[Title 24 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2003 Edition]
[From the U.S. Government Printing Office]



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                    24


          Parts 500 to 699

                         Revised as of April 1, 2003

Housing and Urban Development





          Containing a codification of documents of general 
          applicability and future effect
          As of April 1, 2003
          With Ancillaries
          Published by
          Office of the Federal Register
          National Archives and Records
          Administration

A Special Edition of the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 24:
    Subtitle B--Regulations Relating to Housing and Urban 
      Development (Continued)
          Chapter V--Office of Assistant Secretary for 
          Community Planning and Development, Department of 
          Housing and Urban Development                              5
          Chapter VI--Office of Assistant Secretary for 
          Community Planning and Development, Department of 
          Housing and Urban Development [Reserved]
  Finding Aids:
      Table of CFR Titles and Chapters........................     331
      Alphabetical List of Agencies Appearing in the CFR......     349
      List of CFR Sections Affected...........................     359



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                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  24 CFR 510.1 refers 
                       to title 24, part 510, 
                       section 1.

                     ----------------------------

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
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    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

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Many agencies have begun publishing numerous OMB control numbers as 
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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

April 1, 2003.



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                               THIS TITLE

    Title 24--Housing and Urban Development is composed of five volumes. 
The first four volumes containing parts 0-199, parts 200-499, parts 500-
699, parts 700-1699, represent the regulations of the Department of 
Housing and Urban Development. The fifth volume, containing part 1700 to 
end continues with regulations of the Department of Housing and Urban 
Development and also includes regulations of the Neighborhood 
Reinvestment Corporation. The contents of these volumes represent all 
current regulations codified under this title of the CFR as of April 1, 
2003.

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[[Page 1]]



                 TITLE 24--HOUSING AND URBAN DEVELOPMENT




                  (This book contains parts 500 to 699)

  --------------------------------------------------------------------
                                                                    Part

   SUBTITLE B--Regulations Relating to Housing and Urban Development 
                                (Continued)

chapter v--Office of Assistant Secretary for Community 
  Planning and Development, Department of Housing and Urban 
  Development...............................................         510
chapter vi--Office of Assistant Secretary for Community Planning and 
  Development, Department of Housing and Urban Development [Reserved]

Cross References: Rural Housing and Community Development Service, Rural 
  Business and Cooperative Development Service, Rural Utilities Service, 
  and Consolidated Farm Service Agency, Department of Agriculture: See 
  Agricultural Credit, 7 CFR chapter XVIII.

  Office of Thrift Supervision, Department of the Treasury, 12 CFR 
chapter V.

  Department of Veterans Affairs regulations on assistance to certain 
veterans in acquiring specially adapted housing and guaranty of loans on 
homes: See Loan Guaranty, 38 CFR part 36.

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   Subtitle B--Regulations Relating to Housing and Urban Development 
                               (Continued)

[[Page 5]]



  CHAPTER V--OFFICE OF ASSISTANT SECRETARY FOR COMMUNITY PLANNING AND 
        DEVELOPMENT, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT




  --------------------------------------------------------------------


  Editorial Note: For nomenclature changes to chapter V see 59 FR 14090, 
Mar. 25, 1994.

             SUBCHAPTER A--SLUM CLEARANCE AND URBAN RENEWAL
Part                                                                Page
500-509         [Reserved]

510             Section 312 Rehabilitation Loan Program.....           7
511             Rental Rehabilitation Grant Program.........           7
                         SUBCHAPTER B [RESERVED]
                   SUBCHAPTER C--COMMUNITY FACILITIES
570             Community development block grants..........          31
572             Hope for homeownership of single family 
                    homes program (HOPE 3)..................         171
573             Loan guarantee recovery fund................         192
574             Housing opportunities for persons with AIDS.         197
576             Emergency Shelter Grants Program: Stewart B. 
                    McKinney Homeless Assistance Act........         212
581             Use of Federal real property to assist the 
                    homeless................................         225
582             Shelter Plus Care...........................         234
583             Supportive Housing Program..................         247
585             Youthbuild Program..........................         262
586             Revitalizing base closure communities and 
                    community assistance--community 
                    redevelopment and homeless assistance...         278

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590             Urban homesteading..........................         287
594             John Heinz Neighborhood Development Program.         292
597             Urban empowerment zones and enterprise 
                    communities: Round one designations.....         295
598             Urban Empowerment Zones: Round two and three 
                    designations............................         306
599             Renewal communities.........................         315
600-699         [Reserved]

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             SUBCHAPTER A--SLUM CLEARANCE AND URBAN RENEWAL



                        PARTS 500-509 [RESERVED]



PART 510--SECTION 312 REHABILITATION LOAN PROGRAM--Table of Contents




    Authority: 42 U.S.C. 1452b and 3535(d).



Sec. 510.1  Multi-family property loans.

    (a) In cases in which a corporation is a borrower on a section 312 
loan, the Assistant Secretary for CPD or his designee may require an 
officer of the corporation or a principal stockholder to personally 
guarantee the section 312 loan or to cosign the loan note as a borrower, 
where necessary to make the finding of acceptable risk required for 
assumption of the loan.
    (b) All partners of any partnership which is a borrower on a section 
312 loan shall be personally liable for repayment of the section 312 
loan. Limited partners shall assume personal liability by co-signing the 
loan note as a borrower or by personally guaranteeing the loan.
    (c) Any personal guarantee or endorsement shall not relieve the 
partnership or corporate borrower from securing the section 312 loan by 
a mortgage or deed of trust on the property to be rehabilitated.

[44 FR 21751, Apr. 11, 1979, as amended at 44 FR 47513, Aug. 13, 1979; 
44 FR 55562, Sept. 27, 1979. Redesignated and amended at 61 FR 7061, 
Feb. 23, 1996]



PART 511--RENTAL REHABILITATON GRANT PROGRAM--Table of Contents




                           Subpart A--General

Sec.
511.1  Applicability and purpose.
511.2  Definitions.
511.3-511.5  [Reserved]

                     Subpart B--Program Requirements

511.10  Grant requirements.
511.11  Project requirements.
511.12  Conflicts of interest.
511.13  Nondiscrimination, equal opportunity, and affirmative marketing 
          requirements.
511.14  Tenant assistance, displacement, relocation, and acquisition.
511.15  Lead-based paint.
511.16  Other Federal requirements.

Subpart C [Reserved]

             Subpart D--Allocation Formula and Reallocations

511.30-511.31  [Reserved]
511.33  Deobligation of rental rehabilitation grant amounts.
511.34  [Reserved]

Subpart E [Reserved]

                        Subpart F--State Program

511.50  State election to administer a rental rehabilitation program.
511.51  State-administered program.
511.52  [Reserved]

Subpart G [Reserved]

                     Subpart H--Grant Administration

511.70  Responsibility for grant administration.
511.71  Administrative costs.
511.72  Applicability of uniform Federal administrative requirements.
511.73  Grantee records.
511.74  Audit.
511.75  Disbursement of rental rehabilitation grant amounts: Cash and 
          Management Information System.
511.76  Program income.
511.77  Grant closeout.

  Subpart I--Grantee Performance: Review, Reporting and Corrective or 
                            Remedial Actions

511.80  Performance review.
511.81  Grantee reports to HUD.
511.82  Corrective and remedial actions.

    Authority: 42 U.S.C. 1437o and 3535(d).

    Source: 55 FR 20050, May 14, 1990, unless otherwise noted.



                           Subpart A--General



Sec. 511.1  Applicability and purpose.

    (a) This part implements the Rental Rehabilitation Program (RRP) 
contained in section 17 of the United States Housing Act of 1937, as 
amended (the ``Act''). As more fully described in this part, the Act 
authorizes the Secetary of Housing and Urban Development to make rental 
rehabilitation

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grants to help support the rehabilitation of eligible real property to 
be used for primarily residential rental purposes, and to pay for 
eligible administrative costs of grantees (not to exceed 10 percent of a 
grantee's initial grant obligation for Fiscal Year 1988 and later 
years). Grants are made on a formula basis to cities having populations 
of 50,000 or more, urban counties, States, and qualifying consortia of 
geographically proximate units of general local government. States may 
use all or part of their grants to carry out their own rental 
rehabilitation programs or to distribute them to eligible units of 
general local government. HUD will administer a State's grant if the 
State chooses not to do so.
    (b) The purpose of the Program is to help provide affordable, 
standard permanent housing for low-income families and to increase the 
availability of housing units for use by housing voucher and certificate 
holders under section 8 of the United States Housing Act of 1937. 
Subject to rules for the tenant-based Certificate Program (24 CFR part 
882) and for the Housing Voucher Program (24 CFR part 887), certificates 
and housing vouchers must be allocated to ensure that sufficient 
resources are available for families in Rental Rehabilitation projects 
who are required to move out of their units because of the physical 
rehabilitation activities or because of overcrowding; and at the PHA's 
discretion, to assist eligible families whose post-rehabilitation rents 
would be greater than 30 percent of their adjusted incomes.



Sec. 511.2  Definitions.

    The terms HUD and Public Housing Agency (PHA) are defined in 24 CFR 
part 5.
    Administrative costs means eligible administrative costs as 
described in Sec. 511.71.
    C/MI System means the Cash and Management Information System for 
drawdown of Rental Rehabilitation grant amounts and collection of 
program information described in Sec. 511.75.
    Certificate means the document issued by a PHA to a family eligible 
for participation in the tenant-based Section 8 Certificate Program 
under 24 CFR part 882.
    Chief executive officer of a governmental entity means the elected 
official, or the legally designated official, who has the primary 
responsibility for the conduct of that entity's governmental affairs. 
Examples of the ``chief executive officer'' are: The elected mayor of a 
municipality; the elected county executive of a county; the chairperson 
of a county commission or board in a county that has no elected county 
executive; the official designated under law by the governing body of 
the unit of general local government; and the Governor of a State.
    City means a unit of general local government that was classified as 
a city under section 102(a)(5) of the Housing and Community Development 
Act of 1974 for purposes of the Community Development Block Grant (CDBG) 
Entitlement Program for the fiscal year immediately preceding the fiscal 
year for which rental rehabilitation grant amounts are made available.
    Commit to a specific local project or commitment means:
    (a) For a project which is privately owned when the commitment is 
made, a written legally binding agreement between a grantee (or in the 
case of a State distributing rental rehabilitation grant amounts to 
units of general local government, a State recipient) and the project 
owner under which the grantee or State recipient agrees to provide 
rental rehabilitation grant amounts to the owner for an identifiable 
rehabilitation project that can reasonably be expected to start 
construction within 90 days of the agreement and in which the owner 
agrees to start construction within that period; or
    (b) For a project that is publicly owned when the commitment is 
made, the Pre-Rehabilitation Report submitted under the C/MI System 
which identifies a specific rehabilitation project that will start 
rehabilitation within 90 days of receipt of the Pre-Rehabilitation 
Report. Under both paragraphs (a) and (b) of this definition, the date 
HUD enters into the C/MI System an acceptable Pre-Rehabilitation Report 
for a project is deemed to be the date of project commitment.
    Completion of rehabilitation means all necessary rehabilitation work 
has been performed and the project in HUD's

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judgment complies with the requirements of this part (including the 
rehabilitation standards adopted under Sec. 511.10(e)); the final 
drawdown has been disbursed for the project; for projects that were 
publicly owned when commitment occurred, the project has been legally 
transferred to a private owner; and a Project Completion Report has been 
submitted and processed in the C/MI System as prescribed by HUD.
    Family means a ``family'' as defined at 24 CFR 812.2.
    Grantee means--
    (a) Any city, urban county, or approved consortium receiving a grant 
on the basis of the formula contained in subpart D of this part;
    (b) Any State administering a rental rehabilitation program, as 
provided in Sec. 511.51; and
    (c) Any unit of general local government receiving a rental 
rehabilitation grant from HUD, as provided in Sec. 511.52.
    Housing voucher means the document issued by a PHA to a family 
eligible for participation in the Section 8 Housing Voucher Program 
under 24 CFR part 887.
    Low-income family means a low-income family, as defined in 24 CFR 
813.102.
    Manufactured housing means a dwelling unit which meets the 
requirements of Sec. 511.11(c)(4).
    Owner means one or more individuals, corporations, partnerships, or 
other privately-controlled legal entities that hold valid legal title to 
the project to be rehabilitated.
    Project means an entire building (including a manufactured housing 
unit), or two or more contiguous buildings under common ownership and 
management, to be rehabilitated with a rental rehabilitation grant, 
under a commitment by the owner, as a single undertaking under this 
part.
    Rents affordable to low-income families means that the sum of the 
utility allowance and the rent payable monthly to the owner with respect 
to a unit is at or below the applicable fair market rent published under 
24 CFR part 888 for the Section 8 Certificate Program (24 CFR part 882) 
or at or below such higher maximum Gross Rent as approved by HUD for 
units of a given size or type under 24 CFR 882.106(a)(3). In the case of 
cooperative or mutual housing, rent means the occupancy charges under 
the occupancy agreement between the members and the cooperative.
    State includes any of the 50 States and the Commonwealth of Puerto 
Rico.
    State recipient means any unit of general local government to which 
a State distributes rental rehabilitation grant amounts, as provided in 
Sec. 511.51 (a)(2) and (a)(3).
    Unit or dwelling unit means a residential space that qualifies under 
the laws of the State and locality and under this part as a place of 
permanent habitation or abode for a family, including an apartment or 
house that contains a living room, kitchen area, sleeping area, and 
bathroom(s), or such other definition as may be proposed by a grantee 
and approved by HUD under this part. The HUD Field Office may approve 
congregate housing units meeting the requirements of 24 CFR 882.109(m) 
or single room occupancy units meeting the requirements of 24 CFR 
882.109(p) as zero bedroom units for purposes of this part.
    Unit of general local government means any city, county, town, 
township, parish, village, or other general purpose political 
subdivision of a State.
    Urban county means a county that was classified as an urban county 
under section 102(a)(6) of the Housing and Community Development Act of 
1974, as amended, for the fiscal year immediately preceding the fiscal 
year for which rental rehabilitation grant amounts are made available.
    Utility allowance means the amount determined by a PHA under 24 CFR 
part 882 for the cost of utilities (except telephones) and other housing 
services that is not included in the rent payable to the owner, but is 
the responsibility of the family occupying the unit.
    Very low income family means a very low income family, as defined in 
24 CFR 813.102.

[55 FR 20050, May 14, 1990, as amended at 61 FR 5208, Feb. 9, 1996]

[[Page 10]]



Sec. 511.3-511.5  [Reserved]



                     Subpart B--Program Requirements



Sec. 511.10  Grant requirements.

    A rental rehabilitation program shall comply with the following 
requirements:
    (a) Lower income benefit--(1) 100 percent benefit standard. Except 
as provided in paragraphs (a)(2) and (a)(3) of this section, all rental 
rehabilitation grant amounts must be used for the benefit of low-income 
families.
    (2) Reduction to 70 percent benefit standard. The 100 percent 
benefit standard will be reduced to 70 percent if the grantee certifies 
in its Program Description under Sec. 511.20 (or thereafter in a written 
amendment to its grant agreement) that:
    (i) The reduction is necessary to meet one or both of the following 
objectives:
    (A) To minimize the displacement of tenants in projects to be 
rehabilitated; or
    (B) To provide a reasonable margin for error due to unforeseen, 
sudden changes in neighborhood rent or for other reasonable 
contingencies;
    (ii) A rental rehabilitation program that meets the 100 percent 
benefit standard cannot be developed; and
    (iii) The public has been consulted regarding this inability.
    (3) Reduction to 50 percent benefit standard. The benefit standard 
will be reduced to not less than 50 percent only in extraordinary 
circumstances approved by HUD. Approval may be granted at the request of 
the grantee before undertaking any project that will have the effect of 
reducing the benefit for low-income families for the grantee's program 
below 70 percent, only where HUD determines that a reduction is 
necessary to meet an important community need and that the net program 
impact will strongly favor low-income families. Approval may be granted 
thereafter only where HUD determines that the grantee made reasonable 
efforts to meet the higher benefit standard, but was unable to do so 
because of circumstances beyond its control.
    (4) Definition of benefit. For purposes of this paragraph (a), 
benefit for low-income families will be considered to occur only where 
dwelling units in projects rehabilitated with rental rehabilitation 
grants are initially occupied by such families after rehabilitation.
    (b) Use of rental rehabilitation grants for housing for families. 
(1) Each grantee shall ensure that an equitable share of rental 
rehabilitation grant amounts will be used to assist in the provision of 
housing designed for occupancy by families with children, particularly 
families requiring three or more bedrooms. HUD will assure that on a 
national basis at least 15 percent of each year's rental rehabilitation 
grant amounts (excluding those grant amounts expended for administrative 
costs under Sec. 511.71) are used to rehabilitate units containing three 
or more bedrooms. HUD reserves the right prospectively to establish 
three or more bedroom unit targets for individual grantees if the 
national goal is in danger of not being met, or if HUD finds that a 
grantee's production of three or more bedroom units is significantly 
below that of grantees in similar circumstances. In addition, at least 
70 percent of each grantee's annual rental rehabilitation grant must be 
used to rehabilitate units containing two or more bedrooms. HUD may 
approve a lower percentage standard submitted by the grantee in its 
Program Description under Sec. 511.20, or thereafter, based on HUD's 
determination that the lower standard is justified by factors such as a 
short waiting list of large families requiring assistance or the nature 
of the housing stock available for rehabilitation.
    (2) If a unit of general local government has an ordinance which 
requires rehabilitation to meet seismic standards, the grantee may use 
up to the full amount of its annual rental rehabilitation grant for 
Federal Fiscal Year 1988 and later years (including reallocations under 
Sec. 511.33(b) of funds for the same fiscal year) without regard to the 
requirements of paragraph (b)(1) of this section, but only to the extent 
it uses such grant amounts to rehabilitate projects to meet the seismic 
standards required by the local ordinance and to the extent these units 
in the rehabilitated project are initially occupied after rehabilitation 
by very low income

[[Page 11]]

families. The grantee or State recipient shall identify as prescribed by 
HUD in reports required under the C/MI System projects which have been 
rehabilitated to meet the requirements of a local seismic standards 
ordinance and contain units which are initially occupied by very low 
income families after rehabilitation. In determining compliance with 
paragraph (b)(1) of this section for annual grants under which one or 
more projects have been rehabilitated to meet the requirements of a 
local seismic standards ordinance, based on the grantee's or State 
recipient's reports, HUD will:
    (i) Calculate the maximum rental rehabilitation grant amount 
permissible under Sec. 511.11(e)(2)(i) for the project(s) rehabilitated 
to meet seismic standards;
    (ii) Calculate the maximum permissible rental rehabilitation grant 
amount for the 0 to 1 bedroom units in such project(s) initially 
occupied by very low income families after rehabilitation;
    (iii) Divide the amount calculated in Sec. 511.10(b)(2)(ii) by the 
amount calculated in Sec. 511.10(b)(2)(i);
    (iv) Multiply the quotient in Sec. 511.10(b)(2)(iii) by the actual 
rental rehabilitation grant amount expended for the project; and
    (v) Deduct the product in Sec. 511.10(b)(iv) from the amount of the 
grantee's annual rental rehabilitation grant. The grantee will be 
required to meet the 70 percent, or other approved level, under this 
Sec. 511.10(b) only as to the amount of its annual grant remaining after 
making the foregoing deduction.
    (c) Selection of neighborhoods--(1) Neighborhood median income and 
area. Rental rehabilitation grants shall only be used to assist the 
rehabilitation of projects located in neighborhoods where the median 
family income does not exceed 80 percent of the median family income for 
the area. For purposes of paragraph (c) of this section, neighborhood 
means an area (as determined by the grantee or, as appropriate, the 
State recipient) that surrounds a project and tends to determine, along 
with the condition and quality of the project and the dwelling units 
therein, the rents that are charged for such units. A neighborhood must 
have a median family income that does not exceed 80 percent of the 
median family income for the Metropolitan Statistical Area (MSA) in 
which it is located, or, in the case of a neighborhood not within an 
MSA, a median family income that does not exceed 80 percent of the 
median family income for the State's non-metropolitan areas, or at the 
grantee's option, the non-metropolitan county in which the neighborhood 
is located.
    (2) Neighborhood rent affordability. Rental rehabilitation grant 
amounts shall only be used to assist the rehabilitation of projects 
located in neighborhoods in which--
    (i) The rents for standard units are generally affordable to low-
income families at the time of the selection of the neighborhood; and
    (ii) The character of the neighborhood indicates that the rents are 
not likely to increase at a rate significantly greater than the rate for 
rent increases that can reasonably be anticipated to occur in the market 
area for the 5-year period following the selection of the neighborhood.
    (d) [Reserved]
    (e) Rehabilitation standards. Each grantee or State recipient shall 
adopt written rehabilitation standards with which each assisted project 
must comply after rehabilitation. At a minimum, such standards shall 
require that after rehabilitation each unit in the entire project must 
meet the Section 8 Housing Quality Standards for Existing Housing 
contained at 24 CFR 882.109.
    (f) Eligible project costs. Eligible project costs include only:
    (1) The actual rehabilitation costs necessary to:
    (i) Correct substandard conditions, as reasonably defined by the 
grantee in its rehabilitation standards adopted under Sec. 511.10(e);
    (ii) Make essential improvements, as reasonably defined by the 
grantee or State recipient in its rehabilitation standards adopted under 
Sec. 511.10(e), including energy-related repairs, improvements necessary 
to permit the use of rehabilitated projects by handicapped persons, and 
activities of lead

[[Page 12]]

based paint hazards, as required by part 35 of this title;
    (iii) Repair major housing systems in danger of failure, as 
reasonably defined by the grantee or State recipient in its 
rehabilitation standards under Sec. 511.10(e); and
    (2) Other costs (soft costs) that are associated with the 
rehabilitation or rehabilitation financing; are not for services 
provided or costs incurred by the grantee, State recipient, or the PHA; 
and are not paid for as administrative costs under Sec. 511.71. Such 
costs may include (but are not limited to):
    (i) Architectural, engineering or related professional services 
required in the preparation of rehabilitation plans and drawings or 
writeups;
    (ii) Costs of processing and settling the financing for a project, 
such as private lender origination fees, credit reports, fees for title 
evidence, fees for recordation and filing of legal documents, building 
permits, attorneys' fees, private appraisal fees and fees for an 
independent rehabilitation cost estimate;
    (iii) Relocation payments made to tenants who are displaced by the 
rehabilitation activities; and
    (iv) Costs for the owner to provide information services to tenants 
as required by Secs. 511.13(b), 511.14 (a)(3) and (a)(4), and 511.15(b).
    (3)(i) Rehabilitation eligible under Sec. 511.10(f)(1) is limited to 
work done after the commitment to the project (as defined in Sec. 511.2) 
is made, except to the extent that such costs also meet all of the 
following conditions:
    (A) Prior to undertaking any rehabilitation before the project is 
committed in the C/MI System (hereafter called ``precommitment 
rehabilitation''), the owner and grantee or State recipient agree in 
writing to include such rehabilitation costs in the project cost, if and 
when the payment is approved for assistance under this part;
    (B) The precommitment rehabilitation costs meet all other 
requirements of this part, including compliance with the other Federal 
requirements cited in Sec. 511.16, where applicable. In particular, HUD 
approval of the grantee's certification of completion of environmental 
responsibilities, when required under 24 CFR part 58, must occur prior 
to execution of the written agreements to include the costs; and
    (C) The precommitment rehabilitation costs were incurred by the 
owner after the date of the Appropriation Act which made available the 
grant amounts for the project in question.
    (ii) Other project-related costs eligible under Sec. 511.10(f)(2) 
are also limited to those costs incurred after the commitment to the 
project is made by the grantee or State recipient and the project is set 
up in the C/MI System, except to the extent such costs also meet all of 
the following conditions:
    (A) The grantee or State recipient and the owner agreed in writing 
before the costs were incurred that such costs could be included in the 
project cost, if and when the project was approved for assistance under 
this part, or the grantee specifically agrees in writing to include such 
costs in the project cost on or before the date the project is set up in 
the C/MI System;
    (B) The costs also meet the conditions stated in 
Sec. 511.10(f)(3)(i)(B) and Sec. 511.10(f)(3)(i)(C).
    (4) For projects where the owner or other individuals are performing 
some or all of the rehabilitation work without compensation (to the 
extent permitted by Sec. 511.16(a)):
    (i) If the owner is not a practicing, licensed contractor, 
rehabilitation costs eligible under Sec. 511.10(f)(1) are limited to the 
cost of materials purchased by the owner and used on the project and the 
cost of other eligible work performed by practicing, licensed 
contractors, subcontractors or tradesmen on the project.
    (ii) If the owner is a practicing, licensed contractor, then 
eligible project costs may include an amount, in addition to that 
permitted under paragraph (f)(4)(i) of this section, for the 
contractor's paid labor, overhead and profit, similar in amount to what 
these items would be if the work were being performed on a project that 
was not owned by the contractor.
    (iii) Under either paragraph (f)(4)(i) or (f)(4)(ii) of this 
section, donated labor or work is not part of eligible project cost.
    (g) Project selection priorities--(1) Projects with units occupied 
by very low income families. While the program can

[[Page 13]]

be used for rehabilitating both occupied and vacant units, the grantee 
shall assure that priority is given to the selection of projects 
containing units that do not meet the rehabilitation standards adopted 
under Sec. 511.10(e) and which are occupied by very low income families 
before rehabilitation.
    (2) Units that are accessible to the handicapped. As stated in 24 
CFR 8.30, the grantee shall, subject to the priority in 
Sec. 511.10(g)(1) and in accordance with other requirements in this 
part, give priority to the selection of projects that will result in 
dwelling units being made readily accessible to and usable by 
individuals with handicaps.

(Approved by the Office of Management and Budget under control numbers 
2506-0110, 2506-0078, 2506-0080)

[55 FR 20050, May 14, 1990, as amended at 55 FR 36612, Sept. 6, 1990; 61 
FR 7061, Feb. 23, 1996; 64 FR 50225, Sept. 15, 1999]



Sec. 511.11  Project requirements.

    (a) Rehabilitation. To receive assistance under this part, a project 
must require rehabilitation, measured by whether the project before the 
assisted rehabilitation does not meet the rehabilitation standards under 
Sec. 511.10(e). If a project is terminated before completion of 
rehabilitation (as defined in Sec. 511.2), whether voluntarily by the 
grantee or otherwise, amounts equal to the rental rehabilitation grant 
amounts already dispersed for the project under the C/MI System are not 
eligible project costs, whether or not the grantee has already expended 
such grant amounts to pay for project costs. If such amount is not 
repaid, the grantee may be subject to corrective and remedial actions 
under Sec. 511.82.
    (b) Primarily residential rental use. Rental rehabilitation grants 
shall only be used to rehabilitate projects to be used for ``primarily 
residential rental'' use. For purposes of this part, a project is used 
for primarily residential rental purposes if at least 51 percent of the 
rentable floor space of the project is used for residential rental 
purposes after rehabilitation, except that in the case of a two-unit 
building, at least 50 percent of the rentable floor space after 
rehabilitation must be used for residential rental purposes after 
rehabilitation. ``Primarily residential rental'' use also includes 
cooperative or mutual housing that has a resale structure that enables 
the cooperative to maintain rents affordable to low-income families.
    (c) Privately owned real property--(1) General. Rental 
rehabilitation grant amounts shall only be used for eligible costs of 
projects that are in private ownership at the time the commitment is 
made to a specific local project, as defined in Sec. 511.2, or projects 
that are publicly owned at commitment which meet the requirements in 
Sec. 511.11(c)(2).
    (2) Publicly owned project at the time of commitment. Rental 
rehabilitation grant amounts may be used to assist publicly owned 
projects under the following conditions:
    (i)(A) For a publicly owned project where the commitment to a 
specific local project occurs on or after December 22, 1989, the grantee 
or State recipient--taking into consideration: the size of the project; 
the complexity of the rehabilitation; the anticipated time necessary to 
identify, and transfer to, an eligible private owner; and other relevant 
factors--must determine that it will commence rehabilitation within 90 
days of commitment under the C/MI System, and that rehabilitation will 
be completed and the project transferred to an eligible private owner 
within the two years and 90 days from the date of commitment in the C/MI 
system or the time remaining under Sec. 511.33(c) for expenditure of the 
rental rehabilitation grant amounts committed to the project, whichever 
is shorter. The Project Completion Report under the C/MI system 
identifying the private entity to which ownership has been transferred 
shall be submitted within 90 days of the final draw, but not later than 
two years and 90 days after the date of commitment.
    (B) For a publicly owned project where the commitment to a specific 
local project occurred before December 22, 1989, the grantee or State 
recipient--taking into consideration: the size of the project; the 
complexity of the rehabilitation; the anticipated time necessary to 
identify, and transfer to, an eligible private owner; and other relevant 
factors--must determine

[[Page 14]]

that the rehabilitation will be completed and the project transferred to 
an eligible private owner within the time remaining for expenditure of 
the rental rehabilitation fiscal year grant amounts proposed to be used 
for the project in accordance with Sec. 511.33(c) before drawing down 
rental rehabilitation grant amounts for the project. The Project 
Completion Report identifying the private entity to which ownership has 
been transferred shall be submitted within 90 days of the final draw.
    (ii) If the grants or State recipient fails to complete the 
rehabilitation, transfer the property to an eligible private owner 
(which includes obtaining the agreements from the new owner required by 
this part, including Sec. 511.11(d)), and submit the Project Completion 
Report within the allowable period, then HUD will suspend the grantee's 
and/or the State recipient's authority to set up any new projects in the 
C/MI System and may require the grantee to repay to its grant account in 
the C/MI System all rental rehabilitation grant amounts drawn down with 
respect to the project. If payment is not received, HUD may proceed to 
deobligate up to the full amount of the grantee's remaining uncommitted 
rental rehabilitation grant amounts, whether or not such grant amounts 
otherwise are available for deobligation under Sec. 511.33(c). A 
suspension of set-up authority shall terminate when the grantee or State 
recipient has transferred the project to private ownership, as required 
by this part, and has submitted a Project Completion Report under the C/
MI System identifying the private owner, or repays its grant account as 
required by this paragraph, or HUD lifts the suspension at its 
discretion.
    (iii) After the grantee has repaid the grant amounts to its grant 
account as provided in Sec. 511.11(c)(2)(ii), the grant amounts may be 
committed and expended by the grantee for new projects within the 
periods originally allowed for these grant amounts, or deobligated by 
HUD under Sec. 511.33 or Sec. 511.82 to the same extent as any other 
grant amounts subject to this part.
    (3) Private, non-profit organizations. Non-profit organizations that 
are privately controlled are eligible to receive rental rehabilitation 
grant amounts under the same terms and conditions as any other private 
project owner under this part. For purposes of this requirement, non-
profit organizations must have governing bodies which are controlled 51 
percent or more by private individuals who are acting in a private 
capacity. For purposes of this provision, an individual is deemed to be 
acting in a private capacity if he or she is not legally bound to act on 
behalf of a public body (including the grantee), and is not being paid 
by a public body (including the grantee) while performing functions in 
connection with the non-profit organization.
    (4) Manufactured housing units. Notwithstanding whether they are 
classified as real or personal property under applicable State law, 
manufactured housing units may be assisted under this part under the 
following conditions:
    (i) The unit is on a permanent foundation;
    (ii) The utility hook-ups are permanent;
    (iii) The unit is designed for use as a permanent residence;
    (iv) The unit also meets the Section 8 Housing Quality Standards for 
Manufactured Homes set forth in 24 CFR 882.109(o).
    (5) Religious organizations. Rental Rehabilitation grant amounts may 
be used to assist the rehabilitation of properties formerly owned by 
religious organizations, such as churches, provided that both of the 
following conditions are met:
    (i) Title to the property to be rehabilitated must be transferred to 
a wholly secular entity prior to commitment, and this entity shall 
comply with all obligations of a project owner under this part. The 
entity may be an existing or newly established entity (which may be an 
entity established, but not controlled, by the religious organization); 
and
    (ii) The completed project must be used exclusively by the owner 
entity for secular purposes, available to all persons regardless of 
religion, for the period and subject to the obligations described in 
Sec. 511.11(d). In particular,

[[Page 15]]

there must be no religious or membership criteria for tenants of the 
property.
    (d) Long-term owner obligations. (1) Each project assisted under 
this part is subject to the following specific obligations for a period 
of at least ten years after completion of the rehabilitation:
    (i) The project shall remain in private ownership and in primarily 
residential rental use for the required period, unless the project is 
sold to another private owner who agrees to continue to manage the 
property in accordance with Rental Rehabilitation Program requirements 
for the remainder of the required period, or a hardship exception is 
approved by the grantee for reasons that occur after completion of the 
rehabilitation.
    (ii) The owner shall not convert the units in the project to 
condominium ownership or any form of cooperative ownership not eligible 
for assistance under this part for the required period.
    (iii) The owner shall not discriminate against prospective tenants 
on the basis of their receipt of, or eligibility for, housing assistance 
under any Federal, State or local housing assistance program or, except 
for a housing project for elderly persons, on the basis that the tenants 
have a minor child or children who will be residing with them, for the 
required period.
    (iv) The owner shall comply with the nondiscrimination and equal 
opportunity requirements and with the affirmative marketing requirements 
and procedures adopted under Sec. 511.13, for the required period.
    (2)(i) With respect to projects which are privately owned when the 
commitment to a specific local project is made, the obligations required 
under Sec. 511.10 (d)(1) and (d)(3) shall be included in the written, 
legally binding commitment or project agreement between the owner and 
the grantee or State recipient which is executed on or before the date 
the project is committed.
    (ii) With respect to projects which are publicly owned when the 
commitment is made, these obligations shall be included in a written 
agreement between the grantee or State recipient and the private owner, 
executed on or before completion of rehabilitation.
    (iii) By drawing down rental rehabilitation grant amounts for a 
project which is publicly owned when the commitment is made, the public 
owner itself accepts the obligations of this part, including 
Sec. 511.11(d)(1)(i) (except for private ownership before completion of 
rehabilitation), (d)(1)(ii), (d)(1)(iii) and (d)(1)((iv) and agrees to 
include these obligations in the agreement with the private owner 
required by Sec. 511.11(d)(2)(ii).
    (3) The grantee or State recipient shall ensure that the written 
agreements with private owners required by Sec. 511.11 (d)(1) and (d)(2) 
are legally enforceable, are recorded against the project in the local 
land records (or in the case of a manufactured housing unit, against the 
unit in the manner appropriate for such real or personal property under 
State and local law), and that the agreements contain remedies adequate 
to enforce their provisions. A remedy will be deemed adequate for 
purposes of this paragraph if it requires the entire amount of the 
rental rehabilitation grant assistance for the project to be a secondary 
lien secured by the property, repayable by the owner, or any subsequent 
transferee, upon a prohibited conversion, sale or use in an amount equal 
to the entire amount of such assistance, less 10 percent for each full 
year after completion of the project up to the time the prohibited 
conversion, sale or use occurs, except in the case of projects of 25 
units or more. For projects of 25 units or more the entire amount of 
such assistance shall be repaid if the project is converted, sold or 
used in violation of this section during the 10-year period. Such lien 
may not be subordinate to a lien in favor of the grantee, State 
recipient or any person with whom the owner has business or family ties, 
except as may be necessary to secure federally tax exempt financing for 
the project.
    (e) Maximum rental rehabilitation grant amounts for projects. (1) 
Rental rehabilitation grant amounts used for any project shall not 
exceed 50 percent of the total eligible project costs, as defined in 
Sec. 511.10(f). However, where refinancing of existing indebtedness is 
involved, the grantee may approve a higher amount for a project where it

[[Page 16]]

determines, and documents in its records, that:
    (i)(A) Rehabilitation of the project is important to the overall 
stability of the neighborhood (as defined at Sec. 511.10(c)(2)) and for 
the provision of housing at rents affordable to low-income families, or
    (B) The project has special costs to facilitate use by the elderly 
or handicapped; and
    (ii) The refinancing and the higher grant amount are necessary to 
make the project feasible.

This higher grant amount may not exceed the lesser of 75 percent of the 
eligible project costs or 50 percent of the sum of the eligible project 
costs and the amount necessary to refinance the existing indebtedness.
    (2) Per unit. (i) Except as provided in paragraph (e)(2)(ii) of this 
section, the rental rehabilitation grant amounts used for any project 
may not exceed the sum of the following dollar amounts for dwelling 
units in the project:
    (A) $5,000 per unit for units with no bedrooms;
    (B) $6,500 per unit for units with one bedroom;
    (C) $7,500 per unit for units with two bedrooms; and
    (D) $8,500 per unit for units with three or more bedrooms.
    (ii) HUD may approve higher rental rehabilitation grant amounts for 
projects in areas of high material and labor costs where the grantee 
demonstrates to HUD's satisfaction that a higher amount is necessary to 
conduct a rental rehabilitation program in the area and that it has 
taken every appropriate step to contain the amount of the rental 
rehabilitation grant within the dollar limits specified in paragraph 
(e)(2)(i) of this section. These higher amounts will be determined as 
follows:
    (A) HUD may approve higher per unit amounts for a unit of general 
local government's entire rental rehabilitation program up to, but not 
to exceed, an amount derived by applying the HUD-approved High Cost 
Percentage for Base Cities for the area to the applicable per unit 
dollar limits;
    (B) HUD may, on a project-by-project basis, increase the level 
permitted under Sec. 511.11(e)(2)(i) by multiplying the original limits 
by up to a maximum of 140 percent and then adding the product to the 
original limits. Therefore, the maximum high cost grant amount per 
project that may be approved is 240 percent of the original per unit 
limits.
    (f) Rent or occupancy restrictions. (1) A project rehabilitated with 
rental rehabilitation grant amounts under this part is not subject to 
State or local rent control unless the rent control requirements or 
agreements:
    (i) Were entered into under a State law or local ordinance of 
general applicability that was enacted and in effect in the jurisdiction 
before November 30, 1983 and
    (ii) Apply generally to projects not assisted under the Rental 
Rehabilitation Program.
    (2) State and local rent controls expressly preempted by paragraph 
(f) of this section include, but are not limited to, rent laws or 
ordinances, rent regulating agreements, rent regulations, low income 
occupancy agreements extending beyond one year from the date of 
completion of rehabilitation of a project, financial penalties for 
failure to achieve certain low income occupancy or rent projections, or 
restrictions on return on investment or other similar policies that 
prevent an owner, whether for-profit or non-profit, from maximizing 
return or setting rent levels as the owner chooses. Grantees or State 
recipients shall not include any preempted rent or occupancy 
restrictions in any commitments or project agreements with the owners of 
Rental Rehabilitation projects.
    (g) [Reserved]

(Information collection requirements contained in this section have been 
approved by the Office of Management and Budget under control numbers 
2506-0080 and 2506-0110)

[55 FR 20050, May 14, 1990, as amended at 61 FR 7061, Feb. 23, 1996]



Sec. 511.12  Conflicts of interest.

    (a) No person who is an employee, agent, consultant, officer, or 
elected or appointed official of the grantee or State recipient (or of 
any public agency that performs administrative functions in the RRP) 
that receives rental rehabilitation grant amounts and who exercises or 
has exercised any functions or responsibilities with respect to

[[Page 17]]

assisted rehabilitation activities, or who is in a position to 
participate in a decision-making process or gain inside information with 
regard to such activities, may obtain a personal or financial interest 
or benefit from the activity, or have an interest in any contract, 
subcontract or agreement with respect thereto, or the proceeds 
thereunder, either for themselves or those with whom they have family or 
business ties, during their tenure or for one year thereafter.
    (b) The appropriate HUD Field Office may grant an exception to the 
exclusion in paragraph (a) of the section on a case-by-case basis when 
it determines that such an exception will serve to further the purposes 
of the Rental Rehabilitation Program and the effective and efficient 
administration of the local rental rehabilitation program or the 
project. An exception may be considered only after the grantee or State 
recipient has provided a disclosure of the nature of the conflict, 
accompanied by an assurance that there has been public disclosure of the 
conflict and a description of how the public disclosure was made and an 
opinion of the grantee's or State recipient's attorney that the interest 
for which the exception is sought would not violate State or local laws. 
In determining whether to grant a requested exception, HUD shall 
consider the cumulative effect of the following factors, where 
applicable:
    (1) Whether the exception would provide a significant cost benefit 
or an essential degree of expertise to the local rental rehabilitation 
program or the project that would otherwise not be available;
    (2) Whether an opportunity was provided for open competitive bidding 
or negotiation;
    (3) Whether the person affected is a member of a group or class 
intended to be the beneficiaries of the rehabilitation activity, and the 
exception will permit such person to receive generally the same 
interests or benefits as are being made available or provided to the 
group or class;
    (4) Whether the affected person has withdrawn from his or her 
functions or responsibilities, or the decisionmaking process, with 
respect to the specific rehabilitation activity in question;
    (5) Whether the interest or benefit was present before the affected 
person was in a position as described in this paragraph;
    (6) Whether undue hardship will result either to the grantee, State 
recipient or the person affected when weighed against the public 
interest served by avoiding the prohibited conflict; and
    (7) Any other relevant considerations.



Sec. 511.13  Nondiscrimination, equal opportunity, and affirmative marketing requirements.

    In addition to the nondiscrimination and equal opportunity 
requirements set forth in 24 CFR part 5, the following requirements 
apply:
    (a) Affirmative marketing. The grantee shall adopt appropriate 
procedures and requirements for affirmatively marketing units in 
rehabilitated rental rehabilitation projects through the provision of 
information regarding the availability of units that are vacant after 
rehabilitation or that later become vacant. Affirmative marketing steps 
consist of good faith efforts to provide information and otherwise to 
attract eligible persons from all racial, ethnic and gender groups in 
the housing market area to the available housing. (These affirmative 
marketing procedures will not apply to units rented to families with 
housing assistance provided by a PHA.) The grantee shall establish 
procedures, requirements and assessment criteria for marketing units in 
the Rental Rehabilitation Program that are appropriate to accomplish 
affirmative marketing objectives. The grantee shall annually assess the 
affirmative marketing program to determine: Good faith efforts that have 
been made to carry out such procedures and requirements; objectives that 
have been met; and corrective actions that are required.
    (1) For each grantee, the affirmative marketing requirements and 
procedures adopted must include:
    (i) Methods for how the grantee will inform the public, owners and 
potential tenants about Federal fair housing laws and the grantee's 
affirmative marketing policy (such as the use of the Equal Housing 
Opportunity logotype or

[[Page 18]]

slogan in press releases and solicitations for owners, and written 
communications to fair housing and other groups);
    (ii) Requirements and practices each owner (including the grantee or 
any other public owner) must adhere to in order to carry out the 
grantee's affirmative marketing procedures and requirements (e.g., use 
of commercial media, use of community contacts, use of the Equal Housing 
Opportunity logotype or slogan, display of fair housing poster);
    (iii) Procedures to be used by owners (including the grantee or any 
other public owner) to inform and solicit applications from persons in 
the housing market area who are not likely to apply for the housing 
without special outreach (e.g., use of community organizations, 
churches, employment centers, fair housing groups or housing counseling 
agencies);
    (iv) Records that will be kept describing efforts taken by the 
grantee and by the owners (including the grantee or any other public 
owner) to affirmatively market units and records to assess the results 
of these actions;
    (v) A description of how the grantee will assess the affirmative 
marketing efforts of owners (including the grantee or any other public 
owner), and the results of those efforts, and what corrective actions 
will be taken where an owner fails to follow these affirmative marketing 
requirements.
    (2) For States distributing rental rehabilitation grant amounts to 
units of general local government, the affirmative marketing procedures 
and requirements shall also set out the actions that State recipients 
must take to meet the objectives set out in Sec. 511.13(b), the record 
keeping and reporting requirements such State will require of State 
recipients, and the procedures that such State will follow to determine 
what action has been taken by State recipients to assess the results of 
these affirmative marketing efforts.
    (3) The grantee or State recipient shall require compliance with the 
conditions of its affirmative marketing requirements and procedures 
adopted under paragraph (b) of this section by means of an agreement 
with the owner that shall be applicable for a period of ten years 
beginning on the date of completion of rehabilitation, as defined in 
Sec. 511.2.
    (b) [Reserved]

(Approved by the Office of Management and Budget under control number 
2506-0080)

[55 FR 20050, May 14, 1990, as amended at 61 FR 5208, Feb. 9, 1996]



Sec. 511.14  Tenant assistance, displacement, relocation, and acquisition.

    (a) General policies. The grantee and any State recipient shall:
    (1) Ensure that the rehabilitation will not cause the displacement 
of any very low income family by a family that is not a very low income 
family.
    (2) Consistent with the other goals and objectives of this part, 
minimize displacement. To the extent feasible, residential occupants 
shall be provided a reasonable opportunity to lease and occupy a 
suitable, decent, safe, sanitary and affordable dwelling unit in the 
project (see paragraph (g)(1)(iii) of this section).
    (3) Administer all phases of the RRP, including the selection of 
units to be rehabilitated and the provision of notices, counseling, 
referrals, other advisory services and relocation payments, in a manner 
that does not result in discrimination because of race, color, religion, 
sex, age, handicap, familial status or national origin.
    (4) Adopt and make public a written tenant assistance policy (TAP) 
that describes the assistance that will be provided to tenants who 
reside in the project and which includes a statement of 
nondiscrimination policy consistent with paragraph (a)(3) of this 
section. The TAP shall comply with the provisions of this section. Each 
tenant in the project shall be provided a copy of the TAP and advised of 
the impact of the project on him or her. For privately owned projects, 
such notice shall be given immediately after submission of the 
application by the owner of a property, or earlier. For publicly owned 
projects, such notice shall be given immediately after the commitment 
(defined in Sec. 511.2), or earlier.
    (b) Relocation assistance for displaced persons. A displaced person 
(defined in paragraph (g) of this section) must be provided relocation 
assistance at the

[[Page 19]]

levels described in, and in accordance with the requirements of, 49 CFR 
part 24, which contains the government-wide regulations implementing the 
Uniform Relocation Assistance and Real Property Acquisition Policies Act 
of 1970 (URA) (42 U.S.C. 4601-4655). Tenants shall be advised of their 
rights under the Fair Housing Act (42 U.S.C. 3601-19) and of replacement 
housing opportunities in such a manner that, to the extent possible, 
tenants are provided a choice between relocating within their own 
neighborhoods and other neighborhoods consistent with the grantee's or 
State recipient's responsibility to affirmatively further fair housing. 
As permitted under 49 CFR 24.2(k), for purposes of making replacement 
housing payments, the term initiation of negotiations means:
    (1) For a privately owned project, execution of the legally binding 
agreement between the grantee or State recipient and the project owner 
under which the grantee or State recipient agrees to provide rental 
rehabilitation grant amounts for the project.
    (2) For a publicly owned project, the commitment as defined in 
Sec. 511.2 or such earlier notice as the grantee or State recipient 
determines to be appropriate.
    (c) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (d) Application of Community Development Block Grant (CDBG) 
requirements. If CDBG funds are used to pay any part of the cost of the 
rehabilitation activities, as described in 24 CFR 570.202(b) or similar 
eligible activities, the project is subject to the requirements of 
section 104(d) of the Housing and Community Development Act of 1974, as 
amended, and implementing regulations at 24 CFR 570.606(b) (Entitlement 
Program and HUD-administered Small Cities Program) and 24 CFR 
570.496a(b) (State CDBG Program).
    (e) Appeals. If a person disagrees with the grantee's or State 
recipient's determination concerning the person's eligibility for, or 
the amount of, relocation assistance, the person may file a written 
appeal (request for reconsideration) of that determination with the 
grantee or State recipient. The appeal procedures to be followed are 
described in 49 CFR 24.10. A low-income person that has been displaced 
from a dwelling may submit a further written request for review of the 
grantee's decision to the appropriate HUD Field Office. However, a low-
income person's request for review of a State recipient's decision shall 
be submitted to the State grantee.
    (f) Compliance responsibility. (1) The grantee and any State 
recipient are responsible for ensuring compliance with the URA, the 
regulations at 49 CFR part 24, and the requirements of this section, 
notwithstanding any third party's contractual obligation to the grantee 
or State recipient to comply with these provisions.
    (2) The cost of required assistance may be paid from local public 
funds, funds available under the rules of this part, or funds available 
from other sources.
    (3) The grantee or State recipient must maintain records in 
sufficient detail to demonstrate compliance with the provisions of this 
section.
    (g) Definition of a displaced person. (1) For purposes of this 
section, the term displaced person means any person (family, individual, 
business, nonprofit organization or farm) that moves from real property, 
or moves personal property from real property, permanently and 
involuntarily as a direct result of rehabilitation, demolition or 
acquisition for a project assisted under this part. Permanent, 
involuntary moves for an assisted project include a permanent move from 
the project that is made:
    (i) After notice by the property owner, grantee, or State recipient 
to move permanently from the property, if the move occurs on or after 
the following date:
    (A) If the notice is provided by the property owner, the date that 
the owner (or person in control of the site) submits a request for 
assistance under this part that is later approved and funded.
    (B) If the notice is provided by the grantee or State recipient, the 
date of the commitment to a specific local project.

[[Page 20]]

    (ii) Before the date described in paragraph (g)(1)(i) of this 
section, if either the grantee or HUD determines that the displacement 
resulted directly from rehabilitation, acquisition or demolition for the 
project;
    (iii) By a tenant-occupant of a dwelling unit after the initiation 
of negotiations, if:
    (A) The tenant has not been provided a reasonable opportunity to 
lease and occupy a suitable, decent, safe and sanitary dwelling in the 
project following the completion of the project at a rent, including 
estimated average utility costs, that does not exceed the greater of:
    (1) The tenant's rent and estimated average utility costs before the 
commitment; or
    (2) The total tenant payment, as determined under 24 CFR 813.107, if 
the tenant is low-income, or 30 percent of gross household income if the 
tenant is not low-income; or
    (B) The tenant has been required to relocate temporarily, but:
    (1) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, 
including the cost of moving to and from the temporarily occupied 
housing and any increase in rent and utility costs, or other conditions 
of the temporary relocation are not reasonable, and
    (2) The tenant does not return to the project; or
    (C) The tenant is required to move to another unit within the 
project but is not offered reimbursement for all reasonable out-of-
pocket expenses incurred in connection with the move or other conditions 
of the move are not reasonable.
    (2) A person does not qualify as a displaced person, if:
    (i) The person has been evicted for cause based upon a serious or 
repeated violation of material terms of the lease or occupancy 
agreement, and the grantee or State recipient determines that the 
eviction was not undertaken for the purpose of evading the obligation to 
provide relocation assistance; or
    (ii) The person moved into the property after the owner's submission 
of the request for assistance but, before commencing occupancy, received 
written notice of the owner's intent to terminate the person's occupancy 
for the project; or
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) The grantee or State recipient determines that the person was 
not displaced as a direct result of rehabilitation, acquisition or 
demolition of the project, and the HUD Field Office concurs in that 
determination.
    (3) The grantee may, at any time, ask HUD to determine whether a 
specific displacement is or would be covered by these rules.



Sec. 511.15  Lead-based paint.

    The Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), 
the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 
4851-4856), and implementing regulations at part 35, subparts A, B, J, 
K, and R of this title apply to activities under these programs.

[64 FR 50225, Sept. 15, 1999]



Sec. 511.16  Other Federal requirements.

    In addition to the Federal requirements set forth in 24 CFR part 5, 
Grantees and, where applicable, State recipients shall comply with the 
following requirements:
    (a) Labor standards. All laborers and mechanics (except laborers and 
mechanics employed by a State or local government acting as the 
principal contractor on the project) employed in the rehabilitation of a 
project assisted under the Rental Rehabilitation Program that contains 
12 or more dwelling units after rehabilitation shall be paid wages at 
rates not less than those prevailing on similar rehabilitation in the 
locality, if such a rate category exists, or other appropriate rate as 
determined by the Secretary of Labor in accordance with the Davis-Bacon 
Act (40 U.S.C. 276a--276a-5), and contracts involving their employment 
shall be subject to the provisions, as applicable, of the Contract Work 
Hours and Safety Standards Act (40 U.S.C. 327-333). (If CDBG funds are 
used to finance certain costs for projects of 8 or more units, these 
labor standards may apply (see 24 CFR 570.603).) If a project is subject 
to Federal labor standards requirements,

[[Page 21]]

individuals are not permitted to perform work thereon which is covered 
by such requirements without compensation in accordance with such 
requirements, except that persons who own a project in their own name 
may personally perform uncompensated work on their own projects. 
Grantees, State recipients, owners, contractors and subcontractors shall 
comply with applicable implementing regulations in 29 CFR parts 1, 3, 
and 5.
    (b) Environment and historic preservation. Section 104(g) of the 
Housing and Community Development Act of 1974 and 24 CFR part 58, which 
prescribe procedures for compliance with the National Environmental 
Policy Act of 1969 (42 U.S.C. 4321-4361), and the additional laws and 
authorities listed at 24 CFR 58.5.
    (c) Pet ownership in housing for the elderly or handicapped. The 
provisions of 24 CFR part 243 apply to any project assisted under this 
part for which preference in tenant selection is given for all units in 
the project to elderly or handicapped persons or elderly or handicapped 
families, as defined in 24 CFR 812.2.
    (d) Flood insurance. (1) Under the Flood Disaster Protection Act of 
1973 (42 U.S.C. 4001-4128), a grantee may not approve the commitment of 
rental rehabilitation grant amounts to a project located in an area 
identified by the Federal Emergency Management Agency (FEMA) as having 
special flood hazards, unless:
    (i) The community in which the area is situated is participating in 
the National Flood Insurance Program (see 44 CFR parts 59 through 79), 
or less than a year has passed since FEMA notification regarding such 
hazards; and
    (ii) Flood insurance is obtained as a condition of approval of the 
commitment.
    (2) Grantees with projects located in an area identified by FEMA as 
having special flood hazards are responsible for assuring that flood 
insurance under the National Flood Insurance Program is obtained and 
maintained.
    (3) This paragraph Sec. 511.16(g) does not apply in the case of 
allocations administered by a State under Sec. 511.51(a).

(Approved by the Office of Management and Budget under control number 
2506-0080)

[55 FR 20050, May 14, 1990, as amended at 61 FR 5208, Feb. 9, 1996]

Subpart C [Reserved]



             Subpart D--Allocation Formula and Reallocations



Secs. 511.30-511.31  [Reserved]



Sec. 511.33  Deobligation of rental rehabilitation grant amounts.

    (a) Before deobligating grant amounts, HUD will consult with the 
affected grantee and take into account factors such as timing of the 
grantee's program year; the timing of State distributions to State 
recipients, if applicable; the timing of expected project approvals for 
projects in the grantee's pipeline; climatic or other considerations 
affecting rehabilitation work schedules; and other relevant 
considerations. In addition to any remedial deobligation under 
Sec. 511.82, HUD may deobligate any rental rehabilitation grant amounts 
that are not:
    (1) Committed to specific local projects within 3 years of the date 
of obligation of the grant under Sec. 511.21(d) (4 years in the case of 
a State that distributes rental rehabilitation grant amounts to State 
recipients); or
    (2) Expended for eligible costs within 5 years of such date of 
obligation (6 years in the case of a State that distributes rental 
rehabilitation grant amounts to State recipients).
    (b) After such consultation, the HUD field office may direct the 
grantee to proceed with program closeout and may deobligate remaining 
unexpended grant amounts if the field office determines that any 
uncommitted funds will not be committed within a reasonable time, only 
small amounts of funds remain unexpended, or completion of uncompleted 
projects appears infeasible within a reasonable time. None of the time 
periods referred to in this section are extended by any suspensions of

[[Page 22]]

project set-ups or other remedial action imposed by HUD under this part.

[61 FR 7062, Feb. 23, 1996]



Sec. 511.34  [Reserved]

Subpart E [Reserved]



                        Subpart F--State Program



Sec. 511.50  State election to administer a rental rehabilitation program.

    (a) State allocations may be used to carry out eligible 
rehabilitation activities in accordance with the requirements of this 
part in units of general local government that do not receive 
allocations under subpart D and in cities and urban counties whose 
allocations are below the minimum amount specified in Sec. 511.31, but 
may not be used in areas that are eligible for assistance under title V 
of the Housing Act of 1949, except as specified in paragraph (b) of this 
section.
    (b) For Fiscal Years 1988 through 1991, uncommitted prior year funds 
may be used by State grantees, by units of general local government 
receiving funds from State grantees and by units of general local 
government participating in a HUD-administered State Program in areas 
eligible for assistance under title V of the Housing Act of 1949. This 
authority to enter into commitments with owners for projects in title V-
eligible areas expires on September 30, 1991.

(Approved by the Office of Management and Budget under control number 
2506-0080)

[55 FR 20050, May 14, 1990, as amended at 55 FR 36612, Sept. 6, 1990; 61 
FR 7062, Feb. 23, 1996]



Sec. 511.51  State-administered program.

    (a) Type of program. A State may, in its discretion, use all or part 
of its rental rehabilitation grant amounts either:
    (1) To carry out its own Rental Rehabilitation Program without the 
active participation of units of general local government;
    (2) To distribute grant amounts to State recipients which 
independently select, enter into commitments with owners for, and manage 
projects; or
    (3) To carry out mixed programs in which both the State and all or 
some units of general local government each perform specified program 
functions.
    (b) Sharing grant amounts for administration. In programs under 
paragraphs (a)(2) and (a)(3) of this section, a State must share its 
grant amounts which are available for administrative costs with units of 
general local government administering the program with the State, under 
a written agreement as required by Sec. 511.71.
    (c) State Program requirements. State grantees shall be responsible 
for administering their rental rehabilitation grant amounts in 
accordance with all requirements of this part and other applicable laws, 
notwithstanding their use of units of general local governments to 
perform program functions under paragraph (a)(2) or (a)(3) of this 
section. In addition, States that use units of general local government 
to perform program functions shall:
    (1) Ensure that units of general local government carry out their 
Rental Rehabilitation Program in accordance with requirements of this 
part and other applicable laws. States shall include in their agreements 
with their units of general local government such additional provisions 
as may be appropriate to ensure such compliance and to enable the State 
to carry out its responsibilities under this part, including the 
withdrawal and reallocation of rental rehabilitation grant amounts based 
on unit of general local government noncompliance (including State 
recipient failure to meet the schedule submitted by the State under 
Sec. 511.20(b)(8)); and
    (2) Conduct such reviews and audits of their units of general local 
government as may be appropriate to determine whether units of general 
local government, including State recipients, have carried out their 
programs in accordance with the requirements of this part, whether they 
have done so in a timely manner, and whether they have a continuing 
capacity to do so in a timely manner.

(Approved by the Office of Management and Budget under control number 
2506-0080)

[55 FR 20050, May 14, 1990, as amended at 61 FR 7062, Feb. 23, 1996]

[[Page 23]]



Sec. 511.52  [Reserved]

Subpart G [Reserved]



                     Subpart H--Grant Administration



Sec. 511.70  Responsibility for grant administration.

    Grantees are responsible for ensuring that rental rehabilitation 
grants are administered in accordance with the requirements of this part 
and other applicable laws. A grantee may enter into a written agreement 
with another unit of State or local government or with a non-
governmental entity to administer specified functions under its Rental 
Rehabilitation Program to the extent not prohibited by HUD. If the 
grantee is contracting with a non-governmental entity to administer its 
program or to provide other services, such as cash management 
responsibilities, the grantee shall follow the procurement standards of 
24 CFR 85.36. The use of other governmental units or private contractors 
does not relieve the grantee of its responsibility for ensuring 
compliance with this part and other applicable laws.



Sec. 511.71  Administrative costs.

    (a) Maximum amount. Any grantee may use not to exceed 10 percent of 
the grant amount initially obligated to the grantee for Federal Fiscal 
Year 1988 and later fiscal years for administrative costs eligible under 
paragraphs (b) and (c) of this section. Eligible grantees may draw down 
funds to pay for eligible administrative costs through HUD's C/MI 
System.
    (b) Eligibility. Eligible administrative costs are reasonable and 
necessary costs, as described in OMB Circular A-87, incurred by the 
grantee itself, or by a unit of general local government pursuant to a 
written cost-sharing agreement with a State grantee (see 
Sec. 511.51(b)), in carrying out the Rental Rehabilitation Program in 
accordance with this part. Administrative costs do not include costs of 
rehabilitation which are incurred by and charged to project owners as 
eligible project costs under Sec. 511.10(f)(2).
    (c) Written cost-sharing agreement. A State grantee shall determine 
the amount of its rental rehabilitation grant that it will permit to be 
used for administrative expenses, not to exceed the maximum permitted by 
this section. The State grantee shall share the amount of its rental 
rehabilitation grant designated for administrative expenses with units 
of general local government that incur eligible administrative costs in 
carrying out the Rental Rehabilitation Program, whether the unit of 
general local government receives a distribution of funds from the State 
or selects and manages projects independently as a State recipient or 
whether it performs less comprehensive functions by agreement with the 
State. Before any eligible administrative expenses are incurred by a 
unit of general local government under a State's grant, the cost-sharing 
arrangement shall be specified in a written agreement between the State 
grantee and each unit of general local government that receives payment 
from the State for administrative expenses under this part. This 
agreement shall describe (whether very generally or more specifically) 
the functions that the unit of general local government shall perform 
and the terms and conditions under which the unit of general local 
government participates in the program, including the procedures by 
which the unit of general local government's compensation for its 
administrative expenses incurred in performing the authorized functions 
is to be calculated and paid. HUD will not review the relative sharing 
of administrative expenses between the State and affected units of 
general local government, but pursuant to Secs. 511.74 and 511.80, it 
will review and audit the State's program on the eligibility of 
administrative expenses paid with program funds.
    (d) Allocation of benefit. Rental rehabilitation grant amounts used 
for program administration will be deemed to meet program requirements 
imposed on a percentage of the annual grant basis, such as lower income 
benefit and use of rental rehabilitation grants for housing for families 
with children, in the same proportion as the grant amounts for a grant 
year which are used for eligible project costs meet the grant 
requirements. For example, if 70 percent of the grant amounts used for

[[Page 24]]

project costs for Fiscal Year 1989 benefit low-income families, then 70 
percent of the Fiscal Year 1989 grant amounts spent for administrative 
costs will be deemed to benefit low-income persons.



Sec. 511.72  Applicability of uniform Federal administrative requirements.

    Grantees, State recipients and their contractors shall comply with 
the requirements and standards of OMB Circular No. A-87, ``Principles 
for Determining Costs Applicable to Grants and Contracts with State, 
Local and Federally recognized Indian Tribal Governments,'' \1\ OMB 
Circular A-128, ``Audits of State and Local Governments'' (implemented 
at 24 CFR part 44), and with 24 CFR part 85, ``Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments,'' except for: Secs. 85.10, 85.11, 85.25, 85.31, 85.40(b), 
85.41, and 85.50. In lieu of Secs. 85.25 and 85.50, HUD has adopted 
Sec. 511.76 and Sec. 511.77, respectively, of this part.
---------------------------------------------------------------------------

    \1\ OMB Circular No. A-87 is available from HUD Field Offices.
---------------------------------------------------------------------------



Sec. 511.73  Grantee records.

    (a) Records to be maintained. Each grantee shall maintain records as 
specified by HUD that clearly document its performance under each 
requirement of this part. States distributing rental rehabilitation 
grant amounts to State recipients shall also ensure that their 
recipients maintain such records to document each recipient's 
performance. The records required by this section shall, at a minimum, 
include the following:
    (1) Records required to comply with Sec. 511.75;
    (2) Data on the racial, ethnic, gender, and income level 
characteristics of
    (i) Tenants occupying units before rehabilitation;
    (ii) Tenants moving from and (initially after rehabilitation) into 
projects assisted under this part;
    (iii) Applicants for tenancy within 90 days following completion of 
rehabilitation assisted under this part; and
    (iv) Owners of the projects rehabilitated; and
    (3) Data indicating the race and ethnicity of households displaced 
as a result of program activities, and, if available, the address and 
census tract of the housing units to which each displaced household 
relocated.
    (b) Retention of records. Records required to be maintained under 
paragraph (a) of this section shall be retained for a period of three 
years from the date of final closeout of the rental rehabilitation 
grant.
    (c) Public disclosure. Documents relevant to a grantee's Program 
Description shall be made available for public review upon request at 
the grantee's office during normal working hours.
    (d) Federal access to records. The Secretary, the Inspector General 
of HUD, the Comptroller General of the United States, or any of their 
duly authorized representatives, shall have access to all books, 
accounts, reports, files, and other papers or property of grantees, 
State recipients, and their contractors pertaining to rental 
rehabilitation grant amounts for the purpose of making surveys, audits, 
examinations, excerpts, and transcripts. Grantees or, where applicable, 
State recipients shall ensure that their agreements with owners require 
the owners to provide similar access to their records pertaining to the 
use of rental rehabilitation grant amounts.

(Approved by the Office of Management and Budget under control number 
2506-0080)



Sec. 511.74  Audit.

    The financial management systems used by grantees and, where 
applicable, State recipients shall provide for audits in accordance with 
24 CFR part 44.



Sec. 511.75  Disbursement of rental rehabilitation grant amounts: Cash and Management Information System.

    (a) General. Rental Rehabilitation grants are managed through HUD's 
C/MI System for the Rental Rehabilitation Program. The C/MI System is a 
computerized system which manages program funds, disburses grant 
amounts, and collects and reports data on properties and tenants 
assisted under the Program.
    (b) Project set-up. (1) After the grantee executes the Grant 
Agreement, complies with the requirements under part

[[Page 25]]

58 of this title for release of funds, and submits the appropriate 
security documents, the grantee may identify (set-up) specific local 
projects in the C/MI System. State recipients are also granted access to 
the C/MI System for projects upon designation by the State and 
submission of the appropriate security documents. Within 12 calendar 
days of project set-up, grantees and State recipients are required to 
submit a Pre-Rehabilitation Report to HUD for each project set-up in the 
C/MI System. Until an acceptable Pre-Rehabilitation Report is received 
and entered in the C/MI System, grant amounts for the project are not 
considered ``committed,'' as defined in Sec. 511.2, and, therefore, are 
subject to deobligation to the extent authorized by 24 CFR 511.33(c).
    (2) Beginning in Fiscal Year 1991, if Pre-Rehabilitation Reports are 
not received within 20 days of the project set-up call, the project will 
be cancelled automatically by the C/MI System. In addition, projects 
which have been committed in the C/MI System for 6 months without an 
initial disbursement of funds will be automatically cancelled by the C/
MI System.
    (c) Disbursement of rental rehabilitation grant amounts. After an 
acceptable Pre-Rehabilitation Report is entered into the C/MI System, 
obligated grant amounts may be drawn down for the project by the grantee 
or State recipient by electronic funds transfer to the designated 
depository institution of the grantee or State recipient within 48 to 72 
hours of the disbursement request. Grant amounts for eligible 
administrative costs may be similarly drawn down by grantees by 
electronic funds transfer to their designated depository institutions, 
but State recipients are not permitted to draw down State grant amounts 
for administrative expenses. Any drawdown is conditioned upon the 
submission of satisfactory information by the grantee or State recipient 
about the project or the administrative expenses and compliance with 
other procedures specified by HUD in HUD's forms and issuances 
concerning the Rental Rehabilitation Program Cash and Management 
Information System. Copies of these forms and issuances may be obtained 
from HUD Field Offices. Drawdowns shall be requested by the grantee or 
State recipient as closely as possible to the time they are needed by a 
grantee or State recipient and the owner to pay eligible project costs 
or by a grantee to pay eligible administrative costs. Drawdowns for 
project costs shall be requested only for work or services that have 
been satisfactorily performed, or materials that are acceptable. After 
receipt in the grantee or State recipient's depository account, grant 
amounts for project costs shall immediately be disbursed by the grantee 
or State recipient and the owner in payment for eligible project costs 
and shall not be disbursed at any time, relative to a project's matching 
funds, in any greater proportion than the proportion of rental 
rehabilitation grant amounts to matching funds for the project.
    (d) Payment vouchers. As post-documentation of each drawdown, a 
grantee or State recipient must submit to HUD a payment voucher, for 
each drawdown made by HUD, in the form required for the C/MI System. If 
the drawdown was for eligible project costs and the payment voucher is 
not received within ten calendar days of the drawdown, the grantee or 
State recipient will be suspended from setting up new projects until the 
required payment voucher is received by HUD. If the drawdown was for 
administrative costs and the payment voucher is not received within ten 
calendar days of the drawdown, the grantee will not be allowed to make 
another drawdown for administrative costs until the payment voucher is 
received.
    (e) Submission of project completion reports. After the final draw 
for a project, a Project Completion Report must be submitted to HUD 
within 90 days of the drawdown request. However, for projects 
rehabilitated pursuant to Sec. 511.11(c)(2) (publicly owned project at 
the time of commitment), the Project Completion Report must be submitted 
within 90 days of the final draw, but not later than 2 years and 90 days 
after the date of commitment. If a satisfactory Project Completion 
Report is not submitted by the due date, HUD will suspend further 
project set-ups for the grantee or State recipient. Project set-

[[Page 26]]

ups will remain suspended until a satisfactory Project Completion Report 
is received and entered into the C/MI System.

(Approved by the Office of Management and Budget under control number 
2506-0080)



Sec. 511.76  Program income.

    (a) General. Grantees and State recipients are neither encouraged to 
earn nor discouraged from earning program income in using rental 
rehabilitation grant amounts under this part.
    (b) Definition of program income. Program income means gross income 
received by the grantee or State recipient (or by another party at the 
direction of the grantee or State recipient) which is directly generated 
from the use of rental rehabilitation grant amounts. Primarily, it 
includes but is not limited to, the following:
    (1) Repayments of principal (whether in installments or a lump-sum) 
and any interest or penalty assessment, under the terms of the loan 
commitment or other project assistance agreement between the owner and 
the grantee or State recipient, including repayments, pursuant to 
Sec. 511.11(d)(3), of the rental rehabilitation grant assistance by the 
owner after completion of rehabilitation; and
    (2) Interest earned on program income pending its disposition. 
Grantees or State recipients are not authorized to deduct costs incident 
to the generation or management of income from gross income for purposes 
of determining program income. Governmental fees and taxes, including 
income taxes, property taxes, special assessments, transfer taxes, 
recording fees and other normal governmental revenues, do not constitute 
program income if they are imposed by generally applicable law, 
regulation, or ordinance and are not imposed in consideration of the 
project's receipt of assistance under this part. Program income also 
does not include grant amounts required to be returned to HUD as a 
result of cancellation of a project before completion, or interest on 
those grant amounts, or any interest earned by the grantee or State 
recipient or grant funds after drawdown and before disbursement for 
eligible costs. (For disposition of such interest, see 24 CFR 85.21(i).)
    (c) Eligible uses. Program income may be used only as prescribed in 
paragraphs (c)(1) and (c)(2) of this section.
    (1) Program income may be used for any activity which is eligible 
under this part, except that program income may not be used to pay for 
administrative costs, as described at Sec. 511.71. In particular, the 
total of rental rehabilitation grant amounts and Rental Rehabilitation 
Program income used for any project (except under Sec. 511.76(c)(2)) may 
not exceed the amount per unit allowed under Sec. 511.11(e)(2) or 50 
percent of the total eligible project costs (except as noted in 
Sec. 511.11(e)(1)).
    (2) Program income may also be used to provide rental assistance to 
lower income tenants in properties rehabilitated through the RRP. This 
includes the use of program income to pay for administrative costs 
associated with the provision of rental assistance but not to exceed the 
amount allowed for administrative fees in the Housing Voucher Program 
authorized under section 8(o) of the United States Housing Act of 1937, 
42 U.S.C. 1437f. In order to use program income for rental assistance, 
the grantee or State recipient must--
    (i) Use the funds to assist low-income tenants who initially occupy 
properties rehabilitated with rental rehabilitation grant amounts or 
rental rehabilitation program income;
    (ii) Have a written policy which is available to the public stating 
that program income will be so used and specifying who is eligible to 
receive such assistance; and
    (iii) Have an agreement with the PHA stating that the PHA will 
utilize the program income to provide rental assistance in accordance 
with the written policy.
    (d) Timing the use of program income. Grantees and State recipients 
shall not commit available rental rehabilitation grant amounts to 
specific local projects if sufficient program income is on hand and 
available to fund the project, or a substantial portion of the project. 
In order to avoid possible over commitment of funds, grantees and State 
recipients shall not anticipate the receipt of program income and

[[Page 27]]

enter into binding commitments with owners cumulatively exceeding the 
total amount of program income on hand plus uncommitted rental 
rehabilitation grant amounts.
    (e) Accounting for and reporting program income. Program income 
shall be accounted for and reported in the grantee's Annual Performance 
Report under Sec. 511.81(b) and in the Cash and Management Information 
System under Sec. 511.75, in the manner prescribed by HUD.
    (f) Authority of State grantees. States administering rental 
rehabilitation grants have discretion to choose whether program income 
is to be earned at all or is to be paid to or retained by the State or 
paid to or retained by the State recipient. The State's determination 
should be contained in a written agreement between the State and its 
State recipients. However, once earned, program income must be used and 
accounted for in accordance with this section by the State or by the 
State recipient, as applicable.
    (g) Authority of urban counties. Because the configuration of an 
urban county may change from time to time, particularly at the time of 
requalification of an urban county in the Community Development Block 
Grant program, special provisions must be made for urban county program 
income. The urban county may determine whether program income generated 
by a project located in a unit of general local government which, for 
whatever reason, no longer participates in the urban county shall be 
retained by the urban county for its RRP or by the unit of general local 
government. However, urban county program income must otherwise be used 
and accounted for by the urban county and the unit of general local 
government in accordance with this section.
    (h) Program closeout and disposition of program income. Program 
income must be accounted for by the grantee when a Rental Rehabilitation 
Program is completely closed out for all years. Program ``closeout'' 
will occur when the following conditions have been met: All grant funds 
from all program years (excluding program income) have been expended; 
the grantee and, if applicable, its State recipients do not expect (or 
have elected not) to receive any additional rental rehabilitation grant 
amounts, and the annual performance report covering the last program 
year has been submitted to HUD. Program income shall be treated in the 
following manner before and after program closeout:
    (1) Before program closeout, program income shall be used for 
activities eligible under Sec. 511.76(c); and
    (2) Program income on hand at the time of program closeout or earned 
after program closeout may be contributed to HOME or HOPE program 
grantees as a cash matching contribution in accordance with applicable 
HOME or HOPE program rules, or may be used for activities that would be 
eligible under other affordable housing activities, as determined by the 
recipient.

[55 FR 20050, May 14, 1990, as amended at 58 FR 52567, Oct. 8, 1993; 61 
FR 7062, Feb. 23, 1996]



Sec. 511.77  Grant closeout.

    (a) Each individual fiscal year rental rehabilitation grant will be 
closed out when all grant amounts for the grant to be closed out have 
been drawn down and expended for completed projects and/or 
administrative costs, or grant amounts not drawn down and expended have 
been deobligated by HUD.
    (b) Project Completion Reports for all projects utilizing grant 
amounts from the fiscal year grant(s) to be closed out have been 
submitted and entered into the C/MI System.
    (c) The required reviews and audits to determine whether grantees 
have satisfied the terms of their grant agreement have been made. 
Closeout is contingent upon the receipt of the grantee's most recent 
audit report and audit reports of State recipients, where applicable. 
For closeout of the grant to proceed, the most recent audit report(s) 
must be free of any outstanding findings related to the RRP grant to be 
closed. The audit(s) of the grantee and State recipients, where 
applicable, should cover all grant amounts from all fiscal years which 
are to be closed out except as noted in paragraph (c)(2) of this 
section.
    (1) The Single Audit Act prohibits requiring a grantee or State 
recipient to obtain an audit at its expense covering

[[Page 28]]

only the Rental Rehabilitation Program. (HUD still has the authority to 
conduct an audit or to contract with an independent public accountant to 
conduct an audit of the grant. However, HUD must pay for the audit.)
    (2) When the previous audit(s) fail to cover all grant amounts under 
the Grant Agreement, the program may still be closed out, provided the 
grantee agrees in writing to remit to HUD any costs questioned by a 
subsequent audit that are disallowed by HUD. This procedure is expected 
to be used in those cases when both the grantee and HUD want to proceed 
with the closeout before the next periodic single audit is conducted 
covering the remaining grant amounts not already audited.
    (d) With respect to monitoring the grantee, either:
    (1) The HUD Field Office has conducted an on-site monitoring of the 
grantee and has determined that the grantee's performance, with respect 
to any grant to be closed out, is satisfactory and is in compliance with 
Rental Rehabilitation program statutory and regulatory requirements, 
including Sec. 511.10(a) and Sec. 511.10(b); or
    (2) A grant may be closed before on-site monitoring has been 
conducted, provided:
    (i) The Cash and Management Information reports indicate the 
grantee's performance is satisfactory and is in compliance with Rental 
Rehabilitation program statutory and regulatory requirements;
    (ii) There are no outstanding monitoring findings; and
    (iii) The grantee agrees in writing to pay back the amount of any 
costs that are later found by HUD to be ineligible based on a subsequent 
on-site monitoring review or audit.

(Approved by the Office of Management and Budget under control number 
2506-0080)

[55 FR 20050, May 14, 1990, as amended at 58 FR 52567, Oct. 8, 1993; 61 
FR 7062, Feb. 23, 1996]



  Subpart I--Grantee Performance: Review, Reporting and Corrective or 
                            Remedial Actions



Sec. 511.80  Performance review.

    (a) General. HUD will review the performance of grantees in carrying 
out their responsibilities under this part whenever determined necessary 
by HUD, but at least annually. In conducting performance reviews, HUD 
will rely primarily on information obtained from the grantee's and, as 
appropriate, the State recipient's records and reports, findings from 
on-site monitoring, audit reports, and information generated from the C/
MI System. Where applicable, HUD may also consider relevant information 
pertaining to a grantee's or State recipient's performance gained from 
other sources, including citizen comments, complaint determinations and 
litigation. Reviews to determine compliance with specific requirements 
of this part will be conducted as necessary, with or without prior 
notice to the grantee or State recipient. Comprehensive performance 
reviews under the standards in Sec. 511.80(b) will be conducted after 
prior notice to the grantee.
    (b) Standards for comprehensive performance review. Grantee 
performance shall be comprehensively reviewed periodically, as 
prescribed by HUD, to determine:
    (1) For grantees that are units of general local government or 
States administering their own rental rehabilitation grant programs, 
whether the grantee:
    (i) Has carried out its activities in a timely manner, including the 
commitment of rental rehabilitation grant amounts to specific local 
projects in accordance with the schedule contained in its Program 
Description, as provided in Sec. 511.20(b)(8), and the completion of 
projects in accordance with Sec. 511.11(a);
    (ii) Has carried out its activities in accordance with the 
requirements of this part; and
    (iii) Has a continuing capacity to carry out its activities in 
accordance

[[Page 29]]

with this part and in a timely and cost-effective manner; or
    (2) For grantees that are States distributing rental rehabilitation 
grant amounts to State recipients, whether the State:
    (i) Has distributed these grant amounts in a timely manner and in 
accordance with the requirements of this part; and
    (ii) Has made such reviews and audits of its recipients as may be 
appropriate to determine whether they have satisfied the requirements of 
paragraph (b)(1)(i) through (b)(1)(iii) of this section.

[55 FR 20050, May 14, 1990, as amended at 61 FR 7062, Feb. 23, 1996]



Sec. 511.81  Grantee reports to HUD.

    (a) Management reports. Grantees shall submit management reports on 
their Rental Rehabilitation Program in such format and at such time as 
HUD may prescribe.
    (b) [Reserved]

(Approved by the Office of Management and Budget under control number 
2506-0080)

[55 FR 20050, May 14, 1990, as amended at 61 FR 7062, Feb. 23, 1996]



Sec. 511.82  Corrective and remedial actions.

    (a) General. HUD will use the procedures in this section in 
conducting the performance review as provided in Sec. 511.80(a) and in 
taking corrective and remedial actions.
    (b) Performance review. (1) If HUD determines preliminarily that the 
grantee has not met the performance review standards in Sec. 511.80, the 
grantee will be given notice of this determination and an opportunity to 
demonstrate, within the time prescribed by HUD and on the basis of 
substantial facts and data, that it has done so.
    (2) If the grantee fails to demonstrate to HUD's satisfaction that 
it has met the performance review standards in Sec. 511.80, HUD will 
take appropriate corrective or remedial action in accordance with this 
section.
    (c) Corrective and remedial actions. In formulating appropriate 
corrective or remedial actions for performance deficiencies, HUD will 
take one or more of the actions specified in paragraphs (c)(1), (c)(2), 
and (c)(3) of this section. The action chosen will be designed to 
prevent a continuation of the deficiency; mitigate, to the extent 
possible, its adverse effects or consequences; and prevent its 
recurrence. In addition to these actions, HUD will take the action 
specified in paragraph (c)(4) of this section, when paragraph (c)(4) of 
this section is applicable.
    (1) HUD may request the grantee to submit and comply with proposals 
for action to correct, mitigate and prevent performance deficiencies, 
including:
    (i) Preparing and following a schedule of actions for carrying out 
the affected rental rehabilitation activities, consisting of schedules, 
timetables and milestones necessary to implement the affected 
activities;
    (ii) Establishing and following a management plan that assigns 
responsibilities for carrying out the remedial actions;
    (iii) Cancelling or revising activities likely to be affected by a 
performance deficiency, before expending grant amounts for the 
activities;
    (iv) Reprogramming rental rehabilitation grant amounts that have not 
yet been expended from affected activities to other eligible activities; 
and
    (v) Suspending disbursement of grant amounts for affected activities 
for a period of not more than 60 days.
    (2) [Reserved]
    (3) When HUD determines that a grantee has failed to meet one or 
more of the requirements of this part, HUD may reduce or withdraw rental 
rehabilitation grant amounts, or take other action as appropriate, 
except that rental rehabilitation grant amounts already expended on 
eligible activities will not be recaptured from existing grant 
allocations or obligations or deducted from future grants made available 
to the grantee. For purposes of paragraph (c)(3) of this section--
    (i) Grant amounts already expended on eligible activities includes 
all grant amounts that have been disbursed under this part for eligible 
activities, and
    (ii) Other action as appropriate means any remedial action legally 
available, including, without limitation, affirmative litigation, such 
as suits for declaratory judgment, specific performance,

[[Page 30]]

temporary or permanent injunctions, and any other available remedies 
other than those for recovery of money.
    (4) Where HUD makes a final determination that it has a judicially 
enforceable claim for money against the grantee in a situation where 
rental rehabilitation grant amounts have been disbursed to the grantee 
or State recipient for ineligible costs under this part, HUD will follow 
the procedures described in the Federal Claims Collection Standards (4 
CFR parts 101-105) in order to:
    (i) Demand in writing that the grantee or State recipient reimburse 
HUD in the amount of the ineligible costs, using funds from non-
federally derived sources; and
    (ii) Initiate affirmative litigation to recover the amount of the 
ineligible costs, if necessary for collection. HUD's final determination 
to seek recovery of grant amounts expended on ineligible costs under 
paragraph (c)(4) of this section shall constitute a claim within the 
meaning of 31 U.S.C. 3711, et seq., and interest shall be charged on 
delinquent claims as required by the Federal Claims Collection 
Standards.
    (d) Amounts recovered under paragraph (c)(4) of this section are not 
rental rehabilitation grant amounts and shall be deposited in the U.S. 
Treasury's miscellaneous receipts account.

[55 FR 20050, May 14, 1990, as amended at 61 FR 7062, Feb. 23, 1996]



                         SUBCHAPTER B [RESERVED]



[[Page 31]]



                   SUBCHAPTER C--COMMUNITY FACILITIES





PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS--Table of Contents




                      Subpart A--General Provisions

Sec.
570.1  Purpose and primary objective.
570.3  Definitions.
570.4  Allocation of funds.
570.5  Waivers.

Subpart B [Reserved]

                     Subpart C--Eligible Activities

570.200  General policies.
570.201  Basic eligible activities.
570.202  Eligible rehabilitation and preservation activities.
570.203  Special economic development activities.
570.204  Special activities by Community-Based Development Organizations 
          (CBDOs).
570.205  Eligible planning, urban environmental design and policy-
          planning-management-capacity building activities.
570.206  Program administrative costs.
570.207  Ineligible activities.
570.208  Criteria for national objectives.
570.209  Guidelines for evaluating and selecting economic development 
          projects.

                      Subpart D--Entitlement Grants

570.300  General.
570.301  Activity locations and float-funding.
570.302  Submission requirements.
570.303  Certifications.
570.304  Making of grants.
570.307  Urban counties.
570.308  Joint requests.
570.309  Restriction on location of activities.

                    Subpart E--Special Purpose Grants

570.400  General.
570.401  Community adjustment and economic diversification planning 
          assistance.
570.402  Technical assistance awards.
570.403  New Communities.
570.404  Historically Black colleges and universities program.
570.405  The insular areas.
570.406  Formula miscalculation grants.
570.410  Special Projects Program.
570.411  Joint Community Development Program.
570.415  Community Development Work Study Program.
570.416  Hispanic-serving institutions work study program.

                     Subpart F--Small Cities Program

570.420  General.
570.421  New York Small Cities Program design.
570.422  Applications from joint applicants.
570.423  Application for the HUD-administered New York Small Cities 
          Grants.
570.424  Grants for imminent threats to public health and safety.
570.425  HUD review and actions on applications for New York State 
          applicants.
570.426  Program income.
570.427  Program amendments.
570.428  Reallocated funds.
570.429  Hawaii general and grant requirements.
570.430  Hawaii program operation requirements.
570.431  Citizen participation.
570.432  Repayment of section 108 loans.

               Subpart G--Urban Development Action Grants

570.450  Purpose.
570.456  Ineligible activities and limitations on eligible activities.
570.457  Displacement, relocation, acquisition, and replacement of 
          housing.
570.461  Post-preliminary approval requirements; lead-based paint.
570.463  Project amendments and revisions.
570.464  Project closeout.
570.465  Applicability of rules and regulations.
570.466  Additional application submission requirements for Pockets of 
          Poverty--employment opportunities.

Subpart H [Reserved]

       Subpart I--State Community Development Block Grant Program

570.480  General.
570.481  Definitions.
570.482  Eligible activities.
570.483  Criteria for national objectives.
570.484  Overall benefit to low and moderate income persons.
570.485  Making of grants.
570.486  Local government requirements.
570.487  Other applicable laws and related program requirements.
570.488  Displacement, relocation, acquisition, and replacement of 
          housing.
570.489  Program administrative requirements.
570.490  Recordkeeping requirements.
570.491  Performance and evaluation report.
570.492  State's reviews and audits.
570.493  HUD's reviews and audits.

[[Page 32]]

570.494  Timely distribution of funds by states.
570.495  Reviews and audits response.
570.496  Remedies for noncompliance; opportunity for hearing.
570.497  Condition of State election to administer State CDBG Program.

                     Subpart J--Grant Administration

570.500  Definitions.
570.501  Responsibility for grant administration.
570.502  Applicability of uniform administrative requirements.
570.503  Agreements with subrecipients.
570.504  Program income.
570.505  Use of real property.
570.506  Records to be maintained.
570.507  Reports.
570.508  Public access to program records.
570.509  Grant closeout procedures.
570.510  Transferring projects from urban counties to metropolitan 
          cities.
570.511  Use of escrow accounts for rehabilitation of privately owned 
          residential property.
570.512  [Reserved]
570.513  Lump sum drawdown for financing of property rehabilitation 
          activities.

                  Subpart K--Other Program Requirements

570.600  General.
570.601  Public Law 88-352 and Public Law 90-284; affirmatively 
          furthering fair housing; Executive Order 11063.
570.602  Section 109 of the Act.
570.603  Labor standards.
570.604  Environmental standards.
570.605  National Flood Insurance Program.
570.606  Displacement, relocation, acquisition, and replacement of 
          housing.
570.607  Employment and contracting opportunities.
570.608  Lead-based paint.
570.609  Use of debarred, suspended or ineligible contractors or 
          subrecipients.
570.610  Uniform administrative requirements and cost principles.
570.611  Conflict of interest.
570.612  Executive Order 12372.
570.613  Eligibility restrictions for certain resident aliens.
570.614  Architectural Barriers Act and the Americans with Disabilities 
          Act.

Subpart L [Reserved]

                       Subpart M--Loan Guarantees

570.700  Purpose.
570.701  Definitions.
570.702  Eligible applicants.
570.703  Eligible activities.
570.704  Application requirements.
570.705  Loan requirements.
570.706  Federal guarantee; subrogation.
570.707  Applicability of rules and regulations.
570.708  Sanctions.
570.709  Allocation of loan guarantee assistance.
570.710  State responsibilities.

                   Subpart N--Urban Renewal Provisions

570.800  Urban renewal regulations.

                     Subpart O--Performance Reviews

570.900  General.
570.901  Review for compliance with the primary and national objectives 
          and other program requirements.
570.902  Review to determine if CDBG funded activities are being carried 
          out in a timely manner.
570.903  Review to determine if the recipient is meeting its 
          consolidated plan responsibilities.
570.904  Equal opportunity and fair housing review criteria.
570.905  Review of continuing capacity to carry out CDBG funded 
          activities in a timely manner.
570.906  Review of urban counties.
570.907-570.909  [Reserved]
570.910  Corrective and remedial actions.
570.911  Reduction, withdrawal, or adjustment of a grant or other 
          appropriate action.
570.912  Nondiscrimination compliance.
570.913  Other remedies for noncompliance.

