Federal Register / Vol. 77, No. 78 / Monday, April 23, 2012 / Rules and Regulations 24139 

* * * * * 

■ 3. In § 558.600, revise paragraph (a) 

and the heading of the first column in 

the table in paragraph (e)(1) to read as 

follows: 

§ 558.600 Tiamulin. 

(a) Specifications. Type A article 

containing 363.2 grams of tiamulin 

hydrogen fumarate per pound. 

* * * * * 

(e) * * * 

(1) * * * 

Tiamulin hydrogen fumarate in grams per ton * * * * * * * * * * * * 

*******

* * * * * 

Dated: April 17, 2012. 

Steven D. Vaughn, 

Director, Office of New Animal Drug 

Evaluation, Center for Veterinary Medicine. 

[FR Doc. 2012–9708 Filed 4–20–12; 8:45 am] 

BILLING CODE 4160–01–P 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Part 570 

[Docket No. FR–5181–F–02] 

RIN 2506–AC22 

State Community Development Block 

Grant Program: Administrative Rule 

Changes 

AGENCY: Office of the Assistant 

Secretary for Community Planning and 

Development, HUD. 

ACTION: Final rule. 

SUMMARY: This final rule makes changes 

to several sections of the regulations for 

the Community Development Block 

Grant (CDBG) program for states (State 

CDBG program). This final rule 

streamlines and updates the regulations 

to reflect statutory changes, clarifies the 

program income requirements, provides 

other clarifications to the State CDBG 

program regulations, and makes a 

conforming change to the regulations 

applicable to the CDBG Entitlement 

program. This final rule also provides 

additional flexibility to states in their 

administration of the program. The final 

rule follows publication of an October 

17, 2008, proposed rule and takes into 

consideration the public comments 

received on the proposed rule. 

DATES: Effective Date: May 23, 2012. 

FOR FURTHER INFORMATION CONTACT: Eva 

C. Fontheim, Community Planning and 

Development Specialist, Office of 

Community Planning and Development, 

Department of Housing and Urban 

Development, 451 Seventh Street SW., 

Room 7182, Washington, DC 20410; 

telephone number 202–708–1322 (this 

number is not toll-free). Individuals 

with speech or hearing impairments 

may access this number through TTY by 

calling the toll-free Federal Relay 

Service at 800–877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On October 17, 2008, at 73 FR 61757, 

HUD published for public comment a 

proposed rule that would revise HUD’s 

regulations for the State CDBG program 

in 24 CFR part 570, subpart I, in order 

to conform the regulations to current 

statutory requirements concerning 

program income, and to provide 

additional flexibility to states in 

implementing their programs. Title I of 

the Housing and Community 

Development Act of 1974 (42 U.S.C. 

5301–5320) (HCDA) established the 

statutory framework for the CDBG 

program. The primary statutory 

objective of the CDBG program is to 

develop viable communities, by 

providing decent housing and a suitable 

living environment and by expanding 

economic opportunities, principally for 

persons of low- and moderate-income. 

HUD’s regulations implementing the 

CDBG program are located in 24 CFR 

part 570 (entitled ‘‘Community 

Development Block Grants’’). 

Under the State CDBG program, states 

have the opportunity to administer 

CDBG funds for nonentitlement areas. 

Nonentitlement areas include those 

units of general local government that 

do not receive CDBG funds directly. 

States participating in the State CDBG 

program award grants only to units of 

general local government that carry out 

development activities. Annually, each 

state develops funding priorities and 

criteria for selecting projects. HUD’s role 

under the State CDBG program is to 

ensure state compliance with federal 

laws, regulations, and policies. The 

regulations for the State CDBG program 

are codified in subpart I of the part 570 

regulations. 

The proposed regulatory amendments 

described in the October 17, 2008, 

proposed rule were designed to clarify 

how HUD will administer the State 

CDBG program. HUD proposed to 

streamline and update the regulations to 

reflect statutory changes, clarify the 

program income requirements, and 

provide other clarifications to the State 

CDBG regulations that will provide 

states with additional flexibility in their 

administration of the program. 

Interested readers should refer to the 

preamble to the October 17, 2008, 

proposed rule for additional information 

on the proposed regulatory changes to 

the State CDBG program. 

II. This Final Rule; Changes to the 

October 17, 2008, Proposed Rule 

This final rule follows publication of 

the October 17, 2008, proposed rule and 

takes into consideration the public 

comments received on the proposed 

rule. The public comment period on the 

proposed rule closed on December 16, 

2008. HUD received eight responses. 

Commenters included one public 

interest group and seven units of local 

government. Most of the public 

comments pertained to the provisions of 

the proposed rule concerning program 

income requirements. 

After careful consideration of the 

issues raised by the commenters, HUD 

has decided to adopt an amended 

version of the proposed rule. 

Specifically, HUD has made the 

following changes to the October 17, 

2008, proposed rule: 

1. Administrative Expense Cap Time 

Period. The final rule clarifies, at 

§ 570.489(a)(1), that the program income 

included in the calculation determining 

the amount of allowable administrative 

and technical assistance per program 

year is all of the program income 

received in the program year, regardless 

of the fiscal year in which the state grant 

funds were appropriated that generated 

the program income. 

2. Identifies Parties in the Grant 

Agreement for Calculating Program 

Income. Section 570.489(e)(2)(v) of the 

final rule specifies that the grant 

agreement referred to in this section is 

between the state and the unit of general 

local government. 

3. Entitlement Jurisdictions Receive 

Only an Incidental Benefit From State 

CDBG Program Expenditures. The final 

rule, at § 570.486(c), no longer mandates 

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24140 Federal Register / Vol. 77, No. 78 / Monday, April 23, 2012 / Rules and Regulations 

that entitlement jurisdictions receive 

only an incidental benefit from State 

CDBG program expenditures. Instead, if 

State CDBG program funds are 

expended on activities located in 

entitlement jurisdictions, the activities 

must significantly benefit residents of 

the state grant recipient, must meet the 

nonentitlement jurisdiction’s needs, and 

the entitlement jurisdiction must make 

a meaningful contribution to the project. 

4. State Action Plans Including a 

Return of Program Income Requirement 

on Local Governments. The final rule 

clarifies, at § 570.489(e)(3)(ii)(A), that 

states that intend to require units of 

general local government to return 

program income to the state, after the 

action plan is already submitted and 

approved by HUD, may submit a 

substantial amendment. 

