[Federal Register Volume 89, Number 7 (Wednesday, January 10, 2024)]
[Proposed Rules]
[Pages 1746-1786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00039]



[[Page 1745]]

Vol. 89

Wednesday,

No. 7

January 10, 2024

Part III





Department of Housing and Urban Development





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24 CFR Parts 91, 570 and 1003





Submission for Community Development Block Grant Program, Consolidated 
Plans, and Indian Community Development Block Grant Program Changes; 
Proposed Rule

Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / 
Proposed Rules

[[Page 1746]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 91, 570, and 1003

[Docket No. FR-6148-P-01]
RIN 2506-AC52


Submission for Community Development Block Grant Program, 
Consolidated Plans, and Indian Community Development Block Grant 
Program Changes

AGENCY: Office of Assistant Secretary for Community Planning and 
Development and Office of Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Proposed rule.

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SUMMARY: HUD is proposing to revise the Community Development Block 
Grant (CDBG) and related Section 108 loan guarantee program regulations 
to make it easier for recipients to promote economic development and 
recovery in low- and moderate-income communities and support 
investments in underserved areas. This proposed rule also would revise 
provisions related to Consolidated Plan and citizen participation 
requirements for the CDBG program and institute quarterly reporting to 
improve performance with respect to timeliness. HUD is also proposing 
to make certain corresponding changes to the Indian Community 
Development Block Grant (ICDBG) program regulations to align the ICDBG 
program with the revisions being made to the CDBG program regulations.

DATES: Comments are due by March 11, 2024.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule. Communications must refer to the above docket number and 
title. There are two (2) methods for submitting public comments. All 
submissions must refer to the above docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW, Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov website can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that website to submit comments 
electronically.

    Note:  To receive consideration as public comments, comments 
must be submitted through one of the two methods specified above. 
Again, all submissions must refer to the docket number and title of 
the rule.

    No Facsimile Comments. Facsimile (Fax) comments are not acceptable.
    Public Inspection of Public Comments. All comments and 
communications properly submitted to HUD will be available for public 
inspection and copying between 8 a.m. and 5 p.m. weekdays at the above 
address. Due to security measures at the HUD Headquarters building, an 
advance appointment to review the public comments must be scheduled by 
calling the Regulations Division at (202) 708-3055 (this is not a toll-
free number). HUD welcomes and is prepared to receive calls from 
individuals who are deaf or hard of hearing, as well as individuals 
with speech or communication disabilities. To learn more about how to 
make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.
    Copies of all comments submitted are available for inspection and 
downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Jessie Handforth Kome, Director, 
Office of Block Grant Assistance, Room 7282, U.S. Department of Housing 
and Urban Development, 451 7th Street SW, Washington, DC 20410; 
telephone (202) 708-3587 (this is not a toll-free number) for the CDBG 
and Section 108 loan programs. Heidi Frechette, Deputy Assistant 
Secretary for Native American Programs, Room 4108 U.S. Department of 
Housing and Urban Development, 451 7th Street SW, Washington, DC 20410; 
telephone (202) 402-6321 (this is not a toll-free number) for the ICDBG 
program. HUD welcomes and is prepared to receive calls from individuals 
who are deaf or hard of hearing, as well as individuals with speech or 
communication disabilities. To learn more about how to make an 
accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION: 

I. Statutory Authority

    Title I of the Housing and Community Development Act of 1974 (42 
U.S.C. 5301-5320) (hereinafter ``the Act'') establishes the CDBG and 
complementary Section 108 loan guarantee (Section 108) programs, and 
the ICDBG program. HUD's regulations implementing: (1) the Consolidated 
Plan and citizen participation requirements governing the CDBG program 
are located at 24 CFR part 91, entitled, ``Consolidated Submissions for 
Community Planning and Development Programs;'' (2) the CDBG program are 
located at 24 CFR part 570, entitled ``Community Development Block 
Grants;'' and (3) the Section 108 program are located at 24 CFR 570 
subpart M, entitled ``Loan Guarantees.'' The Consolidated Plan 
regulations were promulgated in 1994 and 1995 (60 FR 1878 and 60 FR 
1943; January 5, 1994, and January 5, 1995, respectively), and amended 
HUD's existing regulations to replace the then-current Comprehensive 
Housing Affordability Strategies with a rule that combined into a 
single consolidated submission the planning and application aspects of, 
among others, the CDBG program. The Consolidated Plan regulations 
reflected HUD's view that the purpose of the Consolidated Plan 
submission is to enable States and localities to examine their needs 
and design ways to address those needs that are appropriate to their 
circumstances. The ICDBG program regulations, which are located at 24 
CFR part 1003, entitled ``Community Development Block Grants for Indian 
Tribes and Alaska Native Villages,'' were promulgated in 1996 (61 FR 
40084, July 31, 1996), and set forth the requirements and procedures 
for awarding CDBG funds to Indian Tribes.

II. Background

The CDBG and Section 108 Programs

    The CDBG program and its loan guarantee component, the Section 108 
program, are some of the most potent Federal tools for local 
governments to assist community and economic development. State and 
local governments nationwide--each State, more than 1,200 cities and 
counties, the District of Columbia, Puerto Rico, and four U.S. 
territories--rely on annual formula CDBG funds to develop meaningful 
projects and provide essential services that create sustainable, 
healthy, and prosperous communities for primarily low- and moderate-
income persons. The programs' unique flexibility allows grantees to use 
CDBG funds, as well as Section 108 guaranteed loan proceeds

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leveraged from their CDBG allocations, for projects and services that 
meet each community's needs. As a grantee develops strategies for 
addressing its needs, however, it generally evaluates the viability of 
activities that it wishes to include in its program. It may, for 
example, decide that it wants to invest in an underserved area that it 
has determined to be a food desert. This investment could take the form 
of a loan to a business that would agree to construct a food store to 
serve residents of that area. Such assistance to a business would be 
subject to the CDBG national objectives criteria and public benefit 
standards. However, HUD has not substantively updated the national 
objectives criteria and public benefit standards for economic 
development activities carried out with CDBG, ICDBG, and Section 108 
funds for over twenty years. Changes over time in market conditions, 
inflation, and evolving community development practices have 
effectively limited the types of activities grantees could carry out. 
As a consequence, the grantee's plans could be short-circuited by the 
inability or unwillingness of a business to comply with the current 
requirements.
    The limitations under the current regulations have thus deprived 
grantees of viable alternatives when developing programs that would 
best address their needs, and in some cases prevented communities from 
using CDBG funds to stimulate potentially transformative economic 
revitalization outcomes. By removing the impediments and disincentives 
to the use of CDBG funds for economic development activities, the 
proposed changes could result in a greater proportion of available CDBG 
funds being used for economic development. It does not follow, however, 
that spending more on economic development must result in less spending 
on other activities, because the additional economic development 
spending could be funded with loans guaranteed under the Section 108 
program. For example, if a grantee wants to undertake an economic 
development activity but also wishes to carry out another activity, 
e.g., housing rehabilitation, it could use Section 108 as the funding 
source for the economic development activity and its CDBG allocation 
for the other activity. If relatively more CDBG funds are expended for 
economic development purposes, however, it must be presumed that such 
increase is the result of grantees having determined that the higher 
spending level is necessary and prioritized to address their local 
community and economic development needs.

The ICDBG Program

    Under the ICDBG program, HUD provides competitive grants annually 
to Indian Tribes to carry out eligible activities. The program 
regulations largely mirror the CDBG program regulations.

Lessons Learned From the COVID-19 Pandemic

    HUD and CDBG grantees experienced an unusual opportunity to employ 
new program policies before making them part of the CDBG program's 
regulatory canon. The COVID-19 pandemic created a historical economic 
crisis resulting in the closure of small businesses, significant job 
loss, and other economic hardship with notable disparities in 
underserved communities. These exposed and exacerbated impacts and 
inequities that largely affected underserved persons and communities 
across the United States, particularly among low-income and underserved 
populations who were already economically marginalized and lacked 
housing security. Historically marginalized communities of color, 
particularly those in racially or ethnically concentrated areas of 
poverty, disproportionately experienced disinvestment and have been 
denied economic opportunities. In 2020, HUD oversaw the Community 
Development Block Grant CARES Act (CDBG-CV) program to provide grants 
to States, insular areas, and local governments to prevent, prepare 
for, and respond to the spread of COVID-19. Lessons learned from the 
quick deployment of CDBG-CV accelerated the grantees' and HUD's 
understanding of needed program improvements.
    The insights gleaned from the CDBG-CV Program informed this 
important but routine opportunity to update CDBG and ICDBG regulations 
to introduce pre-tested flexibilities, mainly related to economic 
development activities; is responsive to feedback from HUD communities; 
and is informed by the implementation of CDBG and ICDBG over the past 
several decades. The new regulatory flexibilities implemented with $5 
billion in CDBG-CV for communities revealed longstanding hindrances to 
long-term economic growth, particularly for low- and moderate-income 
persons.
    The flexibilities, waivers and alternative requirements introduced 
through CDBG-CV for Economic Development Activities enabled grantees to 
move quickly to help small businesses, particularly for underserved 
communities while retaining sufficient regulatory controls to ensure 
program benefit is planned and delivered compliantly. This Proposed 
Rule enables the Federal Government to continue bolstering economic 
recovery through job creation while addressing economic inequities, by, 
for example, strengthening small businesses and investing in enduring 
job opportunities in underserved communities. On January 20, 2021, the 
President issued Executive Order 13985, Advancing Racial Equity and 
Support for Underserved Communities Through the Federal Government (86 
FR 7009), and in February 2023, the President issued Executive Order 
14091, Further Advancing Racial Equity and Support for Underserved 
Communities Through the Federal Government (88 FR 10825), both which 
call for a whole-of-government effort to advance racial equity and 
support underserved communities. Further, through Executive Order 
14002, Economic Relief Related to the COVID-19 Pandemic (86 FR 7229), 
issued on January 22, 2021, the President directed Federal agencies to 
use their full resources to address the economic crisis, specifically 
to reduce unnecessary barriers and improve coordination among programs 
funded by the Federal Government. The approach seeks to create 
opportunities for the improvement of communities that have been 
historically underserved.

III. This Proposed Rule

    Consistent with Executive Orders 13985, 14002, and 14091 and in 
response to changed market conditions, HUD seeks to provide authority 
that would allow CDBG grantees and Section 108 borrowers (hereinafter 
referred to collectively as ``recipients'') to implement funding more 
effectively and efficiently in their communities.
    The proposed changes also would enhance the CDBG program's goal of 
primarily benefitting low- and moderate-income (``LMI'') persons while 
removing obstacles that prevent the use of the program in targeted 
areas and for economic development activities. The proposed changes 
will not have any impact on the allocation of CDBG funds among 
recipients. The changes would particularly benefit underserved 
communities, including historically marginalized communities of color 
experiencing disproportionate disinvestment and denial of economic 
opportunities.
    The proposed rule also aims to improve data collection to measure 
effectiveness and improve program outcomes through more effective use 
of CDBG funds, while ensuring CDBG and

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Section 108 recipients use funds efficiently and in a timely manner to 
benefit their communities. The proposed rule would change national 
objectives criteria to remove impediments to carrying out economic 
development activities, update the public benefit standards to allow 
CDBG and Section 108 recipients greater flexibility in undertaking 
economic development activities, and incorporate several changes to 
eligible activities under the CDBG and Section 108 programs. The 
proposed rule would also simplify regulations to encourage CDBG and 
Section 108 recipients to invest CDBG funds \1\ in underserved 
communities.
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    \1\ As the term ``CDBG funds'' is defined at Sec.  570.3 to 
include Section 108 guaranteed loan funds, references to use of 
``CDBG'' funds or ``CDBG''-assisted activities in this preamble also 
applies to Section 108 guaranteed loan funds unless otherwise noted.
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    Further, the proposed rule would make corresponding changes to the 
ICDBG regulations in part 1003, where appropriate, to ensure that the 
CDBG and ICDBG regulations continue to [align. Finally, the proposed 
rule would remove outdated provisions and make technical corrections.
    The proposed rule could result in incentivizing investment in 
communities by streamlining and improving mechanisms for greater 
flexibility of funds to flow to economically distressed communities 
while signaling the Federal Government's willingness to support these 
investments. These investments would enable communities to encourage, 
build, and expand activities that revitalize communities.

A. Targeting Resources Towards Communities With the Greatest Need

    HUD wants CDBG and Section 108 recipients to make greater use of 
CDBG funds in economically distressed communities, particularly those 
designated through other Federal or State programs. The proposed rule 
addresses aspects of 24 CFR part 570 that HUD considers to be 
unnecessarily cumbersome to economic development activities and 
otherwise proposes to revise or add additional flexibility for CDBG and 
Section 108 recipients in facilitating economic development. The 
proposed rule would make it easier for CDBG and Section 108 recipients 
to carry out job creation and retention activities while reducing 
recordkeeping burdens on CDBG and Section 108 recipients and assisted 
businesses \2\ alike. HUD has re-envisioned the public benefit standard 
and proposes to simultaneously remove disincentives for economic 
development, add flexibility in demonstrating public benefit, and 
update standards to reflect current and future market conditions. HUD 
believes these proposed changes would provide CDBG and Section 108 
recipients with a greater ability to support business development and 
assist States and local governments in bolstering job creation.
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    \2\ An assisted business receives CDBG and/or Section 108 
guaranteed loan funds from a recipient to carry out an eligible 
activity, and must comply with CDBG and/or Section 108 requirements.
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National Objectives Criteria \3\
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    \3\ This preamble divides the discussion of proposed changes to 
Sec.  570.208 into multiple sections. In this ``Targeting Resources 
Towards Communities with the Greatest Need'' section, the preamble 
discusses proposed changes to Sec. Sec.  570.208(a)(4) and (b) and 
570.483(b)(4) and (c) because the proposed changes affect primarily 
economic development activities.
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    HUD's regulations at Sec. Sec.  570.208,\4\ 570.483,\5\ and 
1003.208 provide the criteria for determining whether a CDBG-, Section 
108-,\6\ or ICDBG-assisted activity complies with one or more of the 
national objectives. CDBG recipients must use at least 70 percent of 
their CDBG funds for activities that benefit LMI persons. An activity 
may meet the LMI national objective through providing benefit to 
residents of a particular geographic area, serving a limited clientele, 
supporting housing activities, or creating or retaining permanent jobs. 
Additionally, CDBG and Section 108 recipients may meet a national 
objective by using funds for activities that aid in the prevention or 
elimination of slums or blight or that meet an urgent community 
development need. However, the current criteria, including 
presumptions, are unnecessarily complicated and outdated and can impose 
substantial burdens on prospective CDBG and Section 108 recipients and 
assisted businesses. Similarly, the regulations for activities that 
assist in the prevention or elimination of slums or blight restrict the 
ability to use CDBG funds for certain types of activities in such 
areas. HUD therefore proposes the following changes.
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    \4\ 24 CFR part 570 Subpart C--Eligible Activities (Sec. Sec.  
570.200-570.210) applies to CDBG entitlement recipients and Section 
108 borrowers.
    \5\ 24 CFR part 570 Subpart I--State Community Development Block 
Grant Program (Sec. Sec.  570.480-570.497) applies to States, 
nonentitlement public entities receiving Section 108 guaranteed loan 
funds assistance, and units of general local government in a State's 
nonentitlement areas that receive CDBG funds.
    \6\ Nonentitlement public entities receiving Section 108 
guaranteed loan funds may be subject to 24 CFR 570.480 through 24 
CFR 570.497.
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Low- and Moderate-Income Criteria--Creating or Retaining Jobs
    The most widely used national objective for economic development 
activities under the CDBG program is the creation or retention of 
permanent jobs where at least 51 percent of those jobs, computed on a 
full-time equivalent basis, involve the employment of LMI persons. To 
demonstrate compliance with the LMI job creation/retention national 
objective (Sec. Sec.  570.208(a)(4), 570.483(b)(4), and 1003.208(d)), 
the activity must be designed to create or retain jobs where at least 
51 percent of those jobs are held by or made available to LMI persons. 
For the retention of jobs, the recipient must also demonstrate that the 
jobs would be lost without CDBG assistance, and the jobs are known to 
be held by LMI persons and/or the job(s) can reasonably be expected to 
turn over within the following two years and that steps will be taken 
to ensure that the job(s) will be filled by or made available to LMI 
persons upon turnover. The primary CDBG-assisted activity that uses 
these national objectives criteria is a special economic development 
activity carried out under Sec.  570.203 for Entitlement Communities 
and activities under section 105(a)(17) of the Act by units of general 
local government in a State's nonentitlement areas.\7\ These criteria 
may also be met by other CDBG-assisted activities, such as assistance 
to microenterprises under Sec.  570.201(o) or Sec.  570.483(c)(1).
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    \7\ 24 CFR part 570, subpart I--State Community Development 
Block Grant Program (Sec. Sec.  570.480-570.497) applies to States, 
Section 108 borrowers, and units of general local government that 
receive CDBG funds.
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    Based on programmatic experience, documenting whether a job is held 
by or made available to an LMI person can present a financial and 
administrative burden on recipients due to the data that recipients 
must gather and collect from assisted businesses. To help alleviate 
this burden, HUD is proposing to make changes to the presumptions 
provided in current Sec. Sec.  570.208(a)(4)(iv), 570.483(b)(4)(iv), 
and 1003.208(d) (with references to, respectively, Sec. Sec.  
570.208(a)(4)(v) and 570.483(b)(4)(v)) to add a presumption based on 
the location of an assisted business. Revising the criteria for the 
presumption would significantly clarify the standards for recipients 
and encourage greater use of CDBG and ICDBG funds for job creation and 
retention activities in LMI areas.
    The proposed revised regulations accomplish these goals by: (1) 
standardizing the presumptive poverty

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rate with the same standard as was generally required to designate 
areas as economically distressed \8\ (2) requiring recipients to use 
poverty rates based on American Community Survey \9\ (ACS) data, 
instead of only from the most recently available decennial census; and 
(3) removing the higher poverty requirement for central business 
districts, which is not required by statute; this will encourage 
investments in economically distressed communities, particularly with 
central business districts that serve as hubs of economic activity. 
Further, other proposed revisions to the LMI jobs national objective 
would improve readability and remove references to outdated programs.
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    \8\ Census tract poverty rate of 20 percent.
    \9\ HUD chooses to use ACS data which provides poverty rates 
determined by Census Bureau data provided by HUD. This data set 
includes linkages between HUD's administrative records and a range 
of information, spanning race to employment status. This enables HUD 
to use a more cost-effective approach to match its data assets.
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    Question for comment #1: Would the proposed revised presumption 
encourage recipients to increase their use of funds for economic 
development activities? Would the reduced burden on businesses be a 
significant or decisive factor in encouraging them to use CDBG funds 
for projects in underserved communities? What is the anticipated effect 
of eliminating the higher poverty requirement and the other poverty-
related policies on private business investment in communities that 
lack access to opportunity? What are the trade-offs between reaching 
more areas and having less targeting if the neighborhood poverty 
threshold is reduced from 30 percent to 20 percent? What other 
incentives could CDBG recipients establish that would encourage 
investment in communities, including historically marginalized 
communities of color, that have historically not received CDBG-funded 
investment or that experience relatively low private sector investment? 
How might HUD better encourage economic development in underserved 
communities, including historically marginalized communities of color, 
who have had disproportionately experienced disinvestment and have been 
denied economic opportunities?
Modifying Prohibition on Assisting Relocation
    HUD proposes to revise the definition of labor market area (LMA) to 
allow CDBG grantees and Section 108 recipients more flexibility in 
providing assistance to relocating businesses. Currently, Sec. Sec.  
570.210(a) (for CDBG entitlement recipients) and 570.482(h) (for 
States) prohibit grantees from directly assisting businesses that 
relocate from one LMA to another if the relocation is likely to result 
in a significant loss of employment in the LMA from which the 
relocation occurs. Sections 570.210(b)(2) and 570.482(h)(2)(ii) also 
prevent communities from combining metropolitan LMAs or metropolitan 
LMAs with non-metropolitan LMAs so that they can provide assistance to 
a business that relocates within a (combined) LMA. This revision leaves 
the prohibition intact but provides CDBG and Section 108 recipients 
with greater flexibility (through revisions of Sec. Sec.  570.210(b)(2) 
and 570.482(h)(2)(ii) \10\ allowing combination of LMAs) to stay in 
compliance with requirements.
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    \10\ These regulations implement the anti-pirating provisions in 
section 105(h) of the HCDA, added in 1998.
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    While the prohibition in Sec. Sec.  570.210(b)(2) and 
570.482(h)(2)(ii) is intended to prevent communities from using CDBG 
funds to ``shift'' jobs from other communities, it has on balance made 
it unnecessarily difficult for grantees to provide assistance to 
businesses even when relocation would not necessarily cause job losses 
in another community. The definition of LMA (as defined by the Bureau 
of Labor Statistics) has changed multiple times since HUD instituted 
the prohibition in 2006, the boundaries of LMAs have changed, and some 
communities have fallen outside the definitions of both metropolitan 
and non-metropolitan LMAs. Further, logistics and supply chain changes 
and developmental changes across communities could allow businesses to 
retain jobs within a newly defined LMA within commuting distance of the 
old location (thus not poaching jobs from another community).
    For example, a business with a processing plant in a metropolitan 
LMA received a code enforcement violation that required the business to 
either expand the plant to remedy the violation or relocate. Since the 
business was in a denser metropolitan area, it did not have the space 
to expand the plant. The business identified a location within 
commuting distance of the plant in an adjacent non-metropolitan LMA. 
The State CDBG grantee wanted to provide assistance through the non-
entitlement unit of general local government to the business as part of 
the relocation but was prohibited by Sec.  570.482(h)(1) because the 
relocation would have resulted in job loss in the metropolitan LMA from 
which the relocation would have occurred. The business could not find 
other assistance to relocate the plant, and as a result had to close 
the plant and terminate the jobs at the plant.
    Therefore, HUD proposes to allow grantees to combine a metropolitan 
LMA and a non-metropolitan LMA if the relocation is necessary for 
business reasons such as code enforcement compliance, or expansion. 
This would allow CDBG grantees to provide assistance to businesses for 
relocation for valid business reasons while still preventing 
communities from poaching jobs from nearby communities.
Prevention or Elimination of Slums or Blight
    HUD also proposes to revise the criteria for activities that 
address slums and blight on an area basis. Some of the criteria for 
activities to address slums or blight on an area basis are subjective 
and difficult for HUD to verify and monitor. The proposed revisions to 
Sec. Sec.  570.208(b)(1)(ii) and 570.483(c)(1)(ii) would allow the 
recipient to determine the type of objectively verifiable data that 
demonstrates that the area is experiencing physical or economic 
distress, such as abandoned properties and properties with known or 
suspected environmental contamination. The proposed rule also would 
update recordkeeping requirements for this revision at Sec.  
570.506(b)(8)(ii).
    For activities that address slums or blight on a spot basis, the 
proposed revisions at Sec. Sec.  570.208(b)(2) and 570.483(c)(2) would 
remove the requirement that rehabilitation activities be limited to 
eliminating conditions detrimental to public health and safety. HUD has 
interpreted ``detrimental to public health and safety'' to mean that 
the condition must pose a threat to the general public. This 
requirement presents a major hurdle for recipients seeking to address 
slums and blight in their communities because it limits rehabilitation 
activities that recipients can carry out.
    For example, a recent Section 108 applicant sought to redevelop a 
blighted former hotel into a modern mixed-use commercial and 
residential development; the project required extensive environmental 
remediation. However, the requirement that rehabilitation activities 
eliminate conditions detrimental to public health and safety prevented 
the applicant from allocating CDBG funds toward uses of the project 
because the conditions were contained within the blighted site and 
therefore did not pose a threat to the general public. Although the 
applicant was eventually able to allocate CDBG

[[Page 1750]]

funds to meet the criteria, it was unnecessarily difficult, and the 
restriction threatened to prevent the applicant from being able to fill 
the project's financing gap with Section 108 funds.
    Question for comment #2: Relative to current requirements, would 
the proposed revision encourage recipients to carry out activities in 
underserved and blighted communities and therefore allow recipients to 
assist economic development in areas most in need of jobs and economic 
revitalization? If the proposed revision does not encourage recipients 
to carry out activities in underserved and blighted communities, please 
explain why and share possible alternative standards that might more 
effectively balance HUD's goal of enabling recipients broader 
flexibility with using funds for remediation while still ensuring funds 
are allocated in a manner that broadly benefits the general public.
Documentation of National Objectives Criteria Compliance--Creation or 
Retention of Jobs Sec.  570.506
    Section 570.506 (for entitlement CDBG and Section 108 recipients) 
requires each recipient to establish and maintain records sufficient to 
enable HUD to determine whether the recipient has met applicable 
requirements, including whether activities meet the criteria for 
national objectives at Sec.  570.208. Recipients may meet those 
criteria by carrying out activities (e.g., economic development 
activities) that benefit LMI persons based on the creation or retention 
of jobs. The recipient must maintain information on the size and annual 
income of the person's family, except for activities presumed to 
benefit LMI persons based upon the census tract where the person 
resides or in which a business is located. Currently, this information 
is gathered primarily by the assisted business from employees and their 
family members. HUD does not prescribe methods for documenting LMI 
status, so they will vary by grantee (as to the information it requires 
the business to collect) and by business (ranging from self-
certification to externally provided information).
    The proposed rule would make two changes to the documentation 
requirements at Sec.  570.506 to reduce the burden on businesses in 
documenting jobs held by or made available to LMI persons. First, HUD 
proposes to clarify that the recipient, instead of the assisted 
business, may collect information regarding the size and annual income 
of the person's family to document compliance with the national 
objective for economic development activities (HUD notes that the 
recipient may still choose to require that the assisted business 
collect the data if it prefers). Second, HUD proposes to allow the 
recipient to substitute records (such as, for example, a certification 
by the assisted business) showing the annual wages or salary of the job 
claimed to be held by an LMI person in lieu of maintaining records of 
the person's family size and income to reduce the information 
collection burden. Absent evidence to the contrary,\11\ HUD will 
consider a job applicant/taker income-qualified if the annual wages or 
salary of the job is at or under the HUD-established income limit for a 
one-person family. HUD already provides similar options to CDBG-
Disaster Recovery (CDBG-DR) grantees.\12\
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    \11\ Such as, for example, evidence that might be brought to 
HUD's attention based on audits or HUD monitoring.
    \12\ This approach was pioneered in collaboration with the State 
of New York after 9/11/2001 and honed further in 2006 after Katrina 
with the five Gulf Coast States. It has remained in continuous use 
in CDBG-DR and CDBG-CV and reduced burden substantially for 
businesses and the grantee while enabling sufficient documentation 
to support conclusions that at least 51 percent of jobs created or 
retained are LMI. (It is key to note that 100 percent is not the 
goal here.) Despite multiple OIG audits reviewing these programs, no 
findings have emerged bearing on issues with this approach. Given 
the track record, the main program has probably been overly 
conservative in not adopting this approach sooner.
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    As an example of how this would change how potential LMI jobs are 
evaluated, under HUD's current policy if an assisted business employed 
an individual at an LMI-eligible wage, but that individual lived in a 
family with multiple incomes that, in total, exceeded the LMI-
eligibility threshold, then the recipient would not be able to claim 
that the individual was in an LMI-created or retained job. However, 
under our proposal, a recipient would now be able to demonstrate 
eligibility simply through examining the income provided by the job 
instead of the income received by the job-holder's family. As a result, 
the assisted business would now be able to claim this individual was in 
an LMI-created or retained job. HUD notes that while this may, on the 
margins, result in certain jobs being newly identified as LMI, overall 
HUD expects this change will substantially reduce burden on documenting 
these jobs while broadly still identifying the same set of jobs. 
Moreover, working at the business/position level has the added 
advantage for auditors of allowing cross checking with State labor 
databases, which may allow for improved oversight.
    This clarification and alternative method would streamline the 
documentation process, reduce the burden on assisted businesses, and 
remove a disincentive to use CDBG funds for job creation and retention 
activities. Presently, the burden of collecting information on family 
income often falls on the businesses assisted with CDBG funds. 
Recipients are typically more willing and better equipped than the 
assisted businesses to collect information regarding the size and 
annual income of the person's family. This burden operates as a 
disincentive to many businesses that would otherwise be willing to 
partner with recipients to carry out job creation and retention 
activities.
    Other entities that receive funding from CDBG recipients to carry 
out activities, such as non-profit subrecipients, are typically viewed 
as ``standing in the shoes of the grantee'' and, as such, are required 
to fulfill the responsibilities that would otherwise belong to the 
grantee. Businesses, on the other hand, are not subrecipients and 
typically are inexperienced in executing the functions required of a 
grantee or a subrecipient, such as collecting income data on family 
members (i.e., non-employees). Because a business lacks such 
experience, it often views itself as ill-equipped to perform those 
functions and is more likely to decline participation in economic 
development projects. The changes to the documentation requirements for 
economic development activities address the unique status of businesses 
in the CDBG program's compliance framework and increase the likelihood 
that grantees can successfully implement community and economic 
development strategies.
    Question for comment #3: Are the proposed changes to the 
regulations, such as simplifying recordkeeping requirements, enough of 
an incentive for recipients to use CDBG funds for economic development 
activities? Would the reduced burden on businesses encourage them to 
carry out economic development projects with CDBG funds in underserved 
communities? Because most grantees provide one-time assistance (such as 
a loan or grant) to each assisted business and because the wage for the 
job to be filled must be sufficient to allow the business to attract 
and retain the employee it needs, HUD does not anticipate this 
provision will produce any wage pressures. However, would the proposed 
change to substitute wage information for records of family size and 
income incentivize employers to keep wages at or below LMI levels in