Appendix A to Part 570--Guidelines and Objectives for Evaluating Project 
          Costs and Financial Requirements

    Authority: 42 U.S.C. 3535(d) and 5301-5320.

    Source: 40 FR 24693, June 9, 1975, unless otherwise noted.



                      Subpart A--General Provisions

    Source: 53 FR 34437, Sept. 6, 1988, unless otherwise noted.



Sec. 570.1  Purpose and primary objective.

    (a) This part describes policies and procedures applicable to the 
following programs authorized under title I of the Housing and Community 
Development Act of 1974, as amended:
    (1) Entitlement grants program (subpart D);
    (2) Small Cities program: HUD administered CDBG nonentitlement funds 
(subpart F);
    (3) State program: State-administered CDBG nonentitlement funds 
(subpart I);

[[Page 33]]

    (4) Special Purpose Grants (subpart E);
    (5) Urban Development Action Grant program (subpart G); and
    (6) Loan Guarantees (subpart M).
    (b) Subparts A, C, J, K, and O apply to all programs in paragraph 
(a) except as modified or limited under the provisions of these subparts 
or the applicable program regulations. In the application of the 
subparts to Special Purpose Grants or the Urban Development Action Grant 
program, the reference to funds in the form of grants in the term ``CDBG 
funds'', as defined in Sec. 570.3, shall mean the grant funds under 
those programs. The subparts do not apply to the State program (subpart 
I) except to the extent expressly referred to.
    (c) The primary objective of the programs authorized under title I 
of the Housing and Community Development Act of 1974, as amended, is 
described in section 101(c) of the Act (42 U.S.C. 5301(c)).

[53 FR 34437, Sept. 6, 1988, as amended at 56 FR 56126, Oct. 31, 1991; 
61 FR 11475, Mar. 20, 1996]



Sec. 570.3  Definitions.

    The terms HUD and Secretary are defined in 24 CFR part 5. All of the 
following definitions in this section that rely on data from the United 
States Bureau of the Census shall rely upon the data available from the 
latest decennial census.
    Act means title I of the Housing and Community Development Act of 
1974 as amended (42 U.S.C. 5301 et seq.).
    Age of housing means the number of year-round housing units, as 
further defined in section 102(a)(11) of the Act.
    Applicant means a State, unit of general local government, or an 
Indian tribe which makes application pursuant to the provisions of 
subpart E, F, G or M.
    Buildings for the general conduct of government shall have the 
meaning provided in section 102(a)(21) of the Act.
    CDBG funds means Community Development Block Grant funds, including 
funds received in the form of grants under subpart D, F, or Sec. 570.405 
of this part, funds awarded under section 108(q) of the Housing and 
Community Development Act of 1974, loans guaranteed under subpart M of 
this part, urban renewal surplus grant funds, and program income as 
defined in Sec. 570.500(a).
    Chief executive officer of a State or unit of general local 
government means the elected official or the legally designated 
official, who has the primary responsibility for the conduct of that 
entity's governmental affairs. Examples of the ``chief executive 
officer'' of a unit of general local government are: the elected mayor 
of a municipality; the elected county executive of a county; the 
chairperson of a county commission or board in a county that has no 
elected county executive; and the official designated pursuant to law by 
the governing body of a unit of general local government.
    City means the following:
    (1) For purposes of Entitlement Community Development Block Grant 
and Urban Development Action Grant eligibility:
    (i) Any unit of general local government that is classified as a 
municipality by the United States Bureau of the Census, or
    (ii) Any other unit of general local government that is a town or 
township and that, in the determination of the Secretary:
    (A) Possesses powers and performs functions comparable to those 
associated with municipalities;
    (B) Is closely settled (except that the Secretary may reduce or 
waive this requirement on a case by case basis for the purposes of the 
Action Grant program); and
    (C) Contains within its boundaries no incorporated places as defined 
by the United States Bureau of the Census that have not entered into 
cooperation agreements with the town or township for a period covering 
at least 3 years to undertake or assist in the undertaking of essential 
community development and housing assistance activities. The 
determination of eligibility of a town or township to qualify as a city 
will be based on information available from the United States Bureau of 
the Census and information provided by the town or township and its 
included units of general local government.
    (2) For purposes of Urban Development Action Grant eligibility only, 
Guam, the Virgin Islands, American

[[Page 34]]

Samoa, the Commonwealth of the Northern Mariana Islands, the counties of 
Kauai, Maui, and Hawaii in the State of Hawaii, and Indian tribes that 
are eligible recipients under the State and Local Government Fiscal 
Assistance Act of 1972 and located on reservations in Oklahoma as 
determined by the Secretary of the Interior or in Alaskan Native 
Villages.
    Community Development Financial Institution has the same meaning as 
used in the Community Development Banking and Financial Institutions Act 
of 1994 (12 U.S.C. 4701 note).
    Consolidated plan. The plan prepared in accordance with 24 CFR part 
91, which describes needs, resources, priorities and proposed activities 
to be undertaken with respect to HUD programs, including the CDBG 
program. An approved consolidated plan means a consolidated plan that 
has been approved by HUD in accordance with 24 CFR part 91.
    Discretionary grant means a grant made from the various Special 
Purpose Grants in accordance with subpart E of this part.
    Entitlement amount means the amount of funds which a metropolitan 
city is entitled to receive under the Entitlement grant program, as 
determined by formula set forth in section 106 of the Act.
    Extent of growth lag shall have the meaning provided in section 
102(a)(12) of the Act.
    Extent of housing overcrowding shall have the meaning provided in 
section 102(a)(10) of the Act.
    Extent of poverty means the number of persons whose incomes are 
below the poverty level based on data compiled and published by the 
United States Bureau of the Census available from the latest census 
referable to the same point or period in time and the latest reports 
from the Office of Management and Budget. For purposes of this part, the 
Secretary has determined that it is neither feasible nor appropriate to 
make adjustments at this time in the computations of ``extent of 
poverty'' for regional or area variations in income and cost of living.
    Family means all persons living in the same household who are 
related by birth, marriage or adoption.
    Household means all the persons who occupy a housing unit. The 
occupants may be a single family, one person living alone, two or more 
families living together, or any other group of related or unrelated 
persons who share living arrangements.
    Income. For the purpose of determining whether a family or household 
is low- and moderate-income under subpart C of this part, grantees may 
select any of the three definitions listed below for each activity, 
except that integrally related activities of the same type and 
qualifying under the same paragraph of Sec. 570.208(a) shall use the 
same definition of income. The option to choose a definition does not 
apply to activities that qualify under Sec. 570.208(a)(1) (Area benefit 
activities), except when the recipient carries out a survey under 
Sec. 570.208(a)(1)(vi). Activities qualifying under Sec. 570.208(a)(1) 
generally must use the area income data supplied to recipients by HUD. 
The three definitions are as follows:
    (1)(i) ``Annual income'' as defined under the Section 8 Housing 
Assistance Payments program at 24 CFR 813.106 (except that if the CDBG 
assistance being provided is homeowner rehabilitation under 
Sec. 570.202, the value of the homeowner's primary residence may be 
excluded from any calculation of Net Family Assets); or
    (ii) Annual income as reported under the Census long-form for the 
most recent available decennial Census. This definition includes:
    (A) Wages, salaries, tips, commissions, etc.;
    (B) Self-employment income from own nonfarm business, including 
proprietorships and partnerships;
    (C) Farm self-employment income;
    (D) Interest, dividends, net rental income, or income from estates 
or trusts;
    (E) Social Security or railroad retirement;
    (F) Supplemental Security Income, Aid to Families with Dependent 
Children, or other public assistance or public welfare programs;
    (G) Retirement, survivor, or disability pensions; and
    (H) Any other sources of income received regularly, including 
Veterans' (VA) payments, unemployment compensation, and alimony; or

[[Page 35]]

    (iii) Adjusted gross income as defined for purposes of reporting 
under Internal Revenue Service (IRS) Form 1040 for individual Federal 
annual income tax purposes.
    (2) Estimate the annual income of a family or household by 
projecting the prevailing rate of income of each person at the time 
assistance is provided for the individual, family, or household (as 
applicable). Estimated annual income shall include income from all 
family or household members, as applicable. Income or asset enhancement 
derived from the CDBG-assisted activity shall not be considered in 
calculating estimated annual income.
    Indian tribe shall have the meaning provided in section 102(a)(17) 
of the Act.
    Low- and moderate-income household means a household having an 
income equal to or less than the Section 8 low-income limit established 
by HUD.
    Low- and moderate-income person means a member of a family having an 
income equal to or less than the Section 8 low-income limit established 
by HUD. Unrelated individuals will be considered as one-person families 
for this purpose.
    Low-income household means a household having an income equal to or 
less than the Section 8 very low-income limit established by HUD.
    Low-income person means a member of a family that has an income 
equal to or less than the Section 8 very low-income limit established by 
HUD. Unrelated individuals shall be considered as one-person families 
for this purpose.
    Metropolitan area shall have the meaning provided in section 
102(a)(3) of the Act.
    Metropolitan city shall have the meaning provided in section 
102(a)(4) of the Act.
    Microenterprise shall have the meaning provided in section 
102(a)(22) of the Act.
    Moderate-income household means a household having an income equal 
to or less than the Section 8 low-income limit and greater than the 
Section 8 very low-income limit, established by HUD.
    Moderate-income person means a member of a family that has an income 
equal to or less than the Section 8 low-income limit and greater than 
the Section 8 very low-income limit, established by HUD. Unrelated 
individuals shall be considered as one-person families for this purpose.
    Nonentitlement amount means the amount of funds which is allocated 
for use in a State's nonentitlement areas as determined by formula set 
forth in section 106 of the Act.
    Nonentitlement area shall have the meaning provided in section 
102(a)(7) of the Act.
    Population means the total resident population based on data 
compiled and published by the United States Bureau of the Census 
available from the latest census or which has been upgraded by the 
Bureau to reflect the changes resulting from the Boundary and Annexation 
Survey, new incorporations and consolidations of governments pursuant to 
Sec. 570.4, and which reflects, where applicable, changes resulting from 
the Bureau's latest population determination through its estimating 
technique using natural changes (birth and death) and net migration, and 
is referable to the same point or period in time.
    Small business means a business that meets the criteria set forth in 
section 3(a) of the Small Business Act (15 U.S.C. 631, 636, 637).
    State shall have the meaning provided in section 102(a)(2) of the 
Act.
    Unit of general local government shall have the meaning provided in 
section 102(a)(1) of the Act.
    Urban county shall have the meaning provided in section 102(a)(6) of 
the Act. For the purposes of this definition, HUD will determine whether 
the county's combined population contains the required percentage of 
low- and moderate-income persons by identifying the number of persons 
that resided in applicable areas and units of general local government 
based on data from the most recent decennial census, and using income 
limits that would have applied for the year in which that census was 
taken.
    Urban Development Action Grant (UDAG) means a grant made by the

[[Page 36]]

Secretary pursuant to section 119 of the Act and subpart G of this part.

[53 FR 34437, Sept. 6, 1988; 53 FR 41330, Oct. 21, 1988, as amended at 
56 FR 56126, Oct. 31, 1991; 60 FR 1915, 1943, Jan. 5, 1995; 60 FR 56909, 
Nov. 9, 1995; 61 FR 5209, Feb. 9, 1996; 61 FR 11475, Mar. 20, 1996; 61 
FR 18674, Apr. 29, 1996]



Sec. 570.4  Allocation of funds.

    (a) The determination of eligibility of units of general local 
government to receive entitlement grants, the entitlement amounts, the 
allocation of appropriated funds to States for use in nonentitlement 
areas, the reallocation of funds, and the allocation of appropriated 
funds for discretionary grants under the Secretary's Fund shall be 
governed by the policies and procedures described in sections 106 and 
107 of the Act.
    (b) The definitions in Sec. 570.3 shall govern in applying the 
policies and procedures described in sections 106 and 107 of the Act.
    (c) In determining eligibility for entitlement and in allocating 
funds under section 106 of the Act for any Federal fiscal year, HUD will 
recognize corporate status and geographical boundaries and the status of 
metropolitan areas and central cities effective as of July 1 preceding 
such Federal Fiscal Year, subject to the following limitations:
    (1) With respect to corporate status as certified by the applicable 
State and available for processing by the Census Bureau as of such date;
    (2) With respect to boundary changes or annexations, as are used by 
the Census Bureau in preparing population estimates for all general 
purpose governmental units and are available for processing by the 
Census Bureau as of such date, except that any such boundary changes or 
annexations which result in the population of a unit of general local 
government reaching or exceeding 50,000 shall be recognized for this 
purpose whether or not such changes are used by the Census Bureau in 
preparing such population estimates; and
    (3) With respect to the status of Metropolitan Statistical Areas and 
central cities, as officially designated by the Office of Management and 
Budget as of such date.
    (d) In determining whether a county qualifies as an urban county, 
and in computing entitlement amounts for urban counties, the demographic 
values of population, poverty, housing overcrowding, and age of housing 
of any Indian tribes located within the county shall be excluded. In 
allocating amounts to States for use in nonentitlement areas, the 
demographic values of population, poverty, housing overcrowding and age 
of housing of all Indian tribes located in all nonentitled areas shall 
be excluded. It is recognized that all such data on Indian tribes are 
not generally available from the United States Bureau of the Census and 
that missing portions of data will have to be estimated. In 
accomplishing any such estimates the Secretary may use such other 
related information available from reputable sources as may seem 
appropriate, regardless of the data's point or period of time and shall 
use the best judgement possible in adjusting such data to reflect the 
same point or period of time as the overall data from which the Indian 
tribes are being deducted, so that such deduction shall not create an 
imbalance with those overall data.
    (e) Amounts remaining after closeout of a grant which are required 
to be returned to HUD under the provisions of Sec. 570.509, Grant 
closeout procedures, shall be considered as funds available for 
reallocation unless the appropriation under which the funds were 
provided to the Department has lapsed.



Sec. 570.5  Waivers.

    HUD's authority for the waiver of regulations and for the suspension 
of requirements to address damage in a Presidentially declared disaster 
area is described in 24 CFR part 5 and in section 122 of the Act, 
respectively.

[61 FR 11476, Mar. 20, 1996]

Subpart B [Reserved]



                     Subpart C--Eligible Activities

    Source: 53 FR 34439, Sept. 6, 1988, unless otherwise noted.

[[Page 37]]



Sec. 570.200  General policies.

    (a) Determination of eligibility. An activity may be assisted in 
whole or in part with CDBG funds only if all of the following 
requirements are met:
    (1) Compliance with section 105 of the Act. Each activity must meet 
the eligibility requirements of section 105 of the Act as further 
defined in this subpart.
    (2) Compliance with national objectives. Grant recipients under the 
Entitlement and HUD-administered Small Cities programs must certify that 
their projected use of funds has been developed so as to give maximum 
feasible priority to activities which will carry out one of the national 
objectives of benefit to low and moderate income families or aid in the 
prevention or elimination of slums or blight; the projected use of funds 
may also include activities which the recipient certifies are designed 
to meet other community development needs having a particular urgency 
because existing conditions pose a serious and immediate threat to the 
health or welfare of the community where other financial resources are 
not available to meet such needs. Consistent with the foregoing, each 
recipient under the Entitlement and HUD-administered Small Cities 
programs must ensure, and maintain evidence, that each of its activities 
assisted with CDBG funds meets one of the three national objectives as 
contained in its certification. Criteria for determining whether an 
activity addresses one or more of these objectives are contained at 
Sec. 570.208.
    (3) Compliance with the primary objective. The primary objective of 
the Act is described in section 101(c) of the Act. Consistent with this 
objective, Entitlement recipients and recipients of the HUD-administered 
Small Cities program in Hawaii must ensure that over a period of time 
specified in their certification not to exceed three years, not less 
than 70 percent of the aggregate of CDBG fund expenditures shall be for 
activities meeting the criteria under Sec. 570.208(a) or 
Sec. 570.208(d)(5) or (6) for benefitting low- and moderate-income 
persons; Insular area recipients must meet this requirement for each 
separate grant. The requirements for the HUD-administered Small Cities 
program in New York are in Sec. 570.420(e)(2). Additional requirements 
for the HUD-administered Small Cities program in Hawaii are in 
Sec. 570.430(e). In determining the percentage of funds expended for 
such activities:
    (i) Cost of administration and planning eligible under Sec. 570.205 
and Sec. 570.206 will be assumed to benefit low and moderate income 
persons in the same proportion as the remainder of the CDBG funds and, 
accordingly shall be excluded from the calculation;
    (ii) Funds deducted by HUD for repayment of urban renewal temporary 
loans pursuant to Sec. 570.802(b) shall be excluded;
    (iii) Funds expended for the repayment of loans guaranteed under the 
provisions of subpart M shall also be excluded;
    (iv) Funds expended for the acquisition, new construction or 
rehabilitation of property for housing that qualifies under 
Sec. 570.208(a)(3) shall be counted for this purpose but shall be 
limited to an amount determined by multiplying the total cost (including 
CDBG and non-CDBG costs) of the acquisition, construction or 
rehabilitation by the percent of units in such housing to be occupied by 
low and moderate income persons.
    (v) Funds expended for any other activities qualifying under 
Sec. 570.208(a) shall be counted for this purpose in their entirety.
    (4) Compliance with environmental review procedures. The 
environmental review procedures set forth at 24 CFR part 58 must be 
completed for each activity (or project as defined in 24 CFR part 58), 
as applicable.
    (5) Cost principles. Costs incurred, whether charged on a direct or 
an indirect basis, must be in conformance with OMB Circulars A-87, 
``Cost Principles for State, Local and Indian Tribal Governments''; A-
122, ``Cost Principles for Non-profit Organizations''; or A-21, ``Cost 
Principles for Educational Institutions,'' as applicable.\1\ All items 
of cost listed in Attachment B of these Circulars that require prior 
Federal

[[Page 38]]

agency approval are allowable without prior approval of HUD to the 
extent they comply with the general policies and principles stated in 
Attachment A of such circulars and are otherwise eligible under this 
subpart C, except for the following:
---------------------------------------------------------------------------

    \1\ These circulars are available from the American Communities 
Center by calling the following toll-free numbers: (800) 998-9999 or 
(800) 483-2209 (TDD).
---------------------------------------------------------------------------

    (i) Depreciation methods for fixed assets shall not be changed 
without HUD's specific approval or, if charged through a cost allocation 
plan, the Federal cognizant agency.
    (ii) Fines and penalties (including punitive damages) are 
unallowable costs to the CDBG program.
    (iii) Pre-award costs are limited to those authorized under 
paragraph (h) of this section.
    (b) Special policies governing facilities. The following special 
policies apply to:
    (1) Facilities containing both eligible and ineligible uses. A 
public facility otherwise eligible for assistance under the CDBG program 
may be provided with CDBG funds even if it is part of a multiple use 
building containing ineligible uses, if:
    (i) The facility which is otherwise eligible and proposed for 
assistance will occupy a designated and discrete area within the larger 
facility; and
    (ii) The recipient can determine the costs attributable to the 
facility proposed for assistance as separate and distinct from the 
overall costs of the multiple-use building and/or facility.

Allowable costs are limited to those attributable to the eligible 
portion of the building or facility.
    (2) Fees for use of facilities. Reasonable fees may be charged for 
the use of the facilities assisted with CDBG funds, but charges such as 
excessive membership fees, which will have the effect of precluding low 
and moderate income persons from using the facilities, are not 
permitted.
    (c) Special assessments under the CDBG program. The following 
policies relate to special assessments under the CDBG program:
    (1) Definition of special assessment. The term ``special 
assessment'' means the recovery of the capital costs of a public 
improvement, such as streets, water or sewer lines, curbs, and gutters, 
through a fee or charge levied or filed as a lien against a parcel of 
real estate as a direct result of benefit derived from the installation 
of a public improvement, or a one-time charge made as a condition of 
access to a public improvement. This term does not relate to taxes, or 
the establishment of the value of real estate for the purpose of levying 
real estate, property, or ad valorem taxes, and does not include 
periodic charges based on the use of a public improvement, such as water 
or sewer user charges, even if such charges include the recovery of all 
or some portion of the capital costs of the public improvement.
    (2) Special assessments to recover capital costs. Where CDBG funds 
are used to pay all or part of the cost of a public improvement, special 
assessments may be imposed as follows:
    (i) Special assessments to recover the CDBG funds may be made only 
against properties owned and occupied by persons not of low and moderate 
income. Such assessments constitute program income.
    (ii) Special assessments to recover the non-CDBG portion may be made 
provided that CDBG funds are used to pay the special assessment in 
behalf of all properties owned and occupied by low and moderate income 
persons; except that CDBG funds need not be used to pay the special 
assessments in behalf of properties owned and occupied by moderate 
income persons if the grant recipient certifies that it does not have 
sufficient CDBG funds to pay the assessments in behalf of all of the low 
and moderate income owner-occupant persons. Funds collected through such 
special assessments are not program income.
    (3) Public improvements not initially assisted with CDBG funds. The 
payment of special assessments with CDBG funds constitutes CDBG 
assistance to the public improvement. Therefore, CDBG funds may be used 
to pay special assessments provided:
    (i) The installation of the public improvements was carried out in 
compliance with requirements applicable to activities assisted under 
this part including environmental, citizen participation and Davis-Bacon 
requirements;
    (ii) The installation of the public improvement meets a criterion 
for national objectives in Sec. 570.208(a)(1), (b), or (c); and

[[Page 39]]

    (iii) The requirements of Sec. 570.200(c)(2)(ii) are met.
    (d) Consultant activities. Consulting services are eligible for 
assistance under this part for professional assistance in program 
planning, development of community development objectives, and other 
general professional guidance relating to program execution. The use of 
consultants is governed by the following:
    (1) Employer-employee type of relationship. No person providing 
consultant services in an employer-employee type of relationship shall 
receive more than a reasonable rate of compensation for personal 
services paid with CDBG funds. In no event, however, shall such 
compensation exceed the equivalent of the daily rate paid for Level IV 
of the Executive Schedule. Such services shall be evidenced by written 
agreements between the parties which detail the responsibilities, 
standards, and compensation.
    (2) Independent contractor relationship. Consultant services 
provided under an independent contractor relationship are governed by 
the procurement requirements in 24 CFR 85.36, and are not subject to the 
compensation limitation of Level IV of the Executive Schedule.
    (e) Recipient determinations required as a condition of eligibility. 
In several instances under this subpart, the eligibility of an activity 
depends on a special local determination. Recipients shall maintain 
documentation of all such determinations. A written determination is 
required for any activity carried out under the authority of 
Secs. 570.201(f), 570.201(i)(2), 570.201(p), 570.201(q), 570.202(b)(3), 
570.206(f), 570.209, and 570.309.
    (f) Means of carrying out eligible activities. (1) Activities 
eligible under this subpart, other than those authorized under 
Sec. 570.204(a), may be undertaken, subject to local law:
    (i) By the recipient through:
    (A) Its employees, or
    (B) Procurement contracts governed by the requirements of 24 CFR 
85.36; or
    (ii) Through loans or grants under agreements with subrecipients, as 
defined at Sec. 570.500(c); or
    (iii) By one or more public agencies, including existing local 
public agencies, that are designated by the chief executive officer of 
the recipient.
    (2) Activities made eligible under Sec. 570.204(a) may only be 
undertaken by entities specified in that section.
    (g) Limitation on planning and administrative costs. No more than 20 
percent of the sum of any grant, plus program income, shall be expended 
for planning and program administrative costs, as defined in 
Secs. 570.205 and 507.206, respectively. Recipients of entitlement 
grants under subpart D of this part shall conform with this requirement 
by limiting the amount of CDBG funds obligated for planning plus 
administration during each program year to an amount no greater than 20 
percent of the sum of its entitlement grant made for that program year 
(if any) plus the program income received by the recipient and its 
subrecipients (if any) during that program year.
    (h) Reimbursement for pre-award costs. The effective date of the 
grant agreement is the program year start date or the date that the 
consolidated plan is received by HUD, whichever is later. For a Section 
108 loan guarantee, the effective date of the grant agreement is the 
date of HUD execution of the grant agreement amendment for the 
particular loan guarantee commitment.
    (1) Prior to the effective date of the grant agreement, a recipient 
may incur costs or may authorize a subrecipient to incur costs, and then 
after the effective date of the grant agreement pay for those costs 
using its CDBG funds, provided that:
    (i) The activity for which the costs are being incurred is included, 
prior to the costs being incurred, in a consolidated plan action plan, 
an amended consolidated plan action plan, or an application under 
subpart M of this part, except that a new entitlement grantee preparing 
to receive its first allocation of CDBG funds may incur costs necessary 
to develop its consolidated plan and undertake other administrative 
actions necessary to receive its first grant, prior to the costs being 
included in its consolidated plan;
    (ii) Citizens are advised of the extent to which these pre-award 
costs will affect future grants;

[[Page 40]]

    (iii) The costs and activities funded are in compliance with the 
requirements of this part and with the Environmental Review Procedures 
stated in 24 CFR part 58;
    (iv) The activity for which payment is being made complies with the 
statutory and regulatory provisions in effect at the time the costs are 
paid for with CDBG funds;
    (v) CDBG payment will be made during a time no longer than the next 
two program years following the effective date of the grant agreement or 
amendment in which the activity is first included; and
    (vi) The total amount of pre-award costs to be paid during any 
program year pursuant to this provision is no more than the greater of 
25 percent of the amount of the grant made for that year or $300,000.
    (2) Upon the written request of the recipient, HUD may authorize 
payment of pre-award costs for activities that do not meet the criteria 
at paragraph (h)(1)(v) or (h)(1)(vi) of this section, if HUD determines, 
in writing, that there is good cause for granting an exception upon 
consideration of the following factors, as applicable:
    (i) Whether granting the authority would result in a significant 
contribution to the goals and purposes of the CDBG program;
    (ii) Whether failure to grant the authority would result in undue 
hardship to the recipient or beneficiaries of the activity;
    (iii) Whether granting the authority would not result in a violation 
of a statutory provision or any other regulatory provision;
    (iv) Whether circumstances are clearly beyond the recipient's 
control; or
    (v) Any other relevant considerations.
    (i) Urban Development Action Grant. Grant assistance may be provided 
with Urban Development Action Grant funds, subject to the provisions of 
subpart G, for:
    (1) Activities eligible for assistance under this subpart; and
    (2) Notwithstanding the provisions of Sec. 570.207, such other 
activities as the Secretary may determine to be consistent with the 
purposes of the Urban Development Action Grant program.
    (j) Constitutional prohibition. In accordance with First Amendment 
Church/State Principles, as a general rule, CDBG assistance may not be 
used for religious activities or provided to primarily religious 
entities for any activities, including secular activities. The following 
restrictions and limitations therefore apply to the use of CDBG funds.
    (1) CDBG funds may not be used for the acquisition of property or 
the construction or rehabilitation (including historic preservation and 
removal of architectural barriers) of structures to be used for 
religious purposes or which will otherwise promote religious interests. 
This limitation includes the acquisition of property for ownership by 
primarily religious entities and the construction or rehabilitation 
(including historic preservation and removal of architectural barriers) 
of structures owned by such entities (except as permitted under 
paragraph (j)(2) of this section with respect to rehabilitation and 
under paragraph (j)(4) of this section with respect to repairs 
undertaken in connection with public services) regardless of the use to 
be made of the property or structure. Property owned by primarily 
religious entities may be acquired with CDBG funds at no more than fair 
market value for a non-religious use.
    (2) CDBG funds may be used to rehabilitate buildings owned by 
primarily religious entities to be used for a wholly secular purpose 
under the following conditions:
    (i) The building (or portion thereof) that is to be improved with 
the CDBG assistance has been leased to an existing or newly established 
wholly secular entity (which may be an entity established by the 
religious entity);
    (ii) The CDBG assistance is provided to the lessee (and not the 
lessor) to make the improvements;
    (iii) The leased premises will be used exclusively for secular 
purposes available to persons regardless of religion;
    (iv) The lease payments do not exceed the fair market rent of the 
premises as they were before the improvements are made;
    (v) The portion of the cost of any improvements that also serve a 
non-

[[Page 41]]

leased part of the building will be allocated to and paid for by the 
lessor;
    (vi) The lessor enters into a binding agreement that unless the 
lessee, or a qualified successor lessee, retains the use of the leased 
premises for a wholly secular purpose for at least the useful life of 
the improvements, the lessor will pay to the lessee an amount equal to 
the residual value of the improvements;
    (vii) The lessee must remit the amount received from the lessor 
under paragraph (j)(2)(vi) of this section to the recipient or 
subrecipient from which the CDBG funds were derived.

The lessee can also enter into a management contract authorizing the 
lessor religious entity to use the building for its intended secular 
purpose, e.g., homeless shelter, provision of public services. In such 
case, the religious entity must agree in the management contract to 
carry out the secular purpose in a manner free from religious influences 
in accordance with the principles set forth in paragraph (j)(3) of this 
section.
    (3) As a general rule, CDBG funds may be used for eligible public 
services to be provided through a primarily religious entity, where the 
religious entity enters into an agreement with the recipient or 
subrecipient from which the CDBG funds are derived that, in connection 
with the provision of such services:
    (i) It will not discriminate against any employee or applicant for 
employment on the basis of religion and will not limit employment or 
give preference in employment to persons on the basis of religion;
    (ii) It will not discriminate against any person applying for such 
public services on the basis of religion and will not limit such 
services or give preference to persons on the basis of religion;
    (iii) It will provide no religious instruction or counseling, 
conduct no religious worship or services, engage in no religious 
proselytizing, and exert no other religious influence in the provision 
of such public services;
    (4) Where the public services provided under paragraph (j)(3) of 
this section are carried out on property owned by the primarily 
religious entity, CDBG funds may also be used for minor repairs to such 
property which are directly related to carrying out the public services 
where the cost constitutes in dollar terms only an incidental portion of 
the CDBG expenditure for the public services.

[53 FR 34439, Sept. 6, 1988, as amended at 54 FR 47031, Nov. 8, 1989; 57 
FR 27119, June 17, 1992; 60 FR 1943, Jan. 5, 1995; 60 FR 17445, Apr. 6, 
1995; 60 FR 56910, Nov. 9, 1995; 61 FR 11476, Mar. 20, 1996; 61 FR 
18674, Apr. 29, 1996; 65 FR 70215, Nov. 21, 2000]



Sec. 570.201  Basic eligible activities.

    CDBG funds may be used for the following activities:
    (a) Acquisition. Acquisition in whole or in part by the recipient, 
or other public or private nonprofit entity, by purchase, long-term 
lease, donation, or otherwise, of real property (including air rights, 
water rights, rights-of-way, easements, and other interests therein) for 
any public purpose, subject to the limitations of Sec. 570.207.
    (b) Disposition. Disposition, through sale, lease, donation, or 
otherwise, of any real property acquired with CDBG funds or its 
retention for public purposes, including reasonable costs of temporarily 
managing such property or property acquired under urban renewal, 
provided that the proceeds from any such disposition shall be program 
income subject to the requirements set forth in Sec. 570.504.
    (c) Public facilities and improvements. Acquisition, construction, 
reconstruction, rehabilitation or installation of public facilities and 
improvements, except as provided in Sec. 570.207(a), carried out by the 
recipient or other public or private nonprofit entities. (However, 
activities under this paragraph may be directed to the removal of 
material and architectural barriers that restrict the mobility and 
accessibility of elderly or severely disabled persons to public 
facilities and improvements, including those provided for in 
Sec. 570.207(a)(1).) In undertaking such activities, design features and 
improvements which promote energy efficiency may be included. Such 
activities may also include the execution of architectural design 
features, and similar treatments

[[Page 42]]

intended to enhance the aesthetic quality of facilities and improvements 
receiving CDBG assistance, such as decorative pavements, railings, 
sculptures, pools of water and fountains, and other works of art. 
Facilities designed for use in providing shelter for persons having 
special needs are considered public facilities and not subject to the 
prohibition of new housing construction described in Sec. 570.207(b)(3). 
Such facilities include shelters for the homeless; convalescent homes; 
hospitals, nursing homes; battered spouse shelters; halfway houses for 
run-away children, drug offenders or parolees; group homes for mentally 
retarded persons and temporary housing for disaster victims. In certain 
cases, nonprofit entities and subrecipients including those specified in 
Sec. 570.204 may acquire title to public facilities. When such 
facilities are owned by nonprofit entities or subrecipients, they shall 
be operated so as to be open for use by the general public during all 
normal hours of operation. Public facilities and improvements eligible 
for assistance under this paragraph are subject to the policies in 
Sec. 570.200(b).
    (d) Clearance activities. Clearance, demolition, and removal of 
buildings and improvements, including movement of structures to other 
sites. Demolition of HUD-assisted or HUD-owned housing units may be 
undertaken only with the prior approval of HUD.
    (e) Public services. Provision of public services (including labor, 
supplies, and materials) including but not limited to those concerned 
with employment, crime prevention, child care, health, drug abuse, 
education, fair housing counseling, energy conservation, welfare (but 
excluding the provision of income payments identified under 
Sec. 570.207(b)(4)), homebuyer downpayment assistance, or recreational 
needs. To be eligible for CDBG assistance, a public service must be 
either a new service or a quantifiable increase in the level of an 
existing service above that which has been provided by or on behalf of 
the unit of general local government (through funds raised by the unit 
or received by the unit from the State in which it is located) in the 12 
calendar months before the submission of the action plan. (An exception 
to this requirement may be made if HUD determines that any decrease in 
the level of a service was the result of events not within the control 
of the unit of general local government.) The amount of CDBG funds used 
for public services shall not exceed paragraphs (e) (1) or (2) of this 
section, as applicable:
    (1) The amount of CDBG funds used for public services shall not 
exceed 15 percent of each grant, except that for entitlement grants made 
under subpart D of this part, the amount shall not exceed 15 percent of 
the grant plus 15 percent of program income, as defined in 
Sec. 570.500(a). For entitlement grants under subpart D of this part, 
compliance is based on limiting the amount of CDBG funds obligated for 
public service activities in each program year to an amount no greater 
than 15 percent of the entitlement grant made for that program year plus 
15 percent of the program income received during the grantee's 
immediately preceding program year.
    (2) A recipient which obligated more CDBG funds for public services 
than 15 percent of its grant funded from Federal fiscal year 1982 or 
1983 appropriations (excluding program income and any assistance 
received under Public Law 98-8), may obligate more CDBG funds than 
allowable under paragraph (e)(1) of this section, so long as the total 
amount obligated in any program year does not exceed:
    (i) For an entitlement grantee, 15% of the program income it 
received during the preceding program year; plus
    (ii) A portion of the grant received for the program year which is 
the highest of the following amounts:
    (A) The amount determined by applying the percentage of the grant it 
obligated for public services in the 1982 program year against the grant 
for its current program year;
    (B) The amount determined by applying the percentage of the grant it 
obligated for public services in the 1983 program year against the grant 
for its current program year;
    (C) The amount of funds it obligated for public services in the 1982 
program year; or,
    (D) The amount of funds it obligated for public services in the 1983 
program year.

[[Page 43]]

    (f) Interim assistance. (1) The following activities may be 
undertaken on an interim basis in areas exhibiting objectively 
determinable signs of physical deterioration where the recipient has 
determined that immediate action is necessary to arrest the 
deterioration and that permanent improvements will be carried out as 
soon as practicable:
    (i) The repairing of streets, sidewalks, parks, playgrounds, 
publicly owned utilities, and public buildings; and
    (ii) The execution of special garbage, trash, and debris removal, 
including neighborhood cleanup campaigns, but not the regular curbside 
collection of garbage or trash in an area.
    (2) In order to alleviate emergency conditions threatening the 
public health and safety in areas where the chief executive officer of 
the recipient determines that such an emergency condition exists and 
requires immediate resolution, CDBG funds may be used for:
    (i) The activities specified in paragraph (f)(1) of this section, 
except for the repair of parks and playgrounds;
    (ii) The clearance of streets, including snow removal and similar 
activities, and
    (iii) The improvement of private properties.
    (3) All activities authorized under paragraph (f)(2) of this section 
are limited to the extent necessary to alleviate emergency conditions.
    (g) Payment of non-Federal share. Payment of the non-Federal share 
required in connection with a Federal grant-in-aid program undertaken as 
part of CDBG activities, provided, that such payment shall be limited to 
activities otherwise eligible and in compliance with applicable 
requirements under this subpart.
    (h) Urban renewal completion. Payment of the cost of completing an 
urban renewal project funded under title I of the Housing Act of 1949 as 
amended. Further information regarding the eligibility of such costs is 
set forth in Sec. 570.801.
    (i) Relocation. Relocation payments and other assistance for 
permanently and temporarily relocated individuals families, businesses, 
nonprofit organizations, and farm operations where the assistance is (1) 
required under the provisions of Sec. 570.606 (b) or (c); or (2) 
determined by the grantee to be appropriate under the provisions of 
Sec. 570.606(d).
    (j) Loss of rental income. Payments to housing owners for losses of 
rental income incurred in holding, for temporary periods, housing units 
to be used for the relocation of individuals and families displaced by 
program activities assisted under this part.
    (k) Housing services. Housing services, as provided in section 
105(a)(21) of the Act (42 U.S.C. 5305(a)(21)).
    (l) Privately owned utilities. CDBG funds may be used to acquire, 
construct, reconstruct, rehabilitate, or install the distribution lines 
and facilities of privately owned utilities, including the placing 
underground of new or existing distribution facilities and lines.
    (m) Construction of housing. CDBG funds may be used for the 
construction of housing assisted under section 17 of the United States 
Housing Act of 1937.
    (n) Homeownership assistance. CDBG funds may be used to provide 
direct homeownership assistance to low- or moderate-income households in 
accordance with section 105(a) of the Act.
    (o)(1) The provision of assistance either through the recipient 
directly or through public and private organizations, agencies, and 
other subrecipients (including nonprofit and for-profit subrecipients) 
to facilitate economic development by:
    (i) Providing credit, including, but not limited to, grants, loans, 
loan guarantees, and other forms of financial support, for the 
establishment, stabilization, and expansion of microenterprises;
    (ii) Providing technical assistance, advice, and business support 
services to owners of microenterprises and persons developing 
microenterprises; and
    (iii) Providing general support, including, but not limited to, peer 
support programs, counseling, child care, transportation, and other 
similar services, to owners of microenterprises and persons developing 
microenterprises.
    (2) Services provided this paragraph (o) shall not be subject to the 
restrictions on public services contained in paragraph (e) of this 
section.

[[Page 44]]

    (3) For purposes of this paragraph (o), ``persons developing 
microenterprises'' means such persons who have expressed interest and 
who are, or after an initial screening process are expected to be, 
actively working toward developing businesses, each of which is expected 
to be a microenterprise at the time it is formed.
    (4) Assistance under this paragraph (o) may also include training, 
technical assistance, or other support services to increase the capacity 
of the recipient or subrecipient to carry out the activities under this 
paragraph (o).
    (p) Technical assistance. Provision of technical assistance to 
public or nonprofit entities to increase the capacity of such entities 
to carry out eligible neighborhood revitalization or economic 
development activities. (The recipient must determine, prior to the 
provision of the assistance, that the activity for which it is 
attempting to build capacity would be eligible for assistance under this 
subpart C, and that the national objective claimed by the grantee for 
this assistance can reasonably be expected to be met once the entity has 
received the technical assistance and undertakes the activity.) Capacity 
building for private or public entities (including grantees) for other 
purposes may be eligible under Sec. 570.205.
    (q) Assistance to institutions of higher education. Provision of 
assistance by the recipient to institutions of higher education when the 
grantee determines that such an institution has demonstrated a capacity 
to carry out eligible activities under this subpart C.

[53 FR 34439, Sept. 6, 1988, as amended at 53 FR 31239, Aug. 17, 1988; 
55 FR 29308, July 18, 1990; 57 FR 27119, June 17, 1992; 60 FR 1943, Jan. 
5, 1995; 60 FR 56911, Nov. 9, 1995; 61 FR 18674, Apr. 29, 1996; 65 FR 
70215, Nov. 21, 2000; 67 FR 47213, July 17, 2002]



Sec. 570.202  Eligible rehabilitation and preservation activities.

    (a) Types of buildings and improvements eligible for rehabilitation 
assistance. CDBG funds may be used to finance the rehabilitation of:
    (1) Privately owned buildings and improvements for residential 
purposes; improvements to a single-family residential property which is 
also used as a place of business, which are required in order to operate 
the business, need not be considered to be rehabilitation of a 
commercial or industrial building, if the improvements also provide 
general benefit to the residential occupants of the building;
    (2) Low-income public housing and other publicly owned residential 
buildings and improvements;
    (3) Publicly or privately owned commercial or industrial buildings, 
except that the rehabilitation of such buildings owned by a private for-
profit business is limited to improvements to the exterior of the 
building and the correction of code violations (further improvements to 
such buildings may be undertaken pursuant to Sec. 570.203(b));
    (4) Nonprofit-owned nonresidential buildings and improvements not 
eligible under Sec. 570.201(c); and
    (5) Manufactured housing when such housing constitutes part of the 
community's permanent housing stock.
    (b) Types of assistance. CDBG funds may be used to finance the 
following types of rehabilitation activities, and related costs, either 
singly, or in combination, through the use of grants, loans, loan 
guarantees, interest supplements, or other means for buildings and 
improvements described in paragraph (a) of this section, except that 
rehabilitation of commercial or industrial buildings is limited as 
described in paragraph (a)(3) of this section.
    (1) Assistance to private individuals and entities, including profit 
making and nonprofit organizations, to acquire for the purpose of 
rehabilitation, and to rehabilitate properties, for use or resale for 
residential purposes;
    (2) Labor, materials, and other costs of rehabilitation of 
properties, including repair directed toward an accumulation of deferred 
maintenance, replacement of principal fixtures and components of 
existing structures, installation of security devices, including smoke 
detectors and dead bolt locks, and renovation through alterations, 
additions to, or enhancement of existing structures, which may be 
undertaken singly, or in combination;
    (3) Loans for refinancing existing indebtedness secured by a 
property being rehabilitated with CDBG funds if such financing is 
determined by the recipient to be necessary or appropriate to

[[Page 45]]

achieve the locality's community development objectives;
    (4) Improvements to increase the efficient use of energy in 
structures through such means as installation of storm windows and 
doors, siding, wall and attic insulation, and conversion, modification, 
or replacement of heating and cooling equipment, including the use of 
solar energy equipment;
    (5) Improvements to increase the efficient use of water through such 
means as water savings faucets and shower heads and repair of water 
leaks;
    (6) Connection of residential structures to water distribution lines 
or local sewer collection lines;
    (7) For rehabilitation carried out with CDBG funds, costs of:
    (i) Initial homeowner warranty premiums;
    (ii) Hazard insurance premiums, except where assistance is provided 
in the form of a grant; and
    (iii) Flood insurance premiums for properties covered by the Flood 
Disaster Protection Act of 1973, pursuant to Sec. 570.605.
    (iv) Procedures concerning inspection and testing for and abatement 
of lead-based paint, pursuant to Sec. 570.608.
    (8) Costs of acquiring tools to be lent to owners, tenants, and 
others who will use such tools to carry out rehabilitation;
    (9) Rehabilitation services, such as rehabilitation counseling, 
energy auditing, preparation of work specifications, loan processing, 
inspections, and other services related to assisting owners, tenants, 
contractors, and other entities, participating or seeking to participate 
in rehabilitation activities authorized under this section, under 
section 312 of the Housing Act of 1964, as amended, under section 810 of 
the Act, or under section 17 of the United States Housing Act of 1937;
    (10) Assistance for the rehabilitation of housing under section 17 
of the United States Housing Act of 1937; and
    (11) Improvements designed to remove material and architectural 
barriers that restrict the mobility and accessibility of elderly or 
severely disabled persons to buildings and improvements eligible for 
assistance under paragraph (a) of this section.
    (c) Code enforcement. Costs incurred for inspection for code 
violations and enforcement of codes (e.g., salaries and related expenses 
of code enforcement inspectors and legal proceedings, but not including 
the cost of correcting the violations) in deteriorating or deteriorated 
areas when such enforcement together with public or private 
improvements, rehabilitation, or services to be provided may be expected 
to arrest the decline of the area.
    (d) Historic preservation. CDBG funds may be used for the 
rehabilitation, preservation or restoration of historic properties, 
whether publicly or privately owned. Historic properties are those sites 
or structures that are either listed in or eligible to be listed in the 
National Register of Historic Places, listed in a State or local 
inventory of historic places, or designated as a State or local landmark 
or historic district by appropriate law or ordinance. Historic 
preservation, however, is not authorized for buildings for the general 
conduct of government.
    (e) Renovation of closed buildings. CDBG funds may be used to 
renovate closed buildings, such as closed school buildings, for use as 
an eligible public facility or to rehabilitate such buildings for 
housing.
    (f) Lead-based paint activities. Lead-based paint activities as set 
forth in part 35 of this title.

[53 FR 34439, Sept. 6, 1988; 53 FR 41330, Oct. 21, 1988, as amended at 
60 FR 1944, Jan. 5, 1995; 60 FR 56911, Nov. 9, 1995; 64 FR 50225, Sept. 
15, 1999]



Sec. 570.203  Special economic development activities.

    A recipient may use CDBG funds for special economic development 
activities in addition to other activities authorized in this subpart 
which may be carried out as part of an economic development project. 
Guidelines for selecting activities to assist under this paragraph are 
provided at Sec. 570.209. The recipient must ensure that the appropriate 
level of public benefit will be derived pursuant to those guidelines 
before obligating funds under this authority. Special activities 
authorized under this section do not include assistance for the 
construction of new

[[Page 46]]

housing. Special economic development activities include:
    (a) The acquisition, construction, reconstruction, rehabilitation or 
installation of commercial or industrial buildings, structures, and 
other real property equipment and improvements, including railroad spurs 
or similar extensions. Such activities may be carried out by the 
recipient or public or private nonprofit subrecipients.
    (b) The provision of assistance to a private for-profit business, 
including, but not limited to, grants, loans, loan guarantees, interest 
supplements, technical assistance, and other forms of support, for any 
activity where the assistance is appropriate to carry out an economic 
development project, excluding those described as ineligible in 
Sec. 570.207(a). In selecting businesses to assist under this authority, 
the recipient shall minimize, to the extent practicable, displacement of 
existing businesses and jobs in neighborhoods.
    (c) Economic development services in connection with activities 
eligible under this section, including, but not limited to, outreach 
efforts to market available forms of assistance; screening of 
applicants; reviewing and underwriting applications for assistance; 
preparation of all necessary agreements; management of assisted 
activities; and the screening, referral, and placement of applicants for 
employment opportunities generated by CDBG-eligible economic development 
activities, including the costs of providing necessary training for 
persons filling those positions.

[53 FR 34439, Sept. 6, 1988, as amended at 60 FR 1944, Jan. 5, 1995]



Sec. 570.204  Special activities by Community-Based Development Organizations (CBDOs).

    (a) Eligible activities. The recipient may provide CDBG funds as 
grants or loans to any CBDO qualified under this section to carry out a 
neighborhood revitalization, community economic development, or energy 
conservation project. The funded project activities may include those 
listed as eligible under this subpart, and, except as described in 
paragraph (b) of this section, activities not otherwise listed as 
eligible under this subpart. For purposes of qualifying as a project 
under paragraphs (a)(1), (a)(2), and (a)(3) of this section, the funded 
activity or activities may be considered either alone or in concert with 
other project activities either being carried out or for which funding 
has been committed. For purposes of this section:
    (1) Neighborhood revitalization project includes activities of 
sufficient size and scope to have an impact on the decline of a 
geographic location within the jurisdiction of a unit of general local 
government (but not the entire jurisdiction) designated in comprehensive 
plans, ordinances, or other local documents as a neighborhood, village, 
or similar geographical designation; or the entire jurisdiction of a 
unit of general local government which is under 25,000 population;
    (2) Community economic development project includes activities that 
increase economic opportunity, principally for persons of low- and 
moderate-income, or that stimulate or retain businesses or permanent 
jobs, including projects that include one or more such activities that 
are clearly needed to address a lack of affordable housing accessible to 
existing or planned jobs and those activities specified at 24 CFR 
91.1(a)(1)(iii);
    (3) Energy conservation project includes activities that address 
energy conservation, principally for the benefit of the residents of the 
recipient's jurisdiction; and
    (4) To carry out a project means that the CBDO undertakes the funded 
activities directly or through contract with an entity other than the 
grantee, or through the provision of financial assistance for activities 
in which it retains a direct and controlling involvement and 
responsibilities.
    (b) Ineligible activities. Notwithstanding that CBDOs may carry out 
activities that are not otherwise eligible under this subpart, this 
section does not authorize:
    (1) Carrying out an activity described as ineligible in 
Sec. 570.207(a);
    (2) Carrying out public services that do not meet the requirements 
of Sec. 570.201(e), except that:
    (i) Services carried out under this section that are specifically 
designed to increase economic opportunities

[[Page 47]]

through job training and placement and other employment support 
services, including, but not limited to, peer support programs, 
counseling, child care, transportation, and other similar services; and
    (ii) Services of any type carried out under this section pursuant to 
a strategy approved by HUD under the provisions of 24 CFR 91.215(e) 
shall not be subject to the limitations in Sec. 570.201(e)(1) or (2), as 
applicable;
    (3) Providing assistance to activities that would otherwise be 
eligible under Sec. 570.203 that do not meet the requirements of 
Sec. 570.209; or
    (4) Carrying out an activity that would otherwise be eligible under 
Sec. 570.205 or Sec. 570.206, but that would result in the recipient's 
exceeding the spending limitation in Sec. 570.200(g).
    (c) Eligible CBDOs. (1) A CBDO qualifying under this section is an 
organization which has the following characteristics:
    (i) Is an association or corporation organized under State or local 
law to engage in community development activities (which may include 
housing and economic development activities) primarily within an 
identified geographic area of operation within the jurisdiction of the 
recipient, or in the case of an urban county, the jurisdiction of the 
county; and
    (ii) Has as its primary purpose the improvement of the physical, 
economic or social environment of its geographic area of operation by 
addressing one or more critical problems of the area, with particular 
attention to the needs of persons of low and moderate income; and
    (iii) May be either non-profit or for-profit, provided any monetary 
profits to its shareholders or members must be only incidental to its 
operations; and
    (iv) Maintains at least 51 percent of its governing body's 
membership for low- and moderate-income residents of its geographic area 
of operation, owners or senior officers of private establishments and 
other institutions located in and serving its geographic area of 
operation, or representatives of low- and moderate-income neighborhood 
organizations located in its geographic area of operation; and
    (v) Is not an agency or instrumentality of the recipient and does 
not permit more than one-third of the membership of its governing body 
to be appointed by, or to consist of, elected or other public officials 
or employees or officials of an ineligible entity (even though such 
persons may be otherwise qualified under paragraph (c)(1)(iv) of this 
section); and
    (vi) Except as otherwise authorized in paragraph (c)(1)(v) of this 
section, requires the members of its governing body to be nominated and 
approved by the general membership of the organization, or by its 
permanent governing body; and
    (vii) Is not subject to requirements under which its assets revert 
to the recipient upon dissolution; and
    (viii) Is free to contract for goods and services from vendors of 
its own choosing.
    (2) A CBDO that does not meet the criteria in paragraph (c)(1) of 
this section may also qualify as an eligible entity under this section 
if it meets one of the following requirements:
    (i) Is an entity organized pursuant to section 301(d) of the Small 
Business Investment Act of 1958 (15 U.S.C. 681(d)), including those 
which are profit making; or
    (ii) Is an SBA approved Section 501 State Development Company or 
Section 502 Local Development Company, or an SBA Certified Section 503 
Company under the Small Business Investment Act of 1958, as amended; or
    (iii) Is a Community Housing Development Organization (CHDO) under 
24 CFR 92.2, designated as a CHDO by the HOME Investment Partnerships 
program participating jurisdiction, with a geographic area of operation 
of no more than one neighborhood, and has received HOME funds under 24 
CFR 92.300 or is expected to receive HOME funds as described in and 
documented in accordance with 24 CFR 92.300(e).
    (3) A CBDO that does not qualify under paragraph (c)(1) or (2) of 
this section may also be determined to qualify as an eligible entity 
under this section if the recipient demonstrates to the satisfaction of 
HUD, through the provision of information regarding the organization's 
charter and by-laws, that the organization is sufficiently similar

[[Page 48]]

in purpose, function, and scope to those entities qualifying under 
paragraph (c)(1) or (2) of this section.

[60 FR 1944, Jan. 5, 1995]



Sec. 570.205  Eligible planning, urban environmental design and policy-planning-management-capacity building activities.

    (a) Planning activities which consist of all costs of data 
gathering, studies, analysis, and preparation of plans and the 
identification of actions that will implement such plans, including, but 
not limited to:
    (1) Comprehensive plans;
    (2) Community development plans;
    (3) Functional plans, in areas such as:
    (i) Housing, including the development of a consolidated plan;
    (ii) Land use and urban environmental design;
    (iii) Economic development;
    (iv) Open space and recreation;
    (v) Energy use and conservation;
    (vi) Floodplain and wetlands management in accordance with the 
requirements of Executive Orders 11988 and 11990;
    (vii) Transportation;
    (viii) Utilities; and
    (ix) Historic preservation.
    (4) Other plans and studies such as:
    (i) Small area and neighborhood plans;
    (ii) Capital improvements programs;
    (iii) Individual project plans (but excluding engineering and design 
costs related to a specific activity which are eligible as part of the 
cost of such activity under Secs. 570.201-570.204);
    (iv) The reasonable costs of general environmental, urban 
environmental design and historic preservation studies. However, costs 
necessary to comply with 24 CFR part 58, including project specific 
environmental assessments and clearances for activities eligible for 
assistance under this part, are eligible as part of the cost of such 
activities under Secs. 570.201-570.204. Costs for such specific 
assessments and clearances may also be incurred under this paragraph but 
would then be considered planning costs for the purposes of 
Sec. 570.200(g);
    (v) Strategies and action programs to implement plans, including the 
development of codes, ordinances and regulations;
    (vi) Support of clearinghouse functions, such as those specified in 
Executive Order 12372; and
    (vii) Analysis of impediments to fair housing choice.
    (6) Policy--planning--management--capacity building activities which 
will enable the recipient to:
    (1) Determine its needs;
    (2) Set long-term goals and short-term objectives, including those 
related to urban environmental design;
    (3) Devise programs and activities to meet these goals and 
objectives;
    (4) Evaluate the progress of such programs and activities in 
accomplishing these goals and objectives; and
    (5) Carry out management, coordination and monitoring of activities 
necessary for effective planning implementation, but excluding the costs 
necessary to implement such plans.

[53 FR 34439, Sept. 6, 1988, as amended at 56 FR 56127, Oct. 31, 1991; 
60 FR 1915, Jan. 5, 1995]



Sec. 570.206  Program administrative costs.

    Payment of reasonable administrative costs and carrying charges 
related to the planning and execution of community development 
activities assisted in whole or in part with funds provided under this 
part and, where applicable, housing activities (described in paragraph 
(g) of this section) covered in the recipient's housing assistance plan. 
This does not include staff and overhead costs directly related to 
carrying out activities eligible under Sec. 570.201 through 
Sec. 570.204, since those costs are eligible as part of such activities.
    (a) General management, oversight and coordination. Reasonable costs 
of overall program management, coordination, monitoring, and evaluation. 
Such costs include, but are not necessarily limited to, necessary 
expenditures for the following:
    (1) Salaries, wages, and related costs of the recipient's staff, the 
staff of local public agencies, or other staff engaged in program 
administration. In charging costs to this category the recipient may 
either include the entire salary, wages, and related costs allocable to 
the program of each person

[[Page 49]]

whose primary responsibilities with regard to the program involve 
program administration assignments, or the pro rata share of the salary, 
wages, and related costs of each person whose job includes any program 
administration assignments. The recipient may use only one of these 
methods during the program year (or the grant period for grants under 
subpart F). Program administration includes the following types of 
assignments:
    (i) Providing local officials and citizens with information about 
the program;
    (ii) Preparing program budgets and schedules, and amendments 
thereto;
    (iii) Developing systems for assuring compliance with program 
requirements;
    (iv) Developing interagency agreements and agreements with 
subrecipients and contractors to carry out program activities;
    (v) Monitoring program activities for progress and compliance with 
program requirements;
    (vi) Preparing reports and other documents related to the program 
for submission to HUD;
    (vii) Coordinating the resolution of audit and monitoring findings;
    (viii) Evaluating program results against stated objectives; and
    (ix) Managing or supervising persons whose primary responsibilities 
with regard to the program include such assignments as those described 
in paragraph (a)(1)(i) through (viii) of this section.
    (2) Travel costs incurred for official business in carrying out the 
program;
    (3) Administrative services performed under third party contracts or 
agreements, including such services as general legal services, 
accounting services, and audit services; and
    (4) Other costs for goods and services required for administration 
of the program, including such goods and services as rental or purchase 
of equipment, insurance, utilities, office supplies, and rental and 
maintenance (but not purchase) of office space.
    (b) Public information. The provisions of information and other 
resources to residents and citizen organizations participating in the 
planning, implementation, or assessment of activities being assisted 
with CDBG funds.
    (c) Fair housing activities. Provision of fair housing services 
designed to further the fair housing objectives of the Fair Housing Act 
(42 U.S.C. 3601-20) by making all persons, without regard to race, 
color, religion, sex, national origin, familial status or handicap, 
aware of the range of housing opportunities available to them; other 
fair housing enforcement, education, and outreach activities; and other 
activities designed to further the housing objective of avoiding undue 
concentrations of assisted persons in areas containing a high proportion 
of low and moderate income persons.
    (d) [Reserved]
    (e) Indirect costs. Indirect costs may be charged to the CDBG 
program under a cost allocation plan prepared in accordance with OMB 
Circular A-21, A-87, or A-122 as applicable.
    (f) Submission of applications for Federal programs. Preparation of 
documents required for submission to HUD to receive funds under the CDBG 
and UDAG programs, except as limited under subpart F at 
Sec. 570.433(a)(3). In addition, CDBG funds may be used to prepare 
applications for other Federal programs where the recipient determines 
that such activities are necessary or appropriate to achieve its 
community development objectives.
    (g) Administrative expenses to facilitate housing. CDBG funds may be 
used for necessary administrative expenses in planning or obtaining 
financing for housing as follows: for entitlement recipients, assistance 
authorized by this paragraph is limited to units which are identified in 
the recipient's HUD approved housing assistance plan; for HUD-
administered small cities recipients, assistance authorized by the 
paragraph is limited to facilitating the purchase or occupancy of 
existing units which are to be occupied by low and moderate income 
households, or the construction of rental or owner units where at least 
20 percent of the units in each project will be occupied at affordable 
rents/costs by low and moderate income persons. Examples of eligible 
actions are as follows:

[[Page 50]]

    (1) The cost of conducting preliminary surveys and analysis of 
market needs;
    (2) Site and utility plans, narrative descriptions of the proposed 
construction, preliminary cost estimates, urban design documentation, 
and ``sketch drawings,'' but excluding architectural, engineering, and 
other details ordinarily required for construction purposes, such as 
structural, electrical, plumbing, and mechanical details;
    (3) Reasonable costs associated with development of applications for 
mortgage and insured loan commitments, including commitment fees, and of 
applications and proposals under the Section 8 Housing Assistance 
Payments Program pursuant to 24 CFR parts 880-883;
    (4) Fees associated with processing of applications for mortgage or 
insured loan commitments under programs including those administered by 
HUD, Farmers Home Administration (FmHA), Federal National Mortgage 
Association (FNMA), and the Government National Mortgage Association 
(GNMA);
    (5) The cost of issuance and administration of mortgage revenue 
bonds used to finance the acquisition, rehabilitation or construction of 
housing, but excluding costs associated with the payment or guarantee of 
the principal or interest on such bonds; and
    (6) Special outreach activities which result in greater landlord 
participation in Section 8 Housing Assistance Payments Program-Existing 
Housing or similar programs for low and moderate income persons.
    (h) Section 17 of the United States Housing Act of 1937. Reasonable 
costs equivalent to those described in paragraphs (a), (b), (e) and (f) 
of this section for overall program management of the Rental 
Rehabilitation and Housing Development programs authorized under section 
17 of the United States Housing Act of 1937, whether or not such 
activities are otherwise assisted with funds provided under this part.
    (i) Whether or not such activities are otherwise assisted by funds 
provided under this part, reasonable costs equivalent to those described 
in paragraphs (a), (b), (e), and (f) of this section for overall program 
management of:
    (1) A Federally designated Empowerment Zone or Enterprise Community; 
and
    (2) The HOME program under title II of the Cranston-Gonzalez 
National Affordable Housing Act (42 U.S.C. 12701 note).

[53 FR 34439, Sept. 6, 1988; 53 FR 41330, Oct. 21, 1988, as amended at 
54 FR 37411, Sept. 8, 1989; 60 FR 56912, Nov. 9, 1995]



Sec. 570.207  Ineligible activities.

    The general rule is that any activity that is not authorized under 
the provisions of Secs. 570.201-570.206 is ineligible to be assisted 
with CDBG funds. This section identifies specific activities that are 
ineligible and provides guidance in determining the eligibility of other 
activities frequently associated with housing and community development.
    (a) The following activities may not be assisted with CDBG funds:
    (1) Buildings or portions thereof, used for the general conduct of 
government as defined at Sec. 570.3(d) cannot be assisted with CDBG 
funds. This does not include, however, the removal of architectural 
barriers under Sec. 570.201(c) involving any such building. Also, where 
acquisition of real property includes an existing improvement which is 
to be used in the provision of a building for the general conduct of 
government, the portion of the acquisition cost attributable to the land 
is eligible, provided such acquisition meets a national objective 
described in Sec. 570.208.
    (2) General government expenses. Except as otherwise specifically 
authorized in this subpart or under OMB Circular A-87, expenses required 
to carry out the regular responsibilities of the unit of general local 
government are not eligible for assistance under this part.
    (3) Political activities. CDBG funds shall not be used to finance 
the use of facilities or equipment for political purposes or to engage 
in other partisan political activities, such as candidate forums, voter 
transportation, or voter registration. However, a facility originally 
assisted with CDBG funds may be used on an incidental basis to hold 
political meetings, candidate forums, or voter registration campaigns, 
provided that all parties and organizations have access to the facility 
on an equal basis,

[[Page 51]]

and are assessed equal rent or use charges, if any.
    (b) The following activites may not be assisted with CDBG funds 
unless authorized under provisions of Sec. 570.203 or as otherwise 
specifically noted herein or when carried out by a entity under the 
provisions of Sec. 570.204.
    (1) Purchase of equipment. The purchase of equipment with CDBG funds 
is generally ineligible.
    (i) Construction equipment. The purchase of construction equipment 
is ineligible, but compensation for the use of such equipment through 
leasing, depreciation, or use allowances pursuant to OMB Circulars A-21, 
A-87 or A-122 as applicable for an otherwise eligible activity is an 
eligible use of CDBG funds. However, the purchase of construction 
equipment for use as part of a solid waste disposal facility is eligible 
under Sec. 570.201(c).
    (ii) Fire protection equipment. Fire protection equipment is 
considered for this purpose to be an integral part of a public facility 
and thus, purchase of such equipment would be eligible under 
Sec. 570.201(c).
    (iii) Furnishings and personal property. The purchase of equipment, 
fixtures, motor vehicles, furnishings, or other personal property not an 
integral structural fixture is generally ineligible. CDBG funds may be 
used, however, to purchase or to pay depreciation or use allowances (in 
accordance with OMB Circular A-21, A-87 or A-122, as applicable) for 
such items when necessary for use by a recipient or its subrecipients in 
the administration of activities assisted with CDBG funds, or when 
eligible as fire fighting equipment, or when such items constitute all 
or part of a public service pursuant to Sec. 570.201(e).
    (2) Operating and maintenance expenses. The general rule is that any 
expense associated with repairing, operating or maintaining public 
facilities, improvements and services is ineligible. Specific exceptions 
to this general rule are operating and maintenance expenses associated 
with public service activities, interim assistance, and office space for 
program staff employed in carrying out the CDBG program. For example, 
the use of CDBG funds to pay the allocable costs of operating and 
maintaining a facility used in providing a public service would be 
eligible under Sec. 570.201(e), even if no other costs of providing such 
a service are assisted with such funds. Examples of ineligible operating 
and maintenance expenses are:
    (i) Maintenance and repair of publicly owned streets, parks, 
playgrounds, water and sewer facilities, neighborhood facilities, senior 
centers, centers for persons with a disabilities, parking and other 
public facilities and improvements. Examples of maintenance and repair 
activities for which CDBG funds may not be used include the filling of 
pot holes in streets, repairing of cracks in sidewalks, the mowing of 
recreational areas, and the replacement of expended street light bulbs; 
and
    (ii) Payment of salaries for staff, utility costs and similar 
expenses necessary for the operation of public works and facilities.
    (3) New housing construction. For the purpose of this paragraph, 
activities in support of the development of low or moderate income 
housing including clearance, site assemblage, provision of site 
improvements and provision of public improvements and certain housing 
pre-construction costs set forth in Sec. 570.206(g), are not considered 
as activities to subsidize or assist new residential construction. CDBG 
funds may not be used for the construction of new permanent residential 
structures or for any program to subsidize or assist such new 
construction, except:
    (i) As provided under the last resort housing provisions set forth 
in 24 CFR part 42;
    (ii) As authorized under Sec. 570.201(m) or (n);
    (iii) When carried out by an entity pursuant to Sec. 570.204(a);
    (4) Income payments. The general rule is that CDBG funds may not be 
used for income payments. For purposes of the CDBG program, ``income 
payments'' means a series of subsistence-type grant payments made to an 
individual or family for items such as food, clothing, housing (rent or 
mortgage), or utilities, but excludes emergency grant payments made over 
a period of up to

[[Page 52]]

three consecutive months to the provider of such items or services on 
behalf of an individual or family.

[53 FR 34439, Sept. 6, 1988; 53 FR 41330, Oct. 21, 1988, as amended at 
60 FR 1945, Jan. 5, 1995; 60 FR 56912, Nov. 9, 1995; 65 FR 70215, Nov. 
21, 2000]



Sec. 570.208  Criteria for national objectives.

    The following criteria shall be used to determine whether a CDBG-
assisted activity complies with one or more of the national objectives 
as required under Sec. 570.200(a)(2):
    (a) Activities benefiting low- and moderate-income persons. 
Activities meeting the criteria in paragraph (a) (1), (2), (3), or (4) 
of this section as applicable, will be considered to benefit low and 
moderate income persons unless there is substantial evidence to the 
contrary. In assessing any such evidence, the full range of direct 
effects of the assisted activity will be considered. (The recipient 
shall appropriately ensure that activities that meet these criteria do 
not benefit moderate income persons to the exclusion of low income 
persons.)
    (1) Area benefit activities. (i) An activity, the benefits of which 
are available to all the residents in a particular area, where at least 
51 percent of the residents are low and moderate income persons. Such an 
area need not be coterminous with census tracts or other officially 
recognized boundaries but must be the entire area served by the 
activity. An activity that serves an area that is not primarily 
residential in character shall not qualify under this criterion.
    (ii) For metropolitan cities and urban counties, an activity that 
would otherwise qualify under Sec. 570.208(a)(1)(i) except that the area 
served contains less than 51 percent low and moderate income residents 
will also be considered to meet the objective of benefiting low and 
moderate income persons where the proportion of low and moderate income 
persons in the area is within the highest quartile of all areas in the 
recipient's jurisdiction in terms of the degree of concentration of such 
persons. In applying this exception, HUD will determine the lowest 
proportion a recipient may use to qualify an area for this purpose as 
follows:
    (A) All census block groups in the recipient's jurisdiction shall be 
rank ordered from the block group of highest proportion of low and 
moderate income persons to the block group with the lowest. For urban 
counties, the rank ordering shall cover the entire area constituting the 
urban county and shall not be done separately for each participating 
unit of general local government.
    (B) In any case where the total number of a recipient's block groups 
does not divide evenly by four, the block group which would be 
fractionally divided between the highest and second quartiles shall be 
considered to be part of the highest quartile.
    (C) The proportion of low and moderate income persons in the last 
census block group in the highest quartile shall be identified. Any 
service area located within the recipient's jurisdiction and having a 
proportion of low and moderate income persons at or above this level 
shall be considered to be within the highest quartile.
    (D) If block group data are not available for the entire 
jurisdiction, other data acceptable to the Secretary may be used in the 
above calculations.
    (iii) An activity to develop, establish, and operate for up to two 
years after the establishment of, a uniform emergency telephone number 
system serving an area having less than the percentage of low- and 
moderate-income residents required under paragraph (a)(1)(i) of this 
section or (as applicable) paragraph (a)(1)(ii) of this section, 
provided the recipient obtains prior HUD approval. To obtain such 
approval, the recipient must:
    (A) Demonstrate that the system will contribute significantly to the 
safety of the residents of the area. The request for approval must 
include a list of the emergency services that will participate in the 
emergency telephone number system;
    (B) Submit information that serves as a basis for HUD to determine 
whether at least 51 percent of the use of the system will be by low- and 
moderate-income persons. As available, the recipient must provide 
information that identifies the total number of calls actually received 
over the preceding 12-

[[Page 53]]

month period for each of the emergency services to be covered by the 
emergency telephone number system and relates those calls to the 
geographic segment (expressed as nearly as possible in terms of census 
tracts, block numbering areas, block groups, or combinations thereof 
that are contained within the segment) of the service area from which 
the calls were generated. In analyzing this data to meet the 
requirements of this section, HUD will assume that the distribution of 
income among the callers generally reflects the income characteristics 
of the general population residing in the same geographic area where the 
callers reside. If HUD can conclude that the users have primarily 
consisted of low- and moderate-income persons, no further submission is 
needed by the recipient. If a recipient plans to make other submissions 
for this purpose, it may request that HUD review its planned methodology 
before expending the effort to acquire the information it expects to use 
to make its case;
    (C) Demonstrate that other Federal funds received by the recipient 
are insufficient or unavailable for a uniform emergency telephone number 
system. For this purpose, the recipient must submit a statement 
explaining whether the lack of funds is due to the insufficiency of the 
amount of the available funds, restrictions on the use of such funds, or 
the prior commitment of funds by the recipient for other purposes; and
    (D) Demonstrate that the percentage of the total costs of the system 
paid for by CDBG funds does not exceed the percentage of low- and 
moderate-income persons in the service area of the system. For this 
purpose, the recipient must include a description of the boundaries of 
the service area of the emergency telephone number system, the census 
divisions that fall within the boundaries of the service area (census 
tracts or block numbering areas), the total number of persons and the 
total number of low- and moderate-income persons within each census 
division, the percentage of low- and moderate-income persons within the 
service area, and the total cost of the system.
    (iv) An activity for which the assistance to a public improvement 
that provides benefits to all the residents of an area is limited to 
paying special assessments (as defined in Sec. 570.200(c)) levied 
against residential properties owned and occupied by persons of low and 
moderate income.
    (v) For purposes of determining qualification under this criterion, 
activities of the same type that serve different areas will be 
considered separately on the basis of their individual service area.
    (vi) In determining whether there is a sufficiently large percentage 
of low- and moderate-income persons residing in the area served by an 
activity to qualify under paragraph (a)(1) (i), (ii), or (vii) of this 
section, the most recently available decennial census information must 
be used to the fullest extent feasible, together with the section 8 
income limits that would have applied at the time the income information 
was collected by the Census Bureau. Recipients that believe that the 
census data does not reflect current relative income levels in an area, 
or where census boundaries do not coincide sufficiently well with the 
service area of an activity, may conduct (or have conducted) a current 
survey of the residents of the area to determine the percent of such 
persons that are low and moderate income. HUD will accept information 
obtained through such surveys, to be used in lieu of the decennial 
census data, where it determines that the survey was conducted in such a 
manner that the results meet standards of statistical reliability that 
are comparable to that of the decennial census data for areas of similar 
size. Where there is substantial evidence that provides a clear basis to 
believe that the use of the decennial census data would substantially 
overstate the proportion of persons residing there that are low and 
moderate income, HUD may require that the recipient rebut such evidence 
in order to demonstrate compliance with section 105(c)(2) of the Act.
    (vii) Activities meeting the requirements of paragraph (d)(5)(i) of 
this section may be considered to qualify under this paragraph, provided 
that the area covered by the strategy is either a

[[Page 54]]

Federally-designated Empowerment Zone or Enterprise Community or 
primarily residential and contains a percentage of low- and moderate-
income residents that is no less than the percentage computed by HUD 
pursuant to paragraph (a)(1)(ii) of this section or 70 percent, 
whichever is less, but in no event less than 51 percent. Activities 
meeting the requirements of paragraph (d)(6)(i) of this section may also 
be considered to qualify under paragraph (a)(1) of this section.
    (2) Limited clientele activities. (i) An activity which benefits a 
limited clientele, at least 51 percent of whom are low- or moderate-
income persons. (The following kinds of activities may not qualify under 
paragraph (a)(2) of this section: activities, the benefits of which are 
available to all the residents of an area; activities involving the 
acquisition, construction or rehabilitation of property for housing; or 
activities where the benefit to low- and moderate-income persons to be 
considered is the creation or retention of jobs, except as provided in 
paragraph (a)(2)(iv) of this section.) To qualify under paragraph (a)(2) 
of this section, the activity must meet one of the following tests:
    (A) Benefit a clientele who are generally presumed to be principally 
low and moderate income persons. Activities that exclusively serve a 
group of persons in any one or a combination of the following categories 
may be presumed to benefit persons, 51 percent of whom are low- and 
moderate-income: abused children, battered spouses, elderly persons, 
adults meeting the Bureau of the Census' Current Population Reports 
definition of ``severely disabled,'' homeless persons, illiterate 
adults, persons living with AIDS, and migrant farm workers; or
    (B) Require information on family size and income so that it is 
evident that at least 51 percent of the clientele are persons whose 
family income does not exceed the low and moderate income limit; or
    (C) Have income eligibility requirements which limit the activity 
exclusively to low and moderate income persons; or
    (D) Be of such nature and be in such location that it may be 
concluded that the activity's clientele will primarily be low and 
moderate income persons.
    (ii) An activity that serves to remove material or architectural 
barriers to the mobility or accessibility of elderly persons or of 
adults meeting the Bureau of the Census' Current Population Reports 
definition of ``severely disabled'' will be presumed to qualify under 
this criterion if it is restricted, to the extent practicable, to the 
removal of such barriers by assisting:
    (A) The reconstruction of a public facility or improvement, or 
portion thereof, that does not qualify under paragraph (a)(1) of this 
section;
    (B) The rehabilitation of a privately owned nonresidential building 
or improvement that does not qualify under paragraph (a)(1) or (4) of 
this section; or
    (C) The rehabilitation of the common areas of a residential 
structure that contains more than one dwelling unit and that does not 
qualify under paragraph (a)(3) of this section.
    (iii) A microenterprise assistance activity carried out in 
accordance with the provisions of Sec. 570.201(o) with respect to those 
owners of microenterprises and persons developing microenterprises 
assisted under the activity during each program year who are low- and 
moderate-income persons. For purposes of this paragraph, persons 
determined to be low and moderate income may be presumed to continue to 
qualify as such for up to a three-year period.
    (iv) An activity designed to provide job training and placement and/
or other employment support services, including, but not limited to, 
peer support programs, counseling, child care, transportation, and other 
similar services, in which the percentage of low- and moderate-income 
persons assisted is less than 51 percent may qualify under this 
paragraph in the following limited circumstance:
    (A) In such cases where such training or provision of supportive 
services assists business(es), the only use of CDBG assistance for the 
project is to provide the job training and/or supportive services; and
    (B) The proportion of the total cost of the project borne by CDBG 
funds is no greater than the proportion of the

[[Page 55]]

total number of persons assisted who are low or moderate income.
    (3) Housing activities. An eligible activity carried out for the 
purpose of providing or improving permanent residential structures 
which, upon completion, will be occupied by low- and moderate-income 
households. This would include, but not necessarily be limited to, the 
acquisition or rehabilitation of property by the recipient, a 
subrecipient, a developer, an individual homebuyer, or an individual 
homeowner; conversion of nonresidential structures; and new housing 
construction. If the structure contains two dwelling units, at least one 
must be so occupied, and if the structure contains more than two 
dwelling units, at least 51 percent of the units must be so occupied. 
Where two or more rental buildings being assisted are or will be located 
on the same or contiguous properties, and the buildings will be under 
common ownership and management, the grouped buildings may be considered 
for this purpose as a single structure. Where housing activities being 
assisted meet the requirements of paragraph Sec. 570.208 (d)(5)(ii) or 
(d)(6)(ii) of this section, all such housing may also be considered for 
this purpose as a single structure. For rental housing, occupancy by low 
and moderate income households must be at affordable rents to qualify 
under this criterion. The recipient shall adopt and make public its 
standards for determining ``affordable rents'' for this purpose. The 
following shall also qualify under this criterion:
    (i) When less than 51 percent of the units in a structure will be 
occupied by low and moderate income households, CDBG assistance may be 
provided in the following limited circumstances:
    (A) The assistance is for an eligible activity to reduce the 
development cost of the new construction of a multifamily, non-elderly 
rental housing project;
    (B) Not less than 20 percent of the units will be occupied by low 
and moderate income households at affordable rents; and
    (C) The proportion of the total cost of developing the project to be 
borne by CDBG funds is no greater than the proportion of units in the 
project that will be occupied by low and moderate income households.
    (ii) When CDBG funds are used to assist rehabilitation eligible 
under Sec. 570.202(b)(9) or (10) in direct support of the recipient's 
Rental Rehabilitation program authorized under 24 CFR part 511, such 
funds shall be considered to benefit low and moderate income persons 
where not less than 51 percent of the units assisted, or to be assisted, 
by the recipient's Rental Rehabilitation program overall are for low and 
moderate income persons.
    (iii) When CDBG funds are used for housing services eligible under 
Sec. 570.201(k), such funds shall be considered to benefit low- and 
moderate-income persons if the housing units for which the services are 
provided are HOME-assisted and the requirements at 24 CFR 92.252 or 
92.254 are met.
    (4) Job creation or retention activities. An activity designed to 
create or retain permanent jobs where at least 51 percent of the jobs, 
computed on a full time equivalent basis, involve the employment of low- 
and moderate-income persons. To qualify under this paragraph, the 
activity must meet the following criteria:
    (i) For an activity that creates jobs, the recipient must document 
that at least 51 percent of the jobs will be held by, or will be 
available to, low- and moderate-income persons.
    (ii) For an activity that retains jobs, the recipient must document 
that the jobs would actually be lost without the CDBG assistance and 
that either or both of the following conditions apply with respect to at 
least 51 percent of the jobs at the time the CDBG assistance is 
provided:
    (A) The job is known to be held by a low- or moderate-income person; 
or
    (B) The job can reasonably be expected to turn over within the 
following two years and that steps will be taken to ensure that it will 
be filled by, or made available to, a low- or moderate-income person 
upon turnover.
    (iii) Jobs that are not held or filled by a low- or moderate-income 
person may be considered to be available to low- and moderate-income 
persons for these purposes only if:

[[Page 56]]

    (A) Special skills that can only be acquired with substantial 
training or work experience or education beyond high school are not a 
prerequisite to fill such jobs, or the business agrees to hire 
unqualified persons and provide training; and
    (B) The recipient and the assisted business take actions to ensure 
that low- and moderate-income persons receive first consideration for 
filling such jobs.
    (iv) For purposes of determining whether a job is held by or made 
available to a low- or moderate-income person, the person may be 
presumed to be a low- or moderate-income person if:
    (A) He/she resides within a census tract (or block numbering area) 
that either:
    (1) Meets the requirements of paragraph (a)(4)(v) of this section; 
or
    (2) Has at least 70 percent of its residents who are low- and 
moderate-income persons; or
    (B) The assisted business is located within a census tract (or block 
numbering area) that meets the requirements of paragraph (a)(4)(v) of 
this section and the job under consideration is to be located within 
that census tract.
    (v) A census tract (or block numbering area) qualifies for the 
presumptions permitted under paragraphs (a)(4)(iv)(A)(1) and (B) of this 
section if it is either part of a Federally-designated Empowerment Zone 
or Enterprise Community or meets the following criteria:
    (A) It has a poverty rate of at least 20 percent as determined by 
the most recently available decennial census information;
    (B) It does not include any portion of a central business district, 
as this term is used in the most recent Census of Retail Trade, unless 
the tract has a poverty rate of at least 30 percent as determined by the 
most recently available decennial census information; and
    (C) It evidences pervasive poverty and general distress by meeting 
at least one of the following standards:
    (1) All block groups in the census tract have poverty rates of at 
least 20 percent;
    (2) The specific activity being undertaken is located in a block 
group that has a poverty rate of at least 20 percent; or
    (3) Upon the written request of the recipient, HUD determines that 
the census tract exhibits other objectively determinable signs of 
general distress such as high incidence of crime, narcotics use, 
homelessness, abandoned housing, and deteriorated infrastructure or 
substantial population decline.
    (vi) As a general rule, each assisted business shall be considered 
to be a separate activity for purposes of determining whether the 
activity qualifies under this paragraph, except:
    (A) In certain cases such as where CDBG funds are used to acquire, 
develop or improve a real property (e.g., a business incubator or an 
industrial park) the requirement may be met by measuring jobs in the 
aggregate for all the businesses which locate on the property, provided 
such businesses are not otherwise assisted by CDBG funds.
    (B) Where CDBG funds are used to pay for the staff and overhead 
costs of an entity making loans to businesses exclusively from non-CDBG 
funds, this requirement may be met by aggregating the jobs created by 
all of the businesses receiving loans during each program year.
    (C) Where CDBG funds are used by a recipient or subrecipient to 
provide technical assistance to businesses, this requirement may be met 
by aggregating the jobs created or retained by all of the businesses 
receiving technical assistance during each program year.
    (D) Where CDBG funds are used for activities meeting the criteria 
listed at Sec. 570.209(b)(2)(v), this requirement may be met by 
aggregating the jobs created or retained by all businesses for which 
CDBG assistance is obligated for such activities during the program 
year, except as provided at paragraph (d)(7) of this section.
    (E) Where CDBG funds are used by a Community Development Financial 
Institution to carry out activities for the purpose of creating or 
retaining jobs, this requirement may be met by aggregating the jobs 
created or retained by all businesses for which CDBG assistance is 
obligated for such activities

[[Page 57]]

during the program year, except as provided at paragraph (d)(7) of this 
section.
    (F) Where CDBG funds are used for public facilities or improvements 
which will result in the creation or retention of jobs by more than one 
business, this requirement may be met by aggregating the jobs created or 
retained by all such businesses as a result of the public facility or 
improvement.
    (1) Where the public facility or improvement is undertaken 
principally for the benefit of one or more particular businesses, but 
where other businesses might also benefit from the assisted activity, 
the requirement may be met by aggregating only the jobs created or 
retained by those businesses for which the facility/improvement is 
principally undertaken, provided that the cost (in CDBG funds) for the 
facility/improvement is less than $10,000 per permanent full-time 
equivalent job to be created or retained by those businesses.
    (2) In any case where the cost per job to be created or retained (as 
determined under paragraph (a)(4)(vi)(F)(1) of this section) is $10,000 
or more, the requirement must be met by aggregating the jobs created or 
retained as a result of the public facility or improvement by all 
businesses in the service area of the facility/improvement. This 
aggregation must include businesses which, as a result of the public 
facility/improvement, locate or expand in the service area of the 
facility/improvement between the date the recipient identifies the 
activity in its action plan under part 91 of this title and the date one 
year after the physical completion of the facility/improvement. In 
addition, the assisted activity must comply with the public benefit 
standards at Sec. 570.209(b).
    (b) Activities which aid in the prevention or elimination of slums 
or blight. Activities meeting one or more of the following criteria, in 
the absence of substantial evidence to the contrary, will be considered 
to aid in the prevention or elimination of slums or blight:
    (1) Activities to address slums or blight on an area basis. An 
activity will be considered to address prevention or elimination of 
slums or blight in an area if:
    (i) The area, delineated by the recipient, meets a definition of a 
slum, blighted, deteriorated or deteriorating area under State or local 
law;
    (ii) Throughout the area there is a substantial number of 
deteriorated or deteriorating buildings or the public improvements are 
in a general state of deterioration;
    (iii) Documentation is maintained by the recipient on the boundaries 
of the area and the condition which qualified the area at the time of 
its designation; and
    (iv) The assisted activity addresses one or more of the conditions 
which contributed to the deterioration of the area. Rehabilitation of 
residential buildings carried out in an area meeting the above 
requirements will be considered to address the area's deterioration only 
where each such building rehabilitated is considered substandard under 
local definition before rehabilitation, and all deficiencies making a 
building substandard have been eliminated if less critical work on the 
building is undertaken. At a minimum, the local definition for this 
purpose must be such that buildings that it would render substandard 
would also fail to meet the housing quality standards for the Section 8 
Housing Assistance Payments Program-Existing Housing (24 CFR 882.109).
    (2) Activities to address slums or blight on a spot basis. 
Acquisition, clearance, relocation, historic preservation and building 
rehabilitation activities which eliminate specific conditions of blight 
or physical decay on a spot basis not located in a slum or blighted area 
will meet this objective. Under this criterion, rehabilitation is 
limited to the extent necessary to eliminate specific conditions 
detrimental to public health and safety.
    (3) Activities to address slums or blight in an urban renewal area. 
An activity will be considered to address prevention or elimination of 
slums or blight in an urban renewal area if the activity is:
    (i) Located within an urban renewal project area or Neighborhood 
Development Program (NDP) action area; i.e., an area in which funded 
activities were

[[Page 58]]

authorized under an urban renewal Loan and Grant Agreement or an annual 
NDP Funding Agreement, pursuant to title I of the Housing Act of 1949; 
and
    (ii) Necessary to complete the urban renewal plan, as then in 
effect, including initial land redevelopment permitted by the plan.
    Note: Despite the restrictions in (b) (1) and (2) of this section, 
any rehabilitation activity which benefits low and moderate income 
persons pursuant to paragraph (a)(3) of this section can be undertaken 
without regard to the area in which it is located or the extent or 
nature of rehabilitation assisted.
    (c) Activities designed to meet community development needs having a 
particular urgency. In the absence of substantial evidence to the 
contrary, an activity will be considered to address this objective if 
the recipient certifies that the activity is designed to alleviate 
existing conditions which pose a serious and immediate threat to the 
health or welfare of the community which are of recent origin or which 
recently became urgent, that the recipient is unable to finance the 
activity on its own, and that other sources of funding are not 
available. A condition will generally be considered to be of recent 
origin if it developed or became critical within 18 months preceding the 
certification by the recipient.
    (d) Additional criteria. (1) Where the assisted activity is 
acquisition of real property, a preliminary determination of whether the 
activity addresses a national objective may be based on the planned use 
of the property after acquisition. A final determination shall be based 
on the actual use of the property, excluding any short-term, temporary 
use. Where the acquisition is for the purpose of clearance which will 
eliminate specific conditions of blight or physical decay, the clearance 
activity shall be considered the actual use of the property. However, 
any subsequent use or disposition of the cleared property shall be 
treated as a ``change of use'' under Sec. 570.505.
    (2) Where the assisted activity is relocation assistance that the 
recipient is required to provide, such relocation assistance shall be 
considered to address the same national objective as is addressed by the 
displacing activity. Where the relocation assistance is voluntary on the 
part of the grantee the recipient may qualify the assistance either on 
the basis of the national objective addressed by the displacing activity 
or on the basis that the recipients of the relocation assistance are low 
and moderate income persons.
    (3) In any case where the activity undertaken for the purpose of 
creating or retaining jobs is a public improvement and the area served 
is primarily residential, the activity must meet the requirements of 
paragraph (a)(1) of this section as well as those of paragraph (a)(4) of 
this section in order to qualify as benefiting low and moderate income 
persons.
    (4) CDBG funds expended for planning and administrative costs under 
Sec. 570.205 and Sec. 570.206 will be considered to address the national 
objectives.
    (5) Where the grantee has elected to prepare an area revitalization 
strategy pursuant to the authority of Sec. 91.215(e) of this title and 
HUD has approved the strategy, the grantee may also elect the following 
options:
    (i) Activities undertaken pursuant to the strategy for the purpose 
of creating or retaining jobs may, at the option of the grantee, be 
considered to meet the requirements of this paragraph under the criteria 
at paragraph (a)(1)(vii) of this section in lieu of the criteria at 
paragraph (a)(4) of this section; and
    (ii) All housing activities in the area for which, pursuant to the 
strategy, CDBG assistance is obligated during the program year may be 
considered to be a single structure for purposes of applying the 
criteria at paragraph (a)(3) of this section.
    (6) Where CDBG-assisted activities are carried out by a Community 
Development Financial Institution whose charter limits its investment 
area to a primarily residential area consisting of at least 51 percent 
low- and moderate-income persons, the grantee may also elect the 
following options:
    (i) Activities carried out by the Community Development Financial 
Institution for the purpose of creating or retaining jobs may, at the 
option of the grantee, be considered to meet the requirements of this 
paragraph under the criteria at paragraph (a)(1)(vii) of this section in 
lieu of the criteria at paragraph (a)(4) of this section; and

[[Page 59]]

    (ii) All housing activities for which the Community Development 
Financial Institution obligates CDBG assistance during the program year 
may be considered to be a single structure for purposes of applying the 
criteria at paragraph (a)(3) of this section.
    (7) Where an activity meeting the criteria at Sec. 570.209(b)(2)(v) 
may also meet the requirements of either paragraph (d)(5)(i) or 
(d)(6)(i) of this section, the grantee may elect to qualify the activity 
under either the area benefit criteria at paragraph (a)(1)(vii) of this 
section or the job aggregation criteria at paragraph (a)(4)(vi)(D) of 
this section, but not both. Where an activity may meet the job 
aggregation criteria at both paragraphs (a)(4)(vi)(D) and (E) of this 
section, the grantee may elect to qualify the activity under either 
criterion, but not both.