III. Discussion of Public Comments on 

the October 17, 2008, Proposed Rule 

The following section presents a 

summary of the significant issues raised 

by the public comments in response to 

the October 17, 2008 proposed rule, and 

HUD’s responses to those issues. 

The summary of public comments is 

organized by category: section III.A. 

discusses the administrative cap, 

section III.B. discusses program-income 

requirements, section III.C. discusses 

spending funds outside a jurisdiction of 

the recipient, and section III.D. 

discusses audits. 

A. Comments on the Administrative 

Expense Cap 

Comments: Several commenters 

posed the following questions: ‘‘What is 

the time period used to calculate the 

amount of program income received by 

the units of local government? Is it the 

amount received from the preceding 

year? The preceding 2 years? If the state 

is able to add additional program 

income to the current allocation to 

increase the administrative costs, where 

does the program income come from— 

the annual allocation to the state or the 

program income funds that come back 

to the local grantees?’’ 

HUD Response. To determine the 

program income portion of the 

administrative expense cap, program 

income is counted in the program year 

that it is received by the unit of general 

local government, or by the unit of 

general local government’s subgrantee. 

As noted above, HUD has revised 

§ 570.489 to clarify that the program 

income included in the calculation 

determining the amount of allowable 

administrative and technical assistance 

per program year is all of the program 

income received in the program year, 

regardless of the fiscal year in which the 

state grant funds were appropriated that 

generated the program income. For 

example, if the state is determining the 

administrative cap for program year 

2011, then the program income received 

by the unit of general local government 

in 2011 is used in the calculation. The 

program income that is used as part of 

the calculation to determine the 

administrative cap is the program 

income that is received by the unit of 

general local government during each 

program year regardless of which year’s 

allocation of funds generated the 

program income. The administrative cap 

is based on the state’s grant, program 

income, and reallocated funds received 

by the state in the program year. This 

sets the maximum State CDBG program 

funds that the state may expend on 

administration. 

Comment: Increase the administrative 

cap. Two commenters suggested that 

HUD support an increase to the 

administrative cap. 

HUD Response. The administrative 

cap is a statutory requirement. 

Accordingly, because the change 

requested by the commenters is outside 

HUD’s authority, no change has been 

made to the proposed rule in response 

to those comments. 

B. Comments on Program Income 

Requirements 

Comment: The program income 

threshold should be raised from $35,000 

to $50,000. Three commenters 

expressed appreciation that the program 

income threshold was increased from 

$25,000 to $35,000; however, they felt 

that by increasing it further to $50,000, 

the states would be further relieved of 

administrative requirements for program 

income. 

HUD Response. HUD has not revised 

the proposed rule in response to these 

comments. As noted in the preamble to 

the proposed rule, HUD’s proposal to 

increase the annual threshold to $35,000 

was to account for inflation that 

occurred since the program income 

threshold was increased to $25,000 in 

1995. As a result, any CDBG income 

below $35,000 would not be considered 

program income and would therefore 

not be subject to CDBG requirements, 

including tracking and reporting of 

program income. The higher amount 

requested by the commenters would 

exceed the adjustment required for 

inflation. 

Comment: Concerning the 

Requirements That States Include the 

Use of Program Income Retained by 

Local Governments in Their Annual 

Performance and Evaluation Reports 

(PERs). Six commenters wrote that the 

changes to the program income 

requirements would create an 

administrative burden that would be 

duplicative of reports already submitted 

by states. One commenter questioned if 

the state would need to amend its PER 

if a unit of local government were late 

reporting its program income. Another 

commenter suggested that program 

income tracking should discontinue 5 

years after closeout of the grant between 

the state and the unit of general local 

government to be consistent with the 

5-year continued use requirements. 

Another commenter thought the 

language in the proposed rule was 

confusing regarding the ‘‘proceeds from 

the sale of real property purchased or 

improved with CDBG funds, if the 

proceeds are received more than 5 years 

after the expiration of the grant 

agreement.’’ The commenter suggested 

that the final rule should identify 

whether the grant agreement is between 

HUD and the state or the unit of general 

local government and the state. 

HUD Response. HUD is responsible to 

taxpayers for ensuring that all CDBG 

program funds are spent in compliance 

with CDBG program requirements and 

regulations. In order to fulfill this 

responsibility, it is necessary that states 

report to HUD on all program income 

whether retained by units of general 

local government or paid to the state, to 

ensure that all program income is 

accounted for and is used for eligible 

activities. States, in turn, need to require 

that local governments report on 

program income. It is the state’s 

responsibility to collect program income 

data from their units of general local 

government in a timely manner so that 

the data can be included in the annual 

PER. States should make findings 

against units of general local 

government that do not report program 

income in a timely manner. If a state 

receives program income data after the 

PER due date, the data must be included 

in the PER the following year with an 

explanation. 

The requirement for states to track 

program income indefinitely is 

governed by section 104(j)(2) of the 

HCDA (42 U.S.C. 104(j)(2)), which 

mandates that program income is 

indefinite and subject to all the CDBG 

requirements even after the grant is 

closed out between the state and the 

unit of general local government. 

However, HUD recognizes the potential 

administrative burdens imposed on 

states by the reporting requirement and 

has made two modifications to the 

proposed rule in response to the 

suggestions raised by the commenters. 

First, the final rule revises 

§ 570.489(e)(2)(v), by clarifying that 

proceeds received from the sale of real 

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Federal Register / Vol. 77, No. 78 / Monday, April 23, 2012 / Rules and Regulations 24141 

property acquired or improved in whole 

or part with CDBG funds will not be 

considered program income if the 

proceeds are received more than 5 years 

after expiration of the grant agreement 

and are, therefore, exempt from being 

tracked. Further, HUD has adopted the 

suggestion to identify the parties to the 

grant agreement. The final rule specifies 

that the grant agreement is ‘‘between the 

state and the unit of general local 

government.’’ 

