design as well as reducing record-keeping requirements \[24

[CFR
570.482](http://www.hud.gov/offices/cpd/communitydevelopment/rulesandregs/regulations/subi/570482.cfm)(f)(3)(v)(L)
and (M)\]; and

\(4\) Public Service Cap Exemption: Public services carried out

pursuant to the strategy by a nonprofit entity pursuant to

Section 105(a)(15) of the Housing and Community Development

Act (as amended) will be exempt from the public service cap

(24 CFR 570.482(d)(3)\].

Two attachments to this notice provide further guidance on

these flexibilities. Appendix 1 consists of excerpts from

the October 22, 1996 interim rule which pertain to these

benefits. Appendix 2 provides illustrative examples of

situations in which these new provisions might be used.

4

C. STATE ACTIONS TO IMPLEMENT THE REVITALIZATION STRATEGY APPROACH

[24 CFR
91.315](http://www.hud.gov/offices/cpd/about/rulesandregs/conplan/part91d.cfm#91.315)(e)
of the Consolidated Plan regulations (as amended

on October 22, 1996) authorizes states to allow units of general local

government to adopt and implement Community Revitalization Strategies.

If a state elects to implement the revitalization strategy approach,

the state must design its specific implementation approach and develop

a process for approving local governments\' strategies. States have

substantial flexibility in designing an approach that fits the needs

of its communities, and will be responsible for approving local

strategies. A state\'s process for implementing Community

Revitalization Strategies must be submitted to and approved by HUD

before it can be implemented. The parameters within which HUD expects

states to design their approach, and HUD\'s approval process, are

described elsewhere in this notice.

To the extent that a state\'s revitalization strategy review and

approval process will be established as part of the method of

distributing funds to local governments, the Action Plan contained in

the state\'s Consolidated Plan must reflect this process. For example,

the method of distribution must describe the selection criteria which

will be used if a state: establishes a separate funding category for

revitalization strategy projects; awards \"bonus points\" within its

present funding system for projects which would implement a

revitalization strategy; or requires submission of an acceptable

strategy as a threshold requirement which applications must meet in

order to be considered for funding.

On the other hand, a state might establish the submission of a

strategy as a purely voluntary action on the part of localities, or a

state might incorporate the development of a strategy as an

application content or citizen participation requirement. The

development of a strategy might thus have no bearing on the category

of funding which can be applied for by the community or on the rating

score the application receives. Under such scenarios, the state may

need to make only minor revisions to its present method of

distribution. It is difficult to imagine a situation in which the

development of a strategy is so totally unrelated to the award of CDBG

funds for specific activities that no mention of Community

Revitalization Strategies is needed in the method of distribution.

5

A state must still submit a description of its specific approach

and process for approving local revitalization strategies, even if no

changes are required to the existing method of distribution. This is

because HUD\'s approval of the state\'s process will be separate from

approval of the Consolidated Plan.

In designing its process for implementing the revitalization

strategy concept, the state must consult with affected units of local

government in nonentitlement areas of the state, to the same extent

that it must presently do in developing its method of distribution.

In addition, the state must ensure that local governments\' strategies

are implemented in accordance with the civil rights-related program

requirements stated in the Consolidated Plan rule at [24 CFR Part
91](http://www.hud.gov/offices/cpd/about/rulesandregs/conplan/part91.cfm).

D. DESIGN PARAMETERS FOR COMMUNITY REVITALIZATION STRATEGIES IN THE

STATE CDBG PROGRAM

Local government revitalization strategies should be designed to

achieve substantial improvements in the target area and create

meaningful levels of economic opportunities for residents within a

reasonable period of time. States have the flexibility to define or

negotiate appropriate time periods for achieving local goals, within

the state\'s overall approach. HUD recognizes that it is unrealistic

to expect that an area could be fully revitalized within some

foreseeable time period; in developing their approach, states should

consider what level of improvement is realistically achievable.

HUD promotes the development of local strategies that not only

will successfully revitalize the target areas but will also

economically empower its residents. HUD encourages innovative and

creative state approaches to promote the active and meaningful

participation of the stakeholders throughout the development and

implementation of the plan. A state\'s design for implementing the

revitalization strategy approach (and its process description

statement) must adequately address each of the following parameters.

