36384 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Part 570 

[Docket No. 5326–I–01] 

Section 108 Community Development 

Loan Guarantee Program: Participation 

of States as Borrowers Pursuant to 

Section 222 of the Omnibus 

Appropriations Act, 2009 

AGENCY: Office of the Assistant 

Secretary for Community Planning and 

Development, HUD. 

ACTION: Interim rule. 

SUMMARY: This interim rule implements 

section 222 in Division I of the Omnibus 

Appropriations Act, 2009, Public Law 

111–8 (2009 Appropriations Act). 

Section 222 authorizes HUD, to the 

extent of Fiscal Year (FY) 2009 loan 

guarantee authority, to provide 

community development loan 

guarantees, under section 108 of the 

Housing and Community Development 

Act of 1974 (HCD Act), to states 

borrowing on behalf of local 

governments in nonentitlement areas 

(governments that do not receive annual 

Community Development Block Grants 

(CDBG) from HUD). Section 108 

authorizes HUD to guarantee notes 

issued by such nonentitlement local 

governments or their designated public 

agencies supported by the respective 

state’s pledge of its CDBG funds. Prior 

to the enactment of section 222, HUD 

lacked authority to guarantee notes 

issued by states on their behalf. State 

officials interested in applying for a loan 

guarantee commitment pursuant to this 

new authority should take note that 

HUD’s authority to issue such 

commitments will expire on September 

30, 2010 (and could be fully utilized by 

other borrowers before that date), unless 

the provision continues to be included 

in future appropriations acts. The 

interim rule, however, contains 

language that will make the provisions 

implementing this new authority 

continue to apply, in the event that 

provisions equivalent to section 222 are 

included in future appropriations acts. 

Because the provisions of section 222 

expand, rather than replace, existing 

Section 108 authority, HUD will also 

continue to accept nonentitlement local 

government issuers’ state-supported 

applications for loan guarantee 

commitments. 

DATES: Effective Date: August 21, 2009. 

Comment Due Date: September 21, 

2009. 

ADDRESSES: Interested persons are 

invited to submit comments to be 

considered in formulating the final rule 

to the Regulations Division, Office of 

General Counsel, Department of 

Housing and Urban Development 451 

7th Street, SW., Room 10276, 

Washington, DC 20410–0500. 

Communications must refer to the above 

docket number and title. There are two 

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 20410–0001. 

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 Web site can 

be viewed by other commenters and 

interested members of the public. 

Commenters should follow the 

instructions provided on that site 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 properly submitted 

comments and communications 

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). 

Individuals with speech or hearing 

impairments may access this number 

via TTY by calling the Federal 

Information Relay Service at (800) 877– 

8339. Copies of all comments submitted 

are available for inspection and 

downloading at http:// 

www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: Paul 

Webster, Director, Financial 

Management Division, Office of 

Community Planning and Development, 

Department of Housing and Urban 

Development, 451 7th Street, SW., 

Room 7186, Washington, DC 20410; 

telephone number 202–708–1871 (this 

is not a toll-free number). Individuals 

with speech or hearing impairments 

may access this number through TTY by 

calling the toll-free Federal Information 

Relay Service at 800–877–8339. FAX 

inquiries (but not comments on this 

interim rule) may be sent to Mr. Webster 

at 202–708–1798 (this is not a toll-free 

number). 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Section 108 Community 

Development Loan Guarantee program 

provides local governments with access 

to long-term (up to 20-year) fixed-rate 

loans at relatively low interest rates to 

finance certain categories of eligible 

CDBG projects. Under section 108(a) of 

the HCD Act (section 108(a)), HUD 

enters into commitments to guarantee, 

and subsequently guarantees, 

promissory notes issued by units of 

general local government (or their 

designated public agencies). Under 

section 108(r) of the HCD Act, HUD, 

acting on behalf of these borrowers, 

arranges for the issuance of a series of 

trust certificates based on a large pool of 

such notes and engages underwriters 

(investment banking firms) to market 

and sell interests in the trust certificates 

to investors in a periodic, generally 

annual, public offering. 

HUD guarantees the timely payment 

of the principal of and interest on the 

trust certificates and, under the 

provisions of section 108, the full faith 

and credit of the United States is 

pledged to honor the guarantee. Because 

of the federal guarantee, interest payable 

on the trust certificates and the 

underlying notes can be set at relatively 

low fixed rates; investors are willing to 

purchase interests in the certificates at 

such interest rates because of the 

security provided by the guarantee. 

Proceeds of the sale, minus certain 

underwriting and trust administration 

fees and costs, are advanced to the local 

government borrowers, who pay interest 

on a given year’s principal installment 

at the fixed interest rate borne by the 

trust certificate of corresponding 

maturity. 