[[Page 1751]]

order to qualify for assistance? Are there alternative ways that might 
HUD better encourage economic development in underserved communities, 
including historically marginalized communities of color, particularly 
racially or ethnically concentrated areas of poverty, who have 
disproportionately experienced disinvestment and have been denied 
economic opportunities?
Special Economic Development Activities Sec.  570.203
    Section 570.203 governs the use of CDBG funds for special economic 
development activities and includes an illustrative list of eligible 
forms of assistance to private for-profit businesses. Section 
570.203(b) already lists forms of support by which recipients can 
provide assistance to private, for-profit businesses where the 
assistance is appropriate to carry out an economic development project. 
HUD has previously interpreted this provision to allow CDBG assistance 
to New Markets Tax Credit (NMTC) investment vehicles. The proposed 
revisions would explicitly allow recipients to provide assistance to an 
economic development project through a for-profit entity that passes 
the funds through a financing mechanism (e.g., Qualified Opportunity 
Funds and NMTC investment vehicles). This clarification would make 
clear that such assistance through a financing mechanism is not limited 
to NMTC investment vehicles and is eligible under Sec.  570.203(b). 
Many economic development activities are carried out in conjunction 
with other forms of assistance and Federal tax benefits that provide 
additional sources of financing for economic development, particularly 
in LMI areas. HUD wants to facilitate the use of CDBG funds by 
recipients to fill financing gaps that cannot be met by other sources 
and launch critical economic development projects, particularly in 
underserved communities with a history of disinvestment, by eliminating 
the time to seek additional clarification from HUD on activity 
eligibility for individual projects to streamline the process for use 
of CDBG funds.
    HUD proposes to clarify at Sec.  570.203(c) the types of eligible 
job training or employment services. Currently, to be eligible as an 
economic development service under Sec.  570.203(c), the job training 
or employment support services must be provided to or involve specific 
job positions resulting from the assistance being provided. HUD has 
discovered numerous situations in which grantees have provided CDBG 
funds for general employment readiness programs (such as interviewing 
skills or resume-writing classes) and attempted to categorize such 
classes as economic development services. To be eligible economic 
development services, the beneficiaries must either have been selected 
for or be under active consideration for specific job positions. If the 
individuals are not receiving training for specific positions at a 
specific business, general employment readiness programs or trainings 
for individuals in career fields are eligible only as public service 
activities or, in limited cases, as part of a Sec.  570.204 community 
economic development project carried out by a Community-Based 
Development Organization.
    HUD notes that it is not proposing any changes that would expand 
microenterprise assistance under Sec.  570.203. Section 570.201(o) of 
the Code of Federal Regulations and section 105(a)(22) of the Act 
provide thorough avenues for CDBG grantees to assist microenterprise 
activities; likewise, sufficient authority currently exists for Section 
108 borrowers to assist many microenterprise activities through 
economic development activities authorized under Sec.  570.203(b).
Public Benefit Standards Sec.  570.209
    Section 570.209 contains guidelines and standards for carrying out 
economic development activities under Sec.  570.203 and, in some 
instances, Sec.  570.204.\13\ The recipient is responsible for ensuring 
that at least a minimum level of public benefit is obtained from the 
expenditure of CDBG funds. HUD has discretion in identifying and 
determining the nature of the public benefit and their standards for 
measuring their acceptability. The changes proposed for the public 
benefit standards are based on feedback and experiences of recipients 
for the past thirty years. The public benefit standards set forth the 
types of public benefit that will be recognized and the minimum level 
of each that must be obtained for the amount of CDBG funds used. CDBG 
recipients must meet standards for their aggregated activities during 
the program year as well as for each individual activity. The current 
regulations provide two options for meeting the aggregate and 
individual standards: creating or retaining permanent jobs or providing 
goods or services to LMI residents of the area served by the activity. 
For activities addressing public benefit through creation/retention of 
jobs, the maximum amount of CDBG/Section 108 assistance per full-time 
equivalent (``FTE'') job for activities in the aggregate is $35,000; 
for individual activities, the maximum is $50,000. For activities 
providing goods or services to residents of an area (e.g., grocery 
stores, laundromats, food banks, pantry items, drug stories), the 
maximum amount of CDBG/Section 108 assistance per LMI person served for 
activities in the aggregate is $350; for individual activities, the 
maximum is $1,000.
---------------------------------------------------------------------------

    \13\ For recipients under subpart I, Sec.  570.482(f) applies to 
activities pursuant to sections 105(a)(14), (15), and (17), and 
certain activities eligible under section 105(a)(2) of the Act.
---------------------------------------------------------------------------

    HUD established these standards in 1995 as required by section 
806(a) of the Housing and Community Development Act of 1992 (the ``1992 
Act'') (Pub. L. 102-550, 106 Stat. 3672). This provision of the 1992 
Act required HUD to establish by regulation guidelines to assist CDBG 
recipients to evaluate and select economic development activities for 
assistance with CDBG funds. Subsequent inflation has resulted in CDBG 
funds no longer supporting the same proportion of the costs of creating 
and retaining jobs as they did when HUD created the standards. This 
precludes recipients from using CDBG funds for some economic 
development activities and has made recipients increasingly less able 
to feasibly implement economic development activities. For example, in 
program year 2012, approximately $238 million in CDBG funds were used 
to support almost 2,000 economic development activities, whereas, by 
2022, only $69 million in CDBG funds were used to support about 1,100 
economic development activities. Further, HUD believes the two options 
do not provide recipients enough flexibility in demonstrating a public 
benefit.
    The proposed changes re-envision the public benefit standards for 
economic development activities and would allow recipients to better 
support business development, stimulate job growth, and provide needed 
goods and services to LMI persons. HUD can facilitate economic 
development while simultaneously furthering the purpose of the 1992 Act 
through the following proposed reforms to the public benefit standards: 
(1) eliminating the aggregate standard; (2) raising the individual 
standard to $100,00 per full-time equivalent, permanent job created or 
retained and $2,000 per LMI person to whom goods or services are 
provided by the activity; (3) adding an alternative standard which HUD 
must approve in writing whereby recipients can demonstrate that the 
activity would create a significant public benefit despite not meeting 
the jobs or services standards (such as being part of a hazard 
mitigation and climate change resilience

[[Page 1752]]

strategy for an LMI area, supporting critical infrastructure, or 
meeting a community benefit defined or described in the requirements 
governing another Federal program); and (4) providing Section 108 
applicants the option to allow HUD to calculate the cost of an economic 
development activity on a net present value basis to more accurately 
reflect the lower cost of an activity funded with a loan (which 
generates a return of the original CDBG outlay) versus an activity that 
involves a grant or other form of subsidy.
    First, HUD's proposal to eliminate the aggregate standard at 
Sec. Sec.  570.209(b)(1) and 570.482(f)(2) stems from the disincentive 
it has created to use CDBG funds for economic development and because 
it is burdensome beyond any observed benefit. (The Public Benefit 
Standards are applied to the average of the expenditures for the 
activities funded over a 12-month period.) In particular, recipients 
with low-volume economic development programs effectively apply the 
aggregate standards to individual activities in an effort to reduce the 
risk of failing to comply. In other words, the original intention to an 
aggregate standard was to give recipients flexibility to occasionally 
target activities that were more costly. That flexibility has not 
worked out in practice.
    For example, a grantee may identify a high-impact project at the 
beginning of its program year that would create one job per $50,000 of 
CDBG assistance; however, local market conditions could make it 
difficult to predict how many other economic development activities 
would be assisted and how many jobs would be created. Faced with this 
uncertainty, the grantee may hesitate to provide funds to the high-
impact project for fear of not meeting the aggregate standard. This 
scenario reflects how the aggregate standard restricts the ability of 
recipients to leverage CDBG funds for high-impact investments in their 
communities, particularly through Section 108 loan guarantees, because 
providing funds at the maximum level of the individual standard for one 
activity would require funding other economic development activities at 
public benefit levels significantly below the aggregate standard.
    Additionally, the number of exceptions from the aggregate standard 
creates confusion for borrowers in planning their economic development 
programs, making the standard overly burdensome. (See current 
Sec. Sec.  570.209(b)(2)(v)(A) through (N) and 570.482(f)(3)(v)(A) 
through (N)).
    Second, HUD proposes to raise the dollar thresholds at Sec. Sec.  
570.209(b)(3)(i)(A) and (B) and 570.482(f)(4)(i)(A) and (B) for the 
individual standard. Maintaining the current standards would continue 
to hinder recipients' ability to use CDBG funds for future economic 
development activities and limit recipients' ability to leverage CDBG 
funds through revolving loan funds and Section 108 loan guarantees. The 
$100,000 and $2,000 amounts approximate the inflation-adjusted value of 
the current standards. HUD believes that updating these standards to 
reflect market conditions would allow CDBG funds to be more competitive 
for use in economic development activities. By comparison, the Small 
Business Administration (SBA) 504 Loan program allows a benefit of up 
to $100,000 per job created depending on the type of activity. HUD also 
proposes to include a provision at Sec. Sec.  570.209(b)(5) and 
570.482(f)(6) that would permit HUD to issue periodic notices to update 
those values (and the net present values for Section 108 borrowers, as 
described below) to reflect inflation.
    Question for comment #4: Would the proposed changes encourage a 
recipient to target CDBG projects in underserved communities in their 
jurisdiction? Would the proposed individual standards more accurately 
reflect the amount of CDBG funds necessary to carry out job creating 
activities? What is the likely effect on investment in underserved 
areas? How might HUD better encourage economic development in 
underserved communities, including historically marginalized 
communities of color, particularly racially or ethnically concentrated 
areas of poverty, who have disproportionately experienced disinvestment 
and have been denied economic opportunities? How frequently should the 
standard be updated for inflation, and should HUD update the standard 
automatically with a self-executing inflation calculation?
    Third, the public benefit standards provide a narrow choice of two 
measures for determining a public benefit: amount of assistance per job 
created or retained or amount per LMI person served by the activity. 
HUD believes these measures provide insufficient options to measure the 
public benefit a project may provide. For example, the SBA 504 Loan 
program offers recipients who cannot meet the minimum jobs requirement 
an alternative of meeting one of eighteen community development, public 
policy, or energy reduction measures. While HUD understands the value 
of having objective and uniform benchmarks for demonstrating public 
benefit, the current standards unduly restrict recipients' ability to 
demonstrate public benefit through use of CDBG funds for economic 
development activities. Further, CDBG assistance for small businesses 
may be used with funding under another Federal program (e.g., SBA) that 
has different standards. To provide flexibility to recipients in 
demonstrating such an alternative public benefit, proposed provisions 
at Sec. Sec.  570.209(b)(3)(iii) and 570.482(f)(4)(iii) would permit 
HUD to approve requests by recipients that an applicable activity 
demonstrates an acceptable public benefit if the activity would result 
in a significant contribution to the goals and purposes of the CDBG 
program.
    Question for comment #5: How can recipients demonstrate an 
alternative public benefit? For example, an increasing number of 
communities have either used or explored using CDBG funds for critical 
lifeline projects that have received funding from other Federal 
agencies, including the U.S. Department of Energy and the Federal 
Emergency Management Agency. Would it be appropriate to use objectives 
for other Federal programs to satisfy the CDBG program public benefit 
standards? Should there be additional criteria for what can be 
considered an alternative public benefit, and if so what might they be?
    Fourth, HUD proposes to add a new option for Section 108 applicants 
at Sec. Sec.  570.209(b)(3)(ii) and 570.482(f)(4)(ii) that would 
address the concerns expressed by program participants regarding a 
disparity in treatment of economic development assistance in the form 
of a loan and other forms of assistance, such as grants, when measuring 
public benefit. When a recipient uses CDBG funds for an economic 
development activity in the form of a loan to a third party (e.g., a 
business), the loan is expected to be repaid over some term. Any 
repayment of that loan reduces the ultimate cost of that activity to 
the CDBG program. On the other hand, when a recipient uses CDBG funds 
to make grants to third parties, the cost to the CDBG program is the 
actual amount of the grant. The existing regulations Section 108 treat 
activities that involve loans in the same way they treat activities 
that involve grants: i.e., the cost of an activity is measured based on 
the nominal amount of the assistance provided to the third party. This 
treatment distorts the cost per unit of output (e.g., jobs) for an 
activity that provides assistance in the form of a loan because the 
standard fails to measure the actual cost of the activity accurately. 
Although HUD recognized this disparity when it first proposed the

[[Page 1753]]

public benefit regulations, it did not provide an alternative to use of 
the nominal amount of the loan for calculation of the public benefit 
due to the complexity of implementing an alternative methodology for 
use by recipients. Now, however, HUD could use the procedures and 
models prescribed by the Office of Management and Budget (OMB) for 
determining the ``credit subsidy cost'' to the Federal Government of 
making direct Federal loans to determine the cost to a grantee's CDBG 
program of carrying out activities that involve loans from Section 108 
recipients to third parties. These proposed procedures for determining 
the cost of such third-party loans through calculating the cost of the 
activity based on the net present value of the activity would address 
the concerns expressed to HUD by recipients regarding measuring the 
true cost to the CDBG program of an economic development activity that 
involves a loan to a third party. HUD can address its original concern 
about using an alternative methodology by reserving the use of an 
alternative measure of public benefit to Section 108-funded activities 
when HUD can determine the cost of a loan to the CDBG program through 
using a methodology routinely applied under Federal credit programs. 
HUD will describe in a separate notice the procedures it will use in 
calculating the cost of a loan.
    Question for comment #6: Would the proposed option for measuring 
the public benefit for loan activities on a net present value basis 
facilitate the use of Section 108 financing for economic development 
activities?

B. Improving Data Collection From the CDBG Program To Measure 
Effectiveness

Revision of Consolidated Plan Publication Requirements as Identified in 
Citizen Participation Plans Sec. Sec.  91.105(b), 91.115(b)
    Entitlement and State recipients must identify in their citizen 
participation plans how they will publish their Consolidated Plans in a 
manner that permits their residents, public agencies, and other 
interested parties an opportunity to examine their contents and submit 
comments. HUD expects each grantee to undertake a multifaceted approach 
to publication after considering the nature of the jurisdiction and its 
citizens. The principle for jurisdictions is to create and implement a 
citizen participation plan designed to get program-related information 
to and from persons who will be affected by the contents of the 
Consolidated Plan or who may seek to participate in the grantee's 
programs.
    HUD proposes to amend Sec. Sec.  91.105(b)(2) and 91.115(b)(2) to 
encourage grantees to use additional forms of communication to make 
citizens aware of publication of the Consolidated Plan. The proposal 
adds methods of making the Consolidated Plan publicly accessible to 
persons with disabilities and provide meaningful access to limited 
English proficient persons, such as: email; text message (SMS); social 
media; media advertisements; public service announcements; notifying 
neighborhood organizations; and placement of hard copies of the Plan in 
public places such as libraries and neighborhood centers, and 
notifications on grocery store bulletin boards. These sections 
illustrate new examples of optional publication methods but are not 
required. HUD already considers these proposed methods to be valid and 
useful methods of publishing Consolidated Plans and encourages grantees 
to update citizen participation plans to include these methods. 
Recipients are reminded that section 504 of the Rehabilitation Act of 
1973, 29 U.S.C. 794, and the implementing regulations at 24 CFR part 8, 
which provides rights to persons with disabilities in HUD-funded 
programs and activities, continue to require grantees to ensure 
effective communication for persons with disabilities, and that Title 
VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d et seq., and its 
implementing regulations, require a recipient to take reasonable steps 
to provide language assistance to ensure meaningful access to programs 
and activities for persons who are limited English proficient (LEP).
Adding Substantial Amendment Criterion to the Citizen Participation 
Plan Sec.  91.105(c)
    Section 91.105(c)(1) requires an entitlement grantee to identify in 
its citizen participation plan what it considers to be a substantial 
amendment to its Consolidated Plan. This provision also states that a 
recipient must consider a change in the use of CDBG funds from one 
eligible activity to another as a substantial amendment to its 
Consolidated Plan. However, the provision does not state that adding 
activities not previously listed in a recipient's Consolidated Plan or 
Action Plan is a substantial amendment.
    Since a recipient is required to notify the public of all the 
activities it intends to carry out with CDBG funds, HUD proposes to 
clarify that adding an activity not previously identified in the 
Consolidated Plan or Action Plan must be considered a substantial 
amendment in the citizen participation plan.
Setting Quantitative, Neighborhood Level Goals in the Consolidated Plan 
and Measuring Performance in Reports Sec. Sec.  91.215, 91.520
    Section 91.215(a)(1) requires local government recipients to 
identify the general priorities for allocating investment 
geographically within the jurisdiction. HUD has observed that many 
grantees target some or all activities geographically. To the extent 
that a local government recipient chooses to target investment (as 
opposed to undertaking jurisdiction-wide activities), HUD proposes to 
require recipients to set at least one quantitative, neighborhood-level 
outcome goal in their Consolidated Plan and to report performance in 
the Consolidated Annual Performance and Evaluation Reports (CAPERs). 
This would enable HUD to assess local government recipients' progress 
in addressing housing, homeless assessment, and other identified needs 
on a sub-jurisdiction level and provide a richer understanding of how 
grant funds enable grantees to achieve local community development 
objectives. HUD proposes to change Sec.  91.520(d) to require an 
entitlement grantee to report in the CAPER at least one quantitative, 
neighborhood-level outcome goal accomplishment related to one or more 
sub-jurisdiction priority, if established pursuant to Sec.  
91.215(a)(1).
    Section 91.215(g) encourages entitlement recipients, through the 
Consolidated Plan, to identify locally designated areas that are being 
targeted for neighborhood revitalization efforts that are carried out 
through multiple activities in a concentrated or coordinated manner. In 
this rule, HUD proposes to add examples of areas that may be targeted 
for neighborhood revitalization efforts. These areas can include areas 
that were designated as economically distressed areas by the Federal 
Government or the State that exhibit significantly high levels of 
poverty or low median income, including historically underserved and 
marginalized communities. HUD believes that encouraging entitlement 
recipients to consider targeting efforts in these areas during the 
planning process will result in recipients developing a more holistic 
understanding of the needs of these areas and how they can best use 
CDBG funds to revitalize such areas.

[[Page 1754]]

C. Improving Program Outcomes

Mixed-Use Properties Sec. Sec.  570.3, 570.200
    Mixed-use properties have become increasingly popular as 
development trends across the country have encouraged locating 
residential units, office space, and/or commercial space on the same 
property and often in the same building. Section 570.200(b)(1) contains 
special policies governing facilities containing both eligible and 
ineligible uses. It allows recipients to provide funds for a public 
facility otherwise eligible for assistance under the CDBG program even 
if it is part of a multiple-use building containing ineligible uses. 
Recipients may also provide funds for an eligible activity in a 
multiple-use property (that is not a public facility), but the existing 
regulation lacks clarity on the circumstances when such use is 
permissible. This lack of clarity limits recipients from using CDBG 
funds for eligible activities in mixed-use properties.
    HUD proposes to revise Sec.  570.200(b)(1) to clarify that 
recipients can assist eligible activities if they are part of mixed-use 
properties that also contain ineligible uses, so long as the recipient 
expends CDBG funds only on the eligible use. The revised provision 
would continue to allow for CDBG and Section 108 guaranteed loan funds 
to be involved in such a project so long as there is an eligible 
activity that costs can be allocated to cover. While the prohibition on 
new housing construction is applicable for both Section 108 borrowers 
and CDBG recipients pursuant to Sec.  570.207(b)(3), costs in mixed-use 
and mixed finance developments may be allocable under the new draft 
regulation and our current interpretation of the requirements. HUD 
expects this revision would facilitate economic development by 
expanding the scope of activities for which recipients can use CDBG 
funds. The proposed rule also would add a definition of ``mixed-use 
property'' at Sec.  570.3.
Closeout Sec.  570.509
    HUD proposes to amend the CDBG closeout regulations at Sec.  
570.509 to conform with 2 CFR 200.344 and with the proposed 
modifications to timeliness at Sec.  570.902. Under this proposal, HUD 
would have the flexibility to separately cancel a grantee's financial 
access to a grant and remove the grant's availability from the line of 
credit while allowing some additional time, if needed, for a grantee to 
meet certain program requirements, such as meeting a national 
objective. HUD expects that each grantee will expend all funds and 
close out each grant financially by the end of the eighth program year 
of the grant.\14\ Further, the proposed rule would make clear that 
certain requirements survive grant closeout, such as but not limited to 
record retention responsibilities and property management. Although the 
proposed changes would explicitly separate the grant programmatic 
closeout procedures from financial account cancellation procedures, 
they would not change the requirement that final annual performance 
reports are due within 90 days after the close of the jurisdiction's 
program year.
---------------------------------------------------------------------------

    \14\ CDBG grant funds not disbursed from the grantee's line of 
credit after eight years will be cancelled and recaptured by the 
U.S. Department of Treasury at the end of the eighth Federal fiscal 
year due to statutory and regulatory requirements.
---------------------------------------------------------------------------

    For example, a grantee uses the remainder of one grant's funds to 
acquire a school to convert to housing. The grantee uses funds from 
other sources for construction costs. Under this proposal, HUD could 
cancel the financial account while explicitly retaining the ability to 
enforce compliance with all program requirements related to the 
activity underway, particularly those bearing on national objectives. 
The regulations would continue to govern change of use requirements 
(e.g., investments such as community centers or parks).
    HUD recognizes that there are many things that could disrupt a 
grantee's intended timeline for activity completion: litigation, 
disasters, limited construction seasons due to weather, or other 
extenuating circumstances. To complete all program activities, 
including, but not limited to, meeting national objectives and 
satisfying reporting requirements, grantees are permitted to request an 
extension of up to two years of the six-year period of performance 
proposed in the Continuing Capacity section of this rule.
    Question for comment #7: Would other or additional modifications to 
the closeout process ease grantee burden and ensure that HUD can 
confirm that grantees have met programmatic requirements prior to 
closeout?

D. Addressing Poor Performance

Repayment of CDBG Funds for Disallowed Costs Sec. Sec.  570.495, 
570.910
    Sections 570.495 (for State recipients) and 570.910 (for 
entitlement recipients) provide corrective and remedial actions that 
HUD may impose on recipients when HUD identifies deficiencies in 
recipient performance. HUD may disallow costs if recipients expend CDBG 
funds for ineligible activities or for activities that do not meet a 
national objective, or do not comply with 2 CFR part 200, subpart E, 
cost principles. Currently, HUD advises recipients to reimburse their 
CDBG program account or letter of credit with non-Federal funds based 
on 2 CFR 200.405(c), which states that any cost allocable to a 
particular Federal award (or cost objective) under the principles 
provided for in 2 CFR part 200 may not be charged to other Federal 
awards to overcome fund deficiencies, to avoid restrictions imposed by 
Federal statutes, regulations, or terms and conditions of the Federal 
awards, or for other reasons. However, this prohibition would not 
preclude the non-Federal entity from shifting costs that are allowable 
under two or more Federal awards in accordance with existing Federal 
statutes, regulations, or the terms and conditions of the Federal 
awards. In addition, 2 CFR 200.441 states that costs resulting from 
non-Federal entity violations of, alleged violations of, or failure to 
comply with, Federal, State, Tribal, local or foreign laws and 
regulations are unallowable, except when incurred as a result of 
compliance with specific provisions of the Federal award, or with prior 
written approval of the Federal awarding agency.
    However, part 570 does not clearly state the source of repayments 
as the result of such violations. The proposed rule would explicitly do 
so in Sec. Sec.  570.495(a)(4) and 570.910(b)(5) and would also make 
clear that recipients must make repayments for disallowed costs with 
non-Federal funds. In lieu of such repayments, HUD proposes to revise 
Sec.  570.495(a)(4) and add Sec.  570.910(c) to permit a recipient to 
request a voluntary grant reduction (VGR) from a current or future 
year's allocation of funds. VGRs have long been used in lieu of 
repayment, and this proposed rule would codify the policy and the 
procedure for requesting a VGR.
Timely Performance Sec.  570.902
    This rule proposes to revise Sec.  570.902 to institute regular 
quarterly public reporting by HUD on grant progress for entitlement 
grantees, with each grant labeled (e.g., ``first year,'' ``on track,'' 
or ``under target'') based on the pace of expenditure necessary to 
achieve grant closeout by the target date at the end of the period of 
performance. HUD's increase in frequency of public reports will use 
existing grant data to provide grantees with additional time to make 
adjustments to their respective programs. The public report may be used 
by citizens for information, grantees for management information,

[[Page 1755]]

and HUD for risk assessment, oversight, and as a signal for technical 
assistance needs. HUD believes this would improve the current system of 
only providing timeliness feedback to grantees and HUD Field offices 
annually. With more frequent progress information, grantees should be 
able to adjust their programs more nimbly and avoid timeliness issues.
    Section 104(e)(1) of the Act requires that HUD annually determine 
whether each CDBG grantee has carried out its activities in a timely 
manner. HUD must also assess whether each grantee has continuing 
capacity to carry out activities in a timely manner. Under the existing 
entitlement regulations at Sec.  570.902, HUD measures timely 
performance at a single, annual point in time and communicates any 
issues to a grantee via letter. In accordance with the existing 
regulations, an entitlement grantee must meet an ``all open CDBG 
grants'' portfolio standard, requiring it to have a total undisbursed 
portfolio balance no greater than 1.5 times its most recent annual 
grant amount remaining in the line of credit. HUD conducts this test 60 
days prior to the end of the grantee's program year, and in recent 
years, HUD has put increased emphasis on enforcing timely expenditure 
using this standard.
    HUD considers a grantee to have timely performance issues if its 
portfolio balance exceeds 1.5 times its most recent annual grant amount 
for two years in a row. If this happens, HUD first offers the grantee a 
chance for an informal consultation with program officials prior to 
determining a corrective action or sanction. A common course of action 
for HUD in cases of continued grantee timeliness issues is reducing the 
next year's grant allocation of a grantee.
    Although the timeliness regulations and procedures comply with the 
statutory direction, the combination of the annual 1.5 standard with 
the adoption of grant-based accounting and stagnant CDBG grant amounts 
appears to have created an unintended--and undesired--consequence. HUD 
has observed grantees budget and use more funds for annual ``soft'' 
expenditures, such as code enforcement, administration, planning, 
public services, and salaries for activity delivery, and less funds 
directly assisting major brick-and-mortar activities. HUD's 
observations and grantee feedback indicate that HUD's enforcement of 
the existing timeliness standard has resulted in pressuring grantees' 
local funding decisions away from large brick-and-mortar activities, 
which characteristically deliver greater benefits but require longer 
expenditure timeframes. Grantees are making funding and priority 
decisions based less on long-term community needs than on a need to 
comply with the portfolio balance requirement. For example, a large 
Midwest city recently identified the need to comply with the 1.5 
requirement as the reason for its choice to assist an activity 
providing sidewalk improvements in low-income neighborhoods even though 
it believed a better fit for its community development priorities would 
be a significant multi-unit, multi-structure, housing rehabilitation 
project. HUD has noted numerous other similar examples during informal 
timeliness consultations.
    This concerns HUD because the objectives of the CDBG program at 
section 101(c) of the Act emphasize development of viable urban 
communities by providing suitable living environments. If the 
timeliness enforcement standard is causing grantees to shift funding 
decisions away from activities generating long-lasting improvements, 
the standard undercuts the purposes of the Act.
    Further, the current timeliness standard incorrectly captures both 
high- and low-capacity grantees. An adjusted line of credit balance in 
excess of 1.5 times the grant amount, measured at a point in time in 
the grantee's program year, is not always an indicator of poor 
performance. Higher-capacity grantees who try to budget substantial 
portions of two or more grants for a major local project are identified 
incorrectly by the existing standard as low-performing. These grantees 
do not typically exhibit non-compliance in other areas of their 
portfolio and their HUD Field office grant managers frequently vouch 
for their capacity to deliver the expected project benefits. Current 
timeliness requirements can discourage activities that if not for these 
requirements would otherwise advance statutory program objectives. 
Conversely, low-capacity grantees with known problems across a decade 
or more, have sometimes not been captured under this current 
requirement.
    Lessons learned from implementation of other programs incorporating 
the CDBG framework, including the Neighborhood Stabilization Program 
(NSP) and other CDBG-DR appropriations, helped inform this proposal. 
Several versions of obligation, expenditure, and other progress 
standards have existed in these programs, with mixed results. For 
example, obligation deadlines in the first NSP funding round and some 
early CDBG-DR grants caused grantees to select some projects less 
aligned with community needs and goals. Recent CDBG-DR rules, which 
combine a period of performance based on actual community development 
practice with public tracking reports, have provided a simple, workable 
standard that enables local choices while enhancing transparency and 
accountability. The takeaway from HUD's experience with timeliness is 
that the enforcement mechanism influences local choices towards or away 
from significant construction activities and may affect the pace of 
grant disbursement, and that applying a new standard for CDBG grantees 
will better serve the purpose of the Act.
    This proposal seeks to enhance oversight of timeliness while 
reducing pressure on grantees to fund minor, quickly implementable 
activities or soft costs rather than providing assistance for larger 
projects with more significant local community development outcomes. 
This approach would set a standard for a clear lack of continuing 
capacity for timely implementation, comply with the Act, and better 
accommodate eligible major construction activities. The rule would also 
set, for the first time, a separate standard for grantee continuing 
capacity (see below for further detail).
Timeliness and Program Income Sec. Sec.  570.489, 570.504
    Note that the rules related to the intersection of timeliness and 
program income would not change under this proposal. The Act and the 
current regulations provide that program income received by a grant 
recipient or subrecipient is additional CDBG funds. The regulations 
would continue to require that grantees use available program income 
prior to additional drawdown of line of credit funds. However, 
revolving funds are a special case. This proposed rule addresses 
revolving funds because some grantees have inappropriately used these 
accounts to simply hold program income, effectively evading timely 
expenditure requirements. The proposed timely expenditure standard for 
revolving funds is that grantees use at least one half of a fund's 
balance (taken at the beginning of the program year) for eligible 
revolving fund activities or re-program the unused amount each year. 
The proposed rule seeks to prevent grantees from placing program income 
in revolving funds indefinitely with new language at Sec.  570.504(f) 
that would permit HUD to take corrective actions against entitlement 
grantees with inactive or excessive revolving funds. HUD also

[[Page 1756]]

proposes to hold States accountable for ensuring that revolving funds 
remain active adding a new Sec.  570.489(f)(4).
Continuing Capacity Sec.  570.902
    The current regulations do not provide a standard for determining 
that a grantee no longer has the continuing capacity to carry out 
activities in a timely manner. Although this proposed rule does not 
change HUD's ability to assess capacity on a case-by-case basis to 
determine capacity, it would add a data-driven measure of lack of 
capacity: a portfolio consideration of a grantee's continuing capacity 
to deliver activities in a timely manner based on overall progress 
under multiple grants over a rolling four-quarter period rather than by 
a single annual snapshot of the aggregate balance. At any given time, 
each grantee will have up to six grants (or up to eight if a period of 
performance waiver is provided) available in its CDBG line of credit. 
Proposed Sec.  570.902(a)(4) would provide that if any three or more of 
those grants are simultaneously identified as Slow Spenders for four or 
more consecutive quarters, HUD would determine that the grantee lacks 
the continuing capacity to undertake timely program activities, will 
provide an opportunity for an informal consultation meeting, and will 
then take appropriate action, including corrective action or sanction 
up to and including a reduction to the grant amount for the succeeding 
program year.
    Question for comment #8: In proposing this shift, HUD is aware that 
the overall balance of funds in CDBG lines of credit may increase. 
Given the commitment to quarterly public status reports at the grant 
level, is this problematic? If yes, how? Also, if yes, suggest an 
alternate approach. If you are a grantee, will the timeliness proposal 
affect your local activity choices in favor of transformative or major 
construction projects? Additionally, the Department seeks feedback from 
the public, including from States, on whether it would be appropriate 
to apply the proposed new timeliness requirements for entitlements to 
States.
Criteria for National Objectives--Meeting a National Objective, 
Appropriate Data Source Sec. Sec.  570.200, 570.208, 570.483
    The proposed rule would add a time period for CDBG-assisted 
activities to meet one of the three national objectives of the CDBG 
program. Currently, there is no time period in which CDBG-assisted 
activities must meet a national objective. This lack of a defined 
period of time for an activity to meet a national objective undercuts 
the primary purpose of the Act because recipients cannot demonstrate 
that they are using CDBG-funded activities to develop viable urban 
communities by providing decent housing, a suitable living environment, 
and expanding economic opportunities, principally for LMI persons.
    To ensure that recipients fulfill the purpose of the Act and that 
CDBG-assisted activities benefit LMI persons and households, HUD 
proposes that activities be given six years from the initial drawdown 
of CDBG funds to meet a national objective or the length of the period 
of performance and any extension permitted under Sec.  570.509, 
whichever is shorter. HUD believes that six years is an adequate time 
period for recipients to demonstrate that an activity will meet a 
national objective. HUD proposes to revise Sec.  570.200(a)(2) 
requiring recipients to demonstrate that activities carried out under 
Subpart C meet a national objective within six years of the initial 
drawdown of CDBG funds for an activity.
    HUD also proposes to remove multiple references in Sec. Sec.  
570.208(a) (for entitlement recipients) and 570.483 (for State 
recipients) to sources of data recipients should use in determining 
income characteristics, such as poverty and income levels, of potential 
beneficiaries or areas served. Notice CPD-19-02, published February 14, 
2019 (https://www.hud.gov/sites/dfiles/OCHCO/documents/19-02cpdn.pdf), 
provides recipients guidance on using data for compliance with CDBG, 
CDBG-DR, and NSP grant requirements.\15\ The proposed rule would direct 
recipients to use information provided by HUD to the fullest extent 
feasible as opposed to the most recently available decennial census 
data, which may have become outdated and difficult to locate.
---------------------------------------------------------------------------

    \15\ This data is based on the American Community Survey 2011-
2015 5-year estimates and may be found at https://www.hudexchange.info/programs/acs-low-mod-summary-data/.
---------------------------------------------------------------------------

    Question for comment #9: Is six years from the initial drawdown of 
CDBG funds an adequate time period to demonstrate that activities have 
met a national objective?