Comments: Concerning the 

Requirement To Add Program Income 

Data for Local Governments Into the 

Integrated Disbursement and 

Information System (IDIS). Six 

commenters wrote that the IDIS 

reporting requirement is an additional 

burden on the already heavy CDBG 

administrative workload. Another 

commenter suggested that the reporting 

requirements should be reduced to 

annually instead of quarterly. Two 

commenters requested additional time 

to phase in compliance because many 

local partners are small organizations 

that do not have the administrative 

capacity to comply immediately. One 

commenter wrote that it is burdensome 

to include loan receipts in both IDIS and 

the paper PER. One commenter 

requested that HUD be more specific 

about what data are to be collected and 

in what format. 

HUD Response. HUD has not revised 

the proposed rule in response to these 

comments. HUD is cognizant of the 

potential administrative burdens that 

may be imposed by the reporting 

requirements and has attempted to craft 

a regulation that fulfills HUD’s oversight 

responsibilities while minimizing such 

burdens. As an initial matter, HUD 

notes that the revised regulations 

recommend, but do not mandate 

quarterly reporting on IDIS. The final 

rule establishes an annual IDIS 

reporting requirement. HUD encourages 

states to enter IDIS data quarterly as a 

way to keep the data and reporting 

current and spread out the states’ 

workload during the year. Quarterly 

entry of data would better enable both 

grantees and HUD to report 

accomplishments to community 

development stakeholders. Moreover, 

HUD also notes that the PER reporting 

is now automated in IDIS, making 

reporting less burdensome to states and 

more user-friendly. HUD has also 

provided guidance for reporting in the 

Notice: CPD–11–03, ‘‘Reporting 

Requirements for the State Performance 

and Evaluation Report,’’ which can be 

accessed at the following link: http:// 

portal.hud.gov/hudportal/HUD?src=/ 

program_offices/administration/ 

hudclips/notices/cpd. 

Comments: Regarding Program 

Income Retained at the Local Level. Two 

commenters objected to the provision of 

the proposed rule stating that if program 

income on hand exceeds projected cash 

needs for the reasonably near future, the 

state may require the local government 

to return all or part of the program 

income to the state until such time as 

the program income is needed by the 

local government. The commenters 

questioned why a state would want to 

require local governments to return 

program income to it until the local 

government is able to spend it. The 

commenters wrote that the proposed 

regulatory provision would create 

accounting difficulties for states and 

local governments, and risk the prospect 

of state accounts having insufficient 

funds when the local government is 

ready to spend its program income. The 

commenters advocated that the final 

rule provide greater flexibility to states 

in addressing program income. 

HUD Response. With the exception of 

a clarifying change, HUD has not 

revised the proposed rule in response to 

these comments. HUD already provides 

the state with maximum feasible 

deference to decide whether to require 

a unit of general local government to 

return all or a portion of program 

income to the state in cases where the 

local government’s program income 

exceeds projected cash needs for that 

same activity in the near future. A state 

that requires local governments to 

return program income in this instance 

must return the program income to the 

local government when it is needed to 

carry out the same activity from which 

it was derived. The advantage to the 

states utilizing this option is to keep the 

program income liquid and available to 

other local governments that are in need 

of immediate funding. Although HUD is 

leaving it up to the states to determine 

whether to allow units of general local 

government to retain their program 

income, states must have a method to 

ensure that funds are available to those 

units of general local government that 

are looking to receive their funds back 

to continue the same project activity. 

Further, each state is permitted to define 

‘‘continuing the same project activity.’’ 

HUD also provides flexibility for 

states to choose whether to allow units 

of local government to retain the 

program income to implement another 

eligible CDBG activity under 24 CFR 

570.489(e)(3)(ii)(A). If the state finds the 

unit of general local government is 

funding a different CDBG activity from 

which the program income was 

originally derived, the state may request 

that the locality return the program 

income entirely or when the income 

generated meets a specific threshold. 

States can employ one or more methods 

to ensure that local governments comply 

with applicable program income 

requirements. In addition, with HUD 

Field Office approval, the state can 

design its own method that will ensure 

compliance with the program income 

requirements by units of general local 

government. As noted, HUD has made a 

clarifying change to the following 

provision of the proposed rule. 

Proposed § 570.489(e)(3)(ii)(A) would 

have required states to indicate in their 

action plans their intent to require units 

of general local government to return 

program income. This final rule clarifies 

that a state may also indicate such 

intent in a substantial amendment to the 

plan in the event that the action plan 

has already been submitted and 

approved by HUD. 

C. Comments on Spending Funds 

Outside the Jurisdiction of the Recipient 

Comment: Definitions needed. 

Two comments were made that the 

term ‘‘significantly benefit,’’ as used in 

the following phrase, ‘‘State CDBGfunded activities must significantly 

benefit residents of the grant recipient’s 

jurisdiction,’’ needs to be defined. A 

definition for ‘‘incidental benefit,’’ as 

used in the sentence ‘‘residents of 

Entitlement jurisdiction may not receive 

more than an incidental benefit from the 

state grantee’s expenditure of funds,’’ 

was also requested. Additionally, a 

comment was made that states should 

be given more flexibility to partner and 

share resources and solutions in a more 

regional approach that encourages smart 

growth and sustainable development. 

HUD Response. Section 106(d)(1) of 

the HCDA (42 U.S.C. 106(d)(1)), 

allocates 30 percent of CDBG program 

funds to states for use in nonentitlement 

areas. The intent of this section of the 

HCDA is for the funds to significantly 

benefit nonentitlement areas. Allocation 

amounts for states are based on the 

demographics of each state’s 

nonentitlement communities and are 

intended for use in nonentitlement 

areas. Entitlement grantees receive their 

own CDBG allocation based on the 

demographics of their jurisdictions. If it 

is more practical and feasible for an 

activity to be located within the 

boundaries of an entitlement 

community to benefit nonentitlement 

residents, the entitlement community is 

expected to provide a reasonable share 

of the CDBG program funds if the 

entitlement community benefits from 

the activity as well. An example would 

be locating a senior center in an 

entitlement city that is served by public 

transportation from outlying areas of the 

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24142 Federal Register / Vol. 77, No. 78 / Monday, April 23, 2012 / Rules and Regulations 

city. HUD has decided not to define 

‘‘significant benefit’’ at this time but 

will provide maximum feasible 

deference to each state’s interpretation 

of this term. 

HUD has taken into consideration the 

comment concerning the use of a more 

regional approach that would allow 

projects to benefit jurisdictions within 

nonentitlement and entitlement areas. 