\(1\) Boundaries: A local strategy should identify the boundaries

of the area for which the strategy applies. In the CDBG

Entitlement program, this concept is referred to as

\"Neighborhood Revitalization Strategies.\" The Department

avoids referring to \"neighborhood\" strategies in the State

CDBG program; the concept of what is a \"neighborhood\" in

small communities is nebulous or incongruous in many areas

of the country. The nature of the areas in which states

work varies greatly; states fund cities and towns which range

6

in size from a few dozen to nearly 50,000. Some western

counties may be larger than entire eastern states, but contain

no incorporated communities. How residents of an area define

the boundaries of their community varies greatly among regions

of the country.

The Strategy Area concept represents a targeted approach to

community development, requiring some critical mass of

population density in order to be effective. HUD does not

mandate a minimum or maximum population size or density for

an area; a reasonable minimum population density would be

very different in southern New England than in the northern

Great Plains. There are areas in each state where the

revitalization strategy concept is probably not practical.

HUD expects states\' designs to embody this principle of

critical mass.

In designing their approach, states have flexibility to

define size limits to fit the needs of their program and

their communities. States should think carefully about the

appropriate size (in area and population) for strategy

areas, weighing available financial resources against the

need for demonstrable improvement in the target area. In

developing their approach, states should consider how they

will handle strategy areas which cross jurisdictional

boundaries. Large, multi-county regions are likely to be

too large to effectively treat, unless a state is prepared

to commit a major share of its available resources to the

region. (See also a separate discussion of Federal

Empowerment Zones and Enterprise Communities.)

\(2\) Demographic Criteria: The intent of the revitalization

strategy area concept is to improve the lives of low-income

residents of an area. HUD expects approved strategy areas

to meet one of the following criteria:

o The area is primarily residential in character, and

contains at least 70% low- and moderate-income persons.

o The area is in a Federally-designated Empowerment Zone

or Enterprise Community;

o All of the census tracts/block numbering areas in the

area have at least a 20% poverty rate, and at least 90%

of them have at least a 25% poverty rate; and the area

is primarily residential.

7

For individual strategy areas, a state may request an

exception to the 70% low/moderate income threshold or the

25% poverty rate threshold; approval must be gained from HUD

before the state grants final approval to such a strategy.

In no case, however, will HUD grant an exception for a

revitalization strategy where fewer than 51% of the

residents are low- and moderate-income and the poverty rate

for the area as a whole is less than 20%.

HUD field offices will review and approve such exception

requests on a case-by-case basis. Such cases are the only

situations in which HUD would be actively involved in the

approval of individual strategies. Exceptions are

envisioned to be granted only for unusual circumstances,

where strong targeting of benefits to low- and moderate-income

residents can still be shown. (For example, a state

may have income characteristics data which is more current

than Census data, or data showing extremely high

unemployment rates resulting from a-major economic

downturn.) HUD will not entertain requests for \"blanket\"

exceptions covering all proposed strategy areas in a state.

\(3\) Ongoing Support and Delivery of Resources: States\'

contractual relationships with local governments are usually

for a finite and relatively short (one to three year) time

period. Success in revitalizing a defined area may require a

longer time period and more resources than can be provided

by a single CDBG grant to the locality. Given the common

limitations imposed by highly competitive funding processes,

states should consider carefully how they can ensure the

provision of adequate resources to accomplish local

revitalization strategies. (Multi-year funding commitments

may be one such means to ensure longer-term funding of

activities.) States should also consider how they will

ensure long-term local attention to carrying out approved

strategies, particularly once grants to units of local

government have been closed out.

HUD believes that the provision of economic opportunities to

residents of revitalization strategy areas is an essential

component of the concept. A number of states presently have

funding categories wherein localities may apply for a

combination of activities to be carried out in a defined

target area. States\' methods of distribution often refer to

these as \"comprehensive\" applications. The revitalization

strategy concept, as envisioned by HUD, may be more narrowly

focused geographically, and encompass a wider variety of

activities (particularly concerning economic empowerment of

low and moderate-income area residents) than is presently

provided for in typical \"comprehensive\" funding categories.

States tying the revitalization strategy approach to their

existing \"comprehensive\" funding category should closely

8

examine their method of distribution criteria for such

funding categories, and make changes as appropriate.