To accommodate local government 

borrowers that need financing for 

projects in the months between the 

periodic public offering of fixed-rate 

trust certificates, HUD also guarantees 

promissory notes under section 108(a) 

that initially bear interest at rates that 

adjust monthly in relation to a reference 

short-term interest rate. Such local 


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governments then typically opt to have 

their notes pooled with other issuers’ 

notes in the next public offering of 

fixed-rate trust certificates, at which 

time, under the terms of the notes, the 

interest rates on principal installments 

of particular maturities convert to the 

fixed rates borne by the trust certificates 

of corresponding maturities. 

Contemporaneous with HUD’s 

guarantee, local government borrowers 

enter into contracts with HUD in which 

they agree to use funds for eligible 

activities, to make the payments 

required under their notes, and to 

reimburse HUD for any payments made 

on their behalf. These obligations are 

secured by pledges of annual CDBG 

allocations—the local government’s own 

allocation in the case of CDBG 

entitlement communities and, in the 

case of local governments in 

nonentitlement areas, the state’s 

allocation. HUD is also authorized to 

require (and as a matter of policy does 

require) other security, such as interests 

in real property and pledges of local 

revenues, in addition to pledged CDBG 

funds. While HUD’s guarantees to 

investors are backed by the full faith 

and credit of the United States, the local 

government borrower’s obligations to 

HUD are payable only from pledged 

CDBG funds and any additional security 

furnished, and are not general 

obligations of the borrower secured by 

its full faith and credit (except to the 

extent that the borrower chooses to 

furnish such a pledge as additional 

security). 

Historically, section 108(a) guarantee 

authority has been limited to the 

guarantee of notes or other obligations 

issued by eligible public entities, 

defined in section 108(o) of the HCD Act 

as ‘‘any unit of general local 

government, including units of general 

local government in nonentitlement 

areas,’’ or by public agencies designated 

by such eligible public entities. States 

have participated in the program by 

supporting nonentitlement local 

governments’ applications to HUD for 

loan guarantee assistance and by 

pledging the State’s CDBG allocations to 

secure the local government issuers’ 

obligations. However, states have not 

been able to participate in the program 

as issuers (borrowers). This stands in 

contrast with the states’ CDBG program 

under section 106 of the HCD Act 

(subpart I of part 570), under which 

HUD makes annual formula grants to 

the states, which in turn distribute 

funds to local governments in 

nonentitlement areas to carry out 

eligible activities. 

II. The 2009 Appropriations Act and 

Section 222 

Pursuant to section 108 of the HCD 

Act and the Federal Credit Reform Act 

of 1990, as amended, in order to 

authorize HUD to make commitments to 

guarantee, and guarantee pursuant to 

those commitments, subject to the loan 

limitation for section 108 during a given 

period of time, Congress appropriates 

funds, which are referred to as ‘‘credit 

subsidy,’’ to HUD for section 108 loan 

guarantees in an amount sufficient to 

cover the estimated long-term cost to the 

federal government, excluding 

administrative costs. 

The 2009 Appropriations Act 

appropriates credit subsidy funds of $6 

million to HUD for the section 108 loan 

guarantee program. These funds are 

available for obligation for loan 

guarantee commitments until September 

30, 2010, subject to a loan limitation of 

$275 million (or such lower amount as 

may be required by the section 108 

credit subsidy rate). If the entire FY 

2009 section 108 credit subsidy 

appropriation is obligated in FY 2009, 

the principal amount of commitments 

issued cannot exceed $265,487,000. 

One of the administrative provisions 

of the 2009 Appropriations Act, section 

222(a), provides that these credit 

subsidy funds ‘‘may be used to 

guarantee, or make commitments to 

guarantee, notes, or other obligations 

issued by any state on behalf of non 

entitlement communities in the state in 

accordance with the requirements of 

section 108 of the Housing and 

Community Development Act of 1974: 

Provided, That, any State receiving such 

a guarantee or commitment shall 

distribute all funds subject to such 

guarantee to the units of general local 

government in nonentitlement areas that 

received the commitment.’’ 

III. This Interim Rule 

HUD interprets section 222, in 

conjunction with section 108(a), as 

authorizing HUD to make a commitment 

to guarantee, and to subsequently 

guarantee, a note or other obligation 

issued by a state to the same extent 

(subject to the special provisions of 

section 222, discussed below) as a note 

or other obligation issued by an eligible 

public entity, if the commitment and 

guarantee are made pursuant to the loan 

guarantee authority provided in the 

2009 Appropriations Act. 

Certain provisions in section 108 of 

the HCD Act refer to guarantees made, 

or obligations guaranteed or eligible for 

guarantee, ‘‘under’’ or ‘‘pursuant to’’ 

section 108. HUD also interprets these 

statutory provisions, when read in 

conjunction with section 222, as 

extending to guarantees that are made, 

and obligations that are guaranteed or 

eligible for guarantee, pursuant to the 

additional authority provided in section 

222. These include, but are not limited 

to, the following key statutory 

provisions: 

1. Section 108(f), which provides that 

the full faith and credit of the United 

States is pledged to the payment of ‘‘all 

guarantees made under this section’’ 

and provides, ‘‘Any such guarantee 

made by the Secretary shall be 

conclusive evidence of the eligibility of 

the obligations for such guarantee with 

respect to principal and interest, and the 

validity of any such guarantee so made 

shall be incontestable in the hands of a 

holder of the guaranteed obligations.’’ 

