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###### Department of Housing and Urban Development

          - [Docket No. FR-5252-N-01] 

# AGENCY:

Office of the Secretary, HUD. 

# ACTION:

Notice of reconsidered waivers, alternative requirements, and statutory program requirements. 

# SUMMARY:

This notice describes the statutorily required reconsideration of additional waivers and alternative requirements applicable to the CDBG disaster recovery grant provided to the State of Alabama on June 14, 2006, for the purpose of assisting in the recovery in the most impacted and distressed areas related to the consequences of Hurricane Katrina in 2005. HUD previously published an allocation and application notice on February 13, 2006, applicable to this grant and four others under the same appropriation and extended that notice on August 8, 2008. As described in the Supplementary Information section of this notice, HUD is authorized by statute to waive statutory and regulatory requirements and specify alternative requirements for this purpose, upon the request of the state grantee. This notice for the State of Alabama also notes statutory provisions affecting program design and implementation. The original notice has been reconsidered and the waivers are being retained. 

# DATES:

*Effective Date:*                         October 14, 2008.                     

# FOR FURTHER INFORMATION CONTACT:

Jessie Handforth Kome, Director, Disaster Recovery and Special Issues Division, Office of Block Grant Assistance, Department of Housing and Urban Development, 451 Seventh Street, SW., Room 7286, Washington, DC 20410-7000, telephone number 202-708-3587. Persons with hearing or speech impairments may access this number via TTY by calling the Federal Information Relay Service at 800-877-8339. Fax inquiries may be sent to Ms. Kome at 202-401-2044. (Except for the “800” number, these telephone numbers are not toll-free.) 

# SUPPLEMENTARY INFORMATION:

## Authority To Grant Waivers 

                    The Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes                           ( print page 58613)                        in the Gulf of Mexico, and Pandemic Influenza Act, 2006 (Pub. L. 109-148, approved December 30, 2005) (the 2006 Act) appropriated $11.5 billion in Community Development Block Grant funds for necessary expenses related to disaster relief, long-term recovery, and restoration of infrastructure directly related to the consequences of the covered disasters. The State of Alabama received an allocation of $74,388,000 from this appropriation. The Act authorized the Secretary to waive, or specify alternative requirements for, any provision of any statute or regulation that the Secretary administers in connection with the obligation by the Secretary or use by the recipient of these funds and guarantees, except for requirements related to fair housing, nondiscrimination, labor standards, and the environment (including waivers concerning lead-based paint), upon a request by the state and a finding by the Secretary that such a waiver would not be inconsistent with the overall purpose of the statute. The law further provided that the Secretary may waive the requirement that activities benefit persons of low and moderate income, except that at least 50 percent of the funds granted must benefit primarily persons of low and moderate income, unless the Secretary otherwise makes a finding of compelling need. The following waivers and alternative requirements are in response to written requests from the State of Alabama and are being retained after reconsideration.                 

                    The Secretary has found that the following waivers and alternative requirements, as described below, are not inconsistent with the overall purpose of 42 U.S.C. 5301*et seq.*; Title I of the Housing and Community Development Act of 1974, as amended, (the 1974 Act); or of 42 U.S.C. 12704*et seq.*, of the Cranston-Gonzalez National Affordable Housing Act, as amended. Under the requirements of the Department of Housing and Urban Development Act, as amended (42 U.S.C. 3535(q)), regulatory waivers must be published in the                     **Federal Register**                    . The Department is also using this notice to provide information about other ways in which the requirements for this grant vary from regular CDBG program rules. Therefore, HUD is using this notice to make public alternative requirements and to note the applicability of disaster recovery related statutory provisions. Compiling this information in a single notice creates a helpful resource for Alabama grant administrators and HUD field staff. Waivers and alternative requirements regarding the common application and reporting process for all grantees under this appropriation were published in a prior notice (71 FR 7666, published February 13, 2006) and retained in Notice 73 FR 46312, published August 8, 2008.                 

Except as described in notices regarding this grant, the statutory and regulatory provisions governing the CDBG program for states, including those at 24 CFR part 570, shall apply to the use of these funds. 

## Descriptions of Changes 

This section of the notice briefly describes the basis for each reconsidered waiver and provides an explanation of related alternative requirements, if additional explanation is necessary. This Descriptions section also highlights some of the statutory items and alternative requirements described in the sections that follow. 