[53 FR 34439, Sept. 6, 1988; 53 FR 41330, Oct. 21, 1988, as amended at 
60 FR 1945, Jan. 5, 1995; 60 FR 17445, Apr. 6, 1995; 60 FR 56912, Nov. 
9, 1995; 61 FR 18674, Apr. 29, 1996]



Sec. 570.209  Guidelines for evaluating and selecting economic development projects.

    The following guidelines are provided to assist the recipient to 
evaluate and select activities to be carried out for economic 
development purposes. Specifically, these guidelines are applicable to 
activities that are eligible for CDBG assistance under Sec. 570.203. 
These guidelines also apply to activities carried out under the 
authority of Sec. 570.204 that would otherwise be eligible under 
Sec. 570.203, were it not for the involvement of a Community-Based 
Development Organization (CBDO). (This would include activities where a 
CBDO makes loans to for-profit businesses.) These guidelines are 
composed of two components: guidelines for evaluating project costs and 
financial requirements; and standards for evaluating public benefit. The 
standards for evaluating public benefit are mandatory, but the 
guidelines for evaluating projects costs and financial requirements are 
not.
    (a) Guidelines and objectives for evaluating project costs and 
financial requirements. HUD has developed guidelines that are designed 
to provide the recipient with a framework for financially underwriting 
and selecting CDBG-assisted economic development projects which are 
financially viable and will make the most effective use of the CDBG 
funds. These guidelines, also referred to as the underwriting 
guidelines, are published as appendix A to this part. The use of the 
underwriting guidelines published by HUD is not mandatory. However, 
grantees electing not to use these guidelines would be expected to 
conduct basic financial underwriting prior to the provision of CDBG 
financial assistance to a for-profit business. Where appropriate, HUD's 
underwriting guidelines recognize that different levels of review are 
appropriate to take into account differences in the size and scope of a 
proposed project, and in the case of a microenterprise or other small 
business to take into account the differences in the capacity and level 
of sophistication among businesses of differing sizes. Recipients are 
encouraged, when they develop their own programs and underwriting 
criteria, to also take these factors into account. The objectives of the 
underwriting guidelines are to ensure:
    (1) That project costs are reasonable;
    (2) That all sources of project financing are committed;
    (3) That to the extent practicable, CDBG funds are not substituted 
for non-Federal financial support;
    (4) That the project is financially feasible;
    (5) That to the extent practicable, the return on the owner's equity 
investment will not be unreasonably high; and
    (6) That to the extent practicable, CDBG funds are disbursed on a 
pro rata basis with other finances provided to the project.
    (b) Standards for evaluating public benefit. The grantee is 
responsible for making sure that at least a minimum level of public 
benefit is obtained from the expenditure of CDBG funds under the 
categories of eligibility governed by these guidelines. The standards 
set forth below identify the types of public benefit that will be 
recognized for this purpose and the minimum level of each that must be 
obtained for the amount

[[Page 60]]

of CDBG funds used. Unlike the guidelines for project costs and 
financial requirements covered under paragraph (a) of this section, the 
use of the standards for public benefit is mandatory. Certain public 
facilities and improvements eligible under Sec. 570.201(c) of the 
regulations, which are undertaken for economic development purposes, are 
also subject to these standards, as specified in 
Sec. 570.208(a)(4)(vi)(F)(2).
    (1) Standards for activities in the aggregate. Activities covered by 
these guidelines must, in the aggregate, either:
    (i) Create or retain at least one full-time equivalent, permanent 
job per $35,000 of CDBG funds used; or
    (ii) Provide goods or services to residents of an area, such that 
the number of low- and moderate-income persons residing in the areas 
served by the assisted businesses amounts to at least one low- and 
moderate-income person per $350 of CDBG funds used.
    (2) Applying the aggregate standards. (i) A metropolitan city or an 
urban county shall apply the aggregate standards under paragraph (b)(1) 
of this section to all applicable activities for which CDBG funds are 
first obligated within each single CDBG program year, without regard to 
the source year of the funds used for the activities. A grantee under 
the HUD-Administered Small Cities or Insular Areas CDBG programs shall 
apply the aggregate standards under paragraph (b)(1) of this section to 
all funds obligated for applicable activities from a given grant; 
program income obligated for applicable activities will, for these 
purposes, be aggregated with the most recent open grant. For any time 
period in which a community has no open HUD-Administered or Insular 
Areas grants, the aggregate standards shall be applied to all applicable 
activities for which program income is obligated during that period.
    (ii) The grantee shall apply the aggregate standards to the number 
of jobs to be created/retained, or to the number of persons residing in 
the area served (as applicable), as determined at the time funds are 
obligated to activities.
    (iii) Where an activity is expected both to create or retain jobs 
and to provide goods or services to residents of an area, the grantee 
may elect to count the activity under either the jobs standard or the 
area residents standard, but not both.
    (iv) Where CDBG assistance for an activity is limited to job 
training and placement and/or other employment support services, the 
jobs assisted with CDBG funds shall be considered to be created or 
retained jobs for the purposes of applying the aggregate standards.
    (v) Any activity subject to these guidelines which meets one or more 
of the following criteria may, at the grantee's option, be excluded from 
the aggregate standards described in paragraph (b)(1) of this section:
    (A) Provides jobs exclusively for unemployed persons or participants 
in one or more of the following programs:
    (1) Jobs Training Partnership Act (JTPA);
    (2) Jobs Opportunities for Basic Skills (JOBS); or
    (3) Aid to Families with Dependent Children (AFDC);
    (B) Provides jobs predominantly for residents of Public and Indian 
Housing units;
    (C) Provides jobs predominantly for homeless persons;
    (D) Provides jobs predominantly for low-skilled, low- and moderate-
income persons, where the business agrees to provide clear opportunities 
for promotion and economic advancement, such as through the provision of 
training;
    (E) Provides jobs predominantly for persons residing within a census 
tract (or block numbering area) that has at least 20 percent of its 
residents who are in poverty;
    (F) Provides assistance to business(es) that operate(s) within a 
census tract (or block numbering area) that has at least 20 percent of 
its residents who are in poverty;
    (G) Stabilizes or revitalizes a neighborhood that has at least 70 
percent of its residents who are low- and moderate-income;
    (H) Provides assistance to a Community Development Financial 
Institution that serve an area that is predominantly low- and moderate-
income persons;

[[Page 61]]

    (I) Provides assistance to a Community-Based Development 
Organization serving a neighborhood that has at least 70 percent of its 
residents who are low- and moderate-income;
    (J) Provides employment opportunities that are an integral component 
of a project designed to promote spatial deconcentration of low- and 
moderate-income and minority persons;
    (K) With prior HUD approval, provides substantial benefit to low-
income persons through other innovative approaches;
    (L) Provides services to the residents of an area pursuant to a 
strategy approved by HUD under the provisions of Sec. 91.215(e) of this 
title;
    (M) Creates or retains jobs through businesses assisted in an area 
pursuant to a strategy approved by HUD under the provisions of 
Sec. 91.215(e) of this title.
    (3) Standards for individual activities. Any activity subject to 
these guidelines which falls into one or more of the following 
categories will be considered by HUD to provide insufficient public 
benefit, and therefore may under no circumstances be assisted with CDBG 
funds:
    (i) The amount of CDBG assistance exceeds either of the following, 
as applicable:
    (A) $50,000 per full-time equivalent, permanent job created or 
retained; or
    (B) $1,000 per low- and moderate-income person to which goods or 
services are provided by the activity.
    (ii) The activity consists of or includes any of the following:
    (A) General promotion of the community as a whole (as opposed to the 
promotion of specific areas and programs);
    (B) Assistance to professional sports teams;
    (C) Assistance to privately-owned recreational facilities that serve 
a predominantly higher-income clientele, where the recreational benefit 
to users or members clearly outweighs employment or other benefits to 
low- and moderate-income persons;
    (D) Acquisition of land for which the specific proposed use has not 
yet been identified; and
    (E) Assistance to a for-profit business while that business or any 
other business owned by the same person(s) or entity(ies) is the subject 
of unresolved findings of noncompliance relating to previous CDBG 
assistance provided by the recipient.
    (4) Applying the individual activity standards. (i) Where an 
activity is expected both to create or retain jobs and to provide goods 
or services to residents of an area, it will be disqualified only if the 
amount of CDBG assistance exceeds both of the amounts in paragraph 
(b)(3)(i) of this section.
    (ii) The individual activity standards in paragraph (b)(3)(i) of 
this section shall be applied to the number of jobs to be created or 
retained, or to the number of persons residing in the area served (as 
applicable), as determined at the time funds are obligated to 
activities.
    (iii) Where CDBG assistance for an activity is limited to job 
training and placement and/or other employment support services, the 
jobs assisted with CDBG funds shall be considered to be created or 
retained jobs for the purposes of applying the individual activity 
standards in paragraph (b)(3)(i) of this section.
    (c) Amendments to economic development projects after review 
determinations. If, after the grantee enters into a contract to provide 
assistance to a project, the scope or financial elements of the project 
change to the extent that a significant contract amendment is 
appropriate, the project should be reevaluated under these and the 
recipient's guidelines. (This would include, for example, situations 
where the business requests a change in the amount or terms of 
assistance being provided, or an extension to the loan payment period 
required in the contract.) If a reevaluation of the project indicates 
that the financial elements and public benefit to be derived have also 
substantially changed, then the recipient should make appropriate 
adjustments in the amount, type, terms or conditions of CDBG assistance 
which has been offered, to reflect the impact of the substantial change. 
(For example, if a change in the project elements results in a 
substantial reduction of the total project costs, it may be appropriate 
for the recipient to reduce the amount of total CDBG assistance.) If the 
amount of CDBG assistance provided to the project is increased, the

[[Page 62]]

amended project must still comply with the public benefit standards 
under paragraph (b) of this section.
    (d) Documentation. The grantee must maintain sufficient records to 
demonstrate the level of public benefit, based on the above standards, 
that is actually achieved upon completion of the CDBG-assisted economic 
development activity(ies) and how that compares to the level of such 
benefit anticipated when the CDBG assistance was obligated. If the 
grantee's actual results show a pattern of substantial variation from 
anticipated results, the grantee is expected to take all actions 
reasonably within its control to improve the accuracy of its 
projections. If the actual results demonstrate that the recipient has 
failed the public benefit standards, HUD may require the recipient to 
meet more stringent standards in future years as appropriate.

[60 FR 1947, Jan. 5, 1995, as amended at 60 FR 17445, Apr. 6, 1995]



                      Subpart D--Entitlement Grants

    Source: 53 FR 34449, Sept. 6, 1988, unless otherwise noted.



Sec. 570.300  General.

    This subpart describes the policies and procedures governing the 
making of community development block grants to entitlement communities. 
The policies and procedures set forth in subparts A, C, J, K, and O of 
this part also apply to entitlement grantees.



Sec. 570.301  Activity locations and float-funding.

    The consolidated plan, action plan, and amendment submission 
requirements referred to in this section are those in 24 CFR part 91.
    (a) For activities for which the grantee has not yet decided on a 
specific location, such as when the grantee is allocating an amount of 
funds to be used for making loans or grants to businesses or for 
residential rehabilitation, the description in the action plan or any 
amendment shall identify who may apply for the assistance, the process 
by which the grantee expects to select who will receive the assistance 
(including selection criteria), and how much and under what terms the 
assistance will be provided, or in the case of a planned public facility 
or improvement, how it expects to determine its location.
    (b) Float-funded activities and guarantees. A recipient may use 
undisbursed funds in the line of credit and its CDBG program account 
that are budgeted in statements or action plans for one or more other 
activities that do not need the funds immediately, subject to the 
limitations described below. Such funds shall be referred to as the 
``float'' for purposes of this section and the action plan. Each 
activity carried out using the float must meet all of the same 
requirements that apply to CDBG-assisted activities generally, and must 
be expected to produce program income in an amount at least equal to the 
amount of the float so used. Whenever the recipient proposes to fund an 
activity with the float, it must include the activity in its action plan 
or amend the action plan for the current program year. For purposes of 
this section, an activity that uses such funds will be called a ``float-
funded activity.''
    (1) Each float-funded activity must be individually listed and 
described as such in the action plan.
    (2)(i) The expected time period between obligation of assistance for 
a float-funded activity and receipt of program income in an amount at 
least equal to the full amount drawn from the float to fund the activity 
may not exceed 2.5 years. An activity from which program income 
sufficient to recover the full amount of the float assistance is 
expected to be generated more than 2.5 years after obligation may not be 
funded from the float, but may be included in an action plan if it is 
funded from CDBG funds other than the float (e.g., grant funds or 
proceeds from an approved Section 108 loan guarantee).
    (ii) Any extension of the repayment period for a float-funded 
activity shall be considered to be a new float-funded activity for these 
purposes and may be implemented by the grantee only if the extension is 
made subject to the same limitations and requirements as apply to a new 
float-funded activity.

[[Page 63]]

    (3) Unlike other projected program income, the full amount of income 
expected to be generated by a float-funded activity must be shown as a 
source of program income in the action plan containing the activity, 
whether or not some or all of the income is expected to be received in a 
future program year (in accordance with 24 CFR 91.220(g)(1)(ii)(D)).
    (4) The recipient must also clearly declare in the action plan that 
identifies the float-funded activity the recipient's commitment to 
undertake one of the following options:
    (i) Amend or delete activities in an amount equal to any default or 
failure to produce sufficient income in a timely manner. If the 
recipient makes this choice, it must include a description of the 
process it will use to select the activities to be amended or deleted 
and how it will involve citizens in that process; and it must amend the 
applicable statement(s) or action plan(s) showing those amendments or 
deletions promptly upon determining that the float-funded activity will 
not generate sufficient or timely program income;
    (ii) Obtain an irrevocable line of credit from a commercial lender 
for the full amount of the float-funded activity and describe the lender 
and terms of such line of credit in the action plan that identifies the 
float-funded activity. To qualify for this purpose, such line of credit 
must be unconditionally available to the recipient in the amount of any 
shortfall within 30 days of the date that the float-funded activity 
fails to generate the projected amount of program income on schedule;
    (iii) Transfer general local government funds in the full amount of 
any default or shortfall to the CDBG line of credit within 30 days of 
the float-funded activity's failure to generate the projected amount of 
the program income on schedule; or
    (iv) A method approved in writing by HUD for securing timely return 
of the amount of the float funding. Such method must ensure that funds 
are available to meet any default or shortfall within 30 days of the 
float-funded activity's failure to generate the projected amount of the 
program income on schedule.
    (5) When preparing an action plan for a year in which program income 
is expected to be received from a float-funded activity, and such 
program income has been shown in a prior statement or action plan, the 
current action plan shall identify the expected income and explain that 
the planned use of the income has already been described in prior 
statements or action plans, and shall identify the statements or action 
plans in which such descriptions may be found.

[60 FR 56913, Nov. 9, 1995]



Sec. 570.302  Submission requirements.

    In order to receive its annual CDBG entitlement grant, a grantee 
must submit a consolidated plan in accordance with 24 CFR part 91. That 
part includes requirements for the content of the consolidated plan, for 
the process of developing the consolidated plan, including citizen 
participation provisions, for the submission date, for HUD approval, and 
for the amendment process.

(Approved by the Office of Management and Budget under control number 
2506-0117)

[60 FR 1915, Jan. 5, 1995]



Sec. 570.303  Certifications.

    The jurisdiction must make the certifications that are set forth in 
24 CFR part 91 as part of the consolidated plan.

(Approved by the Office of Management and Budget under control number 
2506-0117)

[60 FR 1915, Jan. 5, 1995]



Sec. 570.304  Making of grants.

    (a) Approval of grant. HUD will approve a grant if the 
jurisdiction's submissions have been made and approved in accordance 
with 24 CFR part 91, and the certifications required therein are 
satisfactory to the Secretary. The certifications will be satisfactory 
to the Secretary for this purpose unless the Secretary has determined 
pursuant to subpart O of this part that the grantee has not complied 
with the requirements of this part, has failed to carry out its 
consolidated plan as provided under Sec. 570.903, or has determined that 
there is evidence, not directly involving the grantee's past performance

[[Page 64]]

under this program, that tends to challenge in a substantial manner the 
grantee's certification of future performance. If the Secretary makes 
any such determination, however, further assurances may be required to 
be submitted by the grantee as the Secretary may deem warranted or 
necessary to find the grantee's certification satisfactory.
    (b) Grant agreement. The grant will be made by means of a grant 
agreement executed by both HUD and the grantee.
    (c) Grant amount. The Secretary will make a grant in the full 
entitlement amount, generally within the last 30 days of the grantee's 
current program year, unless:
    (1) Either the consolidated plan is not received by August 16 of the 
federal fiscal year for which funds are appropriated or the consolidated 
plan is not approved under 24 CFR part 91, subpart F--in which case, the 
grantee will forfeit the entire entitlement amount; or
    (2) The grantee's performance does not meet the performance 
requirements or criteria prescribed in subpart O and the grant amount is 
reduced.

[53 FR 34449, Sept. 6, 1988, as amended at 60 FR 1915, Jan. 5, 1995; 60 
FR 16379, Mar. 30, 1995; 60 FR 56913, Nov. 9, 1995]



Sec. 570.307  Urban counties.

    (a) Determination of qualification. The Secretary will determine the 
qualifications of counties to receive entitlements as urban counties 
upon receipt of qualification documentation from counties at such time, 
and in such manner and form as prescribed by HUD. The Secretary shall 
determine eligibility and applicable portions of each eligible county 
for purposes of fund allocation under section 106 of the Act on the 
basis of information available from the U.S. Bureau of the Census with 
respect to population and other pertinent demographic characteristics, 
and based on information provided by the county and its included units 
of general local government.
    (b) Qualification as an urban county. (1) A county will qualify as 
an urban county if such county meets the definition at Sec. 570.3(3). As 
necessitated by this definition, the Secretary shall determine which 
counties have authority to carry out essential community development and 
housing assistance activities in their included units of general local 
government without the consent of the local governing body and which 
counties must execute cooperation agreements with such units to include 
them in the urban county for qualification and grant calculation 
purposes.
    (2) At the time of urban county qualification, HUD may refuse to 
recognize the cooperation agreement of a unit of general local 
government in an urban county where, based on past performance and other 
available information, there is substantial evidence that such unit does 
not cooperate in the implementation of the essential community 
development or housing assistance activities or where legal impediments 
to such implementation exist, or where participation by a unit of 
general local government in noncompliance with the applicable law in 
subpart K would constitute noncompliance by the urban county. In such a 
case, the unit of general local government will not be permitted to 
participate in the urban county, and its population or other needs 
characteristics will not be considered in the determination of whether 
the county qualifies as an urban county or in determining the amount of 
funds to which the urban county may be entitled. HUD will not take this 
action unless the unit of general local government and the county have 
been given an opportunity to challenge HUD's determination and to 
informally consult with HUD concerning the proposed action.
    (c) Essential activities. For purposes of this section, the term 
``essential community development and housing assistance activities'' 
means community renewal and lower income housing activities, 
specifically urban renewal and publicly assisted housing. In determining 
whether a county has the required powers, the Secretary will consider 
both its authority and, where applicable, the authority of its 
designated agency or agencies.
    (d) Period of qualification. (1) The qualification by HUD of an 
urban county shall remain effective for three successive Federal fiscal 
years regardless of changes in its population during that period, except 
as provided under

[[Page 65]]

paragraph (f) of this section and except as provided under Sec. 570.3(3) 
where the period of qualification shall be two successive Federal fiscal 
years.
    (2) During the period of qualification, no included unit of general 
local government may withdraw from nor be removed from the urban county 
for HUD's grant computation purposes.
    (3) If some portion of an urban county's unincorporated area becomes 
incorporated during the urban county qualification period, the newly 
incorporated unit of general local government shall not be excluded from 
the urban county nor shall it be eligible for a separate grant under 
subpart D, F, or I until the end of the urban county's current 
qualification period, unless the urban county fails to receive a grant 
for any year during that qualification period.
    (e) Grant ineligibility of included units of general local 
government. (1) An included unit of general local government cannot 
become eligible for an entitlement grant as a metropolitan city during 
the period of qualification of the urban county (even if it becomes a 
central city of a metropolitan area or its population surpasses 50,000 
during that period). Rather, such a unit of general local government 
shall continue to be included as part of the urban county for the 
remainder of the urban county's qualification period, and no separate 
grant amount shall be calculated for the included unit.
    (2) An included unit of general local government which is part of an 
urban county shall be ineligible to apply for grants under subpart F, or 
to be a recipient of assistance under subpart I, during the entire 
period of urban county qualification.
    (f) Failure of an urban county to receive a grant. Failure of an 
urban county to receive a grant during any year shall terminate the 
existing qualification of that urban county, and that county shall 
requalify as an urban county before receiving an entitlement grant in 
any successive Federal fiscal year. Such termination shall release units 
of general local government included in the urban county, in subsequent 
years, from the prohibition to receive grants under paragraphs (d)(3), 
(e)(1) and (e)(2) of this section. For this purpose an urban county 
shall be deemed to have received a grant upon having satisfied the 
requirements of sections 104 (a), (b), (c), and (d) of the Act, without 
regard to adjustments which may be made to this grant amount under 
section 104(e) or 111 of the Act.
    (g) Notifications of the opportunity to be excluded. Any county 
seeking to qualify for an entitlement grant as an urban county for any 
Federal fiscal year shall notify each unit of general local government 
which is located, in whole or in part, within the county and which would 
otherwise be included in the urban county, but which is eligible to 
elect to have its population excluded from that of the urban county, 
that it has the opportunity to make such an election, and that such an 
election, or the failure to make such an election, shall be effective 
for the period for which the county qualifies as an urban county. These 
notifications shall be made by a date specified by HUD. A unit of 
general local government which elects to be excluded from participation 
as a part of the urban county shall notify the county and HUD in writing 
by a date specified by HUD. Such a unit of government may subsequently 
elect to participate in the urban county for the remaining one or two 
year period by notifying HUD and the county, in writing, of such 
election by a date specified by HUD.

[53 FR 34449, Sept. 6, 1988, as amended at 56 FR 56127, Oct. 31, 1991]



Sec. 570.308  Joint requests.

    (a) Joint requests and cooperation agreements. (1) Any urban county 
and any metropolitan city located, in whole or in part, within that 
county may submit a joint request to HUD to approve the inclusion of the 
metropolitan city as a part of the urban county for purposes of planning 
and implementing a joint community development and housing program. Such 
a joint request shall only be considered if submitted at the time the 
county is seeking a three year qualification or requalification as an 
urban county. Such a joint request shall, upon approval by HUD, remain 
effective for the period for which the county is qualified as an urban 
county. An urban county

[[Page 66]]

may be joined by more than one metropolitan city, but a metropolitan 
city located in more than one urban county may only be included in one 
urban county for any program year. A joint request shall be deemed 
approved by HUD unless HUD notifies the city and the county of its 
disapproval and the reasons therefore within 30 days of receipt of the 
request by HUD.
    (2) Each metropolitan city and urban county submitting a joint 
request shall submit an executed cooperation agreement to undertake or 
to assist in the undertaking of essential community development and 
housing assistance activities, as defined in Sec. 570.307(c).
    (b) Joint grant amount. The grant amount for a joint recipient shall 
be the sum of the amounts authorized for the individual entitlement 
grantees, as described in section 106 of the Act. The urban county shall 
be the grant recipient.
    (c) Effect of inclusion. Upon urban county qualification and HUD 
approval of the joint request and cooperation agreement, the 
metropolitan city shall be considered a part of the urban county for 
purposes of program planning and implementation for the period of the 
urban county qualification, and shall be treated the same as any other 
unit of general local government which is part of the urban county.
    (d) Submission requirements. In requesting a grant under this part, 
the urban county shall make a single submission which meets the 
submission requirements of 24 CFR part 91 and covers all members of the 
joint recipient.

[53 FR 34449, Sept. 6, 1988, as amended at 60 FR 1915, Jan. 5, 1995]



Sec. 570.309  Restriction on location of activities.

    CDBG funds may assist an activity outside the jurisdiction of the 
grantee only if the grantee determines that such an activity is 
necessary to further the purposes of the Act and the recipient's 
community development objectives, and that reasonable benefits from the 
activity will accrue to residents within the jurisdiction of the 
grantee. The grantee shall document the basis for such determination 
prior to providing CDBG funds for the activity.

[60 FR 56914, Nov. 9, 1995]



                    Subpart E--Special Purpose Grants



Sec. 570.400  General.

    (a) Applicability. The policies and procedures set forth in subparts 
A, C, J, K, and O of this part shall apply to this subpart, except to 
the extent that they are specifically modified or augmented by the 
contents of this subpart, including specified exemptions described 
herein. The HUD Environmental Review Procedures contained in 24 CFR part 
58 also apply to this subpart, unless otherwise specifically provided 
herein.
    (b) Data. Wherever data are used in this subpart for selecting 
applicants for assistance or for determining grant amounts, the source 
of such data shall be the most recent information available from the 
U.S. Bureau of the Census which is referable to the same point or period 
of time.
    (c) Review of applications for discretionary assistance--(1) Review 
components. An application for assistance under this subpart shall be 
reviewed by HUD to ensure that:
    (i) The application is postmarked or received on or before any final 
date established by HUD;
    (ii) The application is complete;
    (iii) Required certifications have been included in the application; 
and
    (iv) The application meets the specific program requirements listed 
in the Federal Register Notice published in connection with a 
competition for funding, and any other specific requirements listed 
under this subpart for each of the programs.
    (2) Timing and review. HUD is not required by the Act to review and 
approve an application for assistance or a contract proposal within any 
specified time period. However, HUD will attempt to complete its review 
of any application/proposal within 75 days.
    (3) Notification to applicant/proposer. HUD will notify the 
applicant/proposer in writing that the applicant/proposal has been 
approved, partially approved,

[[Page 67]]

or disapproved. If an application/proposal is partially approved or 
disapproved, the applicant/proposer will be informed of the basis for 
HUD's decision. HUD may make conditional approvals under 
Sec. 570.304(d).
    (d) Program amendments. (1) Recipients shall request prior written 
HUD approval for all program amendments involving changes in the scope 
or the location of approved activities.
    (2) Any program amendments, whether or not they require HUD 
approval, must be fully documented in the recipient's records.
    (e) Performance reports. Any performance report required of a 
discretionary assistance recipient shall be submitted in the form 
specified in this subpart, in the award document, or (if the report 
relates to a specific competition for an assistance award) in a form 
specified in a Notice published in the Federal Register.
    (f) Performance reviews and findings. HUD may review the recipient's 
performance in carrying out the activities for which assistance is 
provided in a timely manner and in accordance with its approved 
application, all applicable requirements of this part and the terms of 
the assistance agreement. Findings of performance deficiencies may be 
cause for appropriate corrective and remedial actions under 
Sec. 570.910.
    (g) Funding sanctions. Following notice and opportunity for informal 
consultation, HUD may withhold, reduce or terminate the assistance where 
any corrective or remedial actions taken under Sec. 570.910 fail to 
remedy a recipient's performance deficiencies, and the deficiencies are 
sufficiently substantial, in the judgment of HUD, to warrant sanctions.
    (h) Publication of availability of funds. HUD will publish by Notice 
in the Federal Register each year the amount of funds available for the 
special purpose grants authorized by each section under this subpart.

[50 FR 37525, Sept. 16, 1985, as amended at 56 FR 18968, Apr. 24, 1991]



Sec. 570.401  Community adjustment and economic diversification planning assistance.

    (a) General--(1) Purpose. The purpose of this program is to assist 
units of general local government in nonentitlement areas to undertake 
the planning of community adjustments and economic diversification 
activities, in response to physical, social, economic or governmental 
impacts on the communities generated by the actions of the Department of 
Defense (DoD) defined in paragraph (a)(2) of this section.
    (2) Impacts. Funding under this section is available only to 
communities affected by one or more of the following DoD-related 
impacts:
    (i) The proposed or actual establishment, realignment, or closure of 
a military installation;
    (ii) The cancellation or termination of a DoD contract or the 
failure to proceed with an approved major weapon system program;
    (iii) A publicly announced planned major reduction in DoD spending 
that would directly and adversely affect a unit of general local 
government and result in the loss of 1,000 or more full-time DoD and 
contractor employee positions over a five-year period in the unit of 
general local government and the surrounding area; or
    (iv) The Secretary of HUD (in consultation with the Secretary of 
DoD) determines that an action described in paragraphs (a)(2)(i)-(iii) 
of this section is likely to have a direct and significant adverse 
consequence on the unit of general local government.
    (3) Form of awards. Planning assistance will be awarded in the form 
of grants.
    (4) Program administration. HUD will publish in the Federal Register 
early in each fiscal year the amount of funds to be available for that 
fiscal year for awards under this section. HUD will accept applications 
throughout the fiscal year, and will review and consider for funding 
each application according to the threshold and qualifying factors in 
paragraphs (f) and (g) of this section.

[[Page 68]]

    (b) Definitions. In addition to the definitions in Sec. 570.3 of 
this part, the following definitions apply to this section:
    (1) Adjustment planning. Generally, developing plans and proposals 
in direct response to contraction or expansion of the local economy, or 
changes in the physical development or the social conditions of the 
community, resulting from a DoD-generated impact. Typically, this 
planning includes one or more of the following tasks: Collecting, 
updating, and analyzing data; identifying problems; formulating 
solutions; proposing long- and short-term policies; recommending public- 
and private-sector actions to implement community adjustments and 
economic diversification activities; securing citizen involvement; and 
coordinating with Federal, State, and local entities with respect to the 
DoD-related impacts.
    (2) Community adjustment. Any proposed action to change the 
physical, economic, or social infrastructure within the jurisdiction or 
surrounding area, directly and appropriately in response to the DoD-
generated impact.
    (3) Contract. (i) Any defense contract in an amount not less than $5 
million (without regard to the date on which the contract was awarded); 
and
    (ii) Any subcontract that is entered into in connection with a 
contract (without regard to the effective date of the subcontract) and 
involves not less than $500,000.
    (4) Defense facility. Any private facility producing goods or 
services pursuant to a defense contract.
    (5) DoD. The Department of Defense.
    (6) Economic diversification activities. Any public or private 
sector actions to change the local mix of industrial, commercial, and 
service sectors, or the mix of business ventures within a sector, that 
are intended to mitigate decline in the local economy resulting from 
DoD-generated impacts or, in the case of expansion of a military 
installation or a defense facility, that are intended to respond to new 
economic growth spawned by that expansion.
    (7) Military installation. Any camp, post, station, base, yard, or 
other jurisdiction of a military department that is located within any 
of the several States, the District of Columbia, the Commonwealth of 
Puerto Rico, or Guam.
    (8) Realignment. Any action that both reduces and relocates 
functions and civilian personnel positions, but does not include a 
reduction in force resulting from workload adjustments, reduced 
personnel or funding levels, or skill imbalances.
    (9) Section 107 means section 107 of the Housing and Community 
Development Act of 1974, 42 U.S.C. 5307. Section 107(b)(6) was added by 
section 801 of the Housing and Community Development Act of 1992 (Pub. 
L. 102-550, approved October 28, 1992).
    (10) Section 2391(b). The Department of Defense adjustment planning 
program as set out in 10 U.S.C. 2391(b).
    (11) Small Cities CDBG Program. The Community Development Block 
Grant program for nonentitlement areas in which the States have elected 
not to administer available program funds. The regulations governing 
this program are set out in subpart F of this part.
    (12) Surrounding area. The labor market area as defined by the 
Bureau of Labor Statistics that:
    (i) Includes all or part of the applicant's jurisdictions; and
    (ii) Includes additional areas outside the jurisdiction.
    (c) Eligible applicants. Any unit of general local government, 
excluding units of general government that are entitlement cities or are 
included in an urban county, and which does not include Indian Tribes.
    (d) Eligible activities. Activities eligible for adjustment planning 
assistance include, generally:
    (1) Initial assessments and quick studies of physical, social, 
economic, and fiscal impacts on the community;
    (2) Preliminary identification of potential public and private 
sector actions needed for the community to initiate its response;
    (3) If timely, modification of the applicant's current comprehensive 
plan or any functional plan, such as for housing, including shelter for 
the homeless, or for transportation or other physical infrastructure;
    (4) If timely, modification of the applicant's current economic 
plans and

[[Page 69]]

programs, such as for business development, job training, or industrial 
or commercial development;
    (5) Preparation for and conduct of initial community outreach 
activities to begin involving local citizens and the private sector in 
planning for adjustment and diversification;
    (6) Environmental reviews related to DoD-related impacts;
    (7) Initial identification of and coordination with Federal, State 
and local entities that may be expected to assist in the community's 
adjustment and economic development; and with State-designated 
enterprise zones, and Federal empowerment zones and enterprise 
communities when selected and announced.
    (8) Any other planning activity that may enable the community to 
organize itself, establish a start-up capacity to plan, propose specific 
plans and programs, coordinate with appropriate public or private 
entities, or qualify more quickly for the more substantial planning 
assistance available from DoD.
    (e) Ineligible activities. Activities ineligible for adjustment 
planning assistance are:
    (1) Base re-use planning.
    (2) Site planning, architectural and engineering studies, 
feasibility and cost analyses and similar planning for specific projects 
to implement community adjustment or economic diversification, unless as 
last resort funding for those applicants which are unable to obtain 
planning assistance from other sources.
    (3) Planning by communities which are encroaching on military 
installations.
    (4) Demonstration planning activities intended to evolve new 
planning techniques for impacted communities.
    (5) Any planning activity proposed to supplement or replace planning 
that has been or is being assisted by the DoD Sec. 2391(b) adjustment 
planning program.
    (6) Any other planning activity the purpose of which is not 
demonstrably in direct response to a DOD-related impact triggered by one 
or more of the four criteria specified in paragraph (a)(2) of this 
section.
    (f) Threshold requirements. No application will qualify for funding 
unless it meets the following requirements:
    (1) Verification by HUD that the applicant is a unit of general 
government in a nonentitlement area.
    (2) Verification by HUD and DoD that a triggering event described in 
paragraph (a)(2) of this section has occurred or will occur.
    (3) With respect to communities affected by the 49 base closings and 
28 realignments listed by the 1991 Base Closure and Realignment 
Commission, verification by DoD that it has provided no prior funding 
and that the applicant may benefit from start-up planning assistance 
from HUD.
    (4) Determination by HUD that the proposed planning activities are 
eligible.
    (5) Determination by HUD that the submission requirements in 
paragraph (h) of this section have been satisfied.
    (g) Qualifying factors. HUD will make funding decisions on qualified 
applications on the basis of the factors listed below, in the order of 
such applications received, while program funds remain available. HUD 
will also request and consider advise from DoD's Office of Economic 
Assistance concerning the relative merits of each application.
    (1) The adequacy of the applicant's initial assessment of actual or 
probable impacts on the community and the surrounding area;
    (2) The adequacy and appropriateness of the start-up planning 
envisioned by the applicant in response to the impacts;
    (3) The type, extent, and adequacy of coordination that the 
applicant has achieved, or plans to achieve, in order to undertake 
planning for community adjustment and economic diversification.
    (4) The cost-effectiveness of the proposed budget to carry out the 
planning work envisioned by the applicant;
    (5) The capability of the organization the applicant proposes to do 
the planning;
    (6) The credentials and experience of the key staff the applicant 
proposes to do the planning;
    (7) The presence of significant private sector impact, as measured 
by the

[[Page 70]]

extent to which the DoD-generated impact is projected to decrease or 
increase the employment base by 10% or more;
    (8) The presence of significant public sector impact, as measured by 
the extent to which the DoD-generated impact is projected to decrease or 
increase the applicant's capital and operating budgets for the next 
fiscal year by 10% or more;
    (9) The degree of urgency, to the extent that a suddenly announced 
action, e.g. a plant closing, is officially scheduled to occur within a 
year of the date of application.
    (h) Submission requirements. Applicants may submit applications at 
any time to: Director, Office of Technical Assistance, room 7214, 451 
Seventh Street, SW., Washington, DC 20410. Each application (an original 
and three copies) shall include the following:
    (1) The Standard Form SF-424 as a face sheet, signed and dated by a 
person authorized to represent and contractually or otherwise commit the 
applicant;
    (2) A concise title and brief abstract of the proposed planning 
work, including the total cost;
    (3) A narrative that:
    (i) Documents one or more of the triggering events described in 
paragraph (a)(2) of this section that qualifies the applicant to apply 
for planning assistance for community adjustments and economic 
diversification;
    (ii) Provides an initial assessment of actual or probable impacts on 
the applicant community and the surrounding area;
    (iii) Provides an initial assessment of the type and extent of 
start-up planning envisioned by the applicant in response to the DoD-
generated impact; and
    (iv) Describes the measures by which the applicant has already 
coordinated, or plans to coordinate, with the DoD Office of Economic 
Assistance, the Economic Development Administration of the Department of 
Commerce, the Department of Labor, any military department, or any other 
appropriate Federal agency; appropriate State agencies, specifically 
including the agency administering the Small Cities CDBG Program; 
appropriate State-designated enterprise zones; appropriate Federal 
empowerment zones and enterprise communities, when selected and 
announced; appropriate other units of general local government in the 
nonentitlement area; appropriate businesses, corporations, and defense 
facilities concerned with impacts on the applicant community; and 
homeless nonprofit organizations, with respect to title V of the Stewart 
B. McKinney Act (42 U.S.C. 11411-11412), requiring the Federal property 
be considered for use in assisting the homeless.
    (4) A Statement of Work describing the specific project tasks 
proposed to be undertaken in order to plan for community adjustment and 
economic diversification activities;
    (5) A proposed budget showing the estimated costs and person-days of 
effort for each task, by cost categories, with supporting documentation 
of costs and a justification of the person-days of effort;
    (6) A description of the qualifications of the proposed technical 
staff, including their names and resumes;
    (7) A work plan that describes the schedule for accomplishing the 
tasks described in the Statement of Work, the time needed to do each 
task, and the elapsed time needed for all the tasks; and
    (8) Other materials, as prescribed in the application kit; these 
materials will include required certifications dealing with: Drug-Free 
Workplace Requirements; Disclosure Regarding Payments to Influence 
Certain Federal Transactions; and Prohibition Regarding Excessive Force.
    (i) Approval procedures--(1) Acceptance. HUD's acceptance of an 
application meeting the threshold requirements of paragraph (f) does not 
assure a commitment to provide funding or to provide the full amount 
requested. HUD may elect to negotiate both proposed tasks and budgets in 
order to promote more cost-effective planning.
    (2) Notification. HUD will provide notification about whether a 
project will be funded, rejected, or held for further consideration by 
HUD and DoD.
    (3) Form of award. HUD will award funds in the form of grants.
    (4) Administration. Project administration will be governed by the 
terms

[[Page 71]]

of individual awards and by the following provisions of this part:
    (i) Subpart A, Sec. 570.5;
    (ii) Subpart E, Secs. 570.400(d), (e), (f), and (g);
    (iii) Subpart J, Secs. 570.500(c), 570.501, 570.502, 570.503, and 
570.509;
    (iv) Subpart K, Secs. 570.601, 570.602, 570.609, 570.610, and 
570.611.

The environmental review requirements of 24 CFR part 58 do not apply.

(Approved by the Office of Management and Budget under control number 
2535-0084)

[59 FR 15016, Mar. 30, 1994]



Sec. 570.402  Technical assistance awards.

    (a) General. (1) The purpose of the Community Development Technical 
Assistance Program is to increase the effectiveness with which States, 
units of general local government, and Indian tribes plan, develop, and 
administer assistance under title I and section 810 of the Act. Title I 
programs are the Entitlement Program (24 CFR part 570, subpart D); the 
section 108 Loan Guarantee Program (24 CFR part 570, subpart M); the 
Urban Development Action Grant Program (24 CFR part 570, subpart G); the 
HUD-administered Small Cities Program (24 CFR part 570, subpart F); the 
State-administered Program for Non-Entitlement Communities (24 CFR part 
570, subpart I); the grants for Indian Tribes program (24 CFR part 571); 
and the Special Purpose Grants for Insular Areas, Community Development 
Work Study and Historically Black Colleges and Universities (24 CFR part 
570, subpart E). The section 810 program is the Urban Homesteading 
Program (24 CFR part 590).
    (2) Funding under this section is awarded for the provision of 
technical expertise in planning, managing or carrying out such programs 
including the activities being or to be assisted thereunder and other 
actions being or to be undertaken for the purpose of the program, such 
as increasing the effectiveness of public service and other activities 
in addressing identified needs, meeting applicable program requirements 
(e.g., citizen participation, nondiscrimination, OMB Circulars), 
increasing program management or capacity building skills, attracting 
business or industry to CDBG assisted economic development sites or 
projects, assisting eligible CDBG subrecipients such as neighborhood 
nonprofits or small cities in how to obtain CDBG funding from cities and 
States. The provision of technical expertise in other areas which may 
have some tangential benefit or effect on a program is insufficient to 
qualify for funding.
    (3) Awards may be made pursuant to HUD solicitations for assistance 
applications or procurement contract proposals issued in the form of a 
publicly available document which invites the submission of applications 
or proposals within a prescribed period of time. HUD may also enter into 
agreements with other Federal agencies for awarding the technical 
assistance funds:
    (i) Where the Secretary determines that such funding procedures will 
achieve a particular technical assistance objective more effectively and 
the criteria for making the awards will be consistent with this section, 
or
    (ii) The transfer of funds to the other Federal agency for use under 
the terms of the agreement is specifically authorized by law. The 
Department will not accept or fund unsolicited proposals.
    (b) Definitions. (1) Areawide planning organization (APO) means an 
organization authorized by law or local agreement to undertake planning 
and other activities for a metropolitan or non-metropolitan area.
    (2) Technical assistance means the facilitating of skills and 
knowledge in planning, developing and administering activities under 
title I and section 810 of the Act in entities that may need but do not 
possess such skills and knowledge, and includes assessing programs and 
activities under title I.
    (c) Eligible applicants. Eligible applicants for award of technical 
assistance funding are:
    (1) States, units of general local government, APOs, and Indian 
Tribes; and
    (2) Public and private non-profit or for-profit groups, including 
educational institutions, qualified to provide technical assistance to 
assist such governmental units to carry out the title I or Urban 
Homesteading programs. An applicant group must be designated as a 
technical assistance provider to a unit of government's title I program 
or

[[Page 72]]

Urban Homesteading program by the chief executive officer of each unit 
to be assisted, unless the assistance is limited to conferences/
workshops attended by more than one unit of government.
    (d) Eligible activities. Activities eligible for technical 
assistance funding include:
    (1) The provision of technical or advisory services;
    (2) The design and operation of training projects, such as 
workshops, seminars, or conferences;
    (3) The development and distribution of technical materials and 
information; and
    (4) Other methods of demonstrating and making available skills, 
information and knowledge to assist States, units of general local 
government, or Indian Tribes in planning, developing, administering or 
assessing assistance under title I and Urban Homesteading programs in 
which they are participating or seeking to participate.
    (e) Ineligible activities. Activities for which costs are ineligible 
under this section include:
    (1) In the case of technical assistance for States, the cost of 
carrying out the administration of the State CDBG program for non-
entitlement communities;
    (2) The cost of carrying out the activities authorized under the 
title I and Urban Homesteading programs, such as the provision of public 
services, construction, rehabilitation, planning and administration, for 
which the technical assistance is to be provided;
    (3) The cost of acquiring or developing the specialized skills or 
knowledge to be provided by a group funded under this section;
    (4) Research activities;
    (5) The cost of identifying units of governments needing assistance 
(except that the cost of selecting recipients of technical assistance 
under the provisions of paragraph (k) is eligible); or
    (6) Activities designed primarily to benefit HUD, or to assist HUD 
in carrying out the Department's responsibilities; such as research, 
policy analysis of proposed legislation, training or travel of HUD 
staff, or development and review of reports to the Congress.
    (f) Criteria for competitive selection. In determining whether to 
fund competitive applications or proposals under this section, the 
Department will use the following criteria:
    (1) For solicited assistance applications. The Department will use 
two types of criteria for reviewing and selecting competitive assistance 
applications solicited by HUD:
    (i) Evaluation criteria: These criteria will be used to rank 
applications according to weights which may vary with each competition:
    (A) Probable effectiveness of the application in meeting needs of 
localities and accomplishing project objectives;
    (B) Soundness and cost-effectiveness of the proposed approach;
    (C) Capacity of the applicant to carry out the proposed activities 
in a timely and effective fashion;
    (D) The extent to which the results may be transferable or 
applicable to other title I or Urban Homesteading program participants.
    (ii) Program policy criteria: These factors may be used by the 
selecting official to select a range of projects that would best serve 
program objectives for a particular competition:
    (A) Geographic distribution;
    (B) Diversity of types and sizes of applicant entities; and
    (C) Diversity of methods, approaches, or kinds of projects.

The Department will publish a Notice of Fund Availability (NOFA) in the 
Federal Register for each competition indicating the objective of the 
technical assistance, the amount of funding available, the application 
procedures, including the eligible applicants and activities to be 
funded, any special conditions applicable to the solicitation, including 
any requirements for a matching share or for commitments for CDBG or 
other title I funding to carry out eligible activities for which the 
technical assistance is to be provided, the maximum points to be awarded 
each evaluation criterion for the purpose of ranking applications, and 
any special factors to be considered in assigning the points to each 
evaluation criterion. The Notice will also indicate which program policy 
factors will be used, the impact of those factors on the selection 
process, the

[[Page 73]]

justification for their use and, if appropriate, the relative priority 
of each program policy factor.
    (2) For competitive procurement contract bids/proposals. The 
Department's criteria for review and selection of solicited bids/
proposals for procurement contracts will be described in its public 
announcement of the availability of an Invitation for Bids (IFB) or a 
Request for Proposals (RFP). The public notice, solicitation and award 
of procurement contracts, when used to acquire technical assistance, 
shall be procured in accordance with the Federal Acquisition Regulation 
(48 CFR chapter 1) and the HUD Acquisition Regulation (48 CFR chapter 
24).
    (g) Submission procedures. Solicited assistance applications shall 
be submitted in accordance with the time and place and content 
requirements described in the Department's NOFA. Solicited bids/
proposals for procurement contracts shall be submitted in accordance 
with the requirements in the IFB or RFP.
    (h) Approval procedures--(1) Acceptance. HUD's acceptance of an 
application or proposal for review does not imply a commitment to 
provide funding.
    (2) Notification. HUD will provide notification of whether a project 
will be funded or rejected.
    (3) Form of award. (i) HUD will award technical assistance funds as 
a grant, cooperative agreement or procurement contract, consistent with 
this section, the Federal Grant and Cooperative Agreement Act of 1977, 
31 U.S.C. 6301-6308, the HUD Acquisition Regulation, and the Federal 
Acquisition Regulation.
    (ii) When HUD's primary purpose is the transfer of technical 
assistance to assist the recipients in support of the title I or Section 
810 programs, an assistance instrument (grant or cooperative agreement) 
will be used. A grant instrument will be used when substantial Federal 
involvement is not anticipated. A cooperative agreement will be used 
when substantial Federal involvement is anticipated. When a cooperative 
agreement is selected, the agreement will specify the nature of HUD's 
anticipated involvement in the project.
    (iii) A contract will be used when HUD's primary purpose is to 
obtain a provider of technical assistance to act on the Department's 
behalf. In such cases the Department will define the specific tasks to 
be performed. However, nothing in this section shall preclude the 
Department from awarding a procurement contract in any other case when 
it is determined to be in the Department's best interests.
    (4) Administration. Project administration will be governed by the 
terms of individual awards and relevant regulations. As a general rule, 
proposals will be funded to operate for one to two years, and periodic 
and final reports will be required.
    (i) Environmental and intergovernmental review. The requirements for 
Environmental Reviews and Intergovernmental Reviews do not apply to 
technical assistance awards.
    (j) Selection of recipients of technical assistance. Where under the 
terms of the funding award the recipient of the funding is to select the 
recipients of the technical assistance to be provided, the funding 
recipient shall publish, and publicly make available to potential 
technical assistance recipients, the availability of such assistance and 
the specific criteria to be used for the selection of the recipients to 
be assisted. Selected recipients must be entities participating or 
planning to participate in the title I or Urban Homesteading programs or 
activities for which the technical assistance is to be provided.

(Approved by the Office of Management and Budget under control numbers 
2535-0085 and 2535-0084)

[56 FR 41938, Aug. 26, 1991]



Sec. 570.403  New Communities.

    The regulations for New Communities grants in this section, that 
were effective immediately before April 19, 1996, will continue to 
govern the rights and obligations of recipients and HUD with respect to 
grants under the New Communities program.

[61 FR 11476, Mar. 20, 1996]

[[Page 74]]



Sec. 570.404  Historically Black colleges and universities program.

    (a) General. Grants under this section will be awarded to 
historically Black colleges and universities to expand their role and 
effectiveness in addressing community development needs, including 
neighborhood revitalization, housing and economic development in their 
localities, consistent with the purposes of title I of the Housing and 
Community Development Act of 1974.
    (b) Eligible applicants. Only historically Black colleges and 
universities (as determined by the Department of Education in accordance 
with that Department's responsibilities under Executive Order 12677, 
dated April 28, 1989) are eligible to submit applications.
    (c) Eligible activities. Activities that may be funded under this 
section are those eligible under Secs. 570.201 through 570.207, provided 
that any activity which is required by State or local law to be carried 
out by a governmental entity may not be funded under this section. 
Notwithstanding the provisions of Secs. 570.200(g), grants under this 
section are not subject to the 20 percent limitation on planning and 
program administration costs, as defined in Secs. 570.205 and 570.206, 
respectively.
    (d) Applications. Applications will only be accepted from eligible 
applicants in response to a Request for Applications (RFA) which will be 
issued either concurrently with or after the publication of a Notice of 
Funding Availability (NOFA) published in the Federal Register. The NOFA 
will describe any special objectives sought to be achieved by the 
funding to be provided, including any limitations on the type of 
activities to be funded to achieve the objectives, points to be awarded 
to each of the selection criteria listed in paragraph (e) of this 
section, and any special factors to be evaluated in assigning points 
under the selection factors to achieve the stated objectives. The NOFA 
will also state the deadline for the submission of applications, the 
total funding available for the competition, and the maximum amount of 
individual grants. The NOFA will include further information and 
instructions for the submission of acceptable applications to HUD.
    (e) Selection criteria. Each application submitted under this 
section will be evaluated by HUD using the following criteria:
    (1) The extent to which the applicant addresses the objectives 
published in the NOFA and the RFA.
    (2) The extent to which the applicant demonstrates to HUD that the 
proposed activities will have a substantial impact in achieving the 
stated objectives.
    (3) The special needs of the applicant or locality to be met in 
carrying out the proposed activities, particularly with respect to 
benefiting low- and moderate-income persons.
    (4) The feasibility of the proposed activities, i.e., their 
technical and financial feasibility, for achieving the stated 
objectives, including local support for activities proposed to be 
carried out in the locality and any matching funds proposed to be 
provided from other sources.
    (5) The capability of the applicant to carry out satisfactorily the 
proposed activities in a timely fashion, including satisfactory 
performance in carrying out any previous HUD-assisted projects or 
activities.
    (6) In the case of proposals/projects of approximately equal merit, 
HUD retains the right to exercise discretion in selecting projects in a 
manner that would best serve the program objectives, with consideration 
given to the needs of localities, types of activities proposed, an 
equitable geographical distribution, and program balance.
    (f) Certifications. (1) Certifications required to be submitted by 
applicants shall be as prescribed in the RFA packages.
    (2) In the absence of independent evidence which tends to challenge 
in a substantial manner the certifications made by the applicant, the 
required certifications will be accepted by HUD. If independent evidence 
is available to HUD, however, HUD may require further information or 
assurances to be submitted in order to determine whether the applicant's 
certifications are satisfactory.
    (g) Multiyear funding commitments. (1) HUD may make funding 
commitments

[[Page 75]]

of up to five years, subject to the availability of appropriations. In 
determining the number of years for which a commitment will be made, HUD 
will consider the nature of the activities proposed, the capability of 
the recipient to carry out the proposed activities, and year-by-year 
funding requirements.
    (2) Awards will be made on the basis of a 12-month period of 
performance. Once a recipient has been selected for a multi-year award, 
that recipient would not be required to compete in a competition for the 
subsequent funding years covered by the multi-year funding commitment. 
Recipients performing satisfactorily will be invited to submit 
applications for subsequent funding years in accordance with 
requirements outlined in the Notice of Funding Availability and Request 
for Grant Application. Subject to the availability of appropriations, 
subsequent-year funding will be determined by the following:
    (i) The recipient has submitted all reports required for the 
previous year or years in a timely, complete and satisfactory manner in 
accordance with the terms and conditions of the grant.
    (ii) The recipient has submitted sufficient evidence to demonstrate 
successful completion of the tasks and deliverables of the grant. A 
determination of satisfactory performance will be made by HUD based upon 
evidence of task completions provided by the recipient, along with data 
from client feedback and site evaluations.
    (iii) The recipient has submitted the next annual application.
    (iv) The subsequent year's application is consistent with that 
described in the original application.
    (3) Recipients participating in multi-year funding projects are not 
eligible to apply for additional grants for the same project or activity 
subject area for which they are receiving funds. Recipients are, 
however, eligible to compete for grants for other project or activity 
areas.
    (h) Selection and notification. The HUD decision to approve, 
disapprove or conditionally approve an application shall be communicated 
in writing to the applicant.
    (i) Environmental and intergovernmental review. The requirements for 
Intergovernmental Reviews do not apply to HBCU awards. HUD will conduct 
an environmental review in accordance with 24 CFR part 50 before giving 
its approval to a proposal.

[56 FR 18968, Apr. 24, 1991]



Sec. 570.405  The insular areas.

    (a) Eligible applicants. Eligible applicants are Guam, the Virgin 
Islands, American Samoa, the Trust Territory of the Pacific Islands, and 
the Commonwealth of the Northern Mariana Islands.
    (b) Threshold requirements. HUD shall review each grantee's progress 
on outstanding grants made under this section based on the grantee's 
performance report, the timeliness of close-outs and compliance with 
fund management requirements and pertinent regulations, taking into 
consideration the size of the grant and the degree and complexity of the 
program. If HUD determines upon such review that the applicant does not 
have the capacity effectively to administer a new grant, or a portion of 
a new grant, in addition to grants currently under administration, the 
applicant shall not be invited to submit an application for the current 
year's funding.
    (c) Previous audit findings and outstanding monetary obligations. 
HUD shall not accept for review an application from an applicant that 
has either an outstanding audit finding for any HUD program, or an 
outstanding monetary obligation to HUD that is in arrears, or for which 
a repayment schedule has not been established and agreed to. The Field 
Office manager may waive this restriction if he or she finds that the 
applicant has made a good faith effort to clear the audit. In no 
instance, however, shall a waiver be provided when funds are due HUD, 
unless a satisfactory arrangement for repayment of the debt has been 
made and payments are current.
    (d) Criteria for funding. The Secretary shall establish, for each 
fiscal year, an amount for which eligible applicants may apply. Grant 
amounts will be based on population of the applicant and its performance 
in previous years. In determining performance, HUD will

[[Page 76]]

consider program achievements and the applicant's effectiveness in using 
program funds. Effectiveness in using program funds shall be measured by 
reviewing audit, monitoring and performance reports.
    (e) Application and performance reporting. Application and 
performance reporting requirements are as follows:
    (1) Applicants must submit applications within 90 days of the 
notification of the grant amount from HUD.
    (2) Applicants shall prepare and publish or post a proposed 
application in accordance with the citizen participation requirements of 
paragraph (h) of this section.
    (3) Applicants shall submit to HUD a final application containing 
its community development objectives and activities. This application 
shall be submitted to the appropriate HUD office, together with the 
required certifications, in a form prescribed by HUD.
    (4) Grant recipients must submit to HUD an annual performance report 
on progress achieved on previously funded grants. Grant recipients must 
submit the report at a time and in a format determined by HUD. The 
report should be made available to citizens in accordance with the 
requirements of paragraph (h)(1)(iv) of this section.
    (f) Costs incurred by the applicant. (1) Notwithstanding any other 
provision of this part, HUD will not reimburse or recognize any costs 
incurred by an applicant before submission of the application to HUD.
    (2) Normally, HUD will not reimburse or recognize costs incurred 
before HUD approval of the application for funding. However, under 
unusual circumstances, the Field office manager may consider and 
conditionally approve written requests to recognize and reimburse costs 
that will be incurred after submission of the application but before it 
is approved where failure to do so would impose undue or unreasonable 
hardship on the applicant. Conditional approvals will be made only 
before the costs are incurred and where the conditions for release of 
funds have been met in accordance with 24 CFR 58.22, and with the 
understanding that HUD has no obligation whatsoever to approve the 
application or to reimburse the applicant should the application be 
disapproved.
    (g) Criteria for conditional approval. HUD may approve a grant 
subject to specified conditions. In any such case, the obligation and 
utilization of funds may be restricted. The reasons for the conditional 
appproval and the actions necessary to remove the conditions shall be 
specified. Failure of the applicant to satisfy the conditions may result 
in a termination of the grant. A conditional approval may be granted 
under any of the following circumstances:
    (1) When local environmental reviews under 24 CFR part 58 have not 
yet been completed;
    (2) To ensure that actual provision of other resources required to 
complete the proposed activities will be available within a reasonable 
period of time;
    (3) To ensure that a project can be completed within its estimated 
costs;
    (4) Where the grantee is required to satisfy an outstanding debt due 
to HUD under a payment plan executed between the grantee and the 
Department;
    (5) Pending resolution of problems related to specific projects or 
the capability of the grantee to obtain resources needed to carry out, 
operate or maintain the project; or
    (6) Pending approval of site and neighborhood standards for proposed 
housing projects.
    (h) Citizen participation. (1) The applicant shall provide for 
appropriate citizen participation in the application and amendment 
process. The applicant must, at least, do each of the following:
    (i) Furnish citizens with information concerning the amount of funds 
available for community development and housing activities and the range 
of activities that may be undertaken, including the estimated amount 
proposed to be used for activities that will benefit persons of low and 
moderate income, and the plans of the grantee for minimizing 
displacement of persons as a result of activities assisted with such 
funds and to assist persons actually displaced;
    (ii) Hold one or more public hearings (scheduled at convenient times 
and places) to obtain the views of citizens on community development and 
housing needs;
    (iii) Develop and publish or post the community development 
statement in

[[Page 77]]

such a manner as to afford affected citizens an opportunity to examine 
its contents and to submit comments;
    (iv) Afford citizens an opportunity to review and comment on the 
applicant's performance under any community development block grant.
    (2) Before submitting the application to HUD, the applicant shall 
certify that it has:
    (i) Met the requirements of paragraph (h)(1) of this section;
    (ii) Considered any comments and views expressed by citizens; and
    (iii) If appropriate, modified the application accordingly and made 
the modified application available to citizens.

[50 FR 37526, Sept. 16, 1985, as amended at 60 FR 56914, Nov. 9, 1995; 
61 FR 32269, June 21, 1996]

    Effective Date Note: At 61 FR 32269, June 21, 1996, 
Sec. 570.405(e)(4) was revised. This section contains information 
collection and recordkeeping requirements and will not become effective 
until approval has been given by the Office of Management and Budget.



Sec. 570.406  Formula miscalculation grants.

    (a) General. Grants under this section will be made to States and 
units of general local government determined by the Secretary to have 
received insufficient amounts under section 106 of the Act as a result 
of a miscalculation of its share of funds under such section.
    (b) Application. Since the grant is to correct a technical error in 
the formula amount which should have been awarded under section 106, no 
application is required.
    (c) Use of funds. The use of funds shall be subject to the 
requirements, certifications and Final Statement otherwise applicable to 
the grantee's section 106 grant funds provided for the fiscal year in 
which the grant under this section is made.
    (d) Unavailability of funds. If sufficient funds are not available 
to make the grant in the fiscal year in which the Secretary makes the 
determination required in paragraph (a) of this section, the grant will 
be made, subject to the availability of appropriations for this subpart, 
in the next fiscal year.

[56 FR 41940, Aug. 26, 1991]



Sec. 570.410  Special Projects Program.

    (a) Program objectives. The Community Development Special Projects 
Program enables HUD to award grants to States and units of general local 
government, subject to availability of funds, for special projects that 
address community development activities or techniques consistent with 
the purposes of title I of the Housing and Community Development Act of 
1974, as amended.
    (b) Eligible applicants. Only States and units of general local 
government (as defined in Sec. 570.3) are eligible to submit proposals 
or applications for Special Projects grants. Proposals or applications 
may be submitted by eligible applicants on behalf of themselves, on 
behalf of other eligible applicants, or jointly by more than one 
eligible applicant.
    (c) Eligible activities. (1) Project activities that may be funded 
under this section are those eligible under 24 CFR part 570--Community 
Development Block Grants, subpart C--Eligible Activities. No more than 
twenty (20) percent of the funds awarded under this section may be used 
for overall program administration or planning activities eligible under 
Secs. 570.205 and 570.206.
    (2) The amount of funds awarded to a unit of general local 
government under this section that may be used for public service 
activities is limited. The applicant may use whichever of the following 
methods of calculation yields the highest amount:
    (i) Fifteen percent of the special projects grant;
    (ii) An amount equal to 15 percent of the sum of special project 
grant funds plus grant funds received for the same federal fiscal year 
under the Entitlement or State program, less the amount of the 
Entitlement or State program grant funds which will be used for other 
public service activities; or
    (iii) In the case of an applicant that is an Entitlement grantee 
subject to the exception in Sec. 570.201(e)(3), an amount equal to the 
amount of the Entitlement grant funds received for the same federal 
fiscal year that may be used for public service activities, less the 
amount of the Entitlement grant

[[Page 78]]

funds which will be used for other public service activities.
    (d) Proposals. Eligible applicants may submit unsolicited proposals. 
HUD may ask proposers to submit additional information if necessary for 
evaluation. There is no HUD commitment to fund any unsolicited proposal 
regardless of its merit. If HUD elects to fund a proposal, it will 
request that the proposer submit a formal application.
    (1) Three (3) copies of a proposal must be sent to the address 
stated in (3), below. Each proposal submitted pursuant to this section 
shall be evaluated by HUD using the following criteria:
    (i) The extent to which the proposal satisfies purposes of this 
title and addresses a special community development need.
    (ii) The eligibility of proposed activities.
    (iii) The feasibility of the project; i.e., its technical and 
financial feasibility for achieving the goals stated in the proposal.
    (iv) The capacity of the proposer to carry out satisfactorily the 
proposed project activities.
    (2) If the proposal is submitted jointly by, or on behalf of, more 
than one eligible applicant, the proposal must:
    (i) Contain a cooperation agreement signed by the Chief Executive 
Officer of each participating jurisdiction which specifies concurrence 
with the purpose and intent of the proposal and intent to comply with 
grant requirements;
    (ii) Address problems faced by all jurisdictions listed in the 
proposal; and,
    (iii) Be submitted by the lead jurisdiction. The lead jurisdiction 
shall be responsible for overall coordination and administration of the 
project.
    (3) Unsolicited proposals may be submitted any time during the year. 
However, if there are no funds available for such proposals, they will 
be returned without review. Proposals shall contain a Standard Form 424 
signed by the Chief Executive Officer of the State or unit of general 
local government. They shall be sent to: Department of Housing and Urban 
Development, Office of Community Planning and Development, 451 Seventh 
Street, SW., Washington, DC 20410, Attention: Director, Office of 
Program Policy Development, CPP.
    (e) Applications. Applications are accepted only from eligible 
applicants in response to letters of solicitations, or to competition 
announcements published in Notices in the Federal Register. Submission 
requirements and criteria to be used by HUD to evaluate solicited 
applications and instructions regarding their submission shall be stated 
in each Notice or letter.
    (f) Certifications. Applications shall contain the certifications 
required by 24 CFR 570.303, except that regarding citizen participation: 
The applicant must certify that citizens likely to be affected by the 
project, particularly low- and moderate-income persons, have been 
provided an opportunity to comment on the proposal or application. If 
the application is submitted jointly, or on behalf of more than one 
jurisdiction, each jurisdiction shall submit the required 
certifications.
    (g) Selection and notification. The HUD decision to approve, 
disapprove or conditionally approve a proposal or application shall be 
communicated in writing to the applicant.

[47 FR 30054, July 12, 1982, as amended at 54 FR 31672, Aug. 1, 1989; 55 
FR 29309, July 18, 1990; 56 FR 56127, Oct. 31, 1991]



Sec. 570.411  Joint Community Development Program.

    (a) General. Grants under this section will be awarded to 
institutions of higher education or to States and local governments 
applying jointly with institutions of higher education. Institutions of 
higher education must demonstrate the capacity to carry out activities 
under title I of the Housing and Community Development Act of 1974. For 
ease of reference, this program may be called the Joint CD Program.
    (b) Definitions.
    Demonstrated capacity to carry out eligible activities under title I 
means recent satisfactory activity by the institution of higher 
education's staff designated to work on the program, including 
subcontractors and consultants firmly committed to work on the proposed 
activities, in title I programs or similar programs without the need for 
oversight by a State or unit of general local government.
    Institution of higher education means a college or university 
granting 4-year

[[Page 79]]

degrees and accredited by a national or regional accrediting agency 
recognized by the U.S. Department of Education.
    (c) Eligible applicants. Institutions of higher education or States 
and units of general local government jointly with institutions of 
higher education may apply. Institutions of higher education with 
demonstrated capacity to carry out eligible activities under title I may 
apply on their own, without the joint participation of a State or unit 
of general local government. States or unit of general local governments 
must file jointly with an institution of higher education. For these 
approved joint applications, the grant will be made to the State or unit 
of general local government and the institution of higher education 
jointly. If an eligible applicant is an institution of higher education, 
it will not be funded more than once for the same kinds of activities. 
These grantees may not receive funding under a subsequent NOFA if it has 
the same program objectives as the one under which the grantee 
previously received funding. However, a State or unit of general local 
government is eligible to apply if it files jointly with a different 
institution of higher education in each NOFA cycle. HUD may further 
limit the type of eligible applicant to be funded. Any such limitations 
will be contained in the Notice of Funding Availability described below 
in paragraph (h) of this section.
    (d) Role of participants in joint applications. An institution of 
higher education and a State or unit of general local government may 
carry out eligible activities approved in joint applications. Where 
there are joint applicants, the grant will be made to both and both will 
be responsible for oversight, compliance, and performance. The 
application will have to clearly delineate the role of each applicant in 
the joint application. Any funding sanctions or other remedial actions 
by HUD for noncompliance or nonperformance, whether by the State or unit 
of general local government or by the institution of higher education, 
shall be taken against both grantees.
    (e) Eligible activities. Activities that may be funded under this 
section are those eligible under 24 CFR part 570--Community Development 
Block Grants, subpart C--Eligible Activities. These activities may be 
designed to assist residents of colonias, as defined in section 916(d) 
of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 5306 
note), to improve living conditions and standards within colonias. HUD 
may limit the activities to be funded. Any such limitations will be 
contained in the Notice of Funding Availability described in paragraph 
(h) of this section.
    (f) Applications. Applications will only be accepted from eligible 
applicants in response to a publication of a Notice of Funding 
Availability (NOFA) published by HUD in the Federal Register.
    (g) Local approval. (1) Where an institution of higher education is 
the applicant, each unit of general local government that is an 
entitlement jurisdiction where an activity is to take place must approve 
the activity and certify that the activity is consistent with its 
Consolidated Plan.
    (2) Where a State is the joint applicant and it proposes to carry 
out an activity within the jurisdiction of one or more units of general 
local government, then each such unit must approve the activity and 
state that the activity is consistent with its Consolidated Plan.
    (3) These approvals and findings must accompany each application and 
may take the form of a letter by the chief executive officer of each 
unit of general local government affected or a resolution of the 
legislative body of each such unit of general local government.
    (h) NOFA contents. The NOFA will describe any special objectives 
sought to be achieved by the funding to be provided, including any 
limitations on the type of activities to be funded to achieve the 
objectives, any limitations on the type of eligible applicants, and 
points to be awarded to each of the selection criteria and any special 
factors to be evaluated in assigning points under the selection criteria 
to achieve the stated objectives. The NOFA will also state the deadline 
for the submission of applications, the total funding available for the 
competition, the period of performance and the maximum and minimum 
amount of individual grants. The NOFA will also state which

[[Page 80]]

of the various possible levels of competition HUD will use: national 
and/or regional or entitlement areas vs. non-entitlement areas; and 
States or units of general local government vs. institutions of higher 
education vs. institutions of higher education with a demonstrated 
capacity. The NOFA will include further information and instructions for 
the submission of acceptable applications to HUD.
    (i) Selection criteria. Each application submitted under this 
section will be evaluated by HUD using the following criteria:
    (1) The extent to which the applicant addresses the objectives 
published in the NOFA and demonstrates how the proposed activities will 
have a substantial impact in achieving the objectives.
    (2) The extent of the needs to be addressed by the proposed 
activities, particularly with respect to benefiting low- and moderate-
income persons and residents of colonias, where applicable.
    (3) The feasibility of the proposed activities, i.e., their 
technical and financial feasibility, for achieving the stated 
objectives.
    (4) The capability of the applicant to carry out satisfactorily the 
proposed activities in a timely fashion, including satisfactory 
performance in carrying out any previous HUD-assisted projects or 
activities.
    (5) The extent of commitment to fair housing and equal opportunity, 
as indicated by such factors as previous HUD monitoring/compliance 
activity, actions to promote minority- and women-owned business 
enterprise, affirmatively furthering fair housing issues, and 
nondiscriminatory delivery of services.
    (j) Selection discretion. HUD retains the right to exercise 
discretion in selecting projects in a manner that would best serve the 
program objectives, with consideration given to the needs of States and 
units of general local government and institutions of higher education, 
types of activities proposed, an equitable geographical distribution, 
and program balance. The NOFA will state whether HUD will use this 
discretion in any specific competition.
    (k) Certifications. (1) Certifications, including those indicating 
that applicants have adhered to all civil rights requirements under 
subpart K of this part and the Americans with Disabilities Act of 1990, 
required to be submitted by applicants shall be as prescribed in the 
NOFA.
    (2) In the absence of independent evidence which tends to challenge 
in a substantial manner the certifications made by the applicant, the 
required certifications will be accepted by HUD. However, if independent 
evidence is available, HUD may require further information or assurances 
to be submitted in order to determine whether the applicant's 
certifications are satisfactory.
    (l) Consolidated plan. An applicant that proposes any housing 
activities as part of its application will be required to submit a 
certification that these activities are consistent with the Consolidated 
Plan of the jurisdiction to be served.
    (m) Citizen participation. The citizen participation requirements of 
Secs. 570.301, 570.431, 570.485(c) and 570.486(a) are modified to 
require the following: The applicant must certify that citizens likely 
to be affected by the project regardless of race, color, creed, sex, 
national origin, familial status, or handicap, particularly low- and 
moderate-income persons, have been provided an opportunity to comment on 
the proposal or application.
    (n) Environmental and Intergovernmental Review. The requirements for 
Intergovernmental Reviews do not apply to these awards. When required, 
an environmental review in accordance with 24 CFR part 58 must be 
carried out by the State or unit of general local government when it is 
the applicant. HUD will conduct any required environmental review when 
an institution of higher education is the applicant.

(Approved by the Office of Management and Budget under control number 
2535-0084)

[60 FR 15837, Mar. 27, 1995]



Sec. 570.415  Community Development Work Study Program.

    (a) Applicability and objectives. HUD makes grants under CDWSP to 
institutions of higher education, either directly or through areawide 
planning

[[Page 81]]

organizations or States, for the purpose of providing assistance to 
economically disadvantaged and minority students who participate in a 
work study program while enrolled in full-time graduate programs in 
community and economic development, community planning, and community 
management. The primary objectives of the program are to attract 
economically disadvantaged and minority students to careers in community 
and economic development, community planning, and community management, 
and to provide a cadre of well-qualified professionals to plan, 
implement and administer local community development programs.
    (b) Definitions. The following definitions apply to CDWSP:
    Applicant means an institution of higher education, a State, or an 
areawide planning organization that submits an application for 
assistance under CDWSP.
    Areawide planning organization (APO) means an organization 
authorized by law or by interlocal agreement to undertake planning and 
other activities for a metropolitan or nonmetropolitan area. For an 
organization operating in a nonmetropolitan area to be considered an 
APO, its jurisdiction must cover at least one county.
    CDWSP means the Community Development Work Study Program.
    Community building means community and economic development, 
community planning, community management, land use and housing 
activities.
    Community building academic program or academic program means a 
graduate degree program whose purpose and focus is to educate students 
in community building. ``Community building academic program'' or 
``academic program'' includes but is not limited to graduate degree 
programs in community and economic development, community planning, 
community management, public administration, public policy, urban 
economics, urban management, and urban planning. ``Community building 
academic program'' or ``academic program'' excludes social and 
humanistic fields such as law, economics (except for urban economics), 
education and history. ``Community building academic program'' or 
``academic program'' excludes joint degree programs except where both 
joint degree fields have the purpose and focus of educating students in 
community building.
    Economically disadvantaged and minority students means students who 
satisfy all applicable guidelines established at the participating 
institution of higher education to measure financial need for academic 
scholarship or loan assistance, including, but not limited to, students 
who are Black, American Indian/Alaskan Native, Hispanic, or Asian/
Pacific Island, and including students with disabilities.
    Institution of higher education means a public or private 
educational institution that offers a community building academic 
program and that is accredited by an accrediting agency or association 
recognized by the Secretary of Education under 34 CFR part 602.
    Recipient means an approved applicant that executes a grant 
agreement with HUD.
    Student means a student enrolled in an eligible full-time academic 
program. He/she must be a first-year student in a two-year graduate 
program. Students enrolled in Ph.D. programs are ineligible.
    Student with disabilities means a student who meets the definition 
of ``person with disabilities'' in the Americans with Disabilities Act 
of 1990.
    (c) Assistance provided--(1) Types of assistance available. HUD 
provides funding in the form of grants to recipients who make assistance 
available to eligible students. Grants are provided to cover the costs 
of student assistance and for an administrative allowance.
    (i) Student assistance. Grants are made to recipients to cover the 
costs of assistance provided to eligible students in the form of student 
stipends, tuition support, and additional support.
    (A) Student stipend. The amount of the student stipend is based upon 
the prevailing hourly rate for initial entry positions in community 
building and the number of hours worked by the student at the work 
placement assignment, except that the hourly rate used should be 
sufficiently high to allow a student to earn the full stipend without 
working over 20 hours per week during the school year and 40 hours per

[[Page 82]]

week during the summer. The amount of the stipend the student receives 
may not exceed the actual amount earned, up to $9,000 per year.
    (B) Tuition support and additional support. The amount of support 
for tuition, fees, books, and travel related to the academic program, 
workplace assignment or conferences may not exceed actual costs incurred 
or $5,000 per year, whichever is higher. The conferences are limited to 
those dealing with community building, sponsored by professional 
organizations.
    (ii) Administrative allowance. HUD provides an allowance to 
recipients to cover the administrative costs of the program. The 
administrative allowance is $1,000 per year for each student 
participating in the program.
    (2) Number of students assisted. The minimum number of students that 
may be assisted is three students per participating institution of 
higher education. If an APO or State receives assistance for a program 
that is conducted by two or more institutions of higher education, each 
participating institution must have a minimum of three students in the 
program. The maximum number of students that may be assisted under CDWSP 
is five students per participating institution of higher education.
    (d) Recipient eligibility and responsibilities--(1) Recipient 
eligibility. (i) The following organizations are eligible to apply for 
assistance under the program:
    (A) Institutions of higher education. Institutions of higher 
education offering a community building academic program are eligible 
for assistance under CDWSP.
    (B) Areawide planning organizations and States. An APO or a State 
may apply for assistance for a program to be conducted by two or more 
institutions of higher education. Institutions participating in an APO 
program must be located within the particular area that is served by the 
APO and is identified by the State law or interlocal agreement creating 
the APO. Institutions of higher education participating in a State 
program must be located within the State.
    (ii) To be eligible in future funding competitions for CDWSP, 
recipients are required to maintain a 50-percent rate of graduation from 
a CDWSP-funded academic program.
    (iii) If an institution of higher education that submits an 
individual application is also included in the application of an APO or 
State, then the separate individual application of the institution of 
higher education will be disregarded. Additionally, if an institution of 
higher education is included in the application of both an APO and a 
State, then the references to the institution in the application of the 
State will be stricken. The State's application will then be ineligible 
if fewer than two institutions of higher education remain as 
participants in the State's application.
    (2) Recipient responsibilities. (i) The recipient is responsible for 
the administration of the program, for compliance with all program 
requirements, and for the coordination of program activities carried out 
by the work placement agencies and (if the recipient is an APO or 
State), by the participating institutions of higher education. The 
recipient must:
    (A) Recruit and select students for participation in CDWSP. The 
recipient shall establish recruitment procedures that identify 
economically disadvantaged and minority students pursuing careers in 
community building, and make such students aware of the availability of 
assistance opportunities. Students must be selected before the beginning 
of the semester for which funding has been provided.
    (B) Recruit and select work placement agencies, and negotiate and 
execute agreements covering each work placement assignment.
    (C) Refer participating students to work placement agencies and 
assist students in the selection of work placement assignments.
    (D) Assign sufficient staff to administer and supervise the program 
on a day-to-day basis, and, where the recipient is an APO or State, to 
monitor the activities of the work study coordinating committee.
    (E) Encourage participating students to obtain employment for a 
minimum of two years after graduation with a

[[Page 83]]

unit of State or local government, Indian tribe or nonprofit 
organization engaged in community building.
    (F) Maintain records by racial and ethnic categories for each 
economically disadvantaged student enrolled in the CDWSP.
    (G) Keep records and make such reports as HUD may require.
    (H) Comply with all other applicable Federal requirements.
    (ii) If the recipient is an APO or State, the recipient must also:
    (A) Establish a committee to coordinate activities between program 
participants, to advise the recipient on policy matters, to assist the 
recipient in ranking and selection of participating students, and to 
review disputes concerning compliance with program agreements and 
performance. The committee shall be chaired by a representative of the 
recipient, and shall include representatives of the participating 
institutions of higher education, work placement agencies, students, and 
HUD.
    (B) Allocate the assistance awarded under the program to the 
participating institutions of higher education. APOs and States may not 
make fractional awards to institutions. (E.g., awards to institutions 
must assist a fixed number of students and not, for example, 6.5 
students.)
    (e) Institutions of higher education. Institutions of higher 
education participating in a program are responsible for providing its 
educational component. Where the recipient is an APO or State, the 
institution of higher education shall assist the APO or State in the 
administration and operation of the program. Responsibilities include 
assisting the recipient in the selection of students by determining the 
eligibility of students for the academic program, and by making the 
analysis of students under the financial need guidelines established by 
the institution. All institutions of higher education must comply with 
other applicable Federal requirements.
    (f) Work placement agencies eligibility and responsibilities--(1) 
Eligibility. To be eligible to participate in the CDWSP, the work 
placement agencies must be involved in community building and must be an 
agency of a State or unit of local government, an APO, an Indian tribe, 
or a nonprofit organization.
    (2) Responsibilities. Work placement agencies must:
    (i) Provide practical experience and training in community building.
    (ii) Consult with the institution of higher education (and the APO 
or State, where an APO or State is the recipient) to ensure that the 
student's work placement assignment provides the requisite experience 
and training to meet the required number of work hours specified in the 
student work placement agreement.
    (iii) Provide a sufficient number of work placement assignments to 
provide participating students with a wide choice of work experience.
    (iv) Require each student to devote 12-20 hours per week during the 
regular school year, or 35-40 hours a week during the summer, to the 
work placement assignment. Work placement agencies may provide 
flexibility in the work period, if such a schedule is consistent with 
the requirements of the student's academic program. However, a 
participating student may receive stipend payment only during the period 
that the student is placed with the work placement agency.
    (v) Comply with all other applicable Federal requirements.
    (vi) Maintain such records as HUD may require.
    (g) Student eligibility and responsibilities. Students apply 
directly to recipients receiving grants under CDWSP. Students shall be 
selected in accordance with the following eligibility requirements and 
selection procedures.
    (1) Eligibility. To be eligible for CDWSP, the student:
    (i) Must satisfy all applicable guidelines established at the 
participating institution of higher education to measure financial need 
for academic scholarship or loan assistance.
    (ii) Must be a full-time student enrolled in the first year of 
graduate study in a community building academic program at the 
participating institution of higher education. Individuals enrolled in 
doctoral programs are ineligible.
    (iii) Must demonstrate an ability to maintain a satisfactory level 
of performance in the community building

[[Page 84]]

academic program and in work placement assignments, and to comply with 
the professional standards set by the recipient and the work placement 
agencies.
    (iv) May not have previously participated in CDWSP.
    (v) Must provide appropriate written evidence that he or she is 
lawfully admitted for permanent residence in the United States, if the 
individual is not a citizen.
    (2) Selection. In selecting among eligible students, the recipient 
must consider the extent to which each student has demonstrated:
    (i) Financial need under the applicable financial need guidelines 
established at the institution of higher education;
    (ii) An interest in, and commitment to, a professional career in 
community building;
    (iii) The ability satisfactorily to complete academic and work 
placement responsibilities under CDWSP.
    (3) Student responsibilities. Participating students must:
    (i) Enroll in a two-year program. A student's academic and work 
placement responsibilities include: Full-time enrollment in an approved 
academic program; maintenance of a satisfactory level of performance in 
the community building academic program and in work placement 
assignments; and compliance with the professional conduct standards set 
by the recipient and the work placement agency. A satisfactory level of 
academic performance consists of maintaining a B average. A student's 
participation in CDWSP shall be terminated for failure to meet these 
responsibilities and standards. If a student's participation is 
terminated, the student is ineligible for further CDWSP assistance.
    (ii) Agree to make a good-faith effort to obtain employment in 
community building with a unit of State or local government, an Indian 
tribe, or a nonprofit organization. The term of employment should be for 
at least two consecutive years following graduation from the academic 
program. If the student does not obtain such employment, the student is 
not required to repay the assistance received.
    (h) Notice of fund availability. HUD will solicit grant applications 
from institutions of higher education, APO's and States by publishing a 
notice of fund availability in the Federal Register. The notice will:
    (1) Explain how application packages (requests for grant 
applications) providing specific application requirements and guidance 
may be obtained;
    (2) Specify the place for filing completed applications, and the 
date by which the applications must be physically received at that 
location;
    (3) State the amount of funding available under the notice;
    (4) Provide other appropriate program information and guidance.
    (i) Recipient selection process. The selection process for 
applications under CDWSP consists of a threshold review, ranking of 
eligible applications and final selection.
    (1) Threshold. To be eligible for ranking, applicants must meet each 
of the following threshold requirements:
    (i) The application must be filed in the application form prescribed 
by HUD, and within the required time periods;
    (ii) The applicant must demonstrate that it is eligible to 
participate;
    (iii) The applicant must demonstrate that each institution of higher 
education participating in the program as a recipient has the required 
academic programs and faculty to carry out its activities under CDWSP. 
Each work placement agency must have the required staff and community 
building work study program to carry out its activities under CDWSP.
    (2) Rating. All applications that meet the threshold requirements 
for applicant eligibility will be rated based on the following selection 
criteria:
    (i) Quality of academic program. The quality of the academic program 
offered by the institution of higher education, including without 
limitation the:
    (A) Quality of course offerings;
    (B) Appropriateness of course offerings for preparing students for 
careers in community building; and
    (C) Qualifications of faculty and percentage of their time devoted 
to teaching and research in community building.

[[Page 85]]

    (ii) Rates of graduation. The rates of graduation of students 
previously enrolled in a community building academic program at the 
institution of higher education, specifically including (where 
applicable) graduation rates from any previously funded CDWSP academic 
programs or similar programs.
    (iii) Extent of financial commitment. The commitment and ability of 
the institution of higher education to assure that CDWSP students will 
receive sufficient financial assistance (including loans, where 
necessary) above and beyond the CDWSP funding to complete their academic 
program in a timely manner and without working in excess of 20 hours per 
week during the school year.
    (iv) Quality of work placement assignments. The extent to which the 
participating students will receive a sufficient number and variety of 
work placement assignments, the assignments will provide practical and 
useful experience to students participating in the program, and the 
assignments will further the participating students' preparation for 
professional careers in community building.
    (v) Likelihood of fostering students' permanent employment in 
community building. The extent to which the proposed program will lead 
participating students directly and immediately to permanent employment 
in community building, as indicated by, without limitation:
    (A) The past success of the institution of higher education in 
placing its graduates (particularly CDWSP-funded and similar program 
graduates where applicable) in permanent employment in community 
building; and
    (B) The amount of faculty and staff time and institutional resources 
devoted to assisting students (particularly students in CDWSP-funded and 
similar programs where applicable) in finding permanent employment in 
community building.
    (vi) Effectiveness of program administration. The degree to which an 
applicant will be able effectively to coordinate and administer the 
program. HUD will allocate the maximum points available under this 
criterion equally among the following considerations set forth in 
paragraphs (i)(2)(vi) (A), (B), and (C) of this section, except that the 
maximum points available under this criterion will be allocated equally 
between the considerations set forth in paragraphs (i)(2)(vi) (A) and 
(B) of this section only where the applicant has not previously 
administered a CDWSP-funded program.
    (A) The strength and clarity of the applicant's plan for placing 
CDWSP students on rotating work placement assignments and monitoring 
CDWSP students' progress both academically and in their work placement 
assignments;
    (B) The degree to which the individual who will coordinate and 
administer the program has clear responsibility, ample available time, 
and sufficient authority to do so; and
    (C) The effectiveness of the applicant's prior coordination and 
administration of a CDWSP-funded program, where applicable (including 
the timeliness and completeness of the applicant's compliance with CDWSP 
reporting requirements).
    (vii) Commitment to meeting economically disadvantaged and minority 
students' needs. The applicant's commitment to meeting the needs of 
economically disadvantaged and minority students as demonstrated by 
policies and plans regarding, and past effort and success in, 
recruiting, enrolling and financially assisting economically 
disadvantaged and minority students. If the applicant is an APO or 
State, then HUD will consider the demonstrated commitment of each 
institution of higher education on whose behalf the APO or State is 
applying; HUD will then also consider the demonstrated commitment of the 
APO or State to recruit and hire economically disadvantaged and minority 
students.
    (3) Final selection. Eligible applications will be considered for 
selection in their rank order. HUD may make awards out of rank order to 
achieve geographic diversity, and may provide assistance to support a 
number of students that is less than the number requested under 
applications in order to provide assistance to as many highly ranked 
applications as possible.
    (j) Agreements--(1) Grant agreement. The responsibilities of the 
recipient

[[Page 86]]

under CDWSP will be incorporated in a grant agreement executed by HUD 
and the recipient.
    (2) Student agreement. The recipient and each participating student 
must execute a written agreement incorporating their mutual 
responsibilities under CDWSP. The agreement must be executed before the 
student can be enrolled in the program. A student's participation in 
CDWSP shall be terminated for failure to meet the responsibilities and 
standards in the agreement.
    (3) Work placement assignment agreement. The institution of higher 
education, the APO or state (if an APO or State is the grant recipient), 
the participating student, and the work placement agency must execute a 
written agreement covering each work placement assignment. The agreement 
must address the responsibilities of each of the parties, the 
educational objectives, the nature of supervision, the standards of 
evaluation, and the student's time commitments under the work placement 
assignment.
    (4) APO (or state) and institution of higher education. Where the 
recipient is an APO (or a State), the recipient and each participating 
institution of higher education must execute a written agreement 
incorporating their mutual responsibilities under CDWSP.
    (k) Grant administration--(1) Initial obligation of funds. When HUD 
selects an application for funding, and notifies the recipient, HUD will 
obligate funds to cover the amount of the approved grant. The initial 
obligation of funds will provide for student grants for two years.
    (2) Disbursement. Recipients will receive grant payments by direct 
deposit on a reimbursement basis. If that is not possible, grant 
payments will be made by U.S. Treasury checks.
    (3) Deobligation and recipient repayment. (i) HUD may deobligate 
amounts for grants if proposed activities are not begun or completed 
within a reasonable time after selection.
    (ii) If a student's participation in CDWSP is terminated before the 
completion of the two-year term of the student's program, the recipient 
may substitute another student to complete the two-year term of a 
student whose participation has terminated. The substituted student must 
have a sufficient number of academic credits to complete the degree 
program within the remaining portion of the terminated student's two-
year term. With respect to any CDWSP grant, there is no requirement, 
regardless of the date of grant award, for students who are terminated 
from the CDWSP to repay tuition and additional assistance or for the 
grant recipient to repay such funds to HUD. Funds must still be 
otherwise expended consistent with CDWSP regulations and the grant 
agreement, or repayment may be required under paragraph (k)(3)(iii) of 
this section.
    (iii) Consistent with OMB Circulars No. A-101 and A-110, HUD, in the 
grant agreement, will set forth in detail other circumstances under 
which funds may be deobligated, recipients may be liable for repayment, 
or other sanctions may be imposed.
    (l) Other Federal requirements--(1) Handicap provision. Recipients 
must provide a statement certifying that no otherwise qualified 
handicapped person shall, solely by reason of handicap, be excluded from 
participation in, be denied the benefits of, or otherwise be subjected 
to discrimination under the CDWSP.
    (2) Nondiscrimination. The recipient must adhere to the following 
nondiscrimination provisions: The requirements of title VIII of the 
Civil Rights Act of 1968, 42 U.S.C. 3600-20 (Fair Housing Act) and 
implementing regulations issued at subchapter A of title 24 of the Code 
of Federal Regulations; title VI of the Civil Rights Act of 1964 (42 
U.S.C. 2000d-4) (Nondiscrimination in Federally Assisted Programs) and 
implementing regulations issued at 24 CFR part 1; section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794) and implementing regulations 
at 24 CFR part 8; Executive Order 11063 and implementing regulations at 
24 CFR part 107; and the Age Discrimination Act of 1975 and implementing 
regulations at 24 CFR part 146.