\(4\) Integration of other Funding Resources and Initiatives:

States have considerable flexibility\--and are encouraged\--to

integrate the delivery of other state funding resources into

their revitalization strategy approach. States have already

proven themselves adept at using State CDBG funds to

leverage other Federal and state resources. Given that

substantial treatment of an approved strategy area is likely

to require a commitment of resources beyond those available

through the CDBG program, States are encouraged to consider

additional ways in which their Revitalization Strategy

process can be a vehicle for directing other state-controlled

resources into the target areas.

States are also encouraged to link the Revitalization

Strategy concept to compatible state targeting or planning

initiatives. In doing so, states are free to capitalize on

existing locally-prepared documents or state review/approval

and fund allocation processes, to avoid duplication of

effort at the local or state level. The following is an

illustrative list of common state programs and initiatives

to which Community Revitalization Strategies might be

linked:

o State requirements for development of local strategic

or comprehensive plans

o \"Certified economic development readiness\" designations

o State Enterprise Zone designations

o Military base closure or defense industry adjustment

planning processes

o State welfare reform and welfare-to-work programs

o Economic diversification initiatives in areas dominated

by declining industries

o Main Street programs

o State-funded housing rehabilitation or housing

development programs

o State energy programs

9

The Community Revitalization Strategy approach also offers

states the opportunity to link other HUD funding resources

with CDBG to holistically improve communities. The HOME

Program provides states with significant resources to

address housing needs identified in local strategies\-\--

particularly for needs such as rental subsidies and new

housing construction, which may be undertaken with CDBG

funds in only limited circumstances. Similarly, the Section

108 Loan Guarantee Program can provide additional resources

to revitalization strategy areas, particularly for economic

empowerment activities and large public works projects.

States which do not presently participate in the Section 108

Program should seriously consider the role this program can

play in \"stretching\" scarce CDBG dollars to accomplish

comprehensive revitalization efforts.

Any \"piggy-backing\" of other federal or state initiatives or

funding programs should be explained in the state\'s process

description and (as necessary) in the method of

distribution.

\(5\) Consultation: HUD believes that local revitalization

strategies will be most successfully achieved when there is

community ownership in and support for the strategy;

involvement of area stakeholders (including residents,

owners/operators of businesses and financial institutions,

non-profit organizations and community groups serving the

area) is crucial. In developing its implementation

approach, a state should carefully consider what

expectations it will place on local governments regarding

community involvement in the development of local

strategies. At the least, a state\'s process must ensure

that the citizen participation requirements for units of

local government \[at [24 CFR
91.115](http://www.hud.gov/offices/cpd/about/rulesandregs/conplan/part91b.cfm#91.115)
and 24 CFR 570.486(a)\]

are complied with in the development of local strategies.

\(6\) Assessment: A state\'s process must ensure that local

strategies include an assessment of the economic conditions

of the area; an examination of the opportunities for

economic development improvement; and an assessment of the

problems likely to be encountered.

\(7\) Economic Empowerment: A state\'s process must ensure that

local strategies contain a realistic development strategy

and implementation plan to promote the area\'s economic

progress, focusing on activities to create meaningful jobs

for the unemployed and low- and moderate-income residents of

the area as well as activities to promote the substantial

revitalization of the area.

10

\(8\) Performance Measurements: A state\'s process must include a

mechanism which identifies the results (e.g., physical

improvements, social initiatives and economic empowerment)

expected to be achieved, and a mechanism by which localities

report measurable accomplishments. States are free to

determine whether reporting on revitalization strategy

accomplishments is best handled within a state\'s existing

CDBG grantee reporting process, or by an alternative

mechanism. The Integrated Disbursement and Information

System (IDIS), once implemented for states, may provide an

avenue for reporting accomplishments.

States are expected to evaluate localities\' progress and

accomplishments against the strategy. HUD does not expect

that all locally-identified goals must be met, but states

should clearly define their performance expectations for

communities. HUD encourages states who have adopted

outcome-oriented evaluation processes to integrate their

revitalization strategy approach into such initiatives.

Within the context of the process by which a state will

approve local strategies and evaluate performance, a state

should carefully consider what steps it should take in

situations where it determines that a locality is not

adequately implementing its strategy or achieving its goals.

(Welfare reform is an issue of great importance both

nationally and to states. Various changes have been made to

the CDBG program in the last several years specifically

position the program as a valuable funding resource for job

creation, job training and employment support services. HUD

encourages states to consider as one possible performance

measure the number of public assistance recipients who are

employed or who receive employment training or support

services as a result of CDBG assistance.)

