# Presentation: 743757

## Program Income

- Fort Worth Grantee Conference
- March 2005

## Program Income Overview

- CDBG
- What counts and does not count
- Income generators
- How to handle program income
- HOME
- What counts and what does not count
- Income generators
- How to handle program income
- Questions and answers
- Case study

## CDBG Program Income is ...

- CDBG 570.500(a)(1)
- Gross income received by the _recipient_ or a _subrecipient_ directly generated from the use of CDBG funds

## Examples of Program Income

- Disposition/sale/lease of real property* or equipment
- Principal & interest (P & I) from loans
- Sale of loans / obligations secured by CDBG
- Interest earned on program income pending its disposition
- Funds collected through special assessments on properties not owned/occupied by LMI persons

## CDBG Program Income is NOT...

- CDBG 570.500(a)(2)-(5)
- Interest earned on grant advances
- Interest earned on ineligible activities
- Any income received in a single program year by the recipient and subrecipients if the total amount of such income does not exceed $25,000
- Income from Section 108 activities
- Subrecipient fundraising
- Disposition of real property after expiration of agreement + at least 5 years
- Funds collected through special assessments

## CDBG Income Generators

- Housing – amortized or deferred loan payments
- Rehabilitation
- Development (restrictions apply)
- Lease or sale of property purchased with CDBG funds

## CDBG Income Generators

- Economic development loan payments
- Special economic development
- Micro-enterprise
- Infrastructure improvements
- Special assessments

## CDBG Program Income Special Topics

- Revolving loan funds 570.500
- Lump-sum draws 570.513
- Float-funding 570.301
- Special assessments 570.200

## CDBG: Revolving Loan Funds

- Separate, interest-bearing account independent of other program accounts
- P & I earmarked for similar activities
- Interest earned on CDBG funds in the RLF are not program income
- Considered interest earned on grant advances
- Remit to HUD at least annually
- P & I paid by borrowers = program income (however not subject to remission of general program income rules)

## CDBG: Revolving Loan Example

- Assumptions
- One time capitalization: $100,000
- 1.5% interest on account
- 3% loans at $10,000
- P.I. Outcomes (program income)
- In 10 Years: 30 $10,000 loans
- In 30 Years: $180,114 of program income
- Program income kept in the account and used for the same kind of projects over time
- Interest on the account must be returned to the federal treasury at least annually

## CDBG: Revolving Loan Example

- Fund options:
- Revolve:  Fund must continue to make loans so that the funds continue to revolve
- May not be used as a savings account
- Dissolve:  If all or part of the fund are idle, must dissolve and reprogram dollars for another activity

## CDBG: Lump Sum Draws

- Purpose
- To establish a fund in a financial institution to finance rehabilitation loans for privately owned properties
- Limited to a reasonable amount based on capacity
- Cannot fund administration
- Time limit
- First use of funds: 45 days
- Substantially disbursed in 180 days
- Term of agreement 1-2 years
- Return of funds upon termination of agreement

## CDBG: Lump Sum Draws

- Agreement
- Must earn interest: no less than 3 points below one year Treasury obligation
**	**_**AND ...**_
- At least 1 of the following
- Commitment of non-CDBG funds
- Substantially more than lump sum deposit
- Below market rates
- Higher than normal risk
- Longer repayment periods
- Provision of free/reduced admin services

## CDBG: Lump Sum Draws

- Program income earned on lump sum draws and must be used solely for rehabilitation activities

## CDBG: Float Funding

- Using funds that are budgeted for future project for a short-term project that will return income
- Must meet all CDBG requirements
- Must be expected to produce program income in an amount at least equal to the amount of the float
- Must include the activity in its action plan or amend the action plan for the current program year

## CDBG: Float Funding

- Float period cannot exceed 2.5 years
- Action Plan must include ...
- Floated amount as source of program income
- Selected option in case of default
- Budget adjustments
- Citizen participation
- Line of credit
- Secure source of repayment

## CDBG: Float Funding Risks

- If float loan is not repaid on time for the original activity to go forward, grantee must reprogram from planned activities
- The Consolidated Plan must state which activity dollars will be used for repayment