[54 FR 27131, June 27, 1989, as amended at 61 FR 36458, July 10, 1996; 
63 FR 31869, June 10, 1998]

[[Page 87]]



Sec. 570.416  Hispanic-serving institutions work study program.

    (a) Applicability and objectives. HUD makes grants under the 
Hispanic-serving Institutions Work Study Program (HSI-WSP) to public and 
private non-profit Hispanic-serving Institutions (HSI's) of higher 
education for the purpose of providing assistance to economically 
disadvantaged and minority students who participate in a work study 
program while enrolled in full-time community college programs in 
community building, and to provide entry to pre-professional careers in 
these fields.
    (b) Definitions. The following definitions apply to HSI-WSP:
    Applicant means a public or private non-profit Hispanic-serving 
institution of higher education that offers only two-year degree 
programs, including at least one community building academic degree 
program, and that applies for funding under HSI-WSP.
    Community building means community and economic development, 
community planning, community management, public policy, urban 
economics, urban management, urban planning, land use planning, housing, 
and related fields. Related fields include, but are not limited to, 
administration of justice, child development, and human services.
    Community building academic program or academic program means an 
undergraduate associate degree program whose purpose and focus is to 
educate students in community building. The terms ``community building 
academic program'' or ``academic program'' refer to the types of 
academic programs encompassed in the statutory phrase ``community or 
economic development, community planning or community management.'' For 
purposes of HSI-WSP, such programs include, but are not limited to, 
associate degree programs in community and economic development, 
community planning, community management, public administration, public 
policy, urban economics, urban management, urban planning, land use 
planning, housing, and related fields of study. Related fields of study 
that promote community building, such as administration of justice, 
child development, and human services are eligible, while fields such as 
natural sciences, computer sciences, mathematics, accounting, 
electronics, engineering, and the humanities (such as English or 
history) would not be eligible. A transfer program (i.e., one that leads 
to transfer to a four-year institution of higher education for the 
student's junior year) in a community building academic discipline is 
eligible only if the student is required to declare his/her major in 
this discipline while at the community college.
    Community building field means any of the fields of study eligible 
under a community building academic program.
    Economically disadvantaged and minority students means students who 
satisfy all the applicable guidelines established at the participating 
institution of higher education to measure financial need for academic 
scholarship or loan assistance, including, but not limited to, students 
with disabilities and students who are Black, American Indian/Alaska 
Native, Hispanic, Asian/Pacific Islanders, where such students satisfy 
the financial needs guidelines defined above.
    Hispanic-serving institution is an institution of higher education 
that certifies to the satisfaction of the Secretary that it meets the 
criteria set out at 20 U.S.C. 1059c(b)(1), including the following: An 
institution that has an enrollment of undergraduate full-time students 
that is at least 25 percent Hispanic; in which not less than 50 percent 
of the Hispanic students are low-income individuals (i.e., their 
families' taxable income for the preceding year did not exceed 150 
percent of the poverty level) who are first generation college students; 
and in which another 25 percent are either low-income individuals or 
first generation college students.
    HSI-WSP or HSI-WSP program means the Hispanic-serving Institutions 
Work Study program.
    Institution of higher education means a public or private 
educational institution that offers two-year associate degrees in a 
community building academic program and that is accredited by an 
accrediting agency or association recognized by the Secretary of 
Education. Institutions offering BOTH

[[Page 88]]

four-year and two-year degrees are not eligible for HSI-WSP.
    Recipient means an approved applicant that executes a grant 
agreement with HUD.
    Student means a person attending the institution of higher education 
on a full-time basis, as defined by that institution and pursuing an 
eligible community building degree. Students must have attained no more 
than half of the credits required for their degree at the time they 
first receive assistance under HSI-WSP.
    Student with disabilities means a student who meets the definition 
of a ``person with disabilities'' in the Americans with Disabilities Act 
of 1990.
    (c) Assistance provided--(1) Types of assistance available. HUD 
provides funding in the form of grants to recipients who make assistance 
available to eligible students. Grants are provided to cover the costs 
of student assistance and for an administrative allowance.
    (2) Maximum amount of assistance. The maximum amount that can be 
provided to a student is $13,200 a year, including $1,000 for an 
administrative allowance, subject to the 20% limitation described at 
570.416(c)(4) below. HUD will not set maximums on how much should be 
spent to each eligible expenditure, other than for administrative costs. 
The institution must be able to document that the amounts paid are 
customary for that institution and that it has actually paid that amount 
to the students. If a student is receiving a Pell grant, he/she may not 
receive funding for the same educational support through HSI-WSP. 
However, HSI-WSP can substitute for all or part of the Pell grant.
    (3) Student assistance. Grants are provided in the form of student 
stipends, tuition support, and additional support.
    (i) Student stipend. The amount of the student stipend should be 
based on the hourly rate for initial entry positions in the community 
building field and the number of hours worked by the student at the work 
placement assignment. The stipend should be sufficiently high to allow 
the student to earn the full stipend, as determined by the recipient, 
without working over 20 hours per week during the school year and 40 
hours per week during the summer.
    (ii) Tuition support. The amount of tuition support may not exceed 
the tuition and required fees charged at the participating institution 
of higher education.
    (iii) Additional support. The recipient may provide additional 
support for books, tutoring, and travel related to the academic program 
or work placement assignment. Costs associated with reasonable 
accommodations for students with disabilities including, but not limited 
to, interpreters for the deaf/hard of hearing, special equipment, and 
braille materials are eligible under this category.
    (4) Administrative allowance. HUD provides an allowance to 
recipients to cover the administrative costs of the program. The 
administrative allowance is $1,000 per year for each student 
participating in the program; however, no more than 20 percent of the 
grant may be used for planning and program administrative costs.
    (5) Number of students assisted. The minimum number of students that 
may be assisted is three students per participating institution of 
higher education. The maximum number of students that may be assisted is 
ten students per participating institution of higher education; however, 
a lower maximum or higher minimum may be established for a particular 
funding round by the NOFA announcing the availability of the funds.
    (d) Recipient eligibility and responsibilities--(1) Recipient 
eligibility. Public or private Hispanic-serving institutions of higher 
education offering only undergraduate two-year degrees, including 
degrees in at least one community building academic program, are 
eligible for assistance under HSI-WSP. HSIs that offer BOTH two-year and 
four-year degrees are not eligible for HSI-WSP assistance.
    (2) Recipient responsibilities. The recipient is responsible for 
administering the program, for compliance with all program requirements, 
and for coordination of program activities carried out by the work 
placement agencies. The recipient must:

[[Page 89]]

    (i) Recruit students for participation in HSI-WSP. The recipient 
shall establish recruitment procedures that identify eligible 
economically disadvantaged and minority students pursuing careers in 
community building, and make them aware of the availability of 
assistance opportunities. While the program is restricted to HSIs, the 
recipient may neither restrict the program to any particular minority 
group or groups, nor provide any preferential treatment in the selection 
process based on race or ethnicity. Only economically disadvantaged 
students, as defined herein, may be assisted.
    (ii) Select students for participation in HSI-WSP. In selecting 
among the eligible students, the recipient must consider the extent to 
which each student has demonstrated financial need under the applicable 
guidelines established at the institution of higher education; an 
interest in, and commitment to, a career in community building; and the 
ability to satisfactorily complete the academic and work placement 
responsibilities under HSI-WSP. Students must be selected before the 
beginning of the semester for which funding is being provided. If a 
student's participation terminates, the student may not be replaced; the 
grant will be reduced by the amount of unused funds allotted for that 
student.
    (iii) Provide the educational component for participating students.
    (iv) Recruit and select work placement agencies, and negotiate and 
execute an agreement covering each work placement assignment.
    (v) Refer participating students to work placement agencies and 
assist students in the selection of work placement assignments.
    (vi) Assign sufficient staff to administer and supervise the program 
on a day-to-day basis.
    (vii) Encourage participating students to either: obtain post-
graduation employment with a unit of State or local government, an 
areawide planning organization (APO), Indian tribe or nonprofit 
organization engaged in community building; or transfer to a four-year 
institution of higher education to obtain a bachelor's degree in a 
community building academic discipline.
    (viii) Maintain records by racial and ethnic categories for each 
economically disadvantaged and minority student participating in HSI-
WSP.
    (ix) Keep records and make such reports as HUD may require.
    (x) Comply with all other applicable Federal requirements.
    (e) Work placement agencies eligibility and responsibilities--(1) 
Eligibility. To be eligible to participate in HSI-WSP, the work 
placement agency must be an agency of a State or local government, an 
APO, an Indian tribe, or a private nonprofit organization involved in 
community building activities. A work placement site that is part of the 
institution of higher education (e.g., a child care center) can only be 
an eligible site if the services provided by that site are offered to 
people in the broader community outside the institution.
    (2) Responsibilities. Work placement agencies must:
    (i) Provide practical experience and training in the community 
building field to participating students through work placement 
assignments.
    (ii) Consult with the institution of higher education to ensure that 
the student's work placement assignment provides the requisite 
experience and training to meet the required number of work hours 
specified in the student work placement agreement.
    (iii) Provide a sufficient number and variety of work assignments to 
provide participating students with a wide choice of work experience.
    (iv) Require each student to devote 12-20 hours per week during the 
regular school year, and 35-40 hours a week during the summer, to the 
work placement assignment. Work placement agencies may provide 
flexibility in the work period, if such a schedule is consistent with 
the requirements of the student's academic program. However, a 
participating student may receive a stipend payment only during the 
period when the student is placed with the work placement agency.
    (v) Comply with all other applicable Federal requirements.
    (vi) Maintain such records as HUD may require.
    (f) Student eligibility and responsibilities. Students apply 
directly to recipients receiving grants under HSI-WSP.

[[Page 90]]

    (1) Eligibility. To be eligible for HSI-WSP, the student:
    (i) Must satisfy all applicable guidelines established at the 
participating institution of higher education to measure financial need 
for academic scholarship or loan assistance.
    (ii) Must be a full-time student enrolled in a community building 
associate degree program at the participating institution of higher 
education. The student must have attained no more than 50 percent of the 
credits required for his/her degree at the time the student first 
receives assistance under this program.
    (iii) Must demonstrate an ability to maintain a satisfactory level 
of performance in community building academic program (i.e., maintain a 
B average, as defined by the institution) and in work placement 
assignments, and comply with the professional standards set by the 
recipient and the work placement agencies.
    (iv) May not have previously participated in HSI-WSP.
    (2) Student responsibilities. Participating students must:
    (i) Enroll or be enrolled in a two-year community building associate 
degree program. A student's academic and work placement responsibilities 
include: Full-time enrollment in an approved academic program; 
maintenance of a satisfactory level of performance in the community 
building academic program and in work placement assignments; and 
compliance with the professional conduct standards set by the recipient 
and by the work placement agency. A satisfactory level of academic 
performance consists of maintaining a B average, as defined by the 
institution. A student's participation in HSI-WSP shall be terminated 
for failure to meet these responsibilities and standards. If the 
student's participation is terminated, the student is ineligible for 
further HSI-WSP assistance.
    (ii) Devote 12-20 hours per week during the regular school year, and 
35-40 hours a week during the summer, to the work placement assignment. 
Work placement agencies may provide flexibility in the work period, if 
such a schedule is consistent with the requirements of the student's 
academic program. However, a participating student may receive a stipend 
payment only during the period when the student is placed with the work 
placement agency.
    (iii) Agree to make a good-faith effort to either: obtain employment 
in community building with a unit of State or local government, an APO, 
an Indian tribe, or a non-profit organization; or to transfer to a four-
year institution of higher education to obtain a bachelor's degree in a 
community building academic discipline. However, if the student does not 
obtain such employment or transfer to a four-year institution, the 
student is not required to repay the assistance received.
    (g) Notice of funding availability. HUD will solicit grant 
applications from eligible institutions of higher education by 
publishing a notice of funding availability in the Federal Register. The 
notice will:
    (1) Explain how application kits providing specific application 
requirements and guidance may be obtained;
    (2) Specify the place for filing completed applications, and the 
date by which applications must be physically received at that location;
    (3) State the amount of funding available under the notice, which 
may include funds recaptured from previously awarded grants;
    (4) Provide other appropriate program information and guidance.
    (h) Agreements.--(1) Grant agreement. The responsibilities of the 
recipient under HSI-WSP will be incorporated in a grant agreement 
executed by HUD and the recipient.
    (2) Student agreement. The recipient and each participating student 
must execute a written agreement incorporating their mutual 
responsibilities under HSI-WSP. The agreement must be executed before 
the student can be enrolled in the program. The Recipient shall 
terminate a student's participation in HSI-WSP for failure to meet the 
responsibilities and standards in the agreement.
    (3) Work placement assignment agreement. The recipient, the student, 
and the work placement agency must execute a written agreement covering 
each work placement assignment. The

[[Page 91]]

agreement must address the responsibilities of each of the parties, the 
educational objectives, the nature of the supervision, the standards of 
evaluation, and the student's time commitments under the work placement 
assignment.
    (i) Grant administration--(1) Initial obligation of funds. When HUD 
selects an application for funding, HUD will obligate funds to cover the 
amount of the approved grant. The term of the award will be for two 
calendar years, unless subsequently altered by HUD at its discretion for 
good cause.
    (2) Disbursement. Recipients will receive grant payments by direct 
deposit on a reimbursement basis. If that is not possible, grant 
payments will be made by U.S. Treasury checks.
    (3) Deobligation. HUD may deobligate amounts for grants if proposed 
activities are not begun or completed within a reasonable period of time 
after selection.
    (j) Other Federal requirements--(1) Applicability of part 570. HSI-
WSP shall be subject to the policies and procedures set forth in 
subparts A, K, and O of 24 CFR part 570, as applicable, except as 
modified or limited under the provisions of this Notice. The provisions 
of subparts C and J of part 570 shall not apply to HSI-WSP.
    (2) Uniform Administrative requirements. Recipients under HSI-WSP 
shall comply with the requirements and standards of OMB Circular No. A-
22, ``Cost Principles for Educational Institutions.'' Recipients that 
are private institutions of higher education shall comply with OMB 
Circular A-133, ``Non-Federal Audit Requirements for Institutions of 
Higher Education and Other Nonprofit Institutions,'' which is 
implemented at 24 CFR part 45. Recipients that are public institutions 
of higher education shall comply with OMB Circular A-128, ``Non-Federal 
Audit Requirements for State and Local Governments,'' which is 
implemented at 24 CFR part 44. Audits shall be conducted annually. In 
addition, all recipients under HSI-WSP shall comply with the provisions 
of OMB Circular A-110, ``Uniform Administrative Requirements for Grants 
and Agreements With Institutions of Higher Education, Hospitals and 
Other Non-Profit Organizations,'' which is implemented at 24 CFR part 
84. OMB Circular A-110 shall apply to recipients in its entirety.

[62 FR 17493, Apr. 9, 1997, as amended at 63 FR 9683, Feb. 25, 1998]



                     Subpart F--Small Cities Program

    Source: 62 FR 62914, Nov. 25, 1997, unless otherwise noted.



Sec. 570.420  General.

    (a) HUD administration of nonentitlement CDBG funds. Title I of the 
Housing and Community Development Act of 1974 permits each State to 
elect to administer all aspects of the Community Development Block Grant 
(CDBG) Program annual fund allocation for the nonentitlement areas 
within its jurisdiction. This subpart sets forth policies and procedures 
applicable to grants for nonentitlement areas in States that have not 
elected, in a manner and time prescribed by the Secretary, to administer 
the CDBG Program. States that elected to administer the program after 
the close of fiscal year 1984 cannot return administration of the 
program to HUD. A decision by a State to discontinue administration of 
the program would result in the loss of CDBG funds for nonentitlement 
areas in that State and the reallocation of those funds to all States in 
the succeeding fiscal year.
    (b) Scope and applicability. (1) This subpart describes the policies 
and procedures of the Small Cities Program which apply to nonentitlement 
areas in States where HUD administers the CDBG Program. HUD currently 
administers the Small Cities Program in only two States--New York and 
Hawaii. This subpart principally addresses the requirements for New 
York, and Secs. 570.429 and 570.430 identify special procedures 
applicable to Hawaii.
    (2) The allocation of formula CDBG funds for use in nonentitlement 
areas of Hawaii and New York is as provided in subpart A of this part. 
The policies and procedures set forth in the following identified 
subparts of this part 570 apply to the HUD-administered Small Cities 
Program, except as modified or limited under the provisions thereof or 
this subpart:

[[Page 92]]

    (i) Subpart A--General Provisions;
    (ii) Subpart C--Eligible Activities;
    (iii) Subpart J--Grant Administration;
    (iv) Subpart K--Other Program Requirements; and
    (v) Subpart O--Performance Reviews.
    (c) Public notification requirements. (1) Section 102 of the 
Department of Housing and Urban Development Reform Act of 1989 (42 
U.S.C. 3545) contains a number of provisions that are designed to ensure 
greater accountability and integrity in the provision of certain types 
of assistance administered by HUD. All competitive grants in the HUD-
administered Small Cities Program in New York are affected by this 
legislation, and the requirements identified at 24 CFR part 4 apply to 
them. Imminent threat grants under Sec. 570.424 and section 108 
repayment grants under Sec. 570.432 are not affected by section 102 as 
they are not competitive grants.
    (2) The Hawaii HUD-administered Small Cities Program is not subject 
to section 102, since the funds are not distributed in a competitive 
manner.
    (d) Abbreviated consolidated plan. Applications for the HUD-
administered Small Cities Program which contain housing activities must 
include a certification that the proposed housing activities are 
consistent with the applicant's consolidated plan as described at 24 CFR 
part 91.
    (e) National and primary objectives. (1) Each activity funded 
through the Small Cities Program must meet one of the following national 
objectives as defined under the criteria in Sec. 570.208. Each activity 
must:
    (i) Benefit low- and moderate-income families;
    (ii) Aid in the prevention or elimination of slums or blight; or
    (iii) Be an activity which the grantee certifies is designed to meet 
other community development needs having a particular urgency because 
existing conditions pose a serious and immediate threat to the health or 
welfare of the community where other financial resources are not 
available to meet such needs.
    (2) In addition to the objectives described in paragraph (e)(1) of 
this section, with respect to grants made through the Small Cities 
Program, not less than 70 percent of the total of grant funds from each 
grant and Section 108 loan guarantee funds received under subpart M of 
this part within a fiscal year must be expended for activities which 
benefit low- and moderate-income persons under the criteria of 
Secs. 570.208(a), or 570.208(d) (5) or (6). In the case of multiyear 
plans in New York State approved in response to NOFAs published prior to 
calendar year 1997, not less than 70 percent of the total funding for 
grants approved pursuant to a multiyear plan for a time period of up to 
3 years must be expended for activities which benefit low- and moderate-
income persons. Thus, 70 percent of the grant for year 1 of a multiyear 
plan approved in response to NOFAs published prior to calendar year 1997 
must meet the 70 percent requirement, 70 percent of the combined grants 
from years 1 and 2 must meet the requirement, and 70 percent of the 
combined grants from years 1, 2, and 3 must meet the requirement. In 
determining the percentage of funds expended for such activity, the 
provisions of Sec. 570.200(a)(3) (i), (iii), (iv), and (v) shall apply.

(Approved by the Office of Management and Budget under control number 
2506-0060)



Sec. 570.421  New York Small Cities Program design.

    (a) Selection system--(1) Competitive applications. Each competitive 
application will be rated and scored against at least the following 
factors:
    (i) Need-absolute number of persons in poverty as further explained 
in the NOFA;
    (ii) Need-percent of persons in poverty as further explained in the 
NOFA;
    (iii) Program Impact; and
    (iv) Fair Housing and Equal Opportunity, which may include the 
applicant's Section 3 plan and implementation efforts with respect to 
actions to affirmatively further fair housing. The NOFA described in 
paragraph (b) of this section will contain a more detailed description 
of these factors, and the relative weight that each factor will be 
given.
    (2) In addition HUD reserves the right to establish minimal 
thresholds

[[Page 93]]

for selection factors and otherwise select grants in accordance with 
Sec. 570.425 and the applicable NOFA.
    (3) Imminent threats to public health and safety. The criteria for 
these grants are described in Sec. 570.424.
    (4) Repayment of Section 108 loans. The criteria for these grants 
are described in Sec. 570.432.
    (5) Economic development grants. HUD intends to use the Section 108 
loan guarantee program to the maximum extent feasible to fund economic 
development projects in the nonentitlement areas of New York. In the 
event that there are not enough Section 108 loan guarantee funds 
available to fund viable economic development projects, if a project 
needs a grant in addition to a loan guarantee to make it viable, or if 
the project does not meet the requirements of the Section 108 program 
but is eligible for a grant under this subpart, HUD may fund Economic 
Development applications as they are determined to be fundable in a 
specific amount by HUD up to the sum set aside for economic development 
projects in a notice of funding availability, notwithstanding paragraph 
(g) of this section. HUD also has the option in a NOFA of funding 
economic development activities on a competitive basis, as a competitive 
application as described in paragraph (a)(1) of this section. In order 
for an applicant to receive Small Cities grant funds on a noncompetitive 
basis, the field office must determine that the economic development 
project will have a substantial impact on the needs identified by the 
applicant.
    (b) Notice of funding availability. HUD will issue one or more 
Notice(s) of Funding Availability (NOFA) each fiscal year which will 
indicate the amount of funds available, the annual grant limits per 
grantee, type of grants available, the application requirements, and the 
rating factors that will be used for those grants which are competitive. 
A NOFA may set forth, subject to the requirements of this subpart, 
additional selection criteria for all grants.
    (c) Eligible applicants. (1) Eligible applicants in New York are 
units of general local government, excluding: Metropolitan cities, urban 
counties, units of general local government which are participating in 
urban counties or metropolitan cities, even if only part of the 
participating unit of government is located in the urban county or 
metropolitan city. Indian tribes are also ineligible for assistance 
under this subpart. An application may be submitted individually or 
jointly by eligible applicants.
    (2) Counties, cities, towns, and villages may apply and receive 
funding for separate projects to be done in the same jurisdiction. Only 
one grant will be made under each funding round for the same type of 
project to be located within the jurisdiction of a unit of general local 
government (e.g., both the county and village cannot receive funding for 
a sewer system to be located in the same village, but the county can 
receive funding for a sewer system that is located in the same village 
as a rehabilitation project for which the village receives funding). The 
NOFA will contain additional information on applicant eligibility.
    (3) Counties may apply on behalf of units of general local 
government located within their jurisdiction when the unit of general 
local government has authorized the county to apply. At the time that 
the county submits its application for funding, it must submit a 
resolution by the governing body of the unit of local government that 
authorizes the county to submit an application on behalf of the unit of 
general local government. The county will be considered the grantee and 
will be responsible for executing all grant documents. The county is 
responsible for ensuring compliance with all laws, regulations, and 
Executive Orders applicable to the CDBG Program. HUD will deal 
exclusively with the county with respect to issues of program 
administration and performance, including remedial actions. The unit of 
general local government will be considered the grantee for the purpose 
of determining grant limits. The unit of general local government's 
statistics will be used for purposes of the selection factors referred 
to in Sec. 570.421(a).
    (d) Public service activities cap. Public service activities may be 
funded up to a maximum of fifteen (15) percent of a State's 
nonentitlement allocation for any fiscal year. HUD may award a

[[Page 94]]

grant to a unit of general local government for public service 
activities with up to 100 percent of the funds intended for public 
service activities. HUD will apply the 15 percent statewide cap to 
public service activities by funding public service activities in the 
highest rated applications in each NOFA until the cap is reached.
    (e) Activities outside an applicant's boundaries. An applicant may 
conduct eligible CDBG activities outside its boundaries. These 
activities must be demonstrated to be appropriate to meeting the 
applicant's needs and objectives, and must be consistent with State and 
local law. This provision includes using funds provided under this 
subpart in a metropolitan city or an urban county.
    (f) Multiyear plans. HUD will not make any new multiyear commitments 
for NOFAs published in calendar year 1997 or later. HUD will continue to 
honor the terms of the multiyear plans that were approved under the 
provisions of NOFAs published prior to calendar year 1997.
    (g) Maximum grant amount. The maximum grant amount that will be 
awarded to a single unit of general local government in response to the 
annual Small Cities NOFA published in calendar year 1997 or later is 
$400,000, except that counties may apply for up to $600,000 in HUD-
administered Small Cities funds. HUD may specify lower grant limits in 
the NOFA, which may include different limits for different types of 
grants available or different types of applicants. This paragraph (g) 
does not apply to multiyear plans that were approved under the 
provisions of NOFAs published prior to calendar year 1997, nor does it 
apply to grants awarded in connection with paragraphs (a)(3) through 
(a)(5) of this section. The maximum limits in this paragraph (g) apply 
to grants for economic development projects awarded under NOFAs in which 
there is no set-aside of funds for such projects.



Sec. 570.422  Applications from joint applicants.

    Units of general local government may submit a joint application 
which addresses common problems faced by the jurisdictions, to the 
extent permitted by the NOFA. A joint application must be pursuant to a 
written cooperation agreement submitted with the application. The 
cooperation agreement must authorize one of the participating units of 
government to act as the lead applicant which will submit the 
application to HUD, and must delineate the responsibilities of each 
participating unit of government with respect to the Small Cities 
Program. The lead applicant is responsible for executing the 
application, certifications, and grant agreement, and ensuring 
compliance with all laws, regulations, and Executive Orders applicable 
to the CDBG Program. HUD reserves the right to deal exclusively with the 
lead applicant with respect to issues of program administration and 
performance, including remedial actions. In the event of poor 
performance, HUD reserves the right to deny and/or restrict future 
funding to all units of general local government that are parties to the 
cooperation agreement. The maximum amount that may be awarded pursuant 
to a joint application is the maximum single grant limit established in 
a NOFA or pursuant to Sec. 570.421(g) multiplied by the number of 
participants in the cooperation agreement, provided that for the purpose 
of determining such a multiple grant limit, and in order to receive such 
amount, a participating joint applicant must receive a substantial 
direct benefit from the activities proposed in the application, and must 
not be acting solely on behalf of, or in conjunction with, another 
jurisdiction for the sole purpose of raising the maximum grant amount 
that may be awarded. In addition, the statistics of each participant 
counted for maximum grant limits purposes shall also be used for 
purposes of the selection factors referred to in Sec. 570.421(a).



Sec. 570.423  Application for the HUD-administered New York Small Cities Grants.

    (a) Proposed application. The applicant shall prepare and publish a 
proposed application and comply with citizen participation requirements 
as described in Sec. 570.431. The applicant should follow the citizen 
participation requirements of 24 CFR part 91 if it submits a complete 
consolidated plan.

[[Page 95]]

    (b) Final application. The applicant shall submit to HUD a final 
application containing its community development objectives and 
activities. This final application shall be submitted, in a form 
prescribed by HUD, to the appropriate HUD office. The application also 
must contain a priority nonhousing community development plan, in 
accordance with 24 CFR 91.235.
    (c) Certifications. (1) Certifications shall be submitted in a form 
prescribed by HUD. If the application contains any housing activities, 
the applicant shall certify that the proposed housing activities are 
consistent with its abbreviated consolidated plan, as described at 24 
CFR part 91.
    (2) In the absence of evidence (which may, but need not, be derived 
from performance reviews or other sources) which tends to challenge in a 
substantial manner the certifications made by the applicant, the 
certifications will be accepted by HUD. However, if HUD does have 
available such evidence, HUD may require the submission of additional 
information or assurances before determining whether an applicant's 
certifications are satisfactory.
    (d) Thresholds. The HUD Office may use any information available to 
it to make the threshold judgments required by the applicable NOFA, 
including information related to the applicant's performance with 
respect to any previous assistance under this subpart. The annual 
performance and evaluation report required under Sec. 570.507(a) is the 
primary source of this information. The HUD Office may request 
additional information in cases where it is essential to make the 
required performance judgments.

(Approved by the Office of Management and Budget under control number 
2506-0060)



Sec. 570.424  Grants for imminent threats to public health and safety.

    (a) Criteria. The following criteria apply for an imminent threat to 
public health or safety:
    (1) The Director of Community Planning and Development of the HUD 
office may, at any time, invite an application for funds available under 
this subpart in response to a request for assistance to alleviate an 
imminent threat to public health or safety that requires immediate 
resolution. HUD shall verify the urgency and the immediacy of the threat 
with an appropriate authority other than the applicant prior to 
acceptance of the application, and the Director of Community Planning 
and Development of the HUD Office shall review the claim to determine 
if, in fact, an imminent threat to public health or safety does exist. 
For example, an applicant with documented cases of disease resulting 
from a contaminated drinking water supply has an imminent threat to 
public health, while an applicant ordered to improve the quality of its 
drinking water supply over the next 2 years does not have an imminent 
threat within the definition of this paragraph (a). A natural disaster 
is prima facie evidence of an imminent threat to public health or 
safety. These funds are to be used to deal with those threats that 
represent a unique and unusual circumstance, not for the type of threat 
that occurs with frequency in a number of communities within the State 
of New York.
    (2) The applicant does not have sufficient local resources, and 
other Federal or State resources are unavailable to alleviate the 
imminent threat.
    (3) All imminent threat projects must meet the requirement of 
Sec. 570.420(e).
    (b) HUD action. (1) Fifteen percent of the funds allocated to New 
York State in the Small Cities Program may be reserved to alleviate 
imminent threats to the public health or safety unless a lesser amount 
is specified in a NOFA. Applications shall be submitted in accordance 
with Sec. 570.423.
    (2) Applications which meet the requirements of this section may be 
approved by the Director of Community Planning and Development of the 
HUD Office without competition.
    (3) The only funds reserved for imminent threats to the public 
health or safety are those specified by this section as modified by the 
NOFA. After the funds have been depleted, HUD shall not consider further 
requests for grants relating to imminent threats during that fiscal 
year.
    (c) Letter to proceed. Notwithstanding Sec. 570.425(a)(3), after a 
determination has been made that an imminent threat exists, HUD may 
issue the applicant a

[[Page 96]]

letter to proceed to incur costs to alleviate the imminent threat. 
Reimbursement of such costs is dependent upon HUD approval of the final 
application.
    (d) Environmental review. Pursuant to 24 CFR 58.34(a)(10), grants 
for imminent threats to public health or safety are excluded from some 
or all of the environmental review requirements of 24 CFR part 58, to 
the extent provided therein.



Sec. 570.425  HUD review and actions on applications for New York State applicants.

    (a) Final application submission--(1) Submission deadline. HUD will 
establish a time period during which final applications must be 
submitted to the appropriate office. The dates for this period will be 
published in a notice in the Federal Register.
    (2) Incomplete applications. Applications must contain the 
information required by HUD. Information relative to the application 
will not be accepted or considered if received after the submission 
deadline, unless the information is specifically requested in writing by 
HUD.
    (3) Pre-agreement costs. HUD authorizes a unit of general local 
government to incur costs during a Federal fiscal year in which a grant 
is made or the prior fiscal year for preparation of a CDBG grant 
application, planning costs eligible under Sec. 570.205, environmental 
assessments, and project engineering and design costs for eligible 
activities under Secs. 570.201 through 570.204 before the establishment 
of a formal grant relationship between the applicant and HUD. Costs of 
such activities for the funded application may be charged to the grant 
should it be funded, provided that the activities are undertaken in 
accordance with the requirements of this subpart, and 24 CFR part 58. It 
is understood that the incurring of costs described in this paragraph 
creates no obligation on HUD to approve the application.
    (b) HUD action on final application--(1) Review and notification. 
Following the review of the applications, HUD will promptly notify each 
applicant of the action taken with regard to its application. 
Documentation which supports HUD's decisions on applications will be 
available to the public.
    (2) Conditional approval. HUD may make a conditional approval, in 
which case the grant will be approved but the obligation and utilization 
of funds will be restricted. The reasons for the conditional approval 
and the actions necessary to remove the condition will be specified. 
Failure to satisfy the condition may result in a termination of the 
grant.
    (3) HUD will not make a Small Cities grant when it is determined 
that the grant will only have a minimal or insignificant impact on the 
grantee.
    (4) Individual grant amounts. In determining appropriate grant 
amounts to be awarded, HUD may take into account the size of the 
applicant, the level of demand, the scale of the activity proposed 
relative to need and operational capacity, the number of persons to be 
served, the amount of funds required to achieve project objectives and 
the administrative capacity of the applicant to complete the activities 
in a timely manner.
    (c) Streamlined application requirement for previous applicants. HUD 
may provide pursuant to a NOFA that if an applicant notifies HUD in 
writing within the application period specified in a NOFA that it wishes 
to be so considered, HUD will consider unfunded applications from the 
prior round or competition that meet the threshold requirements of the 
NOFA. The applicant will have the option of withdrawing its application, 
or amending or supplementing the application for succeeding rounds of 
competition. If there is no significant change in the application 
involving new activities or alteration of proposed activities that will 
significantly change the scope, location or objectives of the proposed 
activities or beneficiaries, there will be no further citizen 
participation requirement to keep the application active for succeeding 
rounds of competition. Applicants availing themselves of the option to 
have an application from the previous round or competition reconsidered 
by HUD must submit a new abbreviated or full consolidated plan, if the 
new competitive funding round is

[[Page 97]]

in a different fiscal year than the funding round or competition for 
which the application was originally submitted.



Sec. 570.426  Program income.

    (a) The provisions of Sec. 570.504(b) apply to all program income 
generated by a specific grant and received prior to grant closeout.
    (b) If the unit of general local government has another ongoing CDBG 
grant at the time of closeout, the program income will be considered to 
be program income of the ongoing grant. The grantee can choose which 
grant to credit the program income to if it has multiple open CDBG 
grants.
    (c) If the unit of general local government has no open ongoing CDBG 
grant at the time of closeout, program income of the unit of general 
local government or its subrecipients which amounts to less than $25,000 
per year will not be considered to be program income unless needed to 
repay a Section 108 guaranteed loan. When more than $25,000 of program 
income is generated from one or more closed out grants in a year after 
closeout, the entire amount of the program income is subject to the 
requirements of this part. This will be a subject of the closeout 
agreement described in Sec. 570.509(c).



Sec. 570.427  Program amendments.

    (a) HUD approval of certain program amendments. Grantees shall 
request prior HUD approval for all program amendments involving new 
activities or alteration of existing activities that will significantly 
change the scope, location, or objectives of the approved activities or 
beneficiaries. Approval is subject to the following:
    (1) Programs or projects that include new or significantly altered 
activities are rated in accordance with the criteria for selection 
applicable at the time the original preapplication or application 
(whichever is applicable) was rated. The rating of the program or 
projects proposed which include the new or altered activities proposed 
by the amendment must be equal to or greater than the lowest rating 
received by a funded project or program during that cycle of ratings.
    (2) Consideration shall be given to whether any new activity 
proposed can be completed promptly.
    (3) If the grant was received on a noncompetitive basis, the 
proposed amended project must be able to be completed promptly, and must 
meet all of the threshold requirements that were required for the 
original project. If the proposal is to amend the project to a type of 
project that was rated competitively in the fiscal year that the 
noncompetitive project was funded, the new or altered activities 
proposed by the amendment must receive a rating equal to or greater than 
the lowest rating received by a funded project or program during that 
cycle of ratings.
    (b) Documentation of program amendments. Any program amendments that 
do not require HUD approval must be fully documented in the grantee's 
records.
    (c) Citizen participation requirements. Whenever an amendment 
requires HUD approval, the requirements for citizen participation in 
Sec. 570.431 must be met.



Sec. 570.428  Reallocated funds.

    (a) General. This section governs reallocated funds originally 
allocated for use under 24 CFR part 570, subpart F (Small Cities 
Program).
    (b) Assignment of funds to be reallocated. Reallocated funds may be:
    (1) Used at any time necessary for a Section 108 repayment grant 
under Sec. 570.432;
    (2) Added to the next Small Cities Program competition;
    (3) Used to fund any application not selected for funding in the 
most recent Small Cities competition, because of a procedural error made 
by HUD; or
    (4) Used to fund the most highly ranked unfunded application or 
applications from the most recent Small Cities Program competition.
    (c) Timing. Funds which become available shall be used as soon as 
practicable.



Sec. 570.429  Hawaii general and grant requirements.

    (a) General. This section applies to the HUD-administered Small 
Cities Program in the State of Hawaii.
    (b) Scope and applicability. Except as otherwise provided in this 
section, the

[[Page 98]]

policies and procedures outlined in subparts A, C, J, K, O of this part, 
and in Secs. 570.420, 570.430, and 570.432, apply to the HUD-
administered Small Cities Program in the State of Hawaii.
    (c) Grant amounts. (1) For each eligible unit of general local 
government, a formula grant amount will be determined which bears the 
same ratio to the total amount available for the nonentitlement area of 
the State as the weighted average of the ratios between:
    (i) The population of that eligible unit of general local government 
and the population of all eligible units of general local government in 
the nonentitlement areas of the State;
    (ii) The extent of poverty in that eligible unit of general local 
government and the extent of poverty in all the eligible units of 
general local government in the nonentitlement areas of the State; and
    (iii) The extent of housing overcrowding in that eligible unit of 
general local government and the extent of housing overcrowding in all 
the eligible units of general local government in the nonentitlement 
areas of the State.
    (2) In determining the average of the ratios under this paragraph 
(c), the ratio involving the extent of poverty shall be counted twice 
and each of the other ratios shall be counted once. (0.25 + 0.50 + 0.25 
= 1.00).
    (d) Adjustments to grants. Grant amounts under this section may be 
adjusted where an applicant's performance is judged inadequate, 
considering:
    (1) Capacity to utilize the grant amount effectively and 
efficiently;
    (2) Compliance with the requirements of Sec. 570.902(a) for timely 
expenditure of funds beginning with grants made in FY 1996. In making 
this calculation, all outstanding grants will be considered. For the FY 
1995 grant the requirement is substantial compliance with the 
applicant's schedule or schedules submitted in each previously funded 
application;
    (3) Compliance with other program requirements based on monitoring 
visits and audits.
    (e) Reallocation. (1) Any amounts that become available as a result 
of adjustments under paragraph (d) of this section, or any reductions 
under subpart O of this part, shall be reallocated in the same fiscal 
year to any remaining eligible applicants on a pro rata basis.
    (2) Any formula grant amounts reserved for an applicant that chooses 
not to submit an application shall be reallocated to any remaining 
eligible applicants on a pro rata basis.
    (3) No amounts shall be reallocated under paragraph (e) of this 
section in any fiscal year to any applicant whose grant amount was 
adjusted under paragraph (d) of this section or reduced under subpart O 
of this part.
    (f) Required submissions. In order to receive its formula grant 
under this subpart, the applicant must submit a consolidated plan in 
accordance with 24 CFR part 91. That part includes requirements for the 
content of the consolidated plan, for the process of developing the 
plan, including citizen participation provisions, for the submission 
date, for HUD approval, and for the amendment process.
    (g) Application approval. HUD will approve an application if the 
jurisdiction's submissions have been made and approved in accordance 
with 24 CFR part 91 and the certifications required therein are 
satisfactory to the Secretary. The certifications will be satisfactory 
to the Secretary for this purpose unless the Secretary has determined 
pursuant to subpart O of this part that the grantee has not complied 
with the requirements of this part, has failed to carry out its 
consolidated plan as provided under Sec. 570.903, or has determined that 
there is evidence, not directly involving the grantee's past performance 
under this program, that tends to challenge in a substantial manner the 
grantee's certification of future performance. If the Secretary makes 
any such determination, however, further assurances may be required to 
be submitted by the grantee as the Secretary may deem warranted or 
necessary to find the grantee's certification satisfactory.
    (h) Grant agreement. The grant will be made by means of a grant 
agreement executed by both HUD and the grantee.
    (i) Conditional grant. The Secretary may make a conditional grant in 
which case the obligation and use of grant funds for activities may be 
restricted. Conditional grants may be made where

[[Page 99]]

there is substantial evidence that there has been, or there will be, a 
failure to meet the performance requirements or criteria described in 
subpart O of this part. In such case, the conditional grant will be made 
by means of a grant agreement, executed by HUD, which includes the terms 
of the condition specifying the reason for the conditional grant, the 
actions necessary to remove the condition and the deadline for taking 
those actions. The grantee shall execute and return such an agreement to 
HUD within 60 days of the date of its transmittal. Failure of the 
grantee to execute and return the grant agreement within 60 days may be 
deemed by HUD to constitute rejection of the grant by the grantee and 
shall be cause for HUD to determine that the funds provided in the grant 
agreement are available for reallocation in accordance with section 
106(c) of the Act. Failure to satisfy the condition may result in a 
reduction in the grant amount pursuant to Sec. 570.911.

(Approved by the Office of Management and Budget under control number 
2506-0060)



Sec. 570.430  Hawaii program operation requirements.

    (a) Limitation on planning and administrative costs. For grants made 
with allocations prior to FY 1995, no more than 20 percent of the sum of 
the grant plus program income received during the grant period shall be 
expended for planning and program administrative costs. For grants 
received from allocations in FY 1995 and thereafter, a grantee will be 
considered to be in conformance with the requirements of Sec. 570.200(g) 
if funds obligated for planning and administration during the most 
recently completed program year do not exceed 20 percent of the sum of 
the grant made for that program year and the program income received 
from post FY 1994 grants during that program year.
    (b) Performance and evaluation reports. Grantees will follow the 
requirements of Sec. 570.507(a) for entitlement grant recipients for all 
grants received in FY 1995 and thereafter. Grantees will continue 
following the requirements of Sec. 570.507(a) for HUD-administered small 
cities grants for grants received prior to FY 1995 until those grants 
are closed out.
    (c) Grant closeouts. Grants received prior to FY 1995 shall be 
closed out in accordance with the procedures in Sec. 570.509. Grants 
received in FY 1995 and thereafter shall not be closed out individually. 
A grantee's entire program shall be closed upon program completion if a 
grantee ceases its participation in the Small Cities Program.
    (d) Public Services. Starting with the FY 1996 grant, grantees may 
follow the provisions of Sec. 570.201(e)(1) that refer to entitlement 
grantees, allowing grantees to use 15 percent of the program income 
received in the previous program year in addition to 15 percent of the 
grant amount for public services.
    (e) Compliance with the primary objective. Starting with the FY 1995 
grant, grantees may select a time period of one, two or three program 
years in which to meet the requirement that not less than 70 percent of 
the aggregate of CDBG fund expenditures be for activities benefitting 
low- and moderate- income persons. Grants made from allocations prior to 
FY 1995 will be considered individually for meeting the primary 
objective, and expenditures for grants from pre-FY 1995 allocations made 
during and after FY 1995 will not be considered in determining whether 
the primary objective has been met for post-1994 allocations. If the 
State of Hawaii decides to administer the Community Development Block 
Grant Program for nonentitlement units of general local government in 
Hawaii, the State will be bound by the time period for meeting the 
primary objective that was chosen by each nonentitlement grantee within 
the State until those time periods have expired.
    (f) Program amendments for grants received prior to FY 1995. 
Grantees must follow the requirements of 24 CFR 91.505 when amending 
their program with regard to grants received prior to FY 1995. For 
purposes of this paragraph (f), the term consolidated plan as used in 24 
CFR 91.505 means an application submitted under the Hawaii program for 
pre-FY 1995 funds. Also for purposes of this paragraph (f), to comply 
with the requirements of 24 CFR 91.505, grantees must refer to their 
current

[[Page 100]]

citizen participation plans (adopted in accordance with 24 CFR 91.505) 
to determine the criteria for substantial amendment and the citizen 
participation process to be followed.

(Approved by the Office of Management and Budget under control number 
2506-0020)



Sec. 570.431  Citizen participation.

    (a) General. An applicant that is located in a nonentitlement area 
of a State that has not elected to distribute funds shall comply with 
the citizen participation requirements described in this section, 
including requirements for the preparation of the proposed application 
and the final application. The requirements for citizen participation do 
not restrict the responsibility or authority of the applicant for the 
development and execution of its community development program.
    (b) Citizen participation plan. The applicant must develop and 
follow a detailed citizen participation plan and must make the plan 
public. The plan must be completed and available before the application 
for assistance is submitted to HUD, and the applicant must certify that 
it is following the plan. The plan must set forth the applicant's 
policies and procedures for:
    (1) Giving citizens timely notice of local meetings and reasonable 
and timely access to local meetings, information, and records relating 
to the grantee's proposed and actual use of CDBG funds including, but 
not limited to:
    (i) The amount of CDBG funds expected to be made available for the 
coming year, including the grant and anticipated program income;
    (ii) The range of activities that may be undertaken with those 
funds;
    (iii) The estimated amount of those funds proposed to be used for 
activities that will benefit low- and moderate-income persons;
    (iv) The proposed CDBG activities likely to result in displacement 
and the applicant's plans, consistent with the policies developed under 
Sec. 570.606(b), for minimizing displacement of persons as a result of 
its proposed activities; and
    (v) The types and levels of assistance the applicant plans to make 
available (or to require others to make available) to persons displaced 
by CDBG-funded activities, even if the applicant expects no displacement 
to occur;
    (2) Providing technical assistance to groups representative of 
persons of low- and moderate-income that request assistance in 
developing proposals. The level and type of assistance to be provided is 
at the discretion of the applicant. The assistance need not include the 
provision of funds to the groups;
    (3) Holding a minimum of two public hearings, for the purpose of 
obtaining citizens' views and formulating or responding to proposals and 
questions. Each public hearing must be conducted at a different stage of 
the CDBG program. Together, the hearings must address community 
development and housing needs, development of proposed activities and 
review of program performance. There must be reasonable notice of the 
hearings and the hearings must be held at times and accessible locations 
convenient to potential or actual beneficiaries, with reasonable 
accommodations including material in accessible formats for persons with 
disabilities. The applicant must specify in its plan how it will meet 
the requirement for hearings at times and locations convenient to 
potential or actual beneficiaries;
    (4) Meeting the needs of non-English speaking residents in the case 
of public hearings where a significant number of non-English speaking 
residents can reasonably be expected to participate;
    (5) Responding to citizen complaints and grievances, including the 
procedures that citizens must follow when submitting complaints and 
grievances. The applicant's policies and procedures must provide for 
timely written answers to written complaints and grievances within 15 
working days of the receipt of the complaint, where practicable; and
    (6) Encouraging citizen participation, particularly by low- and 
moderate-income persons who reside in slum or blighted areas, and in 
other areas in which CDBG funds are proposed to be used.

[[Page 101]]

    (c) Publication of proposed application. (1) The applicant shall 
publish a proposed application consisting of the proposed community 
development activities and community development objectives in order to 
afford affected citizens an opportunity to:
    (i) Examine the application's contents to determine the degree to 
which they may be affected;
    (ii) Submit comments on the proposed application; and
    (iii) Submit comments on the performance of the applicant.
    (2) The requirement for publishing in paragraph (c)(1) of this 
section may be met by publishing a summary of the proposed application 
in one or more newspapers of general circulation, and by making copies 
of the proposed application available at libraries, government offices, 
and public places. The summary must describe the contents and purpose of 
the proposed application, and must include a list of the locations where 
copies of the entire proposed application may be examined.
    (d) Preparation of a final application. An applicant must prepare a 
final application. In the preparation of the final application, the 
applicant shall consider comments and views received related to the 
proposed application and may, if appropriate, modify the final 
application. The final application shall be made available to the public 
and shall include the community development objectives and projected use 
of funds, and the community development activities.
    (e) New York grantee amendments. To assure citizen participation on 
program amendments to final applications that require HUD approval under 
Sec. 570.427, the grantee shall:
    (1) Furnish citizens information concerning the amendment;
    (2) Hold one or more public hearings to obtain the views of citizens 
on the proposed amendment;
    (3) Develop and publish the proposed amendment in such a manner as 
to afford affected citizens an opportunity to examine the contents, and 
to submit comments on the proposed amendment;
    (4) Consider any comments and views expressed by citizens on the 
proposed amendment and, if the grantee finds it appropriate, modify the 
final amendment accordingly; and
    (5) Make the final amendment to the community development program 
available to the public before its submission to HUD.



Sec. 570.432  Repayment of section 108 loans.

    Notwithstanding any other provision of this subpart, a unit of 
general local government in a nonentitlement area where the State has 
not elected to administer the CDBG program shall be eligible for Small 
Cities Grant assistance hereunder for the sole purpose of paying any 
amounts due on debt obligations issued by such unit of general local 
government (or its designated public agency) and guaranteed by the 
Secretary pursuant to section 108 of the Act (see subpart M of this 
part). The award of grant assistance for such purpose shall be 
consistent with section 106(d)(3)(B) of the Act, in such amount, and 
subject to such conditions as the Secretary may determine. Since 
guaranteed loan funds (as defined in Sec. 570.701) are required to be 
used in accordance with national and primary objective requirements, and 
other applicable requirements of this part, any grant made to make 
payments on the debt obligations evidencing the guaranteed loan shall be 
presumed to meet such requirements, unless HUD determines that the 
guaranteed loan funds were not used in accordance with such 
requirements. Any such determination by HUD shall not prevent the making 
of the grant in the amount of the payment due, but it may be grounds for 
HUD to take appropriate action under subpart O of this part based on the 
original noncompliance.



               Subpart G--Urban Development Action Grants

    Source: 47 FR 7983, Feb. 23, 1982, unless otherwise noted.



Sec. 570.450  Purpose.

    The purpose of urban development action grants is to assist cities 
and urban counties that are experiencing severe economic distress to 
help stimulate economic development activity needed to aid in economic 
recovery.

[[Page 102]]

This subpart G contains those regulations that are essential for the 
continued operation of this grant program.

[61 FR 11476, Mar. 20, 1996]



Sec. 570.456  Ineligible activities and limitations on eligible activities.

    (a) Large cities and urban counties may not use assistance under 
this subpart for planning the project or developing the application. 
However, they may use entitlement community development block grant 
funds for this purpose, provided that the UDAG project meets the 
eligibility test of this part. Any small city which submits a project 
application which is selected for preliminary approval and for which 
legally binding grant agreement and for which a release of funds 
pursuant to 24 CFR part 58 has been issued may devote up to three (3) 
percent of the approved amount of its action grant to defray its actual 
costs in planning the project and preparing its application.
    (b) Assistance under this subpart may not be used for public 
services as described in Sec. 570.201(e).
    (c)(1) No assistance may be provided under this subpart for 
speculative projects intended to facilitate the relocation of industrial 
or commercial plants or facilities from one area to another. The 
provisions of this paragraph (c)(1) shall not apply to a relocation of 
any such plant or facility within a metropolitan area.
    (i) HUD will presume that a proposed project which includes 
speculative commercial or industrial space is intended to facilitate the 
relocation of a plant or facility from one area to another, if it is 
demonstrated to HUD's satisfaction that:
    (A) The proposed project is reasonably proximate (i.e., within 50 
miles) to an area from which there has been a significant current 
pattern of movement, to areas reasonably proximate, of jobs of the 
category for which such space is appropriate; and
    (B) There is a likelihood of continuation of the pattern, based on 
measurable comparisons between the area from which the movement has been 
occurring and the area of the proposed project in terms of tax rates, 
energy costs, and similar relevant factors.
    (ii) The restrictions established in this paragraph (c)(1) shall not 
apply if the Secretary determines that the relocation does not 
significantly and adversely affect the employment or economic base of 
the area from which the industrial or commercial plant or facility is to 
be relocated. However, the Secretary will not be required to make a 
determination whether there is a significant and adverse effect. If such 
a determination is undertaken, the Secretary will presume that there is 
a significant and adverse effect where the significant pattern of job 
movement and the likelihood of continuation of such a pattern has been 
from a distressed community.
    (iii) The presumptions established in accordance with this paragraph 
(c)(1) are rebuttable by the applicant. However, the burden of 
overcoming the presumptions will be on the applicant.
    (iv) The presumptions established in this paragraph (c)(1) will not 
apply if the speculative space contained in a commercial or industrial 
plant or facility included in a project constitutes a lesser percentage 
of the total space contained in that plant or facility than the 
threshold amounts specified below:

------------------------------------------------------------------------
         Size of plant or facility           Amount of speculative space
------------------------------------------------------------------------
0 to 50,000 sq. ft........................  10 percent.
50,001 to 250,000 sq. ft..................  5,000 sq. ft. or 8 percent,
                                             whichever is greater.
250,001 to 1,000,000 sq. ft...............  20,000 sq. ft. or 5 percent,
                                             whichever is greater.
1,000,001 or more sq. ft..................  50,000 sq. ft. or 3 percent,
                                             whichever is greater.
------------------------------------------------------------------------

    (2) Projects with identified intended occupants. No assistance may 
be provided or utilized under this subpart for any project with 
identified intended occupants that is likely to facilitate:
    (i) A relocation of any operation of an industrial or commercial 
plant or facility or other business establishment from any UDAG eligible 
jurisdiction; or
    (ii) An expansion of any operation of an industrial or commercial 
plant or facility or other business establishment that results in a 
substantial reduction of any such operation in any UDAG eligible 
jurisdiction. The provisions of this paragraph (c)(2) shall not apply to 
a relocation of an operation or to an expansion of an operation within

[[Page 103]]

a metropolitan area. The provisions of this paragraph (c)(2) shall apply 
only to projects that do not have speculative space, or to projects that 
include both identified intended occupant space and speculative space.
    (iii) Significant and adverse effect. The restrictions established 
in this paragraph (c)(2) shall not apply if the Secretary determines 
that the relocation or expansion does not significantly and adversely 
affect the employment or economic base of the UDAG eligible jurisdiction 
from which the relocation or expansion occurs. However, the Secretary 
will not be required to make a determination whether there is a 
significant and adverse effect. If such a determination is undertaken, 
among the factors which the Secretary will consider are:
    (A) Whether it is reasonable to anticipate that there will be a 
significant net loss of jobs in the plant or facility being abandoned; 
and
    (B) Whether an equivalent productive use will be made of the plant 
or facility being abandoned by the relocating or expanding operation, 
thus creating no deterioration of economic base.
    (3) Within 90 days following notice of intent to withhold, deny or 
cancel assistance under paragraph (c) (1) or (2) of this section, the 
applicant may appeal in writing to the Secretary the withholding, denial 
or cancellation of assistance. The applicant will be notified and given 
an opportunity within a prescribed time for an informal consultation 
regarding the action.
    (4) Assistance for individuals adversely affected by prohibited 
relocations. (i) Any amount withdrawn by, recaptured by, or paid to the 
Secretary because of a violation (or a settlement of an alleged 
violation) of this section (or any regulation issued or contractual 
provision entered into to carry out this section) by a project with 
identified intended occupants will be made available by the Secretary as 
a grant to the UDAG eligible jurisdiction from which the operation of an 
industrial or commercial plant or facility or other business 
establishment was relocated, or in which the operation was reduced.
    (ii)(A) Any amount made available under this paragraph shall be used 
by the grantee to assist individuals who were employed by the operation 
involved before the relocation or reduction and whose employment or 
terms of employment were adversely affected by the relocation or 
reduction. The assistance shall include job training, job retraining, 
and job placement.
    (B) If any amount made available to a grantee under this paragraph 
(c)(4) is more than is required to provide the assistance described in 
paragraph (c)(4)(ii)(A) of this section, the grantee shall use the 
excess amount to carry out community development activities eligible 
under section 105(a) of the Housing and Community Development Act of 
1974.
    (iii)(A) The provisions of this paragraph (c)(4) shall be applicable 
to any amount withdrawn by, recaptured by, or paid to the Secretary 
under this section, including any amount withdrawn, recaptured, or paid 
before the effective date of this paragraph.
    (B) Grants may be made under this paragraph (c)(4) only to the 
extent of amounts provided in appropriation Acts.
    (5) For purposes of this section, the following definitions apply:
    (i) ``Operation'' means any plant, equipment, facility, substantial 
number of positions, substantial employment opportunities, production 
capacity, or product line.
    (ii) ``Metropolitan area'' means a metropolitan area as defined in 
Sec. 570.3 and which consists of either a freestanding metropolitan area 
or a primary metropolitan statistical area where both primary and 
consolidated areas exist.
    (iii) ``Likely'' means probably or reasonably to be expected, as 
determined by firm evidence such as resolutions of a corporation to 
close a plant or facility, notifications of closure to collective 
bargaining units, correspondence and notifications of corporate 
officials relative to a closure, and supportive evidence, such as 
newspaper articles and notices to employees regarding closure of a plant 
or facility. Consultant studies and marketing studies may be submitted 
as supportive evidence, but by themselves are not firm evidence.

[[Page 104]]

    (iv) ``UDAG eligible jurisdiction'' means a distressed community, a 
Pocket of Poverty, a Pocket of Poverty community, or an identifiable 
community described in section 119(p) of the Housing and Community 
Development Act of 1974.
    (6) Notwithstanding any other provision of this subpart, nothing in 
this subpart may be construed to permit an inference or conclusion that 
the policy of the urban development action grant program is to 
facilitate the relocation of businesses from one area to another.

[47 FR 7983, Feb. 23, 1982, as amended at 53 FR 33028, Aug. 29, 1988; 54 
FR 21169, May 16, 1989; 56 FR 56128, Oct. 31, 1991]



Sec. 570.457  Displacement, relocation, acquisition, and replacement of housing.

    The displacement, relocation, acquisition, and replacement of 
housing requirements of Sec. 570.606 apply to applicants under this 
subpart G.

[55 FR 29309, July 18, 1990]



Sec. 570.461  Post-preliminary approval requirements; lead-based paint.

    The recipient may receive preliminary approval prior to the 
accomplishment of lead-based paint activities conducted pursuant to part 
35, subparts A, B, J, K, and R of this title, but no funds will be 
released until such actions are complete and evidence of compliance is 
submitted to HUD.

[64 FR 50225, Sept. 15, 1999]



Sec. 570.463  Project amendments and revisions.

    (a) Pre-approval revisions to the application. Applicants must 
submit to the HUD Area Office and to Central Office all revisions to the 
application. A revision is considered significant if it alters the 
scope, location, or scale of the project or changes the beneficiaries' 
population.

The applicant must hold at least one public hearing prior to making a 
significant revision to the application.
    (b) Post preliminary approval amendments. Applicants receiving 
preliminary approval must submit to the HUD Central Office, a request 
for approval of any significant amendment. A copy of the request must 
also be submitted to the Area Office. A significant amendment involves 
new activities or alterations thereof which will change the scope, 
location, scale, or beneficiaries of such activities or which, as a 
result of a number of smaller changes, add up to an amount that exceeds 
ten percent of the grant. HUD approval of amendments may be granted to 
those requests which meet all of the following criteria:
    (1) New or significantly altered activities must meet the criteria 
for selection applicable at the time of receipt of the program 
amendment.
    (2) The recipient must have complied with all requirements of this 
subpart.
    (3) The recipient may make amendments other than those requiring 
prior HUD approval as defined in paragraph (b) of this section but each 
recipient must notify both the Area and Central Offices of such changes.

[47 FR 7983, Feb. 23, 1982, as amended at 61 FR 11476, Mar. 20, 1996]



Sec. 570.464  Project closeout.

    HUD will advise the recipient to initiate closeout procedures when 
HUD determines, in consultation with the recipient, that there are not 
impediments to closeout. Closeout shall be carried out in accordance 
with Sec. 570.509 and applicable HUD guidelines.

[53 FR 8058, Mar. 11, 1988]



Sec. 570.465  Applicability of rules and regulations.

    The provisions of subparts A, B, C, J, K, and O of this part 570 
shall apply to this subpart except to the extent that they are modified 
or augmented by this subpart.



Sec. 570.466  Additional application submission requirements for Pockets of Poverty--employment opportunities.

    Applicants for Action Grants under the Pockets of Poverty provision 
must describe the number and, to the extent possible, the types of new 
jobs (construction and permanent) that will be provided to the low- and 
moderate-income residents of the Pocket of Poverty as a direct result of 
the proposed project. If the application calls for job

[[Page 105]]

training programs (such as those related to the CETA program) or job 
recruiting services for the pocket's residents, then such proposed 
activities must be clearly and fully explained. HUD requires applicants 
to ensure that at least 75 percent of whatever permanent jobs initially 
result from the project are provided to low- and moderate-income persons 
and that at least 51 percent of whatever permanent jobs initially result 
from the project are provided to low- and moderate-income residents from 
the pocket. HUD encourages applicants to ensure that at least 20 percent 
of all permanent jobs are filled by persons from the pocket qualified to 
participate in the CETA program on a continuous basis. HUD requires all 
applicants to continuously use best efforts to ensure that at least 75 
percent of all permanent jobs resulting from any Action Grant-assisted 
project are provided to low- and moderate-income persons and that at 
least 51 percent of all permanent jobs resulting from any Action Grant-
assisted project are provided to low- and moderate-income residents from 
the pocket. The application should clearly describe how the applicant 
intends to meet initial and continuous job requirements. Private 
participating parties must meet these employment requirements in the 
aggregate. To enable the private participants to do so, lease agreements 
executed by a private participating party shall include:
    (a) Provisions requiring lessees to follow hiring practices that the 
private participating party has determined will enable it to meet these 
requirements in the aggregate; and
    (b) Provisions that will enable the private participating party to 
declare a default under the lease agreement if the lessees do not follow 
such practices.

[61 FR 11476, Mar. 20, 1996]

Subpart H [Reserved]



       Subpart I--State Community Development Block Grant Program

    Source: 57 FR 53397, Nov. 9, 1992, unless otherwise noted.



Sec. 570.480  General.

    (a) This subpart describes policies and procedures applicable to 
states that elect to receive Community Development Block Grant funds for 
distribution to units of general local government in the state's 
nonentitlement areas under the Housing and Community Development Act of 
1974. Other subparts of part 570 are not applicable to the State CDBG 
Program, except as expressly provided otherwise.
    (b) HUD's authority for the waiver of regulations and for the 
suspension of requirements to address damage in a Presidentially-
declared disaster area is described in 24 CFR part 5 and in section 122 
of the Act, respectively.
    (c) In exercising the Secretary's obligation and responsibility to 
review a state's performance, the Secretary will give maximum feasible 
deference to the state's interpretation of the statutory requirements 
and the requirements of this regulation, provided that these 
interpretations are not plainly inconsistent with the Act and the 
Secretary's obligation to enforce compliance with the intent of the 
Congress as declared in the Act. The Secretary will not determine that a 
state has failed to carry out its certifications in compliance with 
requirements of the Act (and this regulation) unless the Secretary finds 
that procedures and requirements adopted by the state are insufficient 
to afford reasonable assurance that activities undertaken by units of 
general local government were not plainly inappropriate to meeting the 
primary objectives of the Act, this regulation, and the state's 
community development objectives.
    (d) Administrative action taken by the Secretary that is not 
explicitly and fully part of this regulation shall only

[[Page 106]]

apply to a specific case or issue at a specific time, and shall not be 
generally applicable to the state-administered CDBG program.

[57 FR 53397, Nov. 9, 1992, as amended at 61 FR 11477, Mar. 20, 1996; 61 
FR 54921, Oct. 22, 1996]



Sec. 570.481  Definitions.

    (a) Except for terms defined in applicable statutes or this subpart, 
the Secretary will defer to a state's definitions, provided that these 
definitions are explicit, reasonable and not plainly inconsistent with 
the Act. As used in this subpart, the following terms shall have the 
meaning indicated:
    (1) Act means title I of the Housing and Community Development Act 
of 1974 (42 U.S.C. 5301 et seq.).
    (2) CDBG funds means Community Development Block Grant funds, in the 
form of grants under this subpart and program income, and loans 
guaranteed by the state under section 108 of the Act.
    (b) [Reserved]

[57 FR 53397, Nov. 9, 1992, as amended at 61 FR 5209, Feb. 9, 1996]



Sec. 570.482  Eligible activities.

    (a) General. The choice of activities on which block grant funds are 
expended represents the determination by state and local participants, 
developed in accordance with the state's program design and procedures, 
as to which approach or approaches will best serve these interests. The 
eligible activities are listed at section 105(a) of the Act.
    (b) Special assessments under the CDBG program. The following 
policies relate to special assessments under the CDBG program:
    (1) Public improvements initially assisted with CDBG funds. Where 
CDBG funds are used to pay all or part of the cost of a public 
improvement, special assessments may be imposed as follows:
    (i) Special assessments to recover the CDBG funds may be made only 
against properties owned and occupied by persons not of low and moderate 
income. These assessments constitute program income.
    (ii) Special assessments to recover the non-CDBG portion may be 
made, provided that CDBG funds are used to pay the special assessment in 
behalf of all properties owned and occupied by low and moderate income 
persons; except that CDBG funds need not be used to pay the special 
assessments in behalf of properties owned and occupied by moderate 
income persons if, when permitted by the state, the unit of general 
local government certifies that it does not have sufficient CDBG funds 
to pay the assessments in behalf of all of the low and moderate income 
owner-occupant persons. Funds collected through such special assessments 
are not program income.
    (2) Public improvements not initially assisted with CDBG funds. CDBG 
funds may be used to pay special assessments levied against property 
when this form of assessment is used to recover the capital cost of 
eligible public improvements initially financed solely from sources 
other than CDBG funds. The payment of special assessments with CDBG 
funds constitutes CDBG assistance to the public improvement. Therefore, 
CDBG funds may be used to pay special assessments, provided that:
    (i) The installation of the public improvements was carried out in 
compliance with requirements applicable to activities assisted under 
this subpart, including labor, environmental and citizen participation 
requirements;
    (ii) The installation of the public improvement meets a criterion 
for national objectives. (See Sec. 570.483(b)(1), (c), and (d).)
    (iii) The requirements of Sec. 570.482(b)(1)(ii) are met.
    (c) Provision of assistance for microenterprise development. 
Microenterprise development activities eligible under section 105(a)(23) 
of the Housing and Community Development Act of 1974 (the Act), as 
amended, (42 U.S.C. 5301 et seq.) may be carried out either through the 
recipient directly or through public and private organizations, 
agencies, and other subrecipients (including nonprofit and for-profit 
subrecipients).
    (d) Provision of public services. The following activities shall not 
be subject to the restrictions on public services under section 
105(a)(8) of the Housing

[[Page 107]]

and Community Development Act of 1974, as amended:
    (1) Support services provided under section 105(a)(23) of the 
Housing and Community Development Act of 1974, as amended, and paragraph 
(c) of this section;
    (2) Services carried out under the provisions of section 105(a)(15) 
of the Housing and Community Development Act of 1974, as amended, that 
are specifically designed to increase economic opportunities through job 
training and placement and other employment support services, including, 
but not limited to, peer support programs, counseling, child care, 
transportation, and other similar services; and
    (3) Services of any type carried out under the provisions of section 
105(a)(15) of the Act, pursuant to a strategy approved by a State under 
the provisions of Sec. 91.315(e)(2) of this title.
    (e) Guidelines and objectives for evaluating project costs and 
financial requirements--(1) Applicability. The following guidelines, 
also referred to as the underwriting guidelines, are provided to assist 
the recipient to evaluate and select activities to be carried out for 
economic development purposes. Specifically, these guidelines are 
applicable to activities that are eligible for CDBG assistance under 
section 105(a)(17) of the Act, economic development activities eligible 
under section 105(a)(14) of the Act, and activities that are part of a 
community economic development project eligible under section 105(a)(15) 
of the Act. The use of the underwriting guidelines published by HUD is 
not mandatory. However, states electing not to use these guidelines 
would be expected to ensure that the state or units of general local 
government conduct basic financial underwriting prior to the provision 
of CDBG financial assistance to a for-profit business.
    (2) Objectives. The underwriting guidelines are designed to provide 
the recipient with a framework for financially underwriting and 
selecting CDBG-assisted economic development projects which are 
financially viable and will make the most effective use of the CDBG 
funds. Where appropriate, HUD's underwriting guidelines recognize that 
different levels of review are appropriate to take into account 
differences in the size and scope of a proposed project, and in the case 
of a microenterprise or other small business to take into account the 
differences in the capacity and level of sophistication among businesses 
of differing sizes. Recipients are encouraged, when they develop their 
own programs and underwriting criteria, to also take these factors into 
account. These underwriting guidelines are published as appendix A to 
this part. The objectives of the underwriting guidelines are to ensure:
    (i) That project costs are reasonable;
    (ii) That all sources of project financing are committed;
    (iii) That to the extent practicable, CDBG funds are not substituted 
for non-Federal financial support;
    (iv) That the project is financially feasible;
    (v) That to the extent practicable, the return on the owner's equity 
investment will not be unreasonably high; and
    (vi) That to the extent practicable, CDBG funds are disbursed on a 
pro rata basis with other finances provided to the project.
    (f) Standards for evaluating public benefit--(1) Purpose and 
applicability. The grantee is responsible for making sure that at least 
a minimum level of public benefit is obtained from the expenditure of 
CDBG funds under the categories of eligibility governed by these 
standards. The standards set forth below identify the types of public 
benefit that will be recognized for this purpose and the minimum level 
of each that must be obtained for the amount of CDBG funds used. These 
standards are applicable to activities that are eligible for CDBG 
assistance under section 105(a)(17) of the Act, economic development 
activities eligible under section 105(a)(14) of the Act, and activities 
that are part of a community economic development project eligible under 
section 105(a)(15) of the Act. Certain public facilities and 
improvements eligible under section 105(a)(2) of the Act, which are 
undertaken for economic development purposes, are also subject to these 
standards, as specified in Sec. 570.483(b)(4)(vi)(F)(2). Unlike the

[[Page 108]]

guidelines for project costs and financial requirements covered under 
paragraph (a) of this section, the use of the standards for public 
benefit is mandatory.
    (2) Standards for activities in the aggregate. Activities covered by 
these standards must, in the aggregate, either:
    (i) Create or retain at least one full-time equivalent, permanent 
job per $35,000 of CDBG funds used; or
    (ii) Provide goods or services to residents of an area, such that 
the number of low- and moderate-income persons residing in the areas 
served by the assisted businesses amounts to at least one low- and 
moderate-income person per $350 of CDBG funds used.
    (3) Applying the aggregate standards. (i) A state shall apply the 
aggregate standards under paragraph (e)(2) of this section to all funds 
distributed for applicable activities from each annual grant. This 
includes the amount of the annual grant, any funds reallocated by HUD to 
the state, any program income distributed by the state and any 
guaranteed loan funds made under the provisions of subpart M of this 
part covered in the method of distribution in the final statement for a 
given annual grant year.
    (ii) The grantee shall apply the aggregate standards to the number 
of jobs to be created/retained, or to the number of persons residing in 
the area served (as applicable), as determined at the time funds are 
obligated to activities.
    (iii) Where an activity is expected both to create or retain jobs 
and to provide goods or services to residents of an area, the grantee 
may elect to count the activity under either the jobs standard or the 
area residents standard, but not both.
    (iv) Where CDBG assistance for an activity is limited to job 
training and placement and/or other employment support services, the 
jobs assisted with CDBG funds shall be considered to be created or 
retained jobs for the purposes of applying the aggregate standards.
    (v) Any activity subject to these standards which meets one or more 
of the following criteria may, at the grantee's option, be excluded from 
the aggregate standards described in paragraph (f)(2) of this section:
    (A) Provides jobs exclusively for unemployed persons or participants 
in one or more of the following programs:
    (1) Jobs Training Partnership Act (JTPA);
    (2) Jobs Opportunities for Basic Skills (JOBS); or
    (3) Aid to Families with Dependent Children (AFDC);
    (B) Provides jobs predominantly for residents of Public and Indian 
Housing units;
    (C) Provides jobs predominantly for homeless persons;
    (D) Provides jobs predominantly for low-skilled, low- and moderate-
income persons, where the business agrees to provide clear opportunities 
for promotion and economic advancement, such as through the provision of 
training;
    (E) Provides jobs predominantly for persons residing within a census 
tract (or block numbering area) that has at least 20 percent of its 
residents who are in poverty;
    (F) Provides assistance to business(es) that operate(s) within a 
census tract (or block numbering area) that has at least 20 percent of 
its residents who are in poverty;
    (G) Stabilizes or revitalizes a neighborhood income that has at 
least 70 percent of its residents who are low- and moderate-income;
    (H) Provides assistance to a Community Development Financial 
Institution (as defined in the Community Development Banking and 
Financial Institutions Act of 1994, (12 U.S.C. 4701 note)) serving an 
area that has at least 70 percent of its residents who are low- and 
moderate-income;
    (I) Provides assistance to an organization eligible to carry out 
activities under section 105(a)(15) of the Act serving an area that has 
at least 70 percent of its residents who are low- and moderate-income;
    (J) Provides employment opportunities that are an integral component 
of a project designed to promote spatial deconcentration of low- and 
moderate-income and minority persons;
    (K) With prior HUD approval, provides substantial benefit to low-
income

[[Page 109]]

persons through other innovative approaches;
    (L) Provides services to the residents of an area pursuant to a 
strategy approved by the State under the provisions of Sec. 91.315(e)(2) 
of this title;
    (M) Creates or retains jobs through businesses assisted in an area 
pursuant to a strategy approved by the State under the provisions of 
Sec. 91.315(e)(2) of this title.
    (4) Standards for individual activities. Any activity subject to 
these standards which falls into one or more of the following categories 
will be considered by HUD to provide insufficient public benefit, and 
therefore may under no circumstances be assisted with CDBG funds:
    (i) The amount of CDBG assistance exceeds either of the following, 
as applicable:
    (A) $50,000 per full-time equivalent, permanent job created or 
retained; or
    (B) $1,000 per low- and moderate-income person to which goods or 
services are provided by the activity.
    (ii) The activity consists of or includes any of the following:
    (A) General promotion of the community as a whole (as opposed to the 
promotion of specific areas and programs);
    (B) Assistance to professional sports teams;
    (C) Assistance to privately-owned recreational facilities that serve 
a predominantly higher-income clientele, where the recreational benefit 
to users or members clearly outweighs employment or other benefits to 
low- and moderate-income persons;
    (D) Acquisition of land for which the specific proposed use has not 
yet been identified; and
    (E) Assistance to a for-profit business while that business or any 
other business owned by the same person(s) or entity(ies) is the subject 
of unresolved findings of noncompliance relating to previous CDBG 
assistance provided by the recipient.
    (5) Applying the individual activity standards. (i) Where an 
activity is expected both to create or retain jobs and to provide goods 
or services to residents of an area, it will be disqualified only if the 
amount of CDBG assistance exceeds both of the amounts in paragraph 
(f)(4)(i) of this section.
    (ii) The individual activity tests in paragraph (f)(4)(i) of this 
section shall be applied to the number of jobs to be created or 
retained, or to the number of persons residing in the area served (as 
applicable), as determined at the time funds are obligated to 
activities.
    (iii) Where CDBG assistance for an activity is limited to job 
training and placement and/or other employment support services, the 
jobs assisted with CDBG funds shall be considered to be created or 
retained jobs for the purposes of applying the individual activity 
standards in paragraph (f)(4)(i) of this section.
    (6) Documentation. The state and its grant recipients must maintain 
sufficient records to demonstrate the level of public benefit, based on 
the above standards, that is actually achieved upon completion of the 
CDBG-assisted economic development activity(ies) and how that compares 
to the level of such benefit anticipated when the CDBG assistance was 
obligated. If a state grant recipient's actual results show a pattern of 
substantial variation from anticipated results, the state and its 
recipient are expected to take those actions reasonably within their 
respective control to improve the accuracy of the projections. If the 
actual results demonstrate that the state has failed the public benefit 
standards, HUD may require the state to meet more stringent standards in 
future years as appropriate.
    (g) Amendments to economic development projects after review 
determinations. If, after the grantee enters into a contract to provide 
assistance to a project, the scope or financial elements of the project 
change to the extent that a significant contract amendment is 
appropriate, the project should be reevaluated under these and the 
recipient's guidelines. (This would include, for example, situations 
where the business requests a change in the amount or terms of 
assistance being provided, or an extension to the loan payment period 
required in the contract.) If a reevaluation of the project indicates 
that the financial elements and public benefit to be derived have also 
substantially changed, then the recipient should make appropriate 
adjustments

[[Page 110]]

in the amount, type, terms or conditions of CDBG assistance which has 
been offered, to reflect the impact of the substantial change. (For 
example, if a change in the project elements results in a substantial 
reduction of the total project costs, it may be appropriate for the 
recipient to reduce the amount of total CDBG assistance.) If the amount 
of CDBG assistance provided to the project is increased, the amended 
project must still comply with the public benefit standards under 
paragraph (f) of this section.

[57 FR 53397, Nov. 9, 1992, as amended at 60 FR 1949, Jan. 5, 1995; 61 
FR 54921, Oct. 22, 1996]



Sec. 570.483  Criteria for national objectives.

    (a) General. The following criteria shall be used to determine 
whether a CDBG assisted activity complies with one or more of the 
national objectives as required to section 104(b)(3) of the Act. (HUD is 
willing to consider a waiver of these requirements in accordance with 
Sec. 570.480(b)).
    (b) Activities benefiting low and moderate income persons. An 
activity will be considered to address the objective of benefiting low 
and moderate income persons if it meets one of the criteria in paragraph 
(b) of this section, unless there is substantial evidence to the 
contrary. In assessing any such evidence, the full range of direct 
effects of the assisted activity will be considered. The activities, 
when taken as a whole, must not benefit moderate income persons to the 
exclusion of low income persons:
    (1) Area benefit activities. (i) An activity, the benefits of which 
are available to all the residents in a particular area, where at least 
51 percent of the residents are low and moderate income persons. Such an 
area need not be coterminous with census tracts or other officially 
recognized boundaries but must be the entire area served by the 
activity. Units of general local government may, at the discretion of 
the state, use either HUD-provided data comparing census data with 
appropriate low and moderate income levels or survey data that is 
methodologically sound. An activity that serves an area that is not 
primarily residential in character shall not qualify under this 
criterion.
    (ii) An activity, where the assistance is to a public improvement 
that provides benefits to all the residents of an area, that is limited 
to paying special assessments levied against residential properties 
owned and occupied by persons of low and moderate income.
    (iii)(A) An activity to develop, establish and operate (not to 
exceed two years after establishment), a uniform emergency telephone 
number system serving an area having less than 51 percent of low and 
moderate income residents, when the system has not been made operational 
before the receipt of CDBG funds, provided a prior written determination 
is obtained from HUD. HUD's determination will be based upon 
certifications by the State that:
    (1) The system will contribute significantly to the safety of the 
residents of the area. The unit of general local government must provide 
the state a list of jurisdictions and unincorporated areas to be served 
by the system and a list of the emergency services that will participate 
in the emergency telephone number system;
    (2) At least 51 percent of the use of the system will be by low and 
moderate income persons. The state's certification may be based upon 
information which identifies the total number of calls actually received 
over the preceding twelve-month period for each of the emergency 
services to be covered by the emergency telephone number system and 
relates those calls to the geographic segment (expressed as nearly as 
possible in terms of census tracts, enumeration districts, block groups, 
or combinations thereof that are contained within the segment) of the 
service area from which the calls were generated. In analyzing this data 
to meet the requirements of this section, the state will assume that the 
distribution of income among callers generally reflects the income 
characteristics of the general population residing in the same 
geographic area where the callers reside. Alternatively, the state's 
certification may be based upon other data, agreed to by HUD and the 
state, which shows that over the preceding twelve-month period the users 
of all the services to be included in the emergency

[[Page 111]]

telephone number system consisted of at least 51 percent low and 
moderate income persons.
    (3) Other federal funds received by the unit of general local 
government are insufficient or unavailable for a uniform emergency 
telephone number system. The unit of general local government must 
submit a statement explaining whether the problem is caused by the 
insufficiency of the amount of such funds, the restrictions on the use 
of such funds, or the prior commitment of such funds for other purposes 
by the unit of general local government.
    (4) The percentage of the total costs of the system paid for by CDBG 
funds does not exceed the percentage of low and moderate income persons 
in the service area of the system. The unit of general local government 
must include a description of the boundaries of the service area of the 
system; the census tracts or enumeration districts within the 
boundaries; the total number of persons and the total number of low and 
moderate income persons in each census tract or enumeration district, 
and the percentage of low and moderate income persons in the service 
area; and the total cost of the system.
    (B) The certifications of the state must be submitted along with a 
brief statement describing the factual basis upon which the 
certifications were made.
    (iv) Activities meeting the requirements of paragraph (e)(4)(i) of 
this section may be considered to qualify under paragraph (b)(1) of this 
section.
    (v) HUD will consider activities meeting the requirements of 
paragraph (e)(5)(i) of this section to qualify under paragraph (b)(1) of 
this section, provided that the area covered by the strategy meets one 
of the following criteria:
    (A) The area is in a Federally-designated Empowerment Zone or 
Enterprise Community;
    (B) The area is primarily residential and contains a percentage of 
low and moderate income residents that is no less than 70 percent;
    (C) All of the census tracts (or block numbering areas) in the area 
have poverty rates of at least 20 percent, at least 90 percent of the 
census tracts (or block numbering areas) in the area have poverty rates 
of at least 25 percent, and the area is primarily residential. (If only 
part of a census tract or block numbering area is included in a strategy 
area, the poverty rate shall be computed for those block groups (or any 
part thereof) which are included in the strategy area.)
    (D) Upon request by the State, HUD may grant exceptions to the 70 
percent low and moderate income or 25 percent poverty minimum thresholds 
on a case-by-case basis. In no case, however, may a strategy area have 
both a percentage of low and moderate income residents less than 51 
percent and a poverty rate less than 20 percent.
    (2) Limited clientele activities. (i) An activity which benefits a 
limited clientele, at least 51 percent of whom are low and moderate 
income persons. The following kinds of activities may not qualify under 
paragraph (b)(2) of this section:
    (A) Activities, the benefits of which are available to all the 
residents of an area;
    (B) Activities involving the acquisition, construction or 
rehabilitation of property for housing; or
    (C) Activities where the benefit to low- and moderate-income persons 
to be considered is the creation or retention of jobs, except as 
provided in paragraph (b)(2)(v) of this section.
    (ii) To qualify under paragraph (b)(2) of this section, the activity 
must meet one or the following tests:
    (A) It must benefit a clientele who are generally presumed to be 
principally low and moderate income persons. Activities that exclusively 
serve a group of persons in any one or a combination of the following 
categories may be presumed to benefit persons, 51 percent of whom are 
low and moderate income: abused children, battered spouses, elderly 
persons, adults meeting the Bureau of the Census' Current Population 
Reports definition of ``severely disabled,'' homeless persons, 
illiterate adults, persons living with AIDS, and migrant farm workers; 
or
    (B) It must require information on family size and income so that it 
is evident that at least 51 percent of the clientele are persons whose 
family income does not exceed the low and moderate income limit; or

[[Page 112]]

    (C) It must have income eligibility requirements which limit the 
activity exclusively to low and moderate income persons; or
    (D) It must be of such a nature, and be in such a location, that it 
may be concluded that the activity's clientele will primarily be low and 
moderate income persons.
    (iii) An activity that serves to remove material or architectural 
barriers to the mobility or accessibility of elderly persons or of 
adults meeting the Bureau of the Census' Current Population Reports 
definition of ``severely disabled'' will be presumed to qualify under 
this criterion if it is restricted, to the extent practicable, to the 
removal of such barriers by assisting:
    (A) The reconstruction of a public facility or improvement, or 
portion thereof, that does not qualify under Sec. 570.483(b)(1);
    (B) The rehabilitation of a privately owned nonresidential building 
or improvement that does not qualify under Sec. 570.483(b) (1) or (4); 
or
    (C) The rehabilitation of the common areas of a residential 
structure that contains more than one dwelling unit and that does not 
qualify under Sec. 570.483(b)(3).
    (iv) A microenterprise assistance activity (carried out in 
accordance with the provisions of section 105(a)(23) of the Act or 
Sec. 570.482(c) and limited to microenterprises) with respect to those 
owners of microenterprises and persons developing microenterprises 
assisted under the activity who are low- and moderate-income persons. 
For purposes of this paragraph, persons determined to be low and 
moderate income may be presumed to continue to qualify as such for up to 
a three-year period.
    (v) An activity designed to provide job training and placement and/
or other employment support services, including, but not limited to, 
peer support programs, counseling, child care, transportation, and other 
similar services, in which the percentage of low- and moderate-income 
persons assisted is less than 51 percent may qualify under this 
paragraph in the following limited circumstances:
    (A) In such cases where such training or provision of supportive 
services is an integrally-related component of a larger project, the 
only use of CDBG assistance for the project is to provide the job 
training and/or supportive services; and
    (B) The proportion of the total cost of the project borne by CDBG 
funds is no greater than the proportion of the total number of persons 
assisted who are low or moderate income.
    (3) Housing activities. An eligible activity carried out for the 
purpose of providing or improving permanent residential structures that, 
upon completion, will be occupied by low and moderate income households. 
This would include, but not necessarily be limited to, the acquisition 
or rehabilitation of property by the unit of general local government, a 
subrecipient, an entity eligible to receive assistance under section 
105(a)(15) of the Act, a developer, an individual homebuyer, or an 
individual homeowner; conversion of nonresidential structures; and new 
housing construction. If the structure contains two dwelling units, at 
least one must be so occupied, and if the structure contains more than 
two dwelling units, at least 51 percent of the units must be so 
occupied. If two or more rental buildings being assisted are or will be 
located on the same or contiguous properties, and the buildings will be 
under common ownership and management, the grouped buildings may be 
considered for this purpose as a single structure. If housing activities 
being assisted meet the requirements of paragraph (e)(4)(ii) or 
(e)(5)(ii) of this section, all such housing may also be considered for 
this purpose as a single structure. For rental housing, occupancy by low 
and moderate income households must be at affordable rents to qualify 
under this criterion. The unit of general local government shall adopt 
and make public its standards for determining ``affordable rents'' for 
this purpose. The following shall also qualify under this criterion:
    (i) When less than 51 percent of the units in a structure will be 
occupied by low and moderate income households, CDBG assistance may be 
provided in the following limited circumstances:
    (A) The assistance is for an eligible activity to reduce the 
development

[[Page 113]]

cost of the new construction of a multifamily, non-elderly rental 
housing project; and
    (B) Not less than 20 percent of the units will be occupied by low 
and moderate income households at affordable rents; and
    (C) The proportion of the total cost of developing the project to be 
borne by CDBG funds is no greater than the proportion of units in the 
project that will be occupied by low and moderate income households.
    (ii) Where CDBG funds are used to assist rehabilitation delivery 
services or in direct support of the unit of general local government's 
Rental Rehabilitation Program authorized under 24 CFR part 511, the 
funds shall be considered to benefit low and moderate income persons 
where not less than 51 percent of the units assisted, or to be assisted, 
by the Rental Rehabilitation Program overall are for low and moderate 
income persons.
    (iii) When CDBG funds are used for housing services eligible under 
section 105(a)(21) of the Act, such funds shall be considered to benefit 
low and moderate income persons if the housing units for which the 
services are provided are HOME-assisted and the requirements of 
Sec. 92.252 or Sec. 92.254 of this title are met.
    (4) Job creation or retention activities. (i) An activity designed 
to create permanent jobs where at least 51 percent of the jobs, computed 
on a full time equivalent basis, involve the employment of low and 
moderate income persons. For an activity that creates jobs, the unit of 
general local government must document that at least 51 percent of the 
jobs will be held by, or will be made available to low and moderate 
income persons.
    (ii) For an activity that retains jobs, the unit of general local 
government must document that the jobs would actually be lost without 
the CDBG assistance and that either or both of the following conditions 
apply with respect to at least 51 percent of the jobs at the time the 
CDBG assistance is provided: The job is known to be held by a low or 
moderate income person; or the job can reasonably be expected to turn 
over within the following two years and that it will be filled by, or 
that steps will be taken to ensure that it is made available to, a low 
or moderate income person upon turnover.
    (iii) Jobs will be considered to be available to low and moderate 
income persons for these purposes only if:
    (A) Special skills that can only be acquired with substantial 
training or work experience or education beyond high school are not a 
prerequisite to fill such jobs, or the business agrees to hire 
unqualified persons and provide training; and
    (B) The unit of general local government and the assisted business 
take actions to ensure that low and moderate income persons receive 
first consideration for filling such jobs.
    (iv) For purposes of determining whether a job is held by or made 
available to a low- or moderate-income person, the person may be 
presumed to be a low- or moderate-income person if:
    (A) He/she resides within a census tract (or block numbering area) 
that either:
    (1) Meets the requirements of paragraph (b)(4)(v) of this section; 
or
    (2) Has at least 70 percent of its residents who are low- and 
moderate-income persons; or
    (B) The assisted business is located within a census tract (or block 
numbering area) that meets the requirements of paragraph (b)(4)(v) of 
this section and the job under consideration is to be located within 
that census tract.
    (v) A census tract (or block numbering area) qualifies for the 
presumptions permitted under paragraphs (b)(4)(iv) (A)(1) and (B) of 
this section if it is either part of a Federally-designated Empowerment 
Zone or Enterprise Community or meets the following criteria:
    (A) It has a poverty rate of at least 20 percent as determined by 
the most recently available decennial census information;
    (B) It does not include any portion of a central business district, 
as this term is used in the most recent Census of Retail Trade, unless 
the tract has a poverty rate of at least 30 percent as determined by the 
most recently available decennial census information; and
    (C) It evidences pervasive poverty and general distress by meeting 
at least one of the following standards:

[[Page 114]]

    (1) All block groups in the census tract have poverty rates of at 
least 20 percent;
    (2) The specific activity being undertaken is located in a block 
group that has a poverty rate of at least 20 percent; or
    (3) Upon the written request of the recipient, HUD determines that 
the census tract exhibits other objectively determinable signs of 
general distress such as high incidence of crime, narcotics use, 
homelessness, abandoned housing, and deteriorated infrastructure or 
substantial population decline.
    (vi) As a general rule, each assisted business shall be considered 
to be a separate activity for purposes of determining whether the 
activity qualifies under this paragraph, except:
    (A) In certain cases such as where CDBG funds are used to acquire, 
develop or improve a real property (e.g., a business incubator or an 
industrial park) the requirement may be met by measuring jobs in the 
aggregate for all the businesses that locate on the property, provided 
the businesses are not otherwise assisted by CDBG funds.
    (B) Where CDBG funds are used to pay for the staff and overhead 
costs of an entity specified in section 105(a)(15) of the Act making 
loans to businesses exclusively from non-CDBG funds, this requirement 
may be met by aggregating the jobs created by all of the businesses 
receiving loans during any one-year period.
    (C) Where CDBG funds are used by a recipient or subrecipient to 
provide technical assistance to businesses, this requirement may be met 
by aggregating the jobs created or retained by all of the businesses 
receiving technical assistance during any one-year period.
    (D) Where CDBG funds are used for activities meeting the criteria 
listed at Sec. 570.482(f)(3)(v), this requirement may be met by 
aggregating the jobs created or retained by all businesses for which 
CDBG assistance is obligated for such activities during any one-year 
period, except as provided at paragraph (e)(6) of this section.
    (E) Where CDBG funds are used by a Community Development Financial 
Institution to carry out activities for the purpose of creating or 
retaining jobs, this requirement may be met by aggregating the jobs 
created or retained by all businesses for which CDBG assistance is 
obligated for such activities during any one-year period, except as 
provided at paragraph (e)(6) of this section.
    (F) Where CDBG funds are used for public facilities or improvements 
which will result in the creation or retention of jobs by more than one 
business, this requirement may be met by aggregating the jobs created or 
retained by all such businesses as a result of the public facility or 
improvement.
    (1) Where the public facility or improvement is undertaken 
principally for the benefit of one or more particular businesses, but 
where other businesses might also benefit from the assisted activity, 
the requirement may be met by aggregating only the jobs created or 
retained by those businesses for which the facility/improvement is 
principally undertaken, provided that the cost (in CDBG funds) for the 
facility/improvement is less than $10,000 per permanent full-time 
equivalent job to be created or retained by those businesses.
    (2) In any case where the cost per job to be created or retained (as 
determined under paragraph (b)(4)(vi)(F)(1) of this section) is $10,000 
or more, the requirement must be met by aggregating the jobs created or 
retained as a result of the public facility or improvement by all 
businesses in the service area of the facility/improvement. This 
aggregation must include businesses which, as a result of the public 
facility/improvement, locate or expand in the service area of the public 
facility/improvement between the date the state awards the CDBG funds to 
the recipient and the date one year after the physical completion of the 
public facility/improvement. In addition, the assisted activity must 
comply with the public benefit standards at Sec. 570.482(f).
    (5) Planning-only activities. An activity involving planning (when 
such activity is the only activity for which the grant to the unit of 
general local government is given, or if the planning activity is 
unrelated to any other activity assisted by the grant) if it can be 
documented that at least 51 percent of

[[Page 115]]

the persons who would benefit from implementation of the plan are low 
and moderate income persons. Any such planning activity for an area or a 
community composed of persons of whom at least 51 percent are low and 
moderate income shall be considered to meet this national objective.
    (c) Activities which aid in the prevention or elimination of slums 
or blight. Activities meeting one or more of the following criteria, in 
the absence of substantial evidence to the contrary, will be considered 
to aid in the prevention or elimination of slums or blight:
    (1) Activities to address slums or blight on an area basis. An 
activity will be considered to address prevention or elimination of 
slums or blight in an area if the state can determine that:
    (i) The area, delineated by the unit of general local government, 
meets a definition of a slum, blighted, deteriorated or deteriorating 
area under state or local law;
    (ii) Throughout the area there is a substantial number of 
deteriorated or deteriorating buildings or the public improvements are 
in a general state of deterioration;
    (iii) The assisted activity addresses one or more of the conditions 
which contributed to the deterioration of the area. Rehabilitation of 
residential buildings carried out in an area meeting the above 
requirements will be considered to address the area's deterioration only 
where each such building rehabilitated is considered substandard before 
rehabilitation, and all deficiencies making a building substandard have 
been eliminated if less critical work on the building is also 
undertaken. The State shall ensure that the unit of general local 
government has developed minimum standards for building quality which 
may take into account local conditions.
    (iv) The state keeps records sufficient to document its findings 
that a project meets the national objective of prevention or elimination 
of slums and blight.
    (2) Activities to address slums or blight on a spot basis. 
Acquisition, clearance, relocation, historic preservation and building 
rehabilitation activities which eliminate specific conditions of blight 
or physical decay on a spot basis not located in a slum or blighted area 
will meet this objective. Under this criterion, rehabilitation is 
limited to the extent necessary to eliminate specific conditions 
detrimental to public health and safety.
    (3) Planning only activities. An activity involving planning (when 
the activity is the only activity for which the grant to the unit of 
general local government is given, or the planning activity is unrelated 
to any other activity assisted by the grant) if the plans are for a slum 
or blighted area, or if all elements of the planning are necessary for 
and related to an activity which, if funded, would meet one of the other 
criteria of elimination of slums or blight.
    (d) Activities designed to meet community development needs having a 
particular urgency. In the absence of substantial evidence to the 
contrary, an activity will be considered to address this objective if 
the unit of general local government certifies, and the state 
determines, that the activity is designed to alleviate existing 
conditions which pose a serious and immediate threat to the health or 
welfare of the community which are of recent origin or which recently 
became urgent, that the unit of general local government is unable to 
finance the activity on its own, and that other sources of funding are 
not available. A condition will generally be considered to be of recent 
origin if it developed or became urgent within 18 months preceding the 
certification by the unit of general local government.
    (e) Additional criteria. (1) In any case where the activity 
undertaken is a public improvement and the activity is clearly designed 
to serve a primarily residential area, the activity must meet the 
requirements of paragraph (b)(1) of this section whether or not the 
requirements of paragraph (b)(4) of this section are met in order to 
qualify as benefiting low and moderate income persons.
    (2) Where the assisted activity is acquisition of real property, a 
preliminary determination of whether the activity addresses a national 
objective may be based on the planned use of the

[[Page 116]]

property after acquisition. A final determination shall be based on the 
actual use of the property, excluding any short-term, temporary use. 
Where the acquisition is for the purpose of clearance which will 
eliminate specific conditions of blight or physical decay, the clearance 
activity shall be considered the actual use of the property. However, 
any subsequent use or disposition of the cleared property shall be 
treated as a ``change of use'' under Sec. 570.489(j).
    (3) Where the assisted activity is relocation assistance that the 
unit of general local government is required to provide, the relocation 
assistance shall be considered to address the same national objective as 
is addressed by the displacing activity. Where the relocation assistance 
is voluntary, the unit of general local government may qualify the 
assistance either on the basis of the national objective addressed by 
the displacing activity or, if the relocation assistance is to low and 
moderate income persons, on the basis of the national objective of 
benefiting low and moderate income persons.
    (4) Where CDBG-assisted activities are carried out by a Community 
Development Financial Institution whose charter limits its investment 
area to a primarily residential area consisting of at least 51 percent 
low- and moderate-income persons, the unit of general local government 
may also elect the following options:
    (i) Activities carried out by the Community Development Financial 
Institution for the purpose of creating or retaining jobs may, at the 
option of the unit of general local government, be considered to meet 
the requirements of this paragraph under the criteria at paragraph 
(b)(1)(iv) of this section in lieu of the criteria at paragraph (b)(4) 
of this section; and
    (ii) All housing activities for which the Community Development 
Financial Institution obligates CDBG assistance during any one-year 
period may be considered to be a single structure for purposes of 
applying the criteria at paragraph (b)(3) of this section.
    (5) If the unit of general local government has elected to prepare a 
community revitalization strategy pursuant to the authority of 
Sec. 91.315(e)(2) of this title, and the State has approved the 
strategy, the unit of general local government may also elect the 
following options:
    (i) Activities undertaken pursuant to the strategy for the purpose 
of creating or retaining jobs may, at the option of the grantee, be 
considered to meet the requirements of paragraph (b) of this section 
under the criteria at Sec. 570.483(b)(1)(v) instead of the criteria at 
Sec. 570.483(b)(4); and
    (ii) All housing activities in the area undertaken pursuant to the 
strategy may be considered to be a single structure for purposes of 
applying the criteria at paragraph (b)(3) of this section.
    (6) If an activity meeting the criteria in Sec. 570.482(f)(3)(v) 
also meets the requirements of either paragraph (e)(4)(i) or (e)(5)(i) 
of this section, the unit of general local government may elect to 
qualify the activity either under the area benefit criteria at paragraph 
(b)(1)(iv) or (v) of this section or under the job aggregation criteria 
at paragraph (b)(4)(vi)(D) of this section, but not under both. Where an 
activity may meet the job aggregation criteria at both paragraphs 
(b)(4)(vi)(D) and (E) of this section, the unit of general local 
government may elect to qualify the activity under either criterion, but 
not both.
    (f) Planning and administrative costs. CDBG funds expended for 
eligible planning and administrative costs by units of general local 
government in conjunction with other CDBG assisted activities will be 
considered to address the national objectives.