2. Section 108(r), which (as more 

particularly described in this preamble) 

authorizes HUD to guarantee the 

principal of and interest on trust 

certificates based on and backed by a 

trust or pool composed of ‘‘notes or 

other obligations guaranteed or eligible 

for guarantee * * * under this section.’’ 

This interim rule makes certain 

necessary revisions to HUD’s section 

108 regulations in 24 CFR part 570, 

subpart M, to: (1) Reflect HUD’s 

interpretations of section 222 and 

section 108; (2) to implement several 

other statutory provisions that by their 

terms apply to guarantees ‘‘under’’ or 

‘‘pursuant to’’ section 108; and (3) 

extend, generally, to the guarantees 

authorized by section 222 all of the 

statutory requirements of section 108, as 

required by section 222. One of the 

principal revisions to the regulations in 

24 CFR part 570, subpart M, is to the 

definition of ‘‘debt obligation.’’ 

Existing § 570.702 defines the term 

‘‘debt obligation’’ to mean: (1) A 

promissory note or other obligation 

issued by an eligible public entity (local 

government) or its designated public 

agency and guaranteed by HUD under 

subpart M, or (2) a trust certificate or 

other obligation offered by HUD or by a 

trust or other offeror approved for 

purposes of subpart M by HUD, which 

is guaranteed by HUD under subpart M 

and is based on and backed by a trust 

or pool composed of notes or other 

obligations issued by public entities or 

their designated public agencies and 

guaranteed or eligible for guarantee by 

HUD under subpart M. Existing subpart 

M does not restate the note guarantee 

authority and trust certificate guarantee 

authority provided in section 108(a) and 

section 108(r); therefore, there is no 

specific provision of the current 

regulation that limits the scope of 

HUD’s statutory guarantee authority to 

‘‘debt obligations’’ as so defined. 


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However, there are other statutory 

provisions that are restated in the 

regulations, using the defined term 

‘‘debt obligation.’’ So that these 

provisions do not exclude the 

guarantees authorized by section 222, 

the interim rule amends the definition 

of the term ‘‘debt obligation.’’ 

Specifically, the interim rule amends 

the definition of ‘‘debt obligation’’ to 

make clear that, in addition to the 

obligations that the term currently 

covers, debt obligation also 

encompasses a promissory note or other 

obligation issued by a state and 

guaranteed by HUD under subpart M. 

Additionally, ‘‘debt obligation’’ 

encompasses a trust certificate or other 

obligation offered by HUD or by a trust 

or other offeror approved for purposes 

of subpart M by HUD, and which is 

guaranteed by HUD under subpart M 

and based on and backed by a trust or 

pool composed of notes or other 

obligations issued by states and 

guaranteed or eligible for guarantee by 

HUD under subpart M (either alone, or 

in combination with notes or other 

obligations issued by eligible public 

entities or their designated public 

agencies and guaranteed or eligible for 

guarantee by HUD under subpart M). 

In addition to this revision of the 

definition of ‘‘debt obligation,’’ the 

interim rule adds a reference to ‘‘state’’ 

to several provisions of subpart M in 

which reference is currently made only 

to ‘‘public entity’’ (local government), 

where this is necessary to ensure that 

statutorily based provisions of the 

regulations cover the guarantees 

authorized by section 222. (See 

revisions to §§ 570.704, 570.705, 

570.709, and 570.711.) 

IV. Specific Provisions of This Interim 

Rule 

This section highlights some of the 

more noteworthy provisions of the 

interim rule. As described in section V 

of this preamble, HUD has determined 

that good cause exists to publish this 

rule for effect without prior solicitation 

of public comment. The Department, 

however, recognizes the value and 

importance of public input in the 

rulemaking process and is providing a 

60-day public comment period. HUD 

welcomes comment on all aspects of the 

interim rule, but specifically solicits 

views on whether the regulatory 

changes will likely increase the 

participation by states in the section 108 

program, given their new authority to 

participate in the program as issuers of 

obligations. All comments received on 

the interim rule will be considered in 

the development of the final rule. 

Eligible Issuers 

HUD interprets ‘‘state’’ in Section 222 

to mean any state, as defined in the HCD 

Act that has elected to administer the 

CDBG program for its nonentitlement 

areas. The definition includes all of the 

states, or any instrumentality of a state 

approved by its Governor, except for the 

state of Hawaii. The state of Hawaii is 

excluded from the definition because it 

has elected not to receive an annual 

grant from HUD to administer a CDBG 

program for its nonentitlement areas, 

and, therefore, is unable to make the 

pledge of CDBG funds required under 

section 108. (The units of general local 

government in Hawaii’s nonentitlement 

areas, which currently are Hawaii, 

Kauai, and Maui counties, receive 

annual CDBG grants directly from HUD 

and are eligible to apply for section 108 

loan guarantee assistance on their own 

behalf.) The definition also includes the 

Commonwealth of Puerto Rico. (See 

existing § 570.3 and the language in new 

§ 570.711(a) limiting eligible applicants 

to states that administer the CDBG 

program.) 