Except as provided in the October 30, 2006, and August 8, 2008, notices, the waivers, alternative requirements, and statutory changes apply only to the CDBG supplemental disaster recovery funds appropriated in the 2006 Act and allocated to the State of Alabama. These actions provide additional flexibility in program design and implementation and note statutory requirements unique to this appropriation. 

## Eligibility 

*Eligibility—housing related.*                     The waivers that allowed new housing construction and payment of up to 100 percent of a housing downpayment have been necessary following major disasters in which large numbers of affordable housing units have been damaged or destroyed, as is the case in the disaster eligible under this notice.                 

*General planning activities use entitlement presumption.*                     The annual state CDBG program requires that local government grant recipients for planning-only grants must document that the use of funds meets a national objective. In the state CDBG program, these planning grants are typically used for individual project plans. By contrast, planning activities carried out by entitlement communities are more likely to include nonproject specific plans such as functional land use plans, historic preservation plans, comprehensive plans, development of housing codes, and neighborhood plans related to guiding long-term community development efforts comprising multiple activities funded by multiple sources. In the annual entitlement program, these more general stand-alone planning activities are presumed to meet a national objective under the requirements at 24 CFR 570.208(d)(4). The Department noted that almost all effective CDBG disaster recoveries in the past have relied on some form of area-wide or comprehensive planning activity to guide overall redevelopment independent of the ultimate source of implementation funds. Therefore, the Department removed the eligibility requirement that CDBG disaster recovery assisted planning-only grants or state directly administered planning activities that will guide recovery in accordance with the appropriations act must comply with the state CDBG program rules at 24 CFR 570.483(b)(5) or (c)(3).                 

*Anti-pirating.*                     The limited waiver of the anti-pirating requirements allowed the flexibility to provide assistance to a business located in another state or market area within the same state if the business was displaced from a declared area within the state by the disaster and the business wishes to return. This waiver is necessary to allow a grantee affected by a major disaster to rebuild its employment base.                 

## Program Income 

                    A combination of CDBG provisions limited the flexibility available to the state for the use of program income. Prior to 2002, program income earned on disaster grants was usually program income in accordance with the rules of the regular CDBG program of the applicable state and lost its disaster grant identity, thus losing use of the waivers and streamlined alternative requirements. Also, the state CDBG program rule and law are designed for a program in which the state distributes all funds rather than carrying out activities directly. The 1974 Act specifically provides for a local government receiving CDBG grants from a state to retain program income if it uses the funds for additional eligible activities under the annual CDBG program. The 1974 Act allows the state to require return of the program income to the state under certain circumstances. The notice waived the existing statute and regulations to give the state, in all circumstances, the choice of whether or not a local government receiving a distribution of CDBG disaster recovery funds and using program income for activities in the Action Plan could retain this income and use it for additional disaster recovery activities. In addition, the notice allowed program income to the disaster grant generated by activities undertaken directly by the state or its agent(s) to retain the original disaster recovery grant's alternative requirements and waivers and to remain under the state's discretion until grant closeout, at which point any program income on hand or received                           ( print page 58614)                        subsequently would become program income to the state's annual CDBG program. The alternative requirements provided all the necessary conforming changes to the program income regulations.                 

## Relocation Requirements 

HUD provided a limited waiver of the relocation requirements. HUD waived the one-for-one replacement of low- and moderate-income housing units demolished or converted using CDBG funds requirement for housing units damaged by one or more disasters. HUD waived this requirement because it did not take into account the large, sudden changes a major disaster may cause to the local housing stock, population, or local economy. Further, the requirement did not take into account the threats to public health and safety and to economic revitalization that may be caused by the presence of disaster-damaged structures that are unsuitable for rehabilitation. Left unchanged, the requirement could have impeded disaster recovery and discouraged grantees from acquiring, converting, or demolishing disaster-damaged housing because of excessive costs that would have resulted from replacing all such units within the specified time frame. 

                    HUD also waived the relocation benefits requirements contained in Section 104(d) of the 1974 Act to the extent they differ from those of the Uniform Relocation Assistance and Real Properties Acquisition Act of 1970 (42 U.S.C. 4601*et seq.*). This change simplified implementation while preserving statutory protections for persons displaced by federal projects.                 