HUD evaluation of a state\'s Revitalization Strategy concept

implementation will occur primarily through existing

processes, such as the Consolidated Plan report and

monitoring for conformance with the Method of Distribution.

As with other aspects of State administration of the CDBG

program, states which encounter problems in implementing

their Revitalization Strategy concept (at the local or state

level) should take steps to modify their approach.

11

HUD PARTNERSHIP APPROVAL PROCESS

HUD expects to approve a state\'s revitalization strategy

approach, if it addresses each of the design considerations outlined

in the \"Design Parameters\" section above. Since the state\'s HUD CPD

Field Office representative will review the process description, the

state should consult with its HUD representative to discuss its

proposed approach and to discuss whether changes to the existing

method of distributing CDBG funds will be required.

In the event HUD believes that a state\'s submission does not

satisfactorily address each of the design parameters HUD will provide

necessary technical assistance to the state to try to arrive at a

consensus of what would constitute an acceptable process design. If,

after such technical assistance, HUD and the state remain apart in

their assessment of what is a realistic process, HUD has the option of

not approving the process description statement.

The process description may be submitted as part of the state\'s

Consolidated Plan or may be submitted as an amendment to it. When

applicable, HUD\'s approval of the state\'s Consolidated Plan will also

indicate its approval of the revitalization strategy process.

Approval of a state\'s Consolidated Plan, without such express approval

of the state\'s revitalization strategy process description, shall not

constitute approval of such strategy approach.

EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES

The revitalization strategy concept is rooted in the Empowerment

Zone/Enterprise Community (EZ/EC) initiative. Many of the ingredients

HUD sees as essential to a revitalization strategy have their

counterparts in the strategies and benchmarks developed for the EZ/EC

competition: active consultation with, and involvement of, the full

range of community players; development of a comprehensive needs

assessment; an action plan to guide the implementation of activities;

economic empowerment of lower-income residents as an integral

component of revitalization; and the establishment of performance

measures by which the community and HUD can gauge successful

implementation.

12

HUD applauds states for their support of the EZ/EC initiative.

Many of the states in which Federally-designated EZs or ECs are

located have committed additional state resources to the

implementation of EZ/EC strategies, or have given such areas priority

consideration in State CDBG funding competitions. HUD encourages

states to use the EZ/EC process as a model for the design of their own

approach to implement the revitalization strategy concept.

In the Entitlement program counterpart to this Notice (CPD Notice

[96-01](http://www.hud.gov/utilities/intercept.cfm?/offices/cpd/lawsregs/notices/1996/96-1.pdf)
), HUD indicated that it will presume that any Federally-designated

EZ or EC located in an entitlement community meets the

criteria for HUD approval; reports required under the EZ/EC program

will be considered to meet the neighborhood revitalization strategy

reporting requirements. HUD encourages states to take a similar

position regarding designated EZs and ECs in nonentitlement areas, for

two reasons: successful applicants have already demonstrated the

strengths of their plan through a highly competitive selection

process; and by accepting existing assessments, action plans and

benchmarks and Federally-required performance reports, states can save

those communities the burden of recreating already-extensive

documentation in a slightly different format.

Elsewhere, this notice discusses HUD\'s concerns about designating

revitalization strategy areas which are too large. This concern,

however, does not extend to Federally-designated EZs and ECs, even

though a number of these span multiple counties. The approved EZs and

ECs have developed strategies which demonstrate that they can effect

substantial improvement in their designated areas. In addition, these

areas have received a commitment of substantial Federal funding as a

part of their designation. The CDBG regulations which allow economic

development activities in revitalization strategy areas to use the

low/moderate income area benefit criterion are written to presume that

designated EZs and ECs meet that criterion. For these reasons, HUD

strongly encourages states to accept Federally-designated EZ or EC

areas as qualifying for state Community Revitalization Strategies,

even if the size of those areas is larger than a state would otherwise

allow.

Communities which submitted qualifying applications under the

EZ/EC initiative, but which did not receive Federal designation, have

similarly invested substantial time and effort in community

consultation, needs assessment and strategy development. HUD believes

those communities should generally be able to demonstrate that they

meet a state\'s criteria for revitalization strategy approval. HUD

encourages states to consider documents already prepared for the EZ/EC

competition from such communities, and, where appropriate, to accept

their documentation as evidence of meeting the state\'s revitalization

strategy requirements.