HUD has modified the rule to be less 

restrictive, at the same time 

emphasizing that the funding must 

significantly benefit the state grantee’s 

residents. Additionally, there have been 

more proposals recently that have 

involved funding projects in entitlement 

jurisdictions, and HUD has decided to 

modify the proposed rule in 24 CFR 

570.486(c), to remove the requirement 

that entitlement jurisdictions receive 

only an incidental benefit from State 

CDBG program expenditures. State 

CDBG program funds still must be used 

to significantly benefit the residents of 

the unit of general local government 

receiving the grant and cannot be used 

to provide significant benefit to an 

entitlement jurisdiction unless the 

entitlement grantee provides a 

meaningful contribution to the project. 

The new regulatory requirement at 

570.486(c) supersedes HUD’s policy 

memo to all State CDBG program 

grantees on ‘‘State CDBG Activities 

benefiting Entitlement Community 

Residents,’’ dated May 26, 2006. 

D. Comment on Audits 

Comment: The commenter is 

concerned that states will be held 

responsible for guaranteeing their 

grantees’ compliance with the Single 

Audit Act rather than ensuring that 

CDBG grants are awarded only to 

localities that can provide professional 

certification from an auditor that 

demonstrates compliance. 

HUD Response. The rule revises 24 

CFR 570.489(m), by including language 

that audits be conducted in accordance 

with 24 CFR 85.26(a), which 

incorporates compliance with the Single 

Audit Act and the provisions of the 

Office of Management and Budget 

(OMB) Circular A–133 (62 FR 35278). 

This is not an additional requirement of 

§ 570.489(m), but an update to replace 

the citation to 24 CFR part 44 with 

section 85.26(a). It is a statutory 

requirement that states must comply 

with the requirements of the Single 

Audit Act and OMB Circular A–133; 

therefore, states are responsible to 

ensure that their funded localities are in 

compliance. 

IV. Findings and Certifications 

Public Reporting Burden 

The information collection 

requirements contained in this rule have 

been approved by OMB under the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3501–3520) and assigned OMB 

control number 2506–0085. In 

accordance with the Paperwork 

Reduction Act, an agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information, unless the collection 

displays a currently valid OMB control 

number. 

Environmental Impact 

In accordance with HUD regulations 

in 24 CFR part 50 that implement 

section 102(2)(C) of the National 

Environmental Policy Act of 1969 

(42 U.S.C. 4332(2)(C)), a Finding of No 

Significant Impact with respect to the 

environment was made at the proposed 

rule stage and remains applicable to this 

final rule. The Finding is available for 

public inspection during regular 

business hours in the Regulations 

Division, Office of General Counsel, 

Department of Housing and Urban 

Development, 451 Seventh Street SW., 

Room 10276, Washington, DC 20410– 

0500. Due to security measures at the 

HUD Headquarters building, please 

schedule an appointment to review the 

Finding by calling the Regulations 

Division at 202–402–3055 (this is not a 

toll-free number). Individuals with 

speech or hearing impairments may 

access this number via TTY by calling 

the Federal Relay Service at 800–877– 

8339. 

Executive Order 13132, Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any rule that has federalism 

implications if the rule either imposes 

substantial direct compliance costs on 

state and local governments and is not 

required by statute, or the rule preempts 

state law, unless the agency meets the 

consultation and funding requirements 

of section 6 of the Order. This rule does 

not have federalism implications and 

would not impose substantial direct 

compliance costs on state and local 

governments nor preempt state law 

within the meaning of the Order. 

Unfunded Mandates Reform Act 

Title II of the Unfunded Mandates 

Reform Act of 1995 (UMRA) establishes 

requirements for federal agencies to 

assess the effects of their regulatory 

actions on state, local, and tribal 

governments and the private sector. 

This final rule does not impose a federal 

mandate on any state, local, or tribal 

government, or the private sector within 

the meaning of UMRA. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

(5 U.S.C. 601 et seq.) generally requires 

an agency to conduct a regulatory 

flexibility analysis of any rule subject to 

notice and comment rulemaking 

requirements, unless the agency certifies 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities. This rule 

would revise certain requirements that 

apply to the management of CDBG 

funds, program income, and other 

administrative matters by state 

governments. The changes will not 

impose new economic burdens on states 

and local governments participating in 

the State CDBG program. Rather, as 

detailed in the preamble to this final 

rule, the regulatory amendments will 

codify existing HUD policy, update 

obsolete provisions, or revise 

regulations to reflect statutory language. 

Therefore, the undersigned certifies that 

this rule will not have a significant 

impact on a substantial number of small 

entities. 

Catalog of Federal Domestic Assistance 

The Catalog of Federal Domestic 

Assistance (CFDA) program number for 

the State CDBG program is 14.228, and 

the CFDA program number for the 

Entitlement program is 14.218. 

List of Subjects in 24 CFR Part 570 

Administrative practice and 

procedure, American Samoa, 

Community Development Block Grants, 

Grant programs—education, Grant 

programs—housing and community 

development, Guam, Indians, Loan 

programs—housing and community 

development, Low and moderate 

income housing, Northern Mariana 

Islands, Pacific Islands Trust Territory, 

Puerto Rico, Reporting and 

recordkeeping requirements, Student 

aid, Virgin Islands. 

Accordingly, for the reasons described 

in the preamble, HUD amends 24 CFR 

part 570, as follows: 

PART 570—COMMUNITY 

DEVELOPMENT BLOCK GRANTS 

■ 1. The authority citation for part 570 

continues to read as follows: 

Authority: 42 U.S.C. 5300–5320. 

■ 2. In § 570.480, revise paragraph (a) 

and add paragraphs (f) and (g), to read 

as follows: 

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Federal Register / Vol. 77, No. 78 / Monday, April 23, 2012 / Rules and Regulations 24143 

§ 570.480 General. 

(a) This subpart describes policies and 

procedures applicable to states that have 

permanently elected to receive 

Community Development Block Grant 

(CDBG) funds for distribution to units of 

general local government in the state’s 

nonentitlement areas under the Housing 

and Community Development Act of 

1974, as amended (the Act). Other 

subparts of part 570 are not applicable 

to the State CDBG program, except as 

expressly provided otherwise. 

Regulations of part 570 outside of this 

subpart that apply to the State CDBG 

program include §§ 570.200(j) and 

570.606. 