## Timely Distribution of Funds 

The state CDBG program regulation regarding timely distribution of funds is at 24 CFR 570.494. This provision is designed to work in the context of an annual program in which almost all grant funds are distributed to units of general local government. Because the state may use its disaster recovery grant funds to carry out some or all activities directly, and because Congress expressly allowed this grant to be available until expended, HUD waived this requirement. However, HUD still expects the State of Alabama to expeditiously obligate and expend all funds, including any recaptured funds or program income, in carrying out activities in a timely manner. 

## Waivers and Alternative Requirements 

1. Program income alternative requirement. 42 U.S.C. 5304(j) and 24 CFR 570.489(e) are waived to the extent that they conflict with the rules stated in the program income alternative requirement below. The following alternative requirement applies instead. 

(a) Program income. 

(1) For the purposes of this subpart, “program income” is defined as gross income received by a state, a unit of general local government, a tribe, or a subrecipient of a unit of general local government or a tribe that was generated from the use of CDBG funds, except as provided in paragraph (a)(2) of this section. When income is generated by an activity that is only partially assisted with CDBG funds, the income shall be prorated to reflect the percentage of CDBG funds used (e.g., a single loan supported by CDBG funds and other funds; a single parcel of land purchased with CDBG funds and other funds). Program income includes, but is not limited to, the following: 

(i) Proceeds from the disposition by sale or long-term lease of real property purchased or improved with CDBG funds; 

(ii) Proceeds from the disposition of equipment purchased with CDBG funds; 

(iii) Gross income from the use or rental of real or personal property acquired by the unit of general local government or tribe or subrecipient of a state, a tribe, or a unit of general local government with CDBG funds less the costs incidental to the generation of the income; 

(iv) Gross income from the use or rental of real property owned by a state, tribe, or the unit of general local government or a subrecipient of a state, tribe, or unit of general local government, that was constructed or improved with CDBG funds, less the costs incidental to the generation of the income; 

(v) Payments of principal and interest on loans made using CDBG funds; 

(vi) Proceeds from the sale of loans made with CDBG funds; 

(vii) Proceeds from the sale of obligations secured by loans made with CDBG funds; 

(viii) Interest earned on program income pending disposition of the income, but excluding interest earned on funds held in a revolving fund account; 

(ix) Funds collected through special assessments made against properties owned and occupied by households not of low and moderate income, where the special assessments are used to recover all or part of the CDBG portion of a public improvement; and 

(x) Gross income paid to a state, tribe, or a unit of general local government or subrecipient from the ownership interest in a for-profit entity acquired in return for the provision of CDBG assistance. 

(2) “Program income” does not include the following: 

(i) The total amount of funds which is less than $25,000 received in a single year that is retained by a unit of general local government, tribe, or subrecipient; 

(ii) Amounts generated by activities eligible under section 105(a)(15) of the 1974 Act and carried out by an entity under the authority of section 105(a)(15) of the Act. 

(3) The state may permit the unit of general local government or tribe that receives or will receive program income to retain the program income, subject to the requirements of paragraph (a)(3)(ii) of this section, or the state may require the unit of general local government or tribe to pay the program income to the state. 

(i) Program income paid to the state. Program income that is paid to the state or received by the state is treated as additional disaster recovery CDBG funds subject to the requirements of this notice and must be used by the state or distributed to units of general local government in accordance with the state's Action Plan for Disaster Recovery. To the maximum extent feasible, program income shall be used or distributed before the state makes additional withdrawals from the United States Treasury, except as provided in paragraph (b) of this section. 

(ii) Program income retained by a unit of general local government or tribe. 

(A) Program income that is received and retained by the unit of general local government or tribe before closeout of the grant that generated the program income is treated as additional disaster recovery CDBG funds and is subject to the requirements of this notice. 

(B) Program income that is received and retained by the unit of general local government or tribe after closeout of the grant that generated the program income, but that is used to continue the disaster recovery activity that generated the program income, is subject to the waivers and alternative requirements of this notice. 

(C) All other program income is subject to the requirements of 42 U.S.C. 5304(j) and subpart I of 24 CFR part 570. 

(D) The state shall require units of general local government or tribes, to the maximum extent feasible, to disburse program income that is subject to the requirements of this notice before requesting additional funds from the state for activities, except as provided in paragraph (b) of this section. 

