CDBG PROGRAM INCOME NCDA Winter Legislative, Policy and Professional Development Meeting Holiday Inn Capitol Hill Washington, DC February 16, 2017

What is Program Income What is PI? Money that comes back to grantee or subrecipient that is generated by a CDBG activity, such as: Proceeds from sale or lease of real property acquired and/or improved with CDBG Gross income from use/rental of real or personal property acquired, constructed, improved (less costs incidental to generation of income) with CDBG 42

What is Program Income (cont'd) Payments of principal & interest on loans made with CDBG Proceeds from the sale of loans or obligations secured by loans made with CDBG Interest earned on program income pending its disposition Funds collected through special assessments on properties not owned/occupied by LMI persons

REVOLVING FUND A separate fund/account for specific activities that generate repayments for reuse with similar activities (hence revolving funds) Must be in an interest bearing account Interest earned on fund remitted to HUD Interest paid by borrowers & loan repayments are program income

Report Program Income Creating Receipts Funding with Program Income Identify IDIS activity ID that generated the program income Create receipt when program income is received Funding with Program Income PI now appears as available on drawdown No longer need to manually fund PI System will auto adjust funding based on draw Drawing Program Income Same process as EN

Program Income Key Points Different Types of Cash Receipts Program Income Loan payments Sale of property Revolving Loan Earmarked for specific type of activity Homeowner rehab revolving loans Economic Development revolving loans Repayments/Credits Not program income! Will use Drawdown Revision to reflect repayment

Program Income Key Points Use Program Income First! Receipt all income on hand before creating drawdown Net program income out of draw requests to Treasury If the subrecipient is allowed to keep PI per CDBG agreement: Fund to specific activity Enter receipt in IDIS on a regular basis

Planning and Admin (PA) cap & program income

Planning & Admin Obligation Cap (1st Test) Program year obligation test - Obligations for planning and administration may not exceed the amount of: 20% of annual entitlement grant and the program income received during current Program Year Regulatory citation: 24 CFR 570.200(g)(2) 46 35 46

CALCULATING OBLIGATION CAP

DETERMINING COMPLIANCE WITH THE ADMIN OBLIGATION CAP 46 35 46

IDIS REPORTS CAN BE USED TO CHECK ADMIN OBLIGATIONS/DISBURSEMENTS IDIS PR26 Report – CDBG Financial Summary Report IDIS PR03 Report – CDBG Activity Summary Report 53

USE IDIS PR26 REPORT TO DETERMINE COMPLIANCE WITH THE ADMIN OBLIGATION CAP 46 35 46

Admin & Planning Program Year Expenditure Cap (2nd Test) Limit planning & administration expenditures to no more than 20 percent of each grant (excluding program income) – Origin year grant expenditure test Cap is imposed through annual appropriations legislation, not the CDBG statute (HCDA) The compliance will be determined at the end of the grant This test is included at 24 CFR 570.200(g)(1) A New IDIS report has been developed to check compliance

Obligation Test Vs. Expenditure Test Obligation (Existing) Test Expenditure Test Obligations Expenditures Compliance is determined at the end the each program year Compliance is determined at the end of grant (apply to 2015 or later grants) Amount = 20% (Grant amount +Program Income) 20% of Grant

How Program Income impacts CDBG timeliness For entitlements

(CDBG Regulation - 24 CFR 570.902) What is Timeliness? “Timeliness” refers to the statutory requirement that HUD annually determines whether each CDBG grantee is carrying out its program in a timely manner. The grantee must have a balance no greater 1.5 times its annual grant remaining in the line-of-credit, 60 days prior to the end of the program year. (CDBG Regulation - 24 CFR 570.902)

Unadjusted vs. Adjusted Timeliness Ratios Two Timeliness Tests - 24 CFR 570.902(a) (1) and (2) PR56 Current CDBG Timeliness Report Unadjusted Ratio – only the grant balance in LOCCS Adjusted Ratio – includes grant balances and program income, including the balance in revolving loan funds. 119

PR56: CDBG TIMELINESS REPORT

More Grantees Untimely Due to Program Income In the past, HQ has generally identified grantees as untimely based on the unexpended grant funds in the grantee’s LOC, even if the adjusted (grant balance plus PI) exceeded the 1.5 ratio. With the increasing number of CDBG grantees with larger program income balances, this is now a concern.

Program Income from Revolving Loan Funds Loan repayments to RLF’s are considered program income which is counted toward the timeliness ratio of 1.5. In order to ensure PI from RLF’s is not making a CDBG grantee untimely, it is crucial that the funds are “active” or revolving. If RLF has a high balance, grantee may move funds out to use for other CDBG projects. 120

Program Income from Neighborhood Stabilization Program (NSP) Revision of requirements in the NSP Closeout Notice Allows NSP program income received by a CDBG grantee or subrecipient to be transferred by the recipient from the NSP1, NSP2 and NSP3 programs to the CDBG Program. All transferred NSP program income will be subject to the CDBG PI regulations. Grantees transferring large NSP program income balances (relative to their CDBG allocation should develop a plan on how they intend to spend this PI. Federal Register/Vol 81, No. 114,June 14, 2016 121

Resources for Understanding Program Income Video –On Program Income https://www.youtube.com/watch?v=ZaJigt4tA6A&feature=youtu.be HUD Exchange – Timeliness FAQ’s