* * * * * 

(f) In administering the CDBG 

program, a state may impose additional 

or more restrictive provisions on units 

of general local government 

participating in the state’s program, 

provided that such provisions are not 

inconsistent with the Act or other 

statutory or regulatory provisions that 

are applicable to the State CDBG 

program. 

(g) States shall make CDBG program 

grants only to units of general local 

government. This restriction does not 

limit a state’s authority to make 

payments to other parties for state 

administrative expenses and technical 

assistance activities authorized in 

section 106(d) of the Act. 

■ 3. In § 570.486, revise paragraph (b) 

and add paragraph (c), to read as 

follows: 

§ 570.486 Local Government requirements. 

* * * * * 

(b) Activities serving beneficiaries 

outside the jurisdiction of the unit of 

general local government. Any activity 

carried out by a recipient of State CDBG 

program funds must significantly 

benefit residents of the jurisdiction of 

the grant recipient, and the unit of 

general local government must 

determine that the activity is meeting its 

needs in accordance with section 

106(d)(2)(D) of the Act. For an activity 

to significantly benefit residents of the 

recipient jurisdiction, the CDBG funds 

expended by the unit of general local 

government must not be unreasonably 

disproportionate to the benefits to its 

residents. 

(c) Activities located in Entitlement 

jurisdictions. Any activity carried out by 

a recipient of State CDBG program funds 

in entitlement jurisdictions must 

significantly benefit residents of the 

jurisdiction of the grant recipient, and 

the State CDBG recipient must 

determine that the activity is meeting its 

needs in accordance with section 

106(d)(2)(D) of the Act. For an activity 

to significantly benefit residents of the 

recipient jurisdiction, the CDBG funds 

expended by the unit of general local 

government must not be unreasonably 

disproportionate to the benefits to its 

residents. In addition, the grant cannot 

be used to provide a significant benefit 

to the entitlement jurisdiction unless 

the entitlement grantee provides a 

meaningful contribution to the project. 

■ 4. Amend § 570.489 as follows: 

■ a. Revise paragraphs (a)(1), (b), and 

(c); 

■ b. Add paragraphs (d)(2)(iii)(A) and 

(d)(2)(iii)(B); 

■ c. Revise paragraphs (e)(1), (e)(2), 

(e)(3)(i), and (e)(3)(ii); 

■ d. Add paragraphs (e)(3)(iii), (e)(3)(iv), 

and (e)(4); 

■ e. Revise the first sentence of 

paragraph (f)(2); 

■ f. Revise paragraph (m); and 

■ g. Add paragraph (n) to read as 

follows: 

§ 570.489 Program administrative 

requirements. 

(a) Administrative and planning 

costs—(1) State administrative and 

technical assistance costs. (i) The state 

is responsible for the administration of 

all CDBG funds. The state shall pay 

from its own resources all 

administrative expenses incurred by the 

state in carrying out its responsibilities 

under this subpart, except as provided 

in this paragraph (a)(1)(i) of this section, 

which is subject to the time limitations 

in paragraph (a)(1)(iv) of this section. To 

pay administrative expenses, the state 

may use CDBG funds not to exceed 

$100,000, plus 50 percent of 

administrative expenses incurred in 

excess of $100,000. Amounts of CDBG 

funds used to pay administrative 

expenses in excess of $100,000 shall 

not, subject to paragraph (a)(1)(iii) of 

this section, exceed 3 percent of the sum 

of the state’s annual grant, program 

income received by units of general 

local government during each program 

year, regardless of the fiscal year in 

which the state grant funds that generate 

the program income were appropriated 

(whether retained by units of general 

local government or paid to the state), 

and of funds reallocated by HUD to the 

state. 

(ii) To pay the costs of providing 

technical assistance to local 

governments and nonprofit program 

recipients, a state may, subject to 

paragraph (a)(1)(iii) of this section, use 

CDBG funds received on or after January 

23, 2004, in an amount not to exceed 

3 percent of the sum of its annual grant, 

program income received by units of 

general local government during each 

program year, regardless of the fiscal 

year in which the state grant funds that 

generate the program income were 

appropriated (whether retained by units 

of general local government or paid to 

the state), and funds reallocated by HUD 

to the state during each program year. 

(iii) The amount of CDBG funds used 

to pay the sum of administrative costs 

in excess of $100,000 paid pursuant to 

paragraph (a)(1)(i) of this section and 

technical assistance costs paid pursuant 

to paragraph (a)(1)(ii) of this section 

must not exceed 3 percent of the sum 

of a state’s annual grant, program 

income received by units of general 

local government during each program 

year, regardless of the fiscal year in 

which the state grant funds generate the 

program income were appropriated 

(whether retained by the unit of general 

local government or paid to the state), 

and funds reallocated by HUD to the 

state. 

(iv) In calculating the amount of 

CDBG funds that may be used to pay 

state administrative expenses prior to 

January 23, 2004, the state may include 

in the calculation the following 

elements only to the extent that they are 

within the following time limitations: 

(A) $100,000 per annual grant 

beginning with FY 1984 allocations; 

(B) Two percent of the sum of a state’s 

annual grant and funds reallocated by 

HUD to the state within a program year, 

without limitation based on when such 

amounts were received; 

(C) Two percent of program income 

returned by units of general local 

government to states after August 21, 

1985; and 

(D) Two percent of program income 

received and retained by units of 

general local government after February 

11, 1991. 

(v) In regard to its administrative 

costs, the state has the option of 

selecting its approach for demonstrating 

compliance with the requirements of 

this paragraph (a)(1) of this section. Any 

state whose matching cost contributions 

toward state administrative expense 

matching requirements are in arrears 

must bring matching cost contributions 

up to the level of CDBG funds expended 

for such costs. A state grant may not be 

closed out if the state’s matching cost 

contribution is not at least equal to the 

amount of CDBG funds in excess of 

$100,000 expended for administration. 

Funds from any year’s grant may be 

used to pay administrative costs 

associated with any other year’s grant. 

