# Presentation: 278539

## BUILDING HOME

**CHDO Requirements and Activities**

## CHDOs

- This chapter covers:
- The set-aside requirement
- CHDO Qualifying criteria
- Uses of HOME funds and roles for CHDOs
- Selecting CHDOs
- Building eligibility and capacity
- Establishing long-term relationships

**CHDO**

## CHDO Set-Aside

- The equivalent of at least 15% of each allocation must go to housing owned/developed/ sponsored by CHDOs
- PJs have 24 months to reserve Funds for CHDOs

## CHDO Qualifying Criteria

- CHDOs must meet requirements pertaining to their:
- Legal status
- Organizational structure
- Capacity and experience

## Legal Status

- To be eligible, organization must:
- Be organized under state and local law
- Have as its purpose to provide decent and affordable housing to low/mod income persons
- Provide no individual benefit
- Have a clearly defined service area
- Have an IRS non-profit status

## Organizational Structure

- CHDO board must have:
- At least 1/3 reps of low-income community
- No more than 1/3 reps of public sector
- Balance is unrestricted except when sponsored/organized by a for-profit

## Low-Income Representation

- Three ways to meet the 1/3 minimum requirement:
- Residents of low-income neighborhoods in the community
- Low-income residents of the community
- Elected representatives of low-income neighborhood organizations

## Low-Income Input

- CHDO must also provide formal process for low-income beneficiaries to provide input
- Must be described in writing
- Must be in by-laws or resolution
- Ways to achieve this:
- Special committees or neighborhood advisory councils
- Open town meetings

## Public-Sector Representatives

- Public sector representatives include:
- Elected officials
- Appointed officials
- Public employees
- Persons appointed by a public official
- Low-income public officials count against the 1/3 public sector max

## CHDO Spin-Offs (I)

- Religious entities can sponsor a CHDO
- Must be secular organization
- Religious entity may not control organization
- Housing must be for secular purposes

## CHDO Spin-Offs (II)

- For-profit entities can sponsor a CHDO:
- Cannot be controlled by the for-profit
- Primary purpose of for-profit cannot be housing ownership/management
- For-profit reps cannot be more than 1/3 of board
- CHDO must be free to contract for goods/services from any vendor

## Capacity and Experience

- Organization must:
- Have at least ONE YEAR of experience serving the community
- Demonstrate staff capacity to carry out planned activities
- Have financial accountability standards
- Capacity must be relevant to type of CHDO activity to be undertaken

## CHDO Designation

- Don’t make these mistakes
- No geographic boundaries
- Have applied for IRS tax-exempt status but haven’t received IRS letter
- Re-designation not done each year and board has changed
- CHDO designation from neighboring jurisdictions used
- CHDO doesn’t have capacity

## Uses of HOME Funds

- Eligible uses of CHDO set-aside funds:
- Acquisition and/or rehab of rental or homebuyer housing
- New construction (rental or homebuyer)
- Direct financial assistance to:
- buyers of HOME-assisted units
-  sponsored/developed by CHDO

## Uses of HOME Funds II

- Ineligible use of set-aside funds:
- Tenant-based rental assistance
- Homeowner rehab
- “Brokering” or other real estate transaction

## CHDO Roles

- To count towards the CHDO set-aside, CHDO must act as:
- Owner
- Developer OR
- Sponsor

## CHDO as Owner

- As owner, CHDO:
- Holds valid legal title OR
- Has long-term leasehold interest
- CHDO may be an owner in partnership
- Must have effective control
- CHDO may be both owner and developer of its own project

## Developer

- CHDO owns property OR has contractual obligation to property owner to:
- Obtain financing AND
- Rehabilitate or construct
- If rental, may also manage project
- If homeownership, CHDO transfers property to homebuyer

## Sponsor

- As sponsor of rental housing,
- Develops a project that it solely or partially owns
- Conveys ownership to a second non-profit
- As sponsor of a homebuyer project,
- Owns property and shifts responsibility to second non-profit
- Second non-profit transfers title and obligations to homebuyers

## CHDO vs. Subrecipients

- CHDOs may take on the role of subrecipient
- Not a CHDO set-aside activity
- May not receive HOME funds for a project  through the subrecipient  activity
- May get access to PJ’s admin $$

## Special Assistance 

- PJs may provide special forms of assistance to CHDOs
- Project pre-development loans
- Operating assistance
- Use of HOME project proceeds
- Capacity-building assistance

## Pre-Development Funds

- Access to up-front money
- Costs must be
- related to specific project
- for HOME eligible activities
- Uses and costs must be customary and reasonable
- Up to 10% of set-aside
- Not limited to 10% of a project

## Types of Pre-Development Loans

- Technical assistance and site control loans
- Used to establish preliminary feasibility prior to site control
- Do not require environmental clearance
- Seed money loans
- Cover pre-construction costs
- Must have site control

## Restrictions on Pre-Development Loans 

- Funds must be provided as a loan
- CHDO must repay from construction loan proceeds or other income
- PJ may waive repayment if:
- There are impediments to project development beyond the CHDO’s control
- Project deemed infeasible

## CHDO Operating Assistance 

- Up to 5% of PJ's HOME allocation may be used for CHDO operating
- Eligible uses:
- Organizational support
- Housing education
- Admin expenses
- Operating expenses

## Limitations on Operating Assistance

- Assistance may NOT exceed:
- $50,000 each fiscal year OR
- 50% of CHDO’s total annual operating expenses for that year
- 			*WHICHEVER IS GREATER!*
- Admin funds to CHDOs acting as subrecipients do NOT count towards cap

## Project Proceeds

- PJs may allow CHDO to retain some or all proceeds from a HOME project
- Proceeds might be:
- Proceeds from permanent financing
- Interest on HOME loans
- Proceeds are NOT considered program income

## Use of Project Proceeds 

- Use of proceeds must be for:
- HOME-eligible activities OR
- Other low-income housing activities
- Written agreement with CHDO must include:
- Whether CHDO will retain any proceeds
- The specific use of proceeds

## Capacity-Building Assistance

- Only applies to PJs in first 2 years of participation in the HOME Program!
- HOME funds can be used for CHDO capacity building
- Up to 20% of CHDO set-aside
- Total cannot exceed $150,000
- Use for intermediary organizations, training and TA or operating expenses

## Selecting CHDOs

- Identify potential organizations
- Hold information sessions
- Provide information to groups
- Determine eligibility and basic capacity
- Use the CHDO checklist
- Assess additional needed capacity
- Organizational issues
- Experience
- Financial management

## Building Eligibility and Capacity

- Eligibility Issues 		“Fix It”
- Building capacity requires more
- Good business planning
- Sufficient capital
- Keen marketing/customer knowledge
- Technical expertise
- Strong leadership and staffing

## Creating New CHDOs

- Create new CHDOs when:
- No CHDOs exist
- Potential groups don’t want to change structure or to work on bricks-and-mortar
- Qualified groups don’t have sufficient capacity
- PJs must avoid controlling organizations they charter

## Building Long-Term Relationships

- Plan ahead and take a multi-year approach
- Build successful partnerships
- Continuously build the capacity of the “system”
- Create a network