13

States with questions and comments on aspects of this Notice should

contact their HUD CPD Field Office Representative. Field offices should

direct queries and comments to the State and Small Cities Division in

Headquarters (202-708-1322).

14

15

APPENDIX 1: EXCERPTS FROM THE INTERIM REGULATIONS

REGARDING COMMUNITY REVITALIZATION STRATEGIES

Consolidated Plan regulations:

§91. 315 (e) (1) :

Nonhousing community development plan. If the State seeks assistance

under the Community Development Block Grant program, the consolidated

plan must describe the State\'s priority nonhousing community

development needs that affect more than one unit of general local

government and involve activities typically funded by the State under

the CDBG program. These priority needs must be described by CDBG

eligibility category, reflecting the needs of persons or families for

each type of activity. This community development component of the

plan must state the State\'s specific long-term and short-term

community development objectives (including economic development

activities that create jobs), which must be developed in accordance

with the statutory goals described in § 91.1 and the primary objective

of the CDBG program to develop viable urban communities by providing

decent housing and a suitable living environment and expanding

economic opportunities, principally for low-income and moderate-income

persons.

\(2\) A State may elect to allow units of general local government

to carry out a community revitalization strategy that includes the

economic empowerment of low income residents, in order to obtain

the additional flexibility available as provided in [24 CFR part
570](http://www.hud.gov/offices/cpd/communitydevelopment/rulesandregs/regulations/index.cfm),

subpart I. A State must approve a local government\'s revitalization

strategy before it may be implemented. If a State elects to allow

revitalization strategies in its program, the method of distribution

contained in a State\'s action plan pursuant to S 91.320(g)(1) must

reflect the State\'s process and criteria for approving local

governments, revitalization strategies. The State\'s process and

criteria are subject to HUD approval.

91.320(g):

Program-specific requirements. In addition, the plan must include the

following specific information:

\(1\) The method of distribution shall contain a description of

all criteria used to select applications from local governments for

funding, including the relative importance of the criteria \-- if the

relative importance has been developed. The action plan must include

a description of how all CDBG resources will be allocated among all

funding categories and the threshold factors and grant size limits

that are to be applied. If the State intends to aid nonentitlement

units of general local

16

government in applying for guaranteed loan funds under 24 CFR part

570, subpart M, it must describe available guarantee amounts and how

applications will be selected for assistance. If a State elects to

allow units of general local government to carry out community

revitalization strategies, the method of distribution shall reflect

the State\'s process and criteria for approving local governments\'

revitalization strategies. (The statement of the method of

distribution must provide sufficient information so that units of

general local government will be able to understand and comment on it

and be able to prepare responsive applications.)

State CDBG Regulations:

570.482(d):

Provision of Public Services. The following activities shall not be

subject to the restrictions on public services under section 105(a)(8)

of the Housing and Community Development Act of 1974, as amended:

\(3\) Services of any type carried out under the provisions of

section 105(a)(15) of the Act, pursuant to a strategy approved by a

State under the provisions of S 91.315(e)(2) of this title.

§570.482(f)(3):

Applying the aggregate standards.

\(v\) Any activity subject to these standards which meets one or

more of the following criteria may, at the grantee\'s option, be

excluded from the aggregate standards described in paragraph (f)(2) of

this section:

\(L\) Provides services to the residents of an area pursuant to a

strategy approved by the State under the provisions of 91.315(e)(2) of

this title;

\(M\) Creates or retains jobs through businesses assisted in an

area pursuant to a strategy approved by the State under the provisions

of § 91.315(e)(2) of this title.

570.483(b)(1):

Area benefit activities.

\(iv\) Activities meeting the requirements of paragraph (e)(4)(i)

of this section may be considered to qualify under paragraph (b)(1) of

this section.

\(v\) HUD will consider activities meeting the requirements of

paragraph (e)(5)(i) of this section to qualify under paragraph (b)(1)

of this section, provided that the area covered by the strategy meets

one of the following criteria:

\(A\) The area is in a Federally-designated Empowerment Zone or

Enterprise Community;

\(B\) The area is primarily residential and contains a percentage

of low and moderate income residents that is no less than 70 percent;

17

\(C\) All of the census tracts (or block numbering areas) in the

area have poverty rates of at least 20 percent, at least 90 percent of

the census tracts (or block numbering areas) in the area have poverty

rates of at least 25 percent, and the area is primarily residential.