The two approaches for demonstrating 

compliance with this paragraph (a)(1) of 

this section are: 

(A) Cumulative accounting of 

administrative costs incurred by the 

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state since its assumption of the CDBG 

program. Under this approach, the state 

will identify, for each grant it has 

received, the CDBG funds eligible to be 

used for state administrative expenses, 

as well as the minimum amount of 

matching funds that the state is required 

to contribute. The amounts will then be 

aggregated for all grants received. The 

state must keep records demonstrating 

the actual amount of CDBG funds from 

each grant received that were used for 

state administrative expenses, as well as 

matching amounts that were contributed 

by the state. The state will be 

considered to be in compliance with the 

applicable requirements if the aggregate 

of the actual amounts of CDBG funds 

spent on state administrative expenses 

does not exceed the aggregate maximum 

allowable amount and if the aggregate 

amount of matching funds that the state 

has expended is equal to or greater than 

the aggregate amount of CDBG funds in 

excess of $100,000 (for each annual 

grant within the subject period) spent 

on administrative expenses during its 

3- to 5-year Consolidated Planning 

period. If the state grant for any grant 

year within the 3- to 5-year period has 

been closed out, the aggregate amount of 

CDBG funds spent on state 

administrative expenses, the aggregate 

maximum allowable amount, the 

aggregate matching funds expended, 

and the aggregate amount of CDBG 

funds in excess of $100,000 (for each 

annual grant within the subject period) 

will be reduced by amounts attributable 

to the grant year for which the state 

grant has been closed out. 

(B) Year-to-year tracking and 

limitation on drawdown of funds. For 

each grant year, the state will calculate 

the maximum allowable amount of 

CDBG funds that may be used for state 

administrative expenses, and will draw 

down amounts of those funds only upon 

its own expenditure of an equal or 

greater amount of matching funds from 

its own resources after the expenditure 

of the initial $100,000 for state 

administrative expenses. The state will 

be considered to be in compliance with 

the applicable requirements if the actual 

amount of CDBG funds spent on state 

administrative expenses does not 

exceed the maximum allowable amount, 

and if the amount of matching funds 

that the state has expended for that 

grant year is equal to or greater than the 

amount of CDBG funds in excess of 

$100,000 spent during that same grant 

year. Under this approach, the state 

must demonstrate that it has paid from 

its own funds at least 50 percent of its 

administrative expenses in excess of 

$100,000 by the end of each grant year. 

* * * * * 

(b) Reimbursement of pre-agreement 

costs. The state may permit, in 

accordance with such procedures as the 

state may establish, a unit of general 

local government to incur costs for 

CDBG activities before the 

establishment of a formal grant 

relationship between the state and the 

unit of general local government and to 

charge these pre-agreement costs to the 

grant, provided that the activities are 

eligible and undertaken in accordance 

with the requirements of this part and 

24 CFR part 58. A state may incur costs 

prior to entering into a grant agreement 

with HUD and charge those preagreement costs to the grant, provided 

that the activities are eligible and are 

undertaken in accordance with the 

requirements of this part, part 58 of this 

title, and the citizen participation 

requirements of part 91 of this title. 

(c) Federal grant payments. The 

state’s requests for payment, and the 

Federal Government’s payments upon 

such requests, must comply with 31 

CFR part 205. The state must use 

procedures to minimize the time 

elapsing between the transfer of grant 

funds and disbursement of funds by the 

state to units of general local 

government. States must also have 

procedures in place, and units of 

general local government must use these 

procedures to minimize the time 

elapsing between the transfer of funds 

by the state and disbursement for CDBG 

activities. 

(d) * * * 

(2) * * * 

(iii) * * * 

(A) A state that opts to satisfy this 

requirement for fiscal controls and 

administrative procedures by applying 

the provisions of part 85 must comply 

with the requirements therein. 

(B) A state that opts to satisfy this 

requirement for fiscal controls and 

administrative procedures by applying 

the provisions of part 85 of this title 

must also ensure that recipients of the 

state’s CDBG funds comply with part 84 

of this title, ‘‘Uniform Administrative 

Requirements for Grants and 

Agreements with Institutions of Higher 

Education, Hospitals, and Other NonProfit Organizations,’’ as applicable. 

(e) Program income. (1) For the 

purposes of this subpart, ‘‘program 

income’’ is defined as gross income 

received by a state, a unit of general 

local government, or a subgrantee of the 

unit of general local government that 

was generated from the use of CDBG 

funds, regardless of when the CDBG 

funds were appropriated and whether 

the activity has been closed out, except 

as provided in paragraph (e)(2) of this 

section. When income is generated by 

an activity that is only partially assisted 

with CDBG funds, the income must be 

prorated to reflect the percentage of 

CDBG funds used (e.g., a single loan 

supported by CDBG funds and other 

funds; or a single parcel of land 

purchased with CDBG funds and other 

funds). Program income includes, but is 

not limited to, the following: 

(i) Proceeds from the disposition by 

sale or long-term lease of real property 

purchased or improved with CDBG 

funds, except as provided in paragraph 

(e)(2)(v) of this section; 

(ii) Proceeds from the disposition of 

equipment purchased with CDBG funds; 

(iii) Gross income from the use or 

rental of real or personal property 

acquired by the unit of general local 

government or subgrantee of the unit of 

general local government with CDBG 

funds, less the costs incidental to the 

generation of the income; 

(iv) Gross income from the use or 

rental of real property, owned by the 

unit of general local government or 

other entity carrying out a CDBG 

activity that was constructed or 

improved with CDBG funds, less the 

costs incidental to the generation of the 

income; 

(v) Payments of principal and interest 

on loans made using CDBG funds, 

except as provided in paragraph 

(e)(2)(iii) of this section; 

(vi) Proceeds from the sale of loans 

made with CDBG funds, less reasonable 

legal and other costs incurred in the 

course of such sale that are not 

otherwise eligible costs under sections 

105(a)(13) or 106(d)(3)(A) of the Act; 

(vii) Proceeds from the sale of 

obligations secured by loans made with 

CDBG funds, less reasonable legal and 

other costs incurred in the course of 

such sale that are not otherwise eligible 

costs under sections 105(a)(13) or 

106(d)(3)(A) of the Act; 

(viii) Interest earned on funds held in 

a revolving fund account; 

(ix) Interest earned on program 

income pending disposition of the 

income; 

(x) Funds collected through special 

assessments made against 

nonresidential properties and properties 

owned and occupied by households not 

of low and moderate income, if the 

special assessments are used to recover 

all or part of the CDBG portion of a 

public improvement; and 

(xi) Gross income paid to a unit of 

general local government or subgrantee 

of the unit of general local government 

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Federal Register / Vol. 77, No. 78 / Monday, April 23, 2012 / Rules and Regulations 24145 

profit entity acquired in return for the 

provision of CDBG assistance. 