E. Clarifying the Eligible Uses of CDBG

Definitions Sec. Sec.  570.3, 570.206, 570.481
Activity Delivery Costs
    Recipients and subrecipients may incur costs related to carrying 
out specific activities eligible under Sec. Sec.  570.201-570.204 and 
570.703, which are typically referred to as ``activity delivery 
costs.'' Unlike program administrative costs that are eligible under 
Sec.  570.206 for overall program management, coordination, monitoring, 
and evaluation, a recipient incurs activity delivery costs on an 
activity-by-activity basis. The regulations do not specifically define 
this term; therefore, HUD proposes to add a definition at Sec.  570.3. 
HUD proposes to define activity delivery costs as the allowable costs 
of work performed by a recipient, subrecipient, or contractor in 
carrying out specific activities eligible under Sec. Sec.  570.201-
570.204 (for CDBG entitlement recipients) and 570.703 (for Section 108 
borrowers). For example, under this proposal, a grantee could charge 20 
percent of an employee's salary and related expenses (e.g., fringe 
benefits) to an activity provided it maintains records that support the 
allocation of costs to the activity. Some grantees would choose to 
maintain such records to ensure they do not exceed the cap on program 
administrative costs.
    Recipients, subrecipients, and contractors must use the cost 
principles at 2 CFR part 200, subpart E in determining the allowability 
of the costs. In particular, recipients, subrecipients, and contractors 
must ensure that activity delivery costs consisting of staff salaries 
are allocable to the specific activity and adequately documented. HUD 
proposes a new reference in the introductions to Sec.  570.206 to 
emphasize that activity delivery costs for CDBG entitlement recipients 
are separate from program administrative costs.
Elderly
    CDBG recipients and subrecipients carry out public services that 
specifically benefit elderly persons. Recipients across the United 
States have widely varying definitions of ``elderly'' that they use for 
CDBG-assisted activities that specifically target this population. 
Because part 570 does not define the term ``elderly,'' HUD has received 
requests for guidance regarding the definition of elderly. Although 
``elderly person'' is defined at Sec.  5.100, HUD believes including 
the definition at Sec.  570.3 would make clear the definition of 
``elderly'' for certain CDBG-assisted activities. HUD proposes to add 
the definition of elderly at Sec.  570.3 that states that for 
activities pursuant to Sec.  570.202, ``elderly'' means a person 62 
years of age or older. This definition would align CDBG-assisted 
housing activities with other HUD programs. However, HUD would continue 
to permit CDBG recipients and subrecipients to define ``elderly'' 
consistent with State law to permit recipients the flexibility to carry 
out non-housing activities that benefit elderly persons.

[[Page 1757]]

Entitlement Amount
    The definition of entitlement amount contains a reference to ``a 
metropolitan city and an urban county.'' Periodically, OMB issues 
bulletins that contain revised delineations of metropolitan statistical 
areas, micropolitan statistical areas, and combined statistical areas. 
These bulletins update OMB's designations of metropolitan areas, 
counties included in metropolitan areas, and principal cities of those 
metropolitan areas. These principal cities usually have populations 
below the statutory threshold of 50,000 to become a metropolitan city 
but are considered principal cities of the metropolitan areas in which 
they are located. Therefore, HUD proposes to add the term ``principal 
cities'' as designated by OMB in the definition of ``entitlement 
amount'' at Sec.  570.3 because HUD considers principal cities 
entitlement recipients that will receive a CDBG grant if they accept 
entitlement status.
Period of Performance
    HUD proposes to add a definition of ``period of performance'' in 
Sec. Sec.  570.3 and 570.481(a)(4) that would provide recipients a six-
year time period to expend a grant's funds or the length of the origin 
year grant's period of availability for expenditure in accordance with 
Sec. Sec.  570.200(k) or 570.480(h), whichever is shorter, beginning on 
HUD's approval of a grant agreement for a given grant. The proposed 
definition would apply to the proposed closeout procedures at Sec.  
570.509 and timeliness requirements at Sec.  570.902. For Section 108 
loan guarantees, the period of performance begins on the date of HUD's 
guarantee of a promissory note or other obligation and confers the same 
six-year time limit.
    Under the Federal financial rules at 2 CFR 200.211(b)(5) every 
Federal grant must have a designated period of performance. For CDBG 
grants, HUD began adopting these rules in 2015. Under CDBG 
appropriations, HUD has allowed the period of performance to be the 
statutory availability of grant funds. In general, HUD has up to three 
years to obligate grants, and there are five additional years of 
funding availability. For example, grants from the 2014 appropriation 
are no longer available for expenditure after September 30, 2021.
    Drawing from lessons learned, HUD looked to CDBG-DR grantees' fund 
expenditure patterns. In developing the CDBG-DR timely expenditure 
expectations, HUD reviewed the spending performance of CDBG-DR grants 
awarded in response to disasters in 2006 and 2008. In May 2013, HUD 
reviewed historical data on quarterly disbursements of funds from these 
appropriations. This analysis concluded that most CDBG-DR-funded 
recovery activity is completed within three to four years, and the 
recovery of CDBG-DR grantees is largely complete after six years. For 
an average grant, the third year following grant agreement execution 
typically shows the peak amount of expenditures. Program experience 
with annual CDBG grantees, who generally have fewer challenging 
programs than do CDBG-DR grantees, indicates that a six-year period of 
performance would be generous for both entitlements and State grantees.
    Question for comment #10: Is the proposed six-year period of 
performance an appropriate period of time to expend funds for 
activities under a given grant?
Overall Benefit Requirement Sec.  570.200
    Section Sec.  570.200(a)(3) currently states that entitlement 
recipients, non-entitlement CDBG recipients in Hawaii, and recipients 
of insular area funds must ensure that over a period of time specified 
in their certification, not to exceed three years, not less than 70 
percent of the aggregate of CDBG fund expenditures shall be for 
activities meeting the criteria under Sec.  570.208(a), (d)(5), or (6) 
for benefiting LMI persons. These recipients must ensure that during 
their chosen period of certification not less than 70 percent of the 
aggregate of CDBG funds expended during that period benefit LMI 
persons. This requirement is identified in the Act at section 101(c) 
and cannot be waived. Therefore, HUD proposes to revise Sec.  
570.200(a)(3) to reinforce that recipients may not expend more CDBG 
funds in a subsequent certification period to meet the statutory 
requirement.
Eligible and Ineligible Activities Sec. Sec.  570.200, 570.201, 
570.202, 570.206, 570.207, 570.703
Applicable Environmental Review Procedures in Part 58
    HUD proposes to make a slight revision to Sec.  570.200(h)(1)(iii), 
which requires that costs and activities funded are in compliance with 
the environmental review procedures stated in 24 CFR part 58. There has 
been some confusion whether the intent of this provision is just to 
apply whatever part 58 requirements would otherwise apply, or to 
actually extend applicability of part 58 choice-limiting prohibitions 
even to pre-application activities that aren't prohibited under Part 58 
itself. In order to clarify that this provision is not meant to add a 
prohibition on reimbursement of expenses for activities that began 
before application for CDBG, where the pre-application activities 
commenced prior to a completed environmental review and Release of 
Funds, the revision would refer to compliance with ``applicable'' 
environmental review procedures in 24 CFR part 58.
Acquisition of Real Property
    Section 570.201(a) currently permits grantees to use CDBG funds to 
acquire real property by long-term lease. However, it does not specify 
the length of time that constitutes a long-term lease for the purpose 
of compliance with Sec.  570.201(a). ``Long-term lease'' has been 
interpreted in various ways. The 1998 Guide to National Objectives and 
Eligible Activities for Entitlement Communities defines a long-term 
lease as 15 years or more. Consistent with this guidance, HUD proposes 
to add a parenthetical statement to Sec.  570.201(a) that would clearly 
define a ``long-term lease'' as 15 years or more.\16\
---------------------------------------------------------------------------

    \16\ Under the CDBG program, long-term leases of 15 years are 
considered acquisition for URA purposes and subject the URA's 49 CFR 
part 24, subpart B, real property acquisition requirements. See HUD 
Handbook 1378 Chapter 1-4.I.7 page 1-8 for more details.
---------------------------------------------------------------------------

Tornado Safe Shelters
    Section 2 of the Tornado Shelters Act (Pub. L. 108-146; 117 Stat. 
1883, enacted December 3, 2003) amended section 105(a) of the Act to 
permit the construction or improvement of tornado shelters for 
residents of manufactured housing in certain neighborhoods as an 
eligible activity under the CDBG program. The Tornado Shelters Act 
permits tornado shelters as an eligible activity if they are located in 
a neighborhood that (1) contains at least 20 manufactured housing units 
within such proximity to the shelter that the shelter is available to 
the resident in the event of a tornado, (2) consists predominantly of 
persons of low and moderate income (i.e., recipients must be able to 
document that at least 51 percent of the residents of the service area 
of the tornado shelter are of low and moderate income); and (3) is 
located within a State in which a tornado has occurred during the 
fiscal year for which with amounts to be used were made available or 
the preceding 3 fiscal years, as determined by the Secretary in 
consultation with the Administrator of the Federal Emergency Management 
Agency. HUD has not codified this use of CDBG funds in the regulations, 
but recipients may use such funds for the construction of tornado-

[[Page 1758]]

safe shelters under the authority provided by statute. HUD proposes to 
add a provision at Sec.  570.201(r) that would codify the use of CDBG 
funds for tornado safe shelters as an eligible activity in accordance 
with the statute. Since the statute requires that neighborhoods where 
tornado shelters are constructed or improved with CDBG funds be 
predominantly LMI, recipients must be able to document that at least 51 
percent of the residents of the service area of the tornado shelter are 
of low and moderate income.
Ineligible Activities
    HUD proposes at Sec.  570.207(a)(4) to explicitly list general 
administrative and operating expenses of public or nonprofit entities 
as an ineligible activity. HUD's experience is that these entities 
believe that general administrative costs and operating expenses are 
eligible activities under Sec. Sec.  570.201-570.206. However, while 
recipients may use CDBG funds for program administrative costs, the 
regulations do not allow public or nonprofit entities to do so. HUD 
believes that the proposed addition of this ineligible activity, in 
addition to the proposed addition of the definition of ``activity 
delivery costs'' in Sec.  570.3, would provide greater clarity to 
public and nonprofit entities and encourage them to use CDBG funds 
directly for activities (as well as for activity delivery costs). 
Public and nonprofit entities also cannot categorize these ineligible 
expenses as providing technical assistance; the proposed rule would 
revise the definition of ``technical assistance'' at Sec.  570.201(p) 
to reflect that prohibition.
Use of CDBG Grant Funds for Section 108 Activities
    HUD proposes to clarify eligible uses of CDBG funds for loan 
repayment, issuance, underwriting, servicing, and other cost associated 
with Section 108 activities. Although already described at Sec.  
570.705(c), HUD believes that adding a cross-reference in subpart C 
(with a new Sec.  570.201(s)) may provide potential borrowers a better 
understanding of their ability to finance Section 108 activities with 
CDBG funds.
Reconstruction Under Sec.  570.202
    Reconstruction of buildings or structures has been eligible for 
CDBG assistance since 1996. Section 105(a)(4) of the Act states that 
clearance, removal, reconstruction, and rehabilitation of buildings and 
improvements (including interim assistance and financing public or 
private acquisition for reconstruction or rehabilitation, and 
reconstruction or rehabilitation of privately owned properties, and 
including the renovation of closed school buildings) is an eligible 
CDBG-assisted activity. Buildings reconstructed with CDBG funds may be 
publicly or privately owned and residential or non-residential.
    Unlike other parts of the CDBG regulations that explicitly state 
that recipients and subrecipients may use CDBG funds to reconstruct 
public facilities and improvements (Sec.  570.201(c)), privately owned 
utilities (Sec.  570.201(l)), and commercial/industrial structures as 
part of a special economic development activity (Sec.  570.203(a)), 
Sec.  570.202 does not clearly identify reconstruction as an eligible 
activity related to housing. To make clear that reconstruction is an 
eligible activity under Sec.  570.202, HUD proposes to add the words 
``and reconstruction'' to the introductory language at Sec.  
570.202(a).
Administrative Expenses To Facilitate Housing
    The provision at Sec.  570.206(g), Administrative expenses to 
facilitate housing, is no longer an eligible activity in the CDBG 
program because the provision applied only to units identified in a 
grantee's Housing Assistance Plan (HAP). HUD discontinued use of the 
HAP by CDBG grant recipients in the mid-1990s. Section 570.206(g) 
cannot be read to just substitute costs related to the Consolidated 
Plan for costs formerly eligible in connection with the HAP. Therefore, 
HUD proposes to remove Sec.  570.206(g) and replace it with a provision 
addressing how CDBG funds may be used to support eligible 
administrative and planning costs for the HOME Investment Partnerships 
Program (HOME).
Section 17 of the United States Housing Act of 1937
    Section 570.206(h) refers to the Rental Rehabilitation and the 
Housing Development programs that were authorized by Section 17 of the 
United States Housing Act of 1937 (``the 1937 Act''), Public Law 75-
412, 50 Stat. 888. Congress repealed Section 17 in Section 289 of the 
Cranston-Gonzalez National Affordable Housing Act of 1990 (42 U.S.C. 
12839) and terminated assistance to these programs. HUD therefore 
proposes to remove and reserve Sec.  570.206(h). HUD similarly proposes 
to remove and reserve Sec.  570.201(m), which allowed CDBG funds to be 
used for construction of housing under Section 17 of the 1937 Act, as 
well as to remove a corresponding cross-reference to Sec.  570.201(m) 
at Sec.  570.207(b)(3)(ii).
Section 108 Eligible Activities
    Section 108 borrowers can undertake site preparation activities 
related to redeveloping real property that borrowers have acquired or 
rehabilitated with Section 108 funds or that is for an economic 
development purpose. The wording of Sec.  570.703(f) makes it unclear 
that all such site preparation activities must relate to either of 
those two purposes. This proposed rule would clarify this requirement.
    Finally, the proposed rule would remove and reserve an eligible 
activity, Sec.  570.703(j), related to activities authorized under 
section 17(d) of the 1937 Act (42 U.S.C. 1437o(d)); such authorized 
activities are no longer carried out since the repeal of the statute in 
1991.
Criteria for National Objectives Sec. Sec.  570.208, 570.483
Timeline To Meet a National Objective
    HUD seeks to ensure that the recipients use CDBG-funded activities 
to develop viable urban communities by providing decent housing, a 
suitable living environment, and expanding economic opportunities, 
principally for LMI persons. CDBG-funded activities that fail to meet a 
national objective within a reasonable timeframe undercut the purpose 
of the Act. HUD proposes to require at Sec.  570.200(a)(2) that 
recipients demonstrate that the acquisition meets a national objective 
within six years of the date of the initial drawdown of CDBG funds for 
the activity or the length of the period of performance and any 
extension permitted under 24 CFR 570.509, whichever is shorter. To 
reinforce this requirement in the national objectives criteria sections 
of part 570, HUD proposes to insert the six-year timeframe to meet a 
national objective at Sec. Sec.  570.208(e) and 570.483(g).
    For example, recipients may acquire real property but fail or 
struggle to meet a national objective based on unforeseen 
circumstances. The recipient or subrecipient may acquire property with 
the intention of constructing a public facility such as a recreation 
center on the site or making infrastructure improvements where 
affordable housing will later be developed, but unforeseen 
circumstances prevent the proposed activity from occurring as planned. 
Rather than change the use of the real property for a purpose that will 
meet the planned or other national objective, the recipient or 
subrecipient may simply hold the property indefinitely. In this 
circumstance, Office of Inspector General audits have documented that 
the length of time between acquiring

[[Page 1759]]

property and meeting a national objective will be excessively long.\17\ 
The proposed change would ensure that activities meet a national 
objective in a timely manner to meet the purpose of the Act.
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    \17\ In 2014, the HUD OIG sampled CDBG projects and audited 
corresponding activities. OIG found the possibility that stalled 
activities did not meet a national objective compliance due to 
reporting problems or delayed implementation (resulting in stalled 
status). For reference, this is an example report: https://www.hudoig.gov/sites/default/files/documents/2014-LA-1007_0.pdf.
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Low and Moderate Income--Area Benefit
    To demonstrate compliance with the national objective of benefit to 
LMI persons on an area basis (Sec. Sec.  570.208(a)(1) and 
570.483(b)(1)), a CDBG-assisted activity must have a defined service 
area. The service area must be primarily residential, and at least 51 
percent of the residents in this service area must be LMI persons. 
Certain exception requirements at Sec.  570.208(a)(1)(ii) allow a 
threshold of lower than 51 percent in limited circumstances. When 
designating the service area for a CDBG-assisted activity, the service 
area should be accurately described and proportionate to the size of 
the CDBG-assisted activity. For example, a recipient cannot 
automatically presume a large park serves just the neighborhood in 
which it is located; it may serve the entire jurisdiction of the 
recipient. To meet the criteria at Sec.  570.208(a)(1) or Sec.  
570.483(b)(1), the recipient must use the most recent Census Bureau 
data provided by HUD or conduct a survey to determine if a minimum of 
51 percent of the residents in the defined service area are LMI.\18\ 
CDBG-assisted activities that often use this national objective include 
water/sewer installation and/or improvements, rehabilitation or 
construction of public facilities and improvements, acquisition and/or 
disposition of real property, clearance and remediation activities, and 
some public service activities.
---------------------------------------------------------------------------

    \18\ HUD issued technical assistance for conducting local income 
surveys. For more information, please visit https://www.hudexchange.info/programs/cdbg/cdbg-income-survey-toolkit/.
---------------------------------------------------------------------------

Low- and Moderate-Income--Limited Clientele
    To demonstrate compliance with the national objective of benefit to 
LMI persons-limited clientele (Sec. Sec.  570.208(a)(2) and 
570.483(b)(2)), a CDBG-assisted activity must: (1) benefit members of a 
group presumed to be LMI, as such groups are described in Sec.  
570.208(a)(2)(i)(A) and Sec.  570.483(b)(2)(ii)(A); (2) require 
information on family size and income to demonstrate that not less than 
51 percent of the beneficiaries are LMI; (3) be restricted to low- and 
moderate-income persons; or (4) be of such nature and be in such 
location that it may be concluded that the beneficiaries of the CDBG-
assisted activity are low and moderate income, as such nature and 
locations are described in Sec. Sec.  570.208(a)(2)(i)(D) and 
570.483(b)(2)(ii)(D). The LMI limited clientele national objective is 
often met by CDBG-assisted activities that are: restricted to children, 
such as tutoring and recreation programs; senior services, such as 
Meals on Wheels; the removal of architectural barriers; and public 
facilities for special populations such as the homeless and domestic 
violence shelters.
    HUD proposes revisions to the limited clientele provision that 
would state the requirements more clearly and that would provide better 
guidance to recipients. In addition to the proposed definition of 
``elderly'' at Sec.  570.3, HUD proposes references to that definition 
at Sec. Sec.  570.208(a)(2)(i)(A) and 570.483(b)(2)(ii)(A) with 
parenthetical statements after ``elderly persons.''
    Further, HUD proposes to clarify the presumed LMI group of 
``illiterate adults.'' Some CDBG recipients have interpreted the term 
``illiterate adults'' to mean illiterate in a person's native language, 
while other recipients have interpreted it to mean adults that are 
illiterate in English. Neither the Act nor part 570 define illiteracy. 
HUD's position at one time was that, for the CDBG program, an 
illiterate adult is one who is unable to read or write in any language. 
However, HUD has reconsidered that definition and proposes to codify 
HUD's current interpretation at Sec. Sec.  570.208(a)(2)(i)(A) and 
570.483(b)(2)(ii)(A) that illiterate adults are adults unable to read 
and write in English and in their first language, if the adult's first 
language is not English.
    Question for comment #11: Would the proposed definition for adult 
illiteracy accurately reflect the presumed LMI group of ``illiterate 
adults''?
    HUD also proposes to broaden the application of the presumed LMI 
group of ``battered spouses'' to cover all survivors of domestic 
violence. Survivors of dating violence, sexual assault, and stalking 
are categories included in survivors of domestic violence. The current 
category of ``battered spouses'' limits the presumption to spouses. 
However, unmarried survivors of violence may be presumed to be LMI. 
Therefore, HUD proposes to remove ``battered spouses'' from the 
presumed categories of LMI persons and replace it with ``survivors of 
domestic violence'' at Sec. Sec.  570.208(a)(2)(i)(A) and 
570.483(b)(2)(ii)(A). HUD interprets ``battered spouses'' to be a 
subcategory of ``survivors of domestic violence'' still presumed to be 
LMI under those provisions.
    Furthermore, HUD proposes to interpret survivors of human 
trafficking to be a subcategory of homeless persons, which is presumed 
to be LMI under these provisions. HUD considers human trafficking, 
including both labor and sex trafficking, to be ``other dangerous or 
life-threatening conditions that relate to violence against the 
individual or family member'' under paragraph 4 of the definition of 
``homeless'' at Sec.  578.3. Where an individual or family is fleeing, 
or is attempting to flee human trafficking, that has either taken place 
within the individual's or family's primary nighttime residence or has 
made the individual or family afraid to return to their primary 
nighttime residence; and the individual or family has no other 
residence; and the individual or family lacks the resources or support 
networks to obtain other permanent housing; HUD would consider that 
individual or family to qualify as ``homeless'' under the definition. 
By including survivors of human trafficking as a subcategory of 
homeless, HUD would be better able to ensure that they have access to 
the benefits and services necessary for their safety, protection, and 
basic well-being.
    Finally, HUD proposes to add categories of groups of persons at 
Sec. Sec.  570.208(a)(2)(i)(A) and 570.483(b)(2)(ii)(A) that, when 
served exclusively or in combination with groups of persons in other 
listed categories, may be presumed to benefit persons, 51 percent of 
whom are LMI, barring any evidence to the contrary: persons who meet 
the Federal poverty guidelines and persons who are insured by Medicaid. 
The Federal poverty guidelines, established by the Department of Health 
and Human Services based on poverty thresholds published by the Census 
Bureau, estimate the minimum amount of income needed to cover basic 
needs. Medicaid coverage varies by State and other eligibility 
requirements, but income qualification is generally less than four 
times the Federal poverty guidelines. Further, while nearly all 
jurisdictions in the U.S. have more LMI persons than persons in 
poverty, in a small number of jurisdictions more persons are in poverty 
than are LMI. Allowing grantees to presume that persons in poverty are 
LMI will address

[[Page 1760]]

such anomalies and simplify requirements across other Federal programs 
that also provide benefits to persons who meet the Federal poverty 
guidelines.
Low and Moderate Income--Housing Activities
    To demonstrate compliance with the LMI housing national objective 
(Sec. Sec.  570.208(a)(3) and 570.483(b)(3)), a CDBG-assisted 
residential structure must be occupied by predominantly LMI households. 
Unlike the other LMI national objectives, meeting the LMI housing 
national objective is based on households rather than individuals or 
families. A household is all the persons that occupy a housing unit, 
whether related or unrelated. Meeting the LMI housing national 
objectives criteria is also based on the number of housing units. Each 
single-unit structure must be occupied by an LMI household. In a two-
unit structure, one unit must be so occupied. Where there are three or 
more units in a structure, a minimum of 51 percent of the households 
must be occupied by LMI households. CDBG-assisted activities that may 
meet this national objective include homeownership assistance, housing 
rehabilitation (single and multifamily), and acquisition of real 
property where a recipient or subrecipient will construct housing units 
using another funding source. Pursuant to Sec.  570.207(b)(3), 
recipients or subrecipients may not use CDBG or Section 108 funds for 
new housing construction unless it is provided under the last resort 
housing provisions of the Uniform Relocation Assistance and Real 
Property Acquisition Policies Act of 1970 (42 U.S.C. 4601 et seq.) 
(URA) regulations at 49 CFR part 24, it is authorized as part of direct 
homeownership assistance for LMI households under Sec.  570.201(n), or 
a qualified Community-Based Development Organization is carrying out 
the activity under Sec.  570.204.
    Some exceptions permit eligible activities to meet the LMI housing 
national objective where less than 51 percent of multifamily units are 
occupied by LMI households. Such activities include assistance for an 
eligible activity to reduce the development cost of the new 
construction of a multifamily, non-elderly rental housing project where 
not less than 20 percent of the units will be occupied by LMI 
households at affordable rents. In addition, the proportion of the 
total cost of developing the project to be paid with CDBG funds must be 
no more than the proportion of units in the project that will be 
occupied by LMI households (Sec. Sec.  570.208(a)(3)(i) and 
570.483(b)(3)(i)). The proposed rule would add as additional exceptions 
substantial rehabilitation (as defined at Sec.  5.100) and conversion 
of a nonresidential structure to a multifamily, non-elderly rental 
housing project. This change would align treatment of substantial 
rehabilitation with new construction for purposes of meeting the 
national objectives criteria for housing activities.
HUD Review of Consolidated Plan Sec.  91.500
    Some recipients believe that a Consolidated Plan that is not 
disapproved by HUD pursuant to Sec.  91.500(a) constitutes an approval 
of the eligibility of the activities for the applicable programs 
identified in the plan. Because the Consolidated Plan is a planning 
document, HUD is unable to determine that a grantee will carry out the 
activity in compliance with program requirements, including eligible 
activity requirements. Grantees may amend plans, including planned 
activities, at any time and amendments are not subject to HUD review. 
However, because the Plan describes a substantial number of activities 
for many different CPD programs; reviewing each individual activity 
within the plan for compliance would be burdensome for CPD field 
offices and significantly lengthen review of the Consolidated Plan and 
delay grantees' ability to carry out activities. CPD seeks to ensure 
the eligibility of activities through risk analysis and monitoring 
after grantees have carried out activities. Therefore, HUD proposes to 
add language to Sec.  91.500(a) stating that the fact that HUD has not 
disapproved the Consolidated Plan does not constitute approval of the 
activities identified in the Plan as being compliant with relevant 
program requirements and does not confer a determination of the 
eligibility of the activities in the Consolidated Plan.
Urban County Qualification/Requalification Process Sec.  570.307
    Currently, Sec.  570.307 requires the Secretary to determine, after 
reviewing qualification documentation from an urban county, whether the 
county is qualified to receive CDBG funds. Each year, HUD publishes a 
notice, Instructions for Urban County Qualification for Participation 
in the Community Development Block Grant (CDBG) Program,\19\ setting 
forth the qualification process, which generally runs from May to 
September. Once urban counties complete the qualification/
requalification process, they remain qualified for three successive 
Federal fiscal years, as stated in Sec.  570.307(d). However, the CDBG 
urban county qualification process does not have a statutory or 
regulatory completion date. Therefore, HUD proposes to insert a 
provision at Sec.  570.307(h) that would require urban counties to 
complete the urban county qualification or requalification process no 
later than September 30 of the year of qualification or 
requalification.
---------------------------------------------------------------------------

