2. Section 108 Loan Guarantee Program

3. ADMINISTERED AS PART OF THE COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) PROGRAM

4. SECTION 108 - WHAT IS IT? Financing tool that allows States and local governments to expand size of their CDBG programs (as much as 5 times their CDBG allocations) If activities meet CDBG requirements and loan meets Sec. 108 underwriting criteria, State or locality issues notes for HUD’s guarantee Notes are repaid with CDBG funds, program income, and/or other revenues

5. ADVANTAGES OF SEC 108 Leverages grants Not a general obligation Receive funds now Spread costs over multi-year period Long-term, fixed-rate financing at favorable rates

6. STATE BORROWERS States can apply directly for Section 108 loans Eligible uses: Loans and grants to UGLGs for eligible activities Payment of interest, issuance costs, debt service reserves State application must specify each activity to be carried out or categories of activities to be carried out Loan fund concept

7. ELIGIBLE ACTIVITIES Real property acquisition Rehab of publicly owned real property Relocation Clearance/demolition Site preparation

8. ELIGIBLE ACTIVITIES (continued) Housing rehabilitation Economic development Public facilities/improvements Issuance costs Capitalized interest Reserves

9. TYPICAL USES Economic Development Industrial expansion Retail Office Public facilities/improvements Housing rehab

10. NATIONAL OBJECTIVES LOW/MOD BENEFIT SLUM/BLIGHT URGENT NEED u Area Benefit u Limited Clientele u Housing u Jobs u Area u Urban Renewal u Spot

11. PUBLIC BENEFIT STANDARDS Each ED activity must either create jobs or provide needed services for low and moderate income persons. Amount expended on activity cannot exceed: $50,000/job, or $1,000/low-mod person Aggregate standards: $35,000/job, or $350/low-mod person

12. THE SECTION 108 GUARANTEE PROGRAM HUD Guarantee Pledge of CDBG Funds (and additional security) Guarantee [Entitlement/ State] Permanent Lender Interim Lender Locality/State

13. Section 108 Flow of Funds: Level I No Third Party Borrower Borrower * Project $ HUD HUD Section 108 Guarantee * “Borrower” in this case denotes all eligible recipients Repayment $ Wall Street (Private 108 Note Purchasers/ “Investors”) Main Street Project The Eligible 108 Activity (Borrower or Third Party Borrower) Assignment of Additional Loan Security Pledge of CDBG

14. Section 108 Flow of Funds: Level II Borrower Relends Funds to 3rd Party Borrower Borrower * Assignment of Additional Loan Security Pledge of CDBG HUD Section 108 Guarantee * “Borrower” in this case denotes all eligible recipients ** Repayment goes to Trustee/Fiscal Agent designated by HUD. Bank of New York Mellon is current Trustee/Fiscal Agent Wall Street (Private 108 Note Purchasers/ “Investors”) Main Street Project The Eligible 108 Activity (Borrower or Third Party Borrower) Security Repayment $ Project $ Repayment $ **

15. SOURCES OF REPAYMENT OF SECTION 108 LOANS CDBG funds Program income Tax Increment Financing revenues “Additional security” (negotiated on a case by case basis)

16. TYPES OF FINANCING Interim – variable rate Permanent – fixed rate

17. INTERIM LOANS Interim loan available until public offering Fiscal Agent arranges interim loan Interest rate: 90 day LIBOR + 20 basis points HUD guarantees obligation Interim Lender currently a Money Market Fund (Federated Investors)

18. PUBLIC OFFERING PROCESS Public offering usually once a year, conducted by Sec. 108 underwriting team Provides long-term, fixed-rate financing “Public offering” Interest rates Fees Loans serviced by trustee (currently Bank of New York Mellon)

19. NEW FEE RULE HUD published proposed rule on Feb 5, 2015 HUD will publish final rule and notice after consideration of comments received Fee requirement will be effective ONLY for applications approved after the final rule Any recipient with an approved application prior to publication of the final rule will NOT be subject to the fee requirement Technical assistance will be provided to help borrowers adjust to the fee requirement

20. Section 108 Loan Authority FY 2015 CDBG Allocation – $20,000,000 times 5 $100,000,000 Less: Outstanding 108 – ($30,000,000) Amount available $ 70,000,000

21. Use of Section 108 Funds Subject to CDBG “Cross cutting” Requirements - Examples are: Davis-Bacon Environmental review

22. COMPARISON OF RATES (Mar 2015) Prime Rate (variable) –3.25% Section 108: fixed (due 8/1/2034)** – 2.70% Section 108: variable – 0.50% **If public offering were held in March

23. Section 108 Summary Important Section 108 Borrower Development Tool Wide range of eligible uses Addresses CDBG national objectives Non-competitive and rolling process Leverages scarce resources $5 for every $1 of CDBG if underwritten properly, will not be a drain to CDBG program. Important source of funding for larger projects Flexible repayment schedule Long-term reasonably priced financing