[57 FR 53397, Nov. 9, 1992, as amended at 60 FR 1951, Jan. 5, 1995; 60 
FR 17445, Apr. 6, 1995; 61 FR 54921, Oct. 22, 1996]



Sec. 570.484  Overall benefit to low and moderate income persons.

    (a) General. The State must certify that, in the aggregate, not less 
than 70 percent of the CDBG funds received by the state during a period 
specified by the state, not to exceed three years, will be used for 
activities that benefit persons of low and moderate income. The period 
selected and certified to by the state shall be designated by fiscal 
year of annual grants, and shall be for one, two or three consecutive 
annual grants. The period shall be in effect until all included funds 
are expended.

[[Page 117]]

No CDBG funds may be included in more than one period selected, and all 
CDBG funds received must be included in a selected period.
    (b) Computation of 70 percent benefit. Determination that a state 
has carried out its certification under paragraph (a) of this section 
requires evidence that not less than 70 percent of the aggregate of the 
designated annual grant(s), any funds reallocated by HUD to the state, 
any distributed program income and any guaranteed loan funds under the 
provisions of subpart M of this part covered in the method of 
distribution in the final statement or statements for the designated 
annual grant year or years have been expended for activities meeting 
criteria as provided in Sec. 570.483(b) for activities benefiting low 
and moderate income persons. In calculating the percentage of funds 
expended for such activities:
    (1) All CDBG funds included in the period selected and certified to 
by the state shall be accounted for, except for funds used by the State, 
or by the units of general local government, for program administration, 
or for planning activities other than those which must meet a national 
objective under Sec. 570.483 (b)(5) or (c)(3).
    (2) Any funds expended by a state for the purpose of repayment of 
loans guaranteed under the provisions of subpart M of this part shall be 
excepted from inclusion in this calculation.
    (3) Except as provided in paragraph (b)(4) of this section, CDBG 
funds expended for an eligible activity meeting the criteria for 
activities benefiting low and moderate income persons shall count in 
their entirety towards meeting the 70 percent benefit to persons of low 
and moderate income requirement.
    (4) Funds expended for the acquisition, new construction or 
rehabilitation of property for housing that qualifies under 
Sec. 570.483(b)(3) shall be counted for this purpose, but shall be 
limited to an amount determined by multiplying the total cost (including 
CDBG and non-CDBG costs) of the acquisition, construction or 
rehabilitation by the percent of units in such housing to be occupied by 
low and moderate income persons, except that the amount counted shall 
not exceed the amount of CDBG funds provided.



Sec. 570.485  Making of grants.

    (a) Required submissions. In order to receive its annual CDBG grant 
under this subpart, a State must submit a consolidated plan in 
accordance with 24 CFR part 91. That part includes requirements for the 
content of the consolidated plan, for the process of developing the 
plan, including citizen participation provisions, for the submission 
date, for HUD approval, and for the amendment process.
    (b) Failure to make submission. The state's failure to make the 
submission required by paragraph (a) of this section within the 
prescribed deadline constitutes the state's election not to receive and 
distribute amounts allocated for its nonentitlement areas for the 
applicable fiscal year. Funds will be either:
    (1) Administered by HUD pursuant to subpart F of this part if the 
state has not administered the program in any previous fiscal year; or
    (2) Reallocated to all states in the succeeding fiscal year 
according to the formula of section 106(d) of the Act, if the state 
administered the program in any previous year.
    (c) Approval of grant. HUD will approve a grant if the State's 
submissions have been made and approved in accordance with 24 CFR part 
91, and the certifications required therein are satisfactory to the 
Secretary. The certifications will be satisfactory to the Secretary for 
this purpose unless the Secretary has determined pursuant to 
Sec. 570.493 that the State has not complied with the requirements of 
this subpart, or has determined that there is evidence, not directly 
involving the State's past performance under this program, that tends to 
challenge in a substantial manner the State's certification of future 
performance. If the Secretary makes any such determination, however, the 
State may be required to submit further assurances as the Secretary may 
deem warranted or necessary to find the grantee's certification 
satisfactory.

[57 FR 53397, Nov. 9, 1992, as amended at 60 FR 1916, Jan. 5, 1995; 61 
FR 54922, Oct. 22, 1996]

[[Page 118]]



Sec. 570.486  Local government requirements.

    (a) Citizen participation requirements of a unit of general local 
government. Each unit of general local government shall meet the 
following requirements as required by the state at Sec. 91.115(e) of 
this title.
    (1) Provide for and encourage citizen participation, particularly by 
low and moderate income persons who reside in slum or blighted areas and 
areas in which CDBG funds are proposed to be used;
    (2) Ensure that citizens will be given reasonable and timely access 
to local meetings, information, and records relating to the unit of 
local government's proposed and actual use of CDBG funds;
    (3) Furnish citizens information, including but not limited to:
    (i) The amount of CDBG funds expected to be made available for the 
current fiscal year (including the grant and anticipated program 
income);
    (ii) The range of activities that may be undertaken with the CDBG 
funds;
    (iii) The estimated amount of the CDBG funds proposed to be used for 
activities that will meet the national objective of benefit to low and 
moderate income persons; and
    (iv) The proposed CDBG activities likely to result in displacement 
and the unit of general local government's antidisplacement and 
relocation plans required under Sec. 570.488.
    (4) Provide technical assistance to groups representative of persons 
of low and moderate income that request assistance in developing 
proposals in accordance with the procedures developed by the state. Such 
assistance need not include providing funds to such groups;
    (5) Provide for a minimum of two public hearings, each at a 
different stage of the program, for the purpose of obtaining citizens' 
views and responding to proposals and questions. Together the hearings 
must cover community development and housing needs, development of 
proposed activities and a review of program performance. The public 
hearings to cover community development and housing needs must be held 
before submission of an application to the state. There must be 
reasonable notice of the hearings and they must be held at times and 
locations convenient to potential or actual beneficiaries, with 
accommodations for the handicapped. Public hearings shall be conducted 
in a manner to meet the needs of non-English speaking residents where a 
significant number of non-English speaking residents can reasonably be 
expected to participate;
    (6) Provide citizens with reasonable advance notice of, and 
opportunity to comment on, proposed activities in an application to the 
state and, for grants already made, activities which are proposed to be 
added, deleted or substantially changed from the unit of general local 
government's application to the state. Substantially changed means 
changes made in terms of purpose, scope, location or beneficiaries as 
defined by criteria established by the state.
    (7) Provide citizens the address, phone number, and times for 
submitting complaints and grievances, and provide timely written answers 
to written complaints and grievances, within 15 working days where 
practicable.
    (b) Activities serving beneficiaries outside the jurisdiction of the 
unit of general local government. CDBG-funded activities may serve 
beneficiaries outside the jurisdiction of the unit of general local 
government that receives the grant, provided the unit of general local 
government determines that the activity is meeting its needs in 
accordance with section 106(d)(2)(D) of the Act.

[57 FR 53397, Nov. 9, 1992, as amended at 61 FR 54922, Oct. 22, 1996]



Sec. 570.487  Other applicable laws and related program requirements.

    (a) General. Certain statutes are expressly made applicable to 
activities assisted under the Act by the Act itself, while other laws 
not referred to in the Act may be applicable to such activities by their 
own terms. Certain statutes or executive orders that may be applicable 
to activities assisted under the Act by their own terms are administered 
or enforced by governmental officials, departments or agencies other 
than HUD. Paragraphs (d) and (c) of this section contain two of

[[Page 119]]

the requirements expressly made applicable to CDBG activities by the Act 
itself.
    (b) Affirmatively furthering fair housing. The Act requires the 
state to certify to the satisfaction of HUD that it will affirmatively 
further fair housing. The act also requires each unit of general local 
government to certify that it will affirmatively further fair housing. 
The certification that the State will affirmatively further fair housing 
shall specifically require the State to assume the responsibility of 
fair housing planning by:
    (1) Conducting an analysis to identify impediments to fair housing 
choice within the State;
    (2) Taking appropriate actions to overcome the effects of any 
impediments identified through that analysis;
    (3) Maintaining records reflecting the analysis and actions in this 
regard; and
    (4) Assuring that units of local government funded by the State 
comply with their certifications to affirmatively further fair housing.
    (c) Lead-Based Paint Poisoning Prevention Act. States shall devise, 
adopt and carry out procedures with respect to CDBG assistance that 
fulfill the objectives and requirements of the Lead-Based Paint 
Poisoning Prevention Act (42 U.S.C. 4821-4846), the Residential Lead-
Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), and 
implementing regulations at part 35, subparts A, B, J, K, and R of this 
title.
    (d) States shall comply with section 3 of the Housing and Urban 
Development Act of 1968 (12 U.S.C. 1701u) and the implementing 
regulations in 24 CFR part 135. Section 3 requires that employment and 
other economic opportunities arising in connection with housing 
rehabilitation, housing construction, or other public construction 
projects shall, to the greatest extent feasible, and consistent with 
existing Federal, State, and local laws and regulations, be given to 
low- and very low-income persons.
    (e) Architectural Barriers Act and the Americans with Disabilities 
Act. The Architectural Barriers Act of 1968 (42 U.S.C. 4151--4157) 
requires certain Federal and Federally-funded buildings and other 
facilities to be designed, constructed, or altered in accordance with 
standards that ensure accessibility to, and use by, physically 
handicapped people. A building or facility designed, constructed, or 
altered with funds allocated or reallocated under this subpart after 
November 21, 1996 and that meets the definition of residential structure 
as defined in 24 CFR 40.2, or the definition of building as defined in 
41 CFR 101-19.602(a), is subject to the requirements of the 
Architectural Barriers Act of 1968 and shall comply with the Uniform 
Federal Accessibility Standards. For general type buildings, these 
standards are in appendix A to 41 CFR part 101-19.6. For residential 
structures, these standards are available from the Department of Housing 
and Urban Development, Office of Fair Housing and Equal Opportunity, 
Disability Rights Division, Room 5240, 451 Seventh Street, SW, 
Washington, DC 20410; telephone (202) 708-2333 (voice) or (202) 708-1734 
(TTY) (these are not toll-free numbers).

[57 FR 53397, Nov. 9, 1992, as amended at 59 FR 33894, June 30, 1994; 60 
FR 1916, Jan. 5, 1995; 61 FR 54922, Oct. 22, 1996; 64 FR 50225, Sept. 
15, 1999]



Sec. 570.488  Displacement, relocation, acquisition, and replacement of housing.

    The requirements for States and state recipients with regard to the 
displacement, relocation, acquisition, and replacement of housing are in 
Sec. 570.606 and 24 CFR part 42.

[61 FR 11477, Mar. 20, 1996]



Sec. 570.489  Program administrative requirements.

    (a) Administrative and planning costs--(1) State administrative 
costs. (i) The state is responsible for the administration of all CDBG 
funds. The state shall pay from its own resources all administrative 
costs incurred by the state in carrying out its responsibilities under 
this subpart, except that the state may use CDBG funds to pay such costs 
in an amount not to exceed $100,000 plus 50 percent of such costs in 
excess of $100,000. States are therefore required to match such costs in 
excess of $100,000 on a dollar for dollar basis. The amount of CDBG 
funds used to pay such costs in excess of $100,000 shall not exceed 2 
percent of the aggregate of the

[[Page 120]]

state's annual grant, program income received by units of general local 
government (whether retained by the unit of general local government or 
paid to the State) and funds reallocated by HUD to the state.
    (ii) For determining the amount of CDBG funds available in past 
years for administrative costs incurred by the state, the following 
schedule applies:
    (A) $100,000 per annual grant beginning with FY 1984 allocations;
    (B) Two percent of program income returned by units of general local 
government to the State after August 21, 1985; and
    (C) Two percent of program income received by units of general local 
government after February 11, 1991.
    (iii) The state has the option of selecting its approach for 
demonstrating compliance with this requirement. Regardless of the 
approach selected by the state, the state will be required to pay its 50 
percent of administrative costs in excess of $100,000 in the same amount 
and at the same time at which it draws CDBG funds for such costs after 
the expenditure of the $100,000. Any state for which it is determined 
that matching costs contributions are in arrears on the use of CDBG 
funds for administrative costs will be required to bring matching cost 
expenditures up to the level of CDBG expenditures for such costs within 
one year of the effective date of this subpart. A state grant may not be 
closed out if the state's matching cost contribution is not at least 
equal to the amount of CDBG funds in excess of $100,000 expended for 
administration. Funds from any year's grant may be used to pay 
administrative costs associated with any other year's grant. The two 
approaches are:
    (A) Cumulative accounting of administrative costs incurred by the 
state since its assumption of the Program. Under this approach, the 
state will identify, for each grant it has received, the CDBG funds 
eligible to be used for administrative costs as well as the maximum 
amount of matching funds which the state is required to pay. The amounts 
will then be aggregated for all grants received. The state must keep 
records demonstrating the actual amount of CDBG funds from each grant 
received which was used for administrative costs as well as matching 
amounts paid by the state. These amounts will also be aggregated for all 
grants received. The state will be considered to be in compliance with 
the requirement if the aggregate of actual amounts spent for 
administrative costs does not exceed the maximum amount allowable and 
the amount which the state has paid in matching funds is at least equal 
to the amount of CDBG funds in excess of $100,000 (for each applicable 
allocation) drawn for administrative purposes. Any administrative 
amounts associated with a particular state grant shall be deducted from 
the aggregate totals upon closeout of that state grant.
    (B) An accounting process developed and implemented by the state 
which provides sufficient information to demonstrate that the 
requirements of this subsection are met.
    (2) The state may not charge fees of any entity for processing or 
considering any application for CDBG fund, or for carrying out its 
responsibilities under this subpart.
    (3) The state and its funded units of general local government shall 
not expend for planning, management and administrative costs more than 
20 percent of the aggregate amount of the annual grant, plus program 
income and funds reallocated by HUD to the State which are distributed 
during the time the final Statement for the annual grant is in effect. 
Administrative costs are those described at Sec. 570.489(a)(1) for 
states, and for units of general local government those described at 
sections 105(a)(12) and (a)(13) of the Act.
    (b) Reimbursement of pre-agreement costs. The state may permit, in 
accordance with such procedures as the State may establish, a unit of 
local government to incur costs for CDBG activities before the 
establishment of a formal grant relationship between the State and the 
unit of general local government and to charge these pre-agreement costs 
to the grant, provided that the activities are eligible and undertaken 
in accordance with the requirements of this subpart and 24 CFR part 58.

[[Page 121]]

    (c) Federal grant payments. (1) Payments. The state shall be paid in 
advance in accordance with Treasury Circular 1075 (31 CFR part 205). The 
State shall use procedures to minimize the time elapsing between the 
transfer of grant funds and disbursement of funds by the State to units 
of general local government. Units of general local government shall 
also use procedures to minimize the time elapsing between the transfer 
of funds by the State and disbursement for CDBG activities.
    (2) Interest on advances. Interest earned by units of general local 
government on grant funds before disbursement of the funds for 
activities is not program income and must be returned to the Treasury, 
except that the unit of general local government may keep interest 
amounts of up $100 per year for administrative expenses. However, the 
state shall not be held accountable for interest earned on grants for 
which payments are made in accordance with paragraph (c)(1) of this 
section pending disbursement for CDBG activities.
    (d) Fiscal controls and accounting procedures. (1) A state shall 
have fiscal and administrative requirements for expending and accounting 
for all funds received under this subpart. These requirements must be 
available for Federal inspection and must:
    (i) Be sufficiently specific to ensure that funds received under 
this subpart are used in compliance with all applicable statutory and 
regulatory provisions:
    (ii) Ensure that funds received under this subpart are only spent 
for reasonable and necessary costs of operating programs under this 
subpart; and
    (iii) Ensure that funds received under this subpart are not used for 
general expenses required to carry out other responsibilities of state 
and local governments.
    (2) A state may satisfy this requirement by:
    (i) Using fiscal and administrative requirements applicable to the 
use of its own funds;
    (ii) Adopting new fiscal and administrative requirements; or
    (iii) Applying the provisions in 24 CFR part 85 ``Uniform 
Administrative Requirements for Grants and Cooperative Agreements to 
State and Local Governments.''
    (e) Program income. (1) For the purposes of this subpart, ``program 
income'' is defined as gross income received by a state, a unit of 
general local government or a subrecipient of a unit of general local 
government that was generated from the use of CDBG funds, except as 
provided in paragraph (e)(2) of this section. When income is generated 
by an activity that is only partially assisted with CDBG funds, the 
income shall be prorated to reflect the percentage of CDBG funds used 
(e.g., a single loan supported by CDBG funds and other funds; a single 
parcel of land purchased with CDBG funds and other funds). Program 
income includes, but is not limited to, the following:
    (i) Proceeds from the disposition by sale or long term lease of real 
property purchased or improved with CDBG funds;
    (ii) Proceeds from the disposition of equipment purchased with CDBG 
funds;
    (iii) Gross income from the use or rental of real or personal 
property acquired by the unit of general local government or a 
subrecipient of a unit of general local government with CDBG funds; less 
the costs incidental to the generation of the income;
    (iv) Gross income from the use or rental of real property owned by 
the unit of general local government or a subrecipient of a unit of 
general local government, that was constructed or improved with CDBG 
funds, less the costs incidental to the generation of the income;
    (v) Payments of principal and interest on loans made using CDBG 
funds;
    (vi) Proceeds from the sale of loans made with CDBG funds;
    (vii) Proceeds from the sale of obligations secured by loans made 
with CDBG funds;
    (viii) Interest earned on funds held in a revolving fund account;
    (ix) Interest earned on program income pending disposition of the 
income;
    (x) Funds collected through special assessments made against 
properties owned and occupied by households not of low and moderate 
income, where the special assessments are used to recover

[[Page 122]]

all or part of the CDBG portion of a public improvement; and
    (xi) Gross income paid to a unit of general local government or 
subrecipient from the ownership interest in a for-profit entity acquired 
in return for the provision of CDBG assistance.
    (2) ``Program income'' does not include the following:
    (i) The total amount of funds which is less than $25,000 received in 
a single year that is retained by a unit of general local government and 
its subrecipients;
    (ii) Amounts generated by activities eligible under section 
105(a)(15) of the Act and carried out by an entity under the authority 
of section 105(a)(15) of the Act;
    (iii) Amounts generated by activities that are financed by a loan 
guaranteed under section 108 of the Act and meet one or more of the 
public benefit criteria specified at Sec. 570.482(f)(3)(v) or are 
carried out in conjunction with a grant under section 108(q) of the Act 
in an area determined by HUD to meet the eligibility requirements for 
designation as an Urban Empowerment Zone pursuant to 24 CFR part 597, 
subpart B. Such exclusion shall not apply if CDBG funds are used to 
repay the guaranteed loan. When such a guaranteed loan is partially 
repaid with CDBG funds, the amount generated shall be prorated to 
reflect the percentage of CDBG funds used. Amounts generated by 
activities financed with loans guaranteed under section 108 of the Act 
which are not defined as program income shall be treated as 
miscellaneous revenue and shall not be subject to any of the 
requirements of this part. However, such treatment shall not affect the 
right of the Secretary to require the section 108 borrower to pledge 
such amounts as security for the guaranteed loan. The determination 
whether such amounts shall constitute program income shall be governed 
by the provisions of the contract required at Sec. 570.705(b)(1).
    (3) The state may permit the unit of general local government which 
receives or will receive program income to retain the program income, 
subject to the requirements of paragraph (e)(3)(ii) of this section, or 
the state may require the unit of general local government to pay the 
program income to the state. The state, however, must permit the unit of 
general local government to retain the program income if the program 
income will be used to continue the activity from which the program 
income was derived. The state will determine when an activity will be 
considered to be continued.
    (i) Program income paid to the state. Program income that is paid to 
the state is treated as additional CDBG funds subject to the 
requirements of this subpart and must be distributed to units of general 
local government in accordance with the method of distribution in the 
state's final Statement. To the maximum extent feasible, program income 
shall be distributed before the state makes additional withdrawals from 
the Treasury, except as provided in paragraph (f) of this section.
    (ii) Program income retained by a unit of general local government. 
(A) Program income that is received and retained by the unit of general 
local government before closeout of the grant that generated the program 
income is treated as additional CDBG funds and is subject to all 
applicable requirements of this subpart.
    (B) Program income that is received and retained by the unit of 
general local government after closeout of the grant that generated the 
program income is not subject to the requirements of this subpart, 
except:
    (1) If the unit of general local government has another ongoing CDBG 
grant from the state at the time of closeout, the program income 
continues to be subject to the requirements of this subpart as long as 
there is an ongoing grant; and
    (2) If program income is used to continue the activity that 
generated the program income, the requirements of this subpart apply to 
the program income as long as the unit of general local government uses 
the program income to continue the activity;
    (3) The state may extend the period of applicability of the 
requirements of this subpart.

[[Page 123]]

    (C) The state shall require units of general local government, to 
the maximum extent feasible, to disburse program income that is subject 
to the requirements of this subpart before requesting additional funds 
from the state for activities, except as provided in paragraph (f) of 
this section.
    (f) Revolving funds. (1) The state may permit units of general local 
government to establish revolving funds to carry out specific, 
identified activities. A revolving fund, for this purpose, is a separate 
fund (with a set of accounts that are independent of other program 
accounts) established to carry out specific activities which, in turn, 
generate payments to the fund for use in carrying out such activities. 
These payments to the revolving fund are program income and must be 
substantially disbursed from the revolving fund before additional grant 
funds are drawn from the Treasury for revolving fund activities. Such 
program income is not required to be disbursed for non-revolving fund 
activities.
    (2) The state may establish a revolving fund to distribute funds to 
units of general local government to carry out specific, identified 
activities. A revolving fund, for this purpose, is a separate fund (with 
a set of accounts that are independent of other program accounts) 
established to fund grants to units of general local government to carry 
out specific activities which, in turn, generate payments to the fund 
for additional grants to units of general local government to carry out 
such activities. Program income in the revolving fund must be disbursed 
from the fund before additional grant funds are drawn from the Treasury 
for payments to units of general local government which could be funded 
from the revolving fund.
    (3) A revolving fund established by either the State or unit of 
general local government shall not be directly funded or capitalized 
with grant funds.
    (g) Procurement. When procuring property or services to be paid for 
in whole or in part with CDBG funds, the state shall follow its 
procurement policies and procedures. The state shall establish 
requirements for procurement policies and procedures for units of 
general local government, based on full and open competition. Methods of 
procurement (e.g., small purchase, sealed bids/formal advertising, 
competitive proposals, and noncompetitive proposals) and their 
applicability shall be specified by the state. Cost plus a percentage of 
cost and percentage of construction costs methods of contracting shall 
not be used. The policies and procedures shall also include standards of 
conduct governing employees engaged in the award or administration of 
contracts. (Other conflicts of interest are covered by Sec. 570.489(h).) 
The state shall ensure that all purchase orders and contracts include 
any clauses required by Federal statutes, executive orders and 
implementing regulations.
    (h) Conflict of interest--(1) Applicability. (i) In the procurement 
of supplies, equipment, construction, and services by the States, units 
of local general governments, and subrecipients, the conflict of 
interest provisions in paragraph (g) of this section shall apply.
    (ii) In all cases not governed by paragraph (g) of this section, 
this paragraph (h) shall apply. Such cases include the acquisition and 
disposition of real property and the provision of assistance with CDBG 
funds by the unit of general local government or its subrecipients, to 
individuals, businesses and other private entities.
    (2) Conflicts prohibited. Except for eligible administrative or 
personnel costs, the general rule is that no persons described in 
paragraph (h)(3) of this section who exercise or have exercised any 
functions or responsibilities with respect to CDBG activities assisted 
under this subpart or who are in a position to participate in a 
decisionmaking process or gain inside information with regard to such 
activities, may obtain a financial interest or benefit from the 
activity, or have an interest or benefit from the activity, or have an 
interest in any contract, subcontract or agreement with respect thereto, 
or the proceeds thereunder, either for themselves or those with whom 
they have family or business ties, during their tenure or for one year 
thereafter.
    (3) Persons covered. The conflict of interest provisions for 
paragraph (h)(2) of this section apply to any person who is

[[Page 124]]

an employee, agent, consultant, officer, or elected official or 
appointed official of the state, or of a unit of general local 
government, or of any designated public agencies, or subrecipients which 
are receiving CDBG funds.
    (4) Exceptions: Thresholds requirements. Upon written request by the 
State, an exception to the provisions of paragraph (h)(2) of this 
section involving an employee, agent, consultant, officer, or elected 
official or appointed official of the state may be granted by HUD on a 
case-by-case basis. In all other cases, the state may grant such an 
exception upon written request of the unit of general local government 
provided the state shall fully document its determination in compliance 
with all requirements of paragraph (h)(4) of this section including the 
state's position with respect to each factor at paragraph (h)(5) of this 
section and such documentation shall be available for review by the 
public and by HUD. An exception may be granted after it is determined 
that such an exception will serve to further the purpose of the Act and 
the effective and efficient administration of the program or project of 
the state or unit of general local government as appropriate. An 
exception may be considered only after the state or unit of general 
local government, as appropriate, has provided the following:
    (i) A disclosure of the nature of the conflict, accompanied by an 
assurance that there has been public disclosure of the conflict and a 
description of how the public disclosure was made; and
    (ii) An opinion of the attorney for the state or the unit of general 
local government, as appropriate, that the interest for which the 
exception is sought would not violate state or local law.
    (5) Factors to be considered for exceptions. In determining whether 
to grant a requested exception after the requirements of paragraph 
(h)(4) of this section have been satisfactorily met, the cumulative 
effect of the following factors, where applicable, shall be considered:
    (i) Whether the exception would provide a significant cost benefit 
or an essential degree of expertise to the program or project which 
would otherwise not be available;
    (ii) Whether an opportunity was provided for open competitive 
bidding or negotiation;
    (iii) Whether the person affected is a member of a group or class of 
low or moderate income persons intended to be the beneficiaries of the 
assisted activity, and the exception will permit such person to receive 
generally the same interests or benefits as are being made available or 
provided to the group or class;
    (iv) Whether the affected person has withdrawn from his or her 
functions or responsibilities, or the decisionmaking process with 
respect to the specific assisted activity in question;
    (v) Whether the interest or benefit was present before the affected 
person was in a position as described in paragraph (h)(3) of this 
section;
    (vi) Whether undue hardship will result either to the State or the 
unit of general local government or the person affected when weighed 
against the public interest served by avoiding the prohibited conflict; 
and
    (vii) Any other relevant considerations.
    (i) Closeout of grants to units of general local government. The 
State shall establish requirements for timely closeout of grants to 
units of general local government and shall take action to ensure the 
timely closeout of such grants.
    (j) Change of use of real property. The standards described in this 
section apply to real property within the unit of general local 
government's control (including activities undertaken by subrecipients) 
which was acquired or improved in whole or in part using CDBG funds in 
excess of the threshold for small purchase procurement (24 CFR 85.36, 
``Administrative Requirements for Grants and Cooperative Agreements to 
State, Local and Federally Recognized Indian Tribal Governments''). 
These standards shall apply from the date CDBG funds are first spent for 
the property until five years after closeout of the unit of general 
local government's grant.
    (1) A unit of general local governments may not change the use or

[[Page 125]]

planned use of any such property (including the beneficiaries of such 
use) from that for which the acquisition or improvement was made, unless 
the unit of general local government provides affected citizens with 
reasonable notice of and opportunity to comment on any proposed change, 
and either:
    (i) The new use of the property qualifies as meeting one of the 
national objectives and is not a building for the general conduct of 
government; or
    (ii) The requirements in paragraph (j)(2) of this section are met.
    (2) If the unit of general local government determines, after 
consultation with affected citizens, that it is appropriate to change 
the use of the property to a use which does not qualify under paragraph 
(j)(1) of this section, it may retain or dispose of the property for the 
changed use if the unit of general local government's CDBG program is 
reimbursed or the state's CDBG program is reimbursed, at the discretion 
of the state. The reimbursement shall be in the amount of the current 
fair market value of the property, less any portion of the value 
attributable to expenditures of non-CDBG funds for acquisition of, and 
improvements to, the property, except that if the change in use occurs 
after grant closeout but within 5 years of such closeout, the unit of 
general local government shall make the reimbursement to the State's 
CDBG program account.
    (3) Following the reimbursement of the CDBG program in accordance 
with paragraph (j)(2) of this section, the property no longer will be 
subject to any CDBG requirements.
    (k) Accountability for real and personal property. The State shall 
establish and implement requirements, consistent with State law and the 
purposes and requirements of this subpart (including paragraph (j) of 
this section) governing the use, management, and disposition of real and 
personal property acquired with CDBG funds.
    (l) Debarment and suspension. As required by 24 CFR part 24, each 
CDBG participant shall require participants in lower tier covered 
transactions to include a certification that neither it nor its 
principals are currently debarred, suspended, proposed for debarment, 
declared ineligible, or voluntarily excluded from participation in the 
covered transaction, in any proposal submitted in connection with the 
lower tier covered transactions. A participant may rely on the 
certification, unless it knows the certification is erroneous.
    (m) Audits. Audits of the state and units of general local 
government shall be conducted in accordance with 24 CFR part 44 which 
implements the Single Audit Act (31 U.S.C. 7501-07). States shall 
develop and administer an audits management system to ensure that audits 
of units of general local government are conducted in accordance with 24 
CFR part 44.

[57 FR 53397, Nov. 9, 1992, as amended at 60 FR 1952, Jan. 5, 1995; 61 
FR 54922, Oct. 22, 1996; 67 FR 15112, Mar. 29, 2002]



Sec. 570.490  Recordkeeping requirements.

    (a) State records. The state shall establish and maintain such 
records as may be necessary to facilitate review and audit by HUD of the 
state's administration of CDBG funds under Sec. 570.493. The content of 
records maintained by the state shall be as jointly agreed upon by HUD 
and the states and sufficient to enable HUD to make the determinations 
described at Sec. 570.493. For fair housing and equal opportunity 
purposes, and as applicable, such records shall include data on the 
racial, ethnic, and gender characteristics of persons who are applicants 
for, participants in, or beneficiaries of the program. The records shall 
also permit audit of the states in accordance with 24 CFR part 44.
    (b) Unit of general local government's record. The State shall 
establish recordkeeping requirements for units of general local 
government receiving CDBG funds that are sufficient to facilitate 
reviews and audits of such units of general local government under 
Secs. 570.492 and 570.493. For fair housing and equal opportunity 
purposes, and as applicable, such records shall include data on the 
racial, ethnic, and gender characteristics of persons who are applicants 
for, participants in, or beneficiaries of the program.
    (c) Access to records. (1) Representatives of HUD, the Inspector 
General, and the General Accounting Office

[[Page 126]]

shall have access to all books, accounts, records, reports, files, and 
other papers, or property pertaining to the administration, receipt and 
use of CDBG funds and necessary to facilitate such reviews and audits.
    (2) The State shall provide citizens with reasonable access to 
records regarding the past use of CDBG funds and ensure that units of 
general local government provide citizens with reasonable access to 
records regarding the past use of CDBG funds consistent with State or 
local requirements concerning the privacy of personal records.
    (d) Record retention. Records of the State and units of general 
local government, including supporting documentation, shall be retained 
for the greater of three years from closeout of the grant to the state, 
or the period required by other applicable laws and regulations as 
described in Sec. 570.487 and Sec. 570.488.



Sec. 570.491  Performance and evaluation report.

    The annual performance and evaluation report shall be submitted in 
accordance with 24 CFR part 91.

(Approved by the Office of Management and Budget under control number 
2506-0117)

[60 FR 1916, Jan. 5, 1995]



Sec. 570.492  State's reviews and audits.

    (a) The state shall make reviews and audits including on-site 
reviews, of units of general local government as may be necessary or 
appropriate to meet the requirements of section 104(e)(2) of the Act.
    (b) In the case of noncompliance with these requirements, the State 
shall take such actions as may be appropriate to prevent a continuance 
of the deficiency, mitigate any adverse effects or consequences and 
prevent a recurrence. The state shall establish remedies for units of 
general local government noncompliance.



Sec. 570.493  HUD's reviews and audits.

    (a) General. At least on an annual basis, HUD shall make such 
reviews and audits as may be necessary or appropriate to determine:
    (1) Whether the state has distributed CDBG funds to units of general 
local government in a timely manner in conformance to the method of 
distribution described in its action plan under part 91 of this title;
    (2) Whether the state has carried out its certifications in 
compliance with the requirements of the Act and this subpart and other 
applicable laws; and
    (3) Whether the state has made reviews and audits of the units of 
general local government required by Sec. 570.492.
    (b) Information considered. In conducting performance reviews and 
audits, HUD will rely primarily on information obtained from the state's 
performance report, records maintained by the state, findings from on-
site monitoring, audit reports, and the status of the state's unexpended 
grant funds. HUD may also consider relevant information on the state's 
performance gained from other sources, including litigation, citizens' 
comments, and other information provided by the state. A State's failure 
to maintain records in accordance with Sec. 570.490 may result in a 
finding that the State has failed to meet the applicable requirement to 
which the record pertains.

[57 FR 53397, Nov. 9, 1992, as amended at 61 FR 54922, Oct. 22, 1996]



Sec. 570.494  Timely distribution of funds by states.

    (a) States are encouraged to adopt and achieve a goal of obligating 
and announcing 95 percent of funds to units of general local government 
within 12 months of the state signing its grant agreement with HUD.
    (b) HUD will review each state to determine if the state has 
distributed CDBG funds in a timely manner. The state's distribution of 
CDBG funds is timely if:
    (1) All of the state's annual grant (excluding state administration) 
has been obligated and announced to units of general local government 
within 15 months of the state signing its grant agreement with HUD; and
    (2) Recaptured funds and program income received by the state are 
expeditiously obligated and announced to units of general local 
government.
    (c) HUD may collect necessary information from states to determine

[[Page 127]]

whether CDBG funds have been distributed in a timely manner.



Sec. 570.495  Reviews and audits response.

    (a) If HUD's review and audit under Sec. 570.493 results in a 
negative determination, or if HUD otherwise determines that a state or 
unit of general local government has failed to comply with any 
requirement of this subpart, the state will be given an opportunity to 
contest the finding and will be requested to submit a plan for 
corrective action. If the state is unsuccessful in contesting the 
validity of the finding to the satisfaction of HUD, or if the state's 
plan for corrective action is not satisfactory to HUD, HUD may take one 
or more of the following actions to prevent a continuation of the 
deficiency; mitigate, to the extent possible, the adverse effects or 
consequence of the deficiency; or prevent a recurrence of the 
deficiency:
    (1) Issue a letter of warning that advises the State of the 
deficiency and puts the state on notice that additional action will be 
taken if the deficiency is not corrected or is repeated;
    (2) Advise the state that additional information or assurances will 
be required before acceptance of one or more of the certifications 
required for the succeeding year grant;
    (3) Advise the state to suspend or terminate disbursement of funds 
for a deficient activity or grant;
    (4) Advise the state to reimburse its grant in any amounts 
improperly expended;
    (5) Change the method of payment to the state from an advance basis 
to a reimbursement basis;
    (6) Based on the state's current failure to comply with a 
requirement of this subpart which will affect the use of the succeeding 
year grant, condition the use of the succeeding fiscal years grant funds 
upon appropriate corrective action by the state. When the use of funds 
is conditioned, HUD shall specify the reasons for the conditions and the 
actions necessary to satisfy the conditions.
    (b)(1) Whenever HUD determines that a state or unit of general local 
government which is a recipient of CDBG funds has failed to comply with 
section 109 of the Act (nondiscrimination requirements), HUD shall 
notify the governor of the State or chief executive officer of the unit 
of general local government of the noncompliance and shall request the 
governor or the chief executive officer to secure compliance. If within 
a reasonable time, not to exceed sixty days, the governor or chief 
executive officer fails or refuses to secure compliance, HUD may take 
the following action:
    (i) Refer the matter to the Attorney General with a recommendation 
that an appropriate civil action be instituted;
    (ii) Exercise the powers and functions provided by title VI of the 
Civil Rights Act of 1964 (42 U.S.C. 2000d-2000d-7);
    (iii) Exercise the powers and functions provided for in 
Sec. 570.496; or
    (iv) Take such other action as may be provided by law.
    (2) When a matter is referred to the Attorney General pursuant to 
paragraph (b)(1)(i) of this section, or whenever HUD has reason to 
believe that a State or unit of general local government is engaged in a 
pattern or practice in violation of the provisions of section 109 of the 
Act, the Attorney General may bring a civil action in any appropriate 
United States district court for such relief as may be appropriate, 
including injunctive relief.



Sec. 570.496  Remedies for noncompliance; opportunity for hearing.

    (a) General. Action pursuant to this section will be taken only 
after at least one of the corrective or remedial actions specified in 
Sec. 570.495 has been taken, and only then if the State or unit of 
general local government has not made an appropriate or timely response.
    (b) Remedies. (1) If HUD finds after reasonable notice and 
opportunity for hearing that a State or unit of general local government 
has failed to comply with any provision of this subpart, until HUD is 
satisfied that there is no longer failure to comply, HUD shall:
    (i) Terminate payments to the state;
    (ii) Reduce payments for current or future grants to the state by an 
amount equal to the amount of CDBG funds distributed or used without 
compliance with the requirements of this subpart;

[[Page 128]]

    (iii) Limit the availability of payments to the state to activities 
not affected by the failure to comply or to activities designed to 
overcome the failure to comply;
    (iv) Based on the state's failure to comply with a requirement of 
this subpart (other than the state's current failure to comply which 
will affect the use of the succeeding year grant), condition the use of 
the grant funds upon appropriate corrective action by the state 
specified by HUD; or
    (v) With respect to a CDBG grant awarded by the state to a unit of 
general local government, withhold, reduce, or withdraw the grant, 
require the state to withhold, reduce, or withdraw the grant, or take 
other action as appropriate, except that CDBG funds expended on eligible 
activities shall not be recaptured or deducted from future CDBG grants 
to such unit of general local government.
    (2) HUD may on due notice suspend payments at any time after the 
issuance of a notice of opportunity for hearing pursuant to paragraph 
(d) of this section, pending such hearing and a final decision, to the 
extent HUD determines such action necessary to prevent a continuation of 
the noncompliance.
    (c) In lieu of, or in addition to, the action authorized by 
paragraph (b) of this section, if HUD has reason to believe that the 
state or unit of general local government has failed to comply 
substantially with any provision of this subpart, HUD may:
    (1) Refer the matter to the Attorney General of the United States 
with a recommendation that an appropriate civil action be instituted; 
and
    (2) Upon such a referral, the Attorney General may bring a civil 
action in any United States district court having venue thereof for such 
relief as may be appropriate, including an action to recover the amount 
of the CDBG funds which was not expended in accordance with this 
subpart, or for mandatory or injunctive relief.
    (d) Proceedings. When HUD proposes to take action pursuant to this 
section, the respondent in the proceedings will be the state. At the 
option of HUD, a unit of general local government may also be a 
respondent. These procedures are to be followed before imposition of a 
sanction described in paragraph (b)(1) of this section:
    (1) Notice of opportunity for hearing. HUD shall notify the 
respondent in writing of the proposed action and of the opportunity for 
a hearing. The notice shall be sent to the respondent by first class 
mail and shall provide notice:
    (i) In a manner which is adequate to allow the respondent to prepare 
its response, the basis upon which HUD determined that the respondent 
failed to comply with a provision of this subpart;
    (ii) That the hearing procedures are governed by these rules;
    (iii) That the respondent has 14 days from receipt of the notice 
within which to provide a written request for a hearing to the Chief 
Docket Clerk, Office of Administrative Law Judges, and the address and 
telephone number of the Chief Docket Clerk;
    (iv) Of the action which HUD proposes to take and that the authority 
for this action is Sec. 570.496 of this subpart;
    (v) That if the respondent fails to request a hearing within the 
time specified, HUD's determination that the respondent failed to comply 
with a provision of this subpart shall be final and HUD may proceed to 
take the proposed action.
    (2) Initiation of hearing. The respondent shall be allowed 14 days 
from receipt of the notice within which to notify HUD in writing of its 
request for a hearing. If no request is received within the time 
specified, HUD's determination that the respondent failed to comply with 
a provision of this subpart shall be final and HUD may proceed to take 
the proposed action.
    (3) Administrative Law Judge. Proceedings conducted under these 
rules shall be presided over by an Administrative Law Judge (ALJ), 
appointed as provided by section 11 of the Administrative Procedure Act 
(5 U.S.C. 3105). The case shall be referred to the ALJ by HUD at the 
time a hearing is requested. The ALJ shall promptly notify the parties 
of the time and place at which the hearing will be held. The ALJ shall 
conduct a fair and impartial hearing and take all action necessary

[[Page 129]]

to avoid delay in the disposition of proceedings and to maintain order. 
The ALJ shall have all powers necessary to those ends, including but not 
limited to the power:
    (i) To administer oaths and affirmations;
    (ii) To issue subpoenas as authorized by law;
    (iii) To rule upon offers of proof and receive relevant evidence;
    (iv) To order or limit discovery before the hearing as the interests 
of justice may require;
    (v) To regulate the course of the hearing and the conduct of the 
parties and their counsel;
    (vi) To hold conferences for the settlement or simplification of the 
issues by consent of the parties;
    (vii) To consider and rule upon all procedural and other motions 
appropriate in adjudicative proceedings; and
    (viii) To make and file initial determinations.
    (4) Ex parte communications. An ex parte communication is any 
communication with an ALJ, direct or indirect, oral or written, 
concerning the merits or procedures of any pending proceeding which is 
made by a party in the absence of any other party. Ex parte 
communications are prohibited except where the purpose and content of 
the communication have been disclosed in advance or simultaneously to 
all parties, or the communication is a request for information 
concerning the status of the case. Any ALJ who receives an ex parte 
communication which the ALJ knows or has reason to believe is 
unauthorized shall promptly place the communication, or its substance, 
in all files and shall furnish copies to all parties. Unauthorized ex 
parte communications shall not be taken into consideration in deciding 
any matter in issue.
    (5) The hearing. All parties shall have the right to be represented 
at the hearing by counsel. The ALJ shall conduct the proceedings in an 
expeditious manner while allowing the parties to present all oral and 
written evidence which tends to support their respective positions, but 
the ALJ shall exclude irrelevant, immaterial or unduly repetitious 
evidence. HUD has the burden of proof in showing by a preponderance of 
evidence that the respondent failed to comply with a provision of this 
subpart. Each party shall be allowed to cross-examine adverse witnesses 
and to rebut and comment upon evidence presented by the other party. 
Hearings shall be open to the public. So far as the orderly conduct of 
the hearing permits, interested persons other than the parties may 
appear and participate in the hearing.
    (6) Transcripts. Hearings shall be recorded and transcribed only by 
a reporter under the supervision of the ALJ. The original transcript 
shall be a part of the record and shall constitute the sole official 
transcript. Respondents and the public, at their own expense, shall 
obtain copies of the transcript.
    (7) The ALJ's decisions. At the conclusion of the hearing, the ALJ 
shall give the parties a reasonable opportunity to submit proposed 
findings and conclusions and supporting reasons therefor. Generally, 
within 60 days after the conclusion of the hearing, the ALJ shall 
prepare a written decision which includes a Statement of findings and 
conclusions, and the reasons or basis therefor, on all the material 
issues of fact, law or discretion presented on the record and the 
appropriate sanction or denial thereof. The decision shall be based on 
consideration of the whole record or those parts thereof cited by a 
party and supported by and in accordance with the reliable, probative, 
and substantial evidence. A copy of the decision shall be furnished to 
the parties immediately by first class mail and shall include a notice 
that any requests for review by the Secretary must be made in writing to 
the Secretary within 30 days of the receipt of the decision.
    (8) Record. The transcript of testimony and exhibits, together with 
the decision of the ALJ and all papers and requests filed in the 
proceeding, constitutes the exclusive record for decision and, on 
payment of its reasonable cost, shall be made available to the parties. 
After reaching the initial decision, the ALJ shall certify to the 
complete record and forward the record to the Secretary.
    (9) Review by the Secretary. The decision by the ALJ shall 
constitute the final decision of HUD unless, within 30

[[Page 130]]

days after the receipt of the decision, either the respondent or the 
Assistant Secretary for Community Planning and Development files an 
exception and request for review by the Secretary. The excepting party 
must transmit simultaneously to the Secretary and the other party the 
request for review and the bases of the party's exceptions to the 
findings of the ALJ. The other party shall be allowed 30 days from 
receipt of the exception to provide the Secretary and the excepting 
party with a written reply. The Secretary shall then review the record 
of the case, including the exceptions and the reply. On the basis of 
such review, the Secretary shall issue a written determination, 
including a Statement of the rationale therefor, affirming, modifying or 
revoking the decision of the ALJ. The Secretary's decision shall be made 
and transmitted to the parties within 60 days after the decision of the 
ALJ was furnished to the parties.
    (10) Judicial review. The respondent may seek judicial review of 
HUD's decision pursuant to section 111(c) of the Act.



Sec. 570.497  Condition of State election to administer State CDBG Program.

    Pursuant to section 106(d)(2)(A)(i) of the Act, a State has the 
right to elect, in such manner and at such time as the Secretary may 
prescribe, to administer funds allocated under subpart A of this part 
for use in nonentitlement areas of the State. After January 26, 1995, 
any State which elects to administer the allocation of CDBG funds for 
use in nonentitlement areas of the State in any year must, in addition 
to all other requirements of this subpart, submit a pledge by the State 
in accordance with section 108(d)(2) of the Act, and in a form 
acceptable to HUD, of any future CDBG grants it may receive under 
subpart A and this subpart. Such pledge shall be for the purpose of 
assuring repayment of any debt obligations (as defined in Sec. 570.701), 
in accordance with their terms, that HUD may have guaranteed in the 
respective State on behalf of any nonentitlement public entity (as 
defined in Sec. 570.701) or its designated public agency prior to the 
State's election.

[59 FR 66604, Dec. 27, 1994]



                     Subpart J--Grant Administration

    Source: 53 FR 8058, Mar. 11, 1988, unless otherwise noted.



Sec. 570.500  Definitions.

    For the purposes of this subpart, the following terms shall apply:
    (a) Program income means gross income received by the recipient or a 
subrecipient directly generated from the use of CDBG funds, except as 
provided in paragraph (a)(4) of this section.
    (1) Program income includes, but is not limited to, the following:
    (i) Proceeds from the disposition by sale or long-term lease of real 
property purchased or improved with CDBG funds;
    (ii) Proceeds from the disposition of equipment purchased with CDBG 
funds;
    (iii) Gross income from the use or rental of real or personal 
property acquired by the recipient or by a subrecipient with CDBG funds, 
less costs incidental to generation of the income;
    (iv) Gross income from the use or rental of real property, owned by 
the recipient or by a subrecipient, that was constructed or improved 
with CDBG funds, less costs incidental to generation of the income;
    (v) Payments of principal and interest on loans made using CDBG 
funds, except as provided in paragraph (a)(3) of this section;
    (vi) Proceeds from the sale of loans made with CDBG funds;
    (vii) Proceeds from sale of obligations secured by loans made with 
CDBG funds;
    (viii) [Reserved]
    (ix) Interest earned on program income pending its disposition; and
    (x) Funds collected through special assessments made against 
properties owned and occupied by households not of low and moderate 
income, where the assessments are used to recover all or part of the 
CDBG portion of a public improvement.
    (2) Program income does not include income earned (except for 
interest described in Sec. 570.513) on grant advances from the U.S. 
Treasury. The following items of income earned on grant advances must be 
remitted to HUD for transmittal to the U.S. Treasury, and

[[Page 131]]

will not be reallocated under section 106(c) or (d) of the Act:
    (i) Interest earned from the investment of the initial proceeds of a 
grant advance by the U.S. Treasury;
    (ii) Interest earned on loans or other forms of assistance provided 
with CDBG funds that are used for activities determined by HUD either to 
be ineligible or to fail to meet a national objective in accordance with 
the requirements of subpart C of this part, or that fail substantially 
to meet any other requirement of this part; and
    (iii) Interest earned on the investment of amounts reimbursed to the 
CDBG program account prior to the use of the reimbursed funds for 
eligible purposes.
    (3) The calculation of the amount of program income for the 
recipient's CDBG program as a whole (i.e., comprising activities carried 
out by a grantee and its subrecipients) shall exclude payments made by 
subrecipients of principal and/or interest on CDBG-funded loans received 
from grantees if such payments are made using program income received by 
the subrecipient. (By making such payments, the subrecipient shall be 
deemed to have transferred program income to the grantee.) The amount of 
program income derived from this calculation shall be used for reporting 
purposes, for purposes of applying the requirement under 
Sec. 570.504(b)(2)(iii), and in determining limitations on planning and 
administration and public services activities to be paid for with CDBG 
funds.
    (4) Program income does not include:
    (i) Any income received in a single program year by the recipient 
and all its subrecipients if the total amount of such income does not 
exceed $25,000; and
    (ii) Amounts generated by activities that are financed by a loan 
guaranteed under section 108 of the Act and meet one or more of the 
public benefit criteria specified at Sec. 570.209(b)(2)(v) or are 
carried out in conjunction with a grant under section 108(q) in an area 
determined by HUD to meet the eligibility requirements for designation 
as an Urban Empowerment Zone pursuant to 24 CFR part 597, subpart B. 
Such exclusion shall not apply if CDBG funds are used to repay the 
guaranteed loan. When such a guaranteed loan is partially repaid with 
CDBG funds, the amount generated shall be prorated to reflect the 
percentage of CDBG funds used. Amounts generated by activities financed 
with loans guaranteed under section 108 which are not defined as program 
income shall be treated as miscellaneous revenue and shall not be 
subject to any of the requirements of this part, except that the use of 
such funds shall be limited to activities that are located in a 
revitalization strategy area and implement a HUD approved area 
revitalization strategy pursuant to Sec. 91.215(e) of this title. 
However, such treatment shall not affect the right of the Secretary to 
require the section 108 borrower to pledge such amounts as security for 
the guaranteed loan. The determination whether such amounts shall 
constitute program income shall be governed by the provisions of the 
contract required at Sec. 570.705(b)(1).
    (5) Examples of other receipts that are not considered program 
income are proceeds from fund raising activities carried out by 
subrecipients receiving CDBG assistance (the costs of fundraising are 
generally unallowable under the applicable OMB circulars referenced in 
24 CFR 84.27), funds collected through special assessments used to 
recover the non-CDBG portion of a public improvement, and proceeds from 
the disposition of real property acquired or improved with CDBG funds 
when the disposition occurs after the applicable time period specified 
in Sec. 570.503(b)(8) for subrecipient-controlled property, or in 
Sec. 570.505 for recipient-controlled property.
    (b) Revolving fund means a separate fund (with a set of accounts 
that are independent of other program accounts) established for the 
purpose of carrying out specific activities which, in turn, generate 
payments to the fund for use in carrying out the same activities. Each 
revolving loan fund's cash balance must be held in an interest-bearing 
account, and any interest paid on CDBG funds held in this account shall 
be considered interest earned on grant advances and must be remitted to 
HUD for transmittal to the U.S. Treasury no less frequently than 
annually. (Interest paid by borrowers on eligible loans made from the 
revolving

[[Page 132]]

loan fund shall be program income and treated accordingly.)
    (c) Subrecipient means a public or private nonprofit agency, 
authority, or organization, or a for-profit entity authorized under 
Sec. 570.201(o), receiving CDBG funds from the recipient or another 
subrecipient to undertake activities eligible for such assistance under 
subpart C of this part. The term excludes an entity receiving CDBG funds 
from the recipient under the authority of Sec. 570.204, unless the 
grantee explicitly designates it as a subrecipient. The term includes a 
public agency designated by a unit of general local government to 
receive a loan guarantee under subpart M of this part, but does not 
include contractors providing supplies, equipment, construction, or 
services subject to the procurement requirements in 24 CFR 85.36 or 
84.40, as applicable.

[53 FR 8058, Mar. 11, 1988, as amended at 57 FR 27120, June 17, 1992; 60 
FR 1952, Jan. 5, 1995; 60 FR 17445, Apr. 6, 1995; 60 FR 56914, Nov. 9, 
1995]



Sec. 570.501  Responsibility for grant administration.

    (a) One or more public agencies, including existing local public 
agencies, may be designated by the chief executive officer of the 
recipient to undertake activities assisted by this part. A public agency 
so designated shall be subject to the same requirements as are 
applicable to subrecipients.
    (b) The recipient is responsible for ensuring that CDBG funds are 
used in accordance with all program requirements. The use of designated 
public agencies, subrecipients, or contractors does not relieve the 
recipient of this responsibility. The recipient is also responsible for 
determining the adequacy of performance under subrecipient agreements 
and procurement contracts, and for taking appropriate action when 
performance problems arise, such as the actions described in 
Sec. 570.910. Where a unit of general local government is participating 
with, or as part of, an urban county, or as part of a metropolitan city, 
the recipient is responsible for applying to the unit of general local 
government the same requirements as are applicable to subrecipients, 
except that the five-year period identified under Sec. 570.503(b)(8)(i) 
shall begin with the date that the unit of general local government is 
no longer considered by HUD to be a part of the metropolitan city or 
urban county, as applicable, instead of the date that the subrecipient 
agreement expires.

[53 FR 8058, Mar. 11, 1988, as amended at 57 FR 27120, June 17, 1992]



Sec. 570.502  Applicability of uniform administrative requirements.

    (a) Recipients and subrecipients that are governmental entities 
(including public agencies) shall comply with the requirements and 
standards of OMB Circular No. A-87, ``Cost Principles for State, Local, 
and Indian Tribal Governments''; OMB Circular A-128, ``Audits of State 
and Local Governments'' (implemented at 24 CFR part 44); and with the 
following sections of 24 CFR part 85 ``Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments'' or the related CDBG provision, as specified in this 
paragraph:
    (1) Section 85.3, ``Definitions'';
    (2) Section 85.6, ``Exceptions'';
    (3) Section 85.12, ``Special grant or subgrant conditions for `high-
risk' grantees'';
    (4) Section 85.20, ``Standards for financial management systems,'' 
except paragraph (a);
    (5) Section 85.21, ``Payment,'' except as modified by Sec. 570.513;
    (6) Section 85.22, ``Allowable costs'';
    (7) Section 85.26, ``Non-federal audits'';
    (8) Section 85.32, ``Equipment,'' except in all cases in which the 
equipment is sold, the proceeds shall be program income;
    (9) Section 85.33, ``Supplies'';
    (10) Section 85.34, ``Copyrights'';
    (11) Section 85.35, ``Subawards to debarred and suspended parties'';
    (12) Section 85.36, ``Procurement,'' except paragraph (a);
    (13) Section 85.37, ``Subgrants'';
    (14) Section 85.40, ``Monitoring and reporting program 
performance,'' except paragraphs (b) through (d) and paragraph (f);
    (15) Section 85.41, ``Financial reporting,'' except paragraphs (a), 
(b), and (e);

[[Page 133]]

    (16) Section 85.42, ``Retention and access requirements for 
records,'' except that the period shall be four years;
    (17) Section 85.43, ``Enforcement'';
    (18) Section 85.44, ``Termination for convenience'';
    (19) Section 85.51 ``Later disallowances and adjustments'' and
    (20) Section 85.52, ``Collection of amounts due.''
    (b) Subrecipients, except subrecipients that are governmental 
entities, shall comply with the requirements and standards of OMB 
Circular No. A-122, ``Cost Principles for Non-profit Organizations,'' or 
OMB Circular No. A-21, ``Cost Principles for Educational Institutions,'' 
as applicable, and OMB Circular A-133, ``Audits of Institutions of 
Higher Education and Other Nonprofit Institutions'' (as set forth in 24 
CFR part 45). Audits shall be conducted annually. Such subrecipients 
shall also comply with the following provisions of the Uniform 
Administrative requirements of OMB Circular A-110 (implemented at 24 CFR 
part 84, ``Uniform Administrative Requirements for Grants and Agreements 
With Institutions of Higher Education, Hospitals and Other Non-Profit 
Organizations'') or the related CDBG provision, as specified in this 
paragraph:
    (1) Subpart A--``General'';
    (2) Subpart B--``Pre-Award Requirements,'' except for Sec. 84.12, 
``Forms for Applying for Federal Assistance'';
    (3) Subpart C--``Post-Award Requirements,'' except for:
    (i) Section 84.22, ``Payment Requirements.'' Grantees shall follow 
the standards of Secs. 85.20(b)(7) and 85.21 in making payments to 
subrecipients;
    (ii) Section 84.23, ``Cost Sharing and Matching'';
    (iii) Section 84.24, ``Program Income.'' In lieu of Sec. 84.24, CDBG 
subrecipients shall follow Sec. 570.504;
    (iv) Section 84.25, ``Revision of Budget and Program Plans'';
    (v) Section 84.32, ``Real Property.'' In lieu of Sec. 84.32, CDBG 
subrecipients shall follow Sec. 570.505;
    (vi) Section 84.34(g), ``Equipment.'' In lieu of the disposition 
provisions of Sec. 84.34(g), the following applies:
    (A) In all cases in which equipment is sold, the proceeds shall be 
program income (prorated to reflect the extent to which CDBG funds were 
used to acquire the equipment); and
    (B) Equipment not needed by the subrecipient for CDBG activities 
shall be transferred to the recipient for the CDBG program or shall be 
retained after compensating the recipient;
    (vii) Section 84.51 (b), (c), (d), (e), (f), (g), and (h), 
``Monitoring and Reporting Program Performance'';
    (viii) Section 84.52, ``Financial Reporting'';
    (ix) Section 84.53(b), ``Retention and access requirements for 
records.'' Section 84.53(b) applies with the following exceptions:
    (A) The retention period referenced in Sec. 84.53(b) pertaining to 
individual CDBG activities shall be four years; and
    (B) The retention period starts from the date of submission of the 
annual performance and evaluation report, as prescribed in 24 CFR 
91.520, in which the specific activity is reported on for the final time 
rather than from the date of submission of the final expenditure report 
for the award;
    (x) Section 84.61, ``Termination.'' In lieu of the provisions of 
Sec. 84.61, CDBG subrecipients shall comply with Sec. 570.503(b)(7); and
    (4) Subpart D--``After-the-Award Requirements,'' except for 
Sec. 84.71, ``Closeout Procedures.''

[53 FR 8058, Mar. 11, 1988, as amended at 60 FR 1916, Jan. 5, 1995; 60 
FR 56915, Nov. 9, 1995]



Sec. 570.503  Agreements with subrecipients.

    (a) Before disbursing any CDBG funds to a subrecipient, the 
recipient shall sign a written agreement with the subrecipient. The 
agreement shall remain in effect during any period that the subrecipient 
has control over CDBG funds, including program income.
    (b) At a minimum, the written agreement with the subrecipient shall 
include provisions concerning the following following items:
    (1) Statement of work. The agreement shall include a description of 
the work to be performed, a schedule for completing the work, and a 
budget. These items shall be in sufficient detail to provide a sound 
basis for the recipient effectively to monitor performance under the 
agreement.

[[Page 134]]

    (2) Records and reports. The recipient shall specify in the 
agreement the particular records the subrecipient must maintain and the 
particular reports the subrecipient must submit in order to assist the 
recipient in meeting its recordkeeping and reporting requirements.
    (3) Program income. The agreement shall include the program income 
requirements set forth in Sec. 570.504(c). The agreement shall also 
specify that, at the end of the program year, the grantee may require 
remittance of all or part of any program income balances (including 
investments thereof) held by the subrecipient (except those needed for 
immediate cash needs, cash balances of a revolving loan fund, cash 
balances from a lump sum drawdown, or cash or investments held for 
section 108 security needs).
    (4) Uniform administrative requirements. The agreement shall require 
the subrecipient to comply with applicable uniform administrative 
requirements, as described in Sec. 570.502.
    (5) Other program requirements. The agreement shall require the 
subrecipient to carry out each activity in compliance with all Federal 
laws and regulations described in subpart K of these regulations, except 
that:
    (i) The subrecipient does not assume the recipient's environmental 
responsibilities described at Sec. 570.604; and
    (ii) The subrecipient does not assume the recipient's responsibility 
for initiating the review process under the provisions of 24 CFR part 
52.
    (6) Conditions for religious organizations. Where applicable, the 
conditions prescribed by HUD for the use of CDBG funds by religious 
organizations shall be included in the agreement.
    (7) Suspension and termination. The agreement shall specify that, in 
accordance with 24 CFR 85.43, suspension or termination may occur if the 
subrecipient materially fails to comply with any term of the award, and 
that the award may be terminated for convenience in accordance with 24 
CFR 85.44.
    (8) Reversion of assets. The agreement shall specify that upon its 
expiration the subrecipient shall transfer to the recipient any CDBG 
funds on hand at the time of expiration and any accounts receivable 
attributable to the use of CDBG funds. It shall also include provisions 
designed to ensure that any real property under the subrecipient's 
control that was acquired or improved in whole or in part with CDBG 
funds (including CDBG funds provided to the subrecipient in the form of 
a loan) in excess of $25,000 is either:
    (i) Used to meet one of the national objectives in Sec. 570.208 
(formerly Sec. 570.901) until five years after expiration of the 
agreement, or for such longer period of time as determined to be 
appropriate by the recipient; or
    (ii) Not used in accordance with paragraph (b)(8)(i) of this 
section, in which event the subrecipient shall pay to the recipient an 
amount equal to the current market value of the property less any 
portion of the value attributable to expenditures of non-CDBG funds for 
the acquisition of, or improvement to, the property. The payment is 
program income to the recipient. (No payment is required after the 
period of time specified in paragraph (b)(8)(i) of this section.)

[53 FR 8058, Mar. 11, 1988, as amended at 53 FR 41331, Oct. 21, 1988; 57 
FR 27120, June 17, 1992; 60 FR 56915, Nov. 9, 1995]



Sec. 570.504  Program income.

    (a) Recording program income. The receipt and expenditure of program 
income as defined in Sec. 570.500(a) shall be recorded as part of the 
financial transactions of the grant program.
    (b) Disposition of program income received by recipients. (1) 
Program income received before grant closeout may be retained by the 
recipient if the income is treated as additional CDBG funds subject to 
all applicable requirements governing the use of CDBG funds.
    (2) If the recipient chooses to retain program income, that program 
income shall be disposed of as follows:
    (i) Program income in the form of repayments to, or interest earned 
on, a revolving fund as defined in Sec. 570.500(b) shall be 
substantially disbursed from the fund before additional cash withdrawals 
are made from the U.S. Treasury for the same activity. (This rule does 
not prevent a lump sum disbursement to finance the rehabilitation of 
privately owned properties as provided for in Sec. 570.513.)

[[Page 135]]

    (ii) Substantially all other program income shall be disbursed for 
eligible activities before additional cash withdrawals are made from the 
U.S. Treasury.
    (iii) At the end of each program year, the aggregate amount of 
program income cash balances and any investment thereof (except those 
needed for immediate cash needs, cash balances of a revolving loan fund, 
cash balances from a lump-sum drawdown, or cash or investments held for 
section 108 loan guarantee security needs) that, as of the last day of 
the program year, exceeds one-twelfth of the most recent grant made 
pursuant to Sec. 570.304 shall be remitted to HUD as soon as practicable 
thereafter, to be placed in the recipient's line of credit. This 
provision applies to program income cash balances and investments 
thereof held by the grantee and its subrecipients. (This provision shall 
be applied for the first time at the end of the program year for which 
Federal Fiscal Year 1996 funds are provided.)
    (3) Program income on hand at the time of closeout shall continue to 
be subject to the eligibility requirements in subpart C and all other 
applicable provisions of this part until it is expended.
    (4) Unless otherwise provided in any grant closeout agreement, and 
subject to the requirements of paragraph (b)(5) of this section, income 
received after closeout shall not be governed by the provisions of this 
part, except that, if at the time of closeout the recipient has another 
ongoing CDBG grant received directly from HUD, funds received after 
closeout shall be treated as program income of the ongoing grant 
program.
    (5) If the recipient does not have another ongoing grant received 
directly from HUD at the time of closeout, income received after 
closeout from the disposition of real property or from loans outstanding 
at the time of closeout shall not be governed by the provisions of this 
part, except that such income shall be used for activities that meet one 
of the national objectives in Sec. 570.901 and the eligibility 
requirements described in section 105 of the Act.
    (c) Disposition of program income received by subrecipients. The 
written agreement between the recipient and the subrecipient, as 
required by Sec. 570.503, shall specify whether program income received 
is to be returned to the recipient or retained by the subrecipient. 
Where program income is to be retained by the subrecipient, the 
agreement shall specify the activities that will be undertaken with the 
program income and that all provisions of the written agreement shall 
apply to the specified activities. When the subrecipient retains program 
income, transfers of grant funds by the recipient to the subrecipient 
shall be adjusted according to the principles described in paragraphs 
(b)(2) (i) and (ii) of this section. Any program income on hand when the 
agreement expires, or received after the agreement's expiration, shall 
be paid to the recipient as required by Sec. 570.503(b)(8).
    (d) Disposition of certain program income received by urban 
counties. Program income derived from urban county program activities 
undertaken by or within the jurisdiction of a unit of general local 
government which thereafter terminates its participation in the urban 
county shall continue to be program income of the urban county. The 
urban county may transfer the program income to the unit of general 
local government, upon its termination of urban county participation, 
provided that the unit of general local government has become an 
entitlement grantee and agrees to use the program income in its own CDBG 
entitlement program.

[53 FR 8058, Mar. 11, 1988, as amended at 60 FR 56915, Nov. 9, 1995]



Sec. 570.505  Use of real property.

    The standards described in this section apply to real property 
within the recipient's control which was acquired or improved in whole 
or in part using CDBG funds in excess of $25,000. These standards shall 
apply from the date CDBG funds are first spent for the property until 
five years after closeout of an entitlement recipient's participation in 
the entitlement CDBG program or, with respect to other recipients, until 
five years after the closeout of

[[Page 136]]

the grant from which the assistance to the property was provided.
    (a) A recipient may not change the use or planned use of any such 
property (including the beneficiaries of such use) from that for which 
the acquisition or improvement was made unless the recipient provides 
affected citizens with reasonable notice of, and opportunity to comment 
on, any proposed change, and either:
    (1) The new use of such property qualifies as meeting one of the 
national objectives in Sec. 570.208 (formerly Sec. 570.901) and is not a 
building for the general conduct of government; or
    (2) The requirements in paragraph (b) of this section are met.
    (b) If the recipient determines, after consultation with affected 
citizens, that it is appropriate to change the use of the property to a 
use which does not qualify under paragraph (a)(1) of this section, it 
may retain or dispose of the property for the changed use if the 
recipient's CDBG program is reimbursed in the amount of the current fair 
market value of the property, less any portion of the value attributable 
to expenditures of non-CDBG funds for acquisition of, and improvements 
to, the property.
    (c) If the change of use occurs after closeout, the provisions 
governing income from the disposition of the real property in 
Sec. 570.504(b)(4) or (5), as applicable, shall apply to the use of 
funds reimbursed.
    (d) Following the reimbursement of the CDBG program in accordance 
with paragraph (b) of this section, the property no longer will be 
subject to any CDBG requirements.

[53 FR 8058, Mar. 11, 1988, as amended at 53 FR 41331, Oct. 21, 1988]



Sec. 570.506  Records to be maintained.

    Each recipient shall establish and maintain sufficient records to 
enable the Secretary to determine whether the recipient has met the 
requirements of this part. At a minimum, the following records are 
needed:
    (a) Records providing a full description of each activity assisted 
(or being assisted) with CDBG funds, including its location (if the 
activity has a geographical locus), the amount of CDBG funds budgeted, 
obligated and expended for the activity, and the provision in subpart C 
under which it is eligible.
    (b) Records demonstrating that each activity undertaken meets one of 
the criteria set forth in Sec. 570.208. (Where information on income by 
family size is required, the recipient may substitute evidence 
establishing that the person assisted qualifies under another program 
having income qualification criteria at least as restrictive as that 
used in the definitions of ``low and moderate income person'' and ``low 
and moderate income household'' (as applicable) at Sec. 570.3, such as 
Job Training Partnership Act (JTPA) and welfare programs; or the 
recipient may substitute evidence that the assisted person is homeless; 
or the recipient may substitute a copy of a verifiable certification 
from the assisted person that his or her family income does not exceed 
the applicable income limit established in accordance with Sec. 570.3; 
or the recipient may substitute a notice that the assisted person is a 
referral from a state, county or local employment agency or other entity 
that agrees to refer individuals it determines to be low and moderate 
income persons based on HUD's criteria and agrees to maintain 
documentation supporting these determinations.) Such records shall 
include the following information:
    (1) For each activity determined to benefit low and moderate income 
persons, the income limits applied and the point in time when the 
benefit was determined.
    (2) For each activity determined to benefit low and moderate income 
persons based on the area served by the activity:
    (i) The boundaries of the service area;
    (ii) The income characteristics of families and unrelated 
individuals in the service area; and
    (iii) If the percent of low and moderate income persons in the 
service area is less than 51 percent, data showing that the area 
qualifies under the exception criteria set forth at 
Sec. 570.208(a)(1)(ii).
    (3) For each activity determined to benefit low and moderate income 
persons because the activity involves a facility or service designed for 
use by a limited clientele consisting exclusively

[[Page 137]]

or predominantly of low and moderate income persons:
    (i) Documentation establishing that the facility or service is 
designed for the particular needs of or used exclusively by senior 
citizens, adults meeting the Bureau of the Census' Current Population 
Reports definition of ``severely disabled,'' persons living with AIDS, 
battered spouses, abused children, the homeless, illiterate adults, or 
migrant farm workers, for which the regulations provide a presumption 
concerning the extent to which low- and moderate-income persons benefit; 
or
    (ii) Documentation describing how the nature and, if applicable, the 
location of the facility or service establishes that it is used 
predominantly by low and moderate income persons; or
    (iii) Data showing the size and annual income of the family of each 
person receiving the benefit.
    (4) For each activity carried out for the purpose of providing or 
improving housing which is determined to benefit low and moderate income 
persons:
    (i) A copy of a written agreement with each landlord or developer 
receiving CDBG assistance indicating the total number of dwelling units 
in each multifamily structure assisted and the number of those units 
which will be occupied by low and moderate income households after 
assistance;
    (ii) The total cost of the activity, including both CDBG and non-
CDBG funds.
    (iii) For each unit occupied by a low and moderate income household, 
the size and income of the household;
    (iv) For rental housing only:
    (A) The rent charged (or to be charged) after assistance for each 
dwelling unit in each structure assisted; and
    (B) Such information as necessary to show the affordability of units 
occupied (or to be occupied) by low and moderate income households 
pursuant to criteria established and made public by the recipient;
    (v) For each property acquired on which there are no structures, 
evidence of commitments ensuring that the criteria in Sec. 570.208(a)(3) 
will be met when the structures are built;
    (vi) Where applicable, records demonstrating that the activity 
qualifies under the special conditions at Sec. 570.208(a)(3)(i);
    (vii) For any homebuyer assistance activity qualifying under 
Sec. 570.201(e), 570.201(n), or 570.204, identification of the 
applicable eligibility paragraph and evidence that the activity meets 
the eligibility criteria for that provision; for any such activity 
qualifying under Sec. 570.208(a), the size and income of each 
homebuyer's household; and
    (viii) For a Sec. 570.201(k) housing services activity, 
identification of the HOME project(s) or assistance that the housing 
services activity supports, and evidence that project(s) or assistance 
meet the HOME program income targeting requirements at 24 CFR 92.252 or 
92.254.
    (5) For each activity determined to benefit low and moderate income 
persons based on the creation of jobs, the recipient shall provide the 
documentation described in either paragraph (b)(5)(i) or (ii) of this 
section.
    (i) Where the recipient chooses to document that at least 51 percent 
of the jobs will be available to low and moderate income persons, 
documentation for each assisted business shall include:
    (A) A copy of a written agreement containing:
    (1) A commitment by the business that it will make at least 51 
percent of the jobs available to low and moderate income persons and 
will provide training for any of those jobs requiring special skills or 
education;
    (2) A listing by job title of the permanent jobs to be created 
indicating which jobs will be available to low and moderate income 
persons, which jobs require special skills or education, and which jobs 
are part-time, if any; and
    (3) A description of actions to be taken by the recipient and 
business to ensure that low and moderate income persons receive first 
consideration for those jobs; and
    (B) A listing by job title of the permanent jobs filled, and which 
jobs of those were available to low and moderate income persons, and a 
description of how first consideration was given to such persons for 
those jobs. The description shall include what hiring process was used; 
which low and moderate income persons were interviewed

[[Page 138]]

for a particular job; and which low and moderate income persons were 
hired.
    (ii) Where the recipient chooses to document that at least 51 
percent of the jobs will be held by low and moderate income persons, 
documentation for each assisted business shall include:
    (A) A copy of a written agreement containing:
    (1) A commitment by the business that at least 51 percent of the 
jobs, on a full-time equivalent basis, will be held by low and moderate 
income persons; and
    (2) A listing by job title of the permanent jobs to be created, 
identifying which are part-time, if any;
    (B) A listing by job title of the permanent jobs filled and which 
jobs were initially held by low and moderate income persons; and
    (C) For each such low and moderate income person hired, the size and 
annual income of the person's family prior to the person being hired for 
the job.
    (6) For each activity determined to benefit low and moderate income 
persons based on the retention of jobs:
    (i) Evidence that in the absence of CDBG assistance jobs would be 
lost;
    (ii) For each business assisted, a listing by job title of permanent 
jobs retained, indicating which of those jobs are part-time and (where 
it is known) which are held by low and moderate income persons at the 
time the CDBG assistance is provided. Where applicable, identification 
of any of the retained jobs (other than those known to be held by low 
and moderate income persons) which are projected to become available to 
low and moderate income persons through job turnover within two years of 
the time CDBG assistance is provided. Information upon which the job 
turnover projections were based shall also be included in the record;
    (iii) For each retained job claimed to be held by a low and moderate 
income person, information on the size and annual income of the person's 
family;
    (iv) For jobs claimed to be available to low and moderate income 
persons based on job turnover, a description covering the items required 
for ``available to'' jobs in paragraph (b)(5) of this section; and
    (v) Where jobs were claimed to be available to low and moderate 
income persons through turnover, a listing of each job which has turned 
over to date, indicating which of those jobs were either taken by, or 
available to, low and moderate income persons. For jobs made available, 
a description of how first consideration was given to such persons for 
those jobs shall also be included in the record.
    (7) For purposes of documenting, pursuant to paragraph (b)(5)(i)(B), 
(b)(5)(ii)(C), (b)(6)(iii) or (b)(6)(v) of this section, that the person 
for whom a job was either filled by or made available to a low- or 
moderate-income person based upon the census tract where the person 
resides or in which the business is located, the recipient, in lieu of 
maintaining records showing the person's family size and income, may 
substitute records showing either the person's address at the time the 
determination of income status was made or the address of the business 
providing the job, as applicable, the census tract in which that address 
was located, the percent of persons residing in that tract who either 
are in poverty or who are low- and moderate-income, as applicable, the 
data source used for determining the percentage, and a description of 
the pervasive poverty and general distress in the census tract in 
sufficient detail to demonstrate how the census tract met the criteria 
in Sec. 570.208(a)(4)(v), as applicable.
    (8) For each activity determined to aid in the prevention or 
elimination of slums or blight based on addressing one or more of the 
conditions which qualified an area as a slum or blighted area:
    (i) The boundaries of the area; and
    (ii) A description of the conditions which qualified the area at the 
time of its designation in sufficient detail to demonstrate how the area 
met the criteria in Sec. 570.208(b)(1).
    (9) For each residential rehabilitation activity determined to aid 
in the prevention or elimination of slums or blight in a slum or 
blighted area:
    (i) The local definition of ``substandard'';
    (ii) A pre-rehabilitation inspection report describing the 
deficiencies in each structure to be rehabilitated; and

[[Page 139]]

    (iii) Details and scope of CDBG assisted rehabilitation, by 
structure.
    (10) For each activity determined to aid in the prevention or 
elimination of slums or blight based on the elimination of specific 
conditions of blight or physical decay not located in a slum or blighted 
area:
    (i) A description of the specific condition of blight or physical 
decay treated; and
    (ii) For rehabilitation carried out under this category, a 
description of the specific conditions detrimental to public health and 
safety which were identified and the details and scope of the CDBG 
assisted rehabilitation by structure.
    (11) For each activity determined to aid in the prevention or 
elimination of slums or blight based on addressing slums or blight in an 
urban renewal area, a copy of the Urban Renewal Plan, as in effect at 
the time the activity is carried out, including maps and supporting 
documentation.
    (12) For each activity determined to meet a community development 
need having a particular urgency:
    (i) Documentation concerning the nature and degree of seriousness of 
the condition requiring assistance;
    (ii) Evidence that the recipient certified that the CDBG activity 
was designed to address the urgent need;
    (iii) Information on the timing of the development of the serious 
condition; and
    (iv) Evidence confirming that other financial resources to alleviate 
the need were not available.
    (c) Records that demonstrate that the recipient has made the 
determinations required as a condition of eligibility of certain 
activities, as prescribed in Secs. 570.201(f), 570.201(i)(2), 
570.201(p), 570.201(q), 570.202(b)(3), 570.206(f), 570.209, and 570.309.
    (d) Records which demonstrate compliance with Sec. 570.505 regarding 
any change of use of real property acquired or improved with CDBG 
assistance.
    (e) Records that demonstrate compliance with the citizen 
participation requirements prescribed in 24 CFR part 91, subpart B, for 
entitlement recipients, or in 24 CFR part 91, subpart C, for HUD-
administered small cities recipients.
    (f) Records which demonstrate compliance with the requirements in 
Sec. 570.606 regarding acquisition, displacement, relocation, and 
replacement housing.
    (g) Fair housing and equal opportunity records containing:
    (1) Documentation of the analysis of impediments and the actions the 
recipient has carried out with its housing and community development and 
other resources to remedy or ameliorate any impediments to fair housing 
choice in the recipient's community.
    (2) Data on the extent to which each racial and ethnic group and 
single-headed households (by gender of household head) have applied for, 
participated in, or benefited from, any program or activity funded in 
whole or in part with CDBG funds. Such information shall be used only as 
a basis for further investigation as to compliance with 
nondiscrimination requirements. No recipient is required to attain or 
maintain any particular statistical measure by race, ethnicity, or 
gender in covered programs.
    (3) Data on employment in each of the recipient's operating units 
funded in whole or in part with CDBG funds, with such data maintained in 
the categories prescribed on the Equal Employment Opportunity 
Commission's EEO-4 form; and documentation of any actions undertaken to 
assure equal employment opportunities to all persons regardless of race, 
color, national origin, sex or handicap in operating units funded in 
whole or in part under this part.
    (4) Data indicating the race and ethnicity of households (and gender 
of single heads of households) displaced as a result of CDBG funded 
activities, together with the address and census tract of the housing 
units to which each displaced household relocated. Such information 
shall be used only as a basis for further investigation as to compliance 
with nondiscrimination requirements. No recipient is required to attain 
or maintain any particular statistical measure by race, ethnicity, or 
gender in covered programs.
    (5) Documentation of actions undertaken to meet the requirements of 
Sec. 570.607(b) which implements section 3 of the Housing Development 
Act of

[[Page 140]]

1968, as amended (12 U.S.C. 1701U) relative to the hiring and training 
of low and moderate income persons and the use of local businesses.
    (6) Data indicating the racial/ethnic character of each business 
entity receiving a contract or subcontract of $25,000 or more paid, or 
to be paid, with CDBG funds, data indicating which of those entities are 
women's business enterprises as defined in Executive Order 12138, the 
amount of the contract or subcontract, and documentation of recipient's 
affirmative steps to assure that minority business and women's business 
enterprises have an equal opportunity to obtain or compete for contracts 
and subcontracts as sources of supplies, equipment, construction and 
services. Such affirmative steps may include, but are not limited to, 
technical assistance open to all businesses but designed to enhance 
opportunities for these enterprises and special outreach efforts to 
inform them of contract opportunities. Such steps shall not include 
preferring any business in the award of any contract or subcontract 
solely or in part on the basis of race or gender.
    (7) Documentation of the affirmative action measures the recipient 
has taken to overcome prior discrimination, where the courts or HUD have 
found that the recipient has previously discriminated against persons on 
the ground of race, color, national origin or sex in administering a 
program or activity funded in whole or in part with CDBG funds.
    (h) Financial records, in accordance with the applicable 
requirements listed in Sec. 570.502, including source documentation for 
entities not subject to parts 84 and 85 of this title. Grantees shall 
maintain evidence to support how the CDBG funds provided to such 
entities are expended. Such documentation must include, to the extent 
applicable, invoices, schedules containing comparisons of budgeted 
amounts and actual expenditures, construction progress schedules signed 
by appropriate parties (e.g., general contractor and/or a project 
architect), and/or other documentation appropriate to the nature of the 
activity.
    (i) Agreements and other records related to lump sum disbursements 
to private financial institutions for financing rehabilitation as 
prescribed in Sec. 570.513; and
    (j) Records required to be maintained in accordance with other 
applicable laws and regulations set forth in subpart K of this part.