    \19\ Available at: https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-02cpdn.pdf.
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    Section 217(b)(3) of title II of the Cranston-Gonzalez National 
Affordable Housing Act, as amended (NAHA) (42 U.S.C. 12747(b)(3)), and 
Sec. Sec.  92.50(a) and 92.101(a)(1) require that, in order to receive 
a HOME formula allocation for a fiscal year as a consortium, units of 
general local government be qualified/requalified as consortia in 
accordance with HOME requirements by the last day of the prior fiscal 
year, which is September 30 of each year. Most urban counties and HOME 
consortia select the same three-year qualification period to simplify 
the qualification process for both entities, and HOME consortia may 
change their three-year qualification cycles so that they coincide with 
the urban county's three-year qualification period. Because the CDBG 
program does not currently have a deadline to complete the process, 
however, an urban county that is also a HOME consortium may not 
complete the qualification process for the consortium by September 30 
because of an issue that arises with a participating unit of local 
government with regard to its participation in the urban county's CDBG 
program. While this will not affect a consortium's CDBG funding, such 
an action may result in a loss of its HOME funding for that fiscal 
year. Therefore, a September 30 deadline for the urban county 
qualification process may help align the programs and eliminate 
problems that arise regarding a consortium's timely completion of its 
qualification or requalification as a HOME consortium under the 
requirements in 24 CFR part 92.
Exclusion of Section 108-Generated Revenue From Program Income Sec.  
570.500
    HUD proposes to remove language from Sec.  570.500(a)(4)(ii) that 
excludes from the definition of ``program income'' revenues generated 
by certain activities financed by a Section 108 loan guarantee. HUD 
adopted Sec.  570.500(a)(4)(ii) to promote the use of Section 108 
financing for economic development activities. However, the regulations 
are confusing to recipients

[[Page 1761]]

who want to use Section 108-generated revenue for other eligible 
activities because the recipients may infer that such revenue is not 
subject to any restrictions. That inference would be incorrect, 
however, because significant restrictions on the use of the program 
income do exist. Access to the revenue is restricted because it is by 
default pledged as security for repayment of the guaranteed loan for 
the term of the loan, which may be up to 20 years. Further, some 
recipients have noted that the requirement to use miscellaneous revenue 
for activities located in a HUD-approved Neighborhood Revitalization 
Strategy Area (NRSA) limits the provision's utility when implementing 
an NRSA would not be practicable for them. Given these problems and 
given that this exclusion has not provided any apparent benefits to 
Section 108 borrowers, HUD proposes to remove this provision. HUD 
believes that other proposed changes to the regulations will promote 
the increased use of CDBG and Section 108 funding for economic 
development more effectively and efficiently than maintaining the 
program income exclusion.
Treatment of Excess Program Income Sec.  570.504
    Currently, Sec.  570.504(b)(2)(iii) requires each recipient to 
calculate the amount of program income cash balances on hand at the end 
of each program year (except those needed for immediate cash needs, 
cash balances of a revolving loan fund, cash balances in lump sum 
drawdown accounts, and cash and investments held for Section 108 loan 
guarantee security needs). After all deductions, the recipient must 
determine if the cash balances as of the end of the program year exceed 
\1/12\ of the most recent annual grant. The recipient must remit any 
excess amount to HUD as soon as practicable after the end of the 
program year. The regulations provide for the excess amount to be 
placed in the recipient's line of credit. HUD has determined that it 
cannot place the excess program income in a line of credit. Therefore, 
HUD proposes to require that the recipient send such excess program 
income to the United States Treasury. Note that the amount to be 
remitted to HUD does not include program income cash balances needed 
for various program purposes, e.g., amount pledged as security for a 
Section 108 loan.
Definition of Program Income--State CDBG Program Sec.  570.489
    In the definition of program income for the State CDBG program at 
Sec.  570.489(e)(2)(iv)(C), an exclusion allows a unit of general local 
government funded by a State to retain up to $100 per year in interest 
on deposit of grant funds before disbursement of the funds for 
activities for CDBG administrative expenses. The amount of $100 
previously aligned with Sec.  85.21(h)(2)(i), which has been replaced 
by 2 CFR 200.305(b)(9), and which currently allows a unit of general 
local government funded by a State to retain up to $500 per year. 
Therefore, HUD proposes to update Sec.  570.489(e)(2)(iv)(C) by 
replacing the dollar amount with a reference to 2 CFR 200.305(b)(9).
Reporting Data on Use of CDBG Funds Sec.  570.507
    HUD proposes to add a requirement at Sec.  570.507(d) to require a 
recipient to collect and report data on its use of CDBG funds in the 
Integrated Disbursement and Information System (IDIS). HUD has required 
recipients to report program activity and expenditure data in IDIS 
since 1996, but part 570 requires only that recipients must generally 
``submit such other reports and information as HUD determines are 
necessary.'' The revision would make it clear to recipients that they 
must use IDIS to submit such reports as required by Sec.  570.507.
Conflict of Interest Public Disclosure Requirements Sec. Sec.  570.489, 
570.611
    Currently, Sec. Sec.  570.489(h)(4)(i) (for State recipients) and 
570.611(d)(1)(i) (for entitlement recipients) require that when 
recipients request that HUD consider an exception to the conflict-of-
interest requirements, recipients must have documentation of disclosure 
of the nature of the conflict accompanied by an assurance that there 
has been a public disclosure of the conflict and a description of how 
the public disclosure was made. The regulations do not make clear what 
``public disclosure'' means. Some recipients define public disclosure 
as public hearings or publication in a newspaper of general local 
circulation; others believe that posting it on the recipient's website 
is sufficient. To clarify and make standard what public disclosure 
means, HUD proposes to add language to Sec. Sec.  570.489(h)(4)(i) and 
570.611(d)(1)(i) that would define public disclosure as disclosure 
through any of the following media: publication on the recipient's 
website, including social media; electronic mailings; media 
advertisements; public service announcements; and display in public 
areas such as libraries, grocery store bulletin boards, and 
neighborhood centers. HUD also clarifies the existing requirement to 
make it explicit that grantees must provide HUD evidence of the public 
disclosure.
Section 108 Loan Guarantees Sec. Sec.  570.704, 570.705
Application Requirements
    The Section 108 application submission requirements at Sec.  
570.704(b) state that an applicant should provide the application ``to 
the appropriate HUD Office,'' but do not distinguish whether the 
application should go to the applicant's local HUD Field office or 
Headquarters. The proposed rule would explicitly state that applicants 
should submit applications for Section 108 loan guarantee assistance to 
HUD Headquarters, ensuring that HUD Headquarters can promptly review 
such applications concurrently with HUD Field office staff.
    Prior to 2015, the regulations implied, but did not clearly state, 
that HUD Field offices reviewed applications first and then forwarded 
the application together with its recommendation for approval or 
disapproval to HUD Headquarters. HUD removed this provision in a 2015 
rulemaking, leaving the rule silent as to which HUD office(s) 
applicants should submit an application. In concert with the 2015 
rulemaking, CPD's Financial Management Division (FMD) at HUD 
Headquarters (which administers the Section 108 program) implemented a 
concurrent review process with CPD Field office staff. However, some 
applicants have continued to submit applications only to HUD Field 
offices. HUD Field office staff are responsible for many CPD programs 
and may not review a submitted application as promptly as FMD or notify 
FMD that they have received a new application. Applications submitted 
only to HUD Field offices may therefore result in a delay in the start 
of the concurrent review process.
    The submission requirements also do not clearly reiterate the basic 
information an applicant needs to include in an application: 
specifically, the proposed eligible activity under Sec.  570.703 and 
the source of the payment of fees under Sec.  570.712 (in addition to 
the national objectives criteria at Sec.  570.208, which is already 
identified in the current program regulation at Sec.  570.704(b)(1)). 
Other parts of subpart M include these requirements, but the proposed 
rule would reiterate those requirements to clearly identify what 
information the Section 108 application must contain. HUD proposes to 
add these references to Sec.  570.704(b)(1) and (2), respectively.
    Finally, HUD proposes to better organize the submission 
requirements at

[[Page 1762]]

Sec.  570.704(b) pertaining to necessary certifications. The proposed 
revisions would reorganize the required certifications in a format 
better suited for applicants to understand. HUD believes such clarity 
will help applicants prepare an application correctly and ensure that 
requests for missing certifications do not delay HUD's review. Another 
revision would correct an error in the current regulation and would 
require Section 108 applicants to certify that they must impose 
assessments on properties owned and occupied by moderate-income 
persons, to recover the non-guaranteed loan funded portion of the 
capital cost without paying such assessments on their behalf from 
guaranteed loan funds, instead of the current language which discusses 
only the ``guaranteed'' loan funded portion of the capital cost.
Loan Requirements
    The limitations on commitments at Sec.  570.705(a)(1)(iii) permit 
HUD to place a higher priority on applications containing activities to 
be carried out in areas designated as empowerment zones/enterprise 
communities by the Federal Government or a State. Statutory 
authorization for such activities has lapsed, removing the need to 
place a higher priority on activities carried out in such areas. 
Therefore, HUD proposes to delete the language in Sec.  
570.705(a)(1)(iii) referring to empowerment zones/enterprise 
communities and replace it with language describing areas designated as 
economically distressed by the Federal Government or by any State.
Security Requirements
    Security requirements outlined in Sec.  570.705(b) list examples of 
acceptable forms of additional security (other than CDBG funds) for 
loan guarantees that the loan guarantee contract between HUD and a 
borrower will specify. However, the limited examples of security may 
mislead potential applicants into believing that the regulations limit 
the security pledged for loan guarantees to the listed types of 
security. Publishing such information through guidance documents and 
marketing materials and engaging in direct outreach to potential 
applicants are clearer and more effective ways to communicate the types 
of security that a borrower may pledge. Therefore, HUD proposes to 
remove and reserve the examples of security HUD may accept at Sec.  
570.705(b)(3)(i) through (iv).
    Additionally, HUD proposes to delete subsections that are 
unnecessary or inconsistent with other provisions. Section 
570.705(a)(2)(iii)(A) through (C) appear to provide three methods of 
calculating limitations on commitments to guarantee loans for 
recipients that receive grants under subpart F. However, paragraph 
(a)(2)(iii)(A) is duplicative of 570.705(a)(2)(iii), and paragraphs 
(a)(2)(iii)(B) and (C), which allow for using an average of the three 
most recent grants, are inconsistent with Sec.  570.705(a)(2)(iii).

F. ICDBG Program

    HUD also proposes certain corresponding changes to Part 1003, where 
appropriate, that are intended to align the ICDBG program with the CDBG 
program.
Definitions Sec.  1003.4
    HUD proposes amending the Definitions section to include ``activity 
delivery costs.'' Similar to CDBG recipients and subrecipients, ICDBG 
recipients and subrecipients may incur costs typically referred to as 
``activity delivery costs'' related to carrying out specific ICDBG 
eligible activities. The ICDBG regulations do not specifically define 
this term; therefore, HUD proposes to add a definition at Sec.  1003.4. 
This addition makes clear that recipients and subrecipients must use 
the cost principles at 2 CFR part 200, subpart E, in determining the 
allowability of the costs. In particular, recipients and subrecipients 
must ensure that activity delivery costs consisting of staff salaries 
are allocable to the specific activity and adequately documented.
Eligible Activities Sec. Sec.  1003.201, 1003.202, 1003.203
Basic Eligible Activities
    HUD proposes to add a new Sec.  1003.201(r) to clarify that 
recipients can assist eligible activities if they are part of mixed-use 
properties that also contain ineligible uses, so long as the recipient 
expends ICDBG funds only on the eligible use. The proposed rule also 
would add a definition of ``mixed-use property'' to the new Sec.  
1003.201(r). This is a conforming change to the ICDBG regulations to 
align them with the proposed changes to the CDBG regulations in this 
proposed rule.
    Additionally, the Tornado Shelters Act (Pub. L. 108-146; 117 Stat. 
1883, enacted December 3, 2003) (42 U.S.C. 5301, note), authorized the 
construction or improvement of tornado shelters in certain 
neighborhoods and manufactured housing communities as an eligible 
activity under the CDBG program. Consistent with the change to Sec.  
570.201, HUD proposes to insert a provision at Sec.  1003.201(p) that 
would codify the use of ICDBG funds for tornado safe shelters as an 
eligible activity under certain conditions. As discussed above with 
respect to CDBG, this activity is already eligible under ICDBG. HUD is 
simply codifying in regulations a statutory change that has been 
codified in law for many years.
    Finally, consistent with CDBG, HUD proposes to add a new paragraph 
(q) to clarify that essential repairs and operating expenses necessary 
to maintain the habitability of housing units acquired through tax 
foreclosures is also an eligible activity.
Eligible Rehabilitation and Preservation Activities
    HUD proposes to amend Sec.  1003.202(a) to clarify that 
reconstruction of housing is an eligible ICDBG activity. Reconstruction 
of buildings or structures, including housing, has been an eligible 
ICDBG activity since 1996. However, the program regulations do not 
clearly and expressly identify reconstruction as an eligible activity 
related to housing. To make clear that reconstruction is an eligible 
activity under Sec.  1003.202(a), HUD proposes to add the words ``and 
reconstruction'' to the introductory language at Sec.  1003.202(a). 
This update will be a conforming change for the ICDBG regulations to 
align them with the same proposed changes to the CDBG regulations in 
this proposed rule.
Special Economic Development Activities
    HUD proposes to amend Sec.  1003.203(b) governing special economic 
development activities. Section 1003.203 governs the use of ICDBG funds 
for special economic development activities and includes an 
illustrative list of eligible forms of assistance to private for-profit 
businesses. The ICDBG regulations already list forms of support by 
which recipients can provide assistance to private, for-profit 
businesses where the assistance is appropriate to carry out an economic 
development project. HUD has previously interpreted this provision to 
allow ICDBG assistance to New Markets Tax Credit (NMTC) investment 
vehicles. The proposed revisions would explicitly indicate that ICDBG 
recipients are allowed to provide assistance to an economic development 
project through a for-profit entity that passes the funds through a 
financing mechanism (e.g., Qualified Opportunity Funds and NMTC 
investment vehicles). This update is a conforming change to the ICDBG 
regulations to align them with the same proposed changes to the CDBG 
regulations in this proposed rule.

[[Page 1763]]

Program Administration Costs Sec.  1003.206
    HUD proposes to amend Sec.  1003.206 to add a reference to the new 
proposed definition of ``activity delivery costs'' in Sec.  1003.4 to 
help ICDBG recipients distinguish between administrative costs and 
activity delivery costs. This update is a conforming change to the 
ICDBG regulations to align them with the proposed changes to the CDBG 
regulations in this proposed rule.
Criteria for Compliance With the Primary Objective Sec.  1003.208
    HUD's regulation at Sec.  1003.208 provides the criteria for 
determining whether an ICDBG-assisted activity complies with one or 
more of the national objectives. HUD proposes conforming changes to 
paragraphs (b), (c), and (d) Limited Clientele activities, Low- and 
Moderate-Income Housing Activities, and Job creation or retention 
activities. This update is a conforming change to the ICDBG regulations 
to align them with the proposed changes to the CDBG regulations in this 
proposed rule.
    With respect to Limited Clientele activities, HUD proposes 
revisions to paragraph (b) to clarify requirements and provide better 
guidance to recipients. Consistent with the reasons stated above in 
section III.E with respect to the CDBG program, HUD proposes to clarify 
in the ICDBG program that the presumed LMI group of ``illiterate 
adults'' means adults unable to read and write in English and in their 
first language, if the adult's first language is not English. HUD also 
proposes to broaden the application of the presumed LMI group of 
``battered spouses'' to cover all survivors of domestic violence. The 
current category of ``battered spouses'' limits the presumption to 
spouses. However, unmarried survivors of violence may be presumed to be 
LMI. Therefore, HUD proposes to remove ``battered spouses'' from the 
presumed categories of LMI persons and replace it with ``survivors of 
domestic violence.'' HUD interprets ``battered spouses'' to be a 
subcategory of ``survivors of domestic violence'' still presumed to be 
LMI under the ICDBG regulations. As stated earlier, HUD also proposes 
to interpret survivors of human trafficking to be a subcategory of 
homeless persons, which is presumed to be LMI under these provisions, 
in order to ensure that they have access to the benefits and services 
necessary for their safety, protection, and basic wellbeing.
    Finally, HUD proposes to add categories of groups of persons at 
Sec.  1003.208(b)(1)(i) that, when served exclusively or in combination 
with groups of persons in other listed categories, may be presumed to 
benefit persons, 51 percent of whom are LMI, barring any evidence to 
the contrary: persons who meet the Federal poverty guidelines and 
persons who are insured by Medicaid. As stated in reference to the same 
changes being proposed in CDBG in Sec. Sec.  570.208(a)(2) and 
570.483(b)(2), the Federal poverty guidelines, established by the 
Department of Health and Human Services based on poverty thresholds 
published by the Census Bureau, estimate the minimum amount of income 
needed to cover basic needs. Medicaid coverage varies by State and 
other eligibility requirements, but income qualification is generally 
less than four times the Federal poverty guidelines. Further, while 
nearly all jurisdictions in the U.S. have more LMI persons than persons 
in poverty, in a small number of jurisdictions more persons are in 
poverty than are LMI. Allowing ICDBG grantees to presume that persons 
in poverty are LMI will address such anomalies and simplify 
requirements across other Federal programs that also provide benefits 
to persons who meet the Federal poverty guidelines.
    With respect to the Low- and Moderate-Income Housing activities in 
paragraph (c), to demonstrate compliance with the LMI housing national 
objective, an ICDBG-assisted residential structure must be occupied by 
LMI households. Meeting the LMI housing national objective is based on 
households rather than individuals or families. A household is all the 
persons that occupy a housing unit, whether related or unrelated. 
Meeting the LMI housing national objectives criteria is also based on 
the number of housing units. Generally, ICDBG funds may only be used to 
assist housing units occupied by LMI households. Accordingly, in order 
for an activity to meet the LMI housing national objective, each 
single-unit structure that is assisted with ICDBG funds must be 
occupied by an LMI household. When ICDBG funds are used to assist a 
two-unit structure, to meet the LMI housing national objective, at 
least one unit must be so occupied. Where there are three or more units 
in a structure, a minimum of 51 percent of the units must be occupied 
by LMI households. ICDBG-assisted activities that may meet this 
national objective include homeownership assistance, housing 
rehabilitation (single and multifamily), and acquisition of real 
property where a recipient or subrecipient will construct housing units 
using another funding source.
    Some exceptions permit eligible activities to meet the LMI housing 
national objective where less than 51 percent of multifamily units are 
occupied by LMI households. Such activities include assistance for an 
eligible activity to reduce the development cost of the new 
construction of a multifamily, non-elderly rental housing project where 
not less than 20 percent of the units will be occupied by LMI 
households at affordable rents. In addition, the proportion of the 
total cost of developing the project to be paid with ICDBG funds must 
be no more than the proportion of units in the project that will be 
occupied by LMI households. The proposed rule would add as additional 
exceptions substantial rehabilitation and conversion of a 
nonresidential structure to a multifamily, non-elderly rental housing 
project. This change would align treatment of substantial 
rehabilitation with new construction, as is also proposed in the CDBG 
section 24 CFR 570.208(a)(3)(i) and 570.483(b)(3) of this rule for 
purposes of meeting the national objectives criteria for housing 
activities.
    Finally, with respect to job creation or retention activities in 
paragraph (d), documenting whether a job is held by or made available 
to an LMI person can present a financial and administrative burden on 
ICDBG recipients due to the data that recipients must gather and 
collect from assisted businesses. This aligns with changes proposed in 
CDBG regulations at 24 CFR 570.208(a)(4) and 570.483(b)(4) above. As 
noted there, to help alleviate this burden, HUD is proposing to revise 
the regulations to add a presumption based on the location of an 
assisted business and based on where the person holding the job 
resides. The revised regulation would provide that, for purposes of 
determining whether a job is held by or made available to a low or 
moderate income person, the person may be presumed to be a low or 
moderate income person if: he/she resides within a census tract where 
not less than 70 percent of the residents have incomes at or below 80 
percent of the area median; or, if he/she resides in a census tract 
designated as economically distressed by the Federal Government; or, if 
the assisted business is located in and the job under consideration is 
to be located in such a tract or area. Revising the criteria for the 
presumption would significantly clarify the standards for recipients 
and encourage greater use of ICDBG funds for job creation and

[[Page 1764]]

retention activities in many Tribal communities.
Reports Sec.  1003.506
    HUD is proposing to amend the due dates for annual status and 
evaluation reports (ASERs) in Sec.  1003.506(a) to accommodate ICDBG 
grantees that have a Tribal program year different than the Federal 
Fiscal year. The term ``Tribal program year'' is defined in the Indian 
Housing Block Grant (IHBG) regulations at Sec.  1000.10 as the fiscal 
year of the IHBG recipient. Under the proposed rule, ASERs would be due 
90, rather than 45 days, after the end of the grantee's Tribal program 
year, or after the end of the Federal fiscal year if the grantee has a 
Tribal program year that ends on the same date the Federal fiscal year 
ends. The amendment would align the ASER due dates with the due dates 
for Annual Performance Reports under the IHBG program to assist 
grantees of both programs to more easily track and schedule submission 
of reports due to HUD. ASERs would also continue to be required at 
grant close-out in accordance with the requirements of Sec.  1003.508.
    HUD also proposes to revise the language in Sec.  1003.506(a) with 
respect to the form of ASER reports. The current regulation requires a 
narrative for the ASER which has resulted in significant variations in 
the reports submitted as well as difficulty in capturing relevant and 
useful data. HUD intends in the future, through the PRA process, to 
develop and promulgate a standardized ASER form with drop down boxes 
and set data points to assist recipients in meeting the reporting 
requirements in a consistent manner, which will both improve the 
usefulness of the data received and facilitate data retention and 
analysis. The proposed revision to the current language will make it 
easier for HUD to implement such a form in the future.
Conflict of Interest Sec.  1003.606
    To clarify and standardize the meaning of the term ``public 
disclosure,'' HUD proposes to add language to Sec.  1003.606 that would 
define public disclosure as disclosure through any of the following 
media: publication on the recipient's website, including social media; 
electronic mailings; media advertisements; public service 
announcements; and display in public areas such as libraries, grocery 
store bulletin boards, and neighborhood centers. Currently, Sec.  
1003.606 requires that when recipients request that HUD consider an 
exception to the conflict-of-interest requirements, recipients must 
have documentation of disclosure of the nature of the conflict 
accompanied by an assurance that there has been a public disclosure of 
the conflict and a description of how the public disclosure was made. 
The regulations do not make clear what ``public disclosure'' means. 
Some recipients define public disclosure as public hearings or 
publication in a newspaper of general local circulation; others believe 
that posting it on the recipient's website is sufficient. This update 
will clarify the meaning of the term and is a conforming change for the 
ICDBG regulations to align them with the proposed changes to the CDBG 
regulations in this proposed rule. HUD also clarifies the existing 
requirement to make it explicit that grantees must provide HUD evidence 
of the public disclosure.

G. Technical Corrections and Outdated Provisions

    HUD proposes the following technical corrections:
    Sections 91.225(b)(2) (for entitlement recipients) and 91.325(b)(3) 
(for State recipients) refer to Sec.  570.2 in certifying the 
consolidated housing and community development plan; however, Sec.  
570.2 was removed from the regulations in 1996. The provisions should 
instead refer to implementing the primary objective of the Act at Sec.  
570.200(a)(3). Therefore, HUD proposes to replace the citation to Sec.  
570.2 with a citation to Sec.  570.200(a)(3).
    HUD proposes to correct a typographical error in Sec.  570.201(k), 
which refers to section 105(a)(21) of the Act concerning assistance to 
institutions of higher education but should instead refer to housing 
services activities under section 105(a)(20) of the Act.
    HUD proposes to redesignate Sec.  570.205(a)(6) as Sec.  
570.205(b), as HUD originally intended policy, planning, management, 
and capacity building activities to be a subheader for the activities 
below and separate from paragraph (a).
    HUD proposes to correct a reference in Sec.  570.207 to a non-
existent section of Sec.  570.3. The definitions in section 570.3 are 
undesignated; however, Sec.  570.207(a)(1) contains a reference to 
Sec.  570.3(d), which does not exist.
    HUD proposes to correct Sec.  570.208(d)(5), which refers to Sec.  
91.215(e) in discussing area revitalization strategy areas, but should 
refer to Sec.  91.215(g), which discusses neighborhood revitalization.
    HUD proposes to correct references in Sec.  570.307 to non-existent 
sections of Sec.  570.3. The definitions in section 570.3 are 
undesignated; however, Sec.  570.307(b)(1) and (d)(1) both contain 
references to Sec.  570.3(3), which does not exist.
    HUD proposes to correct Sec. Sec.  570.482(c)(1) and 
570.482(c)(2)(i), which cite to section 105(a)(23) of the Act, which 
concerns treatment of property acquired in tax foreclosure proceedings; 
but should instead cite to section 105(a)(22) of the Act, which 
discusses microenterprise assistance activities.
    HUD proposes to restore Sec.  570.489(e)(3)(ii)(C), which was 
mistakenly omitted from the Code of Federal Regulations in 2015.
    HUD proposes to correct the citation in Sec.  570.490(a)(2) to 
Sec.  91.320(j)(1), which should instead be to CDBG requirements in the 
action plan at Sec.  91.320(k)(1).
    HUD proposes to correct Sec.  570.504(c) regarding the disposition 
of program income by subrecipients, which states that subrecipients 
holding program income after the expiration of a subrecipient agreement 
shall pay such funds to the recipient as required by Sec.  
570.503(b)(8). However, the correct citation is to Sec.  570.503(b)(7).
    The proposed rule would delete subparts E and G of part 570. 
Subpart E governs a variety of special purpose grants that no longer 
exist. Subpart G governs Urban Development Action Grants, which 
likewise no longer exist. In concert, HUD proposes revisions to remove 
references to subparts E and G in the definition of ``CDBG funds'' at 
Sec.  570.3; the conflict-of-interest requirements at Sec.  
570.611(a)(2); and subpart K applicability at Sec.  570.600(a).
    The proposed rule would also remove Sec.  570.613, ``Eligibility 
restrictions for certain resident aliens.'' This section provides 
restrictions for ``certain newly legalized aliens'' as they were 
described in 24 CFR part 49, which no longer exists. The rule was 
intended to address the 1986 amendments to the Immigration and 
Naturalization Act of 1952, which prohibited certain noncitizens from 
receiving Federal financial assistance furnished on the basis of 
financial need for a period of five years. (Section 245A(h) of the 
Immigration and Nationality Act, 8 U.S.C. 1255a(h)). As this provision 
applied to newly legalized aliens that entered the country before 
January 1, 1982, and admitted for lawful residence in accordance with 
the 1986 amendments, HUD has removed 24 CFR part 49, which described 
this population, and is now removing the regulation that referenced 
this statutory requirement.
    HUD proposes to revise Uniform Relocation Act (URA) citations in 
the CDBG and ICDBG program regulations

[[Page 1765]]

(Sec. Sec.  570.606 and 1003.602) to update an outdated URA regulatory 
citation (49 CFR 24.2(g)(2)). The URA regulatory citation changed to 49 
CFR 24.2(a)(9)(ii) in the 2005 URA final rule but was never updated in 
the CDBG and ICDBG program regulations.

H. Interaction of This Proposed Rule With HUD's Proposed Rule on 
Affirmatively Furthering Fair Housing

    HUD acknowledges that this proposed rule proposes to amend sections 
of the Code of Federal Regulations that HUD has also previously 
proposed to amend in its Affirmatively Furthering Fair Housing (AFFH 
NPRM), published February 9, 2023 (88 FR 8516). Both rules propose 
amendments to Sec. Sec.  91.105(b)(2) and (c) and 91.115(b)(2). The 
AFFH NPRM and this NPRM propose to amend these provisions in different 
ways that do not conflict with each other.
    HUD will consider public comments received on each proposed rule. 
The public comment period on the AFFH NPRM closed on April 24, 2023, 
and HUD is considering the public comments received on the AFFH NPRM's 
proposed changes to the referenced provisions as part of that 
rulemaking. HUD invites the public to comment on the revisions and 
additions proposed as part of this rulemaking.
    Although the proposed regulatory amendments in this NPRM do not 
reflect the amendments proposed in the AFFH NPRM, HUD intends this rule 
to ultimately be consistent with a final AFFH rule. HUD will consider 
all relevant comments received on the AFFH NPRM, as well as on this 
NPRM. HUD will reconcile the regulatory language in its final rules, 
ensuring that the final version of this rule, if published after a 
final AFFH rule is codified, is consistent with all changes made in 
that published final AFFH rule.
    For example, both NPRMs propose to add new language to 24 CFR 
91.115(b)(2). The AFFH NPRM proposes to apply certain requirements of 
this provision to the Equity Plans that could be established by an AFFH 
final rule. The proposed language in this NPRM does not account for 
such Equity Plan requirements since that is not the subject of this 
rulemaking. However, if HUD adds Equity Plan requirements to 24 CFR 
91.115(b)(2) in its AFFH final rule, a subsequent final rule published 
as part of this rulemaking will include that change, and appropriately 
reconcile the additions made in each rule.

IV. Findings and Certifications

Regulatory Review (Executive Orders 12866, 13563, and 14094)

    Pursuant to Executive Order 12866 (Regulatory Planning and Review), 
a determination must be made whether a regulatory action is 
significant, and therefore, subject to review by OMB in accordance with 
the requirements of the order. Executive Order 13563 (Improving 
Regulations and Regulatory Review) directs executive agencies to 
analyze regulations that are ``outmoded, ineffective, insufficient, or 
excessively burdensome, and to modify, streamline, expand, or repeal 
them in accordance with what has been learned.'' Executive Order 13563 
also directs that, where relevant, feasible, and consistent with 
regulatory objectives, and to the extent permitted by law, agencies are 
to identify and consider regulatory approaches that reduce burdens and 
maintain flexibility and freedom of choice for the public. Executive 
Order 14094 entitled ``Modernizing Regulatory Review'' (hereinafter 
referred to as the ``Modernizing E.O.'') amends section 3(f) of 
Executive Order 12866 (Regulatory Planning and Review), among other 
things.
    HUD believes that this proposed rule, by revising the Community 
Development Block Grant (CDBG) and related Section 108 loan guarantee 
program regulations to make it easier for recipients to promote 
economic development and recovery in low- and moderate-income 
communities and support investments in underserved areas, together with 
corresponding changes in the ICDBG program, will increase the 
effectiveness of these grant programs. The proposed rule has been 
determined to be a ``significant regulatory action,'' as defined in 
section 3(f) of Executive Order 12866, but not economically significant 
under section 3(f)(1) of the Order. The docket file is available for 
public inspection online at www.regulations.gov.