(2) ‘‘Program income’’ does not 

include the following: 

(i) The total amount of funds, which 

does not exceed $35,000 received in a 

single year from activities, other than 

revolving loan funds that is retained by 

a unit of general local government and 

its subgrantees (all funds received from 

revolving loan funds are considered 

program income, regardless of amount); 

(ii) Amounts generated by activities 

eligible under section 105(a)(15) of the 

Act and carried out by an entity under 

the authority of section 105(a)(15) of the 

Act; 

(iii) Payments of principal and 

interest made by a subgrantee carrying 

out a CDBG activity for a unit of general 

local government, toward a loan from 

the local government to the subgrantee, 

to the extent that program income 

received by the subgrantee is used for 

such payments; 

(iv) The following classes of interest, 

which must be remitted to HUD for 

transmittal to the Department of the 

Treasury, and will not be reallocated 

under section 106(c) or (d) of the Act: 

(A) Interest income from loans or 

other forms of assistance provided with 

CDBG funds that are used for activities 

determined by HUD to be not eligible 

under § 570.482 or section 105(a) of the 

Act, to fail to meet a national objective 

in accordance with the requirements of 

§ 570.483, or to fail substantially to meet 

any other requirement of this subpart or 

the Act; 

(B) Interest income from deposits of 

amounts reimbursed to a state’s CDBG 

program account prior to the state’s 

disbursement of the reimbursed funds 

for eligible purposes; and 

(C) Interest income received by units 

of general local government on deposits 

of grant funds before disbursement of 

the funds for activities, except that the 

unit of general local government may 

keep interest payments of up to $100 

per year for administrative expenses 

otherwise permitted to be paid with 

CDBG funds. 

(v) Proceeds from the sale of real 

property purchased or improved with 

CDBG funds, if the proceeds are 

received more than 5 years after 

expiration of the grant agreement 

between the state and the unit of general 

local government. 

(3) * * * 

(i) Program income paid to the state. 

Except as described in paragraph 

(e)(3)(ii)(A) of this section, the state may 

require the unit of general local 

government that receives or will receive 

program income to return the program 

income to the state. Program income 

that is paid to the state is treated as 

additional CDBG funds subject to the 

requirements of this subpart. Except for 

program income retained and used by 

the state for administrative costs or 

technical assistance under paragraph (a) 

of this section, program income paid to 

the state must be distributed to units of 

general local government in accordance 

with the method of distribution in the 

action plan under § 91.320(k)(1)(i) of 

this title that is in effect at the time the 

program income is distributed. To the 

maximum extent feasible, the state must 

distribute program income before it 

makes additional withdrawals from the 

Department of the Treasury, except as 

provided in paragraph (f) of this section. 

(ii) Program income retained by a unit 

of general local government. A state may 

permit a unit of general local 

government that receives or will receive 

program income to retain the program 

income. Alternatively, subject to the 

exception in paragraph (e)(3)(ii)(A) of 

this section, a state may require that the 

unit of general local government pay 

any such income to the state. 

(A) A state must permit the unit of 

general local government to retain the 

program income if the program income 

will be used to continue the activity 

from which it was derived. A state will 

determine when an activity will be 

considered to be continued, and HUD 

will give maximum feasible deference to 

a state’s determination, in accordance 

with § 570.480(c). In making such a 

determination, a state may consider 

whether the unit of general local 

government is or will be unable to 

comply with the requirements of 

paragraph (e)(3)(ii)(B) of this section or 

other requirements of this part, and the 

extent to which the program income is 

unlikely to be applied to continue the 

activity within the reasonably near 

future. When a state determines that the 

program income will be applied to 

continue the activity from which it was 

derived, but that the amount of program 

income held by the unit of general local 

government exceeds projected cash 

needs for the reasonably near future, the 

state may require the local government 

to return all or part of the program 

income to the state until such time as 

the program income is needed by the 

unit of general local government. When 

a state determines that a unit of local 

government is not likely to apply any 

significant amount of program income 

to continue the activity within a 

reasonable amount of time, or that it 

will not likely apply the program 

income in accordance with applicable 

requirements, the state may require the 

unit of general local government to 

return all of the program income to the 

state for disbursement to other units of 

local government. A state that intends to 

require units of general local 

government to return program income 

in accordance with this paragraph 

(e)(3)(ii)(A) of this section must describe 

its approach in the state’s action plan 

required under § 91.320 of this title or 

in a substantial amendment if the state 

intends to implement this option after 

the action plan is submitted to and 

approved by HUD. 

(B) Program income that is received 

and retained by the unit of general local 

government is treated as additional 

CDBG funds and is subject to all 

applicable requirements of this subpart, 

regardless of whether the activity that 

generated the program income has been 

closed out. If the grant that generated 

the program income is still open when 

the program income is generated, 

program income permitted to be 

retained will be considered part of the 

unit of general local government’s grant 

that generated the program income. If 

the grant is closed, program income 

permitted to be retained will be 

considered to be part of the unit of 

general local government’s most 

recently awarded open grant. If the unit 

of general local government has no open 

grants, the program income retained by 

the unit of general local government 

will be counted as part of the state’s 

grant year in which the program income 

was generated. A state must employ one 

or more of the following methods to 

ensure that units of general local 

government comply with applicable 

program income requirements: 

(1) Maintaining contractual 

relationships with units of general local 

government for the duration of the 

existence of the program income; 

(2) Closing out the underlying 

activity, but requiring as a condition of 

closeout that the unit of general local 

government obtain advance state 

approval of either a unit of general local 

government’s plan for the use of 

program income, or of each use of 

program income by grant recipients via 

regularly occurring reports and requests 

for approval; 

(3) Closing out the underlying 

activity, but requiring as a condition of 

closeout that the unit of general local 

government notify the state when new 

program income is received; or 

(4) With prior HUD approval, other 

approaches that demonstrate that the 

state will ensure compliance with the 

requirements of this subpart by units of 

general local government. 