Distribution to Local Governments 

Section 222 provides authority to 

guarantee and make commitments to 

guarantee notes or other obligations 

issued by a state ‘‘on behalf of nonentitlement communities in the State,’’ 

and it requires that ‘‘any State receiving 

such a guarantee or commitment shall 

distribute all funds subject to such 

guarantee to the units of general local 

government in nonentitlement areas that 

received the commitment.’’ HUD is 

implementing these provisions of 

section 222 by means of two interrelated 

requirements that are added to the 

section 108 regulations in a new 

§ 570.711. 

First, a state applying for a loan 

guarantee commitment will be required 

to identify, in its application, the local 

governments that will be eligible to be 

assisted by the state with proceeds of 

loans guaranteed pursuant to the 

commitment. Should HUD approve the 

application and issue a commitment to 

the state, the local governments so 

identified will be deemed to be the local 

governments that ‘‘received the 

commitment’’ (and obligations 

guaranteed pursuant to the commitment 

will be deemed to be issued ‘‘on behalf 

of’’ those local governments) for 

purposes of section 222. States may 

elect to identify these local governments 

in either one of two ways: by naming 

one or more specific nonentitlement 

local governments eligible to be assisted 

(which may be desired when a state is 

applying for a loan guarantee to fund a 

particular, known local project or 

projects) or by indicating that all or a 

specified subset of the nonentitlement 

public entities in the state are eligible to 

be assisted and describing how 

applications will be selected for 

assistance. (See § 570.711(a)(1).) 

Second, the state will be permitted to 

use guaranteed loan funds only to make 

grants and loans to the local 

governments identified in its 

application for activities eligible under 

§ 570.703 of the existing section 108 

regulations. Proceeds may be used 

directly by the state for payment of 

interest on the guaranteed obligation as 

described in § 570.703(c); for payment 

of issuance, underwriting, servicing, 

trust administration, and other costs as 

described in § 570.703(g); and for debt 

service reserves as described in 

§ 570.703(k), because these uses are for 

the purpose of financing the local 

governments’ activities. (See 

§ 570.711(b).) These limitations on 

permissible uses of funds will be 

incorporated as a condition of the state’s 

loan guarantee commitment pursuant to 

§ 570.704(c)(4) of the existing 

regulations, and as a term of the loan 

guarantee assistance contract entered 

into pursuant to § 570.705(b). 

Application Process 

As noted above, the interim rule 

requires a state to identify the local 

governments eligible to be assisted 

through its loan guarantee application, 

either by naming particular eligible 

local governments or by indicating that 

all or a specified subset of the state’s 

nonentitlement local governments are 

eligible and describing the state’s 

application selection process. The 

interim rule requires states to make this 

required identification of eligible local 

governments by the exclusive means of 

including this information as a part of 

the CDBG method of distribution 

described in the action plan submitted 

by the state pursuant to 24 CFR part 91. 

In its action plan, the state will also be 

required to note the approximate 

amount of outstanding section 108 

guaranteed obligations issued by the 

state and by its nonentitlement local 

governments, to identify the maximum 

amount of guaranteed loan funds for 

which the state will apply during the 

period covered by the action plan, and 

to describe the required pledge of the 

state’s CDBG funds. If the state’s CDBG 

action plan, as most recently submitted 

or amended when the state initially 

applies for a commitment, does not 

include this information, the state will 

be required to amend its action plan in 

accordance with 24 CFR part 91 to 

include such information prior to 


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applying for the commitment. (See 

§ 570.711(a)(1).) 

Other required elements of the State’s 

application submission will not be 

required to be included in the state’s 

CDBG action plan; namely, a proposed 

schedule for repayment of the loan that 

identifies the sources of repayment and 

a description of the activities to be 

funded and how such activities are 

eligible and meet national objective 

criteria. The rule gives states the option 

of either including a detailed 

description of activities for HUD review 

and approval at the time of its 

application for a commitment (which 

may be desired when a state is applying 

for a loan guarantee to fund a particular, 

known local project or projects), or 

instead submitting a description of the 

type or types of local government 

projects for which awards of grants or 

loans will be made, indicating how 

these types of projects will be eligible 

and how they are intended to meet 

national objective criteria. In the latter 

case, the state will be required to obtain 

HUD review and approval of a detailed 

activity-description before disbursing 

guaranteed loan funds to a local 

government for the proposed activity. 

This will accommodate states that may 

wish to apply for and receive a loan 

guarantee commitment (and, if desired 

and if permitted by HUD, receive a 

guarantee and escrow guaranteed loan 

funds) prior to selecting particular local 

governments’ projects for assistance, 

while enabling the Department to carry 

out its responsibility to ensure that 

activities funded under section 108 are 

eligible and meet national objective 

criteria. (See § 570.711(a)(2)–(3).) 

