[Federal Register Volume 73, Number 195 (Tuesday, October 7, 2008)]
[Notices]
[Pages 58612-58616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-23664]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

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


Reconsideration of Waivers Granted to and Alternative 
Requirements for the State of Alabama's CDBG Disaster Recovery Grant 
Under the Department of Defense Emergency Supplemental Appropriations 
To Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza 
Act, 2006

AGENCY: Office of the Secretary, HUD.

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

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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

[[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

[[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

[[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.

[[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