## CDBG: Special Assessments

- Where CDBG is used for all or part of a public improvement
- Recovery of the capital costs
- Includes
- Fee levied or filed as a lien against property
- One-time charge made as a condition of access
- Does NOT include
- Taxes
- Added property assessment
- Periodic charges (water/sewer)
- Made against non-low/mod income households
- Assessment to recover non-CDBG portion is not program income

## How to Handle Program Income 

- Budgeting
- Estimate in Action Plan
- Administration cap
- Public services cap
- Expenditures
- Use program income first
- Incorporate receipting as part of IDIS draw process
- Reporting
- Saul Ramirez memo dated February 18, 1998
- CDBG Financial Summary
- 1/12th Rule (remission of program income)

## Budgeting CDBG Program Income 

- 91.220 (b) Action Plan- estimate
- Federal resources
- Prior history
- Loan portfolios
- Administration cap
- 20% of allocation
- + 20% of current year program income
- Public services cap
- 15% of allocation
- + 15% of prior year program income

## Expending CDBG Program Income

- Use program income first
- 580.504(b)(2)(ii) program income must be disbursed for eligible activities before additional cash withdrawals are made from the U.S. Treasury
- Subrecipients
- Use of income governed by agreement
- Income used first

## Reporting CDBG Program Income

- Saul Ramirez Memo
- Consolidated Annual Reporting and Evaluation Reporting for Entitlement Grantees (aka “CAPER Memo”)
- Guidance on reporting performance and accomplishments
- Includes CDBG Handbook No. 6510.2 REV-2 pages 3-8 and 3-9, and exhibit 3b

## Reporting CDBG Program Income

- Financial Summary Attachment
- Income by type
- Revolving loan
- Float-funded
- Other loan proceeds
- Disposition of property
- Loans outstanding / forgiven / written off

## Reporting CDBG Program Income

- 1/12th Rule
- Amount that exceeds 1/12th of the most recent grant shall be remitted to HUD at the end of the program year to be placed in the recipient's line of credit
- Includes amounts held by grantee and its subrecipients
- Excludes immediate cash needs, revolving loan fund, lump-sum drawdown, or cash held for section 108 loan guarantee security needs

## Sample1/12th Calculation

- Program income:				  $250,000
- Less:
-     Immediate cash needs		($  20,000)
-     Revolving loan fund balance	($180,000)
-     Lump sum draw down     		           ($0)
-     Cash held for 108			_           ($0)_
- Balance:					$    50,000
- Annual CDBG entitlement:		$1,920,000
- 1/12 annual entitlement:			$   160,000
- Amount to be remitted:			            ($0)

**Notes:**
Pages in Book;
Go through the calc
If time permits, do another calc where the grantee does not have a revolving loan fund.
In that instance, $230,000 would be remaining
Since this exceeds $160,000, they would need to remit $70,000 to line of credit ($230,000 - $160,000)

## HOME Program Income is...

- HOME: 92.2
- Gross income received by the participating jurisdiction, State recipient, or a subrecipient directly generated from the use of HOME funds or matching contributions
- Interest on program income
- CPD Notice 97-09
- Best reference guide on program income

## HOME Program Income is NOT...

- Recaptured funds
- From homebuyers; treated like program income, except no 10% for admin
- Repayment funds
- Repaid from project or activity that did not live through its affordability period
- CHDO proceeds (aka “project proceeds”)
- If retained by CHDO

## HOME Income Generators –92.2

- Housing activities that involve acquisition, rehabilitation, or construction with HOME funds or matching contributions
- Proceeds from sale/lease of real property
- Income from use or rental of real property owned by a PJ, State recipient or Subrecipient, minus the costs incidental to generating that income
- Payments of principal and interest on loans made with HOME or matching funds, and proceeds from the sale of loans or obligations secured by loans
- Any other interest or return on investment

## HOME Special Topics

- Repayment funds—92.503(b)
- Recaptured funds –92.503(c)
- Subrecipients –92.2
- Community Housing Development Organizations (CHDOs) –92.300(a)2
- Consortia –92.101 and 92.503(a)