Consistent with part 58 

environmental review procedures 

applicable to State-assisted units of 

general local government under the 

current regulations, units of general 

local government will be required to 

submit requests for release of funds and 

related certifications to the appropriate 

HUD Field Office (rather than to the 

state), as described in § 570.704(d) of the 

existing regulations. (See § 570.711(e).) 

HUD recognizes that some states may 

wish to require that units of general 

local government submit such requests 

and certifications to the state for initial 

review prior to submission to the 

appropriate HUD Field Office. The 

regulations in 24 CFR part 58 and 24 

CFR part 570 do not prohibit states from 

imposing such a requirement. 

Apart from these provisions regarding 

HUD review of activity eligibility and 

national objective and environmental 

review procedures, local governments to 

be assisted by a state will be subject to 

the requirements of the state CDBG 

program (see 24 CFR subpart I), 

including the citizen participation 

requirements in § 570.486(a) for local 

governments’ applications to the state 

for assistance, and the requirements in 

§ 570.606 related to displacement, 

relocation, acquisition, and replacement 

of low- and moderate-income housing. 

(See §§ 570.707(b), 570.710, and 

570.711(d) and (e).) 

Certification With Respect to Other 

Financing Efforts and Need for 

Guarantee 

Section 108(a) provides, in relevant 

part, that ‘‘A guarantee under this 

section [Section 108] may be used to 

assist a grantee in obtaining financing 

only if the grantee has made efforts to 

obtain such financing without the use of 

such guarantee and cannot complete 

such financing consistent with the 

timely execution of the program plans 

without such guarantee.’’ Consistent 

with this provision, HUD currently 

assures that this requirement is satisfied 

by requiring each local government to 

submit an appropriate certification 

when it applies for a commitment of 

loan guarantee assistance, as provided 

in § 570.704(b)(4) of the existing 

regulations. Because the intent of this 

provision of section 108 is to assure that 

assistance is genuinely needed in order 

to be able to carry out the eligible 

activity, and because the local 

government that is planning the eligible 

activity is in the best position to seek 

other financing for the activity and 

assess whether such financing can 

timely be obtained, for section 222 

guarantees HUD is interpreting 

‘‘grantee’’ in this provision to mean the 

assisted local government, not the state 

issuer. This interpretation is consistent 

with current practice: nonentitlement 

local governments will only be required 

to make the same certification that they 

are currently required to make when 

they apply to HUD for loan guarantee 

assistance. This interim rule does not 

introduce an additional certification by 

the state. Because states will have the 

option of issuing guaranteed obligations 

and escrowing proceeds before local 

governments and projects are selected 

for assistance, the interim rule gives 

states the option of obtaining the 

required certification from each assisted 

local government after HUD’s guarantee, 

but before approving the local 

government’s application for assistance. 

(See § 570.711(c).) 

70/30 Allocation Provisions 

Section 108(a) also provides, in 

relevant part, ‘‘Of the amount approved 

in any appropriation Act for guarantees 

under this section [Section 108] in any 

fiscal year, the Secretary shall allocate 

70 percent for guarantees for 

metropolitan cities, [and] urban 

counties * * * and 30 percent for 

guarantees for units of general local 

government in nonentitlement areas. 

The Secretary may waive the percentage 

requirements of the preceding sentence 

in any fiscal year only to the extent that 

there is an absence of qualified 

applicants or proposed activities from 

metropolitan cities, [and] urban 

counties * * * or units of general local 

government in nonentitlement areas.’’ It 

is HUD’s view that states’ applications 

for guarantees and guarantees made 

pursuant to section 222, because they 

finance activities carried out by the 

States’ nonentitlement communities, 

constitute applications ‘‘from,’’ and 

guarantees ‘‘for,’’ ‘‘units of general local 

government in nonentitlement areas’’ 

within the meaning of these provisions. 

Accordingly, states applying for loan 

guarantees on behalf of their 

nonentitlement communities will share 

the 30 percent allocation (to the extent 

it is not waived in a given year) with 

nonentitlement communities applying 

directly to HUD for loan guarantee 

assistance. (See revisions to § 570.709.) 

Continuation of Authority in Future 

Legislation 

The interim rule contains language 

that would continue the applicability of 

the requirements and procedures 

described above in the event that 

provisions equivalent to section 222 are 

included in future appropriations acts. 

(See the introductory sentence of 

§ 570.711.) 

V. Justification for Interim Rulemaking 

HUD generally publishes regulatory 

changes for public comment before 

issuing them for effect, in accordance 

with its own regulations on rulemaking 

in 24 CFR part 10. Part 10, however, 

does provide in § 10.1 for exceptions 

from that general rule where the 

Department finds good cause to omit 

advance notice and public participation. 