(Approved by the Office of Management and Budget under control number 
2506-0077)

[53 FR 34454, Sept. 6, 1988; 53 FR 41330, Oct. 21, 1988, as amended at 
60 FR 1916, 1953, Jan. 5, 1995; 60 FR 56915, Nov. 9, 1995; 61 FR 18674, 
Apr. 29, 1996; 64 FR 38813, July 19, 1999]



Sec. 570.507  Reports.

    (a) Performance and evaluation report--(1) Entitlement grant 
recipients and HUD-administered small cities recipients in Hawaii. The 
annual performance and evaluation report shall be submitted in 
accordance with 24 CFR part 91.
    (2) HUD-administered Small Cities recipients in New York, and Hawaii 
recipients for pre-FY 1995 grants--(i) Content. Each performance and 
evaluation report must contain completed copies of all forms and 
narratives prescribed by HUD, including a summary of the citizen 
comments received on the report.
    (ii) Timing. The performance and evaluation report on each grant 
shall be submitted:
    (A) No later than October 31 for all grants executed before April 1 
of the same calendar year. The first report should cover the period from 
the execution of the grant until September 30. Reports on grants made 
after March 31 of a calendar year will be due October 31 of the 
following calendar year, and the reports will cover the period of time 
from the execution of the grant until September 30 of the calendar year 
following grant execution. After the initial submission, the performance 
and evaluation report will be submitted annually on October 31 until 
completion of the activities funded under the grant;
    (B) Hawaii grantees will submit their small cities performance and 
evaluation report for each pre-FY 1995 grant no later than 90 days after 
the completion of their most recent program year. After the initial 
submission, the performance and evaluation report will be submitted 
annually until completion of

[[Page 141]]

the activities funded under the grant; and
    (C) No later than 90 days after the criteria for grant closeout, as 
described in Sec. 570.509(a), have been met.
    (iii) Citizen comments on the report. Each recipient shall make 
copies of the performance and evaluation report available to its 
citizens in sufficient time to permit the citizens to comment on the 
report before its submission to HUD. Each recipient may determine the 
specific manner and times the report will be made available to citizens 
consistent with the preceding sentence.
    (b) Equal employment opportunity reports. Recipients of entitlement 
grants or HUD-administered small cities grants shall submit to HUD each 
year a report (HUD/EEO-4) on recipient employment containing data as of 
June 30.
    (c) Minority business enterprise reports. Recipients of entitlement 
grants, HUD-administered small cities grants or Urban Development Action 
Grants shall submit to HUD, by April 30, a report on contracts and 
subcontract activity during the first half of the fiscal year and by 
October 31 a report on such activity during the second half of the year.
    (d) Other reports. Recipients may be required to submit such other 
reports and information as HUD determines are necessary to carry out its 
responsibilities under the Act or other applicable laws.

(Approved by the Office of Management and Budget under control numbers 
2506-0077 for paragraph (a) and 2529-0008 for paragraph (b) and 2506-
0066 for paragraph (c))

[53 FR 34456, Sept. 6, 1988, as amended at 60 FR 1916, Jan. 5, 1995; 61 
FR 32269, June 21, 1996]



Sec. 570.508  Public access to program records.

    Notwithstanding 24 CFR 85.42(f), recipients shall provide citizens 
with reasonable access to records regarding the past use of CDBG funds, 
consistent with applicable State and local laws regarding privacy and 
obligations of confidentiality.



Sec. 570.509  Grant closeout procedures.

    (a) Criteria for closeout. A grant will be closed out when HUD 
determines, in consultation with the recipient, that the following 
criteria have been met:
    (1) All costs to be paid with CDBG funds have been incurred, with 
the exception of closeout costs (e.g., audit costs) and costs resulting 
from contingent liabilities described in the closeout agreement pursuant 
to paragraph (c) of this section. Contingent liabilities include, but 
are not limited to, third-party claims against the recipient, as well as 
related administrative costs.
    (2) With respect to activities (such as rehabilitation of privately 
owned properties) which are financed by means of escrow accounts, loan 
guarantees, or similar mechanisms, the work to be assisted with CDBG 
funds (but excluding program income) has actually been completed.
    (3) Other responsibilities of the recipient under the grant 
agreement and applicable laws and regulations appear to have been 
carried out satisfactorily or there is no further Federal interest in 
keeping the grant agreement open for the purpose of securing 
performance.
    (b) Closeout actions. (1) Within 90 days of the date it is 
determined that the criteria for closeout have been met, the recipient 
shall submit to HUD a copy of the final performance and evaluation 
report described in 24 CFR part 91. If an acceptable report is not 
submitted, an audit of the recipient's grant activities may be conducted 
by HUD.
    (2) Based on the information provided in the performance report and 
other relevant information, HUD, in consultation with the recipient, 
will prepare a closeout agreement in accordance with paragraph (c) of 
this section.
    (3) HUD will cancel any unused portion of the awarded grant, as 
shown in the signed grant closeout agreement. Any unused grant funds 
disbursed from the U.S. Treasury which are in the possession of the 
recipient shall be refunded to HUD.
    (4) Any costs paid with CDBG funds which were not audited previously 
shall be subject to coverage in the recipient's next single audit 
performed in

[[Page 142]]

accordance with 24 CFR part 44. The recipient may be required to repay 
HUD any disallowed costs based on the results of the audit, or on 
additional HUD reviews provided for in the closeout agreement.
    (c) Closeout agreement. Any obligations remaining as of the date of 
the closeout shall be covered by the terms of a closeout agreement. The 
agreement shall be prepared by the HUD field office in consultation with 
the recipient. The agreement shall identify the grant being closed out, 
and include provisions with respect to the following:
    (1) Identification of any closeout costs or contingent liabilities 
subject to payment with CDBG funds after the closeout agreement is 
signed;
    (2) Identification of any unused grant funds to be canceled by HUD;
    (3) Identification of any program income on deposit in financial 
institutions at the time the closeout agreement is signed:
    (4) Description of the recipient's responsibility after closeout 
for:
    (i) Compliance with all program requirements, certifications and 
assurances in using program income on deposit at the time the closeout 
agreement is signed and in using any other remaining CDBG funds 
available for closeout costs and contingent liabilities;
    (ii) Use of real property assisted with CDBG funds in accordance 
with the principles described in Sec. 570.505;
    (iii) Compliance with requirements governing program income received 
subsequent to grant closeout, as described in Sec. 570.504(b)(4) and 
(5); and
    (iv) Ensuring that flood insurance coverage for affected property 
owners is maintained for the mandatory period;
    (5) Other provisions appropriate to any special circumstances of the 
grant closeout, in modification of or in addition to the obligations in 
paragraphs (c)(1) through (4) of this section. The agreement shall 
authorize monitoring by HUD, and shall provide that findings of 
noncompliance may be taken into account by HUD, as unsatisfactory 
performance of the recipient, in the consideration of any future grant 
award under this part.
    (d) Status of consolidated plan after closeout. Unless otherwise 
provided in a closeout agreement, the Consolidated Plan will remain in 
effect after closeout until the expiration of the program year covered 
by the last approved consolidated plan.
    (e) Termination of grant for convenience. Grant assistance provided 
under this part may be terminated for convenience in whole or in part 
before the completion of the assisted activities, in accordance with the 
provisions of 24 CFR 85.44. The recipient shall not incur new 
obligations for the terminated portions after the effective date, and 
shall cancel as many outstanding obligations as possible. HUD shall 
allow full credit to the recipient for those portions of obligations 
which could not be canceled and which had been properly incurred by the 
recipient in carrying out the activities before the termination. The 
closeout policies contained in this section shall apply in such cases, 
except where the approved grant is terminated in its entirety. 
Responsibility for the environmental review to be performed under 24 CFR 
part 50 or 24 CFR part 58, as applicable, shall be determined as part of 
the closeout process.
    (f) Termination for cause. In cases in which the Secretary 
terminates the recipient's grant under the authority of subpart O of 
this part, or under the terms of the grant agreement, the closeout 
policies contained in this section shall apply, except where the 
approved grant is cancelled in its entirety. The provisions in 24 CFR 
85.43(c) on the effects of termination shall also apply. HUD shall 
determine whether an environmental assessment or finding of 
inapplicability is required, and if such review is required, HUD shall 
perform it in accordance with 24 CFR part 50.

[53 FR 8058, Mar. 11, 1988, as amended at 56 FR 56128, Oct. 31, 1991; 60 
FR 1916, Jan. 5, 1995; 60 FR 16379, Mar. 30, 1995]



Sec. 570.510  Transferring projects from urban counties to metropolitan cities.

    Section 106(c)(3) of the Act authorizes the Secretary to transfer 
unobligated grant funds from an urban county to a new metropolitan city, 
provided: the city was an included unit of general

[[Page 143]]

local government in the urban county immediately before its 
qualification as a metropolitan city; the funds to be transferred were 
received by the county before the qualification of the city as a 
metropolitan city; the funds to be transferred had been programmed by 
the urban county for use in the city before such qualification; and the 
city and county agree to transfer responsibility for the administration 
of the funds being transferred from the county's letter of credit to the 
city's letter of credit. The following rules apply to the transfer of 
responsibility for an activity from an urban county to the new 
metropolitan city.
    (a) The urban county and the metropolitan city must execute a 
legally binding agreement which shall specify:
    (1) The amount of funds to be transferred from the urban county's 
letter of credit to the metropolitan city's letter of credit;
    (2) The activities to be carried out by the city with the funds 
being transferred;
    (3) The county's responsibility for all expenditures and 
unliquidated obligations associated with the activities before the time 
of transfer, including a statement that responsibility for all audit and 
monitoring findings associated with those expenditures and obligations 
shall remain with the county;
    (4) The responsibility of the metropolitan city for all other audit 
and monitoring findings;
    (5) How program income (if any) from the activities specified shall 
be divided between the metropolitan city and the urban county; and
    (6) Such other provisions as may be required by HUD.
    (b) Upon receipt of a request for the transfer of funds from an 
urban county to a metropolitan city and a copy of the executed 
agreement, HUD, in consultation with the Department of the Treasury, 
shall establish a date upon which the funds shall be transferred from 
the letter of credit of the urban county to the letter of credit of the 
metropolitan city, and shall take all necessary actions to effect the 
requested transfer of funds.
    (c) HUD shall notify the metropolitan city and urban county of any 
special audit and monitoring rules which apply to the transferred funds 
when the date of the transfer is communicated to the city and the 
county.



Sec. 570.511  Use of escrow accounts for rehabilitation of privately owned residential property.

    (a) Limitations. A recipient may withdraw funds from its letter of 
credit for immediate deposit into an escrow account for use in funding 
loans and grants for the rehabilitation of privately owned residential 
property under Sec. 570.202(a)(1). The following additional limitations 
apply to the use of escrow accounts for residential rehabilitation loans 
and grants closed after September 7, 1990:
    (1) The use of escrow accounts under this section is limited to 
loans and grants for the rehabilitation of primarily residential 
properties containing no more than four dwelling units (and accessory 
neighborhood-scale non-residential space within the same structure, if 
any, e.g., a store front below a dwelling unit).
    (2) An escrow account shall not be used unless the contract between 
the property owner and the contractor selected to do the rehabilitation 
work specifically provides that payment to the contractor shall be made 
through an escrow account maintained by the recipient, by a subrecipient 
as defined in Sec. 570.500(c), by a public agency designated under 
Sec. 570.501(a), or by an agent under a procurement contact governed by 
the requirements of 24 CFR 85.36. No deposit to the escrow account shall 
be made until after the contract has been executed between the property 
owner and the rehabilitation contractor.
    (3) All funds withdrawn under this section shall be deposited into 
one interest earning account with a financial institution. Separate bank 
accounts shall not be established for individual loans and grants.
    (4) The amount of funds deposited into an escrow account shall be 
limited to the amount expected to be disbursed within 10 working days 
from the date of deposit. If the escrow account, for whatever reason, at 
any time contains funds exceeding 10 days cash needs, the grantee 
immediately shall transfer the excess funds to its program account. In

[[Page 144]]

the program account, the excess funds shall be treated as funds 
erroneously drawn in accordance with the requirements of U.S. Treasury 
Financial Manual, paragraph 6-2075.30.
    (5) Funds deposited into an escrow account shall be used only to pay 
the actual costs of rehabilitation incurred by the owner under the 
contract with a private contractor. Other eligible costs related to the 
rehabilitation loan or grant, e.g., the recipient's administrative costs 
under Sec. 570.206 or rehabilitation services costs under 
Sec. 570.202(b)(9), are not permissible uses of escrowed funds. Such 
other eligible rehabilitation costs shall be paid under normal CDBG 
payment procedures (e.g., from withdrawals of grant funds under the 
recipient's letter of credit with the Treasury).
    (b) Interest. Interest earned on escrow accounts established in 
accordance with this section, less any service charges for the account, 
shall be remitted to HUD at least quarterly but not more frequently than 
monthly. Interest earned on escrow accounts is not required to be 
remitted to HUD to the extent the interest is attributable to the 
investment of program income.
    (c) Remedies for noncompliance. If HUD determines that a recipient 
has failed to use an escrow account in accordance with this section, HUD 
may, in addition to imposing any other sanctions provided for under this 
part, require the recipient to discontinue the use of escrow accounts, 
in whole or in part.

[55 FR 32369, Aug. 8, 1990]



Sec. 570.512  [Reserved]



Sec. 570.513  Lump sum drawdown for financing of property rehabilitation activities.

    Subject to the conditions prescribed in this section, recipients may 
draw funds from the letter of credit in a lump sum to establish a 
rehabilitation fund in one or more private financial institutions for 
the purpose of financing the rehabilitation of privately owned 
properties. The fund may be used in conjunction with various 
rehabilitation financing techniques, including loans, interest 
subsidies, loan guarantees, loan reserves, or such other uses as may be 
approved by HUD consistent with the objectives of this section. The fund 
may also be used for making grants, but only for the purpose of 
leveraging non-CDBG funds for the rehabilitaton of the same property.
    (a) Limitation on drawdown of grant funds. (1) The funds that a 
recipient deposits to a rehabilitation fund shall not exceed the grant 
amount that the recipient reasonably expects will be required, together 
with anticipated program income from interest and loan repayments, for 
the rehabilitation activities during the period specified in the 
agreement to undertake activities, based on either:
    (i) Prior level of rehabilitation activity; or
    (ii) Rehabilitation staffing and management capacity during the 
period specified in the agreement to undertake activities.
    (2) No grant funds may be deposited under this section solely for 
the purpose of investment, notwithstanding that the interest or other 
income is to be used for the rehabilitation activities.
    (3) The recipient's rehabilitation program administrative costs and 
the administrative costs of the financial institution may not be funded 
through lump sum drawdown. Such costs must be paid from periodic letter 
of credit withdrawals in accordance with standard procedures or from 
program income, other than program income generated by the lump sum 
distribution.
    (b) Standards to be met. The following standards shall apply to all 
lump sum drawdowns of CDBG funds for rehabilitation:
    (1) Eligible rehabilitation activities. The rehabilitation fund 
shall be used to finance the rehabilitation of privately owned 
properties eligible under the general policies in Sec. 570.200 and the 
specific provisions of either Sec. 570.202, including the acquisition of 
properties for rehabilitation, or Sec. 570.203.
    (2) Requirements for agreement. The recipient shall execute a 
written agreement with one or more private financial institutions for 
the operation of the rehabilitation fund. The agreement shall specify 
the obligations and responsibilities of the parties, the terms and 
conditions on which CDBG funds

[[Page 145]]

are to be deposited and used or returned, the anticipated level of 
rehabilitation activities by the financial institution, the rate of 
interest and other benefits to be provided by the financial institution 
in return for the lump sum deposit, and such other terms as are 
necessary for compliance with the provisions of this section. Upon 
execution of the agreement, a copy must be provided to the HUD field 
office for its record and use in monitoring. Any modifications made 
during the term of the agreement must also be provided to HUD.
    (3) Period to undertake activities. The agreement must provide that 
the rehabilitation fund may only be used for authorized activities 
during a period of no more than two years. The lump sum deposit shall be 
made only after the agreement is fully executed.
    (4) Time limit on use of deposited funds. Use of the deposited funds 
for rehabilitation financing assistance must start (e.g., first loan 
must be made, subsidized or guaranteed) within 45 days of the deposit. 
In addition, substantial disbursements from the fund must occur within 
180 days of the receipt of the deposit. (Where CDBG funds are used as a 
guarantee, the funds that must be substantially disbursed are the 
guaranteed funds.) For a recipient with an agreement specifying two 
years to undertake activities, the disbursement of 25 percent of the 
fund (deposit plus any interest earned) within 180 days will be regarded 
as meeting this requirement. If a recipient with an agreement specifying 
two years to undertake activities determines that it has had substantial 
disbursement from the fund within the 180 days although it had not met 
this 25 percent threshold, the justification for the recipient's 
determination shall be included in the program file. Should use of 
deposited funds not start within 45 days, or substantial disbursement 
from such fund not occur within 180 days, the recipient may be required 
by HUD to return all or part of the deposited funds to the recipient's 
letter of credit.
    (5) Progam activity. Recipients shall review the level of program 
activity on a yearly basis. Where activity is substantially below that 
anticipated, program funds shall be returned to the recipient's letter 
of credit.
    (6) Termination of agreement. In the case of substantial failure by 
a private financial institution to comply with the terms of a lump sum 
drawdown agreement, the recipient shall terminate its agreement, provide 
written justification for the action, withdraw all unobligated deposited 
funds from the private financial institution, and return the funds to 
the recipient's letter of credit.
    (7) Return of unused deposits. At the end of the period specified in 
the agreement for undertaking activities, all unobligated deposited 
funds shall be returned to the recipient's letter of credit unless the 
recipient enters into a new agreement conforming to the requirements of 
this section. In addition, the recipient shall reserve the right to 
withdraw any unobligated deposited funds required by HUD in the exercise 
of corrective or remedial actions authorized under Sec. 570.910(b), 
Sec. 570.911, Sec. 570.912 or Sec. 570.913.
    (8) Rehabilitation loans made with non-CDBG funds. If the deposited 
funds or program income derived from deposited funds are used to 
subsidize or guarantee repayment of rehabilitation loans made with non-
CDBG funds, or to provide a supplemental loan or grant to the borrower 
of the non-CDBG funds, the rehabilitation activities are considered to 
be CDBG-assisted activities subject to the requirements applicable to 
such activities, except that repayment of non-CDBG funds shall not be 
treated as program income.
    (9) Provision of consideration. In consideration for the lump sum 
deposit by the recipient in a private financial institution, the deposit 
must result in appropriate benefits in support of the recipient's local 
rehabilitation program. Minimum requirements for such benefits are:
    (i) Grantees shall require the financial institution to pay interest 
on the lump sum deposit.
    (A) The interest rate paid by the financial institution shall be no 
more than three points below the rate on one year Treasury obligations 
at constant maturity.
    (B) When an agreement sets a fixed interest rate for the entire term 
of the

[[Page 146]]

agreement, the rate should be based on the rate at the time the 
agreement is excuted.
    (C) The agreement may provide for an interest rate that would 
fluctuate periodically during the term of the agreement, but at no time 
shall the rate be established at more than three points below the rate 
on one year Treasury obligations at constant maturity.
    (ii) In addition to the payment of interest, at least one of the 
following benefits must be provided by the financial institution:
    (A) Leverage of the deposited funds so that the financial 
institution commits private funds for loans in the rehabilitation 
program in an amount substantially in excess of the amount of the lump 
sum deposit;
    (B) Commitment of private funds by the financial institution for 
rehabilitation loans at below market interest rates, at higher than 
normal risk, or with longer than normal repayment periods; or
    (C) Provision of administrative services in support of the 
rehabilitation program by the participating financial institution at no 
cost or at lower than actual cost.
    (c) Program income. Interest earned on lump sum deposits and 
payments on loans made from such deposits are program income and, during 
the period of the agreement, shall be used for rehabilitation activities 
under the provisions of this section.
    (d) Outstanding findings. Notwithstanding any other provision of 
this section, no recipient shall enter into a new agreement during any 
period of time in which an audit or monitoring finding on a previous 
lump sum drawdown agreement remains unresolved.
    (e) Prior notification. The recipient shall provide the HUD field 
office with written notification of the amount of funds to be 
distributed to a private financial institution before distribution under 
the provisions of this section.
    (f) Recordkeeping requirements. The recipient shall maintain in its 
files a copy of the written agreement and related documents establishing 
conformance with this section and concerning performance by a financial 
institution in accordance with the agreement.



                  Subpart K--Other Program Requirements

    Source: 53 FR 34456, Sept. 6, 1988, unless otherwise noted.



Sec. 570.600  General.

    (a) This subpart K enumerates laws that the Secretary will treat as 
applicable to grants made under section 106 of the Act, other than 
grants to States made pursuant to section 106(d) of the Act, for 
purposes of the Secretary's determinations under section 104(e)(1) of 
the Act, including statutes expressly made applicable by the Act and 
certain other statutes and Executive Orders for which the Secretary has 
enforcement responsibility. This subpart K applies to grants made under 
the Insular areas program in Sec. 570.405, with the exception of 
Sec. 570.612. The absence of mention herein of any other statute for 
which the Secretary does not have direct enforcement responsibility is 
not intended to be taken as an indication that, in the Secretary's 
opinion, such statute or Executive Order is not applicable to activities 
assisted under the Act. For laws that the Secretary will treat as 
applicable to grants made to States under section 106(d) of the Act for 
purposes of the determination required to be made by the Secretary 
pursuant to section 104(e)(2) of the Act, see Sec. 570.487.
    (b) This subpart also sets forth certain additional program 
requirements which the Secretary has determined to be applicable to 
grants provided under the Act as a matter of administrative discretion.
    (c) In addition to grants made pursuant to section 106(b) and 
106(d)(2)(B) of the Act (subparts D and F, respectively), the 
requirements of this subpart K are applicable to grants made pursuant to 
sections 107 and 119 of the Act (subparts E and G, respectively), and to 
loans guaranteed pursuant to subpart M.

[53 FR 34456, Sept. 6, 1988, as amended at 61 FR 11477, Mar. 20, 1996]

[[Page 147]]



Sec. 570.601  Public Law 88-352 and Public Law 90-284; affirmatively furthering fair housing; Executive Order 11063.

    (a) The following requirements apply according to sections 104(b) 
and 107 of the Act:
    (1) Public Law 88-352, which is title VI of the Civil Rights Act of 
1964 (42 U.S.C. 2000d et seq.), and implementing regulations in 24 CFR 
part 1.
    (2) Public Law 90-284, which is the Fair Housing Act (42 U.S.C. 
3601-3620). In accordance with the Fair Housing Act, the Secretary 
requires that grantees administer all programs and activities related to 
housing and community development in a manner to affirmatively further 
the policies of the Fair Housing Act. Furthermore, in accordance with 
section 104(b)(2) of the Act, for each community receiving a grant under 
subpart D of this part, the certification that the grantee will 
affirmatively further fair housing shall specifically require the 
grantee to assume the responsibility of fair housing planning by 
conducting an analysis to identify impediments to fair housing choice 
within its jurisdiction, taking appropriate actions to overcome the 
effects of any impediments identified through that analysis, and 
maintaining records reflecting the analysis and actions in this regard.
    (b) Executive Order 11063, as amended by Executive Order 12259 (3 
CFR, 1959-1963 Comp., p. 652; 3 CFR, 1980 Comp., p. 307) (Equal 
Opportunity in Housing), and implementing regulations in 24 CFR part 
107, also apply.

[61 FR 11477, Mar. 20, 1996]



Sec. 570.602  Section 109 of the Act.

    Section 109 of the Act requires that no person in the United States 
shall on the grounds of race, color, national origin, religion, or sex 
be excluded from participation in, be denied the benefits of, or be 
subjected to discrimination under any program or activity receiving 
Federal financial assistance made available pursuant to the Act. Section 
109 also directs that the prohibitions against discrimination on the 
basis of age under the Age Discrimination Act and the prohibitions 
against discrimination on the basis of disability under Section 504 
shall apply to programs or activities receiving Federal financial 
assistance under Title I programs. The policies and procedures necessary 
to ensure enforcement of section 109 are codified in 24 CFR part 6.

[64 FR 3802, Jan. 25, 1999]



Sec. 570.603  Labor standards.

    (a) Section 110(a) of the Act contains labor standards that apply to 
nonvolunteer labor financed in whole or in part with assistance received 
under the Act. In accordance with section 110(a) of the Act, the 
Contract Work Hours and Safety Standards Act (40 U.S.C. 327 et seq.) 
also applies. However, these requirements apply to the rehabilitation of 
residential property only if such property contains not less than 8 
units.
    (b) The regulations in 24 CFR part 70 apply to the use of 
volunteers.

[61 FR 11477, Mar. 20, 1996]



Sec. 570.604  Environmental standards.

    For purposes of section 104(g) of the Act, the regulations in 24 CFR 
part 58 specify the other provisions of law which further the purposes 
of the National Environmental Policy Act of 1969, and the procedures by 
which grantees must fulfill their environmental responsibilities. In 
certain cases, grantees assume these environmental review, 
decisionmaking, and action responsibilities by execution of grant 
agreements with the Secretary.

[61 FR 11477, Mar. 20, 1996]



Sec. 570.605  National Flood Insurance Program.

    Notwithstanding the date of HUD approval of the recipient's 
application (or, in the case of grants made under subpart D of this part 
or HUD-administered small cities recipients in Hawaii, the date of 
submission of the grantee's consolidated plan, in accordance with 24 CFR 
part 91), section 202(a) of the Flood Disaster Protection Act of 1973 
(42 U.S.C. 4106) and the regulations in 44 CFR parts 59 through 79 apply 
to funds provided under this part 570.

[61 FR 11477, Mar. 20, 1996]

[[Page 148]]



Sec. 570.606  Displacement, relocation, acquisition, and replacement of housing.

    (a) General policy for minimizing displacement. Consistent with the 
other goals and objectives of this part, grantees (or States or state 
recipients, as applicable) shall assure that they have taken all 
reasonable steps to minimize the displacement of persons (families, 
individuals, businesses, nonprofit organizations, and farms) as a result 
of activities assisted under this part.
    (b) Relocation assistance for displaced persons at URA levels. (1) A 
displaced person shall be provided with relocation assistance at the 
levels described in, and in accordance with the requirements of 49 CFR 
part 24, which contains the government-wide regulations implementing the 
Uniform Relocation Assistance and Real Property Acquisition Policies Act 
of 1970 (URA) (42 U.S.C. 4601-4655).
    (2) Displaced person. (i) For purposes of paragraph (b) of this 
section, the term ``displaced person'' means any person (family, 
individual, business, nonprofit organization, or farm) that moves from 
real property, or moves his or her personal property from real property, 
permanently and involuntarily, as a direct result of rehabilitation, 
demolition, or acquisition for an activity assisted under this part. A 
permanent, involuntary move for an assisted activity includes a 
permanent move from real property that is made:
    (A) After notice by the grantee (or the state recipient, if 
applicable) to move permanently from the property, if the move occurs 
after the initial official submission to HUD (or the State, as 
applicable) for grant, loan, or loan guarantee funds under this part 
that are later provided or granted.
    (B) After notice by the property owner to move permanently from the 
property, if the move occurs after the date of the submission of a 
request for financial assistance by the property owner (or person in 
control of the site) that is later approved for the requested activity.
    (C) Before the date described in paragraph (b)(2)(i)(A) or (B) of 
this section, if either HUD or the grantee (or State, as applicable) 
determines that the displacement directly resulted from acquisition, 
rehabilitation, or demolition for the requested activity.
    (D) After the ``initiation of negotiations'' if the person is the 
tenant-occupant of a dwelling unit and any one of the following three 
situations occurs:
    (1) The tenant has not been provided with a reasonable opportunity 
to lease and occupy a suitable decent, safe, and sanitary dwelling in 
the same building/complex upon the completion of the project, including 
a monthly rent that does not exceed the greater of the tenant's monthly 
rent and estimated average utility costs before the initiation of 
negotiations or 30 percent of the household's average monthly gross 
income; or
    (2) The tenant is required to relocate temporarily for the activity 
but the tenant is not offered payment for all reasonable out-of-pocket 
expenses incurred in connection with the temporary relocation, including 
the cost of moving to and from the temporary location and any increased 
housing costs, or other conditions of the temporary relocation are not 
reasonable; and the tenant does not return to the building/complex; or
    (3) The tenant is required to move to another unit in the building/
complex, but is not offered reimbursement for all reasonable out-of-
pocket expenses incurred in connection with the move.
    (ii) Notwithstanding the provisions of paragraph (b)(2)(i) of this 
section, the term ``displaced person-'' does not include:
    (A) A person who is evicted for cause based upon serious or repeated 
violations of material terms of the lease or occupancy agreement. To 
exclude a person on this basis, the grantee (or State or state 
recipient, as applicable) must determine that the eviction was not 
undertaken for the purpose of evading the obligation to provide 
relocation assistance under this section;
    (B) A person who moves into the property after the date of the 
notice described in paragraph (b)(2)(i)(A) or (B) of this section, but 
who received a written notice of the expected displacement before 
occupancy.
    (C) A person who is not displaced as described in 49 CFR 24.2(g)(2).
    (D) A person who the grantee (or State, as applicable) determines is 
not

[[Page 149]]

displaced as a direct result of the acquisition, rehabilitation, or 
demolition for an assisted activity. To exclude a person on this basis, 
HUD must concur in that determination.
    (iii) A grantee (or State or state recipient, as applicable) may, at 
any time, request HUD to determine whether a person is a displaced 
person under this section.
    (3) Initiation of negotiations. For purposes of determining the type 
of replacement housing assistance to be provided under paragraph (b) of 
this section, if the displacement is the direct result of privately 
undertaken rehabilitation, demolition, or acquisition of real property, 
the term ``initiation of negotiations'' means the execution of the grant 
or loan agreement between the grantee (or State or state recipient, as 
applicable) and the person owning or controlling the real property.
    (c) Residential antidisplacement and relocation assistance plan. The 
grantee shall comply with the requirements of 24 CFR part 42, subpart B.
    (d) Optional relocation assistance. Under section 105(a)(11) of the 
Act, the grantee may provide (or the State may permit the state 
recipient to provide, as applicable) relocation payments and other 
relocation assistance to persons displaced by activities that are not 
subject to paragraph (b) or (c) of this section. The grantee may also 
provide (or the State may also permit the state recipient to provide, as 
applicable) relocation assistance to persons receiving assistance under 
paragraphs (b) or (c) of this section at levels in excess of those 
required by these paragraphs. Unless such assistance is provided under 
State or local law, the grantee (or state recipient, as applicable) 
shall provide such assistance only upon the basis of a written 
determination that the assistance is appropriate (see, e.g., 24 CFR 
570.201(i), as applicable). The grantee (or state recipient, as 
applicable) must adopt a written policy available to the public that 
describes the relocation assistance that the grantee (or state 
recipient, as applicable) has elected to provide and that provides for 
equal relocation assistance within each class of displaced persons.
    (e) Acquisition of real property. The acquisition of real property 
for an assisted activity is subject to 49 CFR part 24, subpart B.
    (f) Appeals. If a person disagrees with the determination of the 
grantee (or the state recipient, as applicable) concerning the person's 
eligibility for, or the amount of, a relocation payment under this 
section, the person may file a written appeal of that determination with 
the grantee (or state recipient, as applicable). The appeal procedures 
to be followed are described in 49 CFR 24.10. In addition, a low- or 
moderate-income household that has been displaced from a dwelling may 
file a written request for review of the grantee's decision to the HUD 
Field Office. For purposes of the State CDBG program, a low- or 
moderate-income household may file a written request for review of the 
state recipient's decision with the State.
    (g) Responsibility of grantee or State. (1) The grantee (or State, 
if applicable) is responsible for ensuring compliance with the 
requirements of this section, notwithstanding any third party's 
contractual obligation to the grantee to comply with the provisions of 
this section. For purposes of the State CDBG program, the State shall 
require state recipients to certify that they will comply with the 
requirements of this section.
    (2) The cost of assistance required under this section may be paid 
from local public funds, funds provided under this part, or funds 
available from other sources.
    (3) The grantee (or State and state recipient, as applicable) must 
maintain records in sufficient detail to demonstrate compliance with the 
provisions of this section.

(Approved by the Office of Management and Budget under OMB control 
number 2506-0102)

[61 FR 11477, Mar. 20, 1996, as amended at 61 FR 51760, Oct. 3, 1996]



Sec. 570.607  Employment and contracting opportunities.

    Grantees shall comply with:
    (a) Executive Order 11246, as amended by Executive Orders 11375, 
11478, 12086, and 12107 (3 CFR, 1964-1965 Comp., p.339; 3 CFR, 1966-1970 
Comp., p. 684; 3 CFR, 1966-1970 Comp., p. 803; 3 CFR, 1978 Comp., p. 
230; and 3 CFR, 1978 Comp., p. 264) (Equal Employment Opportunity)

[[Page 150]]

and the implementing regulations at 41 CFR chapter 60; and
    (b) Section 3 of the Housing and Urban Development Act of 1968 (12 
U.S.C. 1701u) and implementing regulations at 24 CFR part 135.

[61 FR 5209, Feb. 9, 1996]



Sec. 570.608  Lead-based paint.

    The Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), 
the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 
4851-4856), and implementing regulations at part 35, subparts A, B, J, 
K, and R of this part apply to activities under this program.

[64 FR 50226, Sept. 15, 1999]



Sec. 570.609  Use of debarred, suspended or ineligible contractors or subrecipients.

    The requirements set forth in 24 CFR part 5 apply to this program.

[61 FR 5209, Feb. 9, 1996]



Sec. 570.610  Uniform administrative requirements and cost principles.

    The recipient, its agencies or instrumentalities, and subrecipients 
shall comply with the policies, guidelines, and requirements of 24 CFR 
part 85 and OMB Circulars A-87, A-110 (implemented at 24 CFR part 84), 
A-122, A-133 (implemented at 24 CFR part 45), and A-128 2 
(implemented at 24 CFR part 44), as applicable, as they relate to the 
acceptance and use of Federal funds under this part. The applicable 
sections of 24 CFR parts 84 and 85 are set forth at Sec. 570.502.
---------------------------------------------------------------------------

    \2\ See footnote 1 at Sec. 570.200(a)(5).

[60 FR 56916, Nov. 9, 1995]



Sec. 570.611  Conflict of interest.

    (a) Applicability. (1) In the procurement of supplies, equipment, 
construction, and services by recipients and by subrecipients, the 
conflict of interest provisions in 24 CFR 85.36 and 24 CFR 84.42, 
respectively, shall apply.
    (2) In all cases not governed by 24 CFR 85.36 and 84.42, the 
provisions of this section shall apply. Such cases include the 
acquisition and disposition of real property and the provision of 
assistance by the recipient or by its subrecipients to individuals, 
businesses, and other private entities under eligible activities that 
authorize such assistance (e.g., rehabilitation, preservation, and other 
improvements of private properties or facilities pursuant to 
Sec. 570.202; or grants, loans, and other assistance to businesses, 
individuals, and other private entities pursuant to Sec. 570.203, 
570.204, 570.455, or 570.703(i)).
    (b) Conflicts prohibited. The general rule is that no persons 
described in paragraph (c) of this section who exercise or have 
exercised any functions or responsibilities with respect to CDBG 
activities assisted under this part, or who are in a position to 
participate in a decisionmaking process or gain inside information with 
regard to such activities, may obtain a financial interest or benefit 
from a CDBG-assisted activity, or have a financial interest in any 
contract, subcontract, or agreement with respect to a CDBG-assisted 
activity, or with respect to the proceeds of the CDBG-assisted activity, 
either for themselves or those with whom they have business or immediate 
family ties, during their tenure or for one year thereafter. For the 
UDAG program, the above restrictions shall apply to all activities that 
are a part of the UDAG project, and shall cover any such financial 
interest or benefit during, or at any time after, such person's tenure.
    (c) Persons covered. The conflict of interest provisions of 
paragraph (b) of this section apply to any person who is an employee, 
agent, consultant, officer, or elected official or appointed official of 
the recipient, or of any designated public agencies, or of subrecipients 
that are receiving funds under this part.
    (d) Exceptions. Upon the written request of the recipient, HUD may 
grant an exception to the provisions of paragraph (b) of this section on 
a case-by-case basis when it has satisfactorily met the threshold 
requirements of (d)(1) of this section, taking into account the 
cumulative effects of paragraph (d)(2) of this section.
    (1) Threshold requirements. HUD will consider an exception only 
after the recipient has provided the following documentation:

[[Page 151]]

    (i) A disclosure of the nature of the conflict, accompanied by an 
assurance that there has been public disclosure of the conflict and a 
description of how the public disclosure was made; and
    (ii) An opinion of the recipient's attorney that the interest for 
which the exception is sought would not violate State or local law.
    (2) Factors to be considered for exceptions. In determining whether 
to grant a requested exception after the recipient has satisfactorily 
met the requirements of paragraph (d)(1) of this section, HUD shall 
conclude that such an exception will serve to further the purposes of 
the Act and the effective and efficient administration of the 
recipient's program or project, taking into account the cumulative 
effect of the following factors, as applicable:
    (i) Whether the exception would provide a significant cost benefit 
or an essential degree of expertise to the program or project that would 
otherwise not be available;
    (ii) Whether an opportunity was provided for open competitive 
bidding or negotiation;
    (iii) Whether the person affected is a member of a group or class of 
low- or moderate-income persons intended to be the beneficiaries of the 
assisted activity, and the exception will permit such person to receive 
generally the same interests or benefits as are being made available or 
provided to the group or class;
    (iv) Whether the affected person has withdrawn from his or her 
functions or responsibilities, or the decisionmaking process with 
respect to the specific assisted activity in question;
    (v) Whether the interest or benefit was present before the affected 
person was in a position as described in paragraph (b) of this section;
    (vi) Whether undue hardship will result either to the recipient or 
the person affected when weighed against the public interest served by 
avoiding the prohibited conflict; and
    (vii) Any other relevant considerations.

[60 FR 56916, Nov. 9, 1995]



Sec. 570.612  Executive Order 12372.

    (a) General. Executive Order 12372, Intergovernmental Review of 
Federal Programs, and the Department's implementing regulations at 24 
CFR part 52, allow each State to establish its own process for review 
and comment on proposed Federal financial assistance programs.
    (b) Applicability. Executive Order 12372 applies to the CDBG 
Entitlement program and the UDAG program. The Executive Order applies to 
all activities proposed to be assisted under UDAG, but it applies to the 
Entitlement program only where a grantee proposes to use funds for the 
planning or construction (reconstruction or installation) of water or 
sewer facilities. Such facilities include storm sewers as well as all 
sanitary sewers, but do not include water and sewer lines connecting a 
structure to the lines in the public right-of-way or easement. It is the 
responsibility of the grantee to initiate the Executive Order review 
process if it proposes to use its CDBG or UDAG funds for activities 
subject to review.



Sec. 570.613  Eligibility restrictions for certain resident aliens.

    (a) Restriction. Certain newly legalized aliens, as described in 24 
CFR part 49, are not eligible to apply for benefits under covered 
activities funded by the programs listed in paragraph (e) of this 
section. ``Benefits'' under this section means financial assistance, 
public services, jobs and access to new or rehabilitated housing and 
other facilities made available under covered activities funded by 
programs listed in paragraph (e) of this section. ``Benefits'' do not 
include relocation services and payments to which displacees are 
entitled by law.
    (b) Covered activities. ``Covered activities'' under this section 
means activities meeting the requirements of Sec. 570.208(a) that 
either:
    (1) Have income eligibility requirements limiting the benefits 
exclusively to low and moderate income persons; or
    (2) Are targeted geographically or otherwise to primarily benefit 
low and moderate income persons (excluding activities serving the public 
at large, such as sewers, roads, sidewalks, and parks), and that provide 
benefits to persons on the basis of an application.

[[Page 152]]

    (c) Limitation on coverage. The restrictions under this section 
apply only to applicants for new benefits not being received by covered 
resident aliens as of the effective date of this section.
    (d) Compliance. Compliance can be accomplished by obtaining 
certification as provided in 24 CFR 49.20.
    (e) Programs affected. (1) The Community Development Block Grant 
program for small cities, administered under subpart F of part 570 of 
this title until closeout of the recipient's grant.
    (2) The Community Development Block Grant program for entitlement 
grants, administered under subpart D of part 570 of this title.
    (3) The Community Development Block Grant program for States, 
administered under subpart I of part 570 of this title until closeout of 
the unit of general local government's grant by the State.
    (4) The Urban Development Action Grants program, administered under 
subpart G of part 570 of this title until closeout of the recipient's 
grant.

[55 FR 18494, May 2, 1990]



Sec. 570.614  Architectural Barriers Act and the Americans with Disabilities Act.

    (a) The Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157) 
requires certain Federal and Federally funded buildings and other 
facilities to be designed, constructed, or altered in accordance with 
standards that insure accessibility to, and use by, physically 
handicapped people. A building or facility designed, constructed, or 
altered with funds allocated or reallocated under this part after 
December 11, 1995, and that meets the definition of ``residential 
structure'' as defined in 24 CFR 40.2 or the definition of ``building'' 
as defined in 41 CFR 101-19.602(a) is subject to the requirements of the 
Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157) and shall 
comply with the Uniform Federal Accessibility Standards (appendix A to 
24 CFR part 40 for residential structures, and appendix A to 41 CFR part 
101-19, subpart 101-19.6, for general type buildings).
    (b) The Americans with Disabilities Act (42 U.S.C. 12131; 47 U.S.C. 
155, 201, 218 and 225) (ADA) provides comprehensive civil rights to 
individuals with disabilities in the areas of employment, public 
accommodations, State and local government services, and 
telecommunications. It further provides that discrimination includes a 
failure to design and construct facilities for first occupancy no later 
than January 26, 1993, that are readily accessible to and usable by 
individuals with disabilities. Further, the ADA requires the removal of 
architectural barriers and communication barriers that are structural in 
nature in existing facilities, where such removal is readily achievable-
-that is, easily accomplishable and able to be carried out without much 
difficulty or expense.

[60 FR 56917, Nov. 9, 1995]

Subpart L [Reserved]



                       Subpart M--Loan Guarantees

    Source: 59 FR 66604, Dec. 27, 1994, unless otherwise noted.



Sec. 570.700  Purpose.

    This subpart contains requirements governing the guarantee under 
section 108 of the Act of debt obligations as defined in Sec. 570.701.



Sec. 570.701  Definitions.

    Borrower means the public entity or its designated public agency 
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 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 and guaranteed or eligible for guarantee by HUD under this 
subpart.
    Designated public agency means a public agency designated by a 
public entity to issue debt obligations as borrower under this subpart.

[[Page 153]]

    Entitlement public entity means a metropolitan city or an urban 
county receiving a grant under subpart D of this part.
    Guaranteed loan funds means the proceeds payable to the borrower 
from the issuance of debt obligations under this subpart.
    Nonentitlement public entity means any unit of general local 
government in a nonentitlement area.
    Public entity shall have the meaning provided for the term 
``Eligible public entity'' in section 108(o) of the Act.
    State-assisted public entity means a unit of general local 
government in a nonentitlement area which is assisted by a State as 
required in Sec. 570.704(b)(9) and Sec. 570.705(b)(2).

[59 FR 66604, Dec. 27, 1994, as amended at 61 FR 11481, Mar. 20, 1996]



Sec. 570.702  Eligible applicants.

    The following public entities may apply for loan guarantee 
assistance under this subpart.
    (a) Entitlement public entities.
    (b) Nonentitlement public entities that are assisted in the 
submission of applications by States that administer the CDBG program 
(under subpart I of this part). Such assistance shall consist, at a 
minimum, of the certifications required under Sec. 570.704(b)(9) (and 
actions pursuant thereto).
    (c) Nonentitlement public entities eligible to apply for grant 
assistance under subpart F of this part.



Sec. 570.703  Eligible activities.

    Guaranteed loan funds may be used for the following activities, 
provided such activities meet the requirements of Sec. 570.200. However, 
guaranteed loan funds may not be used to reimburse the CDBG program 
account or line of credit for costs incurred by the public entity or 
designated public agency and paid with CDBG grant funds or program 
income.
    (a) Acquisition of improved or unimproved real property in fee or by 
long-term lease, including acquisition for economic development 
purposes.
    (b) Rehabilitation of real property owned or acquired by the public 
entity or its designated public agency.
    (c) Payment of interest on obligations guaranteed under this 
subpart.
    (d) Relocation payments and other relocation assistance for 
individuals, families, businesses, nonprofit organizations, and farm 
operations who must relocate permanently or temporarily as a result of 
an activity financed with guaranteed loan funds, where the assistance 
is:
    (1) Required under the provisions of Sec. 570.606(b) or (c); or
    (2) Determined by the public entity to be appropriate under the 
provisions of Sec. 570.606(d).
    (e) Clearance, demolition and removal, including movement of 
structures to other sites, of buildings and improvements on real 
property acquired or rehabilitated pursuant to paragraphs (a) and (b) of 
this section.
    (f) Site preparation, including construction, reconstruction, or 
installation of public and other site improvements, utilities, or 
facilities (other than buildings), which is:
    (1) Related to the redevelopment or use of the real property 
acquired or rehabilitated pursuant to paragraphs (a) and (b) of this 
section, or
    (2) For an economic development purpose.
    (g) Payment of issuance, underwriting, servicing, trust 
administration and other costs associated with private sector financing 
of debt obligations under this subpart.
    (h) Housing rehabilitation eligible under Sec. 570.202.
    (i) The following economic development activities:
    (1) Activities eligible under Sec. 570.203; and
    (2) Community economic development projects eligible under 
Sec. 570.204.
    (j) Construction of housing by nonprofit organizations for 
homeownership under section 17(d) of the United States Housing Act of 
1937 (Housing Development Grants Program, 24 CFR part 850) or title VI 
of the Housing and Community Development Act of 1987 (Nehemiah Housing 
Opportunity Grants Program, 24 CFR part 280).
    (k) A debt service reserve to be used in accordance with 
requirements specified in the contract entered into pursuant to 
Sec. 570.705(b)(1).
    (l) Acquisition, construction, reconstruction, rehabilitation, or 
installation of public facilities (except for

[[Page 154]]

buildings for the general conduct of government), public streets, 
sidewalks, and other site improvements and public utilities.
    (m) In the case of applications by public entities which are, or 
which contain, ``colonias'' as defined in section 916 of the Cranston-
Gonzalez National Affordable Housing Act (42 U.S.C. 5306 note), as 
amended by section 810 of the Housing and Community Development Act of 
1992, acquisition, construction, reconstruction, rehabilitation or 
installation of public works and site or other improvements which serve 
the colonia.

[59 FR 66604, Dec. 27, 1994, as amended at 61 FR 11481, Mar. 20, 1996]



Sec. 570.704  Application requirements.

    (a) Presubmission and citizen participation requirements. (1) Before 
submission of an application for loan guarantee assistance to HUD, the 
public entity must:
    (i) Develop a proposed application that includes the following 
items:
    (A) The community development objectives the public entity proposes 
to pursue with the guaranteed loan funds.
    (B) The activities the public entity proposes to carry out with the 
guaranteed loan funds. Each activity must be described in sufficient 
detail, including the specific provision of Sec. 570.703 under which it 
is eligible and the national objective to be met, amount of guaranteed 
loan funds expected to be used, and location, to allow citizens to 
determine the degree to which they will be affected. The proposed 
application must indicate which activities are expected to generate 
program income. The application must also describe where citizens may 
obtain additional information about proposed activities.
    (C) A description of the pledge of grants required under 
Sec. 570.705(b)(2). In the case of applications by State-assisted public 
entities, the description shall note that pledges of grants will be made 
by the State and by the public entity.
    (ii) Fulfill the applicable requirements in its citizen 
participation plan developed in accordance with Sec. 570.704(a)(2).
    (iii) Publish community-wide its proposed application so as to 
afford affected citizens an opportunity to examine the application's 
contents and to provide comments on the proposed application.
    (iv) Prepare its final application. Once the public entity has held 
the public hearing and published the proposed application as required by 
paragraphs (a)(1)(ii) and (iii) of this section, respectively, the 
public entity must consider any such comments and views received and, if 
the public entity deems appropriate, modify the proposed application. 
Upon completion, the public entity must make the final application 
available to the public. The final application must describe each 
activity in sufficient detail to permit a clear understanding of the 
nature of each activity, as well as identify the specific provision of 
Sec. 570.703 under which it is eligible, the national objective to be 
met, and the amount of guaranteed loan funds to be used. The final 
application must also indicate which activities are expected to generate 
program income.
    (v) If an application for loan guarantee assistance is to be 
submitted by an entitlement public entity simultaneously with the public 
entity's submission for its entitlement grant, the public entity shall 
include and identify in its proposed and final consolidated plan the 
activities to be undertaken with the guaranteed loan funds, the national 
objective to be met by each of these activities, the amount of any 
program income expected to be received during the program year, and the 
amount of guaranteed loan funds to be used; the public entity shall also 
include in the consolidated plan a description of the pledge of grants 
required under Sec. 570.705(b)(2). In such cases the proposed and final 
application requirements of paragraphs (a)(1) (i), (iii), and (iv) of 
this section will be deemed to have been met.
    (2) Citizen participation plan. The public entity must develop and 
follow a detailed citizen participation plan and make the plan public. 
The plan must be completed and available before the application is 
submitted to HUD. The plan may be the citizen plan required for the 
consolidated plan, modified to include guaranteed loan funds. The public 
entity is not required to hold a

[[Page 155]]

separate public hearing for its consolidated plan and for the guaranteed 
loan funds to obtain citizens' views on community development and 
housing needs. The plan must set forth the public entity's policies and 
procedures for:
    (i) Giving citizens timely notice of local meetings and reasonable 
and timely access to local meetings, information, and records relating 
to the public entity's proposed and actual use of guaranteed loan funds, 
including, but not limited to:
    (A) The amount of guaranteed loan funds expected to be made 
available for the coming year, including program income anticipated to 
be generated by the activities carried out with guaranteed loan funds;
    (B) The range of activities that may be undertaken with guaranteed 
loan funds;
    (C) The estimated amount of guaranteed loan funds (including program 
income derived therefrom) proposed to be used for activities that will 
benefit low and moderate income persons;
    (D) The proposed activities likely to result in displacement and the 
public entity's plans, consistent with the policies developed under 
Sec. 570.606 for minimizing displacement of persons as a result of its 
proposed activities.
    (ii) Providing technical assistance to groups representative of 
persons of low and moderate income that request assistance in developing 
proposals. The level and type of assistance to be provided is at the 
discretion of the public entity. Such assistance need not include the 
provision of funds to such groups.
    (iii) Holding a minimum of two public hearings, each at a different 
stage of the public entity's program, for the purpose of obtaining the 
views of citizens and formulating or responding to proposals and 
questions. Together the hearings must address community development and 
housing needs, development of proposed activities and review of program 
performance. At least one of these hearings must be held before 
submission of the application to obtain the views of citizens on 
community development and housing needs. Reasonable notice of the 
hearing must be provided and the hearing must be held at times and 
locations convenient to potential or actual beneficiaries, with 
accommodation for the handicapped. The public entity must specify in its 
plan how it will meet the requirement for a hearing at times and 
locations convenient to potential or actual beneficiaries.
    (iv) Meeting the needs of non-English speaking residents in the case 
of public hearings where a significant number of non-English speaking 
residents can reasonably be expected to participate.
    (v) Providing affected citizens with reasonable advance notice of, 
and opportunity to comment on, proposed activities not previously 
included in an application and activities which are proposed to be 
deleted or substantially changed in terms of purpose, scope, location, 
or beneficiaries. The criteria the public entity will use to determine 
what constitutes a substantial change for this purpose must be described 
in the citizen participation plan.
    (vi) Responding to citizens' complaints and grievances, including 
the procedures that citizens must follow when submitting complaints and 
grievances. The public entity's policies and procedures must provide for 
timely written answers to written complaints and grievances within 15 
working days of the receipt of the complaint, where practicable.
    (vii) Encouraging citizen participation, particularly by low and 
moderate income persons who reside in slum or blighted areas, and other 
areas in which guaranteed loan funds are proposed to be used.
    (b) Submission requirements. An application for loan guarantee 
assistance may be submitted at any time. The application (or 
consolidated plan) shall be submitted to the appropriate HUD Office and 
shall be accompanied by the following:
    (1) A description of how each of the activities to be carried out 
with the guaranteed loan funds meets one of the criteria in 
Sec. 570.208.
    (2) A schedule for repayment of the loan which identifies the 
sources of repayment, together with a statement identifying the entity 
that will act as borrower and issue the debt obligations.
    (3) A certification providing assurance that the public entity 
possesses

[[Page 156]]

the legal authority to make the pledge of grants required under 
Sec. 570.705(b)(2).
    (4) A certification providing assurance that the public entity has 
made efforts to obtain financing for activities described in the 
application without the use of the loan guarantee, the public entity 
will maintain documentation of such efforts for the term of the loan 
guarantee, and the public entity cannot complete such financing 
consistent with the timely execution of the program plans without such 
guarantee.
    (5) The drug-free workplace certification required under 24 CFR part 
24 (appendix C).
    (6) The certification regarding debarment and suspension required 
under 24 CFR part 24 (appendix A).
    (7) The anti-lobbying statement required under 24 CFR part 87 
(appendix A).
    (8) Certifications by the public entity that:
    (i) It possesses the legal authority to submit the application for 
assistance under this subpart and to use the guaranteed loan funds in 
accordance with the requirements of this subpart.
    (ii) Its governing body has duly adopted or passed as an official 
act a resolution, motion or similar official action:
    (A) Authorizing the person identified as the official representative 
of the public entity to submit the application and amendments thereto 
and all understandings and assurances contained therein, and directing 
and authorizing the person identified as the official representative of 
the public entity to act in connection with the application to provide 
such additional information as may be required; and
    (B) Authorizing such official representative to execute such 
documents as may be required in order to implement the application and 
issue debt obligations pursuant thereto (provided that the authorization 
required by this paragraph (B) may be given by the local governing body 
after submission of the application but prior to execution of the 
contract required by Sec. 570.705(b);
    (iii) Before submission of its application to HUD, the public entity 
has:
    (A) Furnished citizens with information required by 
Sec. 570.704(a)(2)(i);
    (B) Held at least one public hearing to obtain the views of citizens 
on community development and housing needs; and
    (C) Prepared its application in accordance with 
Sec. 570.704(a)(1)(iv) and made the application available to the public.
    (iv) It is following a detailed citizen participation plan which 
meets the requirements described in Sec. 570.704(a)(2).
    (v) The public entity will affirmatively further fair housing, and 
the guaranteed loan funds will be administered in compliance with:
    (A) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et 
seq.); and
    (B) The Fair Housing Act (42 U.S.C. 3601-3619).
    (vi)(A) (For entitlement public entities only.) In the aggregate, at 
least 70 percent of all CDBG funds, as defined at Sec. 570.3, to be 
expended during the one, two, or three consecutive years specified by 
the public entity for its CDBG program will be for activities which 
benefit low and moderate income persons, as described in criteria at 
Sec. 570.208(a).
    (B) (For nonentitlement public entities eligible under subpart F of 
this part only.) It will comply with primary and national objectives 
requirements, as applicable under subpart F of this part.
    (vii) It will comply with the requirements governing displacement, 
relocation, real property acquisition, and the replacement of low and 
moderate income housing described in Sec. 570.606.
    (viii) It will comply with the requirements of Sec. 570.200(c)(2) 
with regard to the use of special assessments to recover the capital 
costs of activities assisted with guaranteed loan funds.
    (ix) (Where applicable, the public entity may also include the 
following additional certification.) It lacks sufficient resources from 
funds provided under this subpart or program income to allow it to 
comply with the provisions of Sec. 570.200(c)(2), and it must therefore 
assess properties owned and occupied by moderate income persons, to 
recover the guaranteed loan funded

[[Page 157]]

portion of the capital cost without paying such assessments in their 
behalf from guaranteed loan funds.
    (x) It will comply with the other provisions of the Act and with 
other applicable laws.
    (9) In the case of an application submitted by a State-assisted 
public entity, certifications by the State that:
    (i) It agrees to make the pledge of grants required under 
Sec. 570.705(b)(2).
    (ii) It possesses the legal authority to make such pledge.
    (iii) At least 70 percent of the aggregate use of CDBG grant funds 
received by the State, guaranteed loan funds, and program income during 
the one, two, or three consecutive years specified by the State for its 
CDBG program will be for activities that benefit low and moderate income 
persons.
    (iv) It agrees to assume the responsibilities described in 
Sec. 570.710.
    (c) HUD review and approval of applications. (1) HUD will normally 
accept the certifications submitted with the application. HUD may, 
however, consider relevant information which challenges the 
certifications and require additional information or assurances from the 
public entity or State as warranted by such information.
    (2) The HUD Office shall review the application for compliance with 
requirements specified in this subpart and forward the application 
together with its recommendation for approval or disapproval of the 
requested loan guarantee to HUD Headquarters.
    (3) HUD may disapprove an application, or may approve loan guarantee 
assistance for an amount less than requested, for any of the following 
reasons:
    (i) HUD determines that the guarantee constitutes an unacceptable 
financial risk. Factors that will be considered in assessing financial 
risk shall include, but not be limited to, the following:
    (A) The length of the proposed repayment period;
    (B) The ratio of expected annual debt service requirements to 
expected annual grant amount;
    (C) The likelihood that the public entity or State will continue to 
receive grant assistance under this part during the proposed repayment 
period;
    (D) The public entity's ability to furnish adequate security 
pursuant to Sec. 570.705(b), and
    (E) The amount of program income the proposed activities are 
reasonably estimated to contribute toward repayment of the guaranteed 
loan.
    (ii) The requested loan amount exceeds any of the limitations 
specified under Sec. 570.705(a).
    (iii) Funds are not available in the amount requested.
    (iv) The performance of the public entity, its designated public 
agency or State under this part is unacceptable.
    (v) Activities to be undertaken with the guaranteed loan funds are 
not eligible under Sec. 570.703.
    (vi) Activities to be undertaken with the guaranteed loan funds do 
not meet the criteria in Sec. 570.208 for compliance with one of the 
national objectives of the Act.
    (4) HUD will notify the public entity in writing that the loan 
guarantee request has either been approved, reduced or disapproved. If 
the request is reduced or disapproved, the public entity shall be 
informed of the specific reasons for reduction or disapproval. If the 
request is approved, HUD shall issue an offer of commitment to guarantee 
debt obligations of the borrower identified in the application subject 
to compliance with this part, including the requirements under 
Sec. 570.705(b), (d), (g) and (h) for securing and issuing debt 
obligations, the conditions for release of funds described in paragraph 
(d) of this section, and such other conditions as HUD may specify in the 
commitment documents in a particular case.
    (5) Amendments. If the public entity wishes to carry out 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. Amendments by State-assisted public 
entities must also be approved by the State. The public entity shall 
follow the citizen participation requirements for amendments in 
Sec. 570.704(a)(2).
    (d) Environmental review. The public entity shall comply with HUD 
environmental review procedures (24 CFR part 58) for the release of 
funds for each project carried out with loan guarantee

[[Page 158]]

assistance. These procedures set forth the regulations, policies, 
responsibilities and procedures governing the carrying out of 
environmental review responsibilities of public entities. All public 
entities, including nonentitlement public entities, shall submit the 
request for release of funds and related certification for each project 
to be assisted with guaranteed loan funds to the appropriate HUD Field 
Office.
    (e) Displacement, relocation, acquisition, and replacement of 
housing. The public entity (or the designated public agency) shall 
comply with the displacement, relocation, acquisition, and replacement 
of low/moderate-income housing requirements in Sec. 570.606 in 
connection with any activity financed in whole or in part with 
guaranteed loan funds.

[59 FR 66604, Dec. 27, 1994, as amended at 60 FR 1917, Jan. 5, 1995; 61 
FR 11481, Mar. 20, 1996]



Sec. 570.705  Loan requirements.

    (a) Limitations on commitments. (1) If loan guarantee commitments 
have been issued in any fiscal year in an aggregate amount equal to 50 
percent of the amount approved in an appropriation act for that fiscal 
year, HUD may limit the amount of commitments any one public entity may 
receive during such fiscal year as follows (except that HUD will not 
decrease commitments already issued):
    (i) The amount any one entitlement public entity may receive may be 
limited to $35,000,000.
    (ii) The amount any one nonentitlement public entity may receive may 
be limited to $7,000,000.
    (iii) The amount any one public entity may receive may be limited to 
such amount as is necessary to allow HUD to give priority to 
applications containing activities to be carried out in areas designated 
as empowerment zones/enterprise communities by the Federal Government or 
by any State.
    (2) In addition to the limitations specified in paragraph (a)(1) of 
this section, the following limitations shall apply.
    (i) Entitlement 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 Sec. 570.705(b)(1)) on behalf of the public entity would 
thereby exceed an amount equal to five times the amount of the most 
recent grant made pursuant to Sec. 570.304 to the public entity.
    (ii) 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 Sec. 570.705(b)(1)) on behalf of the public entity 
and all other 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.
    (iii) Nonentitlement public entities eligible under subpart F of 
this part. No commitment to guarantee shall be made with respect to a 
nonentitlement public entity in the State of Hawaii if the total unpaid 
balance of debt obligations guaranteed under this subpart (excluding any 
amount defeased under the contract entered into under 
Sec. 570.705(b)(1)) on behalf of the public entity would thereby exceed 
an amount equal to five times the amount of the most recent grant made 
pursuant to Sec. 570.429 to the public entity. No commitment to 
guarantee shall be made with respect to a nonentitlement public entity 
in the State of New York if the total unpaid balance of debt obligations 
guaranteed under this subpart (excluding any amount defeased under the 
contract entered into under Sec. 570.705(b)(1)) on behalf of the public 
entity would thereby exceed the greater of five times:
    (A) The most recent grant approved for the public entity pursuant to 
subpart F of this part,
    (B) The average of the most recent three grants approved for the 
public entity pursuant to subpart F of this part, excluding any grant in 
the same fiscal year as the commitment, or
    (C) The average amount of grants made under subpart F of this part 
to units of general local government in New York State in the previous 
fiscal year.
    (b) Security requirements. To assure the repayment of debt 
obligations and

[[Page 159]]

the charges incurred under paragraph (g) of this section and as a 
condition for receiving loan guarantee assistance, the public entity 
(and State and designated public agency, as applicable) shall:
    (1) Enter into a contract for loan guarantee assistance with HUD, in 
a form acceptable to HUD, including provisions for repayment of debt 
obligations guaranteed hereunder;
    (2) Pledge all grants made or for which the public entity or State 
may become eligible under this part; and
    (3) Furnish, at the discretion of HUD, such other security as may be 
deemed appropriate by HUD in making such guarantees. Other security 
shall be required for all loans with repayment periods of ten years or 
longer. Such other security shall be specified in the contract entered 
into pursuant to Sec. 570.705(b)(1). Examples of other security HUD may 
require are:
    (i) Program income as defined in Sec. 570.500(a);
    (ii) Liens on real and personal property;
    (iii) Debt service reserves; and
    (iv) Increments in local tax receipts generated by activities 
carried out with the guaranteed loan funds.
    (c) Use of grants for loan repayment. Notwithstanding any other 
provision of this part:
    (1) Community Development Block Grants allocated pursuant to section 
106 of the Act (including program income derived therefrom) may be used 
for:
    (i) Paying principal and interest due (including such issuance, 
servicing, underwriting, or other costs as may be incurred under 
paragraph (g) of this section) on the debt obligations guaranteed under 
this subpart;
    (ii) Defeasing such debt obligations; and
    (iii) Establishing debt service reserves as additional security 
pursuant to paragraph (b)(3) of this section.
    (2) HUD may apply grants pledged pursuant to paragraph (b)(2) of 
this section to any amounts due under the debt obligations, the payment 
of costs incurred under paragraph (g) of this section, or to the 
purchase or defeasance of such debt obligations, in accordance with the 
terms of the contract required by paragraph (b)(l) of this section.
    (d) Debt obligations. Debt obligations guaranteed under this subpart 
shall be in the form and denominations prescribed by HUD. Such debt 
obligations may be issued and sold only under such terms and conditions 
as may be prescribed by HUD. HUD may prescribe the terms and conditions 
of debt obligations, or of their issuance and sale, by regulation or by 
contractual arrangements authorized by section 108(r)(4) of the Act and 
paragraph (h) of this section. Unless specifically provided otherwise in 
the contract for loan guarantee assistance required under paragraph (b) 
of this section, debt obligations shall not constitute general 
obligations of any public entity or State secured by its full faith and 
credit.
    (e) Taxable obligations. Interest earned on debt obligations under 
this subpart shall be subject to Federal taxation as provided in section 
108(j) of the Act.
    (f) Loan repayment period. The term of debt obligations under this 
subpart shall not exceed twenty years.
    (g) Issuance, underwriting, servicing, and other costs. Each public 
entity or its designated public agency 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.
    (h) Contracting with respect to issuance and sale of debt 
obligations; effect of other laws. No State or local law, and no Federal 
law, shall preclude or limit HUD's exercise of:
    (1) The power to contract with respect to public offerings and other 
sales of debt obligations under this subpart upon such terms and 
conditions as HUD deems appropriate;
    (2) The right to enforce any such contract by any means deemed 
appropriate by HUD;
    (3) Any ownership rights of HUD, as applicable, in debt obligations 
under this subpart.

[[Page 160]]



Sec. 570.706  Federal guarantee; subrogation.

    Section 108(f) of the Act provides for the incontestability of 
guarantees by HUD under subpart M of this part in the hands of a holder 
of such guaranteed obligations. If HUD pays a claim under a guarantee 
made under section 108 of the Act, HUD shall be fully subrogated for all 
the rights of the holder of the guaranteed debt obligation with respect 
to such obligation.

[61 FR 11481, Mar. 20, 1996]



Sec. 570.707  Applicability of rules and regulations.

    (a) Entitlement public entities. The provisions of subparts A, C, J, 
K and O of this part applicable to entitlement grants shall apply 
equally to guaranteed loan funds and other CDBG funds, except to the 
extent they are specifically modified or augmented by the provisions of 
this subpart.
    (b) State-assisted public entities. The provisions of subpart I of 
this part, and the requirements the State imposes on units of general 
local government receiving Community Development Block Grants or program 
income to the extent applicable, shall apply equally to guaranteed loan 
funds and Community Development Block Grants (including program income 
derived therefrom) administered by the State under the CDBG program, 
except to the extent they are specifically modified or augmented by the 
provisions of this subpart.
    (c) Nonentitlement public entities eligible under subpart F of this 
part. The provisions of subpart F of this part shall apply equally to 
guaranteed loan funds and other CDBG funds, except to the extent they 
are specifically modified or augmented by the provisions of this 
subpart.



Sec. 570.708  Sanctions.

    (a) Non-State assisted public entities. The performance review 
procedures described in subpart O of this part apply to all public 
entities receiving guaranteed loan funds other than State-assisted 
public entities. Performance deficiencies in the use of guaranteed loan 
funds made available to such public entities (or program income derived 
therefrom) or violations of the contract entered into pursuant to 
Sec. 570.705(b)(1) may result in the imposition of a sanction authorized 
pursuant to Sec. 570.900(b)(7) against pledged CDBG grants. In addition, 
upon a finding by HUD that the public entity has failed to comply 
substantially with any provision of the Act with respect to either the 
pledged grants or the guaranteed loan funds or program income, HUD may 
take action against the pledged grants as provided in Sec. 570.913 and/
or may take action as provided in the contract for loan guarantee 
assistance.
    (b) State-assisted public entities. Performance deficiencies in the 
use of guaranteed loan funds (or program income derived therefrom) or 
violations of the contract entered into pursuant to Sec. 570.705(b)(1) 
may result in an action authorized pursuant to Sec. 570.495 or 
Sec. 570.496. In addition, upon a finding by HUD that the State or 
public entity has failed to comply substantially with any provision of 
the Act with respect to the pledged CDBG nonentitlement funds, the 
guaranteed loan funds, or program income, HUD may take action against 
the pledged funds as provided in Sec. 570.496 and/or may take action as 
provided in the contract.



Sec. 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 
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 or nonentitlement public entities.



Sec. 570.710  State responsibilities.

    The State is responsible for choosing public entities that it will 
assist under this subpart. States are free to develop procedures and 
requirements for determining which activities will be assisted, subject 
to the requirements of this subpart. Upon approval by HUD of an 
application from a State-assisted public entity, the State will be 
principally responsible, subject to HUD

[[Page 161]]

oversight under subpart I of this part, for ensuring that the public 
entity complies with all applicable requirements governing the use of 
the guaranteed loan funds. Notwithstanding the State's responsibilities 
described in this section, HUD may take any action necessary for 
ensuring compliance with requirements affecting the security interests 
of HUD with respect to the guaranteed loan.



                   Subpart N--Urban Renewal Provisions

    Source: 41 FR 20524, May 18, 1976, unless otherwise noted.



Sec. 570.800  Urban renewal regulations.

    The regulations governing urban renewal projects and neighborhood 
development programs in subpart N of this part, that were effective 
immediately before April 19, 1996, will continue to govern the rights 
and obligations of recipients and HUD with respect to such projects and 
programs.

[61 FR 11481, Mar. 20, 1996]



                     Subpart O--Performance Reviews

    Source: 53 FR 34466, Sept. 6, 1988, unless otherwise noted.



Sec. 570.900  General.

    (a) Performance review authorities--(1) Entitlement and HUD-
administered Small Cities performance reviews. Section 104(e)(1) of the 
Act requires that the Secretary shall, at least on an annual basis, make 
such reviews and audits as may be necessary or appropriate to determine 
whether the recipient has carried out its activities, and where 
applicable, its housing assistance plan in a timely manner, whether the 
recipient has carried out those activities and its certifications in 
accordance with the requirements and the primary objectives of the Act 
and with other applicable laws, and whether the recipient has a 
continuing capacity to carry out those activities in a timely manner.
    (2) Urban Development Action Grant (UDAG) performance reviews. 
Section 119(g) of the Act requires the Secretary, at least on an annual 
basis, to make such reviews and audits of recipients of Urban 
Development Action Grants as necessary to determine whether the 
recipient's progress in carrying out the approved activities is 
substantially in accordance with the recipient's approved plans and 
timetables.
    (b) Performance review procedures. This paragraph describes the 
review procedures the Department will use in conducting the performance 
reviews required by sections 104(e) and 119(g) of the Act:
    (1) The Department will determine the performance of each 
entitlement and HUD-administered small cities recipient in accordance 
with section 104(e)(1) of the Act by reviewing for compliance with the 
requirements described in Sec. 570.901 and by applying the performance 
criteria described in Secs. 570.902 and 570.903 relative to carrying out 
activities and, where applicable, the housing assistance plan in a 
timely manner. The review criteria in Sec. 570.904 will be used to 
assist in determining if the recipient's program is being carried out in 
compliance with civil rights requirements.
    (2) The Department will review UDAG projects and activities to 
determine whether such projects and activities are being carried out 
substantially in accordance with the recipient's approved plans and 
schedules. The Department will also review to determine if the recipient 
has carried out its UDAG program in accordance with all other 
requirements of the Grant Agreement and with all applicable requirements 
of this part.
    (3) In conducting performance reviews, HUD will primarily rely on 
information obtained from the recipient's performance report, records 
maintained, findings from monitoring, grantee and subrecipient audits, 
audits and surveys conducted by the HUD Inspector General, and financial 
data regarding the amount of funds remaining in the line of credit plus 
program income. HUD may also consider relevant information pertaining to 
a recipient's performance gained from other sources, including 
litigation, citizen comments, and other information provided by or 
concerning the recipient. A recipient's failure to maintain records in 
the prescribed manner may result in a finding

[[Page 162]]

that the recipient has failed to meet the applicable requirement to 
which the record pertains.
    (4) If HUD determines that a recipient has not met a civil rights 
review criterion in Sec. 570.904, the recipient will be provided an 
opportunity to demonstrate that it has nonetheless met the applicable 
civil rights requirement.
    (5) If HUD finds that a recipient has failed to comply with a 
program requirement or has failed to meet a performance criterion in 
Sec. 570.902 or Sec. 570.903, HUD will give the recipient an opportunity 
to provide additional information concerning the finding.
    (6) If, after considering any additional information submitted by a 
recipient, HUD determines to uphold the finding, HUD may advise the 
recipient to undertake appropriate corrective or remedial actions as 
specified in Sec. 570.910. HUD will consider the recipient's capacity as 
described in Sec. 570.905 prior to selecting the corrective or remedial 
actions.
    (7) If the recipient fails to undertake appropriate corrective or 
remedial actions which resolve the deficiency to the satisfaction of the 
Secretary, the Secretary may impose a sanction pursuant to Sec. 570.911, 
570,912, or 570.913, as applicable.

[53 FR 34466, Sept. 6, 1988, as amended at 60 FR 56917, Nov. 9, 1995]



Sec. 570.901  Review for compliance with the primary and national objectives and other program requirements.

    HUD will review each entitlement and HUD-administered small cities 
recipient's program to determine if the recipient has carried out its 
activities and certifications in compliance with:
    (a) The requirement described at Sec. 570.200(a)(3) that, consistent 
with the primary objective of the Act, not less than 70 percent of the 
aggregate amount of CDBG funds received by the recipient shall be used 
over the period specified in its certification for activities that 
benefit low and moderate income persons;
    (b) The requirement described at Sec. 570.200(a)(2) that each CDBG 
assisted activity meets the criteria for one or more of the national 
objectives described at Sec. 570.208;
    (c) All other activity eligibility requirements defined in subpart C 
of this part;
    (d) For entitlement grants only, the submission requirements of 24 
CFR part 91 and the displacement policy requirements at Sec. 570.606;
    (e) For HUD-administered small cities grants only, the citizen 
participation requirements at Sec. 570.431, the amendment requirements 
at Sec. 570.427 (New York HUD-administered small cities) or 
Sec. 570.430(f) (Hawaii HUD-administered small cities), and the 
displacement policy requirements of Sec. 570.606;
    (f) The grant administration requirements described in subpart J;
    (g) Other applicable laws and program requirements described in 
subpart K; and
    (h) Where applicable, the requirements pertaining to loan guarantees 
(subpart M) and urban renewal completions (subpart N).

[53 FR 34466, Sept. 6, 1988, as amended at 60 FR 1917, Jan. 5, 1995; 60 
FR 56917, Nov. 9, 1995]



Sec. 570.902  Review to determine if CDBG funded activities are being carried out in a timely manner.

    HUD will review the performance of each entitlement and HUD-
administered small cities recipient to determine whether each recipient 
is carrying out its CDBG assisted activities in a timely manner.
    (a) Entitlement recipients. (1) Before the funding of the next 
annual grant and absent contrary evidence satisfactory to HUD, HUD will 
consider an entitlement recipient to be failing to carry out its CDBG 
activities in a timely manner if:
    (i) Sixty days prior to the end of the grantee's current program 
year, the amount of entitlement grant funds available to the recipient 
under grant agreements but undisbursed by the U.S. Treasury is more than 
1.5 times the entitlement grant amount for its current program year; and
    (ii) The grantee fails to demonstrate to HUD's satisfaction that the 
lack of timeliness has resulted from factors beyond the grantee's 
reasonable control.
    (2) Notwithstanding that the amount of funds in the line of credit 
indicates

[[Page 163]]

that the recipient is carrying out its activities in a timely manner 
pursuant to paragraph (a)(1) of this section, HUD may determine that the 
recipient is not carrying out its activities in a timely manner if:
    (i) The amount of CDBG program income the recipient has on hand 60 
days prior to the end of its current program year, together with the 
amount of funds in its CDBG line of credit, exceeds 1.5 times the 
entitlement grant amount for its current program year; and
    (ii) The grantee fails to demonstrate to HUD's satisfaction that the 
lack of timeliness has resulted from factors beyond the grantee's 
reasonable control.
    (3) In determining the appropriate corrective action to take with 
respect to a HUD determination that a recipient is not carrying out its 
activities in a timely manner pursuant to paragraphs (a)(1) or (a)(2) of 
this section, HUD will consider the likelihood that the recipient will 
expend a sufficient amount of funds over the next program year to reduce 
the amount of unexpended funds to a level that will fall within the 
standard described in paragraph (a)(1) of this section when HUD next 
measures the grantee's timeliness performance. For these purposes, HUD 
will take into account the extent to which funds on hand have been 
obligated by the recipient and its subrecipients for specific activities 
at the time the finding is made and other relevant information.
    (b) HUD-administered Small Cities program. The Department will, 
absent substantial evidence to the contrary, consider that a HUD-
administered small cities recipient is carrying out its CDBG funded 
activities in a timely manner if the schedule for carrying out its 
activities as contained in the approved application, or subsequent 
amendment, is being substantially met.

[53 FR 34466, Sept. 6, 1988, as amended at 60 FR 56917, Nov. 9, 1995]



Sec. 570.903  Review to determine if the recipient is meeting its consolidated plan responsibilities.

    The consolidated plan, action plan, and amendment submission 
requirements referred to in this section are in 24 CFR part 91.
    (a) Review timing and purpose. HUD will review the consolidated plan 
performance of each entitlement and Hawaii HUD-administered small cities 
grant recipient prior to acceptance of a grant recipient's annual 
certification under 24 CFR 91.225(b)(3) to determine whether the 
recipient followed its HUD-approved consolidated plan for the most 
recently completed program year, and whether activities assisted with 
CDBG funds during that period were consistent with that consolidated 
plan, except that grantees are not bound by the consolidated plan with 
respect to the use or distribution of CDBG funds to meet nonhousing 
community development needs.
    (b) Following a consolidated plan. The recipient will be considered 
to be following its consolidated plan if it has taken all of the planned 
actions described in its action plan. This includes, but is not limited 
to:
    (1) Pursuing all resources that the grantee indicated it would 
pursue;
    (2) Providing certifications of consistency, when requested to do so 
by applicants for HUD programs for which the grantee indicated that it 
would support application by other entities, in a fair and impartial 
manner; and
    (3) Not hindering implementation of the consolidated plan by action 
or willful inaction.
    (c) Disapproval. If HUD determines that a recipient has not met the 
criteria outlined in paragraph (b) of this section, HUD will notify the 
recipient and provide the recipient up to 45 days to demonstrate to the 
satisfaction of the Secretary that it has followed its consolidated 
plan. HUD will consider all relevant circumstances and the recipient's 
actions and lack of actions affecting the provision of assistance 
covered by the consolidated plan within its jurisdiction. Failure to so 
demonstrate in a timely manner will be cause for HUD to find that the 
recipient has failed to meet its certification. A complete and specific 
response by the recipient shall describe:
    (1) Any factors beyond the control of the recipient that prevented 
it from following its consolidated plan, and any actions the recipient 
has taken or

[[Page 164]]

plans to take to alleviate such factors; and
    (2) Actions taken by the recipient, if any, beyond those described 
in the consolidated plan performance report to facilitate following the 
consolidated plan, including the effects of such actions.
    (d) New York HUD-administered Small Cities. New York HUD-
administered grantees shall follow the provisions of paragraph (b) of 
this section for their abbreviated or full consolidated plan to the 
extent that the provisions of paragraph (b) of this section are 
applicable. If the grantee does not comply with the requirements of 
paragraph (b) of this section, and does not provide HUD with an 
acceptable explanation, HUD may decide, in accordance with the 
requirements of the notice of fund availability, that the grantee does 
not meet threshold requirements to apply for a new small cities grant.

[60 FR 56918, Nov. 9, 1995]



Sec. 570.904  Equal opportunity and fair housing review criteria.

    (a) General. (1) Where the criteria in this section are met, the 
Department will presume that the recipient has carried out its CDBG-
funded program in accordance with civil rights certifications and civil 
rights requirements of the Act relating to equal employment opportunity, 
equal opportunity in services, benefits and participation, and is 
affirmatively furthering fair housing unless:
    (i) There is evidence which shows, or from which it is reasonable to 
infer, that the recipient, motivated by considerations of race, color, 
religion where applicable, sex, national origin, age or handicap, has 
treated some persons less favorably than others, or
    (ii) There is evidence that a policy, practice, standard or method 
of administration, although neutral on its face, operates to deny or 
affect adversely in a significantly disparate way the provision of 
employment or services, benefits or participation to persons of a 
particular race, color, religion where applicable, sex, national origin, 
age or handicap, or fair housing to persons of a particular race, color, 
religion, sex, or national origin, or
    (iii) Where the Secretary required a further assurance pursuant to 
Sec. 570.304 in order to accept the recipient's prior civil rights 
certification, the recipient has failed to meet any such assurance.
    (2) In such instances, or where the review criteria in this section 
are not met, the recipient will be afforded an opportunity to present 
evidence that it has not failed to carry out the civil rights 
certifications and fair housing requirements of the Act. The Secretary's 
determination of whether there has been compliance with the applicable 
requirements will be made based on a review of the recipient's 
performance, evidence submitted by the recipient, and all other 
available evidence. The Department may also initiate separate compliance 
reviews under title VI of the Civil Rights Act of 1964 or section 109 of 
the Act.
    (b) Review for equal opportunity. Title VI of the Civil Rights Act 
of 1964 (42 U.S.C. 2000d et seq.), and implementing regulations in 24 
CFR part 1, together with section 109 of the Act (see Sec. 570.602), 
prohibit discrimination in any program or activity funded in whole or in 
part with funds made available under this part.
    (1) Review for equal employment opportunity. The Department will 
presume that a recipient's hiring and employment practices have been 
carried out in compliance with its equal opportunity certifications and 
requirements of the Act. This presumption may be rebutted where, based 
on the totality of circumstances, there has been a deprivation of 
employment, promotion, or training opportunities by a recipient to any 
person within the meaning of section 109. The extent to which persons of 
a particular race, gender, or ethnic background are represented in the 
workforce may in certain circumstances be considered, together with 
complaints, performance reviews, and other information.
    (2) Review of equal opportunity in services, benefits and 
participation. The Department will presume a recipient is carrying out 
its programs and activities in accordance with the civil rights 
certifications and requirements of the Act. This presumption may be 
rebutted

[[Page 165]]

where, based on the totality of circumstances, there has been a 
deprivation of services, benefits, or participation in any program or 
activity funded in whole or in part with block grant funds by a 
recipient to any person within the meaning of section 109. The extent to 
which persons of a particular race, gender, or ethnic background 
participate in a program or activity may in certain circumstances be 
considered, together with complaints, performance reviews, and other 
information.
    (c) Fair housing review criteria. See the requirements in the Fair 
Housing Act (42 U.S.C. 3601-20), as well as Sec. 570.601(a), which sets 
forth the grantee's responsibility to certify that it will affirmatively 
further fair housing.
    (d) Actions to use minority and women's business firms. The 
Department will review a recipient's performance to determine if it has 
administered its activities funded with assistance under this part in a 
manner to encourage use of minority and women's business enterprises 
described in Executive Orders 11625, 12432 and 12138, and 24 CFR 
85.36(e). In making this review, the Department will determine if the 
grantee has taken actions required under Sec. 85.36(e) of this chapter, 
and will review the effectiveness of those actions in accomplishing the 
objectives of Sec. 85.36(e) of this chapter and the Executive Orders. No 
recipient is required by this part to attain or maintain any particular 
statistical level of participation in its contracting activities by 
race, ethnicity, or gender of the contractor's owners or managers.

[53 FR 34466, Sept. 6, 1988; 53 FR 41330, Oct. 21, 1988, as amended at 
54 FR 37411, Sept. 9, 1989; 60 FR 1917, Jan. 5, 1995; 61 FR 11482, Mar. 
20, 1996]



Sec. 570.905  Review of continuing capacity to carry out CDBG funded activities in a timely manner.

    If HUD determines that the recipient has not carried out its CDBG 
activities and certifications in accordance with the requirements and 
criteria described in Sec. 570.901 or 570.902, HUD will undertake a 
further review to determine whether or not the recipient has the 
continuing capacity to carry out its activities in a timely manner. In 
making the determination, the Department will consider the nature and 
extent of the recipient's performance deficiencies, types of corrective 
actions the recipient has undertaken and the success or likely success 
of such actions.



Sec. 570.906  Review of urban counties.

    In reviewing the performance of an urban county, HUD will hold the 
county accountable for the actions or failures to act of any of the 
units of general local government participating in the urban county. 
Where the Department finds that a participating unit of government has 
failed to cooperate with the county to undertake or assist in 
undertaking an essential community development or assisted housing 
activity and that such failure results, or is likely to result, in a 
failure of the urban county to meet any requirement of the program or 
other applicable laws, the Department may prohibit the county's use of 
funds made available under this part for that unit of government. HUD 
will also consider any such failure to cooperate in its review of a 
future cooperation agreement between the county and such included unit 
of government described at Sec. 570.307(b)(2).



Secs. 570.907-570.909  [Reserved]



Sec. 570.910  Corrective and remedial actions.

    (a) General. Consistent with the procedures described in 
Sec. 570.900(b), the Secretary may take one or more of the actions 
described in paragraph (b) of this section. Such actions shall be 
designed to prevent a continuation of the performance deficiency; 
mitigate, to the extent possible, the adverse effects or consequences of 
the deficiency; and prevent a recurrence of the deficiency.
    (b) Actions authorized. The following lists the actions that HUD may 
take in response to a deficiency identified during the review of a 
recipient's performance:
    (1) Issue a letter of warning advising the recipient of the 
deficiency and putting the recipient on notice that additional action 
will be taken if the deficiency is not corrected or is repeated;
    (2) Recommend, or request the recipient to submit, proposals for 
corrective

[[Page 166]]

actions, including the correction or removal of the causes of the 
deficiency, through such actions as:
    (i) Preparing and following a schedule of actions for carrying out 
the affected CDBG activities, consisting of schedules, timetables and 
milestones necessary to implement the affected CDBG activities;
    (ii) Establishing and following a management plan which assigns 
responsibilities for carrying out the actions identified in paragraph 
(b)(2)(i) of this section;
    (iii) For entitlement recipients, canceling or revising affected 
activities which are no longer feasible to implement due to the 
deficiency and reprogramming funds from such affected activities to 
other eligible activities (pursuant to the citizen participation 
requirements in 24 CFR part 91); or
    (iv) Other actions which will serve to prevent a continuation of the 
deficiency, mitigate (to the extent possible) the adverse effects or 
consequences of the deficiency, and prevent a recurrence of the 
deficiency;
    (3) Advise the recipient that a certification will no longer be 
acceptable and that additional assurances will be required;
    (4) Advise the recipient to suspend disbursement of funds for the 
deficient activity;
    (5) Advise the recipient to reimburse its program account or letter 
of credit in any amounts improperly expended and reprogram the use of 
the funds in accordance with applicable requirements;
    (6) Change the method of payment to the recipient from a letter of 
credit basis to a reimbursement basis;
    (7) In the case of claims payable to HUD or the U.S. Treasury, 
institute collection procedures pursuant to subpart B of 24 CFR part 17; 
and
    (8) In the case of an entitlement recipient, condition the use of 
funds from a succeeding fiscal year's allocation upon appropriate 
corrective action by the recipient pursuant to Sec. 570.304(d). The 
failure of the recipient to undertake the actions specified in the 
condition may result in a reduction, pursuant to Sec. 570.911, of the 
entitlement recipient's annual grant by up to the amount conditionally 
granted.

[53 FR 34466, Sept. 6, 1988, as amended at 60 FR 1917, Jan. 5, 1995]



Sec. 570.911  Reduction, withdrawal, or adjustment of a grant or other appropriate action.

