# Presentation: 278820

## Everything You Wanted to Know About CDBG But Were Afraid to Ask

- CDBG
- for Newcomers

## How much do you already know about CDBG?

## WHAT TO EXPECT

- History and purpose
- Grant cycle – from Con Plan to CAPER
- Basic research tools
- Seven-step process for selecting activities
- Record-keeping and documentation
- Program management issues
- Maximizing funds
- Other program requirements

## HISTORY

- 	Housing and Community Development Act (HCDA) of 1974 consolidated eight categorical programs to create

**C**
**D**
**B**
**G**

**ommunity**

**evelopment**

**lock**

**rant**

- Open Space
- Neighborhood Development
- Model Cities
- Neighborhood Facilities

- Urban Renewal
- Historic Preservation
- Public Facility Loans
- Water and Sewer

## Primary Objectives of HCDA

- 	Section 101(c) of the Act and 24 CFR 570.1:
- 	Development of viable urban communities by providing
- Decent housing
- Suitable living environment
- Expanded economic opportunity
- Principally for low and moderate income
- persons

## CDBG Grant Amounts are Formula-Based

- Higher of two formulas
- Overcrowded housing, population and poverty or
- Pre-1940 housing, population growth lag and poverty

## Three Ways to Qualify as an Entitlement Grantee

- Cities with population over 50,000
- Designated a principal city of a metropolitan area
- Urban county with 200,000+ population

## GRANT CYCLE

- Consultation

- Plan/Action Plan

- Submit

- Review

- CAPER

- Submit

- Review

- Program Year
- Review Letter

- Risk Analysis

- Local Work Plan

- Monitoring

- Technical Assistance

## RESEARCH TOOLS

- CDBG regulations:  24 CFR 570 (subparts A, C, D, J, K, & O)
- Title I of the HCDA of 1974, as amended (42 U.S.C. 5301 et. seq.)
- Program guidance:

- CDBG Guide to Eligible Activities and National Objectives for Entitlement Communities
- Preamble to CDBG regulations

- http://www.hud.gov/offices/cpd
- http://www.hudclips.org

## SELECTING CDBG ACTIVITIES

**A Seven Step Process**
- Is the activity eligible?
- Is the activity ineligible?
- Will it meet a national objective?
- Will it comply with the 70% test?

## 5. Are costs reasonable?
6. Is the activity in the Consolidated Plan and does it meet an objective of the Plan?
7. Are all other reviews/requirements completed and clearance obtained (if needed)?

- 6. Is the activity in the Consolidated Plan and does it meet an objective of the Plan?
- 7. Are all other reviews/requirements completed and clearance obtained (if needed)?

- SELECTING CDBG ACTIVITIES

## Is It Eligible?

- Basic eligible activities (570.201)
- Acquisition of Real Property
- Public Facilities and Improvements
- Clearance and Demolition
- Public Services
- Homeownership Assistance

## Rehabilitation and Preservation (570.202)
Rehabilitation
Code Enforcement
Historic Preservation

- Rehabilitation
- Code Enforcement
- Historic Preservation

- Is It Eligible?

## Special Economic Development (570.203)
Special CBDO Activities (570.204)
Planning and Administration (570.205 & .206)
Other Activities

- Special CBDO Activities (570.204)
- Planning and Administration (570.205 & .206)
- Other Activities

- Is It Eligible?

## Acquisition of Real Property

- Must be a permanent interest and have a public purpose
- Federal acquisition requirements apply
- No land banking
- Publicly owned or owned by nonprofit

## Public Facilities and Improvements

- Acquire, construct, rehabilitate or install permanent improvements
- Publicly owned or owned by nonprofit
- Open to the public
- No excessive fees

## Clearance

- Demolition of buildings and improvements
- Removal of demolition products and other debris
- Physical removal or treatment of environmental contaminants
- Moving structures to other sites

## Public Services

- New service or increase in service if previously provided by or on behalf of local government
- Labor, supplies, materials and other costs of delivering the service
- Limited to 15% of CDBG grant plus prior year’s program income

## Homeownership Assistance

- Subsidize interest rates and mortgage principal amounts
- Pay mortgage insurance premium
- Pay reasonable closing costs
- Pay up to 50% of downpayment