Paperwork Reduction Act

    The information collection requirements contained in this rule are 
currently approved by OMB and have been given OMB Control Numbers 2506-
0077, 2506-0085, and 2577-0191. 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.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (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 analysis also 
considers the potential impact on Indian Tribes.
    As discussed in the preamble, the proposed rule would update CDBG's 
and ICDBG's economic development regulations to make it easier for 
recipients to promote economic development and recovery in low- and 
moderate-income communities and support investments in underserved 
areas. Because the CDBG economic development regulations and standards 
have not been updated since 1995, the proposed rule would provide a 
much-needed update to ease the expenditure of funds for economic 
development activities. The proposed rule would lessen the economic 
impact on grantees, small entities and recipients by reducing 
eligibility and recordkeeping burdens. This would likely result in 
increased economic development activities and the associated creation 
of economic opportunities principally for low- and moderate-income 
persons.
    The proposed rule would primarily impact CDBG, Section 108 
borrowers, and ICDBG grantees. CDBG grantees and section 108 borrowers 
are State and local governments, some of which are small government 
entities, and ICDBG grantees are Indian Tribes and Tribal organizations 
which are eligible under Title I of the Indian Self-Determination and 
Education Assistance Act. These grantees administer the CDBG, section 
108, and ICDBG programs, are familiar with the regulatory requirements, 
and are ultimately responsible for program compliance. While some 
impacts may filter down to smaller governmental and non-governmental 
entities, the expected impact would be a decrease in economic burden, 
as discussed above. As such, the proposed rule would likely have a 
positive impact on small businesses and entities. The purpose of the 
proposed rule would be to make more funding available for all types of 
economic development projects. For small entities, including small 
governments, the lessening of regulatory burden would likely benefit 
those that receive CDBG, ICDBG, and section 108 funds.
    Accordingly, it is HUD's determination that this proposed rule will 
not have a significant economic impact on a substantial number of small

[[Page 1766]]

entities. Notwithstanding HUD's determination that this proposed rule 
will not have a significant effect on a substantial number of small 
entities, HUD specifically invites comments regarding any less 
burdensome alternatives to this proposed rule that will meet HUD's 
objectives as described in this preamble.

Environmental Review

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969 (42 U.S.C. 4332(2)(C)). The Finding of No Significant 
Impact is available for public inspection between the hours of 8 a.m. 
and 5 p.m. weekdays in the Regulations Division, Office of General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street SW, Washington, DC 20410-0500. The FONSI is also 
available through the Federal eRulemaking Portal at http://www.regulations.gov.

Federalism (Executive Order 13132)

    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 the Act does not require those costs; or the rule 
preempts State law, unless the agency meets the consultation and 
funding requirements of section 6 of the Executive Order. This proposed 
rule does not have federalism implications and does not impose 
substantial direct compliance costs on State and local governments nor 
preempt State law within the meaning of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for Federal agencies to 
assess the effects of their regulatory actions on State, local, and 
Tribal governments, and on the private sector. This proposed rule does 
not impose any Federal mandates on any State, local, or Tribal 
governments, or on the private sector, within the meaning of UMRA.

Consultation With Indian Tribes (Executive Order 13175)

    HUD strives to strengthen its government-to-government relationship 
with Indian Tribes through a commitment to consultation with Indian 
Tribes and recognition of their right to self-governance and Tribal 
sovereignty. HUD has evaluated this proposed rule under the 
Department's consultation policy and under the criteria in Executive 
Order 13175 and has determined that Tribal consultation is necessary 
regarding the proposed changes. A Dear Tribal Leader was sent out to 
Indian Tribes on November 15, 2021, seeking comments on the proposed 
changes to the ICDBG regulations in this proposed rule. HUD received 
comments from two Tribes and one grant writer with experience providing 
grant writing services to Tribes under the ICDBG program. The three 
Tribal commenters were generally supportive of the proposed rule. Two 
of the three commenters did suggest additional areas for expansion of 
the proposed rule and/or areas that may be appropriate for separate 
rulemaking. Among the suggestions were clarification of the term 
``economically distressed'' as it relates to census tracts and overall 
improvements to the ICDBG application process. One Tribal commenter 
expressed general agreement with the proposed changes but went on to 
comment that the entire ICDBG regulation is overdue for an overhaul. 
Among this commenter's specific concerns were rules governing the use 
of ICDBG funds for new housing construction and rehabilitation, as well 
as HUD's weighting of criteria in Notices of Funding Opportunity. In 
developing this proposed rule, HUD considered all Tribal feedback 
provided and HUD will conduct additional consultation before issuing a 
final rule.

List of Subjects

24 CFR Part 91

    Aged, Grant programs--housing and community development, Homeless, 
Individuals with disabilities, Low- and moderate-income housing, 
Reporting and recordkeeping requirements.

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.

24 CFR Part 1003

    Alaska; Community development block grants; Grant programs--housing 
and community development; Grant programs--Indians; Indians; Reporting 
and recordkeeping requirements.

    Accordingly, for the reasons described in the preamble, HUD 
proposes to amend 24 CFR parts 91, 570, and 1003 as follows:

PART 91--CONSOLIDATED SUBMISSIONS FOR COMMUNITY PLANNING AND 
DEVELOPMENT PROGRAMS

0
1. The authority citation for part 91 continues to read as follows:

    Authority:  42 U.S.C. 3535(d), 3601-3619, 5301-5315, 11331-
11388, 12701-12711, 12741-12756, and 12901-12912.

0
2. Amend Sec.  91.105 by revising paragraphs (b)(2) and (c)(1) to read 
as follows:


Sec.  91.105   Citizen participation plan; local governments.

* * * * *
    (b) * * *
    (2) The citizen participation plan must require the jurisdiction to 
publish the proposed consolidated plan in a manner that affords its 
residents, public agencies, and other interested parties a reasonable 
opportunity to examine its content and to submit comments. The citizen 
participation plan must set forth how the jurisdiction will publish the 
proposed consolidated plan and give reasonable opportunity to examine 
the document's content. The requirement for publishing may be met by 
publication of a summary of the document in one or more newspapers of 
general circulation or on the jurisdiction's official government 
website. The summary must describe the content and purpose of the 
consolidated plan and must include a list of the locations where copies 
of the entire proposed document may be examined. Such listings of 
locations shall include libraries and government offices. A 
jurisdiction is encouraged to use all available social media and 
electronic communication at its disposal to make citizens and residents 
aware of the availability of the proposed consolidated plan for comment 
and to include such methods in its citizen participation plan, as 
appropriate. This includes but is not limited to: emails; text 
messaging (SMS); media advertisements; public service announcements 
made through broadcast media or through a pre-recorded message 
delivered by using an automatic telephone dialing system; and 
electronic notifications to public and private agencies identified in 
accordance with Sec.  91.100. A jurisdiction may also make citizens and 
residents

[[Page 1767]]

aware of the availability of the proposed consolidated plan for comment 
through postings in public places, such as grocery store bulletin 
boards and neighborhood centers. Publications must be accessible to 
persons with disabilities. Publications must also provide meaningful 
access to limited English proficient persons as more fully described in 
paragraph (a)(4) of this section. In addition, the jurisdiction must 
provide a reasonable number of free hardcopies of the plan to residents 
and groups that request it.
* * * * *
    (c) * * *
    (1) The citizen participation plan must specify the criteria the 
jurisdiction will use for determining what changes in the 
jurisdiction's planned or actual activities constitute a substantial 
amendment to the consolidated plan. (See Sec.  91.505.) The citizen 
participation plan must include, among the criteria for a substantial 
amendment, changes in the use of CDBG funds from one eligible activity 
to another and adding an activity not previously identified in the 
Consolidated Plan or Action Plan.
* * * * *
0
3. Amend Sec.  91.115 by revising paragraph (b)(2) to read as follows:


Sec.  91.115   Citizen participation plan; States.

* * * * *
    (b) * * *
    (2) The citizen participation plan must require the State to 
publish the proposed consolidated plan in a manner that affords 
residents, units of general local governments, public agencies, and 
other interested parties a reasonable opportunity to examine the 
document's content and to submit comments. The citizen participation 
plan must set forth how the State will make publicly available the 
proposed consolidated plan and give reasonable opportunity to examine 
the document's content. To ensure that the consolidated plan and the 
PHA plan are informed by meaningful community participation, program 
participants should employ communications means designed to reach the 
broadest audience. The requirement for publishing may be met by 
publication of a summary of the document in one or more newspapers of 
general circulation or on the State's official government website. The 
summary must describe the content and purpose of the consolidated plan 
and must include a list of the locations where copies of the entire 
proposed document may be examined. Such listings of locations shall 
include libraries and government offices. A State is encouraged to use 
all available social media and electronic communication at its disposal 
to make citizens and residents aware of the availability of the 
proposed consolidated plan for comment and to include such methods in 
its citizen participation plan, as appropriate. This includes but is 
not limited to, emails, text messaging (SMS); media advertisements, 
public service announcements made through broadcast media or through a 
pre-recorded message delivered by using an automatic telephone dialing 
system, and electronic notifications to public and private agencies 
identified in accordance with Sec.  91.100. A State may also make 
citizens and residents aware of the availability of the proposed 
consolidated plan for comment through postings in public places such as 
grocery store bulletin boards and neighborhood centers. Publications 
must be accessible to persons with disabilities. Publications must also 
provide meaningful access to limited English proficient persons as more 
fully described in paragraph (a)(4) of this section. In addition, the 
State must provide a reasonable number of free copies of the plan to 
its residents and groups that request a copy of the plan.
* * * * *
0
4. Amend Sec.  91.205 by revising paragraph (a) to read as follows:


Sec.  91.205   Housing and homeless needs assessment.

    (a) General. The consolidated plan must provide a concise summary 
of the jurisdiction's estimated housing needs (including manufactured 
housing) projected for the ensuing five-year period. Housing data 
included in this portion of the plan shall be based on U.S. Census 
data, as provided by HUD, as updated by any properly conducted local 
study, or any other reliable source that the jurisdiction clearly 
identifies and should reflect the consultation with social service 
agencies and other entities conducted in accordance with Sec.  91.100 
and the citizen participation process conducted in accordance with 
Sec.  91.105. For a jurisdiction seeking funding on behalf of an 
eligible metropolitan statistical area under the HOPWA program, the 
needs described for housing and supportive services must address the 
unmet needs of low-income persons with HIV/AIDS and their families 
throughout the eligible metropolitan statistical area.
* * * * *
0
5. Amend Sec.  91.210 by revising paragraph (a)(1) to read as follows:


Sec.  91.210   Housing market analysis.

    (a) * * *
    (1) Based on information available to the jurisdiction, the plan 
must describe the significant characteristics of the jurisdiction's 
housing market, including the supply, demand, and condition and cost of 
housing and the housing stock (including manufactured housing) 
available to serve persons with disabilities, and to serve other low-
income persons with special needs, including persons with HIV/AIDS and 
their families.
* * * * *
0
6. Amend Sec.  91.215 by revising paragraphs (a)(1) and (g) to read as 
follows:


Sec.  91.215   Strategic plan.

    (a) * * *
    (1) Indicate the general priorities for allocating investment 
geographically within the jurisdiction and among different eligible 
activities and needs. Also provide quantitative, neighborhood-level 
outcome goal accomplishments in the performance report as required at 
Sec.  91.520.
* * * * *
    (g) Neighborhood revitalization. Jurisdictions are encouraged to 
identify locally designated areas where geographically targeted 
revitalization efforts are carried out through multiple activities in a 
concentrated and coordinated manner. Such areas may include those 
designated as economically distressed by the Federal Government or by 
the State that exhibit significantly high levels of poverty or low 
median income. In addition, a jurisdiction may elect to carry out a 
HUD-approved neighborhood revitalization strategy that includes the 
economic empowerment of low-income residents with respect to one or 
more of its areas. If HUD approves such a strategy, the jurisdiction 
can obtain greater flexibility in the use of the CDBG funds in the 
revitalization area(s) as described in 24 CFR part 570, subpart C. This 
strategy must identify long-term and short-term objectives (e.g., 
physical improvements, social initiatives and economic empowerment), 
expressing them in terms of measures of outputs and outcomes the 
jurisdiction expects to achieve in the neighborhood through the use of 
HUD programs.
* * * * *


Sec.  91.225   [Amended]

0
7. Amend Sec.  91.225 in paragraph (b)(2) by removing ``24 CFR 570.2'' 
and adding in its place ``24 CFR 570.200(a)(3)''.
0
8. Amend Sec.  91.305 by revising paragraph (a) to read as follows:

[[Page 1768]]

Sec.  91.305   Housing and homeless needs assessment.

    (a) General. The consolidated plan must provide a concise summary 
of the State's estimated housing needs (including manufactured housing) 
projected for the ensuing five-year period. Housing data included in 
this portion of the plan shall be based on U.S. Census data, as 
provided by HUD, as updated by any properly conducted local study, or 
any other reliable source that the State clearly identifies and should 
reflect the consultation with social service agencies and other 
entities conducted in accordance with Sec.  91.110 and the citizen 
participation process conducted in accordance with Sec.  91.115. For a 
State seeking funding under the HOPWA program, the needs described for 
housing and supportive services must address the unmet needs of low-
income persons with HIV/AIDS and their families in areas outside of 
eligible metropolitan statistical areas.
* * * * *
0
9. Amend Sec.  91.310 by revising paragraph (a)(1) to read as follows:


Sec.  91.310   Housing market analysis.

    (a) * * *
    (1) Based on data available to the State, the plan must describe 
the significant characteristics of the State's housing markets 
(including such aspects as the supply, demand, condition, cost, and 
type of housing, including manufactured housing).
* * * * *


Sec.  91.325   [Amended]

0
10. Amend Sec.  91.325 in paragraph (b)(3) by removing ``24 CFR 570.2'' 
and adding in its place ``24 CFR 570.200(a)(3)''.
0
11. Amend Sec.  91.500 by revising the section heading and adding a 
sentence at the end of paragraph (a) to read as follows:


Sec.  91.500   HUD Review of consolidated plan.

    (a) * * * The fact that HUD has not disapproved the plan does not 
constitute approval of the activities identified therein as meeting the 
applicable statutory and regulatory requirements.
* * * * *
0
12. Amend Sec.  91.520 by adding a sentence at the end of paragraph (d) 
to read as follows:


Sec.  91.520   Performance reports.

* * * * *
    (d) * * * Except for States, the report shall also identify 
quantitative, neighborhood-level outcome goal accomplishments related 
to one or more non-jurisdiction-wide activities.
* * * * *

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

0
13. The authority citation for part 570 continues to read as follows:

    Authority:  12 U.S.C. 1701x, 1701 x-1; 42 U.S.C. 3535(d) and 
5301-5320.

0
14. Amend Sec.  570.3 as follows:
0
a. Add in alphabetical order a definition for ``Activity delivery 
costs'';
0
b. Revise the definition of ``CDBG funds'';
0
c. Add in alphabetical order a definition for ``Elderly'';
0
d. Revise the definition for ``Entitlement amount''; and
0
e. Add in alphabetical order definitions for ``Mixed-use property'' and 
``Period of performance''.
    The additions and revisions read as follows:


Sec.  570.3   Definitions.

* * * * *
    Activity delivery costs means the allowable costs of work performed 
by a recipient or subrecipient in carrying out specific activities 
eligible under Sec. Sec.  570.201 through 570.204 and 570.703. The cost 
principles at 2 CFR part 200, subpart E, must be used in determining 
the allowability of the costs.
* * * * *
    CDBG funds means Community Development Block Grant funds, including 
funds received in the form of grants under subpart D or F of this part, 
funds awarded under section 108(q) of the Housing and Community 
Development Act of 1974, guaranteed loan funds under subpart M of this 
part, urban renewal surplus grant funds, and program income as defined 
in Sec.  570.500(a).
* * * * *
    Elderly means, for activities pursuant to Sec.  570.202, a person 
62 years of age or older. For all other activities, CDBG recipients and 
subrecipients are permitted to define ``elderly'' consistent with State 
law.
    Entitlement amount means the amount of funds which a metropolitan 
city, urban county, or principal city as designated by OMB is entitled 
to receive under the Entitlement grant program, as determined by 
formula set forth in section 106 of the Act.
* * * * *
    Mixed-use property means a property containing multiple uses, at 
least one of which must be eligible to be assisted with CDBG funds.
* * * * *
    Period of performance means the time period beginning on HUD's 
approval of a grant agreement for a given grant and ending six years 
from that date. For loan guarantees issued pursuant to subpart M of 
this part, the period of performance means the time period beginning on 
the date of HUD's guarantee of a promissory note or other obligation 
and ending six years from that date.
* * * * *
0
15. Amend Sec.  570.200 by revising paragraphs (a)(2) and (3), (b)(1), 
and (h)(1)(iii) to read as follows:


Sec.  570.200   General policies.

    (a) * * *
    (2) Compliance with national objectives. Grant recipients under the 
Entitlement and HUD-administered Small Cities programs and recipients 
of insular area funds under section 106 of the Act must certify that 
their projected use of funds has been developed so as to give maximum 
feasible priority to activities which will carry out one of the 
national objectives of benefit to low- and moderate-income families or 
aid in the prevention or elimination of slums or blight. The projected 
use of funds may also include activities that the recipient certifies 
are designed to meet other community development needs having a 
particular urgency because existing conditions pose a serious and 
immediate threat to the health or welfare of the community where other 
financial resources are not available to meet such needs. Consistent 
with the foregoing, each recipient under the Entitlement or HUD-
administered Small Cities programs, and each recipient of insular area 
funds under section 106 of the Act must ensure and maintain evidence 
that each of its activities assisted with CDBG funds meets one of the 
three national objectives contained in its certification. A recipient 
must demonstrate that each activity meets a national objective within 
six years of the date of the initial drawdown of CDBG funds for that 
activity or the length of the period of performance and any extension 
permitted under Sec.  570.509, whichever is shorter. Criteria for 
determining whether an activity addresses one or more of these 
objectives are found in Sec.  570.208.
    (3) Compliance with the primary objective. The primary objective of 
the Act is described in section 101(c) of the Act. Consistent with this 
objective, entitlement recipients, non-entitlement CDBG grantees in 
Hawaii, and recipients of insular area funds under section 106 of the 
Act must ensure that, over a period of time specified in their 
certification not to exceed three years, not less than 70 percent of 
the aggregate

[[Page 1769]]

of CDBG fund expenditures shall be for activities meeting the criteria 
under Sec.  570.208(a) or (d)(5) or (6) for benefiting low- and 
moderate-income persons. Grantees are not permitted to expend more CDBG 
funds for activities that benefit low- and moderate-income persons 
during the following certification period to meet this requirement. For 
grants under section 107 of the Act, insular area recipients must meet 
this requirement for each separate grant. See Sec.  570.420(d)(3) for 
additional discussion of the primary objective requirement for insular 
areas funded under section 106 of the Act. The requirements for the 
HUD-administered Small Cities program in New York are at Sec.  
570.420(d)(2). In determining the percentage of funds expended for such 
activities:
* * * * *
    (b) * * *
    (1) Mixed-use properties containing both eligible and ineligible 
uses. CDBG funds may be used to assist eligible activities even if the 
assisted activity is part of a multiple-use property containing one or 
more ineligible uses, if:
    (i) The assisted activity is eligible and will occupy a designated 
and discrete area within the larger property; and
    (ii) The recipient can determine the costs attributable to the 
eligible activity as separate and distinct from the overall costs of 
the multiple-use property.
    (iii) Allowable costs are limited to those allocable to the 
eligible activity.
* * * * *
    (h) * * *
    (1) * * *
    (iii) The costs and activities funded are in compliance with the 
requirements of this part and with applicable Environmental Review 
Procedures in 24 CFR part 58.
* * * * *
0
16. Amend Sec.  570.201 as follows:
0
a. Revise paragraph (a) and paragraph (e) introductory text;
0
b. Redesignate paragraphs (e)(1) and (2) as (e)(2)(i) and (ii), 
paragraphs (e)(2)(i) and (ii) as (e)(2)(ii)(A) and (B); and paragraphs 
(e)(2)(ii)(A) through (D) as (e)(2)(ii)(B)(1) through (4);
0
c. Add new paragraph (e)(1) and new paragraph (e)(2) introductory text;
0
d. Remove the ``(a)(21)'' and add in its place ``(a)(20)'' in paragraph 
(k);
0
e. Remove and reserve paragraph (m);
0
f. Revise paragraph (p); and
0
g. Add paragraphs (r) and (s);
    The revisions and additions to read as follows:


Sec.  570.201   Basic eligible activities.

* * * * *
    (a) Acquisition. Acquisition in whole or in part by the recipient, 
or other public or private nonprofit entity, by purchase, long-term 
lease (defined as a lease with a term of 15 years or more), donation, 
or otherwise, of real property (including air rights, water rights, 
rights-of-way, easements, and other interests therein) for any public 
purpose, subject to the limitations of Sec.  570.207.
* * * * *
    (e) Public services. Provision of public services (including labor, 
supplies, and materials) including but not limited to those concerned 
with employment, crime prevention, child care, health, drug abuse, 
education, fair housing counseling, energy conservation, welfare (but 
excluding the provision of income payments identified under Sec.  
570.207(b)(4)), homebuyer downpayment assistance, or recreational 
needs. If housing counseling, as defined in 24 CFR 5.100, is provided, 
it must be carried out in accordance with 24 CFR 5.111.
    (1) To be eligible for CDBG assistance, a public service must 
either be a new service or provide a quantifiable increase in the level 
of an existing service above that which has been provided by or on 
behalf of the unit of general local government (through funds raised by 
the unit or received by the unit from the State in which it is located) 
in the 12 calendar months before the submission of the action plan. (An 
exception to this requirement may be made if HUD determines that any 
decrease in the level of a service was the result of events not within 
the control of the unit of general local government.)
    (2) The amount of CDBG funds used for public services shall not 
exceed the amounts outlined in paragraph (e)(2)(i) or (ii) of this 
section, as applicable:
* * * * *
    (p) Technical assistance. Provision of technical assistance to 
public or nonprofit entities to increase the capacity of such entities 
to carry out specific eligible neighborhood revitalization or economic 
development activities. (The recipient must determine, prior to the 
provision of the assistance, that the activity for which it is 
attempting to build capacity would be eligible for assistance under 
this subpart C, and that the national objective claimed by the grantee 
for this assistance can reasonably be expected to be met within six 
years of the date of the initial drawdown of CDBG funds for the purpose 
of the entity receiving the technical assistance and undertaking the 
activity.) General administrative and operating costs of a public or 
nonprofit entity are not eligible under this paragraph. Capacity 
building for private or public entities (including grantees) for other 
purposes may be eligible under Sec.  570.205.
* * * * *
    (r) Tornado-safe shelters. CDBG funds may be used by the recipient 
or provided as loans or grants to non-profit and for-profit entities, 
including owners of manufactured housing communities, for the 
construction or improvement of tornado-safe shelters for manufactured 
housing residents in accordance with section 105(a) of the Act. 
Activities pursuant to this paragraph may be located only in a 
neighborhood (including a manufactured housing community) that--
    (1) Contains at least 20 manufactured housing units within such 
proximity to the shelter that the shelter is available to the resident 
in the event of a tornado,
    (2) Consists predominantly of persons of low and moderate income
    (3) Is located within a State in which a tornado has occurred 
during the fiscal year for which with amounts to be used were made 
available or the preceding 3 fiscal years, as determined by the 
Secretary in consultation with the Administrator of the Federal 
Emergency Management Agency.
    (s) Use of grants for loan repayment, issuance, underwriting, 
servicing, and other costs. CDBG funds may be used for payment of costs 
pursuant to Sec.  570.705(c), including the payment of fees in 
accordance with Sec.  570.712, for loan guarantees issued pursuant to 
subpart M of this part.
0
17. Amend Sec.  570.202 by revising paragraph (a) introductory text to 
read as follows:


Sec.  570.202   Eligible rehabilitation and preservation activities.

    (a) Types of buildings and improvements eligible for rehabilitation 
and reconstruction assistance. CDBG funds may be used to finance the 
rehabilitation and reconstruction of:
* * * * *
0
18. Amend Sec.  570.203 by revising paragraphs (b) and (c) to read as 
follows:


Sec.  570.203   Special economic development activities.

* * * * *
    (b) The provision of assistance to a private for-profit business, 
including, but not limited to, grants, loans, loan guarantees, interest 
supplements, loan participations, technical assistance, and other forms 
of support (including use of pass-through financing structures), for 
any activity where the assistance is appropriate to carry out an 
economic development project, excluding those described as ineligible 
in Sec.  570.207(a).

[[Page 1770]]

In selecting businesses to assist under this authority, the recipient 
shall minimize, to the extent practicable, displacement of existing 
housing, community amenities, businesses, and jobs in neighborhoods.
    (c) Economic development services in connection with activities 
eligible under this section, including, but not limited to, outreach 
efforts to market available forms of assistance; screening of 
applicants; reviewing and underwriting applications for assistance; 
preparation of all necessary agreements; management of assisted 
activities; the screening, referral, and placement of applicants for 
employment opportunities generated by CDBG-eligible economic 
development activities and the costs of providing necessary training 
for persons filling those specific positions. Training connected with 
job placement in specific businesses is considered an economic 
development activity and not a public service under Sec.  570.201(e). 
If individuals are not receiving training for specific positions at a 
specific business, general employment readiness programs or trainings 
for individuals in career fields are only eligible as public service 
activities under Sec.  570.201(e) or, in limited cases, as part of a 
community economic development project under Sec.  570.204.


Sec.  570.205   [Amended]

0
19. Amend Sec.  570.205 by redesignating paragraph (a)(6) as paragraph 
(b) introductory text.
0
20. Amend Sec.  570.206 by revising the introductory text and paragraph 
(g) introductory text and removing paragraphs (h) and (i).
    The revisions read as follows:


Sec.  570.206   Program administrative costs.

    Payment of reasonable program administrative costs and carrying 
charges related to the planning and execution of community development 
activities assisted in whole or in part with funds provided under this 
part. This does not include activity delivery costs as defined at Sec.  
570.3.
* * * * *
    (g) HOME Program. Whether or not such activities are otherwise 
assisted by funds provided under this part, reasonable costs equivalent 
to those described in paragraphs (a), (b), (e), and (f) of this section 
for overall program management of the HOME program under title II of 
the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12701, 
et seq.) if those costs are allowable costs under 24 CFR part 92.
* * * * *
0
17. Amend Sec.  570.207 as follows:
0
a. Remove in paragraph (a)(1) ``Sec.  570.3(d)'' and add in its place 
``Sec.  570.3'';
0
b. Add paragraph (a)(4); and
0
c. Remove in paragraph (b)(3)(ii) ``Sec.  570.201 (m) or (n)'' and add 
in its place ``Sec.  570.201(n)''.
    The addition reads as follows:


Sec.  570.207   Ineligible activities.

* * * * *
    (a) * * *
    (4) Operating expenses. General administrative costs and operating 
expenses of public or nonprofit entities are ineligible except where 
such costs represent general administrative costs pursuant to Sec.  
570.206 or activity delivery costs of carrying out specific eligible 
activities under Sec. Sec.  570.201 through 570.204.
* * * * *
0
18. Revise and republish Sec.  570.208 to read as follows:


Sec.  570.208   Criteria for national objectives.