(If only part of a census tract or block numbering area is included in

a strategy area, the poverty rate shall be computed for those block

groups (or any part thereof) which are included in the strategy area.)

\(D\) Upon request by the State, HUD may grant exceptions to the

70 percent low and moderate income or 25 percent poverty minimum

thresholds on a case-by-case basis. In no case, however, may a

strategy area have both a percentage of low and moderate income

residents less than 51 percent and a poverty rate less than 20

percent.

§570.483 (b) (3):

Housing activities. An eligible activity carried out for the purpose

of providing or improving permanent residential structures that, upon

completion, will be occupied by low and moderate income households.

This would include, but not necessarily be limited to, the acquisition

or rehabilitation of property by the unit of general local government,

a subrecipient, an entity eligible to receive assistance under section

105(a)(15) of the Act, a developer, an individual homebuyer, or an

individual homeowner; conversion of nonresidential structures; and new

housing construction. If the structure contains two dwelling units,

at least one must be so occupied, and if the structure contains more

than two dwelling units, at least 51 percent of the units must be so

occupied. If two or more rental buildings being assisted are or will

be located on the same or contiguous properties, and the buildings

will be under common ownership and management, the grouped buildings

may be considered for this purpose as a single structure. If housing

activities being assisted meet the requirements of paragraphs

(e)(4)(ii) or (e)(5)(ii) of this section, all such housing may also be

considered for this purpose as a single structure. For rental

housing, occupancy by low and moderate income households must be at

affordable rents to qualify under this criterion. The unit of general

local government shall adopt and make public its standards for

determining \"affordable rents\" for this purpose. The following shall

also qualify under this criterion:

§570.483(e):

Additional criteria.

\(5\) If the unit of general local government has elected to

prepare a community revitalization strategy pursuant to the authority

of §91.315(e)(2) of this title, and the State has

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approved the strategy, the unit of general local government may also

elect the following options:

\(i\) Activities undertaken pursuant to the strategy for the

purpose of creating or retaining jobs may, at the option of the

grantee, be considered to meet the requirements of paragraph (b) of

this section under the criteria at S 570.483(b)(1)(v) instead of the

criteria at S 570.483(b)(4); and

\(ii\) All housing activities in the area undertaken pursuant to

the strategy may be considered to be a single structure for purposes

of applying the criteria at paragraph (b)(3) of this section.

\(6\) If an activity meeting the criteria in 570.482(f)(3)(v) also

meets the requirements of either paragraph (e)(4)(i) or (e)(5)(i) of

this section, the unit of general local government may elect to

qualify the activity either under the area benefit criteria at

paragraph (b)(1)(iv) or (v) of this section or under the job

aggregation criteria at paragraph (b)(4)(vi)(D) of this section, but

not under both. Where an activity may meet the job aggregation

criteria at both paragraphs (b)(4)(vi)(D) and (E) of this section, the

unit of general local government may elect to qualify the activity

under either criterion, but not both.

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APPENDIX 2: EXAMPLES OF SITUATIONS IN WHICH NEW REGULATORY

FLEXIBILITIES CAN BE USED IN REVITALIZATION STRATEGY AREAS

The Town of Amberwave submits a Community Revitalization Strategy

to its state, which the state approves. Amberwave is a town of 1879

people. The strategy area covers about 2/3 of the town. This portion

of the town contains 1155 people, 71.4% of whom are low- and
moderate-income.

There are 352 single-family housing units in the strategy

area, 105 of which are substandard, and 98 multi-family housing units,

of which 51 are substandard.

\(1\) Job Creation/Retention as Low/Moderate Income Area Benefit: (24

CFR 570.483(b)(1)(v) and (e)(5)(i)): The Majestic County Economic

Development Corporation will administer a CDBG-funded loan program for

small businesses in the strategy area. Several such businesses have

expressed an interest in expanding, but are reluctant to commit to

creating a specific number of new jobs. Under the normal low/moderate

income benefit national objective criteria for job creation

activities, each business must be tracked separately for job

creation/retention; 51% of the jobs created or retained by each

individual business must be held by (or made available to)

low/moderate income persons.