## Rehabilitation

- Publicly or privately owned housing
- Publicly or privately owned commercial and industrial buildings
- If owned by for-profit, limited to exterior improvements and correction of code violations
- Manufactured housing (when part of the permanent housing stock)

## Code Enforcement

- Limited to costs of inspection and enforcement of codes
- Cannot be used to correct code violations
- Must be done along with public or private improvements expected to arrest the decline of an area

## Special Economic Development

- Acquire, build or install commercial or industrial buildings, structures and other real property equipment and improvements
- Carried out by the grantee or a nonprofit subrecipient
- Direct assistance to for-profit businesses
- Economic development services in connection with other 570.203 activities

## Planning and Administration

- Planning
- General CDBG program administration
- Administrative support of the HOME program
- Limited to 20% of the grant plus program income

## Ineligible Activities

- General government expenses
- Political activities

## Generally Ineligible Activities

- Purchase of equipment
- Operating and maintenance costs
- New housing construction
- Income payments
- General government buildings

## MEETING A NATIONAL OBJECTIVE

- Benefit low and moderate income (LMI) persons
- Prevent or eliminate slums or blight
- Meet an urgent need

## Low and Moderate Income (LMI)

**Area**

**Limited Clientele**

**Housing**

**Jobs**

**Area**

**Spot**

**Urban Renewal**

**Slum and Blight**

**Low and Moderate Income (LMI)**

## Benefiting LMI Persons

- Area
- Limited clientele
- Housing
- Jobs

## Three subcategories (limited clientele, area and jobs) are based on PERSONS
Housing is based on HOUSEHOLDS
Must ensure that moderate income persons do not benefit to the exclusion of low income persons

- Housing is based on HOUSEHOLDS
- Must ensure that moderate income persons do not benefit to the exclusion of low income persons

- Benefiting LMI Persons

## LMI Area

- Activities available to benefit all the residents of an area that is primarily residential

## LMI Area

- Service area must be the entire area served by the activity
- Must qualify on the basis of the income levels of the people who _live_ in the area served by the activity, not just those who use the activity

## LMI Area

- Grantees have primary responsibility for determining the service area
- HUD will generally accept a grantee’s determination _unless_ the nature of the activity or its location raises serious doubts about the area claimed

## LMI Area

- Factors in determining service areas:
- Nature of activity
- Location of activity
- Accessibility
- Comparable activities

## LMI Area

- At least 51% of the residents of the area must be LMI persons
- Or less if the upper quartile percentage is less than 51%
- Activity must meet the identified needs of LMI people residing in the area

## LMI Area

- Census data provided by HUD or special surveys can be used to document an area’s LMI percentage
- If using a survey, HUD must approve the instrument and methodology

## LMI Limited Clientele 

- Activities that provide benefit to a specific group of people rather than to everyone in an area

## LMI Limited Clientele

- At least 51% of the beneficiaries of the activity must be LMI persons
- Housing activities and most activities  providing benefit through the creation of jobs _cannot_ qualify under this category

## Limited clientele activities must meet one of these tests:

- EXCLUSIVELY benefit a clientele who are generally presumed by HUD to be principally LMI persons
- OR
- Be of such nature AND in such location that it may reasonably be concluded that the activity’s clientele will primarily be LMI persons

## Limited clientele activities must meet one of these tests:

- OR
- Require information on family size and income so that it is evident that at least 51% of the clientele are LMI

## LMI Housing

- Activities that result in housing that will be occupied by LMI households upon completion

## LMI Housing

**Assisted housing can be either:**
- Owner- or renter-occupied
- If rental housing, rents must be affordable to be considered a benefit to LMI households
- Single-family or multi-unit structures

## LMI Housing

- Benefit is based on _household_ size and income, not _family_ size and income

## Occupancy Rule:

- All assisted single-unit structures must be occupied by LMI households
- An assisted two-unit structure (duplex) must have at least one unit occupied by a LMI household
- An assisted structure containing more than two units must have at least 51% of the units occupied by LMI households

## LMI Jobs

- Activities that create or retain permanent jobs, at least 51% of which, on a full-time equivalent (FTE) basis, are either held by LMI persons or considered to be available to LMI persons