    The following criteria shall be used to determine whether a CDBG-
assisted activity complies with one or more of the national objectives 
as required under Sec.  570.200(a)(2):
    (a) Activities benefiting low- and moderate-income persons. 
Activities meeting the criteria in this paragraph (a) will be 
considered to benefit low-and moderate-income persons unless there is 
substantial evidence to the contrary. In assessing any such evidence, 
the full range of direct effects of the assisted activity will be 
considered. (The recipient shall appropriately ensure that activities 
that meet these criteria do not benefit moderate-income persons to the 
exclusion of low-income persons.)
    (1) Area benefit activities. (i) An activity, the benefits of which 
are available to all the residents in a primarily residential area, 
where at least 51 percent of the residents are low- and moderate-income 
persons. The activity must serve the entire area, but the area served 
need not be coterminous with census tracts or other officially 
recognized boundaries.
    (ii) For metropolitan cities and urban counties, an activity, the 
benefits of which are available to all the residents in a primarily 
residential area, where less than 51 percent of the residents are low- 
and moderate-income persons, but where the proportion of such low- and 
moderate-income persons residing in the area is within the highest 
quartile of all areas in the recipient's jurisdiction in terms of the 
degree of concentration of residents who are low- and moderate-income 
persons. In applying this exception, HUD will determine the lowest 
proportion a recipient may use to qualify an area for this purpose, as 
follows:
    (A) All census block groups in the recipient's jurisdiction shall 
be rank ordered from the block group of highest proportion of low and 
moderate income persons to the block group with the lowest. For urban 
counties, the rank ordering shall cover the entire area constituting 
the urban county and shall not be done separately for each 
participating unit of general local government.
    (B) In any case where the total number of a recipient's block 
groups does not divide evenly by four, the block group which would be 
fractionally divided between the highest and second quartiles shall be 
considered to be part of the highest quartile.
    (C) The proportion of low- and moderate-income persons in the last 
census block group in the highest quartile shall be identified. Any 
service area located within the recipient's jurisdiction and having a 
proportion of low- and moderate-income persons at or above this level 
shall be considered to be within the highest quartile.
    (D) If block group data are not available for the entire 
jurisdiction, other data acceptable to the Secretary may be used in the 
above calculations.
    (iii) An activity to develop, establish, and operate for up to two 
years after the establishment of, a uniform emergency telephone number 
system serving an area having less than the percentage of low- and 
moderate-income residents required under paragraph (a)(1)(i) or (as 
applicable) paragraph (a)(1)(ii) of this section, provided the 
recipient obtains prior HUD approval. To obtain such approval, the 
recipient must:
    (A) Demonstrate that the system will contribute significantly to 
the safety of the residents of the area. The request for approval must 
include a list of the emergency services that will participate in the 
emergency telephone number system;
    (B) Submit information that serves as a basis for HUD to determine 
whether at least 51 percent of the use of the system will be by 
residents who are low- and moderate-income persons. As available, the 
recipient must provide information that identifies the total number of 
calls actually received over the preceding 12-month period for each of 
the emergency services to be covered by the emergency telephone number 
system and relates those calls to the geographic segment (expressed as 
nearly as possible in terms of census tracts, block groups, or 
combinations thereof that are contained within the segment) of the 
service area from which the calls were generated. In analyzing this 
data to meet the

[[Page 1771]]

requirements of this section, HUD will assume that the distribution of 
income among the callers generally reflects the income characteristics 
of the general population residing in the same geographic area where 
the callers reside. If HUD can conclude that the users have primarily 
consisted of low- and moderate-income persons, no further submission is 
needed by the recipient. If a recipient plans to make other submissions 
for this purpose, it may request that HUD review its planned 
methodology before expending the effort to acquire the information it 
expects to use to make its case;
    (C) Demonstrate that other Federal funds received by the recipient 
are insufficient or unavailable for a uniform emergency telephone 
number system. For this purpose, the recipient must submit a statement 
explaining whether the lack of funds is due to the insufficiency of the 
amount of the available funds, restrictions on the use of such funds, 
or the prior commitment of funds by the recipient for other purposes; 
and
    (D) Demonstrate that the percentage of the total costs of the 
system paid for by CDBG funds does not exceed the percentage of low- 
and moderate-income persons residing in the service area of the system. 
For this purpose, the recipient must include a description of the 
boundaries of the service area of the emergency telephone number 
system, the census divisions that fall within the boundaries of the 
service area (census tracts or block groups), the total number of 
persons and the total number of low- and moderate-income persons 
residing within each census division, the percentage of low- and 
moderate-income persons residing within the service area, and the total 
cost of the system.
    (iv) An activity for which the assistance to a public improvement 
that provides benefits to all the residents of an area is limited to 
paying special assessments (as defined in Sec.  570.200(c)) levied 
against residential properties owned and occupied by persons of low- 
and moderate-income.
    (v) For purposes of determining qualification under this criterion, 
activities of the same type that serve different areas will be 
considered separately on the basis of their individual service area.
    (vi) In determining whether there is a sufficiently large 
percentage of low- and moderate-income persons residing in the area 
served by an activity to qualify under paragraph (a)(1)(i), (ii), or 
(vii) of this section, the most recently available Census Bureau data 
provided by HUD must be used to the fullest extent feasible, together 
with the section 8 income limits that would have applied at the time 
the income information was collected by the Census Bureau. Recipients 
that believe that the census data does not reflect current relative 
income levels in an area, or where census boundaries do not coincide 
sufficiently well with the service area of an activity, may conduct (or 
have conducted) a current survey of the residents of the area to 
determine the percent of such persons that are low- and moderate-
income. HUD will accept information obtained through such surveys, to 
be used in lieu of the census data, where it determines that the survey 
was conducted in such a manner that the results meet standards of 
statistical reliability that are comparable to that of census data for 
areas of similar size. Where there is substantial evidence that 
provides a clear basis to believe that the use of the census data would 
substantially overstate the proportion of persons residing there that 
are low and moderate income, HUD may require that the recipient rebut 
such evidence in order to demonstrate compliance with section 105(c)(2) 
of the Act.
    (vii) Activities meeting the requirements of paragraph (d)(5)(i) of 
this section may be considered to qualify under this paragraph, 
provided that the area covered by the strategy is either a Federally-
designated Empowerment Zone or Enterprise Community or primarily 
residential and contains a percentage of low- and moderate-income 
residents that is no less than the percentage computed by HUD pursuant 
to paragraph (a)(1)(ii) of this section or 70 percent, whichever is 
less, but in no event less than 51 percent. Activities meeting the 
requirements of paragraph (d)(6)(i) of this section may also be 
considered to qualify under this paragraph (a)(1).
    (2) Limited clientele activities. (i) An activity which benefits a 
limited clientele, at least 51 percent of whom are low- or moderate-
income persons. The activity must meet one of the following tests:
    (A) Benefit at least one of the following clientele, which are 
presumed to be low- and moderate-income persons: abused children; 
survivors of domestic violence; elderly persons (see 570.3 for 
definition of elderly); adults meeting the Bureau of the Census' 
Current Population Reports definition of ``severely disabled;'' 
homeless persons; illiterate adults (adults unable to read and write in 
English and in their first language, if their first language is not 
English); persons living with AIDS; migrant farm workers; persons who 
meet the Federal poverty guidelines; persons insured by Medicaid; or
    (B) Require information on family size and income that demonstrates 
that at least 51 percent of the clientele are persons whose family 
income does not exceed the low- and moderate-income limit; or
    (C) Have income eligibility requirements which limit the activity 
exclusively to low- and moderate-income persons; or
    (D) Be of such nature and be in such location that it may be 
concluded that the activity's clientele will primarily be low- and 
moderate-income persons.
    (ii) An activity that serves to remove material or architectural 
barriers to the mobility or accessibility of elderly persons or of 
adults meeting the Bureau of the Census' Current Population Reports 
definition of ``severely disabled'' will be presumed to qualify under 
this criterion if it is restricted, to the extent practicable, to the 
removal of such barriers by assisting:
    (A) The reconstruction of a public facility or improvement, or 
portion thereof, that does not qualify under paragraph (a)(1) of this 
section;
    (B) The rehabilitation of a privately owned nonresidential building 
or improvement that does not qualify under paragraph (a)(1) or (4) of 
this section; or
    (C) The rehabilitation of the common areas of a residential 
structure that contains more than one dwelling unit and that does not 
qualify under paragraph (a)(3) of this section.
    (iii) A microenterprise assistance activity carried out in 
accordance with the provisions of Sec.  570.201(o) with respect to 
those owners of microenterprises and persons developing 
microenterprises assisted under the activity during each program year 
who are low- and moderate-income persons. For purposes of this 
paragraph, persons determined to be low and moderate income may be 
presumed to continue to qualify as such for up to a three-year period.
    (iv) An activity designed to provide job training and placement 
and/or other employment support services, including, but not limited 
to, peer support programs, counseling, child care, transportation, and 
other similar services, in which the percentage of low- and moderate-
income persons assisted is less than 51 percent may qualify under this 
paragraph in the following limited circumstance:
    (A) In such cases where such training or provision of supportive 
services assists business(es), the only use of CDBG assistance for the 
project is to

[[Page 1772]]

provide the job training and/or supportive services; and
    (B) The proportion of the total cost of the project borne by CDBG 
funds is no greater than the proportion of the total number of persons 
assisted who are low or moderate income.
    (v) The following kinds of activities may not qualify under this 
paragraph (a)(2): activities that provide benefits to all the residents 
of an area; activities involving the acquisition, construction or 
rehabilitation of property for housing; or activities where the benefit 
to low- and moderate-income persons to be considered is the creation or 
retention of jobs, except as provided in paragraph (a)(2)(iv) of this 
section.
    (3) Housing activities. An eligible activity carried out for the 
purpose of providing or improving permanent residential structures 
which will be occupied by low- and moderate-income households. This 
would include, but not necessarily be limited to, the acquisition or 
rehabilitation of property by the recipient, a subrecipient, a 
developer, an individual homebuyer, or an individual homeowner; 
conversion of nonresidential structures; and new housing construction. 
If the structure contains two dwelling units, at least one must be so 
occupied, and if the structure contains more than two dwelling units, 
at least 51 percent of the units must be so occupied. Where two or more 
rental buildings being assisted are or will be located on the same or 
contiguous properties, and the buildings will be under common ownership 
and management, the grouped buildings may be considered for this 
purpose as a single structure. Where housing activities being assisted 
meet the requirements of paragraph (d)(5)(ii) or (d)(6)(ii) of this 
section, all such housing may also be considered for this purpose as a 
single structure. For rental housing, occupancy by low- and moderate-
income households must be at affordable rents to qualify under this 
criterion. The recipient shall adopt and make public its standards for 
determining ``affordable rents'' for this purpose. The following shall 
also qualify under this criterion:
    (i) When less than 51 percent of the units in a structure will be 
occupied by low- and moderate- income households:
    (A) The assistance is for an eligible activity to reduce the 
development cost of the substantial rehabilitation or conversion of a 
nonresidential structure to a multifamily, non-elderly rental housing 
project, or the new construction of a multifamily, non-elderly rental 
housing project;
    (B) At least 20 percent of the units will be occupied by low- and 
moderate-income households at affordable rents; and
    (C) The proportion of the total cost of developing the project to 
be borne by CDBG funds is no greater than the proportion of units in 
the project that will be occupied by low and moderate income 
households.
    (ii) When CDBG funds are used to assist rehabilitation eligible 
under Sec.  570.202(b)(9) or (10) in direct support of the recipient's 
Rental Rehabilitation program authorized under 24 CFR part 511, such 
funds shall be considered to benefit low and moderate income persons 
where not less than 51 percent of the units assisted, or to be 
assisted, by the recipient's Rental Rehabilitation program overall are 
for low and moderate income persons.
    (iii) When CDBG funds are used for housing services eligible under 
Sec.  570.201(k), such funds shall be considered to benefit low- and 
moderate-income persons if the housing units for which the services are 
provided are HOME-assisted and the requirements at 24 CFR 92.252 or 
92.254 are met.
    (4) Job creation or retention activities. An activity designed to 
create or retain permanent jobs where at least 51 percent of the full-
time equivalent jobs involve the employment of low- and moderate-income 
persons. Poverty rates used in this paragraph shall be determined by 
Census Bureau data provided by HUD. To qualify under this paragraph, 
the activity must meet the following criteria:
    (i) For an activity that creates jobs, the recipient must document 
that at least 51 percent of the jobs will be held by, or will be 
available to, low- and moderate-income persons.
    (ii) For an activity that retains jobs, the recipient must document 
that the jobs would actually be lost without the CDBG assistance and 
that either or both of the following conditions apply with respect to 
at least 51 percent of the jobs at the time the CDBG assistance is 
provided:
    (A) The job is known to be held by a low- or moderate-income 
person; or
    (B) The job can reasonably be expected to turn over within the 
following two years and that steps will be taken to ensure that it will 
be filled by, or made available to, a low- or moderate-income person 
upon turnover.
    (iii) Jobs that are not held or filled by a low- or moderate-income 
person may be considered to be available to low- and moderate-income 
persons if:
    (A) The assisted business does not require as a prerequisite 
special skill that can only be acquired with substantial training or 
work experience or education beyond high school, or the business agrees 
to hire unqualified persons and provide training; and
    (B) The recipient and the assisted business take actions to ensure 
that low- and moderate-income persons receive first consideration for 
filling such jobs.
    (iv) For purposes of determining whether a job is held by or made 
available to a low- or moderate-income person, the person may be 
presumed to be a low- or moderate-income person if:
    (A) The person resides, or the assisted business through which the 
person is employed is located, within a census tract that meets the 
requirements of paragraph (a)(4)(v) of this section; or
    (B) The person resides within a census tract that has at least 70 
percent of its population who are low- and moderate-income persons.
    (v) A census tract qualifies for the presumptions permitted under 
paragraph (a)(4)(iv)(A) of this section if it has a poverty rate of at 
least 20 percent and meets at least one of the following standards:
    (A) The specific activity being undertaken is located in a block 
group that has a poverty rate of at least 20 percent; or
    (B) Upon the written request by the recipient, HUD determines that 
the census tract exhibits other objectively determinable signs of 
general distress such as high incidence of crime, narcotics use, 
homelessness, abandoned housing, deteriorated infrastructure, or 
substantial population decline.
    (vi) Each assisted business shall be considered to be a separate 
activity for purposes of determining whether the activity qualifies 
under this paragraph, except:
    (A) In certain cases such as where CDBG funds are used to acquire, 
develop or improve a real property (e.g., a business incubator or an 
industrial park) the requirement may be met by measuring jobs in the 
aggregate for all the businesses which locate on the property, provided 
such businesses are not otherwise assisted by CDBG funds.
    (B) Where CDBG funds are used to pay for the staff and overhead 
costs of an entity making loans to businesses exclusively from non-CDBG 
funds, this requirement may be met by aggregating the jobs created by 
all of the businesses receiving loans during each program year.
    (C) Where CDBG funds are used by a recipient or subrecipient to 
provide technical assistance to businesses, this requirement may be met 
by aggregating the jobs created or retained by all of the businesses 
receiving technical assistance during each program year.

[[Page 1773]]

    (D) Where CDBG funds are used for activities meeting the criteria 
listed at Sec.  570.209(b)(2)(v), this requirement may be met by 
aggregating the jobs created or retained by all businesses for which 
CDBG assistance is obligated for such activities during the program 
year, except as provided at paragraph (d)(7) of this section.
    (E) Where CDBG funds are used by a Community Development Financial 
Institution to carry out activities for the purpose of creating or 
retaining jobs, this requirement may be met by aggregating the jobs 
created or retained by all businesses for which CDBG assistance is 
obligated for such activities during the program year, except as 
provided at paragraph (d)(7) of this section.
    (F) Where CDBG funds are used for public facilities or improvements 
which will result in the creation or retention of jobs by more than one 
business, this requirement may be met by aggregating the jobs created 
or retained by all such businesses as a result of the public facility 
or improvement.
    (1) Where the public facility or improvement is undertaken 
principally for the benefit of one or more particular businesses, but 
where other businesses might also benefit from the assisted activity, 
the requirement may be met by aggregating only the jobs created or 
retained by those businesses for which the facility/improvement is 
principally undertaken, provided that the cost (in CDBG funds) for the 
facility/improvement is less than $10,000 per permanent full-time 
equivalent job to be created or retained by those businesses.
    (2) In any case where the cost per job to be created or retained 
(as determined under paragraph (a)(4)(vi)(F)(1) of this section) is 
$10,000 or more, the requirement must be met by aggregating the jobs 
created or retained as a result of the public facility or improvement 
by all businesses in the service area of the facility/improvement. This 
aggregation must include businesses which, as a result of the public 
facility/improvement, locate or expand in the service area of the 
facility/improvement between the date the recipient identifies the 
activity in its action plan under part 91 of this title and the date 
one year after the physical completion of the facility/improvement. In 
addition, the assisted activity must comply with the public benefit 
standards at Sec.  570.209(b).
    (b) Activities which aid in the prevention or elimination of slums 
or blight. Activities meeting one or more of the following criteria, in 
the absence of substantial evidence to the contrary, will be considered 
to aid in the prevention or elimination of slums or blight:
    (1) Activities to address slums or blight on an area basis. An 
activity will be considered to address prevention or elimination of 
slums or blight in an area if:
    (i) The area, delineated by the recipient, meets a definition of a 
slum, blighted, deteriorated or deteriorating area under State or local 
law;
    (ii) The recipient demonstrates, supported by quantifiable data, 
that at least 25 percent of properties throughout the area experience a 
condition relating to physical or economic distress, such as abandoned 
or vacant properties, and/or known or suspected environmental 
contamination.
    (iii) The assisted activity addresses one or more of the conditions 
which contributed to the deterioration of the area. Rehabilitation of 
residential buildings carried out in an area meeting the above 
requirements will be considered to address the area's deterioration 
only where each such building rehabilitated is considered substandard 
under local definition before rehabilitation, and all deficiencies 
making a building substandard have been eliminated if less critical 
work on the building is undertaken. At a minimum, the local definition 
for this purpose must be such that buildings that it would render 
substandard would also fail to meet the Housing Quality Standards (24 
CFR 982.401).
    (2) Activities to address slums or blight on a spot basis. The 
following activities may be undertaken on a spot basis to eliminate 
specific conditions of blight, physical decay, or environmental 
contamination that are not located in a slum or blighted area: 
acquisition; clearance; relocation; historic preservation; remediation 
of environmentally contaminated properties; or rehabilitation of 
buildings or improvements. If acquisition or relocation is undertaken, 
it must be a precursor to another eligible activity (funded with CDBG 
or other resources) that directly eliminates the specific conditions of 
blight or physical decay, or environmental contamination.

    Note 1 to paragraph (b). Activities which aid in the prevention 
or elimination of slums or blight: Despite the restrictions in 
paragraphs (b)(1) and (2) of this section, any rehabilitation 
activity which benefits low- and moderate-income persons pursuant to 
paragraph (a)(3) of this section can be undertaken without regard to 
the area in which it is located or the extent or nature of 
rehabilitation assisted.

    (c) Activities designed to meet community development needs having 
a particular urgency. In the absence of substantial evidence to the 
contrary, an activity will be considered to address this objective if 
the recipient certifies that the activity is designed to alleviate 
existing conditions which pose a serious and immediate threat to the 
health or welfare of the community which are of recent origin or which 
recently became urgent, that the recipient is unable to finance the 
activity on its own, and that other sources of funding are not 
available. A condition will generally be considered to be of recent 
origin if it developed or became critical within 18 months preceding 
the certification by the recipient.
    (d) Additional criteria. (1) Where the assisted activity is 
acquisition of real property, a preliminary determination of whether 
the activity addresses a national objective may be based on the planned 
use of the property after acquisition. A final determination shall be 
based on the actual use of the property, excluding any short-term, 
temporary use. Where the acquisition is for the purpose of clearance 
which will eliminate specific conditions of blight or physical decay, 
the clearance activity shall be considered the actual use of the 
property. However, any subsequent use or disposition of the cleared 
property shall be treated as a ``change of use'' under Sec.  570.505.
    (2) Where the assisted activity is relocation assistance that the 
recipient is required to provide, such relocation assistance shall be 
considered to address the same national objective as is addressed by 
the displacing activity. Where the relocation assistance is voluntary 
on the part of the grantee the recipient may qualify the assistance 
either on the basis of the national objective addressed by the 
displacing activity or on the basis that the recipients of the 
relocation assistance are low and moderate income persons.
    (3) In any case where the activity undertaken for the purpose of 
creating or retaining jobs is a public improvement and the area served 
is primarily residential, the activity must meet the requirements of 
paragraph (a)(1) of this section as well as those of paragraph (a)(4) 
of this section in order to qualify as benefiting low and moderate 
income persons.
    (4) CDBG funds expended for planning and administrative costs under 
Sec.  570.205 and Sec.  570.206 will be considered to address the 
national objectives.
    (5) Where the grantee has elected to prepare an area revitalization 
strategy pursuant to the authority of 24 CFR

[[Page 1774]]

91.215(g) and HUD has approved the strategy, the grantee may also elect 
the following options:
    (i) Activities undertaken pursuant to the strategy for the purpose 
of creating or retaining jobs may, at the option of the grantee, be 
considered to meet the requirements of this paragraph under the 
criteria at paragraph (a)(1)(vii) of this section in lieu of the 
criteria at paragraph (a)(4) of this section; and
    (ii) All housing activities in the area for which, pursuant to the 
strategy, CDBG assistance is obligated during the program year may be 
considered to be a single structure for purposes of applying the 
criteria at paragraph (a)(3) of this section.
    (6) Where CDBG-assisted activities are carried out by a Community 
Development Financial Institution whose charter limits its investment 
area to a primarily residential area consisting of at least 51 percent 
low- and moderate-income persons, the grantee may also elect the 
following options:
    (i) Activities carried out by the Community Development Financial 
Institution for the purpose of creating or retaining jobs may, at the 
option of the grantee, be considered to meet the requirements of this 
paragraph under the criteria at paragraph (a)(1)(vii) of this section 
in lieu of the criteria at paragraph (a)(4) of this section; and
    (ii) All housing activities for which the Community Development 
Financial Institution obligates CDBG assistance during the program year 
may be considered to be a single structure for purposes of applying the 
criteria at paragraph (a)(3) of this section.
    (7) Where an activity meeting the criteria at Sec.  
570.209(b)(2)(v) may also meet the requirements of either paragraph 
(d)(5)(i) or (d)(6)(i) of this section, the grantee may elect to 
qualify the activity under either the area benefit criteria at 
paragraph (a)(1)(vii) of this section or the job aggregation criteria 
at paragraph (a)(4)(vi)(D) of this section, but not both. Where an 
activity may meet the job aggregation criteria at both paragraphs 
(a)(4)(vi)(D) and (E) of this section, the grantee may elect to qualify 
the activity under either criterion, but not both.
    (e) Timeframe to meet a national objective. Recipients are required 
to demonstrate that activities carried out under this subpart meet a 
national objective within six years of the date of the initial drawdown 
of CDBG funds for that activity or the length of the period of 
performance and any extension permitted under Sec.  570.509, whichever 
is shorter.
0
19. Amend Sec. 570.209 as follows:
0
a. Remove and reserve paragraphs (b)(1) and (2);
0
b. Revise paragraph (b)(3);
0
c. Remove in paragraph (b)(4) wherever it appears the reference 
``(b)(3)(i)'' and add in its place ``(b)(3)(i) or (ii)''; and
0
d. Add paragraphs (b)(4)(iv) and (b)(5);

    The revision and additions read as follows:


Sec.  570.209   Guidelines for evaluating and selecting economic 
development projects.

* * * * *
    (b) * * *
    (3) Standards for individual activities. (i) Any activity subject 
to these guidelines which falls into one or more of the following 
categories may be assisted with CDBG funds if the amount of CDBG 
assistance is equal to or less than either of the following:
    (A) $100,000 per full-time equivalent, permanent job created or 
retained; or
    (B) $2,000 per low- and moderate-income person to which goods or 
services are provided by the activity.
    (ii) Any activity subject to these guidelines carried out pursuant 
to subpart M may be assisted with CDBG funds if HUD, through written 
approval, calculates that the cost of the activity on a net present 
value basis does not exceed the following amount of CDBG assistance:
    (A) $50,000 per full-time equivalent, permanent job created or 
retained; or
    (B) $1,000 per low- and moderate-income person to which goods or 
services are provided by the activity.
    (iii) An activity subject to these guidelines may be assisted with 
CDBG funds, if HUD determines in writing, based upon the written 
request of the recipient, that the recipient has demonstrated that the 
activity would result in a significant contribution to the goals and 
purposes of the CDBG program and the activity:
    (A) Would not result in a violation of a statutory provision or any 
other regulatory provision; and
    (B) Would not result in undue hardship to the recipient or 
beneficiaries of the activity.
    (iv) Any activity which consists of or includes any of the 
following will be considered by HUD to provide insufficient public 
benefit and may not be assisted with CDBG funds:
    (A) General promotion of the community as a whole (as opposed to 
the promotion of specific areas and programs);
    (B) Assistance to professional sports teams;
    (C) Assistance to privately-owned recreational facilities that 
serve a predominantly higher-income clientele, where the recreational 
benefit to users or members clearly outweighs employment or other 
benefits to low- and moderate-income persons;
    (D) Acquisition of land for which the specific proposed use has not 
yet been identified; and
    (E) Assistance to a for-profit business while that business or any 
other business owned by the same person(s) or entity(ies) is the 
subject of unresolved findings of noncompliance relating to previous 
CDBG assistance provided by the recipient.
* * * * *
    (4) * * *
    (iv) The cost of an activity pursuant to (b)(3)(ii) of this section 
shall be determined by applying the procedures described in a notice 
issued by HUD.
    (5) Updating the individual activity standards. The standards in 
paragraphs (b)(3)(i) and (ii) of this section may be updated by 
issuance of a document in the Federal Register specifying the revised 
standards.
* * * * *
0
20. Amend Sec.  570.210 by revising paragraph (b)(2) to read as 
follows:


Sec.  570.210   Prohibition on use of assistance for employment 
relocation activities.

* * * * *
    (b) * * *
    (2) Labor market area (LMA). For metropolitan areas, an LMA is an 
area defined as such by the BLS. An LMA is an economically integrated 
geographic area within which individuals can live and find employment 
within a reasonable distance or can readily change employment without 
changing their place of residence. In addition, LMAs are nonoverlapping 
and geographically exhaustive. For metropolitan areas, grantees must 
use employment data, as defined by the BLS, for the LMA in which the 
affected business is currently located and from which current jobs may 
be lost. For non-metropolitan areas, an LMA is either an area defined 
by the BLS as an LMA, or a State may choose to combine non-metropolitan 
LMAs. States are required to define or reaffirm prior definitions of 
their LMAs on an annual basis and retain records to substantiate such 
areas prior to any business relocation that would be impacted by this 
rule. Metropolitan LMAs cannot be combined. However, a non-metropolitan 
LMA can be combined with a metropolitan LMA if it is for business 
reasons such as code enforcement compliance, necessary for expansion, 
necessary for transportation or supply chain access. Grantees must 
document the business reason for the combination

[[Page 1775]]

of a non-metropolitan LMA with a metropolitan LMA. For the HUD-
administered Small Cities Program, each of the three participating 
counties in Hawaii will be considered to be its own LMA. Recipients of 
Fiscal Year 1999 Small Cities Program funding in New York will follow 
the requirements for State CDBG recipients.
* * * * *
0
21. Amend Sec.  570.307 as follows:
0
a. Remove in paragraphs (b)(1) and (d)(1) ``Sec.  570.3(3)'' and add in 
its place ``Sec.  570.3''; and
0
b. Add paragraph (h);
    The addition reads as follows:


Sec.  570.307   Urban counties.

* * * * *
    (h) Timeline. Urban counties are required to complete the 
qualification or requalification process to qualify as an urban county 
no later than September 30 of the year of qualification or 
requalification.

Subpart E [Removed and Reserved]

0
22. Remove and reserve subpart E, consisting of Sec. Sec.  570.400 
through 570.416.

Subpart G [Removed and Reserved]

0
23. Remove and reserve subpart G, consisting of Sec. Sec.  570.450 
through 570.466.
0
24. Amend Sec.  570.481 by adding paragraph (a)(4) to read as follows:


Sec.  570.481   Definitions.

    (a) * * *
    (4) Period of performance means the time period beginning on HUD's 
approval of a grant agreement for a given grant and ending six years 
from that date. For loan guarantees issued pursuant to subpart M of 
this part, the period of performance means the time period beginning on 
the date of HUD's guarantee of a promissory note or other obligation 
and ending six years from that date.
* * * * *
0
25. Amend Sec.  570.482 as follows:
0
a. Remove in paragraphs (c)(1) and (c)(2)(i) the text ``section 
105(a)(23)'' and add in their places ``section 105(a)(22)'';
0
b. Remove and reserve paragraphs (f)(2) and (3);
0
c. Revise paragraph (f)(4);
0
d. Remove in paragraph (f)(5)(i) the reference ``(f)(4)(i)'' and add in 
its place ``(f)(4)(i) or (ii)'';
0
e. Remove in paragraphs (f)(5)(ii) and (iii) the reference 
``(f)(4)(i)'' and adding in their places ``(f)(4)(i) and (ii)'';
0
f. Add paragraph (f)(5)(iv);
0
g. Redesignate paragraph (f)(6) as paragraph (f)(7);
0
h. Add new paragraph (f)(6); and
0
i. Revise paragraph (h)(2)(ii);
    The revisions and additions read as follows:


Sec.  570.482   Eligible activities.

* * * * *
    (f) * * *
    (4) Standards for individual activities. (i) Any activity subject 
to these standards which falls into one or more of the following 
categories may be assisted with CDBG funds if the amount of CDBG 
assistance is equal to or less than either of the following:
    (A) $100,000 per full-time equivalent, permanent job created or 
retained; or
    (B) $2,000 per low- and moderate-income person to which goods or 
services are provided by the activity.
    (ii) Any activity subject to these standards carried out pursuant 
to subpart M may be assisted with CDBG funds if HUD, through written 
approval, calculates that the cost of the activity on a net present 
value basis does not exceed the following amount of CDBG assistance:
    (A) $50,000 per full-time equivalent, permanent job created or 
retained; or
    (B) $1,000 per low- and moderate-income person to which goods or 
services are provided by the activity.
    (iii) An activity subject to these standards may be assisted with 
CDBG funds, if HUD determines in writing, based upon the written 
request of the recipient, that the recipient has demonstrated that the 
activity would result in a significant contribution to the goals and 
purposes of the CDBG program and the activity:
    (A) Would not result in a violation of a statutory provision or any 
other regulatory provision; and
    (B) Would not result in undue hardship to the recipient or 
beneficiaries of the activity.
    (iv) Any activity which consists of or includes any of the 
following will be considered by HUD to provide insufficient public 
benefit and may not be assisted with CDBG funds:
    (A) General promotion of the community as a whole (as opposed to 
the promotion of specific areas and programs);
    (B) Assistance to professional sports teams;
    (C) Assistance to privately-owned recreational facilities that 
serve a predominantly higher-income clientele, where the recreational 
benefit to users or members clearly outweighs employment or other 
benefits to low- and moderate-income persons;
    (D) Acquisition of land for which the specific proposed use has not 
yet been identified; and
    (E) Assistance to a for-profit business while that business or any 
other business owned by the same person(s) or entity(ies) is the 
subject of unresolved findings of noncompliance relating to previous 
CDBG assistance provided by the recipient.
* * * * *
    (5) * * *
    (iv) The cost of an activity pursuant to paragraph (b)(3)(ii) of 
this section shall be determined by applying the procedures described 
in a notice issued by HUD.
    (6) Updating the individual activity standards. The standards in 
paragraphs (b)(3)(i) and (ii) of this subsection may be updated by 
issuance of a document in the Federal Register specifying the revised 
standards.
* * * * *
    (h) * * *
    (2) * * *
    (ii) Labor market area (LMA). For metropolitan areas, an LMA is an 
area defined as such by the U.S. Bureau of Labor Statistics (BLS). An 
LMA is an economically integrated geographic area within which 
individuals can live and find employment within a reasonable distance 
or can readily change employment without changing their place of 
residence. In addition, LMAs are nonoverlapping and geographically 
exhaustive. For metropolitan areas, grantees must use employment data, 
as defined by the BLS, for the LMA in which the affected business is 
currently located and from which current jobs may be lost. For non-
metropolitan areas, grantees must use employment data, as defined by 
the BLS, for the LMA in which the assisted business is currently 
located and from which current jobs may be lost. For non-metropolitan 
areas, a LMA is either an area defined by the BLS as an LMA, or a State 
may choose to combine non-metropolitan LMAs. States are required to 
define or reaffirm prior definitions of their LMAs on an annual basis 
and retain records to substantiate such areas prior to any business 
relocation that would be impacted by this rule. Metropolitan LMAs 
cannot be combined. However, a non-metropolitan LMA can be combined 
with a metropolitan LMA if it is for business reasons such as code 
enforcement compliance, necessary for expansion, necessary for 
transportation or supply chain access. Grantees must document the 
business reason for the combination of a non-metropolitan LMA with a 
metropolitan LMA. For the Insular Areas, each jurisdiction will be 
considered to be an LMA. For the HUD-administered Small Cities Program, 
each of the three participating counties in

[[Page 1776]]

Hawaii will be considered to be its own LMA. Recipients of Fiscal Year 
1999 Small Cities Program funding in New York will follow the 
requirements for State CDBG recipients.
* * * * *
0
26. Revise and republish Sec.  570.483 to read as follows:


Sec.  570.483   Criteria for national objectives.

