Community Development Block Grant Final Admin Rule & CDBG-R Closeouts September 18, 2012 Presenter: James Höemann

FINAL ADMIN RULE

Timing of Proposed & Final Rules Proposed Rule was published October 17, 2008 Final Rule published April 23, 2012, effective date May 23, Regs take a long time. Admin Rule steps included: o Drafting Regulations, o Clearance, o Initial publication as a proposed rule, o Comment period, o Finalizing the rule, o Returning to Clearance, o Publication of the final rule. Need to be precise in language. 3

Review the Rule Important to review: Original regulation, Both the Proposed and Final Rules. The preamble and comment are not contained in the CFR: Preamble contains the rationale (both Proposed and Final), Final rule also contains all of the comments received and HUD responses and rationale for dealing with the comments. Access the Proposed and Final Rules on the Federal Register website by the date of the register (first by year). 4

Changes to State CDBG Regs Many of the changes incorporate statutory requirements that were self implementing as no major rule change since This includes: o PI is forever, and o 3% mix and match. 5

Major Provisions Program Income Provides that the use of program income is governed by CDBG program requirements for as long as the program income remains. This incorporates a statutory change in the early 90’s. Increases the “Secretary’s Exception” threshold for the amount of funds excluded from the definition of “program income” from $25,000 to $35,000, and clarifies that funds generated from a revolving loan fund are not excluded. Funds from a RLF are not included in calculating the $35K cap. Example: If $10K in RLF and $30K in regular PI, the $10K in the RLF is PI and the $30K is excluded. 6

Major Provisions (Cont.) Administrative Expenses: Incorporates flexibility for a state to allocate up to 3% of its allocation, program income, and reallocated funds for state administrative expenses and technical assistance, as provided for in the 2004 Consolidated Appropriations Act. Projects in Entitlement Areas: The project must significantly benefit the non-entitlement grantee and the CDBG expenditure must not be unreasonably disproportionate to the benefits received by its residents.* o The entitlement jurisdiction may not receive a significant benefit from the project unless it provides a meaningful contribution to the project. o The May 26, 2006 policy guidance on this issue is superseded by the regulation. We are in the process of drafting new guidance. Note:*These principles are also applicable for projects located outside of the funding jurisdiction when both the located jurisdiction and the funding jurisdiction are both non-entitlements. 7

Major Provisions (Cont.) Reporting in IDIS: States required to enter IDIS data at least annually in a manner prescribed by HUD, in order to accurately capture states’ funding and accomplishment data. It is recommended that States enter this data quarterly. Sale Proceeds: Proceeds from the sale of real property purchased or improved with CDBG funds are not program income if the proceeds are received more than 5 years after closeout of the grant to the unit of general local government. Matches change of use. 8

Minor Provisions Regional Revolving Funds - Provides more flexibility for states to establish regional revolving funds. States have 3 ways of doing RF’s for Regional use: 1.Joint application so that the PI can go to any of the joint applicants. 2.Use of 105(a)(15) so that repayments are not PI, and therefore the 105(a)(15) is not restricted in use of loan proceeds. 3.Use of State Regional Revolving Fund. Repayments from business go to UGLG and are repaid to the State. The State in accordance with the MOD, uses the proceeds for a new grant to an UGLG in the Region. 9

Minor Provisions (Cont.) Transfer of PI: Regulates the transfer of program income between the state and new and former Entitlement jurisdictions. Administrative Flexibility: Expand states’ administrative flexibility to impose additional requirements on recipients. States can be tougher than us, e.g. States can have no PI exclusion. States just can’t violate the regs or statute. Disbursement of Grant Funds: Clarifies that states must disburse grants funds only to units of general local government, and only in the form of a grant. Question comes up as States want to do loans to UGLG’s, UGLG’s can do loans but States can’t. Also can’t make grants to COG’s, Water and Sewer districts, etc. PI Exclusion Removed: Removes as an exclusion from program income amounts generated by certain activities financed with section 108 loan guarantees. Note: A decision was made not to issue regulations on lump sum drawdowns and the use of escrow accounts for rehabilitation of residential properties due to lack of interest by the States. 10

CDBG-R CLOSEOUT

Criteria for CDBG-R Close Out Grant may be closed when all of the following have been met pursuant to Section 104(e) of the (HCDA) of 1974 and Subpart I of CDBG regulation: The State has disbursed all CDBG-R funds to UGLGs, Grantees have: Completed all activities, Expended funds as of Sept 30, 2012, Performance recorded. 12

Criteria for CDBG-R Close Out (Cont.) 13 Confirmed that the combined (State & UGLGs) do not exceed 10% planning and admin cap and the 15% public services cap. Also, not less than70% funds benefit LMI, Audit covers all funds (no open monitoring and/or audit findings), Compliance with grant agreement, applicable laws, and use of program income Any program income generated before and after closeout will be treated as program income to the regular CDBG program.

CDBG-R Expenditure & Close Out Deadlines 14 All funds must be expended by September 30, Unexpended funds after September 30, 2012 will be recaptured. Close out by March 31, 2013 (six month window).