The good cause requirement is satisfied 

when the prior public procedure is 

‘‘impracticable, unnecessary, or contrary 

to the public interest.’’ The Department 

finds that a delay in the effectiveness of 

this interim rule, in order to solicit prior 

public comment, would be contrary to 

the public interest and statutory 

direction. 

Section 222 of the 2009 

Appropriations Act directed HUD to 

promulgate regulations implementing 

the administration of funds, as specified 

in section 222 within 60 days of 

enactment of that 2009 Appropriations 

Act (May 11, 2009). Accordingly, it was 


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the intent and direction of Congress that 

the section 108 guarantees or 

commitments authorized by the 2009 

Appropriations Act be promptly made 

available to states. Although HUD was 

unable to meet the statutory deadline, it 

has strived to issue the regulations as 

close as possible to May 11, 2009. To 

delay the effectiveness of this rule 

would delay the benefits that Congress 

sought be immediately available to 

states, and consequently to the public 

they serve. 

The interim rule does not make 

significant changes to the section 108 

program regulations. The interim rule 

primarily makes technical changes to 

the regulations to implement the 

authority, provided to HUD by section 

222 of the 2009 Appropriations Act, to 

guarantee obligations issued by states on 

behalf of their nonentitlement 

communities. To the greatest extent 

possible, the interim rule maintains the 

long-standing requirements for section 

108 loan guarantees, which are familiar 

to states and localities. 

Given the limited scope, and 

technical nature, of the interim 

regulatory amendments, a delay for the 

prior solicitation of comments might 

unnecessarily delay the benefits of the 

new financing mechanism authorized 

by the 2009 Appropriations Act. HUD 

also notes that its authority to make loan 

guarantee commitments to states will 

expire on September 30, 2010, and it is 

therefore important to implement this 

new financing expeditiously, as directed 

by Congress in an effort to assure that 

FY 2009 section 108 loan guarantee 

authority will be fully committed before 

HUD’s authority expires on September 

30, 2010. 

Although HUD has determined that 

good cause exists to publish this rule for 

effect without prior solicitation of 

public comment, the Department 

recognizes the value and importance of 

public input in the rulemaking process. 

Accordingly, HUD is issuing these 

regulatory amendments on an interim 

basis and providing for a 60-day public 

comment period. All comments will be 

considered in the development of the 

final rule. 

VI. Findings and Certifications 

Paperwork Reduction Act 

The information collection 

requirements contained in this interim 

rule have been approved by the Office 

of Management and Budget (OMB) 

under the Paperwork Reduction Act of 

1995 (44 U.S.C. 3501–3520) and 

assigned control numbers 2506–0161, 

2506–0117, and 2506–0085. In 

accordance with the Paperwork 

Reduction Act, an agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information, unless the collection 

displays a currently valid OMB control 

number. 

Environmental Review 

A Finding of No Significant Impact 

(FONSI) 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, 

Department of Housing and Urban 

Development, 451 7th Street, SW., 

Room 10276, Washington, DC 20410. 

Due to security measures at the HUD 

Headquarters building, please schedule 

an appointment to review the FONSI by 

calling the Regulations Division at 202– 

708–3055 (this is not a toll-free 

number). Individuals with speech or 

hearing impairments may access this 

number via TTY by calling the Federal 

Information Relay Service at 800–877– 

8339. 

Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any rule that has federalism 

implications if the rule either imposes 

substantial direct compliance costs on 

state and local governments and is not 

required by statute, or the rule preempts 

state law, unless the agency meets the 

consultation and funding requirements 

of section 6 of the 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. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

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

an agency to conduct a regulatory 

flexibility analysis of any rule subject to 

notice and comment rulemaking 

requirements, unless the agency certifies 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities. This rule 

would implement new statutory 

authority to provide an additional, 

alternative route for states and their 

nonentitlement local governments to 

obtain financing for eligible community 

development projects. Specifically, the 

interim rule authorizes HUD to provide 

community development loan 

guarantees to states borrowing on behalf 

of local governments in nonentitlement 

areas. Therefore, the primary focus of 

the interim regulatory amendments is 

on the states, which are relatively large 

jurisdictions. Further, and as detailed in 

the preamble above, the interim rule, to 

the greatest extent possible, tracks the 

language of the authorizing statute. 

Accordingly, the interim regulatory text 

reflects statutorily mandated 

requirements that HUD does not have 

the discretion to modify. Where HUD 

has been granted the discretion to 

elaborate on the statutory requirements, 

it has built upon the existing 

requirements for section 108 loan 

guarantees, which are familiar to States 

and localities. Moreover, these 

amendments are technical, and 

procedural, relating to the distribution 

of funds to local governments and the 

procedures to be followed by states in 

applying for the loan guarantees 

authorized by the provision. Therefore, 

it is HUD’s determination that these 

revisions impose no significant 

economic impact on a substantial 

number of small entities. The 

undersigned certifies that this rule will 

not have a significant impact on a 

substantial number of small entities. 

Notwithstanding HUD’s 

determination that this 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 

rule that will meet HUD’s objectives as 

described in this preamble. 