## LMI Jobs

**Jobs “Held By”**
- Presumption of LMI status if:
- Job hire lives in a census tract that is at least 70% LMI
- The job hire or assisted business is in a census tract that is either part of a Federally designated EZ/EC or meets certain poverty and location requirements
- Otherwise, must document information on family size and income of new hire prior to filling job

## LMI Jobs

- Jobs “Made Available To” - 570.208(a)(4)(iii)
- Retained Jobs - 570.208(a)(4)(ii)

## Prevent or Eliminate Slums or Blight

- Area
- Spot
- Urban Renewal

## S/B Area

- To qualify, an area must:
- Be officially designated by the grantee and must meet the definition of a slum, blighted, deteriorated or deteriorating area under State or local law
- Exhibit a substantial number of deteriorated or deteriorating buildings
- Activities must address one or more of the conditions which attributed to the deterioration of the area

## S/B Spot

- An activity must be designed to eliminate specific conditions of blight or physical decay not located in a designated slum/blight area

## S/B Spot

- The activity must be limited to one of the following:
- Acquisition
- Clearance
- Relocation
- Historic Preservation
- Rehabilitation (limited)

## S/B Urban Renewal

- An activity must be located within an Urban Renewal project area or Neighborhood Development Plan action area and must be necessary to complete the Urban Renewal Plan in effect at the time

## Urgent Need

- An activity must be designed to alleviate existing conditions which the grantee certifies:

## Urgent Need

- Pose a serious and immediate threat to the health or welfare of the community;
- Are of recent origin or recently became urgent;
- The grantee is unable to finance the activity on its own; and
- Other sources of funding are not available to carry out the activity

## THE JOYS OF DOCUMENTATION

- 570.506 – records to be maintained
- Eligibility
- National objective
- Citizen participation
- Acquisition and relocation
- Fair housing

-  Financial
-  Other requirements

## Documenting Eligibility

- Provide a full description of the activity and the regulatory citation under which it is eligible
- Include all relevant eligibility considerations
- Identify location
- Record amount of CDBG funds budgeted, obligated and expended

## Documenting National Objective

- Choose the national objective appropriate for the activity and the circumstances
- Review national objective documentation requirements
- Obtain and maintain adequate documentation

## Documenting LMI Activities

- Area
- Limited Clientele
- Housing
- Jobs

## LMI Housing Documentation

- Household size and combined income for LMI
- Total cost of activity, which includes CDBG and non-CDBG
- Written agreement with landlord or developer of multi-unit structures that indicates total number of units and number that will be occupied by LMI households

## LMA Documentation

- Identification of service area (map or description of boundaries)
- Rationale for service area
- Census data
- HUD approved survey

## LMC Documentation

**Family Size and Income**

- Substitutions:
-   Verifiable certification from program
-     participant that family income does not
-     exceed applicable LMI limits
-   State, county or local employment or
-     other agency referral (if it is using HUD’s
-     criteria and maintains documentation)

## LMC Documentation

- 	Documentation proving the program is designed for the particular needs of or used exclusively by the presumed benefit group

**Presumed Benefit**

## LMC Documentation

- Documentation describing how the nature and location of the facility or service establishes that it is used predominantly by LMI persons.  Be specific and provide details

**Nature and Location**

## LMI Jobs Documentation

- Written agreement with business in which the business agrees to create or keep a specific number of jobs
- Identify each job by title
- Identify each job as part-time or full-time
- Name, family size, and income of person who filled each position

## LMI Job Creation Job Held by LMI Person

- Listing by job title of the specific jobs to be created
- Listing by job title of the jobs filled
- Name, family size, and income of person who filled each position

## Documenting S/B Activities

- Slum/Blight Area
- Date of designation and boundaries
- Condition of area
- Description of how activity addresses conditions
- “Pictures paint a thousand words”

## Documenting S/B Activities

- S/B Spot
- Description of specific condition
- Description of how activity addresses condition
- Documentation that limitations regarding eligible activities were met

## Documenting Urgent Need

- Nature of immediate threat
- Certification that CDBG activity addressed urgent need
- Information on timing
- Evidence of no other resources