(C) The state must require units of 

general local government, to the 

maximum extent feasible, to disburse 

program income that is subject to the 

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24146 Federal Register / Vol. 77, No. 78 / Monday, April 23, 2012 / Rules and Regulations 

requirements of this subpart before 

requesting additional funds from the 

state for activities, except as provided in 

paragraph (f) of this section. 

(iii) Transfer of program income to 

Entitlement program. A unit of general 

local government that becomes eligible 

to be an Entitlement grantee may 

request the state’s approval to transfer 

State CDBG grant-generated program 

income to the unit of general local 

government’s Entitlement program. A 

state may approve the transfer, provided 

that the unit of general local 

government: 

(A) Has officially elected to 

participate in the Entitlement grant 

program; 

(B) Agrees to use such program 

income in accordance with Entitlement 

program requirements; and 

(C) Has set up Integrated 

Disbursement Information System (IDIS) 

access and agrees to enter receipt of 

program income into IDIS. 

(iv) Transfer of program income of 

grantees losing Entitlement status. Upon 

entry into the State CDBG program, a 

unit of general local government that 

has lost or relinquished its Entitlement 

status must, with respect to program 

income that a unit of general local 

government would otherwise be 

permitted to retain, either: 

(A) Retain program income generated 

under Entitlement grants and continue 

to comply with Entitlement program 

requirements for program income; or 

(B) Retain the program income and 

transfer it to the State CDBG program, in 

which case the unit of general local 

government must comply with the 

state’s rules for program income and the 

requirements of this paragraph (e). 

(4) The state must report on the 

receipt and use of all program income 

(whether retained by units of general 

local government or paid to the state) in 

its annual performance and evaluation 

report. 

(f) * * * 

(2) The state may establish one or 

more state revolving funds to distribute 

grants to units of general local 

government throughout a state or a 

region of the state to carry out specific, 

identified activities. * * * 

* * * * * 

(m) Audits. Notwithstanding any 

other provision of this title, audits of a 

state and units of general local 

government shall be conducted in 

accordance with § 85.26 of this title, 

which implements the Single Audit Act 

(31 U.S.C. 7501–07) and incorporates 

OMB Circular A–133. States shall 

develop and administer an audits 

management system to ensure that 

audits of units of general local 

government are conducted in 

accordance with OMB Circular A–133, 

if applicable. 

(n) Cost principles and prior 

approval. (1) A state must ensure that 

costs incurred by the state and by its 

recipients are in conformance with the 

following cost principles, as applicable: 

(i) ‘‘Cost Principles for State, Local, 

and Indian Tribal Governments (OMB 

Circular A–87),’’ which is codified at 2 

CFR part 225; 

(ii) ‘‘Cost Principles for Non-Profit 

Organizations (OMB Circular A–122),’’ 

which is codified at 2 CFR part 230; and 

(iii) ‘‘Cost Principles for Educational 

Institutions (OMB Circular A–21),’’ 

which is codified at 2 CFR part 220. 

(2) All cost items described in 

Appendix B of 2 CFR part 225 that 

require federal agency approval are 

allowable without prior approval of 

HUD, to the extent that they otherwise 

comply with the requirements of 2 CFR 

part 225 and are otherwise eligible 

under this subpart I, except for the 

following: 

(i) Depreciation methods for fixed 

assets shall not be changed without the 

express approval of HUD or, if charged 

through a cost allocation plan, of the 

cognizant federal agency. 

(ii) Fines and penalties (including 

punitive damages) are unallowable costs 

to the CDBG program. 

■ 5. Add § 570.490(a)(3) to read as 

follows: 

§ 570.490 Recordkeeping requirements. 

(a) * * * 

(3) Integrated Disbursement and 

Information System (IDIS). The state 

shall make entries into IDIS in a form 

prescribed by HUD to accurately capture 

the state’s accomplishment and funding 

data, including program income, for 

each program year. It is recommended 

that the state enter IDIS data on a 

quarterly basis and it is required to be 

entered annually. 

* * * * * 

■ 6. Add § 570.504(e) to read as follows: 

§ 570.504 Program income. 

* * * * * 

(e)(1) Transfer of program income to 

Entitlement program. A unit of general 

local government that becomes eligible 

to be an Entitlement grantee may 

request the state’s approval to transfer 

State CDBG grant-generated program 

income to the unit of general local 

government’s Entitlement program. A 

state may approve the transfer, provided 

that the unit of general local 

government: 

(i) Has officially elected to participate 

in the Entitlement grant program; 

(ii) Agrees to use such program 

income in accordance with Entitlement 

program requirements; and 

(iii) Has set up Integrated 

Disbursement and Information System 

(IDIS) access and agrees to enter receipt 

of program income into IDIS. 

(2) Transfer of program income of 

grantees losing Entitlement status. Upon 

entry into the State CDBG program, a 

unit of general local government that 

has lost or relinquished its Entitlement 

status must, with respect to program 

income that a unit of general local 

government would otherwise be 

permitted to retain, either: 

(i) Retain the program income 

generated under Entitlement grants and 

continue to comply with Entitlement 

program requirements for program 

income; or 

(ii) Retain the program income and 

transfer it to the State CDBG program, in 

which case the unit of general local 

government must comply with the 

state’s rules for program income and the 

requirements of § 570.489(e). 

Dated: April 16, 2012. 

Mercedes M. Ma ́ rquez, 

Assistant Secretary for Community Planning 

and Development. 

[FR Doc. 2012–9693 Filed 4–20–12; 8:45 am] 

BILLING CODE 4210–67–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 117 

[Docket No. USCG–2012–0311] 

Drawbridge Operation Regulation; 

Columbia River, Vancouver, WA 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of temporary deviation 

from regulations. 

SUMMARY: The Coast Guard has issued a 

temporary deviation from the operating 

schedule that governs the Burlington 

Northern Santa Fe (BNSF) Railway 

Bridge across the Columbia River, mile 

105.6, at Vancouver, WA. This deviation 

is necessary to accommodate 

maintenance of the train signaling 

system scheduled for April 30, 2012. 

This deviation allows the bridge to 

remain in the closed position for the 

duration of the maintenance activity. 

DATES: This deviation is effective from 

8 a.m. on April 30, 2012 through 8 p.m. 

April 30, 2012. 

ADDRESSES: Documents mentioned in 

this preamble as being available in the 

docket are part of docket USCG–2012– 

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