## HOME: Repayment Funds

- Defined as:
- Any HOME funds invested in housing that does not meet the affordability requirements
- Any HOME funds invested in a project that is terminated before completion, either voluntary or otherwise (except CHDO predevelopment loans, which the PJ waives for repayment for good cause)
- Repaid to whichever HOME account (Treasury or local) from which it was drawn
- Drawn first in system when used again
- Used for HOME eligible activities

## HOME: Recaptured Funds

- Defined as:
- Recouped funds when HOME assisted homeownership housing does not continue to be the principal residence of the assisted homebuyer for the full affordability period
- Repaid to the local Trust Fund account, unless permitted to be kept by subrecipient, CHDO, etc.
- Drawn first in system when used again
- Used for HOME eligible activities

## HOME: Subrecipients

- Defined as a public agency or nonprofit who administer all or a portion of a PJ’s HOME program
- State recipients are considered subrecipients
- Usage, as permitted in written agreement
- Keep all or part of program income they generate
- 10% allowable for admin depends on the TOTAL amount of Program Income received by the PJ and the subrecipient in the local Trust Fund account
- Must be used for HOME eligible activities
- Used before additional HOME funds are drawn

## HOME: CHDOs

- Program income _kept_ by CHDOs is called proceeds
- Program income _returned_ to PJ is program income
- Use, as permitted in written agreement
- Must be used for HOME eligible activities, or
- “Other housing activities that benefit low-income families”
- PJ may use own definition of “low income family”
- Reporting
- PJ required to “watch” proceeds for the first time used

## HOME: Consortia

- Program income derived from consortium activities remains consortium program income even if:
- Those activities were carried out in, or by, a jurisdiction that has left the consortium
- Consortium agreement may permit a member to retain all or a portion of its program income
- Must be used for HOME eligible activities
- Used before additional HOME funds are drawn

## How to Handle Program Income

- Budgeting
- Estimate in Annual Action Plan
- Administrative Cap
- Expenditures
- Use Program Income first
- Incorporate receipting as part of IDIS draw process
- Reporting
- IDIS: Status of HOME Grants Report
- Deadline Compliance Status Report

## Budgeting HOME Program Income

- Must be able to predict and estimate the amount of program income that will be received each year and report in Annual Action Plan—91.220 (b)
- Subject to 10% administrative cap, includes only funds deposited in the local Trust Fund account
- Match and CHDO set aside requirements do not include program income when calculated on an annual basis

## Expending HOME Program Income

- Use Program Income First
- Incorporate receipting as part of IDIS draw process
- Program Rule compliance (90% of all beneficiaries (rental and TBRA) must be at or below 60% of the area median income)
- May affect 5-year expenditure deadline if large amount of Program Income are on hand
- Records must identify the source and application of program income
- Not required to identify program income by program funding year, but must be able to identify which projects generated program income and the amount

## Reporting HOME Program Income

- IDIS
- Status of HOME Grants: PR27
- Check to see if program income handled properly, should show 100% disbursed
- Deadline Compliance Status Reports
- Available monthly on the HOME page
- Check program income committed versus disbursed amounts are equal

## Main differences between CDBG and HOME Program Income

- CDBG has more activities that could generate program income (e.g. revolving loan funds, lump sum draws, etc)
- HOME has several different names for what may appear to be program income, but isn’t

## Accounting for Program Income

- FIFO
- Grantees and subrecipients must use program income on hand for immediate expenses prior to drawing down additional funds
- Cannot be held for specific projects – except in a CDBG revolving loan fund
- If CDBG program income, must be used for eligible CDBG activities
- If HOME program income, must be used for eligible HOME activities

## Fund Accounting Principles

- Federal dollars are kept in fund accounting systems set up by the grantee/subrecipient
- Grantees must receipt PI in the fund account from which it was derived
- Any interest that accrues into this account is Program Income except interest earned on a RLF, which is returned to the U.S. Treasury.
- When a new project is funded, the PI dollars must be expended first prior to using any dollars from Line of Credit
- These actions must be consistent with IDIS

## Program Income in IDIS 

- Create receipt
- Authorize receipt of program income
- Create receipt
- Fund activity with PI? No!
- Drawdown PI to report use of income
- Use PI before entitlement funds
- System will reflect use of PI on activity funding