    (a) General. The following criteria shall be used to determine 
whether a CDBG assisted activity complies with one or more of the 
national objectives as required to section 104(b)(3) of the Act. (HUD 
is willing to consider a waiver of these requirements in accordance 
with Sec.  570.480(b)).
    (b) Activities benefiting low- and moderate-income persons. 
Activities meeting the criteria in this paragraph (b) will be 
considered to benefit low- and moderate-income persons unless there is 
substantial evidence to the contrary. In assessing any such evidence, 
the full range of direct effects of the assisted activity will be 
considered. (The recipient shall appropriately ensure that activities 
that meet these criteria do not benefit moderate-income persons to the 
exclusion of low-income persons.)
    (1) Area benefit activities. (i) An activity, the benefits of which 
are available to all the residents in a primarily residential area, 
where at least 51 percent of the residents are low- and moderate-income 
persons. The activity must serve the entire area, but the area served 
need not be coterminous with census tracts or other officially 
recognized boundaries.
    (ii) An activity, where the assistance is to a public improvement 
that provides benefits to all the residents of an area, that is limited 
to paying special assessments levied against residential properties 
owned and occupied by persons of low and moderate income.
    (iii)(A) An activity to develop, establish and operate (not to 
exceed two years after establishment), a uniform emergency telephone 
number system serving an area having less than 51 percent of low and 
moderate income residents, when the system has not been made 
operational before the receipt of CDBG funds, provided a prior written 
determination is obtained from HUD. HUD's determination will be based 
upon certifications by the State that:
    (1) The system will contribute significantly to the safety of the 
residents of the area. The unit of general local government must 
provide the State a list of jurisdictions and unincorporated areas to 
be served by the system and a list of the emergency services that will 
participate in the emergency telephone number system;
    (2) At least 51 percent of the use of the system will be by low- 
and moderate-income persons. The State's certification may be based 
upon information which identifies the total number of calls actually 
received over the preceding twelve-month period for each of the 
emergency services to be covered by the emergency telephone number 
system and relates those calls to the geographic segment (expressed as 
nearly as possible in terms of census tracts, enumeration districts, 
block groups, or combinations thereof that are contained within the 
segment) of the service area from which the calls were generated. In 
analyzing this data to meet the requirements of this section, the State 
will assume that the distribution of income among callers generally 
reflects the income characteristics of the general population residing 
in the same geographic area where the callers reside. Alternatively, 
the State's certification may be based upon other data, agreed to by 
HUD and the State, which shows that over the preceding twelve-month 
period the users of all the services to be included in the emergency 
telephone number system consisted of at least 51 percent low- and 
moderate-income persons.
    (3) Other Federal funds received by the unit of general local 
government are insufficient or unavailable for a uniform emergency 
telephone number system. The unit of general local government must 
submit a statement explaining whether the problem is caused by the 
insufficiency of the amount of such funds, the restrictions on the use 
of such funds, or the prior commitment of such funds for other purposes 
by the unit of general local government.
    (4) Demonstrate that the percentage of the total costs of the 
system paid for by CDBG funds does not exceed the percentage of low- 
and moderate-income persons residing in the service area of the system. 
For this purpose, the recipient must include a description of the 
boundaries of the service area of the emergency telephone number 
system, the census divisions that fall within the boundaries of the 
service area (census tracts or block groups), the total number of 
persons and the total number of low- and moderate-income persons 
residing within each census division, the percentage of low- and 
moderate-income persons residing within the service area, and the total 
cost of the system.
    (B) The certifications of the State must be submitted along with a 
brief statement describing the factual basis upon which the 
certifications were made.
    (iv) Activities meeting the requirements of paragraph (e)(4)(i) of 
this section may be considered to qualify under this paragraph (b)(1).
    (v) HUD will consider activities meeting the requirements of 
paragraph (e)(5)(i) of this section to qualify under paragraph (b)(1) 
of this section, provided that the area covered by the strategy meets 
one of the following criteria:
    (A) The area is in a federally designated Empowerment Zone or 
Enterprise Community;
    (B) The area is primarily residential and contains a percentage of 
low and moderate income residents that is no less than 70 percent;
    (C) All of the census tracts (or block numbering areas) in the area 
have poverty rates of at least 20 percent, at least 90 percent of the 
census tracts (or block numbering areas) in the area have poverty rates 
of at least 25 percent, and the area is primarily residential. (If only 
part of a census tract or block numbering area is included in a 
strategy area, the poverty rate shall be computed for those block 
groups (or any part thereof) which are included in the strategy area.)
    (D) Upon request by the State, HUD may grant exceptions to the 70 
percent low and moderate income or 25 percent poverty minimum 
thresholds on a case-by-case basis. In no case, however, may a strategy 
area have both a percentage of low and moderate income residents less 
than 51 percent and a poverty rate less than 20 percent.
    (2) Limited clientele activities. (i) An activity which benefits a 
limited clientele, at least 51 percent of whom are low- or moderate-
income persons.
    (ii) To qualify under this paragraph (b)(2), the activity must meet 
one or the following tests:
    (A) Benefit at least one of the following clientele, which are 
presumed to be low- and moderate-income persons: abused children; 
survivors of domestic violence; elderly persons (see 570.3 for 
definition of elderly); adults meeting the Bureau of the Census' 
Current Population Reports definition of ``severely disabled;'' 
homeless persons; illiterate adults (adults unable to read and write in 
English and in their first languages if their first language is not 
English); persons living with AIDS; migrant farm workers; persons who 
meet the Federal poverty guidelines; persons insured by Medicaid; or
    (B) Require information on family size and income that demonstrates 
that at least 51 percent of the clientele are persons whose family 
income does not exceed the low- and moderate-income limit; or

[[Page 1777]]

    (C) It must have income eligibility requirements which limit the 
activity exclusively to low and moderate income persons; or
    (D) It must be of such a nature, and be in such a location, that it 
may be concluded that the activity's clientele will primarily be low 
and moderate income persons.
    (iii) An activity that serves to remove material or architectural 
barriers to the mobility or accessibility of elderly persons or of 
adults meeting the Bureau of the Census' Current Population Reports 
definition of ``severely disabled'' will be presumed to qualify under 
this criterion if it is restricted, to the extent practicable, to the 
removal of such barriers by assisting:
    (A) The reconstruction of a public facility or improvement, or 
portion thereof, that does not qualify under paragraph (b)(1) of this 
section;
    (B) The rehabilitation of a privately owned nonresidential building 
or improvement that does not qualify under paragraph (b)(1) or (4) of 
this section; or
    (C) The rehabilitation of the common areas of a residential 
structure that contains more than one dwelling unit and that does not 
qualify under paragraph (b)(3) of this section.
    (iv) A microenterprise assistance activity (carried out in 
accordance with the provisions of section 105(a)(23) of the Act or 
Sec.  570.482(c) and limited to microenterprises) with respect to those 
owners of microenterprises and persons developing microenterprises 
assisted under the activity who are low- and moderate-income persons. 
For purposes of this paragraph, persons determined to be low and 
moderate income may be presumed to continue to qualify as such for up 
to a three-year period.
    (v) An activity designed to provide job training and placement and/
or other employment support services, including, but not limited to, 
peer support programs, counseling, child care, transportation, and 
other similar services, in which the percentage of low- and moderate-
income persons assisted is less than 51 percent may qualify under this 
paragraph in the following limited circumstances:
    (A) In such cases where such training or provision of supportive 
services is an integrally-related component of a larger project, the 
only use of CDBG assistance for the project is to provide the job 
training and/or supportive services; and
    (B) The proportion of the total cost of the project borne by CDBG 
funds is no greater than the proportion of the total number of persons 
assisted who are low or moderate income.
    (vi) The following kinds of activities may not qualify under 
paragraph this (b)(2): activities that provide benefits to all the 
residents of an area; activities involving the acquisition, 
construction or rehabilitation of property for housing; or activities 
where the benefit to low- and moderate-income persons to be considered 
is the creation or retention of jobs, except as provided in paragraph 
(b)(2)(iv) of this section.
    (3) Housing activities. An eligible activity carried out for the 
purpose of providing or improving permanent residential structures 
that, upon completion, will be occupied by low and moderate income 
households. This would include, but not necessarily be limited to, the 
acquisition or rehabilitation of property by the unit of general local 
government, a subrecipient, an entity eligible to receive assistance 
under section 105(a)(15) of the Act, a developer, an individual 
homebuyer, or an individual homeowner; conversion of nonresidential 
structures; and new housing construction. If the structure contains two 
dwelling units, at least one must be so occupied, and if the structure 
contains more than two dwelling units, at least 51 percent of the units 
must be so occupied. If two or more rental buildings being assisted are 
or will be located on the same or contiguous properties, and the 
buildings will be under common ownership and management, the grouped 
buildings may be considered for this purpose as a single structure. If 
housing activities being assisted meet the requirements of paragraph 
(e)(4)(ii) or (e)(5)(ii) of this section, all such housing may also be 
considered for this purpose as a single structure. For rental housing, 
occupancy by low and moderate income households must be at affordable 
rents to qualify under this criterion. The unit of general local 
government shall adopt and make public its standards for determining 
``affordable rents'' for this purpose. The following shall also qualify 
under this criterion:
    (i) When less than 51 percent of the units in a structure will be 
occupied by low- and moderate-income households, CDBG assistance may be 
provided in the following limited circumstances:
    (A) The assistance is for an eligible activity to reduce the 
development cost of the substantial rehabilitation or conversion of a 
nonresidential structure to a multifamily, non-elderly rental housing 
project, or the new construction of a multifamily, non-elderly rental 
housing project;
    (B) At least 20 percent of the units will be occupied by low- and 
moderate-income households at affordable rents; and
    (C) The proportion of the total cost of developing the project to 
be borne by CDBG funds is no greater than the proportion of units in 
the project that will be occupied by low and moderate income 
households.
    (ii) Where CDBG funds are used to assist rehabilitation delivery 
services or in direct support of the unit of general local government's 
Rental Rehabilitation Program authorized under 24 CFR part 511, the 
funds shall be considered to benefit low and moderate income persons 
where not less than 51 percent of the units assisted, or to be 
assisted, by the Rental Rehabilitation Program overall are for low and 
moderate income persons.
    (iii) When CDBG funds are used for housing services eligible under 
section 105(a)(21) of the Act, if the housing units for which the 
services are provided are HOME-assisted and the requirements at 24 CFR 
92.252 or 92.254 are met.
    (4) Job creation or retention activities. (i) An activity designed 
to create or retain permanent jobs where at least 51 percent of the 
full-time equivalent jobs involve the employment of low- and moderate-
income persons. Poverty rates used in this paragraph shall be 
determined by Census Bureau data provided by HUD.
    (ii) For an activity that retains jobs, the unit of general local 
government must document that the jobs would actually be lost without 
the CDBG assistance and that either or both of the following conditions 
apply with respect to at least 51 percent of the jobs at the time the 
CDBG assistance is provided: The job is known to be held by a low or 
moderate income person; or the job can reasonably be expected to turn 
over within the following two years and that it will be filled by, or 
that steps will be taken to ensure that it is made available to, a low 
or moderate income person upon turnover.
    (iii) Jobs that are not held or filled by a low- or moderate-income 
persons may be considered to be available to low- and moderate-income 
persons if:
    (A) The assisted business does not require as a prerequisite 
special skills that can only be acquired with substantial training or 
work experience or education beyond high school, or the business agrees 
to hire unqualified persons and provide training; and
    (B) The unit of general local government and the assisted business 
take actions to ensure that low and moderate income persons receive 
first consideration for filling such jobs.

[[Page 1778]]

    (iv) For purposes of determining whether a job is held by or made 
available to a low- or moderate-income person, the person may be 
presumed to be a low- or moderate-income person if:
    (A) The person resides, or the assisted business through which the 
person is employed is located, within a census tract that meets the 
requirements of paragraph (b)(4)(v) of this section; or
    (B) The person resides within a census tract that has a population 
of low- and moderate-income persons of at least 70 percent of the block 
group.
    (v) A census tract qualifies for the presumptions permitted under 
paragraph (b)(4)(iv)(A) of this section if it has a poverty rate of at 
least 20 percent and meets at least one of the following standards:
    (A) The specific activity being undertaken is located in a block 
group that has a poverty rate of at least 20 percent; or
    (B) Upon the written request by the recipient, HUD determines that 
the census tract exhibits other objectively determinable signs of 
general distress such as high incidence of crime, narcotics use, 
homelessness, abandoned housing, deteriorated infrastructure, or 
substantial population decline.
    (vi) Each assisted business shall be considered to be a separate 
activity for purposes of determining whether the activity qualifies 
under this paragraph, except:
    (A) In certain cases such as where CDBG funds are used to acquire, 
develop or improve a real property (e.g., a business incubator or an 
industrial park) the requirement may be met by measuring jobs in the 
aggregate for all the businesses that locate on the property, provided 
the businesses are not otherwise assisted by CDBG funds.
    (B) Where CDBG funds are used to pay for the staff and overhead 
costs of an entity specified in section 105(a)(15) of the Act making 
loans to businesses exclusively from non-CDBG funds, this requirement 
may be met by aggregating the jobs created by all of the businesses 
receiving loans during any one-year period.
    (C) Where CDBG funds are used by a recipient or subrecipient to 
provide technical assistance to businesses, this requirement may be met 
by aggregating the jobs created or retained by all of the businesses 
receiving technical assistance during any one-year period.
    (D) Where CDBG funds are used for activities meeting the criteria 
listed at Sec.  570.482(f)(3)(v), this requirement may be met by 
aggregating the jobs created or retained by all businesses for which 
CDBG assistance is obligated for such activities during any one-year 
period, except as provided at paragraph (e)(6) of this section.
    (E) Where CDBG funds are used by a Community Development Financial 
Institution to carry out activities for the purpose of creating or 
retaining jobs, this requirement may be met by aggregating the jobs 
created or retained by all businesses for which CDBG assistance is 
obligated for such activities during any one-year period, except as 
provided at paragraph (e)(6) of this section.
    (F) Where CDBG funds are used for public facilities or improvements 
which will result in the creation or retention of jobs by more than one 
business, this requirement may be met by aggregating the jobs created 
or retained by all such businesses as a result of the public facility 
or improvement.
    (1) Where the public facility or improvement is undertaken 
principally for the benefit of one or more particular businesses, but 
where other businesses might also benefit from the assisted activity, 
the requirement may be met by aggregating only the jobs created or 
retained by those businesses for which the facility/improvement is 
principally undertaken, provided that the cost (in CDBG funds) for the 
facility/improvement is less than $10,000 per permanent full-time 
equivalent job to be created or retained by those businesses.
    (2) In any case where the cost per job to be created or retained 
(as determined under paragraph (b)(4)(vi)(F)(1) of this section) is 
$10,000 or more, the requirement must be met by aggregating the jobs 
created or retained as a result of the public facility or improvement 
by all businesses in the service area of the facility/improvement. This 
aggregation must include businesses which, as a result of the public 
facility/improvement, locate or expand in the service area of the 
public facility/improvement between the date the State awards the CDBG 
funds to the recipient and the date one year after the physical 
completion of the public facility/improvement. In addition, the 
assisted activity must comply with the public benefit standards at 
Sec.  570.482(f).
    (5) Planning-only activities. An activity involving planning (when 
such activity is the only activity for which the grant to the unit of 
general local government is given, or if the planning activity is 
unrelated to any other activity assisted by the grant) if it can be 
documented that at least 51 percent of the persons who would benefit 
from implementation of the plan are low and moderate income persons. 
Any such planning activity for an area or a community composed of 
persons of whom at least 51 percent are low and moderate income shall 
be considered to meet this national objective.
    (c) Activities which aid in the prevention or elimination of slums 
or blight. Activities meeting one or more of the following criteria, in 
the absence of substantial evidence to the contrary, will be considered 
to aid in the prevention or elimination of slums or blight:
    (1) Activities to address slums or blight on an area basis. An 
activity will be considered to address prevention or elimination of 
slums or blight in an area if the State can determine that:
    (i) The area, delineated by the unit of general local government, 
meets a definition of a slum, blighted, deteriorated or deteriorating 
area under State or local law;
    (ii) The unit of general local government demonstrates, supported 
by quantifiable data, that at least 25 percent of properties throughout 
the area experience a condition relating to physical or economic 
distress, such as abandoned or vacant properties, and/or known or 
suspected environmental contamination.
    (iii) The assisted activity addresses one or more of the conditions 
which contributed to the deterioration of the area. Rehabilitation of 
residential buildings carried out in an area meeting the above 
requirements will be considered to address the area's deterioration 
only where each such building rehabilitated is considered substandard 
under local definition before rehabilitation, and all deficiencies 
making a building substandard have been eliminated if less critical 
work on the building is undertaken. At a minimum, the local definition 
for this purpose must be such that buildings that it would render 
substandard would also fail to meet the Housing Quality Standards (24 
CFR 982.401).

    Note 1 to paragraph (c)(1). Documentation is to be maintained by 
the unit of general local government on the boundaries of the area 
and the conditions and standards used that qualified the area at the 
time of its designation. The unit of general local government shall 
maintain records to substantiate how the area met the slums or 
blighted criteria. The designation of an area as slum or blighted 
under this section is required to have been determined within the 
last 10 years. Documentation must be retained pursuant to the 
recordkeeping requirements contained at Sec.  570.506(b)(8)(ii).

    (2) Activities to address slums or blight on a spot basis. The 
following activities may be undertaken on a spot basis to eliminate 
specific conditions of blight, physical decay, or environmental 
contamination that are not located in a

[[Page 1779]]

slum or blighted area: acquisition; clearance; relocation; historic 
preservation; remediation of environmentally contaminated properties; 
or rehabilitation of buildings or improvements. If acquisition or 
relocation is undertaken, it must be a precursor to another eligible 
activity (funded with CDBG or other resources) that directly eliminates 
the specific conditions of blight or physical decay, or environmental 
contamination.

    Note 2 to paragraph (c): Activities which aid in the prevention 
or elimination of slums or blight: Despite the restrictions in 
paragraphs (c)(1) and (2) of this section, any rehabilitation 
activity which benefits low and moderate income persons pursuant to 
paragraph (a)(3) of this section can be undertaken without regard to 
the area in which it is located or the extent or nature of 
rehabilitation assisted.

    (d) Activities designed to meet community development needs having 
a particular urgency. In the absence of substantial evidence to the 
contrary, an activity will be considered to address this objective if 
the unit of general local government certifies, and the State 
determines, that the activity is designed to alleviate existing 
conditions which pose a serious and immediate threat to the health or 
welfare of the community which are of recent origin or which recently 
became urgent, that the unit of general local government is unable to 
finance the activity on its own, and that other sources of funding are 
not available. A condition will generally be considered to be of recent 
origin if it developed or became urgent within 18 months preceding the 
certification by the unit of general local government.
    (e) Additional criteria. (1) In any case where the activity 
undertaken is a public improvement and the activity is clearly designed 
to serve a primarily residential area, the activity must meet the 
requirements of paragraph (b)(1) of this section whether or not the 
requirements of paragraph (b)(4) of this section are met in order to 
qualify as benefiting low- and moderate-income persons.
    (2) Where the assisted activity is acquisition of real property, a 
preliminary determination of whether the activity addresses a national 
objective may be based on the planned use of the property after 
acquisition. A final determination shall be based on the actual use of 
the property, excluding any short-term, temporary use. Where the 
acquisition is for the purpose of clearance which will eliminate 
specific conditions of blight or physical decay, the clearance activity 
shall be considered the actual use of the property. However, any 
subsequent use or disposition of the cleared property shall be treated 
as a ``change of use'' under Sec.  570.489(j).
    (3) Where the assisted activity is relocation assistance that the 
unit of general local government is required to provide, the relocation 
assistance shall be considered to address the same national objective 
as is addressed by the displacing activity. Where the relocation 
assistance is voluntary, the unit of general local government may 
qualify the assistance either on the basis of the national objective 
addressed by the displacing activity or, if the relocation assistance 
is to low and moderate income persons, on the basis of the national 
objective of benefiting low and moderate income persons.
    (4) Where CDBG-assisted activities are carried out by a Community 
Development Financial Institution whose charter limits its investment 
area to a primarily residential area consisting of at least 51 percent 
low- and moderate-income persons, the unit of general local government 
may also elect the following options:
    (i) Activities carried out by the Community Development Financial 
Institution for the purpose of creating or retaining jobs may, at the 
option of the unit of general local government, be considered to meet 
the requirements of this paragraph under the criteria at paragraph 
(b)(1)(iv) of this section in lieu of the criteria at paragraph (b)(4) 
of this section; and
    (ii) All housing activities for which the Community Development 
Financial Institution obligates CDBG assistance during any one-year 
period may be considered to be a single structure for purposes of 
applying the criteria at paragraph (b)(3) of this section.
    (5) If the unit of general local government has elected to prepare 
a community revitalization strategy pursuant to the authority of 24 CFR 
91.315(e)(2), and the State has approved the strategy, the unit of 
general local government may also elect the following options:
    (i) Activities undertaken pursuant to the strategy for the purpose 
of creating or retaining jobs may, at the option of the grantee, be 
considered to meet the requirements of paragraph (b) of this section 
under the criteria at paragraph (b)(1)(v) of this section instead of 
the criteria at paragraph (b)(4) of this section; and
    (ii) All housing activities in the area undertaken pursuant to the 
strategy may be considered to be a single structure for purposes of 
applying the criteria at paragraph (b)(3) of this section.
    (6) If an activity meeting the criteria in Sec.  570.482(f)(3)(v) 
also meets the requirements of either paragraph (e)(4)(i) or (e)(5)(i) 
of this section, the unit of general local government may elect to 
qualify the activity either under the area benefit criteria at 
paragraph (b)(1)(iv) or (v) of this section or under the job 
aggregation criteria at paragraph (b)(4)(vi)(D) of this section, but 
not under both. Where an activity may meet the job aggregation criteria 
at both paragraphs (b)(4)(vi)(D) and (E) of this section, the unit of 
general local government may elect to qualify the activity under either 
criterion, but not both.
    (f) Planning and administrative costs. CDBG funds expended for 
eligible planning and administrative costs by units of general local 
government in conjunction with other CDBG assisted activities will be 
considered to address the national objectives.
    (g) Timeline to meet a national objective. Recipients are required 
to demonstrate that activities carried out under section 105(a) of the 
Act meet a national objective within six years of the date of the 
initial drawdown of CDBG funds for that activity or the length of the 
period of performance and any extension permitted, whichever is 
shorter.
0
27. Amend Sec.  570.489 as follows:
0
a. Revise paragraph (e)(2)(iv)(C);
0
b. Add paragraphs (e)(3)(ii)(C) and (f)(4); and
0
c. Revise paragraph (h)(4)(i);
    The revisions and additions read as follows:


Sec.  570.489   Program administrative requirements.

* * * * *
    (e) * * *
    (2) * * *
    (iv) * * *
    (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 in an amount not to exceed the amount provided by 2 
CFR 200.305(b)(9) per year for administrative expenses otherwise 
permitted to be paid with CDBG funds.
* * * * *
    (3) * * *
    (ii) * * *
    (C) The State must require units of general local government, to 
the maximum extent feasible, to disburse program income that is subject 
to the requirements of this subpart before requesting additional funds 
from the State for activities, except as provided in paragraph (f) of 
this section.
* * * * *
    (f) * * *

[[Page 1780]]

    (4) A State is responsible for ensuring that funds in a revolving 
loan fund are being used to continue the activity which generated the 
program income.
* * * * *
    (h) * * *
    (4) * * *
    (i) A disclosure of the nature of the conflict, accompanied by an 
assurance that there has been public disclosure of the conflict (public 
disclosure is considered a combination of any of the following: 
publication on the recipient's website, including social media; 
electronic mailings; media advertisements; public service 
announcements; and display in public areas such as libraries, grocery 
store bulletin boards, and neighborhood centers), evidence of the 
public disclosure, and a description of how the public disclosure was 
made;
* * * * *


Sec.  570.490   [Amended]

0
28. Amend Sec.  570.490 in paragraph (a)(2) by removing ``24 CFR 
91.320(j)(1)'' and adding in its place ``24 CFR 91.320(k)(1)''.
0
29. Amend Sec.  570.495 by revising paragraph (a)(4) to read as 
follows:


Sec.  570.495   Reviews and audits response.

    (a) * * *
    (4) Advise the State to reimburse its grant in any amounts 
improperly expended, using non-Federal funds. In lieu of reimbursing 
its grant, the State may elect to request a voluntary grant reduction 
from a current or future year's allocation of funds. A request for a 
voluntary grant reduction must be signed by the State's chief elected 
official. In its request, the State must waive its right to a hearing 
pursuant to Sec.  570.496;
* * * * *


Sec.  570.500   [Amended]

0
30. Amend Sec.  570.500 by removing and reserving paragraph (a)(4)(ii).
0
31. Amend Sec.  570.503 by revising paragraph (b)(7)(i) to read as 
follows:


Sec.  570.503   Agreements with subrecipients.

* * * * *
    (b) * * *
    (7) * * *
    (i) Used to meet one of the national objectives in Sec.  570.208 
until six years after expiration of the agreement, or for such longer 
period of time as determined to be appropriate by the recipient; or
* * * * *
0
32. Amend Sec.  570.504 as follows:
0
a. Revise paragraph (b)(2)(iii);
0
b. Remove in paragraph (c) ``Sec.  570.503(b)(8)'' and add in its place 
``Sec.  570.503(b)(7)''; and
0
c. Add paragraph (f).
    The revision and addition read as follows:


Sec.  570.504   Program income.

* * * * *
    (b) * * *
    (2) * * *
    (iii) At the end of each program year, the aggregate amount of 
program income cash balances and any investment thereof (except those 
needed for immediate cash needs, cash balances of a revolving loan 
fund, cash balances from a lump-sum drawdown, or cash or investments 
held for section 108 loan guarantee security needs) that, as of the 
last day of the program year, exceeds one-twelfth of the most recent 
grant made pursuant to Sec.  570.304 shall be remitted to HUD as soon 
as practicable thereafter and sent to the United States Treasury FRB 
New York, New York, NY, U.S. Department of Housing and Urban 
Development, ABA Routing Number 021030004, Account Number 86010300. The 
memorandum section should read: Recipient Name (e.g., city of Apple), 
Attention: HUD CPD/CDBG, Account Code 86X6760, $(dollar amount), 
``Returning Excess Program Income.'' This provision applies to program 
income cash balances and investments thereof held by the grantee and 
its subrecipients. (This provision shall be applied for the first time 
at the end of the program year for which Federal Fiscal Year 1996 funds 
are provided.)
* * * * *
    (f) Transfer of revolving loan funds. A grantee may elect to 
terminate or to reduce the balance of an existing revolving loan fund 
and reprogram some or all of the remaining funds to other activities. 
The process of reprogramming funds out of a revolving loan fund shall 
be governed by 24 CFR 91.505; once transferred out of the revolving 
loan fund, the program income is subject to the requirements of 
paragraphs (a) through (d) of this section. If HUD determines that a 
revolving loan fund no longer meets the definition of a revolving loan 
fund under Sec.  570.500(b) because of a lack of loan activity or 
because loan fund balances significantly exceed the amount necessary to 
support loan activity, HUD may take corrective actions.
0
33. Amend Sec.  570.506 by adding a sentence to the end of paragraph 
(b)(5)(ii)(C) and revising paragraphs (b)(7) and (8), (c)(1), (d), and 
(e) to read as follows:


Sec.  570.506   Records to be maintained.

* * * * *
    (b) * * *
    (5) * * *
    (ii) * * *
    (C) * * * For each such low- and moderate-income person hired, the 
size and annual income of the person's family prior to the person being 
hired for the job. In lieu of businesses obtaining information 
regarding the size and annual income of the person's family, the 
recipient may obtain and maintain such information.
* * * * *
    (7) For purposes of documenting, pursuant to paragraph 
(b)(5)(i)(B), (b)(5)(ii)(C), or (b)(6)(iii) or (v) of this section that 
the person for whom a job was either filled by or made available to a 
low- or moderate-income person:
    (i) In lieu of maintaining records showing the person's family size 
and income, the recipient may substitute records showing for each 
person employed, the name of the business, type of job, and the annual 
wages or salary of the job. HUD will consider the person income-
qualified if the annual wages or salary of the job is at or under the 
HUD-established income limit for a one-person family.
    (ii) Based upon the census tract where the person resides or in 
which the business is located, the recipient, in lieu of maintaining 
records showing the person's family size and income, may substitute 
records showing either the person's address at the time the 
determination of income status was made or the address of the business 
providing the job, as applicable, the census tract in which that 
address was located, the percent of persons residing in that tract who 
either are in poverty or who are low- and moderate-income, as 
applicable, the data source used for determining the percentage, and a 
description of the pervasive poverty and general distress in the census 
tract in sufficient detail to demonstrate how the census tract met the 
criteria in Sec.  570.208(a)(4)(v), as applicable.
    (8) For each activity determined to aid in the prevention or 
elimination of slums or blight based on addressing one or more of the 
conditions which qualified an area as a slum or blighted area:
    (i) The boundaries of the area;
    (ii) A designation, within the last 10 years, of the area as slum 
or blighted; and
    (iii) Quantifiable data substantiating the conditions and standards 
that qualified the area at the time of its designation.
* * * * *

[[Page 1781]]

    (c) * * *
    (1) Records that demonstrate that the recipient has made the 
determinations required as a condition of eligibility of certain 
activities, as prescribed in Sec. Sec.  570.201(e)(1), (f), (i)(2), 
(p), and (q), 570.202(b)(3), 570.206(f), 570.209, 570.210, and 570.309.
* * * * *
    (d) Records which demonstrate compliance with Sec.  570.503(b)(7) 
and (8) or Sec.  570.505 regarding maintenance of property condition 
and change of use of real property acquired or improved with CDBG 
assistance.
    (e) Records that demonstrate compliance with the citizen 
participation requirements prescribed in 24 CFR part 91, subpart B, for 
entitlement recipients, or in 24 CFR part 91, subpart C, for HUD-
administered small cities recipients, and subpart F for all recipients.
* * * * *
0
34. Amend Sec.  570.507 by revising paragraph (d) to read as follows:


Sec.  570.507   Reports.

* * * * *
    (d) Reports--(1) Reporting of CDBG funds. Recipients must collect 
and report data on their use of CDBG funds in the Integrated 
Disbursement and Information System (IDIS), or any successor reporting 
system, as specified by HUD.
    (2) Other reports. Recipients may be required to submit such other 
reports and information as HUD determines are necessary to carry out 
its responsibilities under the Act or other applicable laws.
0
35. Revise Sec.  570.509 to read as follows:


Sec.  570.509   Grant closeout procedures.