Catalog of Federal Domestic Assistance 

The Catalog of Federal Domestic 

Assistance (CFDA) program number for 

the state CDBG program is 14.228, and 

the CDFA program number for the 

section 108 loan guarantee program is 

14.248. 

List of Subjects in 24 CFR Part 570 

Administrative practice and 

procedure, American Samoa, 

Community Development Block Grants, 

Grant programs—education, Grant 

programs—housing and community 


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Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 36389 

development, Guam, Indians, Loan 

programs—housing and community 

development, Low and moderate 

income housing, Northern Mariana 

Islands, Pacific Islands Trust Territory, 

Puerto Rico, Reporting and 

recordkeeping requirements, Student 

aid, Virgin Islands. 

■ Accordingly, for the reasons described 

in the preamble, 24 CFR part 570 is 

amended as follows: 

PART 570—COMMUNITY 

DEVELOPMENT BLOCK GRANTS 

■ 1. The authority citation for 24 part 

570 continues to read as follows: 

Authority: 42 U.S.C. 5300–5320. 

■ 2. In § 570.481, revise paragraph (a)(2) 

to read as follows: 

§ 570.481 Definitions. 

(a) * * * 

(2) CDBG funds means Community 

Development Block Grant funds, in the 

form of grants under this subpart and 

program income, and loans guaranteed 

under section 108 of the Act. 

■ 3. In § 570.701, revise the definitions 

of ‘‘borrower’’, ‘‘debt obligation’’, 

‘‘guaranteed loan funds’’, and ‘‘stateassisted public entity’’ to read as 

follows: 

§ 570.701 Definitions. 

Borrower means the public entity or 

its designated public agency or the State 

that issues debt obligations under this 

subpart. 

Debt obligation means a promissory 

note or other obligation issued by a 

public entity or its designated public 

agency or by a State and guaranteed by 

HUD under this subpart, or a trust 

certificate or other obligation offered by 

HUD or by a trust or other offeror 

approved for purposes of this subpart by 

HUD, which is guaranteed by HUD 

under this subpart and is based on and 

backed by a trust or pool composed of 

notes or other obligations issued by 

public entities or their designated 

public agencies or by States and 

guaranteed or eligible for guarantee by 

HUD under this subpart. 

* * * * * 

Guaranteed loan funds means the 

proceeds payable to the borrower from 

the issuance of debt obligations under 

this subpart and includes funds 

received by a nonentitlement public 

entity from a State under § 570.711. 

* * * * * 

State-assisted public entity means a 

unit of general local government in a 

nonentitlement area which is assisted 

by a State as required in § 570.704(b)(9) 

and § 570.705(b)(2) or pursuant to 

§ 570.711. 

■ 4. In § 570.704, revise paragraph 

(c)(3)(i)(D), the first sentence of 

paragraph (c)(4), and the first sentence 

of paragraph (c)(5) to read as follows: 

§ 570.704 Application requirements. 

* * * * * 

(c) * * * 

(3) * * * 

(i) * * * 

(D) The public entity’s or State’s 

ability to furnish adequate security 

pursuant to § 570.705(b), and 

* * * * * 

(4) HUD will notify the public entity 

or State in writing that the loan 

guarantee request has either been 

approved, reduced, or disapproved. If 

the request is reduced or disapproved, 

the public entity or State shall be 

informed of the specific reasons for 

reduction or disapproval. * * * 

(5) Amendments. If the public entity 

or State wishes to carry out or assist in 

an activity not previously described in 

its application or to substantially change 

the purpose, scope, location, or 

beneficiaries of an activity, the 

amendment must be approved by HUD. 

* * * 

* * * * * 

■ 5. In § 570.705, revise paragraphs 

(a)(2)(ii) and (g) to read as follows: 

§ 570.705 Loan requirements. 

(a) * * * 

(2) * * * 

(ii) States and State-assisted public 

entities. No commitment to guarantee 

shall be made if the total unpaid balance 

of debt obligations guaranteed under 

this subpart (excluding any amount 

defeased under the contract entered into 

under § 570.705(b)(1)) on behalf of the 

State and all State-assisted public 

entities in the State would thereby 

exceed an amount equal to five times 

the amount of the most recent grant 

received by such State under subpart I. 

* * * * * 

(g) Issuance, underwriting, servicing, 

and other costs. Each public entity or its 

designated public agency and each State 

issuing debt obligations under this 

subpart must pay the issuance, 

underwriting, servicing, trust 

administration, and other costs 

associated with the private sector 

financing of the debt obligations. Such 

costs are payable out of the guaranteed 

loan funds and shall be secured under 

paragraph (b) of this section. 

* * * * * 

■ 6. Revise § 570.709 to read as follows: 

§ 570.709 Allocation of loan guarantee 

assistance. 