(b) Revolving funds. 

                    (1) The state may establish or permit units of general local government or                           ( print page 58615)                        tribes to establish revolving funds to carry out specific, identified activities. A revolving fund, for this purpose, is a separate fund (with a set of accounts that are independent of other program accounts) established to carry out specific activities which, in turn, generate payments to the fund for use in carrying out such activities. These payments to the revolving fund are program income and must be substantially disbursed from the revolving fund before additional grant funds are drawn from the United States Treasury for revolving fund activities. Such program income is not required to be disbursed for nonrevolving fund activities.                 

(2) The state may also establish a revolving fund to distribute funds to units of general local government or tribes to carry out specific, identified activities. A revolving fund, for this purpose, is a separate fund (with a set of accounts that are independent of other program accounts) established to fund grants to units of general local government to carry out specific activities which, in turn, generate payments to the fund for additional grants to units of general local government to carry out such activities. Program income in the revolving fund must be disbursed from the fund before additional grant funds are drawn from the Treasury for payments to units of general local government which could be funded from the revolving fund. 

(3) A revolving fund established by either the state or unit of general local government shall not be directly funded or capitalized with grant funds. 

(c) Transfer of program income. Notwithstanding other provisions of this notice, the state may transfer program income before closeout of the grant that generated the program income to its own annual CDBG program or to any annual CDBG-funded activities administered by a unit of general local government or Indian tribe within the state. 

(d) Program income on hand at the state or its subrecipients at the time of grant closeout by HUD and program income received by the state after such grant closeout shall be program income to the most recent annual CDBG program grant of the state. 

2. Housing-related eligibility waivers. 42 U.S.C. 5305(a) is waived to the extent necessary to allow down payment assistance for up to 100 percent of the downpayment (42 U.S.C. 5305(a)(24)(D)) and to allow new housing construction. 

3. Planning requirements. For CDBG disaster recovery assisted planning activities that will guide recovery in accordance with the 2006 Act, the state CDBG program rules at 24 CFR 570.483(b)(5) and (c)(3) are waived and the presumption at 24 CFR 570.208(d)(4) applies. 

4. Waiver and modification of the anti-pirating clause to permit assistance to help a business return. 42 U.S.C 5305(h) and 24 CFR 570.482 are hereby waived only to allow the grantee to provide assistance under this grant to any business that was operating in the covered disaster area before the incident date of Hurricane Katrina and has since moved, in whole or in part, from the affected area to another state or to a labor market area within the same state to continue business. 

5. Waiver of one-for-one replacement of units damaged by disaster. 42 U.S.C. 5301(d)(2) and (d)(3) are waived to remove the one-for-one replacement requirements for occupied and vacant, occupiable lower-income dwelling units that may be demolished or converted to a use other than for housing; and to remove the relocation benefits requirements contained at 42 U.S.C. 5304(d) to the extent they differ from those of the Uniform Relocation Act. Also, 24 CFR 42.375 is waived to remove the requirements implementing the above-mentioned statutory requirements regarding replacement of housing and 24 CFR 42.350, to the extent that these regulations differ from the regulations contained in 49 CFR part 24. These requirements are waived provided the grantee assures HUD it will use all resources at its disposal to ensure no displaced homeowner will be denied access to decent, safe, and sanitary suitable replacement housing because he or she has not received sufficient financial assistance. 

6. Waiver of requirement for timely distribution of funds. 24 CFR 570.494 regarding timely distribution of funds is waived. 

## Notes on Applicable Statutory Requirements 

7. Notes on flood buyouts: 

a. Payment of pre-flood values for buyouts. HUD disaster recovery entitlement communities, state grant recipients, and Indian tribes have the discretion to pay pre-flood or post-flood values for the acquisition of properties located in a flood way or floodplain. In using CDBG disaster recovery funds for such acquisitions, the grantee must uniformly apply whichever valuation method it chooses. 

b. Ownership and maintenance of acquired property. Any property acquired with disaster recovery grants funds being used to match Federal Emergency Management Agency (FEMA) Section 404 Hazard Mitigation Grant Program funds is subject to section 404(b)(2) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, as amended, which requires that such property be dedicated and maintained in perpetuity for a use that is compatible with open space, recreational, or wetlands management practices. In addition, with minor exceptions, no new structure may be erected on the property and no subsequent application for federal disaster assistance may be made for any purpose. The acquiring entity may want to lease such property to adjacent property owners or other parties for compatible uses in return for a maintenance agreement. Although federal policy encourages leasing rather than selling such property, the property may be sold. In all cases, a deed restriction or covenant running with the land must require that the property be dedicated and maintained for compatible uses, in perpetuity. 

c. Future federal assistance to owners remaining in floodplain. 