## IDIS: Receipt Authorization (H-01)

- LOGIN GRANTEE NAME: DELAWARE
- ENTER GRANTEE NAME TO SEARCH:  _________________________
- SEL  <-------------   GRANTEE NAMES    --------------->      CITY
-  _   DELAWARE                                            WILMINGTON
-  _   __________________________________________________  ____________________
-  _   __________________________________________________  ____________________
-  _   __________________________________________________  ____________________
-  _   __________________________________________________  ____________________
-  _   __________________________________________________  ____________________
-  _   __________________________________________________  ____________________
-  _   __________________________________________________  ____________________
-  ENTER NAME TO SEARCH OR ENTER "X" UNDER SEL COLUMN TO SELECT GRANTEE FROM LIST
-  F4 = MAIN MENU   F7 = PREV   F8 = NEXT        F17 = UP   F18 = DOWN

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**Notes:**
Receipting Income Step 1:  Authorization	SCREEN  1 of  1 

How to Get Here
	From the Main Menu, type H and press Enter. This takes you to the Receipts Menu. At the Receipts Menu, type 01 at the prompt and press Enter. (Alternatively, you can type H 01 at the Main Menu to bypass the Receipts Menu and come directly to this screen.

To Complete this Screen
The screen lists all of the organizations associated with your grantee, including the grantee itself. ALWAYS select the grantee. At the this time, the system cannot create receipts for organizations other than the grantee. Select the grantee by typing an X in the corresponding field and press Enter. 

Press Enter again to confirm your selection. 

What’s Next?
	Once you have selected the grantee and pressed Enter (twice) the system will take you to the Receipt Menu where you will be able to select any of the other Receipt menu options. In this lesson, the next place to go is H – 02 Create Receipt.

## IDIS: Creating the Receipt (H-02)

-  LOG ON GRANTEE:    DELAWARE 6
-  RECEIPT FOR GRANTEE: DELAWARE 6
-    RECEIPT PROGRAM CODE: _                       (M,B,S,H)
-             FISCAL YEAR: ____             ESTIMATED AMOUNT: _______________
-             SOURCE TYPE: __                      (MC,UC,DC,SG,HS,HH)
-               FUND TYPE: __                      (PI,RL,RE,SF,RC)
-                  AMOUNT: _______________
-            RECEIPT TYPE: __                      (HP,IU,ED)
-         HUD ACTIVITY ID: ____________
-             MATRIX CODE: ___
-  GRANTEE RECEIPT NUMBER: __________________
-  REMARKS: ____________________________________________________________________
-  _____________________________________________________________________________
-  RECEIPT NUMBER:
-  RECEIPT STATUS:
-  ASSOCIATED GRANT NUMBER:
- F4 = MAIN MENU   F7 = PREV   F6 = CLEAR

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**Notes:**
Receipting Income Step 2: Create Receipt	SCREEN  1 of  1 
How to Get Here
	Select 02 from the Receipts Menu. You will not be able to select 02 until you have completed the receipt authorization step (H 01). 

To Complete this Screen
Enter the Program Code of the program that generated the income: CDBG = B, HOME = M. 
Enter the Fiscal Year that the income was received (not the program year of the activity that generated the income). 
Enter the Source Type code. The source type indicates the type of grant you receive: 
MC – Metro City	UC – Urban County	DC – State CDBG or HOME consortium
SG -  State HOME	HH/HS – HOPWA
Select the Fund Type of the income: 
PI – Program Income	RL – Revolving Loan	RE – Recaptured Funds
SF -  CDBG State Revolving Loan	RC – Receivable
Enter the Amount of the income that you want to receipt.
You only need to enter a Receipt Type if the Fund Type is Recaptured. 
If this is a revolving loan receipt, enter the HUD Activity Number or the Matrix Code of the activity that generated the revenue. These fields are optional for generic program income. 
The Grantee Receipt Number and Comments fields are optional. They allow to provide additional information that may help you tie this receipt record to records in your local financial system. 
Press Enter to save the receipt. If this is the first time you create a receipt for a program-fund type-fiscal year combination (i.e. CDBG-program income-2004), the system will ask you to provide an estimate of how much income of this type you expect to receive. This estimate should be included in your action plan. If not, you should be able to derive a reasonable estimate based on the loans in your portfolio. 
Press Enter again to confirm the creation of the receipt. The system will provide you with a Receipt Number. 