## PROGRAM MANAGEMENT ISSUES

- Timeliness
- Performance Reviews
- Waivers and Amendments

## Timeliness

- 570.902 requires that grantees carry out activities in a timely manner.  Two tests must be met 60 days before PY end:

## Timeliness

**TEST 1****	**Line of credit (LOC) balance not more
- 			than 1.5 times most recent grant
- 			amount
**TEST 2****	**Program income on hand + LOC balance
- 			not more than 1.5 times most recent
- 			grant amount.  Program income in this
- 			calculation includes RLF balances - - you
- 			must keep RLFs revolving

## Timeliness

**Why is Timeliness a Hot Topic?**
- Congress and GAO are aware of unspent CDBG funds
- Difficult to justify funding levels when communities are not spending their funds
- Intended beneficiaries are not receiving program benefits in a timely manner

## What Happens if Your Community Violates the Timeliness Standard?

- 	You will be put on a workout plan intended to bring you into compliance by the next test
- Description and causes of the violation
- How the community will fix the problem(s)
- Schedule of drawdowns
- Timetables to complete activities
- Milestones
- Quarterly reports to your Rep

## Timeliness

- 	If you fail the next timeliness test, HUD will reduce your next CDBG grant by 100% of the amount in excess of 1.5 times the annual grant

## Timeliness

**	****Exception**
- 	HUD may make a determination that the untimeliness resulted from factors beyond the grantee’s control

## Timeliness

- Informal consultation (at grantee’s discretion) with HUD HQ regarding the causes of untimeliness
- HUD HQ will then make a decision whether to reduce a future grant amount and notify the grantee in writing

## Performance Reviews

- HUD is required to perform an annual review to determine if grantees:
- Have carried out activities in accordance with the primary objectives, national objectives and other laws (570.901) in a timely manner (570.902)
- Have continuing capacity (570.905)

## Waivers

- Provisions of the regulations not required by statute may be waived
- Must be for good cause
- Must establish that not granting waiver would cause undue hardship and would adversely affect the purposes of the Act
- HUD HQ approves waivers
- Waivers published in the Federal Register

## Amendments

- Guided by Consolidated Plan regulations at 24 CFR part 91
- Must amend the plan whenever the grantee decides to:
- Change allocation priorities
- Carry out an activity not previously covered in the Action Plan
- Change the purpose, scope, location or beneficiaries of an activity

## Amendments

- Substantial Amendment
- Defined by the community in its citizen participation plan.  Criteria must include changes in the use of CDBG funds from one eligible activity to another
- Requires 30-day public comment period before changes can be implemented
- Substantial amendments must be submitted to HUD at least annually

## MAXIMIZING FUNDS

**Leveraging**
- Getting funds from other sources in addition to CDBG investment
- While 100% CDBG funding of an activity is eligible, funds go further when you leverage

- Examples:
- Multi-family housing
- Investor participation
- Public services
- Nonprofit subrecipients providing their own funds to pay a portion of the costs.  Less dependence on CDBG funding

## Revolving Loan Funds

- Economic development and housing rehabilitation are most common
- Start funding with CDBG to make loans; use repayments to make more loans.  This allows you to reduce the amount of new CDBG funds used for the activity

- Revolve or dissolve
- If a loan fund is unsuccessful or underutilized, it can create a backlog of unspent funds and may need to be dissolved

## Section 108  (Subpart M)

- Source of financing for large scale economic development, housing and public facility programs
- Up to five times your most recent CDBG grant amount

- Guaranteed with future grants and additional security (depending on activity)
- Up to 20 years to repay
- Typically used for activities that will generate income
- Use income to repay loan
- CDBG can be used to repay loan

- 	CDBG RULES APPLY TO ACTIVITIES CARRIED OUT WITH SECTION 108

## THINGS WE HAVEN’T TALKED ABOUT

- Neighborhood Revitalization Strategy Areas
- Community-Based Development Organizations
- Subrecipients
- Contractor eligibility
- Uniform administrative requirements
- Conflict of interest

## OTHER FEDERAL REQUIREMENTS24 CFR 570 Subpart K

- Affirmatively furthering fair housing
- Labor standards (Davis-Bacon)
- Environmental standards
- National Flood Insurance Program
- Displacement, relocation, acquisition, and replacement of housing