(1) Section 582 of the National Flood Insurance Reform Act of 1994, as amended, (42 U.S.C. 5154(a)) prohibits flood disaster assistance in certain circumstances. In general, it provides that no federal disaster relief assistance made available in a flood disaster area may be used to make payment (including any loan assistance payment) to a person for repair, replacement, or restoration of damage to any personal, residential, or commercial property, if that person at any time has received flood disaster assistance that was conditional on the person first having obtained flood insurance under applicable federal law and the person has subsequently failed to obtain and maintain flood insurance as required under applicable federal law on such property. (Section 582 is self-implementing without regulations.) This means that a grantee may not provide disaster assistance for the above-mentioned repair, replacement, or restoration to a person who has failed to meet this requirement. 

                    (2) Section 582 also implies a responsibility for a grantee that receives CDBG disaster recovery funds or that, under 42 U.S.C. 5321, designates annually appropriated CDBG funds for disaster recovery. That responsibility is to inform property owners receiving disaster assistance that triggers the flood insurance purchase requirement that they have a statutory responsibility to notify any transferee of the requirement to obtain and maintain flood insurance, and that the transferring owner may be liable if he or she fails to do so. These requirements are described below.                           ( print page 58616)    

(3) Duty to notify. In the event of the transfer of any property described in paragraph (4)(iv) below, the transferor shall, not later than the date on which such transfer occurs, notify the transferee in writing of the requirements to: 

(i) Obtain flood insurance in accordance with applicable federal law with respect to such property, if the property is not so insured as of the date on which the property is transferred; and 

(ii) Maintain flood insurance in accordance with applicable federal law with respect to such property. 

(iii) Such written notification shall be contained in documents evidencing the transfer of ownership of the property. 

(4) Failure to notify. If a transferor fails to provide notice as described above and, subsequent to the transfer of the property: 

(i) The transferee fails to obtain or maintain flood insurance, in accordance with applicable federal law, with respect to the property; 

(ii) The property is damaged by a flood disaster; and 

(iii) Federal disaster relief assistance is provided for the repair, replacement, or restoration of the property as a result of such damage, the transferor shall be required to reimburse the federal government in an amount equal to the amount of the federal disaster relief assistance provided with respect to the property. 

(iv) The notification requirements apply to personal, commercial, or residential property for which federal disaster relief assistance made available in a flood disaster area has been provided, prior to the date on which the property is transferred, for repair, replacement, or restoration of the property, if such assistance was conditioned upon obtaining flood insurance in accordance with applicable federal law with respect to such property. 

(v) The term “Federal disaster relief assistance” applies to HUD or other federal assistance for disaster relief in “flood disaster areas.” The term “flood disaster area” is defined in section 582(d)(2) to include an area receiving a presidential declaration of a major disaster or emergency as a result of flood conditions. 

8. Non-Federal Cost Sharing of Army Corps of Engineers Projects. Public Law 105-276, Title II, Oct. 21, 1998, 112 Stat. 2478, provided in part that: “For any fiscal year, of the amounts made available as emergency funds under the heading ‘Community Development Block Grants Fund’  and notwithstanding any other provision of law, not more than $250,000 may be used for the non-Federal cost-share of any project funded by the Secretary of the Army through the Corps of Engineers.” 

## Finding of No Significant Impact 

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). The Finding of No Significant Impact is available for public inspection between 8 a.m. and 5 p.m. weekdays in the Office of the Rules Docket Clerk, Office of General Counsel, Department of Housing and Urban Development, 451 Seventh Street, SW., Room 10276, Washington, DC 20410-0500. 

Dated: September 26, 2008. 

Roy A. Bernardi, 

Deputy Secretary.

 [FR Doc. E8-23664 Filed 10-6-08; 8:45 am] 

BILLING CODE 4210-67-P