What’s Next?
	If you need to create another receipt, press F6 to clear the screen and repeat the steps above. If you are finished, use F4 to return to the Main Menu. 

## Program IncomeCase Studies

## Common Questions

- Can I batch my receipts?
- How can I tie this IDIS receipt to the actual receipt in the local program files?

## IDIS: Report Use of PI (D-04) 

-                                                                  PAGE: 01 OF 01
-  ACT   DRAW AMOUNT     PGM  FT  ST RT       FUNDED       DRAWN      AVAILABLE
-  ---   -----------     ---  --  -- -- ------------ -----------  -------------
-  0014  __________       B   EN  DC SE   400,000.00   19,000.00      381,000.00
-  PRIOR-YR-FLAG: __      ACT:STREET IMPROVEMENTS PROJECT:0002 YEAR:2004
-  SOURCE:US DEPARTMENT OF HOUSI RECIPIENT:DELAWARE
-  ><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><
-  0014  __________       B   PI  DC SE                      .00      34,000.00
-  PRIOR-YR-FLAG: __      ACT:STREET IMPROVEMENTS PROJECT:0002 YEAR:2004
-  SOURCE:US DEPARTMENT OF HOUSI RECIPIENT:DELAWARE
-  ==============================================================================
-  F6=CLEAR  F7=PREV  F17=UP  F18=DOWN  F20=CREATE VOUCHER

- IDIS: Report Use of PI (D-04)

**Notes:**
Record the Use of Income (Drawdown) 

How to Get Here
	To record the use of program income, you will create a drawdown the same as if you wanted to request the use of entitlement funds. The screenshot above displays the second screen under D-04 Create Drawdown Voucher from the Drawdown Menu. To get to this screen: (1) go to the drawdown menu, (2) authorize with D-01, (3) select D-04 Create Drawdown from the Draw Menu, (4) provide the HUD activity numbers of the activities that you need funds for and press Enter. More detailed directions can be found in the Drawdowns lesson. 

To Complete this Screen
	You will follow the same steps to complete this screen as you would to create a regular drawdown voucher. The only difference is that you will use all of the program income available first before drawing entitlement funds. Use the Fund Type column to distinguish the sources of funds. Program income will be listed even if you did not explicitly fund the activity with program income. This serves as a reminder that you have program income receipted and that you need to use it before you draw additional entitlement funds. 
	The amount of program income Available for each activity will be equal to the amount of income receipted but not committed to activities or the amount of entitlement funds available to the activity, whichever is less.  
	If you entered more than one activity on the previous screen, the income will show as Available for each activity listed. You can choose which activity or activities will use the program income. It is recommended to draw the program income for the activity that is requesting the largest amount. If you try to draw more program income than what is available, you will receive an error. 

What’s Next?
	Complete the drawdown process. Once you drawdown the program income for an activity, the system will automatically adjust the funding commitments to the activity. The system will increase the amount of program income committed to the activity by the amount drawn and decrease the amount of entitlement funds committed to the activity by the amount of program income drawn. This way, the activity’s Total Funded Amount does not change. To view these changes use the Activity Funding Menu. 

## IDIS: Results of PI Drawdown 

- GRANTEE NAME: DELAWARE 6
- CPS PROJECT: 0001  PGM YEAR: 2004   HUD ACTIVITY ID: 000000000014
- ACTIVITY NAME: STREET IMPROVEMENTS
- GRANTEE ACTIVITY NBR:                    ACT TOT FUNDED:        $400,000.00
- EST. MAX. FUNDING:        $500,000.00     ACT TOT DRAWN:         $53,000.00
-             < SOURCE > < RECEIP >
- SEL PGM FND      U O G      U O G        AMOUNT AVL.   FUNDED THIS GRANT
-     CD  TYP TYP CD/NUM TYP CD/NUM        FOR FUNDING        DRAWN THIS GRANT
-  _   B  EN  DC  000001 SE  100449          $1,000.00         $400,000.00
-                  00001      00001                                 $19,000.00
-  _   B  PI  DC  000001 SE  100449         $34,000.00               $0.00
-                  00001      00001                                      $0.00
-  F4 = MAIN MENU   F7 = PREV    F17 = UP    F18 = DOWN

- IDIS: Results of PI Drawdown

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**Notes:**
The Processing of Receipts

How to Get Here
	Select I – 02 Maintain Activity Funding from the Main Menu. On the resulting screen, enter the HUD Activity Number of the activity that you want to view in the HUD Activity Number field and press Enter.  