    (a) Opportunity for an informal consultation. Prior to a reduction, 
withdrawal, or adjustment of a grant or other appropriate action, taken 
pursuant to paragraph (b), (c), or (d) of this section, the recipient 
shall be notified of such proposed action and given an opportunity 
within a prescribed time period for an informal consultation.
    (b) Entitlement grants. Consistent with the procedures described in 
Sec. 570.900(b), the Secretary may make a reduction in the entitlement 
grant amount either for the succeeding program year or, if the grant had 
been conditioned, up to the amount that had been conditioned. The amount 
of the reduction shall be based on the severity of the deficiency and 
may be for the entire grant amount.
    (c) HUD-administered small cities grants. Consistent with the 
procedures described in Sec. 570.900(b), the Secretary may adjust, 
reduce or withdraw the grant or take other actions as appropriate, 
except that funds already expended on eligible approved activities shall 
not be recaptured or deducted from future grants.
    (d) Urban Development Action Grants. Consistent with the procedures 
described in Sec. 570.900(b), the Secretary may adjust, reduce or 
withdraw the grant or take other actions as appropriate, except that 
funds already expended on eligible approved activities shall not be 
recaptured or deducted from future grants made to the recipient.



Sec. 570.912  Nondiscrimination compliance.

    (a) Whenever the Secretary determines that a unit of general local 
government which is a recipient of assistance under this part has failed 
to comply with Sec. 570.602, the Secretary shall notify the governor of 
such State or chief executive officer of such unit of

[[Page 167]]

general local government of the noncompliance and shall request the 
governor or the chief executive officer to secure compliance. If within 
a reasonable period of time, not to exceed sixty days, the governor or 
chief executive officer fails or refuses to secure compliance, the 
Secretary is authorized to:
    (1) Refer the matter to the Attorney General with a recommendation 
that an appropriate civil action be instituted;
    (2) Exercise the powers and functions provided by title VI of the 
Civil Rights Act of 1964 (42 U.S.C. 2000d);
    (3) Exercise the powers and functions provided for in Sec. 570.913; 
or
    (4) Take such other action as may be provided by law.
    (b) When a matter is referred to the Attorney General pursuant to 
paragraph (a)(1) of this section, or whenever the Secretary has reason 
to believe that a State or a unit of general local government is engaged 
in a pattern or practice in violation of the provisions of Sec. 570.602, 
the Attorney General may bring a civil action in any appropriate United 
States district court for such relief as may be appropriate, including 
injunctive relief.



Sec. 570.913  Other remedies for noncompliance.

    (a) Action to enforce compliance. When the Secretary acts to enforce 
the civil rights provisions of Section 109, as described in Sec. 570.602 
and 24 CFR part 6, the procedures described in 24 CFR parts 6 and 180 
apply. If the Secretary finds, after reasonable notice and opportunity 
for hearing, that a recipient has failed to comply substantially with 
any other provisions of this part, the provisions of this section apply. 
The Secretary, until he/she is satisfied that there is no longer any 
such failure to comply, shall:
    (1) Terminate payments to the recipient;
    (2) Reduce payments to the recipient by an amount equal to the 
amount of such payments which were not expended in accordance with this 
part; or
    (3) Limit the availability of payments to programs or activities not 
affected by such failure to comply.
    Provided, however, that the Secretary may on due notice suspend 
payments at any time after the issuance of a notice of opportunity for 
hearing pursuant to paragraph (c)(1) of this section, pending such 
hearing and a final decision, to the extent the Secretary determines 
such action necessary to preclude the further expenditure of funds for 
activities affected by such failure to comply.
    (b) In lieu of, or in addition to, any action authorized by 
paragraph (a) of this section, the Secretary may, if he/she has reason 
to believe that a recipient has failed to comply substantially with any 
provision of this part;
    (1) Refer the matter to the Attorney General of the United States 
with a recommendation that an appropriate civil action be instituted; 
and
    (2) Upon such a referral, the Attorney General may bring a civil 
action in any United States district court having venue thereof for such 
relief as may be appropriate, including an action to recover the amount 
of the assistance furnished under this part which was not expended in 
accordance with it, or for mandatory or injunctive relief;
    (c) Proceedings. When the Secretary proposes to take action pursuant 
to this section, the respondent is the unit of general local government 
or State receiving assistance under this part. These procedures are to 
be followed prior to imposition of a sanction described in paragraph (a) 
of this section:
    (1) Notice of opportunity for hearing: The Secretary shall notify 
the respondent in writing of the proposed action and of the opportunity 
for a hearing. The notice shall:
    (i) Specify, in a manner which is adequate to allow the respondent 
to prepare its response, allegations with respect to a failure to comply 
substantially with a provision of this part;
    (ii) State that the hearing procedures are governed by these rules;
    (iii) State that a hearing may be requested within 10 days from 
receipt of the notice and the name, address and telephone number of the 
person to whom any request for hearing is to be addressed:
    (iv) Specify the action which the Secretary proposes to take and 
that the authority for this action is section 111(a) of the Act;

[[Page 168]]

    (v) State that if the respondent fails to request a hearing within 
the time specified a decision by default will be rendered against the 
respondent; and
    (vi) Be sent to the respondent by certified mail, return receipt 
requested.
    (2) Initiation of hearing. The respondent shall be allowed at least 
10 days from receipt of the notice within which to notify HUD of its 
request for a hearing. If no request is received within the time 
specified, the Secretary may proceed to make a finding on the issue of 
compliance with this part and to take the proposed action.
    (3) Administrative Law Judge. Proceedings conducted under these 
rules shall be presided over by an Administrative Law Judge (ALJ), 
appointed as provided by section 11 of the Administrative Procedures Act 
(5 U.S.C. 3105). The case shall be referred to the ALJ by the Secretary 
at the time a hearing is requested. The ALJ shall promptly notify the 
parties of the time and place at which the hearing will be held. The ALJ 
shall conduct a fair and impartial hearing and take all action necessary 
to avoid delay in the disposition of proceedings and to maintain order. 
The ALJ shall have all powers necessary to those ends, including but not 
limited to the power to:
    (i) Administer oaths and affirmations;
    (ii) Issue subpoenas as authorized by law;
    (iii) Rule upon offers of proof and receive relevant evidence;
    (iv) Order or limit discovery prior to the hearing as the interests 
of justice may require;
    (v) Regulate the course of the hearing and the conduct of the 
parties and their counsel;
    (vi) Hold conferences for the settlement or simplification of the 
issues by consent of the parties;
    (vii) Consider and rule upon all procedural and other motions 
appropriate in adjudicative proceedings; and
    (viii) Make and file initial determinations.
    (4) Ex parte communications. An ex parte communication is any 
communication with an ALJ, direct or indirect, oral or written, 
concerning the merits or procedures of any pending proceeding which is 
made by a party in the absence of any other party. Ex parte 
communications are prohibited except where the purpose and content of 
the communication have been disclosed in advance or simultaneously to 
all parties, or the communication is a request for information 
concerning the status of the case. Any ALJ who receives an ex parte 
communication which the ALJ knows or has reason to believe is 
unauthorized shall promptly place the communication, or its substance, 
in all files and shall furnish copies to all parties. Unauthorized ex 
parte communications shall not be taken into consideration in deciding 
any matter in issue.
    (5) The hearing. All parties shall have the right to be represented 
at the hearing by counsel. The ALJ shall conduct the proceedings in an 
expeditious manner while allowing the parties to present all oral and 
written evidence which tends to support their respective positions, but 
the ALJ shall exclude irrelevant, immaterial or unduly repetitious 
evidence. The Department has the burden of proof in showing by a 
preponderance of the evidence that the respondent failed to comply 
substantially with a provision of this part. Each party shall be allowed 
to cross-examine adverse witnesses and to rebut and comment upon 
evidence presented by the other party. Hearings shall be open to the 
public. So far as the orderly conduct of the hearing permits, interested 
persons other than the parties may appear and participate in the 
hearing.
    (6) Transcripts. Hearing shall be recorded and transcribed only by a 
reporter under the supervision of the ALJ. The orginal transcript shall 
be a part of the record and shall constitute the sole official 
transcript. Respondents and the public, at their own expense, may obtain 
copies of the transcript.
    (7) The ALJ's decision. At the conclusion of the hearing, the ALJ 
shall give the parties a reasonable opportunity to submit proposed 
findings and conclusions and supporting reasons therefor. Within 25 days 
after the conclusion of the hearing, the ALJ shall prepare a written 
decision which includes a statement of findings and conclusions, and the 
reasons or basis therefor, on all

[[Page 169]]

the material issues of fact, law or discretion presented on the record 
and the appropriate sanction or denial thereof. The decision shall be 
based on consideration of the whole record or those parts thereof cited 
by a party and supported by and in accordance with the reliable, 
probative, and substantial evidence. A copy of the decision shall be 
furnished to the parties immediately by certified mail, return receipt 
requested, and shall include a notice that any requests for review by 
the Secretary must be made in writing to the Secretary within 30 days of 
the receipt of the decision.
    (8) The record. The transcript of testimony and exhibits, together 
with the decision of the ALJ and all papers and requests filed in the 
proceeding, constitutes the exclusive record for decision and, on 
payment of its reasonable cost, shall be made available to the parties. 
After reaching his/her initial decision, the ALJ shall certify to the 
complete record and forward the record to the Secretary.
    (9) Review by the Secretary. The decision by the ALJ shall 
constitute the final decision of the Secretary unless, within 30 days 
after the receipt of the decision, either the respondent or the 
Assistant Secretary for Community Planning and Development files an 
exception and request for review by the Secretary. The excepting party 
must transmit simultaneously to the Secretary and the other party the 
request for review and the basis of the party's exceptions to the 
findings of the ALJ. The other party shall be allowed 30 days from 
receipt of the exception to provide the Secretary and the excepting 
party with a written reply. The Secretary shall then review the record 
of the case, including the exceptions and the reply. On the basis of 
such review, the Secretary shall issue a written determination, 
including a statement of the reasons or basis therefor, affirming, 
modifying or revoking the decision of the ALJ. The Secretary's decision 
shall be made and transmitted to the parties within 80 days after the 
decision of the ALJ was furnished to the parties.
    (10) Judicial review. The respondent may seek judicial review of the 
Secretary's decision pursuant to section 111(c) of the Act.

[53 FR 34466, Sept. 6, 1988, as amended at 64 FR 3802, Jan. 25, 1999]

Appendix A to Part 570--Guidelines and Objectives for Evaluating Project 
                    Costs and Financial Requirements

    I. Guidelines and Objectives for Evaluating Project Costs and 
Financial Requirements. HUD has developed the following guidelines that 
are designed to provide the recipient with a framework for financially 
underwriting and selecting CDBG-assisted economic development projects 
which are financially viable and will make the most effective use of the 
CDBG funds. The use of these underwriting guidelines as published by HUD 
is not mandatory. However, grantees electing not to use these 
underwriting guidelines would be expected to conduct basic financial 
underwriting prior to the provision of CDBG financial assistance to a 
for-profit business. States electing not to use these underwriting 
guidelines would be expected to ensure that the state or units of 
general local government conduct basic financial underwriting prior to 
the provision of CDBG financial assistance to a for-profit business.
    II. Where appropriate, HUD's underwriting guidelines recognize that 
different levels of review are appropriate to take into account 
differences in the size and scope of a proposed project, and in the case 
of a microenterprise or other small business to take into account the 
differences in the capacity and level of sophistication among businesses 
of differing sizes.
    III. Recipients are encouraged, when they develop their own programs 
and underwriting criteria, to also take these factors into account. For 
example, a recipient administering a program providing only technical 
assistance to small businesses might choose to apply underwriting 
guidelines to the technical assistance program as a whole, rather than 
to each instance of assistance to a business. Given the nature and 
dollar value of such a program, a recipient might choose to limit its 
evaluation to factors such as the extent of need for this type of 
assistance by the target group of businesses and the extent to which 
this type of assistance is already available.
    IV. The objectives of the underwriting guidelines are to ensure:
    (1) that project costs are reasonable;
    (2) that all sources of project financing are committed;
    (3) that to the extent practicable, CDBG funds are not substituted 
for non-Federal financial support;
    (4) that the project is financially feasible;

[[Page 170]]

    (5) that to the extent practicable, the return on the owner's equity 
investment will not be unreasonably high; and
    (6) that to the extent practicable, CDBG funds are disbursed on a 
pro rata basis with other finances provided to the project.
    i. Project costs are reasonable. i. Reviewing costs for 
reasonableness is important. It will help the recipient avoid providing 
either too much or too little CDBG assistance for the proposed project. 
Therefore, it is suggested that the grantee obtain a breakdown of all 
project costs and that each cost element making up the project be 
reviewed for reasonableness. The amount of time and resources the 
recipient expends evaluating the reasonableness of a cost element should 
be commensurate with its cost. For example, it would be appropriate for 
an experienced reviewer looking at a cost element of less than $10,000 
to judge the reasonableness of that cost based upon his or her knowledge 
and common sense. For a cost element in excess of $10,000, it would be 
more appropriate for the reviewer to compare the cost element with a 
third-party, fair-market price quotation for that cost element. Third-
party price quotations may also be used by a reviewer to help determine 
the reasonableness of cost elements below $10,000 when the reviewer 
evaluates projects infrequently or if the reviewer is less experienced 
in cost estimations. If a recipient does not use third-party price 
quotations to verify cost elements, then the recipient would need to 
conduct its own cost analysis using appropriate cost estimating manuals 
or services.
    ii. The recipient should pay particular attention to any cost 
element of the project that will be carried out through a non-arms-
length transaction. A non-arms-length transaction occurs when the entity 
implementing the CDBG assisted activity procures goods or services from 
itself or from another party with whom there is a financial interest or 
family relationship. If abused, non-arms-length transactions 
misrepresent the true cost of the project.
    2. Commitment of all project sources of financing. The recipient 
should review all projected sources of financing necessary to carry out 
the economic development project. This is to ensure that time and effort 
is not wasted on assessing a proposal that is not able to proceed. To 
the extent practicable, prior to the commitment of CDBG funds to the 
project, the recipient should verify that: sufficient sources of funds 
have been identified to finance the project; all participating parties 
providing those funds have affirmed their intention to make the funds 
available; and the participating parties have the financial capacity to 
provide the funds.
    3. Avoid substitution of CDBG funds for non-Federal financial 
support. i. The recipient should review the economic development project 
to ensure that, to the extent practicable, CDBG funds will not be used 
to substantially reduce the amount of non-Federal financial support for 
the activity. This will help the recipient to make the most efficient 
use of its CDBG funds for economic development. To reach this 
determination, the recipient's reviewer would conduct a financial 
underwriting analysis of the project, including reviews of appropriate 
projections of revenues, expenses, debt service and returns on equity 
investments in the project. The extent of this review should be 
appropriate for the size and complexity of the project and should use 
industry standards for similar projects, taking into account the unique 
factors of the project such as risk and location.
    ii. Because of the high cost of underwriting and processing loans, 
many private financial lenders do not finance commercial projects that 
are less than $100,000. A recipient should familiarize itself with the 
lending practices of the financial institutions in its community. If the 
project's total cost is one that would normally fall within the range 
that financial institutions participate, then the recipient should 
normally determine the following:
    A. Private debt financing--whether or not the participating private, 
for-profit business (or other entity having an equity interest) has 
applied for private debt financing from a commercial lending institution 
and whether that institution has completed all of its financial 
underwriting and loan approval actions resulting in either a firm 
commitment of its funds or a decision not to participate in the project; 
and
    B. Equity participation--whether or not the degree of equity 
participation is reasonable given general industry standards for rates 
of return on equity for similar projects with similar risks and given 
the financial capacity of the entrepreneur(s) to make additional 
financial investments.
    iii. If the recipient is assisting a microenterprise owned by a low- 
or moderate-income person(s), in conducting its review under this 
paragraph, the recipient might only need to determine that non-Federal 
sources of financing are not available (at terms appropriate for such 
financing) in the community to serve the low- or moderate-income 
entrepreneur.
    4. Financial feasibility of the project. i. The public benefit a 
grantee expects to derive from the CDBG assisted project (the subject of 
separate regulatory standards) will not materialize if the project is 
not financially feasible. To determine if there is a reasonable chance 
for the project's success, the recipient should evaluate the financial 
viability of the project. A project would be considered financially 
viable if all of the assumptions about the project's market share, sales 
levels, growth potential, projections of revenue, project expenses and 
debt service (including repayment of the CDBG assistance if

[[Page 171]]

appropriate) were determined to be realistic and met the project's 
break-even point (which is generally the point at which all revenues are 
equal to all expenses). Generally speaking, an economic development 
project that does not reach this break-even point over time is not 
financially feasible. The following should be noted in this regard:
    A. some projects make provisions for a negative cash flow in the 
early years of the project while space is being leased up or sales 
volume built up, but the project's projections should take these factors 
into account and provide sources of financing for such negative cash 
flow; and
    B. it is expected that a financially viable project will also 
project sufficient revenues to provide a reasonable return on equity 
investment. The recipient should carefully examine any project that is 
not economically able to provide a reasonable return on equity 
investment. Under such circumstances, a business may be overstating its 
real equity investment (actual costs of the project may be overstated as 
well), or it may be overstating some of the project's operating expenses 
in the expectation that the difference will be taken out as profits, or 
the business may be overly pessimistic in its market share and revenue 
projections and has downplayed its profits.
    ii. In addition to the financial underwriting reviews carried out 
earlier, the recipient should evaluate the experience and capacity of 
the assisted business owners to manage an assisted business to achieve 
the projections. Based upon its analysis of these factors, the recipient 
should identify those elements, if any, that pose the greatest risks 
contributing to the project's lack of financial feasibility.
    5. Return on equity investment. To the extent practicable, the CDBG 
assisted activity should provide not more than a reasonable return on 
investment to the owner of the assisted activity. This will help ensure 
that the grantee is able to maximize the use of its CDBG funds for its 
economic development objectives. However, care should also be taken to 
avoid the situation where the owner is likely to receive too small a 
return on his/her investment, so that his/her motivation remains high to 
pursue the business with vigor. The amount, type and terms of the CDBG 
assistance should be adjusted to allow the owner a reasonable return on 
his/her investment given industry rates of return for that investment, 
local conditions and the risk of the project.
    6. Disbursement of CDBG funds on a pro rata basis. To the extent 
practicable, CDBG funds used to finance economic development activities 
should be disbursed on a pro rata basis with other funding sources. 
Recipients should be guided by the principle of not placing CDBG funds 
at significantly greater risk than non-CDBG funds. This will help avoid 
the situation where it is learned that a problem has developed that will 
block the completion of the project, even though all or most of the CDBG 
funds going in to the project have already been expended. When this 
happens, a recipient may be put in a position of having to provide 
additional financing to complete the project or watch the potential loss 
of its funds if the project is not able to be completed. When the 
recipient determines that it is not practicable to disburse CDBG funds 
on a pro rata basis, the recipient should consider taking other steps to 
safeguard CDBG funds in the event of a default, such as insisting on 
securitizing assets of the project.

[60 FR 1953, Jan. 5, 1995]



PART 572--HOPE FOR HOMEOWNERSHIP OF SINGLE FAMILY HOMES PROGRAM (HOPE 3)--Table of Contents




                           Subpart A--General

Sec.
572.1  Overview of HOPE 3.
572.5  Definitions.
572.10  Section 8 assistance.

  Subpart B--Homeownership Program Requirements--Implementation Grants

572.100  Acquisition and rehabilitation of eligible properties; 
          rehabilitation standards.
572.105  Financing the purchase of properties by eligible families.
572.110  Identifying and selecting eligible families for homeownership.
572.115  Transfer of homeownership interests.
572.120  Affordability standards.
572.125  Replacement reserves.
572.130  Restrictions on resale by initial homeowners.
572.135  Use of proceeds from sales to eligible families, resale 
          proceeds, and program income.
572.140  Third party rights.
572.145  Displacement prohibited; protection of nonpurchasing residents.

                            Subpart C--Grants

572.200  Planning grants.
572.205  Planning grants--eligible activities.
572.210  Implementation grants.
572.215  Implementation grants--eligible activities.
572.220  Implementation grants--matching requirements.
572.225  Grant agreements; corrective and remedial actions.
572.230  Cash and Management Information (C/MI) System.
572.235  Amendments.

[[Page 172]]

                      Subpart D--Selection Process

572.300  Notices of funding availability (NOFAs); grant applications.
572.315  Rating criteria for planning grants.

                  Subpart E--Other Federal Requirements

572.400  Consolidated plan.
572.405  Nondiscrimination and equal opportunity requirements.
572.410  Environmental procedures and standards.
572.415  Conflict of interest.
572.420  Miscellaneous requirements.
572.425  Recordkeeping and reports; audit of recipients.

    Authority: 42 U.S.C. 3535(d) and 12891.

    Source: 58 FR 36526, July 7, 1993, unless otherwise noted.



                           Subpart A--General



Sec. 572.1  Overview of HOPE 3.

    The purpose of the HOPE for Homeownership of Single Family Homes 
program (HOPE 3) is to provide homeownership opportunities for eligible 
families to purchase Federal, State, and local government-owned single 
family properties. HOPE 3 provides grants to eligible applicants to plan 
and implement homeownership programs designed to meet the needs of low-
income first-time homebuyers.

[58 FR 36526, July 7, 1993, as amended at 61 FR 48797, Sept. 16, 1996]



Sec. 572.5  Definitions.

    The terms HUD, Indian Housing Authority (IHA), NAHA, 1937 Act, NOFA, 
and Public Housing Agency (PHA) are defined in 24 CFR part 5.
    Administrative costs means reasonable and necessary costs, as 
described and valued in accordance with OMB Circular No. A-87 or A-122 
\1\ as applicable, incurred by a recipient in carrying out a 
homeownership program under this part. For purposes of complying with 
the 15 percent limitation in Sec. 572.215(o), administrative costs do 
not include the costs of activities that are separately eligible under 
Sec. 572.215.
---------------------------------------------------------------------------

    \1\ See Sec. 572.420(a) concerning the availability of OMB 
Circulars.
---------------------------------------------------------------------------

    Applicant means a private nonprofit organization; a cooperative 
association; or a public body in cooperation with a private nonprofit 
organization that applies for a HOPE 3 grant under this part. A 
cooperative association is an eligible applicant only for eligible 
property it proposes to acquire and transfer ownership interests to 
eligible families under a homeownership program.
    Consolidated plan means the document that is submitted to HUD that 
serves as the planning document of the jurisdiction, in accordance with 
24 CFR part 91.
    Cooperating entity means a private nonprofit organization or public 
body that the lead applicant has designed in its application to carry 
out certain functions in the HOPE 3 program. The responsibilities of a 
cooperating entity must be specified in a memorandum of agreement signed 
by the lead applicant and the cooperating entity.
    Cooperative association means an association organized and existing 
under applicable State, local, territorial, or tribal law primarily for 
the purpose of acquiring, owning, and operating housing for its members 
or shareholders, as applicable.
    Displaced homemaker means as the term is defined in 42 U.S.C. 12704. 
The individual must not have worked full-time, full-year in the labor 
force for at least 2 years.
    Eligible family means a low-income family who is a first-time 
homebuyer.
    Eligible property means a single residential property, containing no 
more than four units, that is owned or held by HUD, the Secretary of 
Veterans Affairs, the Secretary of Agriculture, the Secretary of 
Defense, the Secretary of Transportation, the Resolution Trust 
Corporation, the Federal Deposit Insurance Corporation, the General 
Services Administration, or any other Federal agency; a State or local 
government (including any in rem property); or a PHA/IHA (excluding 
public or Indian housing under the 1937 Act). This definition includes 
individual condominium units located in multifamily structures owned or 
held by an eligible source and properties held by institutions within 
the jurisdiction of the Resolution Trust Corporation. All cooperative 
units acquired under HOPE 3 must be located in properties containing no 
more than four units to

[[Page 173]]

qualify as eligible property under this part. In the case of two- to 
four-unit property, only property that may be divided so each unit may 
be acquired by an eligible family is eligible, except as provided in 
Sec. 572.115(c). For purposes of this definition, the term State or 
local government means any entity included in the first sentence of the 
definition of public body.
    First-time homebuyer means as the term is defined in 42 U.S.C. 
12704.
    Homeownership program means a program for homeownership meeting the 
requirements under this part. The program must provide for acquisition 
by eligible families of ownership interests in the units in an eligible 
property under an ownership arrangement approved by HUD under this part. 
All eligible properties assisted under the program must be initially 
acquired by eligible families.
    Lead applicant means an eligible applicant designated in a HOPE 3 
application to assume legal responsibility as the recipient and execute 
the grant agreement.
    Lease-purchase means
    (1) An agreement, enforceable under State (or territorial) and local 
law, between the recipient or its designee and an eligible family under 
which the family:
    (i) Obtains the right to occupy a unit in an eligible property, 
subject to the payment of rent and other reasonable lease conditions, 
for a period of not more than two years, except as provided in 
Sec. 572.115(a)(2); and
    (ii) At the end of such two years has the right to purchase the unit 
under the terms stated in the lease-purchase agreement, including the 
completion of any additional rehabilitation required during the lease-
purchase period.
    (2) A lease-purchase agreement qualifies as a transfer of the unit 
to the eligible family for purposes of the deadline for transfer in 
Sec. 572.115(a), but it is not otherwise an ``ownership interest'' under 
this part. The interest that the family acquires at the end of the two-
year lease-purchase period must be an ownership interest under this 
part, and the terms and conditions of the purchase of such interest must 
meet the affordability requirements of this part.
    Low-income family means a family or individual qualifying as a low-
income family under 24 CFR part 813 (where the recipient is not a PHA/
IHA), part 913 (where the recipient is a PHA), or part 905 (where the 
recipient is an Indian tribe or IHA). A low-income family is generally 
defined as a family whose annual income does not exceed 80 percent of 
median income for the area, as determined by HUD with adjustment for 
family size. HUD may establish income limits higher or lower than 80 
percent of median income for the area on the basis of its finding that 
such variations are necessary because of prevailing construction costs 
or unusually high or low family incomes.
    Ownership interest means ownership by an eligible family by fee 
simple title to a unit in an eligible property (including a condominium 
unit), ownership of shares of or membership in a cooperative, or another 
form of ownership proposed and justified by the applicant and approved 
by HUD pursuant to Sec. 572.115(b).
    Private nonprofit organization means any nonprofit organization that
    (1) Is organized and exists under applicable Federal, State, 
territorial, local, or tribal law;
    (2) Has no part of its net earnings inuring to the benefit of any 
individual, corporation, or other entity;
    (3) Has a voluntary board;
    (4) Has an accounting system or has designated a fiscal agent in 
accordance with requirements established by HUD;
    (5) Practices nondiscrimination in the provision of assistance;
    (6) Is a tax exempt entity under section 501(c) of the Internal 
Revenue Code of 1986 (26 U.S.C. 501(c)), or for a private nonprofit 
organization in the Commonwealth of Puerto Rico, is a tax-exempt entity 
under Puerto Rico law;
    (7) Is privately controlled and has a governing body that is 
controlled 51 percent or more by private individuals acting in a private 
capacity. An individual is considered to be acting in a private capacity 
if the individual is not an employee of a public body, is not appointed 
by or acting as the representative of a public body (including the 
applicant or recipient), and is not being

[[Page 174]]

paid by a public body (including the applicant or recipient) while 
performing functions in connection with the nonprofit organization.
    Program income means income earned from the program as described in 
parts 84 and 85 of this title, as applicable, except that program income 
does not include proceeds from the sale and resale of properties. Such 
sale and resale proceeds, and interest earned by the recipient or its 
designee on those proceeds, are governed by Sec. 572.135(a) through (c).
    Public body means any State of the United States; any city, county, 
town, township, parish, village, or other general purpose political 
subdivision of a State; the Commonwealth of Puerto Rico, the District of 
Columbia, Guam, the Northern Mariana Islands, the Virgin Islands, 
American Samoa, or a general purpose political subdivision thereof; any 
Indian tribe, as defined in title I of the Housing and Community 
Development Act of 1974; any public agency or instrumentality of any of 
the foregoing jurisdictions that is created by or pursuant to State, 
territorial, local, or tribal law, including a State or local Housing 
Finance Agency; and any PHA or IHA. For purposes of this definition, an 
organization that meets the requirements of paragraphs (1) and (2) of 
the definition of private nonprofit organization, but is controlled 51 
percent or more by public officials acting in their official capacities, 
may qualify as a public body.
    Recipient means the lead applicant that is approved by HUD to 
receive a HOPE 3 grant and is legally responsible for the grant.
    Single parent means as the term is defined in 42 U.S.C. 12896.

[58 FR 36526, July 7, 1993, as amended at 60 FR 36018, July 12, 1995; 61 
FR 5209, Feb. 9, 1996; 61 FR 48797, Sept. 16, 1996; 62 FR 34145, June 
24, 1997]



Sec. 572.10  Section 8 assistance.

    Assistance under section 8 of the 1937 Act and other rental 
assistance to the homebuyer will be terminated not later than the date 
an eligible family acquires an ownership interest in an eligible 
property or executes a lease-purchase agreement for the property.



  Subpart B--Homeownership Program Requirements--Implementation Grants



Sec. 572.100  Acquisition and rehabilitation of eligible properties; rehabilitation standards.

    (a) Minimum number of properties. (1) Each homeownership program 
must involve acquisition of at least ten units in eligible properties by 
eligible families.
    (2) A homeownership program may not result in appreciably reducing 
in the locality the number of affordable rental housing units of the 
type to be assisted that would be available to residents currently 
residing in the types of properties proposed for use under the program 
or to families who would be eligible to reside in the properties.
    (b) Maximum acquisition costs. The cost of acquiring an eligible 
property (by a recipient or other entity for transfer to eligible 
families or by an eligible family from a recipient or directly from an 
eligible source) may not exceed the as-is fair market value of the 
property, plus reasonable and customary closing costs charged for 
comparable transactions in the market area. The as-is fair market value 
of a property must be determined in accordance with a recent appraisal 
conducted under procedures consistent with appraisal standards published 
by The Appraisal Foundation in the current edition of ``Uniform 
Standards of Professional Appraisal Practice.''
    (c) Maximum cost of acquisition and rehabilitation. The cost of 
acquisition and rehabilitation paid for from grant funds or credited as 
match may not exceed 80 percent of the maximum amount that may be 
insured in the area under section 203(b) of the National Housing Act, 
plus reasonable and customary closing costs charged for comparable 
transactions in the market area.
    (d) Rehabilitation standards. (1) The recipient is responsible to 
assure that rehabilitation of eligible property meets local codes 
applicable to rehabilitation of work in the jurisdiction (but not less 
than the housing quality

[[Page 175]]

standards established under the Section 8 rental voucher program, 
described in Sec. 982.401 of this title). Rehabilitation must also 
include work necessary to meet applicable federal requirements, 
including lead-based paint requirements set forth at part 35, subparts 
A, B, J, K, and R of this title.
    (2) The property must be rehabilitated to a level that makes it 
marketable for homeownership in the market area to families with incomes 
at or below 80 percent of the median for the area. Luxury items 
(fixtures, equipment, and landscaping of a type or quality that 
substantially exceeds that customarily used in the locality for 
properties of the same general type as that being rehabilitated) are not 
eligible expenses. HUD reserves the right to disapprove improvements or 
amenities to be paid for from nonprogram funds that it determines are 
unsuitable for the HOPE 3 program.
    (3) Rehabilitation costs must comply with the cost standards 
established by HUD (see paragraph (c) of this section for applicable 
cost limitations covering both acquisition and rehabilitation). If 
improvements are made to an eligible property beyond those that qualify 
as eligible costs, the applicant must assure that the entire cost of the 
excess improvements will be covered by funds other than the HOPE 3 grant 
and any amounts contributed toward the match, and that the affordability 
of the property will not be impaired.
    (4) Higher standards may be proposed by the applicant or required by 
lenders.
    (5) The applicant must adopt written rehabilitation standards.
    (e) Rehabilitation and transfer of units. (1) The unit must be free 
from any defects that pose a danger to life, health, or safety before 
transfer of an ownership interest in the unit to the family or occupancy 
of a unit by an eligible family under a lease-purchase agreement. The 
recipient must inspect, or ensure inspection of, each unit to determine 
that it does not pose an imminent threat to the life, health, or safety 
of residents and that the property has passed recent fire and other 
applicable safety inspections conducted by appropriate local officials.
    (2) The unit must, not later than 2 years after transfer of an 
ownership interest in the unit to an eligible family, or execution of a 
lease-purchase agreement for the unit, meet minimum rehabilitation 
standards under paragraph (d)(1) of this section. The recipient must 
inspect, or ensure inspection of, each unit to determine that it meets 
the rehabilitation standards required under paragraph (d)(1) of this 
section.

[58 FR 36526, July 7, 1993, as amended at 62 FR 34145, June 24, 1997; 64 
FR 50226, Sept. 15, 1999]



Sec. 572.105  Financing the purchase of properties by eligible families.

    (a) Types of financing. (1) Financing may include use of the 
implementation grant to permit transfer of an ownership interest in a 
unit to an eligible family for less than fair market value or with 
assisted financing; or other sources of financing (subject to 
requirements that apply to those sources), including, but not limited 
to, conventional mortgage loans, mortgage loans insured under title II 
of the National Housing Act, and mortgage loans under other available 
programs, such as Veterans Administration (VA), Farmers Home 
Administration (FmHA), and Resolution Trust Corporation (RTC) seller-
assisted financing.
    (2) FHA single family mortgage insurance requirements. All 
regulatory requirements and underwriting procedures established for FHA 
single family mortgage insurance apply to mortgages insured by FHA on 
properties assisted under the HOPE 3 program. Exceptions in the 
regulations specifically for homebuyers under the HOPE 3 program are:
    (i) The eligible family/mortgagor may obtain a loan for the down 
payment from a corporation or another person under conditions 
satisfactory to HUD (24 CFR 203.19(b) and 234.28(c));
    (ii) A second mortgage may be placed against the property even 
though the entity holding a second mortgage is not a Federal, State, or 
local government agency, if the entity is designated in the 
homeownership plan of an applicant for an implementation grant (24 CFR 
203.32(b) and 234.55(b)); and
    (iii) Certain restrictions on conveyance may be permissible. 
Property

[[Page 176]]

with restrictions that do not comply with FHA regulations will be 
ineligible for FHA mortgage insurance, notwithstanding HUD approval 
under Sec. 572.130(e).
    (b) Financial assistance to homebuyers. Recipients may provide 
assistance to, or on behalf of, eligible families to make acquisition 
and rehabilitation of eligible properties affordable. This may include 
interest rate reductions (``interest rate buy-downs''), payment of all 
or a portion of closing costs, down payments, mortgage insurance 
premiums, and other expenses, and other forms of assistance approved by 
HUD. No mechanisms to financially assist homebuyers that would require 
grant recipients to make lump sum deposits of HOPE 3 grant funds will be 
permitted.



Sec. 572.110  Identifying and selecting eligible families for homeownership.

    (a) Selection procedures. (1) Recipients must establish written 
equitable procedures for identifying and selecting eligible families to 
participate in the homeownership program, consistent with the 
affordability standards in Sec. 572.120. Except for Indian tribes and 
IHAs as described in Sec. 572.405(a)(2), the recipient must have a 
procedure to carry out its affirmative fair marketing responsibilities, 
described in Sec. 572.405(e), that apply whenever homeownership 
opportunities are made available to other than current residents of the 
property. These procedures must include specific steps to inform 
potential applicants and solicit applications from eligible families in 
the housing market area who are least likely to apply for the program 
without special outreach.
    (2) The written selection procedures must provide for selection only 
of families that are creditworthy and have the financial capacity to 
handle the anticipated costs of homeownership. Any family determined not 
to have paid the appropriate amount of tenant contribution under a HUD 
housing assistance program must be required to resolve any deficiency 
before being selected for homeownership.
    (b) Preferences. (1) In making selections for the program, each 
recipient must give first preference to qualified residents who legally 
occupied units on the date the recipient's application for the 
implementation grant was submitted to HUD and to persons residing in the 
units at the time the properties are selected. If the unit occupied by a 
former resident on the date the implementation grant application was 
submitted to HUD is occupied by a different resident at the time of 
property selection, a vacant unit under this program must be offered to 
the former resident at the earliest possible time.
    (2) In the case of vacant properties for which the preferences in 
paragraph (b)(1) of this section do not apply, recipients must give a 
first preference to otherwise qualified eligible families who reside in 
public or Indian housing under the 1937 Act. Recipients must use 
whatever measures are considered appropriate to inform residents of 
public and Indian housing developments within the housing market area of 
the preference, such as informing resident councils, PHAs, and IHAs, or 
other appropriate measures.
    (3) Recipients must give a second preference to otherwise qualified 
eligible families who have completed participation in one of the 
following economic self-sufficiency programs: Project Self-Sufficiency, 
Operation Bootstrap, Family Self-Sufficiency, JOBS, and any other 
Federal, State, territorial, or local program approved by HUD as 
equivalent.
    (c) Responsibilities of selected families. (1) Each eligible family 
selected for homeownership must certify at the time it acquires an 
ownership interest in the unit (or enters into a lease-purchase 
agreement for the unit) that it intends to occupy the unit as its 
principal residence during the six-year period from the date it acquires 
ownership interest in the unit, unless the recipient determines that the 
family is required to move outside the market area due to a change in 
employment or an emergency situation or the family sells its ownership 
interest. The family may permit others to rent space (such as a basement 
area or a spare bedroom) in the unit occupied by the family as its 
principal residence. (See Sec. 572.115(c) concerning the rental of units 
in a multi-unit property purchased by a homebuyer under this part.)

[[Page 177]]

    (2) Any homebuyer that violates the agreement made under paragraph 
(c)(1) of this section shall be subject to penalties as provided in the 
transfer documents, as prescribed by HUD.
    (3) Each eligible family selected for the program must participate 
in counseling and training of homebuyers and homeowners regarding the 
general rights and responsibilities of homeownership.
    (d) Social security numbers; wage and claims information. As a 
condition of eligibility for homeownership under this part, at the time 
a family applies for howeownership, the recipient (or other appropriate 
entity) must:
    (1) Require the family to meet the requirements for the disclosure 
and verification of social security numbers, as provided by part 5, 
subpart B, of this title; and
    (2) Require the family to sign and submit consent forms for the 
obtaining of wage and claim information from State Wage Information 
Collection Agencies, as provided by part 5, subpart B, of this title.
    (e) Notification of rejected applicant families. Recipients or 
another appropriate entity must promptly notify in writing any rejected 
applicant family of the grounds for any rejection.

[58 FR 36526, July 7, 1993, as amended at 61 FR 11118, Mar. 18, 1996; 61 
FR 48797, Sept. 16, 1996]



Sec. 572.115  Transfer of homeownership interests.

    (a) Deadline for transfer. (1) All units in eligible properties 
(including in rem properties) must be transferred to eligible families 
within two years of the effective date of the implementation grant 
agreement, except as otherwise provided for multi-unit properties in 
paragraph (c) of this section. The transfer must involve either:
    (i) Acquisition by an eligible family of an ownership interest in a 
unit; or
    (ii) Execution of a lease-purchase agreement for a unit.
    (2) The HUD Field Office may approve a request for an extension of 
the deadline in paragraph (a)(1) of this section on a per-program or 
per-unit basis if the Field Office determines that all program 
activities will be completed in accordance with the timing requirements 
of Sec. 572.210(f) (including any extension granted under 
Sec. 572.210(f)).
    (b) Form of ownership. (1) Forms of ownership interests acquired by 
eligible families under this part may include fee simple ownership 
(including condominium ownership), cooperative ownership, or another 
form of ownership interest proposed and justified by the applicant and 
approved by HUD. HUD will not approve other forms of ownership that 
would substantially limit the ability of homeowners to realize financial 
appreciation in the value of their homes as determined by HUD. The type 
of ownership interest must be consistent with any applicable State (or 
territorial), local, or tribal law.
    (2) The ownership interest may be subject only to:
    (i) The restrictions on resale required or approved under 
Sec. 572.130;
    (ii) Mortgages, deeds of trust, or other liens or instruments 
securing the eligible family's purchase money financing as approved by 
the recipient; or
    (iii) Any other restrictions or encumbrances that do not impair the 
good and marketable nature of title to the ownership interest except as 
otherwise approved by the recipient. In approving the terms of an 
eligible family's purchase money financing or any other encumbrances on 
the property under paragraphs (b)(2)(ii) and (iii) of this section, the 
recipient shall not approve financing terms that do not comply with the 
affordability standards in Sec. 572.120, or mortgage terms and 
conditions or other encumbrances that in effect constitute resale 
restrictions that would not be approved by HUD under this part.
    (3) Mutual housing is eligible only to the extent it provides for 
the transfer of ownership interests to eligible families.
    (c) Transfer of multi-unit properties. (1) In the case of a two-to-
four unit property, only property that may be divided so that an 
ownership interest in each unit may be acquired by an eligible family is 
eligible. HUD may grant an exception to this requirement on a program-
by-program basis when it determines that such an exception will

[[Page 178]]

serve to further the purposes of the HOPE 3 program.
    (2) HUD Headquarters will consider and may approve an exception 
under the following circumstances:
    (i) The reasonably projected net rental income will be included in 
the determination of the appraised value of the property at the time of 
the homebuyer's purchase;
    (ii) The rent charged by the owner will not exceed the Fair Market 
Rent established by HUD for the area;
    (iii) The recipient will provide the homebuyer with counseling and 
training in property management, and will approve the form of lease used 
by the homebuyer; and
    (iv) The recipient will include the family's potential net rental 
income in calculating the family's initial affordability in accordance 
with Sec. 572.120 of this part.

[58 FR 36526, July 7, 1993, as amended at 61 FR 48797, Sept. 16, 1996]



Sec. 572.120  Affordability standards.

    (a) Initial affordability. (1) The monthly expenditure for 
principal, interest, taxes, and insurance by an eligible family that is 
required under the financing both for the acquisition and for the 
rehabilitation in accordance with Sec. 572.100(d) of a unit (whether the 
required rehabilitation occurs before or after the family takes title) 
must be not less than 20 percent and not more than 30 percent of one-
twelfth of the annual income of the family used for the purpose of 
determining eligibility under Sec. 572.110(a). (For the purpose of 
determining affordability of the family, the recipient may, at its 
option, adjust downward the annual incomes of eligible families using 
reasonable standards and procedures consistently applied.) HUD may 
approve a justified request for a floor lower than 20 percent to avoid 
undue hardship to families, such as where the cost of utilities is high.
    (2) The 30 percent cap on monthly payments includes closing costs 
only if closing costs are included in the costs of principal and 
interest, or are otherwise required to be paid by the homeowner over 
time after acquisition.
    (3) Applicants are encouraged to consider the additional monthly 
costs of utilities and other monthly housing costs, such as condominium 
and cooperative fees, in determining whether the family can afford to 
purchase a unit.
    (b) Continued affordability. The recipient must develop a plan 
demonstrating reasonable efforts to ensure continued affordability by 
homeowners in the eligible property. Financing that would impair the 
continued affordability of the property for homebuyers, such as a 
mortgage that is not fully amortizing (e.g., a ``balloon'' mortgage) may 
not be used. The plan should take into account such program features as 
long-term financing at reasonable terms, energy conservation, and 
improvements that will entail low-cost maintenance.

[58 FR 36526, July 7, 1993, as amended at 60 FR 36018, July 12, 1995]



Sec. 572.125  Replacement reserves.

    (a) Purpose. A single replacement reserve may be established for the 
homeownership program only if HUD determines it is necessary to prevent 
severe financial hardship to families caused by the failure of a major 
system or component of the property that would render the unit 
substandard. Initially, the reserve must be justified by the applicant 
and approved by HUD as part of the program budget in the application or 
an amended application.
    (b) Need for reserve account. In determining the need for a 
replacement reserve, the applicant or recipient must demonstrate that 
the financial status of eligible families is insufficient to meet the 
needs for which the reserve is established, and that the amount proposed 
for the reserve is reasonable, taking into account the following 
factors:
    (1) The size of the implementation grant and the amount of matching 
contributions;
    (2) The availability of insurance, and the home maintenance and 
repair capabilities of the families; and
    (3) The condition and age of the properties and each of their major 
systems and components (including at least the heating, plumbing, and 
electrical systems, the roof, foundation, windows, exterior walls, and 
common area, if any).

[[Page 179]]

    (c) Drawdown of reserve funds. Replacement reserve funds may only be 
drawn down under the Cash and Management Information System when 
specifically needed to assist a homeowner. At time of program closeout, 
all funds approved for a replacement reserve may be drawn down to fund a 
reserve account. The account may not exceed six years estimated 
replacement cost needs for the properties transferred under the 
homeownership program.
    (d) Administration of the reserve account. The recipient must 
identify the entity that will administer the replacement reserve account 
at time of program closeout. The entity responsible for administering 
the account must be bonded and approved by HUD. The account must be 
interest bearing, if possible, and interest earned thereon must be used 
for the purposes for which the account is established. Unused funds at 
the end of the term of the account must be treated as program income in 
accordance with Sec. 572.135(d).



Sec. 572.130  Restrictions on resale by initial homeowners.

    (a) Right to transfer. A homeowner may transfer the homeowner's 
ownership interest in the unit, subject only to the right to purchase 
under paragraph (b) of this section; the requirement for the purchaser 
to execute a promissory note, if required under paragraph (d) of this 
section; and the limitation on the amount of sales proceeds a family may 
retain upon sale within the first six years, as required under paragraph 
(c) of this section.
    (b) Right to purchase. (1) Where a cooperative has jurisdiction over 
the unit, it has the prior right to purchase the ownership interest in 
the unit from the initial homeowner for the amount and on the terms 
specified in a firm contract between the homeowner and a prospective 
buyer. The cooperative association has 10 days after receiving notice of 
the firm contract to decide whether to exercise its right and 60 
additional days to complete closing of the purchase.
    (2) If no cooperative has jurisdiction over the unit and if the 
prospective buyer is not a low-income family, the recipient or a PHA/IHA 
with jurisdiction for the area in which the unit is located, whichever 
is specified in the documents under which the initial family acquires an 
ownership interest in the unit, has the prior right to purchase the 
ownership interest in the unit for the amount and on the terms specified 
in a firm contract between the homeowner and a prospective buyer. The 
recipient or PHA/IHA has 10 days after receiving notice of the firm 
contract to decide whether to exercise its right and 60 additional days 
to complete closing of the purchase.
    (3) Where a recipient, cooperative, or PHA/IHA exercises a right to 
purchase, it must resell the unit to an eligible family promptly.
    (4) Unless otherwise provided in the property transfer documents, 
none of the provisions of paragraph (b) of this section apply in the 
case of liquidation of a security interest in the property. If FHA has 
insured a mortgage on the property, the provisions of paragraph (b) of 
this section shall not apply upon occurrence of an event requiring 
termination under 24 CFR 203.41(c)(2) or 234.66(c)(2).
    (c) Limitation on equity interest an initial homeowner may retain 
from sale during first six years. (1) The HOPE program is designed to 
assure that an initial or subsequent homeowner does not receive any 
undue profit from acquiring a unit under the program and that, to the 
extent the sales price is sufficient, an initial homeowner recovers the 
equity interest in the property. With respect to any sale by an initial 
homeowner during the first six years after acquisition, the family may 
retain only the amount computed under this paragraph. Any excess must be 
distributed as provided in Sec. 572.135(b). The amount of equity an 
initial homeowner has in the property is determined by computing the sum 
of the following:
    (i) The contribution to equity paid by the family (such as any 
downpayment (in the form of cash or the value of sweat equity) and any 
amount paid towards principal on a mortgage loan during the period of 
ownership);
    (ii) The value of any improvements (not including normal or routine 
maintenance) installed at the expense of the family during the family's 
tenure as owner (including improvements made

[[Page 180]]

through sweat equity), as determined by the recipient or other entity 
specified in the approved application based on evidence of amounts spent 
on the improvements, including the cost of material and labor (or the 
value of the sweat equity); and
    (iii) The appreciated value, determined by applying the Consumer 
Price Index (Urban Consumers) or other HUD approved index against the 
contribution to equity under paragraphs (d)(i) and (ii) of this section.
    (2) The recipient (or other entity) may, at the time of initial 
sale, enter into an agreement with the family to set a maximum amount 
which this appreciation may not exceed.
    (3) Amounts that count towards a family's equity may not also count 
towards the match.
    (d) Promissory note. (1) If the purchase price of the unit 
(adjusted, if applicable as described in this paragraph) paid by the 
initial homebuyer is less than the fair market value of the property 
(based on an appraisal of the value of the unit after rehabilitation to 
applicable program standards conducted in accordance with the appraisal 
requirements in Sec. 572.100(b)), the initial homeowner must, at 
closing, execute a nonamortizing, nonrecourse, noninterest-bearing 
promissory note, in a form acceptable to HUD, equal to the difference 
between such fair market value of the unit and the adjusted purchase 
price, together with a security instrument securing the obligation of 
the note and recorded in local land records or other applicable system 
of recordation appropriate to the type of security interest being 
recorded. The note must be payable to the recipient or other entity 
designated in the approved homeownership plan. In determining the amount 
of the promissory note and for that purpose only, the purchase price 
must be adjusted by deducting all substantial amounts of financial 
assistance with respect to the family's acquisition or rehabilitation of 
the unit that would result in an undue profit to the family if it were 
to sell the unit at the beginning of the 7th year of homeownership. (See 
paragraph (c) of this section for an additional restriction on return to 
the homeowner on reasales during the first six years.) For this purpose, 
``substantial financial assistance'' includes all forms of assistance or 
subsidy from HOPE 3 resources that reduce the cash return (sales 
proceeds) received by the recipient for the unit below its appraised 
after-rehabilitation fair market value by more than a total of $4,000, 
including (without limitation) discounted purchase prices, downpayment 
assistance, and rehabilitation or purchase money grants or loans that 
are not repayable on an amortizing basis. Financing to homeowners 
provided from HOPE 3 resources may not be assumed by subsequent 
homebuyers.
    (2) With respect to a sale by an initial homeowner, the note must 
require payment upon sale by the initial homeowner, to the extent 
proceeds of the sale remain after paying off other outstanding debt 
secured by the property that was incurred for the purpose of acquisition 
or property improvement, paying any other amounts due in connection with 
the sale (such as closing costs and transfer taxes), and paying the 
family the amount of its equity in the property, computed in accordance 
with paragraph (c) of this section.
    (3) With respect to a sale by an initial homeowner after the first 
six years after acquisition, through the 20th year, the amount payable 
under the note must be reduced by \1/168\ of the original principal 
amount of the note for each full month of ownership by the family after 
the end of the sixth year. The homeowner may retain all other proceeds 
of the sale.
    (4) Where a subsequent purchaser during the 20-year period, measured 
by the term of the initial promissory note, purchases the property for 
less than the then current fair market value (determined in accordance 
with the appraisal requirements in Sec. 572.100(b)), the purchaser must 
also execute at closing a promissory note and mortgage (to be recorded 
as stated in paragraph (d)(1) of this section) payable to the recipient 
or its designee, for the amount of the discount (but no more than the 
amount payable at the time of the sale on the promissory note by the 
seller). The term of the promissory note must be the period remaining of 
the original 20-year period. The note must require payment upon sale by 
the subsequent homeowner, to the extent proceeds of

[[Page 181]]

the sale remain after covering costs of the sale, paying off other 
outstanding debt secured by the property that was incurred for the 
purpose of acquisition or property improvement, and paying any other 
amounts due in connection with the sale. The amount payable on the note 
must be reduced by a percentage of the original principal amount of the 
note for each full month of ownership by the subsequent homeowner. The 
percentage must be computed by determining the percentage of the term of 
the promissory note the homeowner has owned the property. The remainder 
may be retained by the subsequent homeowner selling the property.
    (e) Additional restrictions. Notwithstanding paragraph (a) of this 
section, an applicant may propose in its application, and HUD may 
approve, additional reasonable restrictions on the resale of units under 
the program. HUD does not encourage additional restrictions, but HUD 
approval will be based on a review of the individual circumstances. 
However, HUD will not approve restrictions that it determines will 
substantially limit the ability of homeowners to realize financial 
appreciation in the value of their homes.

[58 FR 36526, July 7, 1993, as amended at 61 FR 48798, Sept. 16, 1996]



Sec. 572.135  Use of proceeds from sales to eligible families, resale proceeds, and program income.

    (a) Proceeds from sales. The recipient or another entity approved by 
HUD must use the proceeds, if any, from the initial sale for costs of 
their HOPE 3 program, including additional homeownership opportunities 
eligible under the HOPE 3 program, improvements to properties under the 
HOPE 3 program, business opportunities for low-income families 
participating in the HOPE 3 program, supportive services related to the 
HOPE 3 program, and other activities approved by HUD, either as part of 
the approved application or later on request. Such proceeds include the 
full consideration received by the recipient or other entity for the 
property, including principal and interest on purchase money loans from 
HOPE 3 funds or match.
    (b) Resale proceeds. Fifty percent of any portion of the net sales 
proceeds that may not be retained by the homeowner under 
Sec. 572.130(c), (d), and (e) must be paid to the recipient, or another 
entity approved by HUD, for use for additional homeownership 
opportunities eligible under the HOPE 3 program, improvements to 
properties under the HOPE 3 program, business opportunities for 
homeowners under the HOPE 3 program, supportive services related to the 
HOPE 3 program, and other activities approved by HUD in the approved 
homeownership program or later on request. The remaining 50 percent must 
be collected by the recipient and returned to HUD within 15 days of the 
sale for use under the HOPE 3 program, subject to any limitations 
contained in appropriations Acts.
    (c) Requirements for use of sale and resale proceeds. Sale and 
resale proceeds must be committed for approved activities within one 
year of receipt. All sale and resale proceeds must be accounted for by 
the recipient, and 50 percent of all resale proceeds received by the 
recipient must be returned to HUD, as described in paragraph (b) of this 
section. Recipients may use up to 15 percent of their sale and resale 
proceeds for administrative expenses to expand their HOPE 3 program and 
provide additional homeownership opportunities. Recipients must retain 
records on the use of these funds to the same level of detail as 
required of grant funds under the HOPE 3 system or whatever records HUD 
otherwise prescribes. The recipient, and any other entity approved by 
HUD to administer the sale and resale proceeds, remain responsible to 
comply with the requirements of this part, or such other requirements as 
HUD may prescribe (consistent with then applicable law) in closeout 
procedures or agreements.
    (d) Program income. Any program income, as defined in Sec. 572.5, 
received by the recipient may be added to the funds committed to the 
grant agreement by HUD and the recipient, in accordance with the 
requirements of parts 84 and 85 of this title, as applicable.

[58 FR 36526, July 7, 1993, as amended at 60 FR 36018, July 12, 1995; 62 
FR 34145, June 24, 1997]

[[Page 182]]



Sec. 572.140  Third party rights.

    The rights of third parties are governed by 42 U.S.C. 12895(d) and 
apply to the requirements of this part.

[61 FR 48798, Sept. 16, 1996]



Sec. 572.145  Displacement prohibited; protection of nonpurchasing residents.

    (a) Displacement prohibited. (1) No person may be displaced from his 
or her dwelling as a direct result of a homeownership program under this 
part. This does not preclude terminations of tenancy for violation of 
the terms of occupancy of the unit. Each resident of an eligible 
property on the date the application for an implementation grant was 
submitted to HUD and each resident at the time the property is selected 
must be given an opportunity to become a homeowner under this program if 
the resident qualifies as an eligible family and meets other program 
requirements. If the resident does not qualify or does not elect to 
move, the property is not eligible. The protections provided to 
residents under this section do not apply to the former owner of the 
property if the property is acquired from him or her as a result of a 
tax or mortgage foreclosure.
    (2) In addition to any applicable sanctions under the grant 
agreement, a violation of paragraph (a)(1) of this section may trigger a 
requirement to provide relocation assistance in accordance with the 
Uniform Relocation Assistance and Real Property Acquisition Policies Act 
of 1970 and governmentwide implementing regulations at 49 CFR part 24.
    (b) Relocation assistance for residents who elect to move. The 
recipient must offer each nonpurchasing resident who elects to move 
relocation assistance in accordance with the approved homeownership 
program. The program must provide, at least, the following assistance:
    (1) Advisory services, including timely information, counseling 
(including the provision of information on a resident's rights under the 
Fair Housing Act), and referrals to suitable, affordable, decent, safe, 
and sanitary alternative housing;
    (2) Payment for actual, reasonable moving expenses; and
    (3) Financial assistance sufficient to permit relocation to 
suitable, affordable, decent, safe, and sanitary housing. This 
requirement is met if the family is provided the opportunity to relocate 
to suitable, decent, safe, and sanitary housing for which the monthly 
rent and estimated average utility costs do not exceed the greater of 30 
percent of the person's income or the person's monthly rent before 
relocation and the estimated average monthly utility costs. The 
homeownership program must specify the period for which replacement 
housing assistance will be provided to persons who do not receive 
assistance through a Section 8 rental certificate or voucher or other 
housing program subsidy.
    (c) Temporary relocation. The recipient must provide each resident 
of an eligible property, who is required to relocate temporarily to 
permit work to be carried out, with suitable, decent, safe, and sanitary 
housing for the temporary period and must reimburse the resident for all 
reasonable out-of-pocket expenses incurred in connection with the 
temporary relocation, including the costs of moving to and from the 
temporarily occupied housing and any increase in monthly costs of rent 
and utilities.
    (d) Notice of relocation assistance. As soon as feasible, each 
recipient must give each resident of an eligible property a written 
description of the applicable provisions of this section.



                            Subpart C--Grants



Sec. 572.200  Planning grants.

    Any planning grants made by HUD under the HOPE 3 program will 
continue to be governed by the provisions in this section in effect 
immediately before October 16, 1996. When or before HUD announces the 
availability of funds for planning grants under this part, these 
provisions will be recodified.

[61 FR 48798, Sept. 16, 1996]

[[Page 183]]



Sec. 572.205  Planning grants--eligible activities.

    Any planning grants made by HUD under the HOPE 3 program will 
continue to be governed by the provisions in this section in effect 
immediately before October 16, 1996. When or before HUD announces the 
availability of funds for planning grants under this part, these 
provisions will be recodified.

[61 FR 48798, Sept. 16, 1996]



Sec. 572.210  Implementation grants.

    (a) General authority. Any implementation grants for the purpose of 
carrying out homeownership programs approved under this part will be 
awarded using a selection process and selection criteria to be published 
in a NOFA.
    (b) Deadline for completion. A recipient must spend all 
implementation grant amounts within 4 years from the effective date of 
the grant agreement. The appropriate HUD field office may approve a 
request to extend the deadline when it determines that an extension is 
warranted. A previously approved grant amount may not be amended to 
increase the grant amount.
    (c) Program closeout. Recipients will comply with closeout 
procedures as issued by HUD.

[62 FR 34145, June 24, 1997]



Sec. 572.215  Implementation grants--eligible activities.

    Implementation grants may be used for the reasonable costs of 
eligible activities necessary to carry out a homeownership program under 
this part. Only costs incurred on or after the effective date of an 
implementation grant agreement qualify for funding under this part. 
Eligible activities include:
    (a) Acquisition of eligible properties by the recipient. Acquisition 
of eligible properties for the purpose of transferring ownership 
interests to eligible families in a homeownership program under this 
part, in accordance with Sec. 572.100. (Where the applicant owns the 
eligible property or where HUD otherwise determines that an ``arms 
length'' relationship for acquisition does not exist, program funds may 
not be used for acquisition of the property for the program. However, if 
the property is owned by an eligible source, it may be donated as match 
in accordance with Sec. 572.220(b)(4).)
    (b) Recipient closing costs. Customary and reasonable closing costs 
of the buyer associated with the purchase of eligible properties under 
the program.
    (c) Financial assistance to homebuyers. Provision of assistance to 
families to make acquisition and rehabilitation of eligible properties 
affordable, in accordance with Sec. 572.105(b).
    (d) Rehabilitation. Rehabilitation of the eligible property covered 
by the homeownership program, in accordance with standards and cost 
limitations established by HUD in Sec. 572.100.
    (e) Architectural and engineering work. Architectural and 
engineering work, and related professional services required to prepare 
architectural plans or drawings, write-ups, specifications or 
inspections, including lead-based paint evaluation.
    (f) Relocation. Relocation of residents in eligible properties who 
elect to move, in accordance with Sec. 572.145(b).
    (g) Temporary relocation of homebuyers. Temporary relocation of 
residents during rehabilitation, in accordance with Sec. 572.145(c).
    (h) Legal fees. Customary and reasonable costs of professional legal 
services.
    (i) Replacement reserves. A single replacement reserve for the 
properties under the program if necessary, in accordance with 
Sec. 572.125.
    (j) Homebuyer outreach and selection. Reasonable and necessary costs 
of marketing the program to potential homebuyers and of identifying and 
selecting homebuyers under the program. These costs may include costs 
related to implementing the affirmative fair housing marketing strategy 
required under Sec. 572.110.
    (k) Counseling and training. Counseling and training of only those 
homebuyers (and their alternates) and homeowners selected under the 
homeownership program. This may include such subjects as personal 
financial management, home maintenance, home repair, construction skills 
(especially where the eligible family will do some of the 
rehabilitation), property management for owners of multi-unit

[[Page 184]]

properties, and the general rights and responsibilities of 
homeownership.
    (l) Property management and holding costs. Reasonable and necessary 
costs related to properly maintaining and securing eligible properties 
after acquisition or donation and before sale to an eligible homebuyer. 
These costs may include property insurance expenses, security costs, 
property taxes, utility charges, and other costs related to sound 
property management of recipient-owned properties before sale under the 
program. These costs may not be charged relative to eligible properties 
donated to the program by the recipient or another entity that HUD 
determines does not have an ``arm's length'' relationship with the 
recipient.
    (m) Recipient training needs. Defraying costs for ongoing training 
needs of the recipient for courses of instruction that are directly 
related to developing and carrying out the homeownership program.
    (n) Economic development. Economic development activities that 
promote economic self-sufficiency of homebuyers and homeowners under the 
homeownership program. The economic development activities must be 
directly related to the homeownership program, and may only benefit 
families and individuals who are homeowners or who have been selected as 
homebuyers under the program. These costs are limited to job training or 
retraining and day care costs of those participating in job training and 
retraining activities approved under the HOPE 3 program. The recipient 
must enter into written agreements with the providers of economic 
development services specifying the services to be provided, including 
estimates of the numbers of homebuyers and homeowners to be assisted. 
The aggregate amount of planning and implementation grants that may be 
used for economic development activities related to any one program may 
not exceed $250,000.
    (o) Administrative costs. Reasonable and necessary costs, as 
described and valued in accordance with the OMB Circular Nos. A-87 or A-
122, as applicable, incurred by a recipient in carrying out the HOPE 3 
program. The total amount that may be spent on administrative activities 
from the implementation grant and any contribution toward the match may 
not exceed 15 percent of the amount of the grant. For purposes of 
complying with the 15 percent limitation, administrative costs do not 
include the cost of activities that are separately eligible under this 
section.
    (p) Other activities. Other activities proposed by the applicant, to 
the extent the applicant justifies them as necessary for the proposed 
homeownership program and HUD approves them.

[58 FR 36526, July 7, 1993, as amended at 64 FR 50226, Sept. 15, 1999]



Sec. 572.220  Implementation grants--matching requirements.

    (a) General requirements. (1) Except as provided in paragraph (a)(3) 
of this section, each recipient must assure that matching contributions 
equal to not less than 33 percent (or 25 percent for grants awarded 
after April 11, 1994) of the amount of the implementation grant shall be 
provided from non-Federal sources to carry out the homeownership 
program. Amounts contributed to the match must be used for eligible 
activities or in accordance with the requirements of this section.
    (2) All contributions toward eligible activities to be counted 
toward the match must be provided no later than the deadline for 
completion of program activities established in accordance with 
Sec. 572.210(f), except as permitted under paragraphs (b)(1)(iv) and 
(b)(3) of this section.
    (3) When the recipient is an IHA, and the IHA (acting in that 
capacity) has not received, and will not receive, amounts under title I 
of the Housing and Community Development Act of 1974 for the fiscal year 
in which HUD obligates HOPE grant funds, the match requirements under 
this section will not apply.
    (b) Form. Contributions may only be in the form of:
    (1) Cash contributions. (i) Cash contributions from non-Federal 
resources contributed permanently for uses under the HOPE 3 program by 
the applicant, non-Federal public entities, private entities, or 
individuals, except that a cash contribution in the form of a down 
payment made by an eligible family may not count as a matching

[[Page 185]]

contribution. Funds will be considered permanently contributed if all 
principal, interest, and any other return on the contribution are used 
for eligible activities in accordance with program requirements.
    (ii) Non-Federal resources may include:
    (A) Contribution of trust funds held by Federal agencies for Indian 
tribes;
    (B) PHA section 8 operating reserve funds, where approved by HUD;
    (C) Income from a Federal grant earned after the end of the award 
period, if no Federal programmatic requirements govern the disposition 
of the program income.
    (D) Amounts, determined in accordance with paragraph (b)(1)(iv)(B) 
of this section, that have been requested by the applicant in an 
application submitted to the Federal Housing Finance Board for 
assistance under its affordable housing program, so long as the 
application is approved within 30 days of HUD's conditional approval of 
the HOPE 3 application.
    (iii) Non-Federal resources may not include:
    (A) Funds from a Community Development Block Grant under section 
106(b) or section 106(d), respectively, of the Housing and Community 
Development Act of 1974, except to the extent permitted for 
administrative expenses under paragraph (b)(2) of this section;
    (B) Federal tax expenditures, including low-income housing tax 
credits.
    (iv) The grant equivalent of a below-market interest rate loan to 
the homebuyer from non-Federal resources, where all repayments, 
interest, and other return will not be permanently contributed to the 
HOPE 3 program, may be counted as a cash contribution. The grant 
equivalent of a below market interest rate loan must be calculated in 
accordance with paragraphs (b)(1)(iv) (A) and (B) of this section--
    (A) If the loan is made from proceeds of obligations issued by or on 
behalf of a public body that are exempt from taxation by the United 
States, the contribution is the present discounted cash value of the 
difference between payments to be made on the borrowed funds and 
payments to be received on the loan to the homebuyer, based on a 
discount rate equal to the interest rate on the borrowed funds;
    (B) If the loan is made from funds other than under paragraph 
(b)(1)(iv)(A) of this section, the contribution is the present 
discounted cash value of the yield forgone, calculated based on a 
discount rate approved or prescribed by HUD. In determining the yield 
forgone, the recipient must use as a measure of a market yield one of 
the following, as appropriate:
    (1) With respect to housing financed with a fixed interest rate 
mortgage, a rate equal to the 10-year Treasury note rate plus 200 basis 
points; or
    (2) With respect to housing financed with an adjustable interest 
rate mortgage, a rate equal to the one-year Treasury bill rate plus 250 
basis points.
    (v) Cash contributions may also be made from sales proceeds from the 
Turnkey III Homeownership and Mutual Help programs, as approved by HUD, 
or an approved homeownership program under section 5(h) of the 1937 Act.
    (2) Administrative costs. (i) Contributions of eligible 
administrative services up to a value equal to 7 percent of the amount 
of the implementation grant. This limitation is in addition to the 15 
percent limitation on administrative costs (see Sec. 572.215(o)).
    (ii) If an applicant proposes to contribute administrative services, 
HUD will automatically approve an applicant's assurances for matching 
purposes that it will pay eligible administrative costs from non-Federal 
sources in an amount up to 7 percent of the implementation grant, and 
will not require further documentation of those expenditures for 
purposes of the HOPE 3 program. If a recipient uses more than 8 percent 
of its implementation grant to pay administrative costs, the amount 
credited toward the match will be reduced to less than 7 percent to stay 
within the 15 percent limitation.
    (iii) Non-Federal resources, for the purposes of counting 
contributions for administrative costs, may include funds from a 
Community Development Block Grant under section 106(b) or section 106(d) 
of the Housing and Community Development Act of 1974 and are subject to 
the recordkeeping and

[[Page 186]]

documentation requirements of that program.
    (3) Taxes, fees, and other charges. (i) The present value of taxes, 
fees, or other charges that are normally and customarily imposed but are 
waived, forgone, or deferred in a manner that facilitates the 
implementation of a homeownership program assisted under this part. Only 
amounts that would have been imposed after the date a property is 
acquired by a recipient or other entity for transfer to eligible 
families, the effective date of the implementation grant agreement if 
the recipient already owns the property, or the date after an eligible 
property is acquired directly from an eligible source by an eligible 
family, as applicable, may be counted towards the match.
    (ii) Amounts that would be waived, forgone, or deferred for longer 
than 20 years from the date a family acquires homeownership interests in 
the unit may not be counted towards the match.
    (iii) The present value of taxes, fees, or other charges waived, 
forgone, or deferred must be computed by discounting the estimated 
amount that would be otherwise payable over the time period (up to 20 
years) based on a discount rate approved or prescribed by HUD.
    (iv) Where the match includes amounts under paragraph (b)(3) of this 
section, the documents transferring the homeownership interest to the 
family must evidence the contribution, to the extent the contribution 
has not already been received.
    (4) Real property. Real property contributed for use under an 
approved homeownership program. To the extent properties were acquired 
with Federal resources or are donated directly to the program from 
Federal sources, their value is not an eligible match contribution.
    (i) The as-is fair market value of eligible property may be counted 
as a contribution toward the match, determined in accordance with a 
recent appraisal conducted under procedures established or approved by 
HUD. The maximum value contributed will be limited as provided in 
Sec. 572.100.
    (ii) When eligible real property is sold to the recipient or its 
designee from non-Federal sources at a price below fair market value, 
the differential between the fair market value and the discounted sales 
price may be counted toward the match.
    (iii) Vacant land from any non-Federal source located on existing 
streets with available utilities (which need not include laterals) may 
be contributed for use under the program, but only if a structure 
acquired or donated from an eligible HOPE 3 source will be moved onto 
it. The total amount of the contribution and any amount paid from HOPE 3 
funds for acquisition of the structure, moving, and rehabilitation costs 
must be within the limits provided in Sec. 572.100.
    (5) Infrastructure. The fair market value of investment (as approved 
by HUD), not made with Federal resources, in on-site and off-site 
infrastructure that directly contributes to a homeownership program. The 
infrastructure investment may be counted toward the match only if it was 
completed no earlier than 12 months before the deadline date set by HUD 
in the NOFA for receipt of implementation grant applications. Investment 
in infrastructure may include such activities as new or repaired utility 
laterals connecting eligible property to the main line and new or 
rebuilt walkways, sidewalks, or curbs on or contiguous to the eligible 
property. If the investment in infrastructure also benefits other 
properties, only the share of the costs directly benefiting the eligible 
property under the homeownership program may be counted toward the 
match.
    (6) Donated labor. All donated labor, including sweat equity 
provided by a homebuyer or homeowner, to be valued at $10 an hour or at 
a rate promulgated by HUD in the NOFA, except for donated professional 
labor, as approved by HUD, including professional labor by homebuyers 
and homeowners. The donated professional labor will be valued at the 
fair market value of the work completed. Professional labor is work 
ordinarily performed by the donor for payment, such as work by 
attorneys, electricians, carpenters, and architects that is equivalent 
to work

[[Page 187]]

they do in their occupations. Sweat equity may be counted towards the 
match only if it is not also counted toward a family's equity.
    (7) Donated materials and supplies. Donated materials and supplies 
may be counted toward the match contribution at their fair market value. 
The recipient must maintain a written enumeration of what donated 
materials and supplies are being used in the program, as well as 
documentation of their cost or value.
    (8) Other in-kind contributions. The reasonable value of in-kind 
contributions proposed by the applicant in the application and approved 
by HUD. In reviewing proposed in-kind contributions, HUD will review to 
ensure:
    (i) The proposed contribution is to be used for an eligible activity 
under the proposed homeownership program;
    (ii) The application demonstrates that the proposed in-kind 
contribution will actually be provided; and
    (iii) The proposed value of the contribution is reasonable. In 
determining whether the value is reasonable, HUD will generally consider 
the amount such contribution would otherwise cost the program.

[58 FR 36526, July 7, 1993, as amended at 60 FR 36018, July 12, 1995; 61 
FR 48798, Sept. 16, 1996]



Sec. 572.225  Grant agreements; corrective and remedial actions.

    (a) Terms and conditions. After HUD approves an application for a 
planning grant or an implementation grant under this part, it will enter 
into a grant agreement with the recipient setting forth the amount of 
the grant and applicable terms and conditions. The grant agreement will 
be effective for purposes of this part and funds may be disbursed under 
the Cash and Management Information (C/MI) System, described in 
Sec. 572.230, after the grant agreement has been executed by the 
authorized official of the recipient and HUD. Among other things, the 
grant agreement will provide that the recipient agrees:
    (1) To carry out the program in accordance with the provisions of 
this part, applicable law, the approved application, and all other 
applicable requirements; and
    (2) To comply with such other terms and conditions, including 
recordkeeping and reports, as HUD may establish for the purposes of 
administering, monitoring, and evaluating the program in an effective 
and efficient manner.
    (b) Corrective and remedial actions. (1) HUD may withhold, withdraw, 
or recapture any portion of a grant, terminate the grant agreement, or 
take other appropriate action authorized under the grant agreement, if 
HUD determines that the recipient is failing to carry out the approved 
homeownership program in accordance with the terms of the approved 
application and this part, including failure to provide the 
contributions toward the match. Corrective or remedial actions that HUD 
may instruct the recipient to undertake include;
    (i) Preparing and following a schedule of actions or a management 
plan for properly completing the approved activities;
    (ii) Cancelling or revising the affected activities before expending 
grant funds for them, revising the grant budget as necessary, and 
substituting other eligible activities;
    (iii) Discontinuing draws under the C/MI System, and not incurring 
further costs for the affected activities;
    (iv) Reimbursing its HOPE 3 program account in the amount not used 
in accordance with this part and the grant agreement; and
    (v) In the case of implementation grants, making additional matching 
contributions in substitution for contributions not in compliance with 
this part and the grant agreement or submitting to HUD acceptable 
evidence that matching contributions sufficient to meet the total match 
required under this part and the grant agreement will be made, before 
additional draws are made.
    (2) If HUD determines that the recipient is not complying with the 
corrective or remedial actions agreed upon with the recipient, or as 
otherwise authorized in the grant agreement, HUD may implement the 
following additional corrective and remedial actions:
    (i) Changing the method of payment under the C/MI System to a 
reimbursement basis;

[[Page 188]]

    (ii) Suspending the recipient's authority to make draws under the C/
MI System for affected activities;
    (iii) Reducing (deobligating) the grant in the amount affected by 
the performance deficiency, including, in the case of implementation 
grants, failure to furnish matching contributions in the required 
amount;
    (iv) Terminating the grant for all further activities and initiating 
close-out procedures;
    (v) Taking action against the recipient under 24 CFR part 24 and 
Executive Order 12549 (3 CFR, 1986 Comp., p. 189) with respect to future 
HOPE 3, HUD, or Federal grant awards; and
    (vi) Taking any other remedial action legally available.
    (3) If the amount of grant funds that has been disbursed under the 
C/MI System exceeds the amount finally determined by HUD to be 
authorized (including any authorized deobligation), the recipient must 
repay such excess amount to HUD, and will have no right to reclaim or 
reuse such excess amount.
    (c) Failure to complete and transfer a property to a homebuyer. If a 
property assisted under this part or credited as match is not completed 
and transferred to homebuyers as required under this part, whether 
voluntarily by the recipient or otherwise, grant expenditures on the 
property are considered ineligible, and HOPE 3 funds for acquisition and 
rehabilitation must be repaid to the program account. Preliminary costs 
(such as architectural and engineering, inspection, and appraisal fees) 
expended before acquisition are considered general program expenses and 
need not be repaid.
    (d) Failure to provide homeownership opportunities under an 
implementation grant. Failure to provide at least 70 percent of the 
number of homeownership opportunities proposed in the application for an 
implementation grant within the timeframe specified in Sec. 572.210(f) 
may result in remedial actions, as described in paragraph (b) of this 
section, being taken by HUD, including requiring repayment of all or 
part of the grant.



Sec. 572.230  Cash and Management Information (C/MI) System.

    Disbursement of HOPE 3 grant funds is managed through HUD's Cash and 
Management Information (C/MI) System for the HOPE 3 program. Funds that 
may be disbursed through the C/MI System include funds awarded to the 
recipient and obligated through the grant approval letter issued by HUD. 
HOPE 3 funds are drawn down by the recipient or its authorized designee 
from a United States Treasury account for the program, using the 
Treasury Automated Clearinghouse (ACH) System. Any drawdown of HOPE 3 
funds from the United States Treasury account is conditioned upon the 
submission of satisfactory information about the program and compliance 
with other procedures specified by HUD in HUD's forms and issuances 
concerning the C/MI System.

[62 FR 34145, June 24, 1997]



Sec. 572.235  Amendments.

    Amendments to the approved program must be documented or approved by 
HUD in accordance with instructions provided by HUD.



                      Subpart D--Selection Process



Sec. 572.300  Notices of funding availability (NOFAs); grant applications.

    When funds are made available for planning grants or implementation 
grants under this part, HUD will publish a NOFA in the Federal Register, 
in accordance with the requirements of part 4 of this title, and will 
select applications for funding on a competitive basis as provided in 
the applicable NOFA.

[62 FR 34145, June 24, 1997]



Sec. 572.315  Rating criteria for planning grants.

    Any planning grants made by HUD under the HOPE 3 program will 
continue to be governed by the provisions in this section in effect 
immediately before October 16, 1996. When or before HUD announces the 
availability of funds for planning grants under this

[[Page 189]]

part, these provisions will be recodified.

[61 FR 48798, Sept. 16, 1996]



                  Subpart E--Other Federal Requirements



Sec. 572.400  Consolidated plan.

    Applicants must provide a certification of consistency with the 
approved consolidated plan, in accordance with 24 CFR 91.510.

[60 FR 36018, July 12, 1995]



Sec. 572.405  Nondiscrimination and equal opportunity requirements.

    In addition to the nondiscrimination and equal opportunity 
requirements set forth in 24 CFR part 5, the following requirements 
apply to homeownership programs under this part:
    (a) Modification of fair housing and nondiscrimination requirements 
for Indian tribes and IHAs. (1) The Indian Civil Rights Act (25 U.S.C. 
1301 et seq.) applies to tribes when they exercise their powers of self-
government. Thus, it is applicable in all cases when an IHA has been 
established by exercise of such powers. In the case of the IHA 
established pursuant to State law, the applicability of the Indian Civil 
Rights Act shall be determined on a case-by-case basis. Development 
subject to the Indian Civil Rights Act must be developed and operated in 
compliance with its provisions and all implementing HUD requirements, 
instead of title VI and the Fair Housing Act and their implementing 
regulations.
    (2) In the case of Indian tribes and IHAs, compliance with the 
requirements of this section shall be to the maximum extent consistent, 
but not in derogation of, the Indian Self-Determination and Education 
Assistance Act (25 U.S.C. 450e(b)).
    (b) Affirmative fair housing marketing. The recipient must adopt a 
strategy for informing and soliciting applications from people who are 
least likely to apply, because of race, color, religion, sex, 
disability, familial status, or national origin, for the program without 
special outreach, consistent with the affirmative fair housing marketing 
requirements. (See 24 CFR 92.351 for an example of an affirmative 
strategy.) Paragraph (b) of this section does not apply to Indian tribes 
and IHAs, as described in paragraph (a)(1) of this section.
    (c) Authority for collection of racial, ethnic, and gender data. HUD 
requires submission of racial, ethnic, and gender data under this part 
under the authority of section 562 of the Housing and Community 
Development Act of 1987 and section 808(e)(6) of the Fair Housing Act.
    (d) Requirements applicable to religious organizations. Where the 
applicant is, or proposes to contract with, a primarily religious 
organization, or a wholly secular organization established by a 
primarily religious organization, to provide, manage, or operate housing 
under the program, the organization must undertake its responsibilities 
under the homeownership program in accordance with the following 
principles:
    (1) It will not discriminate against any employee or applicant for 
employment under the program on the basis of religion and will not limit 
employment or give preference in employment to persons on the basis of 
religion;
    (2) It will not discriminate against any person applying for housing 
or other assistance under the program on the basis of religion and will 
not limit such assistance or give preference to persons on the basis of 
religion;
    (3) It will provide no religious instruction or counseling, conduct 
no religious services or worship (which term does not include voluntary, 
non-denominational prayer before meetings), engage in no religious 
proselytizing, and exert no other religious influence in the provision 
of assistance under the homeownership program.

[58 FR 36526, July 7, 1993, as amended at 59 FR 33894, June 30, 1994; 61 
FR 5209, Feb. 9, 1996]



Sec. 572.410  Environmental procedures and standards.

    (a) Planning grants. HUD has determined that its approval of 
applications for planning grants under this part is categorically 
excluded from environmental review and compliance requirements of the 
National Environmental Policy Act of 1969 (NEPA) and that other Federal 
environmental laws and

[[Page 190]]

authorities listed in 24 CFR 50.4 are not applicable.
    (b) Implementation grants. (1) Recipients of implementation grants 
must comply with the applicable environmental laws and authorities at 24 
CFR 50.4 and must:
    (i) Supply HUD with information necessary for it to perform any 
necessary environmental review of the property (or neighborhood);
    (ii) Carry out mitigating measures required by HUD or select 
alternate eligible property; and
    (iii) Not acquire or otherwise carry out program activities with 
respect to any eligible property until HUD approval for the property (or 
neighborhood) is received.
    (2) Before any amounts under this part are used to acquire or 
rehabilitate an eligible property, HUD must determine whether the 
proposed activities trigger applicability thresholds for the applicable 
Federal environmental laws and authorities. These may apply when the 
property is:
    (i) Located within designated coastal barriers;
    (ii) Listed on, or eligible for listing on, the National Register of 
Historic Places; or is located within, or adjacent to, an historic 
district;
    (iii) Located near hazardous operations handling fuels or chemicals 
of an explosive or flammable nature;
    (iv) Contaminated by toxic chemicals or radioactive materials;
    (v) Located within a runway clear zone at a civil airport or within 
a clear zone or accident potential zone at a military airfield; or
    (vi) Located within a special flood hazard area or within a location 
requiring flood insurance protection.
    (3) A recipient may choose to make the threshold reviews itself or 
with assistance from State or local governments or qualified persons or 
to refer the property to HUD for threshold review. Where the recipient 
makes the threshold review itself, it must submit the result to HUD.
    (4) If a recipient chooses not to make the threshold reviews, it 
must submit information to HUD to permit HUD to make the review.
    (5) If HUD determines on the basis of the recipient's threshold 
review or HUD's threshold review that one or more of the thresholds are 
exceeded, HUD will conduct an environmental review of that issue and, if 
appropriate, establish mitigating measures that the recipient must carry 
out for the property unless it decides to select an alternate property.



Sec. 572.415  Conflict of interest.

    (a) Conflict of interest. In addition to the conflict of interest 
requirements in OMB Circular A-110 \1\ and 24 CFR part 85, no person who 
is an employee, agent, consultant, officer, or elected or appointed 
official of the recipient or cooperating entity named in the application 
and who exercises or has exercised any functions or responsibilities 
with respect to assisted activities, or who is in a position to 
participate in a decision-making process or gain inside information with 
regard to such activities, may obtain a financial interest or benefit 
from the activity, or have an interest in any contract, subcontract, or 
agreement with respect thereto, or the proceeds thereunder, either for 
himself or herself or for those with whom he or she has family or 
business ties, during his or her tenure or for one year thereafter, 
except that a resident of an eligible property may acquire an ownership 
interest.
---------------------------------------------------------------------------

    \1\ See Sec. 572.425(b) concerning availability of OMB Circulars.
---------------------------------------------------------------------------

    (b) Exception. HUD may grant an exception to the exclusion in 
paragraph (a) of this section on a case-by-case basis when it determines 
that such an exception will serve to further the purposes of the HOPE 3 
program and the effective and efficient administration of the local 
homeownership program. An exception may be considered only after the 
applicant or recipient has provided a disclosure of the nature of the 
conflict, accompanied by an assurance that there has been public 
disclosure of the conflict, a description of how the public disclosure 
was made, and an opinion of the applicant's or recipient's attorney that 
the interest for which the exception is sought would not violate State 
or local law. In determining whether to grant a requested

[[Page 191]]

exception, HUD will consider the cumulative effect of the following 
factors, where applicable:
    (1) Whether the exception would provide a significant cost benefit 
or an essential degree of expertise to the local homeownership program 
that would otherwise not be available;
    (2) Whether an opportunity was provided for open competitive bidding 
or negotiation;
    (3) Whether the person affected is a member of a group or class 
intended to be the beneficiaries of the activity and the exception will 
permit such person to receive generally the same interests or benefits 
as are being made available or provided to the group or class;
    (4) Whether the affected person has withdrawn from his or her 
functions or responsibilities, or the decisionmaking process, with 
respect to the specific activity in question;
    (5) Whether the interest or benefit was present before the affected 
person was in a position as described in paragraph (b) of this section;
    (6) Whether undue hardship will result either to the applicant, 
recipient, or the person affected when weighed against the public 
interest served by avoiding the prohibited conflict; and
    (7) Any other relevant considerations.



Sec. 572.420  Miscellaneous requirements.

    (a) Application of OMB Circulars. (1) The policies, guidelines, and 
requirements of OMB Circular Nos. A-87 (Cost Principles Applicable to 
Grants, Contracts and Other Agreements with State and Local Governments) 
and 24 CFR part 85 (Administrative Requirements for Grants and 
Cooperative Agreements to State, Local and Federally Recognized Indian 
Tribal Governments) apply to the award, acceptance, and use of 
assistance under this part by applicable entities, and to the remedies 
for non-compliance, except where inconsistent with the provisions of 
NAHA, other Federal statutes, or this part. Part 84 of this title 
(Grants and Agreements with Institutions of Higher Education, Hospitals, 
and Other Nonprofit Organizations) and OMB Circular Nos. A-122 (Cost 
Principles Applicable to Grants, Contract and Other Agreements with 
Nonprofit Institutions) and, as applicable, A-21 (Cost Principles for 
Educational Institutions) apply to the acceptance and use of assistance 
under this part by covered organizations, except where inconsistent with 
the provisions of Federal statutes or this part. Recipients are also 
subject to the audit requirements of OMB Circular A-128 (Audits of State 
and Local Governments) implemented at 24 CFR part 44, and OMB Circular 
A-133 (Audits of Institutions of Higher Learning and Other Nonprofit 
Institutions), implemented at 24 CFR part 45, as applicable.
    (2) Copies of OMB Circulars may be obtained from E.O.P. 
Publications, room 2200, New Executive Office Building, Washington, DC 
20503, telephone (202) 395-7332 (this is not a toll-free number). There 
is a limit of two free copies.
    (b) Requirements in 24 CFR part 5. The Disclosure requirements; 
provisions on Debarred, suspended or ineligible contractors; and Drug-
Free Workplace requirements, as identified in Sec. 5.105 (b), (c), and 
(d) of this title, apply to this program.
    (c)-(d) [Reserved]
    (e) Labor standards. If other Federal programs are used in 
connection with the HOPE 3 homeownership program, labor standards 
requirements apply to the extent required by such other Federal 
programs.
    (f) Flood insurance. Pursuant to the Flood Disaster Protection Act 
of 1973 (42 U.S.C. 4001-4128), the recipient may not provide financial 
assistance for acquisition or rehabilitation of properties located in an 
area identified by the Federal Emergency Management Agency (FEMA) as 
having special flood hazards, unless:
    (1) The community in which the area is situated is participating in 
the National Flood Insurance program (see 44 CFR parts 59 through 79), 
or less than one year has passed since FEMA notification regarding such 
hazards; and
    (2) Flood insurance is obtained as a condition of the acquisition or 
rehabilitation of the property.
    (g) Coastal Barrier Resources Act. Pursuant to the Coastal Barrier 
Resources Act (16 U.S.C. 3601), HUD will not approve use of properties 
in the Coastal Barrier Resources System.

[[Page 192]]

    (h) Lead-based paint activities. The Lead-Based Paint Poisoning 
Prevention Act (42 U.S.C. 4821-4846), the Residential Lead-Based Paint 
Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), and implementing 
regulations at part 35, subparts A, B, J, K and R of this title apply to 
activities under these programs.

[58 FR 36526, July 7, 1993, as amended at 59 FR 2738, Jan. 19, 1994; 61 
FR 48798, Sept. 16, 1996; 62 FR 34145, June 24, 1997; 64 FR 50226, Sept. 
15, 1999]



Sec. 572.425  Recordkeeping and reports; audit of recipients.

