1. HOME Commitments, Grant Based Accounting, and Managing HOME Deadlines March 14, 2016 U.S. Department of Housing and Urban Development

2. Statutory requirement (Section 218(g)): HOME funds must be committed within 24-months Regulatory requirement at 92.500(d)(1)(B) Definition of commitment at 92.2 – Commitments to programs & specific local projects Pre-commitment requirements at 92.250(b) Written agreement requirements at 92.504(c) Notice CPD-15-09: Requirements for Committing HOME Funds (Nov. 2015) HOME Commitments- Background Slide 2

3. A HOME written agreement that complies with 92.504(c) is the HOME commitment Legally binding, fully executed – Signed and dated by all parties (signature page) – Last dated signature is commitment date Should be separate from financing documents (mortgage/deed of trust, note, etc.) Definition of Commitment Slide 3

4. Commitments to PROJECTS

5. 1)The Project Must have an identifiable project/property Address or legal description 2)Market Assessment Assess the current market demand in the neighborhood for type and # of units Pre-Commitment Requirements Slide 5

6. 3)Environmental Review PJs cannot commit HOME funds or non-HUD funds prior to completion of ER EXCEPT: PJS can make a “conditional commitment pending completion of ER” – this is a commitment, and will count towards the PJ’s 24-month deadline – must include language which prohibits undertaking choice limiting actions – wait to enter into IDIS Pre-Commitment Requirements (cont.) Slide 6

7. 4) Secured Financing Required from all sources for all phases (acquisition, construction, permanent) Documentation: – In writing, dated prior to commitment – Award letter, letters of intent, term sheets, other commitments conditioned on receipt of HOME funds Pre-Commitment Requirements (cont.) Slide 7

8. 5) Budget Budget established and approved – Reflects total development costs and funding – HOME within minimum/maximum subsidy limits – HOME supports eligible costs 6)Cost Reasonableness (Sources & Uses) Sources sufficient to cover costs All project costs are reasonable and necessary Pre-Commitment Requirements (cont.) Slide 8

9. 7) Underwriting and Subsidy Layering PJ must determine that HOME funds are reasonable, necessary, and sufficient to ensure financial viability – Reasonable profit or return to owner/developer – HOME units/investment determined by cost allocation Affirmatively review and approve (w/ dated signatures) Note: must also underwrite the homebuyer Pre-Commitment Requirements (cont.) Slide 9

10. 8) Experience & Financial Capacity of Developer PJ must establish assessment standards: – Size, scope, complexity of project – What information is required from the developer? Financial statement, audits – How will it document? Pre-Commitment Requirements (cont.) Slide 10

11. 9) Construction Start within 12 Months PJ must assess and document the feasibility of meeting this requirement 10) Completion Schedule Consistent with HOME deadlines: – Construction start within 12 months – Project completed with 4 years – Homebuyer: 9 months to sales contract – Rental: 18 months for initial occupancy Pre-Commitment Requirements (cont.) Slide 11

12. Projects can only be entered into IDIS AFTER written agreement is executed When calculating compliance with 24- month commitment deadline, HUD will include commitments not yet entered into IDIS Set-up in IDIS Slide 12

13. Can be made in advance of firm commitments May be used when securing other financing ARE NOT COMMITMENTS & CANNOT BE ENTERED INTO IDIS Must include language prohibiting choice limiting actions Preliminary Awards Slide 13

14. Commitments to PROGRAMS

15. Legally binding written agreement with State recipient or subrecipient, to use a specific amount of HOME funds for affordable housing, DPA, or TBRA Program Commitments Slide 15 PJSubrecipientProject

16. State recipient  unit of general local government Subrecipient  public agency or nonprofit organization – If the PJ controls the entity (a PJ’s social service agency), this is not a subrecipient Consortia agreements: must be for a specific project (agreements between lead entity and members are not commitments) State Recipients & Subrecipients Slide 16

17. HOME along with other CPD formula programs historically committed and disbursed funds on a first-in first-out (FIFO) basis in IDIS This was to ensure the oldest uncommitted/ undisbursed grant funds were committed and expended without grantee/PJs having to identify funds from specific grants or subgrants For HOME, FIFO operation in IDIS necessitated the use of a cumulative method of determining compliance with HOME deadlines – 24 CFR 92.550(d)(2) Grant Based Accounting- Background

18. July 2013 - GAO decision determined that the cumulative method was not in compliance w/HOME statute September 2013 - OMB determined that HUD should stop using the FIFO method of committing and disbursing funds from IDIS September 1, 2014 - IDIS release 11.10 removed FIFO processing for all 2015 and future CPD formula block grants (i.e., CDBG, HOME, ESG, HOPWA) – No rulemaking necessary for FIFO Changes

19. Because of the GAO decision, HUD must undertake rulemaking to change the method of determining compliance with HOME deadline requirements from a cumulative to a grant specific method – Requires further IDIS changes Future

20. IDIS allows PJs to fund activities with: – FIFO funds (1992-2014) and/or – Grant-specific funds (2015+) FIFO funds will continue to be committed and disbursed FIFO Grant-specific funds will be committed based on the specific grant or subgrant selected by the PJ and the same funds will be disbursed at drawdown Program income differences for FIFO and grant- specific PI IDIS Functionality

21. FIFO 21 2012 2013 2014 2012 2013 2014 Activity Funding Drawdown

22. Grant-specific 22 2016 2015 Activity Funding Drawdown 2017

23. FIFO and Grant-specific 23 2012 2013 2014 2012 2013 2014 2016 2015 Activity Funding Drawdown FIFO

24. Currently continue to be measured cumulatively because that is what the regulation requires Implemented changes to CHDO reservation requirement and new CHDO expenditure requirement in calendar year 2015 Currently, commitments, CHDO reservations, CHDO expenditures, and expenditures from 2015 (and soon 2016) grants are counted toward cumulative requirements HUD will not reduce CHDO subfunds on FY 2015 and future grants HOME Deadline Requirements

25. HOME funds from each grant must be committed within 24 months of receiving the grant After the deadline passes funds becoming uncommitted must be deobligated by HUD – Completing a project for less than the amount committed – Project cancellation – Auto-cancellation – Disbursing PI, HP, or IU in place of EN 15% of each grant must be reserved to CHDOs (i.e., committed to a specific CHDO project) Grant-Specific Issues

26. Check HOME Deadline Compliance Status Report each month without fail (posted to HUD Exchange) Run IDIS PR27 and PR49 reports after HOME funds are committed and disbursed to see impact Check PR21 HOME Auto Cancel Report monthly to ensure no activities were auto-cancelled by IDIS Establish policies that enable you to commit all grant funds + funds in local account each year Have a pipeline of projects that could quickly receive uncommitted funds Must Do List

27. For more information…. visit the Grant Based Accounting website at: https://www.hudexchange.info/manage-a- program/grant-based-accounting/ Review Notice CPD-15-09: “Requirements for Committing HOME Funds”

28. Questions? U.S. Department of Housing and Urban Development