The Whole Process
	Imagine you had two computer screens displaying IDIS. On the first screen you would go through the process of creating a program income receipt and drawing down those funds by creating a drawdown voucher. The second screen would always display the Activity Funding screen shown above and would reflect the changes you made on the first screen. These are the changes you would see: 

When the receipt is created, the Amount Available for Funding for that program-fund type (i.e. CDBG PI) would increase by the amount receipted. 

When the drawdown is created, the amount of program income drawn for the activity will be shifted from the Amount Available column to the Funded from this Grant column for the program income fund source. The system does this because funding must always be greater or equal to the drawn amount. And as you can see, the screen will also show the drawn amount posted in the Drawn from this Grant column. 

At the same time, IDIS will reduce the entitlement commitment (Funded from this Grant column) by the amount of the program income drawn against the activity. This way, the activity’s Total Funded Amount does not change. The entitlement funds that were essentially replaced with program income will now appear in the Amount Available for Funding for the entitlement fund type. 

At the end of the program year, your Amount Available for Funding for entitlement will have increased by the amount of program income you have drawn. Be sure to consider this available funding when you conduct your next funding cycle. 

## Exceptions

- Do not use PI to replace HOME AD or CR
- Will complicate spending cap calculations
- Use activity funding for RL
- May be updated in near future
- Use activity funding for subrecipient income
- Commit funds to activity to protect it

**Notes:**
Exceptions

There are some very important exceptions to the instructions presented in this lesson: 

Do not draw PI for activities funded from subfunds. The system uses subfunds to track compliance with the program spending requirements. For example, you cannot spend more than 10% of your HOME allocation on Admin and you must spend at least 15% of your HOME allocation on CHDOs.  If you draw program income in place of HOME Administration (M-AD) or HOME CHDO Reserve (M-CR) funded activities, the system will not count the program income expenditure in these calculations. Moreover, you would have to reduce these subfunds by the amount drawn to make the funds available to other types of activities. This cannot always be done. For CDBG, you should still use PI first, even for subfunded activities, but be aware you will need to make adjustments to these subfunds after the drawdown.

Use Activity Funding Menu to explicitly fund Revolving Loan Activities. While available program income will automatically appear on the Create Drawdown screen, available revolving loan funds will not. This may be corrected in the near future, but for now you must manually fund an activity with Revolving Loan Funds (RL) before you draw the funds for the activity. 

Use Activity Funding to protect subrecipient income. If your subrecipient generates program income and you allow the agency to keep the money in order to fund more programs, you need to report the income in IDIS and yet protect it so that other activities do not use the program income by mistake. You can protect the program income by committing the funds to the subrecipient’s activity (using I–02 Maintain Activity Funding ) after creating the receipt. If the program income is committed to the subrecipient’s  activity, it will not be Available to other activities. 

## IDIS/Program Income Review

- Rule # 1: use funds on-hand first
- Process
- Create receipt
- Draw PI against activity
- System adjusts activity funding

**Notes:**
Review
IDIS tracks both the receipt and use of program income:

To track the receipt of program income, use the Receipts Menu from the Main Menu. 

To report the use of program income, follow the drawdown process used to request entitlement funds, but select program income as the funding source. By creating and approving a drawdown voucher for program income, you are reporting to HUD that you used $X of program income on activity #Y. 

Remember HUD’s rule: use program income before drawing additional funds. Given this, you need to incorporate the receipts process into the drawdown process. Before doing a drawdown, create a receipt for any program income you have on-hand. However, there are some very important exceptions to the instructions presented in this lesson: 

Do not draw PI for activities funded from subfunds. 

Use Activity Funding Menu to explicitly fund Revolving Loan Activities. 

If program income is kept by a subrecipient, commit those funds to the subrecipient’s activity to protect those funds from other activities. 

## Questions and Answers

- Questions?