HUD will presume that any activity undertaken to create or retain

jobs pursuant to a Community Revitalization Strategy benefits the

entire strategy area. The business loan program can be classified as

an area benefit activity (71.4% low/moderate income benefit). No

information need be collected regarding the income of employees

filling the new jobs; the Town and the businesses need not show that

first consideration was given to hiring low-and moderate-income

persons. (However, the Town must still demonstrate that jobs are

created, and so should obtain information from each business on the

number of new jobs created as a result of the CDBG assistance.)

\(2\) Aggregation of Housing Units: (24 CFR 570.483(b)(3) and

(e)(5)(ii)): Amberwave will implement a housing rehabilitation

program for both single-family and multi-family properties in the

strategy area. Several dilapidated structures will be acquired and

demolished; the Town will transfer the lots to a local non-profit

housing developer, Housing Opportunities Unlimited in the SouthEast,

(HOUSE, Inc.). HOUSE, Inc. will use CDBG funds to construct new

single-family housing units on the vacant lots. To increase the

percentage of homeownership in the target area, HOUSE, Inc. will offer

first-time homebuyer assistance, using CDBG funds, to purchasers of

houses in the target area.

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Under the normal low/moderate income benefit national objective

criteria for housing, each single-family housing unit built or

rehabilitated must be occupied by a low- and moderate-income

household. In essence, this means that single-family housing

activities must achieve 100% low/moderate income benefit. But because

Amberwave\'s housing rehabilitation program will be undertaken pursuant

to its revitalization strategy, the Town can lump together the single-

and multi-family housing rehabilitation and new construction

activities in demonstrating national objective compliance; 51% of the

assisted housing units must be occupied by low/moderate income

households.

Section 105(a)(24) of the Housing and Community Development Act

requires that CDBG-funded homeownership assistance activities be

limited to low-and moderate-income persons. Therefore, if the state

classifies the activity as eligible under §105(a)(24) of the Act, 100%

of the households assisted through the first-time homebuyer program

must be of low and moderate incomes. Any household which uses CDBG

first-time homebuyer assistance to purchase one of HOUSE, Inc.\'s

newly-constructed homes must be low-and moderate income.

There is an exception to this rule, however. Prior to the

permanent addition of homeownership assistance as an eligible activity

in the Act, downpayment assistance could be undertaken as a public

service, pursuant to §105(a)(8) of the Act. The addition of

5105(a)(24) does not eliminate the option of classifying downpayment

assistance as a public service. If the state classifies HOUSE, Inc.\'s

homeownership assistance program as a §105(a)(8) public service, all

assisted units may be treated as a single structure; only 51% of the

assisted housing units would then need to be occupied by low/moderate

income households.

\(3\) Aggregate Public Benefit Standard Exemption: (24 CFR 570.482

(f)(3)(v)(L) and (M)): The Majestic County Economic Development

Corporation has convinced a small, homegrown, high-tech start-up firm

to stay and expand in Amberwave, rather than move to the Silicon

Valley. CDBG funds will be lent to the firm to build a new facility.

The nature of the business entails very high capital equipment

acquisition costs; because the firm is still young, it cannot commit

to create a large number of jobs.

Under the normal public benefit standards requirements, the

aggregate average cost per job for all economic development activities

funded by a state from a given year\'s allocation cannot exceed

\$35,000. Given the high CDBG cost per job (\$48,795 per job) for this

project, the state is worried that its statewide aggregate public

benefit figure might be exceeded.

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Because this project is being undertaken pursuant to a Community

Revitalization Strategy, it may be exempted from the aggregate public

benefit standard; it only needs to meet the individual activity public

benefit standard (\$50,000 CDBG per job).

\(4\) Public Service Cap Exemption: (24 CFR 570.482(d)(3)):

Amberwave\'s Community Revitalization Strategy identified affordable

day care as a major need, especially among lower-income households

where the lack of day care forces a parent to stay home (and out of

the workforce). In putting together its strategy, the Town learned

that the one existing day care provider, run by the Fruited Plains

Community Action Agency, is in danger of shutting down because of

funding cutbacks. The Town has agreed to provide CDBG funds to the

Community Action Agency to keep the day care center open, and to

expand service once it returns to fiscal stability. Because this

public service activity is being undertaken under §105(a)(15) of the

Act and pursuant to a Revitalization Strategy, it can be exempted from

the usual restrictions on public services (the 15% statewide cap on

funding and the new/increased level-of-service requirement).