    This section implements 2 CFR 200.344 as applicable in the context 
of the CDBG program. This section specifies the actions a grantee and 
HUD must take to complete the closeout process.
    (a) Final financial, performance and other reports. In general, no 
later than 90 days after the end of the period of performance or no 
later than 90 days after the end of the program year in which the 
grantee expends all funds from the origin year grant (whichever comes 
first), the grantee must submit all financial, performance, and other 
reports as required by 24 CFR 91.520.
    (b) Liquidation of obligations. In general, a grantee must 
liquidate all obligations incurred under the origin year grant not 
later than 90 calendar days after the end date of the period of 
performance as specified in Sec.  570.3.
    (c) Closeout phases. Closeout of an origin year grant may occur in 
two phases if the Grant funds were expended to assist an activity(ies) 
that is incomplete at the time the final report is due to HUD. The two 
phases are:
    (1) Account closeout, in which HUD removes the recipient's access 
to grant funds and removes the grant from the grantee's line of credit.
    (2) Programmatic closeout, which marks completion of all 
programmatic requirements associated with a grant. Programmatic 
requirements include but are not limited to: physical completion of all 
activities for which funds were expended from the original year grant; 
all activities have met a national objective under Sec.  570.208; and 
the grantee has reported on all accomplishments resulting from the 
activities.
    (d) Extensions. (1) Extension to allow for programmatic closeout 
for activities for which funds have been disbursed but which have not 
been completed:
    (i) If the grantee has expended all grant funds at the time the 
final reports are due to HUD, but has not yet completed one or more 
activities to meet programmatic requirements, as defined in paragraph 
(c)(2) of this section, HUD may authorize an extension of the end date 
of the period of performance by up to two years for completion of an 
activity(ies) and up to the time period allowed at Sec.  570.208 to 
meet a national objective.
    (ii) However, this extension does not apply to the availability of 
any funds remaining in a grant's line of credit and HUD will initiate 
account closeout.
    (iii) The recipient must submit an interim version of the final 
reports in accordance with and as required in paragraph (a) of this 
section, specifically noting any incomplete assisted activity. At the 
end of the extension period, or when the activity(ies) is completed, 
whichever is earlier, the grantee must submit the final reports 
including any required information regarding that activity(ies).
    (2) Specific extensions for good cause. A grantee may request, and 
HUD may provide, an extension of the period of performance, deadlines 
for reporting, or deadline for obligation liquidation for a grant 
provided good cause is demonstrated.
    (e) Refund of unobligated balances. At account closeout, the 
grantee must promptly refund any balances of unobligated cash paid in 
advance or paid and that is not authorized to be retained by the 
grantee. All such refunds must be completed prior to submission of the 
reports required in paragraph (a) of this section.
    (f) Accounting for real property. In the reports required under 
paragraph (a) of this section, the grantee must account for any real 
property acquired with grant funds.
    (g) Closeout actions. In general, HUD will complete all closeout 
actions for a grant no later than one year after receipt and acceptance 
of all required final reports. In completing closeout actions, HUD will 
review the responsibilities and performance of the recipient under the 
grant agreement, applicable laws and regulations. HUD may delay 
programmatic closeout if it finds a further Federal interest in keeping 
the grant agreement open for the purpose of securing performance.
    (1) HUD will cancel any unused portion of the awarded grant, as 
shown in the executed grant closeout agreement. Any unused grant funds 
disbursed from the U.S. Treasury which are in the possession of the 
recipient shall be refunded to HUD. Any funds which have exceeded the 
statutory time limit on the use of funds will be recaptured by the U.S. 
Treasury pursuant to 24 CFR 570.200(k).
    (2) Any costs paid with CDBG funds which were not audited 
previously shall be subject to coverage in the recipient's next single 
audit performed in accordance with HUD regulations implementing the 
Single Audit Act requirements at 2 CFR part 200. The recipient may be 
required to repay HUD any disallowed costs based on the results of the 
audit, or on additional HUD reviews provided for in the closeout 
agreement.
    (3) Prior to completing account closeout, HUD will identify for the 
grant recipient any unused grant funds to be canceled by HUD and 
provide the grant recipient an opportunity to respond.
    (h) After closeout. (1) HUD may monitor the recipient's compliance 
and performance after the closeout of the award with respect to the 
following actions, and HUD may take findings of noncompliance into 
account, as unsatisfactory performance of the recipient, in the 
consideration of any future grant award under this part:
    (i) Closeout costs (e.g., audit costs) and costs resulting from 
contingent liabilities described in the closeout agreement pursuant to 
paragraph (g)(1) of this section. Contingent liabilities include, but 
are not limited to, third-party claims against the recipient, as well 
as related administrative costs;
    (ii) Use of real property assisted with CDBG funds in accordance 
with the principles described in Sec. Sec.  570.503(b)(7) and 570.505;
    (iii) Compliance with requirements governing future program income 
or

[[Page 1782]]

receivables generated from activities funded from the origin year 
grant, as described in Sec.  570.504(b)(4) and (5);
    (iv) Ensuring that flood insurance coverage for affected property 
owners is maintained for the mandatory period; and
    (v) Other provisions appropriate to any special circumstances of 
the grant closeout, in modification of or in addition to the 
obligations of this section.
    (2) The recipient is responsible for:
    (i) Compliance with all program requirements, certifications, and 
assurances in using any remaining CDBG funds available for closeout 
costs and contingent liabilities;
    (ii) Use of real property assisted with CDBG funds in accordance 
with the principles described in Sec. Sec.  570.503(b)(7) and 570.505;
    (iii) Compliance with requirements governing future program income 
or receivables generated from activities funded from the origin year 
grant, as described in Sec.  570.504(b)(4) and (5);
    (iv) Ensuring that flood insurance coverage for affected property 
owners is maintained for the mandatory period; and
    (v) Other provisions appropriate to any special circumstances of 
the grant closeout, in modification of or in addition to the 
obligations of this section.
    (i) Status of consolidated plan after closeout. The Consolidated 
Plan will remain in effect after closeout until the expiration of the 
program year covered by the last approved consolidated plan pursuant to 
24 CFR 91.520.
    (j) Termination of grant--(1) For convenience. Grant assistance 
provided under this part may be terminated for convenience in whole or 
in part before the completion of the assisted activities, in accordance 
with the provisions of 2 CFR 200.340. The recipient shall not incur new 
obligations for the terminated portions after the effective date and 
shall cancel as many outstanding obligations as possible. HUD shall 
allow full credit to the recipient for those portions of obligations 
which could not be canceled and which had been properly incurred by the 
recipient in carrying out the activities before the termination. The 
closeout policies contained in this section shall apply in such cases, 
except where the approved grant is terminated in its entirety. 
Responsibility for the environmental review to be performed under 24 
CFR part 50 or 24 CFR part 58, as applicable, shall be determined as 
part of the closeout process.
    (2) For cause. In cases in which the Secretary terminates the 
recipient's grant under the authority of subpart O of this part, or 
under the terms of the grant agreement, the closeout policies contained 
in this section shall apply, except where the approved grant is 
cancelled in its entirety. The provisions in 2 CFR 200.343 on the 
effects of termination shall also apply. HUD shall determine whether an 
environmental review is required, and if so, HUD shall perform it in 
accordance with 24 CFR part 50.


Sec.  570.600   [Amended]

0
36. Amend Sec.  570.600 in paragraph (a) by removing ``Sec.  570.405 
and''.


Sec.  570.606   [Amended]

0
37. Amend Sec.  570.606 in paragraph (b)(2)(ii)(C) by removing ``49 CFR 
24.2(g)(2)'' and adding in its place ``49 CFR 24.2(a)(9)(ii)''.
0
38. Amend Sec.  570.611 by revising paragraphs (a)(2) and (d)(1)(i) to 
read as follows:


Sec.  570.611   Conflict of interest.

    (a) * * *
    (2) In all cases not governed by 2 CFR 200.317 and 200.318, the 
provisions of this section shall apply. Such cases include the 
acquisition and disposition of real property and the provision of 
assistance by the recipient or by its subrecipients to individuals, 
businesses, and other private entities under eligible activities that 
authorize such assistance (e.g., rehabilitation, preservation, and 
other improvements of private properties or facilities pursuant to 
Sec.  570.202; or grants, loans, and other assistance to businesses, 
individuals, and other private entities pursuant to Sec.  570.203, 
Sec.  570.204, or Sec.  570.703(i)).
* * * * *
    (d) * * *
    (1) * * *
    (i) A disclosure of the nature of the conflict, accompanied by an 
assurance that there has been public disclosure of the conflict (public 
disclosure is considered a combination of any of the following: 
publication on the recipient's website, including social media; 
electronic mailings; media advertisements; public service 
announcements; and display in public areas such as libraries, grocery 
store bulletin boards, and neighborhood centers), evidence of the 
public disclosure, and a description of how the public disclosure was 
made; and
* * * * *


Sec.  570.613   [Removed and Reserved]

0
39. Remove and reserve Sec.  570.613.
0
40. Amend Sec.  570.703 by revising paragraph (f) and removing and 
reserving paragraph (j).
    The revision reads as follows:


Sec.  570.703   Eligible activities.

* * * * *
    (f) Site preparation either related to the redevelopment or use of 
the real property acquired or rehabilitated pursuant to paragraphs (a) 
and (b) of this section, or for an economic development purpose, 
including:
    (1) Construction, reconstruction, installation of public and other 
site improvements, utilities or facilities (other than buildings); or
    (2) Remediation of properties (remediation can include project-
specific environmental assessment costs not otherwise eligible under 
Sec.  570.205) with known or suspected environmental contamination.
* * * * *
0
41. Amend Sec.  570.704 as follows:
0
a. Revise paragraphs (a)(2)(i)(B), (b) introductory text, and (b)(1) 
and (2);
0
b. Remove and reserve paragraphs (b)(3) and (4);
0
c. Revise paragraphs (b)(8)(iii), (v), and (ix);
0
d. Add paragraphs (b)(8)(xi) and (xii) and (c)(3)(vii); and
0
e. Revise paragraph (c)(4).
    The revisions and additions read as follows:


Sec.  570.704   Application requirements.

    (a) * * *
    (2) * * *
    (i) * * *
    (B) Activities that may be undertaken with guaranteed loan funds;
* * * * *
    (b) Submission requirements. An application for loan guarantee 
assistance may be submitted at any time. The application (or plan 
submission described in paragraph (a)(1)(v) of this section) shall be 
submitted to the HUD headquarters office that administers loan 
guarantees under this subpart and shall include the following:
    (1) A description of how each of the activities to be carried out 
with the guaranteed loan funds meets the eligible activity criteria in 
Sec.  570.703 and the national objectives criteria in Sec.  570.208 or 
Sec.  570.483, as applicable.
    (2) A schedule for repayment of the loan which identifies the 
sources of repayment, together with a statement identifying the entity 
that will act as borrower and issue the debt obligations, and the 
source of the payment of fees required by Sec.  570.712.
* * * * *
    (8) * * *
    (iii) It has, prior to submission of its application to HUD: 
furnished citizens with information required by paragraph

[[Page 1783]]

(a)(2)(i) of this section; held at least one public hearing to obtain 
the views of citizens on community development needs; and prepared its 
application in accordance with paragraph (a)(1)(iv) or (v) of this 
section, as applicable, and made the application available to the 
public;
* * * * *
    (v) It will affirmatively further fair housing, and the guaranteed 
loan funds will be administered in compliance with Title VI of the 
Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.) and the Fair Housing 
Act (42 U.S.C. 3601-3619), and implementing regulations;
* * * * *
    (ix) (Where applicable, the public entity may also include the 
following additional certification.) It lacks sufficient resources from 
funds provided under this subpart or program income to allow it to 
comply with the provisions of Sec.  570.200(c)(2), and it must 
therefore assess properties owned and occupied by moderate income 
persons, to recover the non-guaranteed loan funded portion of the 
capital cost without paying such assessments on their behalf from 
guaranteed loan funds;
* * * * *
    (xi) It possesses the legal authority to make the pledge of grants 
required under Sec.  570.705(b)(2).
    (xii) It has made efforts to obtain financing for activities 
described in the application without the use of the loan guarantee, the 
public entity will maintain documentation of such efforts for the term 
of the loan guarantee, and the public entity cannot complete such 
financing consistent with the timely execution of the program plans 
without such guarantee.
* * * * *
    (c) * * *
    (3) * * *
    (vii) Activities to be undertaken with the guaranteed loan funds do 
not meet the public benefit standards under Sec.  570.209.
    (4) HUD will notify the public entity or State in writing that the 
loan guarantee request has either been approved (in the requested 
amount or a portion thereof) or disapproved. If the request is approved 
in an amount less than requested or disapproved, the public entity or 
State shall be informed of the specific reasons for disapproval or 
partial approval. If the request is approved, either in full or in 
part, HUD shall issue an offer of commitment to guarantee debt 
obligations of the borrower identified in the application subject to 
compliance with this part, including the requirements under Sec.  
570.705(b), (d), (g) and (h) for securing and issuing debt obligations, 
the conditions for release of funds described in paragraph (d) of this 
section, and such other conditions as HUD may specify in the commitment 
documents in a particular case.
* * * * *
0
42. Amend Sec.  570.705 as follows:
0
a. Revise paragraph (a)(1)(iii);
0
b. Remove paragraphs (a)(2)(iii)(A) through (C); and
0
c. Revise paragraph (b)(3).
    The revisions read as follows:


Sec.  570.705   Loan requirements.

    (a) * * *
    (1) * * *
    (iii) The amount any one public entity may receive may be limited 
to such amount as is necessary to allow HUD to give priority to 
applications containing activities to be carried out in areas 
designated as economically distressed by the Federal Government or by 
any State.
* * * * *
    (b) * * *
    (3) Furnish, at the discretion of HUD, such other security as may 
be deemed appropriate by HUD in making such guarantees. Such other 
security shall be specified in the contract entered into pursuant to 
paragraph (b)(1) of this section.
* * * * *
0
43. Amend Sec.  570.902 as follows:
0
a. Revise the section heading, the introductory text, and paragraph 
(a); and
0
b. Remove and reserve paragraph (b) and remove paragraph (c);
    The revisions read as follows:


Sec.  570.902   Review for timely performance and continuing capacity 
for timely performance.

    HUD will review the rate of disbursement of each entitlement, HUD-
administered small cities, non-entitlement counties in the State of 
Hawaii, and Insular Areas grant quarterly to determine whether each 
recipient is carrying out its CDBG-assisted activities in a timely 
manner and whether it has the continuing capacity to do so.
    (a) Entitlement recipients, Insular Areas, and Non-entitlement CDBG 
grantees in Hawaii. (1) The period of performance is defined at Sec.  
570.3.
    (2) Based on the sum of draw vouchers both submitted and completed 
in the designated online system during the reporting quarter, HUD will 
identify each grant as:
    (i) Slow Spender. Slow Spender means the grantee is disbursing ten 
percent less than the monthly pace required to fully expend the grant 
during the period of performance.
    (ii) On Pace. On Pace means the grant's disbursement rate exceeds 
Slow Spender and may be a sufficient rate to fully disburse the grant 
during the period of performance.
    (iii) Ready to Close. The grant has reached the end of the period 
of performance (phase 1).
    (iv) First Year. This is a new grant and HUD will not report 
performance publicly for the origin year of a grant.
    (3) If a grantee is not spending at a pace to disburse an entire 
grant during the period of performance (phase 1), HUD will evaluate the 
grantee's capacity and will provide technical assistance to improve 
timely performance.
    (4) Absent contrary evidence satisfactory to HUD, HUD will consider 
an insular area, an entitlement recipient, or a non-entitlement CDBG 
grantee in Hawaii to be failing to carry out its CDBG activities in a 
timely manner and to lack continuing capacity to carry out activities 
in a timely manner if three or more of its grants are designated Slow 
Spender in each quarter during four consecutive calendar quarters.
    (5) In determining appropriate corrective actions or sanctions, HUD 
will consider:
    (i) A grantee's demonstration, to HUD's satisfaction, that the lack 
of timeliness or capacity has resulted from factors beyond the 
grantee's reasonable control.
    (ii) The likelihood that the recipient will improve its 
disbursement rate for the majority of its non-First-Year open grants to 
On Pace within 120 days. For these purposes, HUD will take into account 
the extent to which funds on hand have been obligated by the recipient 
and its subrecipients for specific activities at the time the finding 
is made and other relevant information.
* * * * *
0
44. Amend Sec.  570.910 by revising paragraph (b)(5) and adding a 
paragraph (c) to read as follows:


Sec.  570.910   Corrective and remedial actions.

* * * * *
    (b) * * *
    (5) Advise the recipient to reimburse with non-Federal funds its 
program account or letter of credit in any amounts improperly expended 
and reprogram the use of the funds in accordance with applicable 
requirements;
* * * * *
    (c) Voluntary grant reductions. A recipient may elect to request a 
voluntary grant reduction from a current or future year's allocation of 
funds in lieu of reimbursing its grant under paragraph (b)(5) of this 
section. A

[[Page 1784]]

request for a voluntary grant reduction must be signed by the 
jurisdiction's chief elected official. In its request, the recipient 
must waive its right to a hearing pursuant to Sec.  570.913.

PART 1003--COMMUNITY DEVELOPMENT BLOCK GRANTS FOR INDIAN TRIBES AND 
ALASKA NATIVE VILLAGES

0
45. The authority citation for part 1003 continues to read as follows:

    Authority:  42 U.S.C. 3535(d) and 5301 et seq.

0
46. Amend Sec.  1003.4 by adding in alphabetical order a definition for 
``Activity delivery costs'' to read as follows:


Sec.  1003.4   Definitions.

* * * * *
    Activity delivery costs means the allowable costs of work performed 
by a recipient or subrecipient in carrying out specific activities 
eligible under Sec. Sec.  1003.201 through 1003.204. The cost 
principles at 2 CFR part 200, subpart E, must be used in determining 
the allowability of the costs.
* * * * *
0
47. Amend Sec.  1003.201 by revising the section heading and paragraphs 
(a), (c) introductory text, and (m) and adding paragraphs (p), (q), and 
(r) to read as follows:


Sec.  1003.201   Eligible activities.

* * * * *
    (a) Acquisition. Acquisition in whole or in part by the grantee, or 
other public or private nonprofit entity, by purchase, long-term lease 
(defined as 15 years or more), donation, or otherwise, of real property 
(including air rights, water rights, rights-of-way, easements, and 
other interests therein) for any public purpose, subject to the 
limitations of Sec.  1003.207.
* * * * *
    (c) Public facilities and improvements. Acquisition, construction, 
reconstruction, rehabilitation or installation of public facilities and 
improvements, except as provided in Sec.  1003.207(a), carried out by 
the grantee or other public or private nonprofit entities. In 
undertaking such activities, design features and improvements which 
promote energy efficiency may be included. [However, activities under 
this paragraph may be directed to the removal of material and 
architectural barriers that restrict the mobility and accessibility of 
elderly or disabled persons to publicly owned and privately owned 
buildings, facilities, and improvements including those provided for in 
Sec.  1003.207(a)(1).] Such activities may also include the execution 
of architectural design features, and similar treatments intended to 
enhance the aesthetic quality of facilities and improvements receiving 
ICDBG assistance. Facilities designed for use in providing shelter for 
persons having special needs are considered public facilities and not 
subject to the prohibition of new housing construction described in 
Sec.  1003.207(b)(3). Such facilities include shelters for the 
homeless; convalescent homes; hospitals, nursing homes; domestic 
violence shelters; halfway houses for run-away children, drug offenders 
or parolees; group homes for individuals with intellectual disabilities 
and temporary housing for disaster survivors, including those impacted 
by climate-related events. In certain cases, nonprofit entities and 
subrecipients including those specified in Sec.  1003.204 may acquire 
title to public facilities. When such facilities are owned by nonprofit 
entities or subrecipients, they shall be operated so as to be open for 
use by the general public during all normal hours of operation. Public 
facilities and improvements eligible for assistance under this 
paragraph (c) are subject to the following policies in paragraphs 
(c)(1) through (3) of this section:
* * * * *
    (m) Technical assistance. Provision of technical assistance to 
public or nonprofit entities to increase the capacity of such entities 
to carry out specific eligible neighborhood revitalization or economic 
development activities. General administrative and operating costs of a 
public or nonprofit entity are not eligible under this paragraph. 
Capacity building for private or public entities (including grantees) 
for other purposes may be eligible as a planning cost under Sec.  
1003.205.
* * * * *
    (p) Tornado safe shelters. ICDBG funds may be used by the recipient 
or provided as loans or grants to non-profit and for-profit entities, 
including owners of manufactured housing communities, for the 
construction or improvement of tornado-safe shelters for manufactured 
housing residents in accordance with section 105(a) of the Act. 
Activities pursuant to this paragraph may be located only in a 
neighborhood (including a manufactured housing community) that-
    (1) Contains at least 20 manufactured housing units within such 
proximity to the shelter that the shelter is available to the resident 
in the event of a tornado,
    (2) Consists predominantly of persons of low and moderate income
    (3) Is located within a State in which a tornado has occurred 
during the fiscal year for which with amounts to be used were made 
available or the preceding 3 fiscal years, as determined by the 
Secretary in consultation with the Administrator of the Federal 
Emergency Management Agency.
    (q) Essential repairs and operating expenses. ICDBG funds may be 
used for activities necessary to make essential repairs and pay 
operating expenses necessary to maintain the habitability of housing 
units (including abandoned or blighted properties) acquired through tax 
foreclosure proceedings (also known as In Rem) for up to five years to 
prevent abandonment or deterioration of housing units located in 
primarily low- and moderate-income neighborhoods.
    (r) Assistance to mixed-use property. ICDBG funds may be used to 
carry out eligible activities in mixed-use properties so long as the 
ICDBG recipient expends funds only on the eligible use in that 
property. For purposes of this section, the term ``Mixed-use property'' 
means a property containing multiple uses, at least one of which must 
be eligible to be assisted with ICDBG funds.
0
48. Amend Sec.  1003.202 by revising paragraph (a) introductory text to 
read as follows:


Sec.  1003.202   Eligible rehabilitation and preservation activities.

    (a) Types of buildings and improvements eligible for rehabilitation 
or reconstruction assistance. ICDBG funds may be used to finance the 
rehabilitation and reconstruction of:
* * * * *
0
49. Amend Sec.  1003.203 by revising paragraph (b) to read as follows:


Sec.  1003.203   Special economic development activities.

* * * * *
    (b) The provision of assistance to a private for-profit business, 
including, but not limited to, grants, loans, loan guarantees, interest 
supplements, loan participations, technical assistance, and other forms 
of support (including use of pass-through financing structures), for 
any activity where the assistance is necessary or appropriate to carry 
out an economic development project, excluding those described as 
ineligible in Sec.  1003.207(a). In order to ensure that any such 
assistance does not unduly enrich the for-profit business, the grantee 
shall conduct an analysis to determine that the amount of any financial 
assistance to be provided is not excessive, considering the actual 
needs of the business in making the project financially feasible and 
the

[[Page 1785]]

extent of public benefit expected to be derived from the economic 
development project. The grantee shall document the analysis as well as 
any factors it considered in making its determination that the 
assistance is necessary or appropriate to carry out the project. The 
requirement for making such a determination applies whether the 
business is to receive assistance from the grantee or through a 
subrecipient.
* * * * *
0
50. Amend Sec.  1003.206 by revising the section heading and the 
introductory text to read as follows:


Sec.  1003.206   Program administrative costs.

    ICDBG funds may be used for the payment of reasonable 
administrative costs and carrying charges related to the planning and 
execution of community development activities assisted in whole or in 
part with funds provided under this part. No more than 20 percent of 
the sum of any grant plus program income received shall be expended for 
activities described in this section and in Sec.  1003.205. This does 
not include staff and overhead costs directly related to carrying out 
activities eligible under Sec. Sec.  1003.201 through 1003.204, since 
those costs are eligible as part of such activities. These costs are 
activity delivery costs as defined in Sec.  1003.4. In addition, 
technical assistance costs associated with developing the capacity to 
undertake a specific funded activity are also not considered program 
administration costs. These costs must not, however, exceed 10 percent 
of the total grant award.
* * * * *
0
51. Amend Sec.  1003.208 as follows:
0
a. Revise paragraphs (b)(1) introductory text and (b)(1)(i) and (ii);
0
b. Remove the text ``Bureau of the Census'' and add in its place 
``Census Bureau's'' in paragraph (b)(2) introductory text;
0
c. Add paragraph (b)(5);
0
d. Remove ``, upon completion,'' from the first sentence of paragraph 
(c) introductory text; and
0
e. Revise paragraphs (c)(1)(i) and (ii), (c)(2), and (d).
    The revisions and addition read as follows:


Sec.  1003.208   Criteria for compliance with the primary objective.

* * * * *
    (b) * * *
    (1) An activity which benefits a limited clientele, at least 51 
percent of whom are low or moderate income persons. The activity must 
meet one of the following tests:
    (i) Benefit at least one of the following clientele who are 
generally presumed to be principally low and moderate income persons: 
abused children, survivors of domestic violence, elderly persons, 
adults meeting the Census Bureau's Current Population Reports 
definition of ``severely disabled,'' homeless persons, illiterate 
adults (adults unable to read and write in English and in their first 
language, if their first language is not English), persons living with 
AIDS, migrant farm workers, persons who meet the Federal poverty 
guidelines, persons insured by Medicaid; or
    (ii) Require information on family size and income that 
demonstrates that at least 51 percent of the clientele are persons 
whose family income does not exceed the low- and moderate-income limit; 
or
* * * * *
    (5) The following kinds of activities may not qualify under this 
paragraph (b): activities that provide benefits to all the residents of 
an area; activities involving the acquisition, construction or 
rehabilitation of property for housing; or activities where the benefit 
to low- and moderate-income persons to be considered is the creation or 
retention of jobs, except as provided in paragraph (b)(4) of this 
section.
    (c) * * *
    (1) * * *
    (i) The assistance is for an eligible activity to reduce the 
development cost of the substantial rehabilitation of (as defined at 24 
CFR 5.100), conversion of a nonresidential structure to, or new 
construction of, a multifamily, non-elderly rental housing project;
    (ii) At least 20 percent of the units will be occupied by low- and 
moderate-income households at affordable rents; and
* * * * *
    (2) When ICDBG funds are used for housing services eligible under 
Sec.  1003.201(j), if the housing for which the services are provided 
is to be occupied by low-and moderate-income households.
    (d) Job creation or retention activities. An activity designed to 
create or retain permanent jobs where at least 51 percent of the full-
time equivalent jobs will be held by, or made available to, low- and 
moderate-income persons. For purposes of determining whether a job is 
held by or made available to a low or moderate income person, the 
person may be presumed to be a low or moderate income person if: he/she 
resides within a census tract where not less than 70 percent of the 
residents have incomes at or below 80 percent of the area median; or, 
if he/she resides in a census tract designated as economically 
distressed by the Federal Government; or, if the assisted business is 
located in and the job under consideration is to be located in such a 
tract or area. As a general rule, each assisted business shall be 
considered to be a separate activity for purposes of determining 
whether the activity qualifies under this paragraph. However, in 
certain cases such as where ICDBG funds are used to acquire, develop or 
improve a real property (e.g., a business incubator or an industrial 
park) the requirement may be met by measuring jobs in the aggregate for 
all the businesses which locate on the property, provided such 
businesses are not otherwise assisted by ICDBG funds. Where ICDBG funds 
are used to pay for the staff and overhead costs of a CBDO under the 
provisions of Sec.  1003.204 making loans to businesses from non-ICDBG 
funds, this requirement may be met by aggregating the jobs created by 
all of the businesses receiving loans during any one-year period.
    (1) For an activity that creates jobs, the grantee must document 
that at least 51 percent of the jobs will be held by, or made available 
to, low- and moderate-income persons.
    (2) For an activity that retains jobs, the grantee must document 
that the jobs would be lost without the ICDBG assistance and that at 
least one of the following conditions applies with respect to at least 
51 percent of the jobs at the time the ICDBG assistance is provided:
    (i) The job is known to be held by a low- or moderate-income 
person; or
    (ii) The job can reasonably be expected to turn over within the 
following two years and that steps will be taken to ensure that it will 
be filled by, or made available to, a low- or moderate-income person 
upon turnover.
    (3) Jobs will be considered to be available to low- and moderate-
income persons only if:
    (i) The assisted business does not require as a prerequisite 
special skills that can only be acquired with substantial training or 
work experience or education beyond high school or the business agrees 
to hire unqualified persons and provide training; and
    (ii) The grantee and the assisted business take actions to ensure 
that low- and moderate-income persons receive first consideration for 
filling such jobs.
* * * * *
0
52. Amend Sec.  1003.506 by revising paragraph (a) introductory text to 
read as follows:


Sec.  1003.506   Reports.

    (a) Status and evaluation report. Grantees shall submit a status 
and evaluation report on previously funded

[[Page 1786]]

open grants 90 days after the end of the grantee's Tribal program year, 
or 90 days after the end of the Federal fiscal year if a grantee's 
Tribal program year is the same as the Federal fiscal year, and at the 
time of grant close-out. The report shall address the following areas:
* * * * *


Sec.  1003.602   [Amended]

0
53. Amend Sec.  1003.602 in paragraph (h)(2)(ii) by removing ``49 CFR 
24.2(g)(2)'' and adding in its place ``49 CFR 24.2(a)(9)(ii)''.
0
54. Amend Sec.  1003.606 by revising paragraph (d)(1)(i) to read as 
follows:


Sec.  1003.606   Conflict of interest.

* * * * *
    (d) * * *
    (1) * * *
    (i) A disclosure of the nature of the possible conflict, 
accompanied by an assurance that there has been public disclosure of 
the conflict (public disclosure is considered a combination of any of 
the following: publication on the grantee's website, including social 
media; electronic mailings; media advertisements; public service 
announcements; and display in public areas such as libraries, grocery 
store bulletin boards, and neighborhood centers), evidence of the 
public disclosure, and a description of how the public disclosure was 
made; and
* * * * *

Marion M. McFadden,
Principal Deputy Assistant Secretary for Community Planning and 
Development.
Dominique Blom,
General Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. 2024-00039 Filed 1-9-24; 8:45 am]
BILLING CODE 4210-67-P