Of the amount approved in any 

appropriation act for guarantees under 

this subpart in any fiscal year, 70 

percent shall be allocated for 

entitlement public entities and 30 

percent shall be allocated for States and 

nonentitlement public entities. HUD 

need not comply with these percentage 

requirements in any fiscal year to the 

extent that there is an absence of 

applications approvable under this 

subpart from entitlement public entities 

or from States and nonentitlement 

public entities. 

■ 7. In § 570.710, revise the third 

sentence to read as follows: 

§ 570.710 State responsibilities. 

* * * Upon approval by HUD of an 

application from a State or a Stateassisted public entity, the State will be 

principally responsible, subject to HUD 

oversight under subpart I of this part, for 

ensuring compliance with all applicable 

requirements governing the use of the 

guaranteed loan funds. * * * 

■ 8. Add a new § 570.711 to read as 

follows: 

§ 570.711 State borrowers; additional 

requirements and application procedures. 

This section contains additional 

requirements and alternative 

application procedures for guarantees of 

debt obligations under section 108 of 

the Act pursuant to the additional 

authority provided in paragraph (a) of 

section 222 of the Transportation, 

Housing and Urban Development, and 

Related Agencies Appropriations Act, 

2009, Public Law 111–8; 123 Stat. 524 

at 976 (Division I of the Omnibus 

Appropriations Act, 2009) (‘‘section 

222’’ and the ‘‘2009 Appropriations 

Act’’). If any other federal law or laws 

are enacted after March 11, 2009, the 

effect of which with respect to loan 

guarantee authority provided in an 

appropriations act is equivalent to the 

effect of section 222 with respect to the 

loan guarantee authority provided in the 

2009 Appropriations Act, the additional 

requirements and alternative 

application procedures in this section 

shall also apply to guarantees of debt 

obligations under section 108 of the act, 

pursuant to the additional authority 

provided in such other federal law or 

laws. 

(a) Applications by States. 

Notwithstanding § 570.702 and 

§ 570.704, states that administer the 

CDBG program (under subpart I of this 

part) may apply for loan guarantee 

assistance under this subpart, and such 

application shall consist of the 

following: 


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36390 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

(1) A copy of the State’s CDBG 

method of distribution in the action 

plan most recently submitted or 

amended pursuant to 24 CFR part 91. In 

addition to the requirements of 24 CFR 

part 91, such method of distribution 

must note the approximate amount of 

section 108 guaranteed obligations 

issued by the State and all 

nonentitlement public entities that are 

outstanding at the time of such 

submission or amendment, identify the 

maximum amount of guaranteed loan 

funds for which the State will apply 

during the period covered by the action 

plan, describe the pledge of grants 

required under § 570.705(b)(2), and 

identify the nonentitlement public 

entities in the State that may be assisted 

with such guaranteed loan funds (to 

satisfy this requirement, the method of 

distribution may identify one or more 

specific nonentitlement public entities 

that may be assisted, or may indicate 

that all or a specified subset of the 

nonentitlement public entities in the 

State may be assisted and describe how 

applications will be selected for 

assistance). 

(2) Either: 

(i) A description of each activity to be 

carried out with the guaranteed loan 

funds, including the specific provision 

of § 570.703 under which the activity is 

eligible and how the activity meets one 

of the criteria in § 570.208; or 

(ii) An indication of the type or types 

of activities to be assisted, the 

provisions of § 570.703 under which 

such activities are eligible, and the 

criteria in § 570.208 intended to be met, 

in which case HUD shall require that 

the description referred to in paragraph 

(a)(2)(i) of this section be submitted to 

and approved by HUD before the State 

disburses guaranteed loan funds to a 

public entity for the activity. 

(3) A schedule for repayment of the 

loan which identifies the sources of 

repayment. 

(b) Distribution to Local Governments. 

Proceeds payable to a State from the 

issuance of debt obligations under this 

subpart may be used only for: 

(1) Loans and grants to the 

nonentitlement public entities 

identified in the State’s approved 

application for activities eligible under 

§ 570.703; and 

(2) The uses specified in paragraphs 

(c), (g), and (k) of § 570.703. 

(c) Certification of need. Prior to 

approving a nonentitlement public 

entity’s application for assistance, the 

State shall obtain a certification from 

such public entity conforming to 

§ 570.704(b)(4). 

(d) Local government citizen 

participation requirements. The 

presubmission and citizen participation 

requirements in § 570.704(a) and the 

third sentence of § 570.704(c)(5) shall 

not apply with respect to 

nonentitlement public entities’ 

applications to a State for assistance 

under this section. Nonentitlement 

public entities shall comply with the 

provisions of § 570.486(a) with respect 

to such applications and such 

assistance. 

(e) Environmental review; 

displacement, relocation, acquisition, 

and replacement of housing. 

Nonentitlement public entities assisted 

by a State under this section shall 

comply with § 570.704(d) and (e). 

Dated: June 23, 2009. 

Nelson R. Brego ́n, 

General Deputy Assistant Secretary for 

Community Planning and Development. 

[FR Doc. E9–17326 Filed 7–21–09; 8:45 am] 

BILLING CODE 4210–67–P 


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