    (a) General records. Each recipient must keep records that will 
facilitate an effective audit to determine compliance with program 
requirements and that fully disclose:
    (1) The amount and disposition by the recipient of the planning and 
implementation grants received under this part, including sufficient 
records that document the reasonableness and necessity of each 
expenditure;
    (2) The amount and disposition of proceeds from financing obtained 
in connection with the program, sales to eligible families, and any 
funds recaptured upon sale by the homeowner;
    (3) The total cost of the homeownership program;
    (4) The amount and nature of any other assistance, including cash, 
property, services, or other items contributed as a condition of 
receiving an implementation grant;
    (5) The cost or other value of all in-kind contributions towards the 
match required by Sec. 572.220; and
    (6) Any other proceeds received for, or otherwise used in connection 
with, the homeownership program under this part.
    (b) Family size and income; racial, ethnic, and gender data. The 
recipient must maintain records on the family size and income, and 
racial, ethnic, and gender characteristics of families who apply for 
homeownership and families who become homeowners.
    (c) Selection procedures. The recipient must maintain a copy of its 
procedures for identifying and selecting eligible families in accordance 
with Sec. 572.110, and records documenting the eligibility of each 
family selected for homeownership.
    (d) Rehabilitation standards. The recipient must maintain written 
rehabilitation standards required by Sec. 572.100(d)(5).
    (e) Cooperative and condominium agreements. The recipient must 
maintain a copy of any condominium and cooperative association 
agreements for properties under a homeownership program approved under 
this part.
    (f) Amounts available for reuse. The recipient must keep and make 
available to HUD all records necessary to calculate accurately payments 
due to HUD under Sec. 572.135(b) and (c).
    (g) Access by HUD and the Comptroller General. For purposes of 
audit, examination, monitoring, and evaluation, each recipient must give 
HUD (including any duly authorized representatives and the Inspector 
General) and the Comptroller General of the United States (and any duly 
authorized representatives) access to any books, documents, papers, and 
records of the recipient that are pertinent to assistance received under 
this part, including all records required to be kept under this section.
    (h) Reports. The recipient must submit reports required by HUD.

(Approved by the Office of Management and Budget, with respect to 
implementation grants, under control number 2506-0128)



PART 573--LOAN GUARANTEE RECOVERY FUND--Table of Contents




Sec.
573.1   Authority and purpose.
573.2   Definitions.
573.3   Eligible activities.
573.4   Loan term.
573.5   Underwriting standards and availability of loan guarantee 
          assistance.
573.6   Submission requirements.
573.7   Loan guarantee agreement.
573.8   Environmental procedures and standards.
573.9   Other requirements.
573.10   Fees for guaranteed loans.
573.11   Record access and recordkeeping.

    Authority: Pub. L. 104-155, 110 Stat. 1392, 18 U.S.C. 241 note; 42 
U.S.C. 3535(d).

    Source: 61 FR 47405, Sept. 6, 1996, unless otherwise noted.

[[Page 193]]



Sec. 573.1  Authority and purpose.

    Section 4 of the Church Arson Prevention Act of 1996 (Pub. L. 104-
155, approved July 3, 1996) authorizes HUD to guarantee loans made by 
financial institutions to certain nonprofit organizations to finance 
activities designed to remedy the damage and destruction to real and 
personal property caused by acts of arson or terrorism. This part 
establishes the general procedures and requirements that apply to HUD's 
guarantee of these loans.



Sec. 573.2  Definitions.

    The following definitions are only applicable to loan guarantees 
under this part, and are not criminal definitions.
    Act means ``The Church Arson Prevention Act of 1996'' (Pub. L. 104-
155, approved July 3, 1996).
    Arson means a fire or explosion causing damage to (or destruction 
of) real or personal property that a Qualified Certification Official 
determines, or reasonably believes, to be deliberately set.
    Borrower means an organization described in section 501(c)(3) of the 
Internal Revenue Code of 1986, as amended, whose property has been 
damaged or destroyed as a result of an act of arson or terrorism and 
that incurs a debt obligation to a financial institution for the purpose 
of carrying out activities eligible under his part.
    Financial Institution means a lender which may be a bank, trust 
company, savings and loan association, credit union, mortgage company, 
or other issuer regulated by the Federal Deposit Insurance Corporation, 
the Office of Thrift Supervision, the Credit Union Administration, or 
the U.S. Comptroller of the Currency. A Financial Institution may also 
be a Pension Fund.
    Guarantee means an obligation of the United States Government 
guaranteeing payment of the outstanding principal loan amount, in whole 
or in part, plus interest thereon, on a debt obligation of the Borrower 
to a Financial Institution upon failure of the Borrower to repay the 
debt.
    Guaranteed Loan Funds means funds received by the borrower from the 
Financial Institution to finance eligible activities under this part, 
the repayment of which is guaranteed by HUD.
    Loan Guarantee Agreement means an agreement between a Financial 
Institution and the Secretary detailing the rights, responsibilities, 
procedures, terms, and conditions under which a loan provided by a 
Financial Institution to a Borrower may be guaranteed under section 4 of 
the Act.
    Qualified Certification Official (QCO)-- (1) For the purpose of 
certifying an act of arson. A State or local official authorized to 
investigate possible acts of arson. For the purposes of this definition, 
such an official is authorized to execute an Official Incident Report or 
its equivalent and may be an official or employee of such agencies as 
the local fire department, the local police department, or the State 
Fire Marshall Office or its equivalent. The term ``Qualified 
Certification Official'' also includes HUD, which will consult with the 
Bureau of Alcohol, Tobacco, and Firearms of the Department of the 
Treasury in making its determinations.
    (2) For the purpose of certifying an act of terrorism. The Secretary 
or his designee, in consultation with the Federal Bureau of 
Investigation, shall determine whether an act of violence is a terrorist 
act or is reasonably believed to be a terrorist act.
    Section 4 Guaranteed Loan means a HUD guaranteed loan made by a 
Financial Institution to a Borrower for the purpose of carrying out 
eligible activities to address damage or destruction caused by acts of 
arson or terrorism.
    Terrorism means an act of violence causing damage to (or destruction 
of) real or personal property that the Secretary or his designee, in 
consultation with the Federal Bureau of Investigation, determines to be, 
or reasonably believes to be, a terrorist act, as defined by applicable 
Federal law or guidelines.



Sec. 573.3  Eligible activities.

    Guaranteed Loan Funds may be used by a Borrower for the following 
activities when it is certified in accordance with Sec. 573.6(e) that 
the activity is necessary to address damage caused by an act or acts of 
arson or terrorism as certified in accordance with Sec. 573.6(f):

[[Page 194]]

    (a) Acquisition of improved or unimproved real property in fee or 
under long term lease.
    (b) Acquisition and installation of personal property.
    (c) Rehabilitation of real property owner, acquired, or leased by 
the Borrower.
    (d) Construction, reconstruction, or replacement of real property 
improvement.
    (e) Clearance, demolition, and removal, including movement of 
structures to other sites, of buildings, fixtures and improvements on 
real property.
    (f) Site preparation, including construction, reconstruction, or 
installation of site improvements, utilities, or facilities, which is 
related to the activities described in paragraph (a), (c), or (d) of 
this section.
    (g) Architectural, engineering, and similar services necessary to 
develop plans in connection with activities financed under paragraph 
(a), (b), (c), or (d) of this section.
    (h) Acquisition, installation and restoration of security systems.
    (i) Loans for refinancing existing indebtedness secured by a 
property which has been or will be acquired, constructed, rehabilitated 
or reconstructed, if such financing is determined to be appropriate to 
achieve the objectives of the Act and this part.
    (j) Other necessary project costs such as insurance, bonding, legal 
fees, appraisals, surveys, relocation, closing costs, etc., paid or 
incurred by the Borrower in connection with the completion of the above 
activities.

[61 FR 47405, Sept. 6, 1996, as amended at 62 FR 24574, May 6, 1997]



Sec. 573.4  Loan term.

    The term of the loan to be guaranteed by HUD under this part may not 
exceed 20 years.



Sec. 573.5  Underwriting standards and availability of loan guarantee assistance.

    (a) HUD may, in its discretion, accept the underwriting standards of 
the Financial Institution making a loan to a Borrower.
    (b) HUD will not make the loan guarantee unless it determines that 
the guaranteed loan is an acceptable financial risk under HUD's 
generally applicable loan underwriting standards based on the following:
    (1) The Borrower's ability to pay debt service; and
    (2) The value of the collateral assigned or pledged as security for 
the repayment of the loan.
    (c) The provision of a loan guarantee to a Financial Institution and 
the amount of the guarantee do not depend in any way on the purpose, 
function, or identity of the organization to which the Financial 
Institution has made, or intends to make, a Section 4 Guaranteed Loan.
    (d) HUD may disapprove a request for loan guarantee assistance based 
on the availability of funding.
    (e) HUD may decline any Financial Institution's participation if its 
underwriting criteria are insufficient to make the guarantee an 
acceptable financial risk, or if the proposed interest rates or fees are 
unacceptable. HUD expects the proposed interest rates to take into 
account the value of the Federal guarantee.
    (f) HUD may limit the availability of Guaranteed Loan Funds to 
geographic areas having the greatest need, as determined by a needs 
analysis of the most current available date conducted by HUD.
    (g) Other requirements associated with the underwriting standards 
and guidelines shall be contained in the Loan Guarantee Agreement.



Sec. 573.6  Submission requirements.

    A Financial Institution seeking a Section 4 Guaranteed Loan must 
submit to HUD the following documentation:
    (a) A statement that the institution is a Financial Institution as 
defined at Sec. 573.2.
    (b) A statement that the Borrower is eligible as defined at 
Sec. 573.2.
    (c) A description of each eligible activity for which the loan is 
requested.
    (d) A statement of other available funds to be used to finance the 
eligible activities (e.g., insurance proceeds).

[[Page 195]]

    (e) A certification by the Borrower that the activities to be 
assisted resulted from an act of arson or terrorism which is the subject 
of the certification described in paragraph (f) of this section.
    (f) A certification by a QCO that the damage or destruction to be 
remedied by the use of the Guaranteed Loan Funds resulted from an act of 
arson or terrorism.
    (g) The environmental documentation required by Sec. 573.8.
    (h) A narrative of the institution's underwriting standards used in 
reviewing the Borrower's loan request.
    (i) The interest rate on the loan and fees the lender intends to use 
in connection with the loan; and
    (j) The percentage of the loan for which a guarantee is requested.



Sec. 573.7  Loan guarantee agreement.

    (a) The rights and responsibilities with respect to the guaranteed 
loan shall be substantially described in an agreement entered into 
between the Financial Institution, as the lender, and the Secretary, as 
the guarantor, which agreement shall provide that:
    (1) The lender has submitted or will submit a request for loan 
guarantee assistance that is accompanied by the Borrower's request for a 
loan to carry out eligible activities described in Sec. 573.3;
    (2) The lender will require the Borrower to execute a promissory 
note promising to repay the guaranteed loan in accordance with the terms 
thereof;
    (3) The lender will require the Borrower to provide collateral 
security, to an extent and in a form, acceptable to HUD;
    (4) HUD reserves the right to limit loan guarantees to loans 
financing the replacement of damaged property with comparable new 
property;
    (5) The lender will follow certain claim procedures to be specified 
by HUD in connection with any defaults, including appropriate 
notification of default as required by HUD;
    (6) The lender will follow procedures for payment under the 
guarantee whereby the lender will be paid (up to the amount of 
guarantee) the amount owed to the lender less any amount recovered from 
the underlying collateral security for the loan; and
    (7) The lender will act as the fiscal agent for the loan, servicing 
the guaranteed loan, maintaining loan documents, and receiving the 
Borrower's payments of principal and interest. The Borrower and the 
lender may be required to execute a fiscal agency agreement.
    (b) In addition, the agreement shall contain other requirements, 
terms, and conditions required or approved by HUD.



Sec. 573.8  Environmental procedures and standards.

    The environmental review requirements at 24 CFR part 50 are 
applicable to this part.
    (a) Environmental procedures. Before any lender's submission 
requesting a loan guarantee for the acquisition, rehabilitation, or 
construction of real property can be selected for a loan guarantee, HUD 
shall determine whether any environmental thresholds are exceeded in 
accordance with 24 CFR part 50, which implements the National 
Environmental Policy Act (NEPA) and the related Federal environmental 
laws and authorities listed under 24 CFR 50.4. To assist in complying 
with environmental requirements, Borrowers are encouraged to select 
sites that are free of environmental hazards and are to provide HUD with 
environmental data needed to make a determination of compliance. For 
successful Borrowers, the costs for preparing the environmental data are 
eligible as project costs.
    (1) If HUD determines that one or more of the thresholds are 
exceeded, HUD shall conduct a compliance review of the issue and, if 
appropriate, establish mitigating measures that the applicant shall 
carry out for the property.
    (2) The lender's submissions under Sec. 573.6 shall provide HUD 
with:
    (i) Documentation for environmental threshold review; and
    (ii) Any previously issued environmental reviews prepared by local, 
State, or other Federal agencies for the proposed property.
    (3) In providing the above information, the Borrower is encouraged 
to

[[Page 196]]

contact the local community development agency to obtain any previously 
issued environmental reviews for the proposed property as well as for 
other relevant information that can be used in the applicant 
documentation for the environmental threshold review.
    (4) HUD reserves the right to disqualify any request where one or 
more environmental thresholds are exceeded if HUD determines that the 
compliance review cannot be satisfactorily completed.
    (5) If Guaranteed Loan Funds are requested for acquisition, 
rehabilitation, or construction, Borrowers and Financial Institutions 
are prohibited from committing or expending State, local, or other funds 
to undertake property acquisition, rehabilitation or construction under 
this part until HUD issues a letter of commitment notifying the lender 
of HUD approval of the loan guarantee.
    (b) Environmental thresholds. HUD shall determine whether a NEPA 
environmental assessment is required. Also, HUD shall determine whether 
the proposed property triggers thresholds for the applicable Federal 
environmental laws and authorities listed under 24 CFR 50.4 as follows:
    (1) For minor rehabilitation of a building and acquisition of any 
property, Federal environmental laws and authorities may apply when the 
property is:
    (i) Located within designated coastal barrier resources;
    (ii) Contaminated by toxic chemicals or radioactive materials;
    (iii) Located within a floodplain;
    (iv) A building for which flood insurance protection is required;
    (v) Located within a runway clear zone at a civil airport or within 
a clear zone or accident potential zone at a military airfield; or
    (vi) Listed on, or eligible for listing on, the National Register of 
Historic Places; located within, or adjacent to, an historic district, 
or is a property whose area of potential effects includes a historic 
district or property.
    (2) For major rehabilitation of a building or for new construction 
or rebuilding, and environmental assessment under NEPA is required and, 
in addition to paragraph (b)(1)(i) through (vi) of this section, other 
Federal environmental laws and authorities may apply when the property:
    (i) Affects coastal zone management;
    (ii) Is located near hazardous industrial operations handling fuels 
or chemicals of an explosive or flammable nature;
    (iii) Affects a sole source aquifer;
    (iv) Affects endangered species;
    (v) Is located within a designated wetland; or
    (vi) Is located in a high noise area.
    (c) Qualified data sources. The environmental threshold information 
provided by applicants mut be from qualified data sources. A qualified 
data source means any Federal, State, or local agency with expertise or 
experience in environmental protection (e.g., the local community 
development agency; the local planning agency; the State environmental 
protection agency; or the State Historic Preservation Officer) or any 
other source qualified to provide reliable information on the particular 
property.
    (d) Definition. Minor rehabilitation means proposed fixing and 
repairs:
    (1) Whose estimated cost is less than 75 percent of the estimated 
cost of replacement after completion;
    (2) That does not involve changes in land use from residential to 
nonresidential, or from nonresidential to residential; and
    (3) In the case of residential properties, that does not increase 
density more than 20 percent.
    (e) Project consultants. In achieving compliance with these 
procedures, Borrower's architectural and engineering consultants shall 
consider these environmental factors and provide information in their 
plan narratives as to how their construction plans conform with the 
above environmental factors. To facilitate HUD's compliance with part 
50, the Borrower is required to submit the consultant's information and 
plan narrative discussing the pertinent environmental factors under this 
section.



Sec. 573.9  Other requirements.

    (a) Nondiscrimination and equal opportunity. The nondiscrimination 
and equal opportunity requirements described in 24 CFR part 5, subpart A 
apply to this part.

[[Page 197]]

    (b) 24 CFR part 84. The provisions of 24 CFR part 84 apply to 
guaranteed loans under this part.
    (c) Lead-based paint. Housing assisted under this part is subject to 
the lead-based paint requirements described in part 35, subparts A, B, 
E, G, and R of this title.
    (d) Labor standards--(1) Davis-Bacon. All laborers and mechanics 
employed by contractors or subcontractors in the performance of 
construction work financed in whole or in part with Guaranteed Loan 
Funds under this part shall be paid wages at rates not less than those 
prevailing on similar construction in the locality as determined by the 
Secretary of Labor in accordance with the Davis-Bacon Act, as amended 
(40 U.S.C. 276a-276a-5). This paragraph shall apply to the 
rehabilitation of residential property only if such property contains 
not less than 8 units.
    (2) Volunteers. The provisions of paragraph (d)(1) of this section 
shall not apply to volunteers under the conditions set forth in 24 CFR 
part 70. In applying part 70, loan guarantees under this part shall be 
treated as a program for which there is a statutory exemption for 
volunteers.
    (3) Labor standards. Any contract, subcontract, or building loan 
agreement executed for a project subject to Davis-Bacon wage rates under 
paragraph (d)(1) of this section shall comply with all labor standards 
and provisions of 29 CFR parts 1, 3 and 5 that would be applicable to a 
loan guarantee program to which Davis-Bacon wage rates are made 
applicable by statute.

[61 FR 47405, Sept. 6, 1996, as amended at 64 FR 50226, Sept. 15, 1999]



Sec. 573.10  Fees for guaranteed loans.

    (a) No fees will be assessed by HUD for its guaranty of a loan under 
this part.
    (b) The lender may assess the Borrower loan origination fees or 
other charges provided that such fees and charges are those charged by 
the lender to its other customers for similar transactions, and are no 
higher than those charged by the lender for similar transactions.



Sec. 573.11  Record access and recordkeeping.

    Records pertaining to the loans made by the Financial Institution 
shall be held for the life of the loan. A lender with a Section 4 
Guaranteed Loan shall allow HUD, the Comptroller General of the United 
States, and their authorized representatives access from time to time to 
any documents, papers or files which are pertinent to the guaranteed 
loan, and to inspect and make copies of such records which relate to any 
Section 4 Loan. Any inspection will be made during the lender's regular 
business hours or any other mutually convenient time.



PART 574--HOUSING OPPORTUNITIES FOR PERSONS WITH AIDS--Table of Contents




                           Subpart A--General

Sec.
574.3  Definitions.

                     Subpart B--Formula Entitlements

574.100  Eligible applicants.
574.110  Overview of formula allocations.
574.120  Responsibility of applicant to serve EMSA.
574.130  Formula allocations.
574.190  Reallocation of grant amounts.

                      Subpart C--Competitive Grants

574.200  Amounts available for competitive grants.
574.210  Eligible applicants.
574.240  Application requirements.
574.260  Amendments.

                     Subpart D--Uses of Grant Funds

574.300  Eligible activities.
574.310  General standards for eligible housing activities.
574.320  Additional standards for rental assistance.
574.330  Additional standards for short-term supported housing.
574.340  Additional standards for community residences.

  Subpart E--Special Responsibilities of Grantees and Project Sponsors

574.400  Prohibition of substitution of funds.
574.410  Capacity.
574.420  Cooperation.
574.430  Fee prohibitions.
574.440  Confidentiality.
574.450  Financial records.

[[Page 198]]

                     Subpart F--Grant Administration

574.500  Responsibility for grant administration.
574.510  Environmental procedures and standards.
574.520  Performance reports.
574.530  Recordkeeping.
574.540  Deobligation of funds.

                  Subpart G--Other Federal Requirements

574.600  Cross-reference.
574.603  Nondiscrimination and equal opportunity.
574.605  Applicability of OMB circulars.
574.625  Conflict of interest.
574.630  Displacement, relocation and real property acquisition.
574.635  Lead-based paint.
574.640  Flood insurance protection.
574.645  Coastal barriers.
574.650  Audit.
574.655  Wage rates.

    Authority: 42 U.S.C. 3535(d) and 12901-12912.

    Source: 57 FR 61740, Dec. 28, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 574.3  Definitions.

    The terms Grantee and Secretary are defined in 24 CFR part 5.
    Acquired immunodeficiency syndrome (AIDS) or related diseases means 
the disease of acquired immunodeficiency syndrome or any conditions 
arising from the etiologic agent for acquired immunodeficiency syndrome, 
including infection with the human immunodeficiency virus (HIV).
    Administrative costs mean costs for general management, oversight, 
coordination, evaluation, and reporting on eligible activities. Such 
costs do not include costs directly related to carrying out eligible 
activities, since those costs are eligible as part of the activity 
delivery costs of such activities.
    Applicant means a State or city applying for a formula allocation as 
described under Sec. 574.100 or a State, unit of general local 
government, or a nonprofit organization applying for a competitive grant 
as described under Sec. 574.210.
    City has the meaning given it in section 102(a) of the Housing and 
Community Development Act of 1974 (42 U.S.C. 5302).
    Eligible Metropolitan Statistical Area (EMSA) means a metropolitan 
statistical area that has a population of more than 500,000 and has more 
than 1,500 cumulative cases of AIDS.
    Eligible person means a person with acquired immunodeficiency 
syndrome or related diseases who is a low-income individual, as defined 
in this section, and the person's family. A person with AIDS or related 
diseases or a family member regardless of income is eligible to receive 
housing information services, as described in Sec. 574.300(b)(1). Any 
person living in proximity to a community residence is eligible to 
participate in that residence's community outreach and educational 
activities regarding AIDS or related diseases, as provided in 
Sec. 574.300(b)(9).
    Eligible State means a State that has:
    (1) More than 1,500 cumulative cases of AIDS in those areas of the 
State outside of eligible metropolitan statistical areas that are 
eligible to be funded through a qualifying city; and
    (2) A consolidated plan prepared, submitted, and approved in 
accordance with 24 CFR part 91 that covers the assistance to be provided 
under this part. (A State may carry out activities anywhere in the 
State, including within an EMSA.)
    Family means a household composed of two or more related persons. 
The term family also includes one or more eligible persons living with 
another person or persons who are determined to be important to their 
care or well being, and the surviving member or members of any family 
described in this definition who were living in a unit assisted under 
the HOPWA program with the person with AIDS at the time of his or her 
death.
    Low-income individual has the meaning given it in section 853(3) of 
the AIDS Housing Opportunity Act (42 U.S.C. 12902).
    Metropolitan statistical area has the meaning given it in section 
853(5) of the AIDS Housing Opportunity Act (42.U.S.C. 12902).
    Nonprofit organization means any nonprofit organization (including a 
State or locally chartered, nonprofit organization) that:
    (1) Is organized under State or local laws;

[[Page 199]]

    (2) Has no part of its net earnings inuring to the benefit of any 
member, founder, contributor, or individual;
    (3) Has a functioning accounting system that is operated in 
accordance with generally accepted accounting principles, or has 
designated an entity that will maintain such an accounting system; and
    (4) Has among its purposes significant activities related to 
providing services or housing to persons with acquired immunodeficiency 
syndrome or related diseases.
    Non-substantial rehabilitation means rehabilitation that involves 
costs that are less than or equal to 75 percent of the value of the 
building after rehabilitation.
    Population means total resident population based on data compiled by 
the U.S. Census and referable to the same point in time.
    Project sponsor means any nonprofit organization or governmental 
housing agency that receives funds under a contract with the grantee to 
carry out eligible activities under this part. The selection of project 
sponsors is not subject to the procurement requirements of 24 CFR 85.36.
    Qualifying city means a city that is the most populous unit of 
general local government in an eligible metropolitan statistical area 
(EMSA) and that has a consolidated plan prepared, submitted, and 
approved in accordance with 24 CFR part 91 that covers the assistance to 
be provided under this part.
    Rehabilitation means the improvement or repair of an existing 
structure, or an addition to an existing structure that does not 
increase the floor area by more than 100 percent.
    State has the meaning given it in section 853(9) of the AIDS Housing 
Opportunity Act (42 U.S.C. 12902).
    Substantial rehabilitation means rehabilitation that involves costs 
in excess of 75 percent of the value of the building after 
rehabilitation.
    Unit of general local government means any city, town, township, 
parish, county, village, or other general purpose political subdivision 
of a State; Guam, the Northern Mariana Islands, the Virgin Islands, 
American Samoa, the Federated States of Micronesia and Palau, the 
Marshall Islands, or a general purpose political subdivision thereof; 
and any agency or instrumentality thereof that is established pursuant 
to legislation and designated by the chief executive to act on behalf of 
the jurisdiction with regard to provisions of the National Affordable 
Housing Act.

[57 FR 61740, Dec. 28, 1992, as amended at 59 FR 17199, Apr. 11, 1994; 
60 FR 1917, Jan. 5, 1995; 61 FR 5209, Feb. 9, 1996; 61 FR 7963, Feb. 29, 
1996]



                     Subpart B--Formula Entitlements



Sec. 574.100  Eligible applicants.

    (a) Eligible States and qualifying cities, as defined in Sec. 574.3, 
qualify for formula allocations under HOPWA.
    (b) HUD will notify eligible States and qualifying cities of their 
formula eligibility and allocation amounts and EMSA service areas 
annually.

[57 FR 61740, Dec. 28, 1992, as amended at 59 FR 17199, Apr. 11, 1994; 
60 FR 1917, Jan. 5, 1995]



Sec. 574.110  Overview of formula allocations.

    The formula grants are awarded upon submission and approval of a 
consolidated plan, pursuant to 24 CFR part 91, that covers the 
assistance to be provided under this part. Certain states and cities 
that are the most populous unit of general local government in eligible 
metropolitan statistical areas will receive formula allocations based on 
their State or metropolitan population and proportionate number of cases 
of persons with AIDS. They will receive funds under this part (providing 
they comply with 24 CFR part 91) for eligible activities that address 
the housing needs of persons with AIDS or related diseases and their 
families (see Sec. 574.130(b)).

[61 FR 7963, Feb. 29, 1996]



Sec. 574.120  Responsibility of applicant to serve EMSA.

    The EMSA's applicant shall serve eligible persons who live anywhere 
within the EMSA, except that housing assistance shall be provided only 
in localities within the EMSA that have a consolidated plan prepared, 
submitted, and approved in accordance with 24 CFR part 91 that covers 
the assistance to be

[[Page 200]]

provided under this part. In allocating grant amounts among eligible 
activities, the EMSA's applicant shall address needs of eligible persons 
who reside within the metropolitan statistical area, including those not 
within the jurisdiction of the applicant.

[60 FR 1917, Jan. 5, 1995]



Sec. 574.130  Formula allocations.

    (a) Data sources. HUD will allocate funds based on the number of 
cases of acquired immunodeficiency syndrome reported to and confirmed by 
the Director of the Centers for Disease Control, and on population data 
provided by the U.S. Census. The number of cases of acquired 
immunodeficiency syndrome used for this purpose shall be the number 
reported as of March 31 of the fiscal year immediately preceding the 
fiscal year for which the amounts are appropriated and allocated.
    (b) Distribution of appropriated funds for entitlement awards. (1) 
Seventy-five percent of the funds allocated under the formula is 
distributed to qualifying cities and eligible States, as described in 
Sec. 574.100, based on each metropolitan statistical area's or State's 
proportionate share of the cumulative number of AIDS cases in all 
eligible metropolitan statistical areas and eligible States.
    (2) The remaining twenty-five percent is allocated among qualifying 
cities, but not States, where the per capita incidence of AIDS for the 
year, April 1 through March 31, preceding the fiscal year of the 
appropriation is higher than the average for all metropolitan 
statistical areas with more than 500,000 population. Each qualifying 
city's allocation reflects its EMSA's proportionate share of the high 
incidence factor among EMSA's with higher than average per capita 
incidence of AIDS. The high incidence factor is computed by multiplying 
the population of the metropolitan statistical area by the difference 
between its twelve-month-per-capita-incidence rate and the average rate 
for all metropolitan statistical areas with more than 500,000 
population. The EMSA's proportionate share is determined by dividing its 
high incidence factor by the sum of the high incidence factors for all 
EMSA's with higher than average per capita incidence of AIDS.
    (c) Minimum grant. No grant awarded under paragraph (b) of this 
section shall be less than $200,000. Therefore, if the calculations 
under paragraph (b) of this section would result in any eligible 
metropolitan statistical area or eligible State receiving less than 
$200,000, the amount allocated to that entity is increased to $200,000 
and allocations to entities in excess of $200,000 are proportionately 
reduced by the amount of the increase.



Sec. 574.190  Reallocation of grant amounts.

    If an eligible State or qualifying city does not submit a 
consolidated plan in a timely fashion, in accordance with 24 CFR part 
91, that provides for use of its allocation of funding under this part, 
the funds allocated to that jurisdiction will be added to the funds 
available for formula allocations to other jurisdictions in the current 
fiscal year. Any formula funds that become available as a result of 
deobligations or the imposition of sanctions as provided for in 
Sec. 574.540 will be added to the funds available for formula 
allocations in the next fiscal year.

[57 FR 61740, Dec. 28, 1992, as amended at 60 FR 1918, Jan. 5, 1995]



                      Subpart C--Competitive Grants



Sec. 574.200  Amounts available for competitive grants.

    (a) The Department will set aside 10 percent of the amounts 
appropriated under this program to fund on a competitive basis:
    (1) Special projects of national significance; and
    (2) Other projects submitted by States and localities that do not 
qualify for formula grants.
    (b) Any competitively awarded funds that become available as a 
result of deobligations or the imposition of sanctions, as provided in 
Sec. 574.540, will be added to the funds available for competitive 
grants in the next fiscal year.
    (c) The competitive grants are awarded based on applications, as 
described in subpart C of this part, submitted in

[[Page 201]]

response to a Notice of Funding Availability published in the Federal 
Register. All States and units of general local government and nonprofit 
organizations are eligible to apply for competitive grants to fund 
projects of national significance. Only those States and units of 
general local government that do not qualify for formula allocations are 
eligible to apply for competitive grants to fund other projects.
    (d) If HUD makes a procedural error in a funding competition that, 
when corrected, would warrant funding of an otherwise eligible 
application, HUD will select that application for potential funding when 
sufficient funds become available.

[57 FR 61740, Dec. 28, 1992, as amended at 61 FR 7963, Feb. 29, 1996]



Sec. 574.210  Eligible applicants.

    (a) All States, units of general local government, and nonprofit 
organizations, may apply for grants for projects of national 
significance.
    (b) Only those States and units of general local government that do 
not qualify for formula grants, as described in Sec. 574.100; may apply 
for grants for other projects as described in Sec. 574.200(a)(2).
    (c) Except for grants for projects of national significance, 
nonprofit organizations are not eligible to apply directly to HUD for a 
grant but may receive funding as a project sponsor under contract with a 
grantee.



Sec. 574.240  Application requirements.

    Applications must comply with the provisions of the Department's 
Notice of Funding Availability (NOFA) for the fiscal year published in 
the Federal Register in accordance with 24 CFR part 12. The rating 
criteria, including the point value for each, are described in the NOFA, 
including criteria determined by the Secretary.

[61 FR 7963, Feb. 29, 1996]



Sec. 574.260  Amendments.

    (a) After an application has been selected for funding, any change 
that will significantly alter the scope, location, service area, or 
objectives of an activity or the number of eligible persons served must 
be justified to HUD and approved by HUD. Whenever any other amendment to 
the application is made, the grantee must provide a copy to HUD.
    (b) Each amendment request must contain a description of the revised 
proposed use of funds. Funds may not be expended for the revised 
proposed use of funds until:
    (1) HUD accepts the revised proposed use; and
    (2) For amendments to acquire, rehabilitate, convert, lease, repair 
or construct properties to provide housing, an environmental review of 
the revised proposed use of funds has been completed in accordance with 
Sec. 574.510.

(Approved by the Office of Management and Budget under control number 
2506-0133)



                     Subpart D--Uses of Grant Funds



Sec. 574.300  Eligible activities.

    (a) General. Subject to applicable requirements described in 
Secs. 574.310, 574.320, 574.330, and 574.340, HOPWA funds may be used to 
assist all forms of housing designed to prevent homelessness including 
emergency housing, shared housing arrangements, apartments, single room 
occupancy (SRO) dwellings, and community residences. Appropriate 
supportive services, as required by Sec. 574.310(a), must be provided as 
part of any HOPWA assisted housing, but HOPWA funds may also be used to 
provide services independently of any housing activity.
    (b) Activities. The following activities may be carried out with 
HOPWA funds:
    (1) Housing information services including, but not limited to, 
counseling, information, and referral services to assist an eligible 
person to locate, acquire, finance and maintain housing. This may also 
include fair housing counseling for eligible persons who may encounter 
discrimination on the basis of race, color, religion, sex, age, national 
origin, familial status, or handicap;
    (2) Resource identification to establish, coordinate and develop 
housing assistance resources for eligible persons (including conducting 
preliminary research and making expenditures necessary to determine the 
feasibility of specific housing-related initiatives);

[[Page 202]]

    (3) Acquisition, rehabilitation, conversion, lease, and repair of 
facilities to provide housing and services;
    (4) New construction (for single room occupancy (SRO) dwellings and 
community residences only).
    (5) Project- or tenant-based rental assistance, including assistance 
for shared housing arrangements;
    (6) Short-term rent, mortgage, and utility payments to prevent the 
homelessness of the tenant or mortgagor of a dwelling;
    (7) Supportive services including, but not limited to, health, 
mental health, assessment, permanent housing placement, drug and alcohol 
abuse treatment and counseling, day care, personal assistance, 
nutritional services, intensive care when required, and assistance in 
gaining access to local, State, and Federal government benefits and 
services, except that health services may only be provided to 
individuals with acquired immunodeficiency syndrome or related diseases 
and not to family members of these individuals;
    (8) Operating costs for housing including maintenance, security, 
operation, insurance, utilities, furnishings, equipment, supplies, and 
other incidental costs;
    (9) Technical assistance in establishing and operating a community 
residence, including planning and other pre-development or pre-
construction expenses and including, but not limited to, costs relating 
to community outreach and educational activities regarding AIDS or 
related diseases for persons residing in proximity to the community 
residence;
    (10) Administrative expenses:
    (i) Each grantee may use not more than 3 percent of the grant amount 
for its own administrative costs relating to administering grant amounts 
and allocating such amounts to project sponsors; and
    (ii) Each project sponsor receiving amounts from grants made under 
this program may use not more than 7 percent of the amounts received for 
administrative costs.
    (11) For competitive grants only, any other activity proposed by the 
applicant and approved by HUD.
    (c) Limitations of assistance to primarily religious organizations--
(1) Provision of assistance. (i) Assistance may be provided under this 
part by a grantee to a project sponsor that is a primarily religious 
organization if the primarily religious organization agrees to provide 
all eligible activities under this program in a manner that is free from 
religious influences and in accordance with the following principles:
    (A) It will not discriminate against any employee or applicant for 
employment on the basis of religion and will not limit employment or 
give preference in employment to persons on the basis of religion.
    (B) It will not discriminate against any person applying for any of 
the eligible activities under this part on the basis of religion and 
will not limit such housing or other eligible activities or give 
preference to persons on the basis of religion.
    (C) It will provide no religious instruction or counseling, conduct 
no religious services or worship, engage in no religious proselytizing, 
and exert no other religious influence in the provision of eligible 
activities under this part.
    (ii) Assistance will not be provided to a project sponsor that is a 
primarily religious organization to construct or acquire a structure. 
Assistance may be provided to a project sponsor that is a primarily 
religious organization to rehabilitate or convert a structure owned by 
the organization, only as described in paragraph (c)(2) of this section.
    (2) Rehabilitation or conversion of structures owned by primarily 
religious organizations. Grant amounts may be used to rehabilitate or 
convert a structure that is owned by a primarily religious organization, 
only if:
    (i) The structure (or portion thereof) that is to be rehabilitated 
or converted with HUD assistance has been leased to an existing or newly 
established wholly secular organization (which may be established by the 
religious organization under the provisions of paragraph (c)(3) of this 
section).
    (ii) The HUD assistance is provided to the secular organization (and 
not the religious organization) to make the improvements.

[[Page 203]]

    (iii) The leased structure will be used exclusively for secular 
purposes available to all persons regardless of religion.
    (iv) The lease payments paid to the primarily religious organization 
do not exceed the fair market rent for the structure before the 
rehabilitation or conversion was done.
    (v) The portion of the cost of any improvements that benefit any 
unleased portion of the structure will be allocated to, and paid for by, 
the religious organization.
    (vi) The primarily religious organization agrees that if the secular 
organization does not retain the use of the leased premises for wholly 
secular purposes for the useful life of the improvements, the primarily 
religious organization will pay an amount equal to the residual value of 
the improvements to the original grantee from which the amounts used to 
rehabilitate or convert the building were derived. While the original 
grantee is expected to use this amount for eligible HOPWA activities, 
there is no requirement that funds received after the close of the grant 
period be used in accordance with the requirements of this part.
    (3) Assistance to a wholly secular private nonprofit organization 
established by a primarily religious organization. (i) A primarily 
religious organization may establish a wholly secular private nonprofit 
organization to serve as a project sponsor. The secular organization may 
be eligible to receive all forms of assistance available under this 
part.
    (ii) The secular organization must agree to provide eligible 
activities under this part in a manner that is free from religious 
influences and in accordance with the principles set forth in paragraph 
(c)(1)(i) of this section.
    (iii) The secular organization may enter into a contract with the 
religious organization to operate the housing assistance, supportive 
services and other eligible activities for the project. In such a case, 
the religious organization must agree in the contract to carry out its 
contractual responsibilities in a manner free from religious influences 
and in accordance with the principles set forth in paragraph (c)(1)(i) 
of this section.
    (iv) The rehabilitation or conversion of structures are subject to 
the requirements of paragraph (c)(2) of this section.

[57 FR 61740, Dec. 28, 1992, as amended at 59 FR 17200, Apr. 11, 1994]



Sec. 574.310  General standards for eligible housing activities.

    All grantees using grant funds to provide housing must adhere to the 
following standards:
    (a)(1) General. The grantee shall ensure that qualified service 
providers in the area make available appropriate supportive services to 
the individuals assisted with housing under this subpart. Supportive 
services are described in Sec. 574.300(b)(7). For any individual with 
acquired immunodeficiency syndrome or a related disease who requires 
more intensive care than can be provided in housing assisted under this 
subpart, the grantee shall provide for locating a care provider who can 
appropriately care for the individual and for referring the individual 
to the care provider.
    (2) Payments. The grantee shall ensure that grant funds will not be 
used to make payments for health services for any item or service to the 
extent that payment has been made, or can reasonably be expected to be 
made, with respect to that item or service:
    (i) Under any State compensation program, under an insurance policy, 
or under any Federal or State health benefits program; or
    (ii) By an entity that provides health services on a prepaid basis.
    (b) Housing quality standards. All housing assisted under 
Sec. 574.300(b) (3), (4), (5), and (8) must meet the applicable housing 
quality standards outlined below.
    (1) State and local requirements. Each recipient of assistance under 
this part must provide safe and sanitary housing that is in compliance 
with all applicable State and local housing codes, licensing 
requirements, and any other requirements in the jurisdiction in which 
the housing is located regarding the condition of the structure and the 
operation of the housing.
    (2) Habitability standards. Except for such variations as are 
proposed by the

[[Page 204]]

locality and approved by HUD, recipients must meet the following 
requirements:
    (i) Structure and materials. The structures must be structurally 
sound so as not to pose any threat to the health and safety of the 
occupants and so as to protect the residents from hazards.
    (ii) Access. The housing must be accessible and capable of being 
utilized without unauthorized use of other private properties. 
Structures must provide alternate means of egress in case of fire.
    (iii) Space and security. Each resident must be afforded adequate 
space and security for themselves and their belongings. An acceptable 
place to sleep must be provided for each resident.
    (iv) Interior air quality. Every room or space must be provided with 
natural or mechanical ventilation. Structures must be free of pollutants 
in the air at levels that threaten the health of residents.
    (v) Water supply. The water supply must be free from contamination 
at levels that threaten the health of individuals.
    (vi) Thermal environment. The housing must have adequate heating 
and/or cooling facilities in proper operating condition.
    (vii) Illumination and electricity. The housing must have adequate 
natural or artificial illumination to permit normal indoor activities 
and to support the health and safety of residents. Sufficient electrical 
sources must be provided to permit use of essential electrical appliance 
while assuring safety from fire.
    (viii) Food preparation and refuse disposal. All food preparation 
areas must contain suitable space and equipment to store, prepare, and 
serve food in a sanitary manner.
    (ix) Sanitary condition. The housing and any equipment must be 
maintained in sanitary condition.
    (c) Minimum use period for structures. (1) Any building or structure 
assisted with amounts under this part must be maintained as a facility 
to provide housing or assistance for individuals with acquired 
immunodeficiency syndrome or related diseases:
    (i) For a period of not less than 10 years, in the case of 
assistance provided under an activity eligible under Sec. 574.300(b) (3) 
and (4) involving new construction, substantial rehabilitation or 
acquisition of a building or structure; or
    (ii) For a period of not less than 3 years in the cases involving 
non-substantial rehabilitation or repair of a building or structure.
    (2) Waiver of minimum use period. HUD may waive the minimum use 
period of a building or structure as stipulated in paragraph (c)(1) of 
this section if the grantee can demonstrate, to the satisfaction of HUD, 
that:
    (i) The assisted structure is no longer needed to provide supported 
housing or assistance, or the continued operation of the structure for 
such purposes is no longer feasible; and
    (ii) The structure will be used to benefit individuals or families 
whose incomes do not exceed 80 percent of the median income for the 
area, as determined by HUD with adjustments for smaller and larger 
families, if the Secretary finds that such variations are necessary 
because of construction costs or unusually high or low family incomes.
    (d) Resident rent payment. Except for persons in short-term 
supported housing, each person receiving rental assistance under this 
program or residing in any rental housing assisted under this program 
must pay as rent, including utilities, an amount which is the higher of:
    (1) 30 percent of the family's monthly adjusted income (adjustment 
factors include the age of the individual, medical expenses, size of 
family and child care expenses and are described in detail in 24 CFR 
5.609). The calculation of the family's monthly adjusted income must 
include the expense deductions provided in 24 CFR 5.611(a), and for 
eligible persons, the calculation of monthly adjusted income also must 
include the disallowance of earned income as provided in 24 CFR 5.617, 
if applicable;
    (2) 10 percent of the family's monthly gross income; or
    (3) If the family is receiving payments for welfare assistance from 
a public agency and a part of the payments, adjusted in accordance with 
the

[[Page 205]]

family's actual housing costs, is specifically designated by the agency 
to meet the family's housing costs, the portion of the payment that is 
designated for housing costs.
    (e) Termination of assistance--(1) Surviving family members. With 
respect to the surviving member or members of a family who were living 
in a unit assisted under the HOPWA program with the person with AIDS at 
the time of his or her death, housing assistance and supportive services 
under the HOPWA program shall continue for a grace period following the 
death of the person with AIDS. The grantee or project sponsor shall 
establish a reasonable grace period for continued participation by a 
surviving family member, but that period may not exceed one year from 
the death of the family member with AIDS. The grantee or project sponsor 
shall notify the family of the duration of their grace period and may 
assist the family with information on other available housing programs 
and with moving expenses.
    (2) Violation of requirements--(i) Basis. Assistance to participants 
who reside in housing programs assisted under this part may be 
terminated if the participant violates program requirements or 
conditions of occupancy. Grantees must ensure that supportive services 
are provided, so that a participant's assistance is terminated only in 
the most severe cases.
    (ii) Procedure. In terminating assistance to any program participant 
for violation of requirements, grantees must provide a formal process 
that recognizes the rights of individuals receiving assistance to due 
process of law. This process at minimum, must consist of:
    (A) Serving the participant with a written notice containing a clear 
statement of the reasons for termination;
    (B) Permitting the participant to have a review of the decision, in 
which the participant is given the opportunity to confront opposing 
witnesses, present written objections, and be represented by their own 
counsel, before a person other than the person (or a subordinate of that 
person) who made or approved the termination decision; and
    (C) Providing prompt written notification of the final decision to 
the participant.

(Paragraph (c) approved by the Office of Management and Budget under 
control number 2506-0133)

[57 FR 61740, Dec. 28, 1992, as amended at 59 FR 17200, Apr. 11, 1994; 
61 FR 7963, Feb. 29, 1996; 66 FR 6225, Jan. 19, 2001]



Sec. 574.320  Additional standards for rental assistance.

    (a) If grant funds are used to provide rental assistance, the 
following additional standards apply:
    (1) Maximum subsidy. The amount of grant funds used to pay monthly 
assistance for an eligible person may not exceed the difference between:
    (i) The lower of the rent standard or reasonable rent for the unit; 
and
    (ii) The resident's rent payment calculated under Sec. 574.310(d).
    (2) Rent standard. The rent standard shall be established by the 
grantee and shall be no more than the published section 8 fair market 
rent (FMR) or the HUD-approved community-wide exception rent for the 
unit size. However, on a unit by unit basis, the grantee may increase 
that amount by up to 10 percent for up to 20 percent of the units 
assisted.
    (3) Rent reasonableness. The rent charged for a unit must be 
reasonable in relation to rents currently being charged for comparable 
units in the private unassisted market and must not be in excess of 
rents currently being charged by the owner for comparable unassisted 
units.
    (b) With respect to shared housing arrangements, the rent charged 
for an assisted family or individual shall be in relation to the size of 
the private space for that assisted family or individual in comparison 
to other private space in the shared unit, excluding common space. An 
assisted family or individual may be assigned a pro rata portion based 
on the ratio derived by dividing the number of bedrooms in their private 
space by the number of bedrooms in the unit. Participation in shared 
housing arrangements shall be voluntary.

[57 FR 61740, Dec. 28, 1992, as amended at 61 FR 7963, Feb. 29, 1996]

[[Page 206]]



Sec. 574.330  Additional standards for short-term supported housing.

    Short-term supported housing includes facilities to provide 
temporary shelter to eligible individuals as well as rent, mortgage, and 
utilities payments to enable eligible individuals to remain in their own 
dwellings. If grant funds are used to provide such short-term supported 
housing assistance, the following additional standards apply:
    (a) Time limits. (1) A short-term supported housing facility may not 
provide residence to any individual for more than 60 days during any six 
month period. Rent, mortgage, and utilities payments to prevent the 
homelessness of the tenant or mortgagor of a dwelling may not be 
provided to such an individual for these costs accruing over a period of 
more than 21 weeks in any 52 week period. These limitations do not apply 
to rental assistance provided under Sec. 574.300(b)(5).
    (2) Waiver of time limitations. HUD may waive, as it determines 
appropriate, the limitations of paragraph (a)(1) and will favorably 
consider a waiver based on the good faith effort of a project sponsor to 
provide permanent housing under subsection (c).
    (b) Residency limitations--(1) Residency. A short-term supported 
facility may not provide shelter or housing at any single time for more 
than 50 families or individuals;
    (2) Waiver of residency limitations. HUD may waive, as it determines 
appropriate, the limitations of paragraph (b)(1) of this section.
    (c) Placement. A short-term supported housing facility assisted 
under this part must, to the maximum extent practicable, provide each 
individual living in such housing the opportunity for placement in 
permanent housing or in a living environment appropriate to his or her 
health and social needs.
    (d) Assistance to continue independent living. In addition to the 
supportive services provided when an individual is relocated to a short-
term supported housing facility, supportive services may be provided to 
individuals when they remain in their residence because the residence is 
appropriate to the needs of the individual. In the latter case, a rent, 
mortgage and utilities payments program assisted under this part shall 
provide, when reasonable, supportive services specifically designed to 
maintain the individual in such residence.
    (e) Case management services. A program assisted under this section 
shall provide each assisted individual with an opportunity, if eligible, 
to receive case management services from the appropriate social service 
agencies.

(Paragraph (b) approved by the Office of Management and Budget under 
control number 2506-0133)

[57 FR 61740, Dec. 28, 1992, as amended at 59 FR 17200, Apr. 11, 1994]



Sec. 574.340  Additional standards for community residences.

    (a) A community residence is a multiunit residence designed for 
eligible persons to provide a lower cost residential alternative to 
institutional care; to prevent or delay the need for such care; to 
provide a permanent or transitional residential setting with appropriate 
services to enhance the quality of life for those who are unable to live 
independently; and to enable such persons to participate as fully as 
possible in community life.
    (b) If grant funds are used to provide a community residence, except 
for planning and other expenses preliminary to construction or other 
physical improvement for a community residence, the grantee must, prior 
to the expenditure of such funds, obtain and keep on file the following 
certifications:
    (1) A services agreement. (i) A certification that the grantee will 
itself provide services as required by Sec. 574.310(a) to eligible 
persons assisted by the community residence; or
    (ii) A certification that the grantee has entered into a written 
agreement with a project sponsor or contracted service provider to 
provide services as required by Sec. 574.310(a) to eligible persons 
assisted by the community residence;
    (2) The adequacy of funding. (i) A certification that the grantee 
has acquired sufficient funding for these services; or
    (ii) A certification that the grantee has on file an analysis of the 
service

[[Page 207]]

level needed for each community residence, a statement of which grantee 
agency, project sponsor, or service provider will provide the needed 
services, and a statement of how the services will be funded; and
    (3) Capability. (i) A certification that the grantee is qualified to 
provide the services; or
    (ii) A certification that the project sponsor or the service 
provider is qualified to provide the services.

[57 FR 61740, Dec. 28, 1992, as amended at 59 FR 17200, Apr. 11, 1994]



  Subpart E--Special Responsibilities of Grantees and Project Sponsors



Sec. 574.400  Prohibition of substitution of funds.

    Amounts received from grants under this part may not be used to 
replace other amounts made available or designated by State or local 
governments through appropriations for use for the purposes of this 
part.



Sec. 574.410  Capacity.

    The grantee shall ensure that any project sponsor with which the 
grantee contracts to carry out an activity under this part has the 
capacity and capability to effectively administer the activity.



Sec. 574.420  Cooperation.

    (a) The grantee shall agree, and shall ensure that each project 
sponsor agrees, to cooperate and coordinate in providing assistance 
under this part with the agencies of the relevant State and local 
governments responsible for services in the area served by the grantee 
for eligible persons and other public and private organizations and 
agencies providing services for such eligible persons.
    (b) A grantee that is a State shall obtain the approval of the unit 
of general local government in which a project is to be located before 
entering into a contract with a project sponsor to carry out an activity 
authorized under this part.
    (c) A grantee that is a city receiving a formula allocation for an 
EMSA shall coordinate with other units of general local government 
located within the metropolitan statistical area to address needs within 
that area.



Sec. 574.430  Fee prohibitions.

    The grantee shall agree, and shall ensure that each project sponsor 
agrees, that no fee, except rent, will be charged of any eligible person 
for any housing or services provided with amounts from a grant under 
this part.



Sec. 574.440  Confidentiality.

    The grantee shall agree, and shall ensure that each project sponsor 
agrees, to ensure the confidentiality of the name of any individual 
assisted under this part and any other information regarding individuals 
receiving assistance.



Sec. 574.450  Financial records.

    The grantee shall agree, and shall ensure that each project sponsor 
agrees, to maintain and make available to HUD for inspection financial 
records sufficient, in HUD's determination, to ensure proper accounting 
and disbursing of amounts received from a grant under this part.



                     Subpart F--Grant Administration



Sec. 574.500  Responsibility for grant administration.

    (a) General. Grantees are responsible for ensuring that grants are 
administered in accordance with the requirements of this part and other 
applicable laws. Grantees are responsible for ensuring that their 
respective project sponsors carry out activities in compliance with all 
applicable requirements.
    (b) Grant agreement. The grant agreement will provide that the 
grantee agrees, and will ensure that each project sponsor agrees, to:
    (1) Operate the program in accordance with the provisions of these 
regulations and other applicable HUD regulations;
    (2) Conduct an ongoing assessment of the housing assistance and 
supportive services required by the participants in the program;
    (3) Assure the adequate provision of supportive services to the 
participants in the program; and
    (4) Comply with such other terms and conditions, including 
recordkeeping

[[Page 208]]

and reports (which must include racial and ethnic data on participants) 
for program monitoring and evaluation purposes, as HUD may establish for 
purposes of carrying out the program in an effective and efficient 
manner.
    (c) Enforcement. HUD will enforce the obligations in the grant 
agreement in accordance with the provisions of 24 CFR 85.43. A grantee 
will be provided an opportunity for informal consultation before HUD 
will exercise any remedies authorized in paragraph (a) of that section.



Sec. 574.510  Environmental procedures and standards.

    Before any amounts under this program are used to acquire, 
rehabilitate, convert, lease, repair or construct properties to provide 
housing, HUD shall perform a review in accord with 24 CFR part 50, which 
implements the National Environmental Policy Act and the related Federal 
environmental laws and authorities listed under 24 CFR 50.4. In 
performing its environmental review, HUD may use previously issued 
environmental reviews prepared by other local, State, or federal 
agencies for the proposed property. The grantee will cooperate in 
providing these documents. HUD must, however, conduct the environmental 
analysis and prepare the environmental review and be responsible for the 
required environmental findings. An environmental assurance shall be 
provided by an applicant for formula allocations or competitive awards 
in accordance with 24 CFR 50.3(i).

[61 FR 7963, Feb. 29, 1996]



Sec. 574.520  Performance reports.

    (a) Formula grants. For a formula grant recipient, the performance 
reporting requirements are specified in 24 CFR part 91.
    (b) Competitive grants. A grantee shall submit to HUD annually a 
report describing the use of the amounts received, including the number 
of individuals assisted, the types of assistance provided, and any other 
information that HUD may require. Annual reports are required until all 
grant funds are expended.

[60 FR 1918, Jan. 5, 1995]



Sec. 574.530  Recordkeeping.

    Each grantee must ensure that records are maintained for a four-year 
period to document compliance with the provisions of this part. Grantees 
must maintain current and accurate data on the race and ethnicity of 
program participants.

[57 FR 61740, Dec. 28, 1992, as amended at 60 FR 1918, Jan. 5, 1995]



Sec. 574.540  Deobligation of funds.

    HUD may deobligate all or a portion of the amounts approved for 
eligible activities if such amounts are not expended in a timely manner, 
or the proposed activity for which funding was approved is not provided 
in accordance with the approved application or action plan and the 
requirements of this regulation. HUD may deobligate any amount of grant 
funds that have not been expended within a three-year period from the 
date of the signing of the grant agreement. The grant agreement may set 
forth other circumstances under which funds may be deobligated or 
sanctions imposed.

[61 FR 7963, Feb. 29, 1996]



                  Subpart G--Other Federal Requirements



Sec. 574.600  Cross-reference.

    The Federal requirements set forth in 24 CFR part 5 apply to this 
program as specified in this subpart.

[61 FR 5209, Feb. 9, 1996]



Sec. 574.603  Nondiscrimination and equal opportunity.

    Within the population eligible for this program, the 
nondiscrimination and equal opportunity requirements set forth in 24 CFR 
part 5 and the following requirements apply:
    (a) Fair housing requirements. (1) Grantees and project sponsors 
shall comply with the applicable provisions of the Americans with 
Disabilities Act (42 U.S.C. 12101-12213) and implementing regulations at 
28 CFR part 35 (States and local government grantees) and part 36 
(public accommodations and requirements for certain types of short-term 
housing assistance).

[[Page 209]]

    (2) Executive Order 11246, as amended by Executive Orders 11375, 
11478, 12086, and 12107 (3 CFR, 1964-1965 Comp., p. 339; 3 CFR, 1966-
1970 Comp., p. 684; 3 CFR, 1966-1970 Comp., p. 803; 3 CFR 1978 Comp., p. 
230; and 3 CFR, 1978 Comp., p. 264) (Equal Employment Opportunity) does 
not apply to this program.
    (b) Affirmative outreach. A grantee or project sponsor must adopt 
procedures to ensure that all persons who qualify for the assistance, 
regardless of their race, color, religion, sex, age, national origin, 
familial status, or handicap, know of the availability of the HOPWA 
program, including facilities and services accessible to persons with a 
handicap, and maintain evidence of implementation of the procedures.

[57 FR 61740, Dec. 28, 1992, as amended at 59 FR 33894, June 30, 1994. 
Redesignated and amended at 61 FR 5209, Feb. 9, 1996; 61 FR 7964, Feb. 
29, 1996]



Sec. 574.605  Applicability of OMB circulars.

    The policies, guidelines, and requirements of 24 CFR part 85 
(codified pursuant to OMB Circular No. A-102) and OMB Circular No. A-87 
apply with respect to the acceptance and use of funds under the program 
by States and units of general local government, including public 
agencies, and Circulars Nos. A-110 and A-122 apply with respect to the 
acceptance and use of funds under the program by private non-profit 
entities. (Copies of OMB Circulars may be obtained from E.O.P. 
Publications, room 2200, New Executive Office Building, Washington, DC 
20503, telephone (202) 395-7332. (This is not a toll-free number.) There 
is a limit of two free copies.



Sec. 574.625  Conflict of interest.

    (a) In addition to the conflict of interest requirements in OMB 
Circular A-102 and 24 CFR 85.36(b)(3), no person who is an employee, 
agent, consultant, officer, or elected or appointed official of the 
grantee or project sponsor and who exercises or has exercised any 
functions or responsibilities with respect to assisted activities, or 
who is in a position to participate in a decision making process or gain 
inside information with regard to such activities, may obtain a 
financial interest or benefit from the activity, or have an interest in 
any contract, subcontract, or agreement with respect thereto, or the 
proceeds thereunder, either for himself or herself or for those with 
whom he or she has family or business ties, during his or her tenure or 
for one year thereafter.
    (b) Exceptions: Threshold requirements. Upon the written request of 
the recipient, HUD may grant an exception to the provisions of paragraph 
(a) of this section when it determines that the exception will serve to 
further the purposes of the HOPWA program and the effective and 
efficient administration of the recipient's program or project. An 
exception may be considered only after the recipient has provided the 
following:
    (1) A disclosure of the nature of the conflict, accompanied by an 
assurance that there has been public disclosure of the conflict and a 
description of how the public disclosure was made; and
    (2) An opinion of the recipient's attorney that the interest for 
which the exception is sought would not violate State or local law.
    (c) Factors to be considered for exceptions. In determining whether 
to grant a requested exception after the recipient has satisfactorily 
met the requirements of paragraph (b) of this section, HUD will consider 
the cumulative effect of the following factors, where applicable:
    (1) Whether the exception would provide a significant cost benefit 
or an essential degree of expertise to the program or project that would 
otherwise not be available;
    (2) Whether the person affected is a member of a group or class of 
eligible persons and the exception will permit such person to receive 
generally the same interests or benefits as are being made available or 
provided to the group or class;
    (3) Whether the affected person has withdrawn from his or her 
functions or responsibilities, or the decisionmaking process with 
respect to the specific assisted activity in question;
    (4) Whether the interest or benefit was present before the affected 
person was in a position as described in paragraph (a) of this section;

[[Page 210]]

    (5) Whether undue hardship will result either to the recipient or 
the person affected when weighed against the public interest served by 
avoiding the prohibited conflict; and
    (6) Any other relevant considerations.



Sec. 574.630  Displacement, relocation and real property acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, grantees and project sponsors must assure that 
they have taken all reasonable steps to minimize the displacement of 
persons (families, individuals, businesses, nonprofit organizations, and 
farms) as a result of a project assisted under this part.
    (b) Relocation assistance for displaced persons. A displaced person 
(defined in paragraph (f) of this section) must be provided relocation 
assistance at the levels described in, and in accordance with the 
requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (URA) (42 U.S.C. 4601-4655) and 
implementing regulations at 49 CFR part 24.
    (c) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (d) Appeals. A person who disagrees with the grantee's or project 
sponsor's determination concerning whether the person qualifies as a 
``displaced person,'' or the amount of relocation assistance for which 
the person is eligible, may file a written appeal of that determination 
with the grantee. A low-income person who is dissatisfied with the 
grantee's determination on his or her appeal may submit a written 
request for review of that determination to the HUD Field Office.
    (e) Responsibility of grantee. (1) Each grantee shall certify (i.e., 
provide assurance of compliance as required by 49 CFR part 24) that it 
will comply with the URA, the regulations at 49 CFR part 24, and the 
requirements of this section, and shall ensure such compliance 
notwithstanding any third party's contractual obligation to the grantee 
to comply with these provisions.
    (2) The cost of required relocation assistance is an eligible 
project cost in the same manner and to the same extent as other project 
costs. Such costs also may be paid for with funds available from other 
sources.
    (3) The grantee shall maintain records in sufficient detail to 
demonstrate compliance with these provisions.
    (f) Definition of displaced person. (1) For purposes of this 
section, the term ``displaced person'' means a person (family, 
individual, business, nonprofit organization, or farm) that moves from 
real property, or moves personal property from real property, 
permanently, as a direct result of acquisition, rehabilitation, or 
demolition for a project assisted under this part. This includes any 
permanent, involuntary move for an assisted project including any 
permanent move for an assisted project, including any permanent move 
from the real property that is made:
    (i) After notice by the grantee, project sponsor, or property owner 
to move permanently from the property, if the move occurs on or after 
the date that the grantee submits to HUD an application for assistance 
that is later approved and funded;
    (ii) Before the submission of the application to HUD, if the 
grantee, project sponsor, or HUD determines that the displacement 
resulted directly from acquisition, rehabilitation, or demolition for 
the assisted project; or
    (iii) By a tenant-occupant of a dwelling unit, if any one of the 
following three situations occurs:
    (A) The tenant moves after the ``initiation of negotiations'' and 
the move occurs before the tenant has been provided written notice 
offering him or her the opportunity to lease and occupy a suitable, 
decent, safe and sanitary dwelling in the same building/complex, under 
reasonable terms and conditions, upon completion of the project. Such 
reasonable terms and conditions include a monthly rent and estimated 
average monthly utility costs that do not exceed the greater of:
    (1) The tenant's monthly rent before the initiation of negotiations 
and estimated average utility costs, or
    (2) 30 percent of gross household income; or

[[Page 211]]

    (B) The tenant is required to relocate temporarily, does not return 
to the building/complex and either:
    (1) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, or
    (2) Other conditions of the temporary relocation are not reasonable; 
or
    (C) The tenant is required to move to another unit in the same 
building/complex but is not offered reimbursement for all reasonable 
out-of-pocket expenses incurred in connection with the move, or other 
conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (f)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
or applicable Federal, State or local law, or other good cause, and HUD 
determines that the eviction was not undertaken for the purposes of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
application and, before signing a lease and commencing occupancy, was 
provided written notice of the project, its possible impact on the 
person (e.g., the person may be displaced, temporarily relocated, or 
suffer a rent increase) and the fact that the person would not qualify 
as a ``displaced person'' (or for any assistance provided under this 
section), if the project is approved;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The grantee or project sponsor may request, at any time, HUD's 
determination of whether a displacement is or would be covered under 
this section.
    (g) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a residential tenant displaced as a direct result of 
privately undertaken rehabilitation, demolition, or acquisition of the 
real property, the term ``initiation of negotiations'' means the 
execution of the agreement between the grantee and the project sponsor.



Sec. 574.635  Lead-based paint.

    The Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), 
the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 
4851-4856), and implementing regulations at part 35, subparts A, B, H, 
J, K, M, and R of this part apply to activities under this program.

[64 FR 50226, Sept. 15, 1999]



Sec. 574.640  Flood insurance protection.

    No property to be assisted under this part may be located in an area 
that has been identified by the Federal Emergency Management Agency 
(FEMA) as having special flood hazards, unless:
    (a)(1) The community in which the area is situated is participating 
in the National Flood Insurance Program and the regulations thereunder 
(44 CFR parts 59 through 79); or
    (2) Less than a year has passed since FEMA notification regarding 
such hazards; and
    (b) The grantee will ensure that flood insurance on the structure is 
obtained in compliance with section 102(a) of the Flood Disaster 
Protection Act of 1973 (42 U.S.C. 4001 et seq.).



Sec. 574.645  Coastal barriers.

    In accordance with the Coastal Barrier Resources Act, 16 U.S.C. 
3501, no financial assistance under this part may be made available 
within the Coastal Barrier Resources System.



Sec. 574.650  Audit.

    The financial management system used by a State or unit of general 
local government that is a grantee must provide for audits in accordance 
with 24 CFR part 44. A nonprofit organization that is a grantee or a 
project sponsor is subject to the audit requirements set forth in 24 CFR 
part 45.



Sec. 574.655  Wage rates.

    The provisions of the Davis-Bacon Act (40 U.S.C. 276a-276a-5) do not 
apply

[[Page 212]]

to this program, except where funds received under this part are 
combined with funds from other Federal programs that are subject to the 
Act.

[59 FR 17201, Apr. 11, 1994]



PART 576--EMERGENCY SHELTER GRANTS PROGRAM: STEWART B. McKINNEY HOMELESS ASSISTANCE ACT--Table of Contents




                           Subpart A--General

Sec.
576.1  Applicability and purpose.
576.3  Definitions.
576.5  Allocation of grant amounts.

                     Subpart B--Eligible Activities

576.21  Eligible activities.
576.23  Limitations--Primarily religious organizations.
576.25  Who may carry out eligible activities.

                Subpart C--Award and Use of Grant Amounts

576.31  Application requirements.
576.33  Review and approval of applications.
576.35  Deadlines for using grant amounts.

                        Subpart D--Reallocations

576.41  Reallocation; lack of approved consolidated plan--formula cities 
          and counties.
576.43  Reallocation of grant amounts; lack of approved consolidated 
          plan--States, territories, and Indian tribes.
576.45  Reallocation of grant amounts; returned or unused amounts.

                     Subpart E--Program Requirements

576.51  Matching funds.
576.53  Use as an emergency shelter.
576.55  Building standards.
576.56  Homeless assistance and participation.
576.57  Other Federal requirements.
576.59  Relocation and acquisition.

                     Subpart F--Grant Administration

576.61  Responsibility for grant administration.
576.63  Method of payment.
576.65  Recordkeeping.
576.67  Sanctions.

    Authority: 42 U.S.C. 3535(d) and 11376.

    Source: 54 FR 46799, Nov. 7, 1989, unless otherwise noted.



                           Subpart A--General



Sec. 576.1  Applicability and purpose.

    This part implements the Emergency Shelter Grants program contained 
in subtitle B of title IV of the Stewart B. McKinney Homeless Assistance 
Act (42 U.S.C. 11371-11378). The program authorizes the Secretary to 
make grants to States, units of general local government, territories, 
and Indian tribes (and to private nonprofit organizations providing 
assistance to homeless individuals in the case of grants made with 
reallocated amounts) for the rehabilitation or conversion of buildings 
for use as emergency shelter for the homeless, for the payment of 
certain operating expenses and essential services in connection with 
emergency shelters for the homeless, and for homeless prevention 
activities. The program is designed to be the first step in a continuum 
of assistance to enable homeless individuals and families to move toward 
independent living as well as to prevent homelessness.

[61 FR 51548, Oct. 2, 1996]



Sec. 576.3  Definitions.

    The terms Grantee and HUD are defined in 24 CFR part 5.
    Administrative costs means as the term is defined in Sec. 583.135(b) 
of this part, except that the exclusion relates to the costs of carrying 
out eligible activities under Sec. 576.21(a).
    Consolidated plan means the plan prepared in accordance with part 91 
of this title. An approved consolidated plan means a consolidated plan 
that has been approved by HUD in accordance with part 91 of this title.
    Conversion means a change in the use of a building to an emergency 
shelter for the homeless under this part, where the cost of conversion 
and any rehabilitation costs exceed 75 percent of the value of the 
building after conversion.
    Emergency shelter means any facility, the primary purpose of which 
is to provide temporary or transitional shelter for the homeless in 
general or for specific populations of the homeless.
    Essential services includes services concerned with employment, 
health, drug abuse, and education and may include (but are not limited 
to):

[[Page 213]]

    (1) Assistance in obtaining permanent housing.
    (2) Medical and psychological counseling and supervision.
    (3) Employment counseling.
    (4) Nutritional counseling.
    (5) Substance abuse treatment and counseling.
    (6) Assistance in obtaining other Federal, State, and local 
assistance including mental health benefits; employment counseling; 
medical assistance; Veteran's benefits; and income support assistance 
such as Supplemental Security Income benefits, Aid to Families with 
Dependent Children, General Assistance, and Food Stamps;
    (7) Other services such as child care, transportation, job placement 
and job training; and
    (8) Staff salaries necessary to provide the above services.
    Formula city or county means a metropolitan city or urban county 
that is eligible to receive an allocation of grant amounts under 
Sec. 576.5.
    Homeless means as the term is defined in 42 U.S.C. 11302.
    Homeless prevention means activities or programs designed to prevent 
the incidence of homelessness, including (but not limited to):
    (1) Short-term subsidies to defray rent and utility arrearages for 
families that have received eviction or utility termination notices;
    (2) Security deposits or first month's rent to permit a homeless 
family to move into its own apartment;
    (3) Mediation programs for landlord-tenant disputes;
    (4) Legal services programs for the representation of indigent 
tenants in eviction proceedings;
    (5) Payments to prevent foreclosure on a home; and
    (6) Other innovative programs and activities designed to prevent the 
incidence of homelessness.
    Indian tribe means as the term is defined in 42 U.S.C. 5302(a).
    Major rehabilitation means rehabilitation that involves costs in 
excess of 75 percent of the value of the building before rehabilitation.
    Metropolitan city means a city that was classified as a metropolitan 
city under 42 U.S.C. 5302(a) for the fiscal year immediately preceding 
the fiscal year for which emergency shelter grant amounts are made 
available.
    Nonprofit recipient means any private nonprofit organization 
providing assistance to the homeless, to which a State or unit of 
general local government distributes emergency shelter grant amounts.
    Obligated means that the grantee or State recipient, as appropriate, 
has placed orders, awarded contracts, received services, or entered 
similar transactions that require payment from the grant amount. Grant 
amounts that a unit of general local government or State awards to a 
private nonprofit organization by a written agreement or letter of award 
requiring payment from the grant amount are obligated.
    Private nonprofit organization means as the term is defined in 42 
U.S.C. 11371.
    Rehabilitation means the labor, materials, tools, and other costs of 
improving buildings, other than minor or routine repairs. The term 
includes where the use of a building is changed to an emergency shelter 
and the cost of this change and any rehabilitation costs does not exceed 
75 percent of the value of the building before the change in use.
    Renovation means rehabilitation that involves costs of 75 percent or 
less of the value of the building before rehabilitation.
    Responsible entity means as the term is defined in Sec. 58.2 of this 
title, as applied though Sec. 58.1(b)(3) of this title and 
Sec. 576.57(e).
    State means each of the several States and the Commonwealth of 
Puerto Rico.
    Territory means each of the following: the Virgin Islands, Guam, 
American Samoa, the Northern Mariana Islands, Palau (Trust Territory of 
the Pacific), and any other territory or possession of the United 
States.
    State recipient means any unit of general local government or 
nonprofit organization to which a State makes available emergency 
shelter grant amounts.
    Unit of general local government means any city, county, town, 
township, parish, village, or other general purpose political 
subdivision of a State.
    Urban county means a county that was classified as an urban county

[[Page 214]]

under 42 U.S.C. 5302(a) for the fiscal year immediately preceding the 
fiscal year for which emergency shelter grant amounts are made 
available.
    Value of the building means the monetary value assigned to a 
building by an independent real estate appraiser, or as otherwise 
reasonably established by the grantee or the State recipient.

[54 FR 46799, Nov. 7, 1989, as amended at 56 FR 56128, Oct. 31, 1991; 60 
FR 1918, Jan. 5, 1995; 61 FR 5210, Feb. 9, 1996; 61 FR 51548, Oct. 2, 
1996]



Sec. 576.5  Allocation of grant amounts.

    (a) Territories. HUD will set aside for allocation to the 
territories an amount equal to 0.2 percent of the total amount of each 
appropriation under this part in any fiscal year. HUD will allocate this 
set-aside amount to each territory based upon its proportionate share of 
the total population of all territories.
    (b) States, metropolitan cities, urban counties, and Indian tribes. 
HUD will allocate the amounts that remain after the set-aside to 
territories under paragraph (a) of this section, to States, metropolitan 
cities, urban counties, and Indian tribes, as provided in 42 U.S.C. 
11373. HUD will subsequently distribute the amount set aside for Indian 
tribes under this paragraph as provided in Sec. 576.31.
    (c) Notification of allocation amount. HUD will notify in writing 
each State, metropolitan city, urban county, and territory that is 
eligible to receive an allocation under this section of the amount of 
its allocation.

[61 FR 51549, Oct. 2, 1996]



                     Subpart B--Eligible Activities



Sec. 576.21  Eligible activities.

    (a) Eligible activities. Emergency shelter grant amounts may be used 
for one or more of the following activities relating to emergency 
shelter for the homeless:
    (1) Renovation, major rehabilitation, or conversion of buildings for 
use as emergency shelters for the homeless;
    (2) Provision of essential services to the homeless, subject to the 
limitations in paragraph (b) of this section;
    (3) Payment for shelter maintenance, operation, rent, repairs, 
security, fuel, equipment, insurance, utilities, food, and furnishings. 
Not more than 10 percent of the grant amount may be used for costs of 
staff;
    (4) Developing and implementing homeless prevention activities, 
subject to the limitations in 42 U.S.C. 11374(a)(4) and paragraph (c) of 
this section. Grant funds may be used under this paragraph to assist 
families that have received eviction notices or notices of termination 
of utility services only if the conditions stated in 42 U.S.C. 
11374(a)(4) are met; and
    (5) Administrative costs, in accordance with 42 U.S.C. 11378.
    (b) Limitations on provision of essential services. (1) Grant 
amounts provided by HUD to units of general local government, 
territories, or Indian tribes, and grant amounts provided by a State to 
State recipients, may be used to provide an essential service under 
paragraph (a)(2) of this section only if the service is a new service, 
or is a quantifiable increase in the level of a service above that which 
the unit of general local government (or, in the case of a nonprofit 
organization, the unit of general local government in which the proposed 
activities are to be located), territory, or Indian tribe, as 
applicable, provided with local funds during the 12 calendar months 
immediately before the grantee or State recipient received initial grant 
amounts.
    (2) Limits on the use of assistance for essential services 
established in 42 U.S.C. 11374(a)(2) are applicable even when the unit 
of local government, territory, or Indian tribe provides some or all of 
its grant funds to a nonprofit recipient. This limitation may be waived 
in accordance with 42 U.S.C. 11374.
    (c) Limitation on homeless prevention activities. Limits on the use 
of assistance for homeless prevention activities established in 42 
U.S.C. 11374(a)(4) are applicable even when the unit of local 
government, territory, or Indian tribe provides some or all of its grant 
funds to a nonprofit recipient.

[61 FR 51549, Oct. 2, 1996]

[[Page 215]]



Sec. 576.23  Limitations--Primarily religious organizations.

    (a) Provision of assistance. (1) Assistance may be provided under 
this part to a grantee or recipient that is a primarily religious 
organization if the primarily religious organization agrees to provide 
all eligible activities under this program in a manner that is free from 
religious influences and in accordance with the following principles:
    (i) It will not discriminate against any employee or applicant for 
employment on the basis of religion and will not limit employment or 
give preference in employment to persons on the basis of religion;
    (ii) It will not discriminate against any person applying for 
shelter or any of the eligible activities under this part on the basis 
of religion and will not limit such housing or other eligible activities 
or give preference to persons on the basis of religion; and
    (iii) It will provide no religious instruction or counseling, 
conduct no religious services or worship (not including voluntary 
nondenominational prayer before meetings), engage in no religious 
proselytizing, and exert no other religious influence in the provision 
of shelter and other eligible activities under this part.
    (2) HUD may provide reallocated amounts to a recipient that is a 
primarily religious organization if the assistance will not be used by 
the organization to acquire a structure (in the case of homeless 
prevention activities under Sec. 576.21(a)(4)), or to rehabilitate a 
structure owned by the organization, except as described in paragraph 
(b) of this section.
    (b) Rehabilitation or conversion of emergency shelters. Grants may 
be used to rehabilitate or convert to an emergency shelter a structure 
that is owned by a primarily religious organization, only if:
    (1) The structure (or portion thereof) that is to be renovated, 
rehabilitated, or converted with HUD assistance has been leased to an 
existing or newly established wholly secular organization;
    (2) The HUD assistance is provided to the secular organization (and 
not the religious organization) to make the improvements;
    (3) The leased structure will be used exclusively for secular 
purposes available to all persons;
    (4) The lease payments paid to the primarily religious organization 
do not exceed the fair market rent for the structure before the 
renovation, rehabilitation, or conversion;
    (5) The portion of the cost of any improvements that benefit any 
unleased portion of the structure will be allocated to, and paid for by, 
the religious organization; and
    (6) The primarily religious organization agrees that if the 
recipient does not retain the use of the leased premises for wholly 
secular purposes for the useful life of the improvements, the primarily 
religious organization will pay to the original grantee (from which the 
amounts used to renovate, rehabilitate, or convert the building were 
derived) an amount equal to the residual value of the improvements. A 
private nonprofit organization must remit to HUD this amount if the 
organization is the lessee as well as the grantee. The original grantee 
is expected to use this amount to alleviate homelessness in its 
jurisdiction, but there is no requirement that funds received after the 
close of the grant period be used in accordance with the requirements of 
this part.
    (c) Assistance to a wholly secular private nonprofit organization. 
(1) A primarily religious organization may establish a wholly secular 
private nonprofit organization to serve as a recipient. The secular 
organization may be eligible to receive all forms of assistance 
available under this part, subject to the following:
    (i) The secular organization must agree to provide shelter and 
services eligible under this part in a manner that is free from 
religious influences and in accordance with the principles set forth in 
paragraph (a)(1) of this section.
    (ii) The secular organization may enter into a contract with the 
religious organization to provide essential services or undertake 
homeless prevention activities. The religious organization must agree in 
the contract to carry out its contractual responsibilities in a manner 
free from religious influences and in accordance with the principles

[[Page 216]]

set forth in paragraph (a)(1) of this section.
    (iii) The rehabilitation, conversion, or renovation of emergency 
shelters are subject to the requirements of paragraph (b) of this 
section.
    (2) HUD will not require the religious organization to establish the 
secular organization before the selection of its application. In such a 
case, the religious organization may apply on behalf of the secular 
organization. The application will be reviewed on the basis of the 
religious organization's financial responsibility and capacity, and its 
commitment to provide appropriate resources to the secular organization 
after formation. After formation, a secular organization that is not in 
existence at the time of the application will be required to demonstrate 
that it meets the definition of private nonprofit organization contained 
in Sec. 576.3. The obligation of funds will be conditioned upon 
compliance with these requirements.

[61 FR 51549, Oct. 2, 1996]



Sec. 576.25  Who may carry out eligible activities.

    (a) Generally. As provided in 42 U.S.C. 11373 eligible activities 
may be carried out by all State recipients and grantees, except States.
    (b) States. All of a State's formula allocation, except for 
administrative costs, must be made available to the following entities:
    (1) Units of general local government in the State, which may 
include formula cities and counties even if such cities and counties 
receive grant amounts directly from HUD; or
    (2) Private nonprofit organizations, in accordance with 42 U.S.C. 
11373(c).
    (c) Nonprofit recipients. Units of general local government, 
territories, and Indian tribes may distribute all or part of their grant 
amounts to nonprofit recipients to be used for emergency shelter grant 
activities.

[61 FR 51549, 51550, Oct. 2, 1996]



                Subpart C--Award and Use of Grant Amounts

    Source: 54 FR 46799, Nov. 7, 1989, unless otherwise noted. 
Redesignated at 61 FR 51550, Oct. 2, 1996.



Sec. 576.31  Application requirements.

    (a) Indian tribes. After funds are set aside for allocation to 
Indian tribes under Sec. 576.5, HUD will publish a Notice of Funding 
Availability (NOFA) in the Federal Register. The NOFA will specify the 
requirements and procedures applicable to the allocation and competitive 
awarding of these set-aside funds to eligible Indian tribe applicants.
    (b) States, territories, and formula cities and counties. To receive 
emergency shelter grant amounts, a State, territory, or formula city or 
county must:
    (1) Submit documentation required under this part, part 5 of this 
title, or any other applicable provisions of Federal law; and
    (2) Submit and obtain HUD approval of a consolidated plan that 
includes activities to be funded under this part. This consolidated plan 
serves as the jurisdiction's application for funding under this part.

[61 FR 51550, Oct. 2, 1996]



Sec. 576.33  Review and approval of applications.

    (a) Conditional grant. HUD may make a conditional grant restricting 
the obligation and use of emergency shelter grant amounts. Conditional 
grants may be made where there is substantial evidence that there has 
been, or there will be, a failure to meet the requirements of this part. 
In such a case, the reason for the conditional grant, the action 
necessary to remove the condition, and the deadline for taking those 
actions will be specified. Failure to satisfy the condition may result 
in imposition of a sanction under Sec. 576.69, or in any other action 
authorized under applicable Federal law.
    (b) Grant agreement. The grant will be made by means of a grant 
agreement executed by HUD and the grantee. HUD

[[Page 217]]

will not disburse funds before the grant agreement is fully executed.

[54 FR 46799, Nov. 7, 1989, as amended at 60 FR 1918, Jan. 5, 1995. 
Redesignated and amended at 61 FR 51550, Oct. 2, 1996]



Sec. 576.35  Deadlines for using grant amounts.

    (a)(1) States. Each State must make available to its State 
recipients all emergency shelter grant amounts that it was allocated 
under Sec. 576.5 within 65 days of the date of the grant award by HUD. 
Funds set aside by a State for homeless prevention activities under 
Sec. 576.21(a)(4) must be made available to State recipients within 180 
days of the grant award by HUD.
    (2) State recipients--(i) Obligation of grant funds. Each State 
recipient must have its grant amounts obligated (as that term is defined 
at Sec. 576.3) within 180 days of the date on which the State made the 
grant amounts available to the State recipient. In the case of grants 
for homeless prevention activities under Sec. 576.21(a)(4), State 
recipients are required to obligate grant amounts within 30 days of the 
date on which the State made the grant amounts available to the State 
recipient.
    (ii) Expenditure of grant funds. Each State recipient must spend all 
of its grant amounts within 24 months of the date on which the State 
made the grant amounts available to the State recipient. In the case of 
grants for homeless prevention activities, State recipients must spend 
such sums within 180 days of the date on which the State made the grant 
amounts available to the recipient.
    (b) Formula cities and counties, territories and Indian tribes--
Expenditure of grant funds. Each formula city or county, territory, and 
Indian tribe must spend all of the grant amounts it was allocated or 
awarded under Sec. 576.5 or 576.31 within 24 months of the date of the 
grant award by HUD.
    (c) Failure to meet deadlines. (1) Any emergency shelter grant 
amounts that are not made available or obligated within the applicable 
time periods specified in paragraph (a)(1) or (b) of this section will 
be reallocated under Sec. 576.45.
    (2) The State must recapture any grant amounts that a State 
recipient does not obligate and spend within the time periods specified 
in paragraph (a)(2) of this section. The State, at its option, must make 
these amounts and other amounts returned to the State (except amounts 
referred to in Sec. 576.22(b)(6) available as soon as practicable to 
other units of general local government for use within the time period 
specified in paragraph (a)(2) of this section or to HUD for reallocation 
under Sec. 576.45.

[54 FR 46799, Nov. 7, 1989. Redesignated and amended at 61 FR 51550, 
Oct. 2, 1996]



                        Subpart D--Reallocations

    Source: 54 FR 46799, Nov. 7, 1989, unless otherwise noted. 
Redesignated at 61 FR 51550, Oct. 2, 1996.



Sec. 576.41  Reallocation; lack of approved consolidated plan--formula cities and counties.

    (a) Applicability. This section applies where a formula city or 
county fails to submit or obtain HUD approval of its consolidated plan 
within 90 days of the date upon which amounts under this part first 
become available for allocation in any fiscal year.
    (b) Grantee. HUD will make available to the State in which the city 
or county is located the amounts that a city or county referred to in 
paragraph (a) of this section would have received.
    (c) Notification of availability. The responsible HUD field office 
will promptly notify the State of the availability of any reallocation 
amounts under this section.
    (d) Eligibility for reallocation amounts. In order to receive 
reallocation amounts under this section, the State must:
    (1) Execute a grant agreement with HUD for the fiscal year for which 
the amounts to be reallocated were initially made available.
    (2) If necessary, submit an amendment to its application for that 
fiscal year for the reallocation amounts it wishes to receive. The 
amendment must be submitted to the responsible HUD field office no later 
than 30 days after notification is given to the State under paragraph 
(c) of this section.
    (e) Amendment review and approval. (1) Section 576.33 governs the 
review and

[[Page 218]]

approval of application amendments under this section. HUD will endeavor 
to make grant awards within 30 days of the application amendment 
deadline, or as soon thereafter as practicable.
    (2) Program activities represented by proposed amendments are 
subject to environmental review under Sec. 576.57 in the same manner as 
original proposals.
    (f) Deadlines for using reallocated grant amounts. Section 576.35 
governs the use of amounts reallocated under this section.
    (g) Amounts that cannot be reallocated. Any grant amounts that 
cannot be reallocated to a State under this section will be reallocated 
as provided by Sec. 576.43. Amounts that are reallocated under this 
section, but that are returned or unused, will be reallocated under 
Sec. 576.45.

[54 FR 46799, Nov. 7, 1989, as amended at 56 FR 56128, Oct. 31, 1991; 60 
FR 1918, Jan. 5, 1995. Redesignated and amended at 61 FR 51551, Oct. 2, 
1996]



Sec. 576.43  Reallocation of grant amounts; lack of approved consolidated plan--States, territories, and Indian tribes.

    (a) Applicability. This section applies when:
    (1) A State, territory, or Indian tribe fails to obtain approval of 
its consolidated plan within 90 days of the date upon which amounts 
under this part first become available for allocation in any fiscal 
year; or
    (2) Grant amounts cannot be reallocated to a State under 
Sec. 576.41.
    (b) Grantees. (1) HUD will reallocate the amounts that a State or 
Indian tribe referred to in paragraph (a)(1) of this section would have 
received:
    (i) In accordance with 42 U.S.C. 11373(d)(3); and
    (ii) If grant amounts remain, then to territories that demonstrate 
extraordinary need or large numbers of homeless individuals.
    (2) HUD will make available the amounts that a territory under 
paragraph (a)(1) of this section would have received to other 
territories that demonstrate extraordinary need or large numbers of 
homeless individuals.
    (c) Notification of funding availability. HUD will make 
reallocations to States and Indian tribes under this section by direct 
notification or Federal Register notice that will set forth the terms 
and conditions under which amounts under this section are to be 
reallocated and grant awards made. In the case of reallocations to 
Territories, the responsible HUD field office will promptly notify each 
Territory of any reallocation amounts under this section, and indicate 
the terms and conditions under which reallocation amounts are to be made 
available and grant awards made.
    (d) Eligibility for reallocation amounts. In order to receive 
reallocation amounts under this section, the formula city or county, 
State, territory, or Indian tribe must:
    (1) Submit an amendment, in accordance with 24 CFR part 91, to its 
consolidated plan for that program year to cover activities for the 
reallocation amount it wishes to receive; and
    (2) Execute a grant agreement with HUD for the fiscal year for which 
the amounts to be reallocated were initially made available.
    (e) Review and approval. (1) Section 576.53, and such additional 
requirements as HUD may specify in the notification under paragraph (c) 
of this section, govern the review and approval of application 
amendments under this section. HUD will rank the amendments and make 
grant awards under this section on the basis of the following factors:
    (i) The nature and extent of the unmet homeless need within the 
jurisdiction in which the grant amounts will be used;
    (ii) The extent to which the proposed activities address this need; 
and
    (iii) The ability of the grantee to carry out the proposed 
activities promptly.
    (2) HUD will endeavor to make grant awards within 30 days of the 
application amendment deadline, or as soon thereafter as practicable.
    (f) Grant amounts. HUD may make a grant award for less than the 
amount applied for or for fewer than all of the activities identified in 
the application amendment.
    (g) Deadlines for using reallocated amounts. Section 576.35 governs 
the use of amounts reallocated under this section.

[[Page 219]]

    (h) Amounts not reallocated. Any grant amounts that are not 
reallocated under this section, or that are reallocated, but are unused, 
will be reallocated under Sec. 576.45(d). Any amounts that are 
reallocated, but are returned, will be reallocated under Sec. 576.45(c).

[54 FR 46799, Nov. 7, 1989, as amended at 56 FR 56129, Oct. 31, 1991; 60 
FR 1918, Jan. 5, 1995. Redesignated and amended at 61 FR 51551, Oct. 2, 
1996]



Sec. 576.45  Reallocation of grant amounts; returned or unused amounts.

    (a) General. From time to time, HUD will reallocate emergency 
shelter grant amounts that are returned or unused, as those terms are 
defined in paragraph (f) of this section. HUD will make reallocations 
under this section by direct notification or Federal Register Notice 
that will set forth the terms and conditions under which the grant 
amounts are to be reallocated and grant awards are to be made.
    (b) FEMA boards. HUD may use State and local boards established 
under the Emergency Food and Shelter Program administered by the Federal 
Emergency Management Agency, as a resource to identify potential 
applicants for reallocated grant amounts.
    (c) Reallocation--returned grant amounts--(1) States and formula 
cities and counties. HUD will endeavor to reallocate returned emergency 
shelter grant amounts that were initially allocated under Sec. 576.5 to 
a State or a formula city or county, for use within the same 
jurisdiction. Reallocation of these grant amounts is subject to the 
following requirements:
    (i) Returned grant amounts that were allocated to a State will be 
made available (A) first, to units of general local government within 
the State and (B) if grant amounts remain, then to other States.
    (ii) Returned grant amounts that were allocated to a formula city or 
county will be made available:
    (A) First, for use in the city or county, to units of general local 
government that are authorized under applicable law to carry out 
activities serving the homeless in the jurisdiction;
    (B) If grant amounts remain, then to the State in which the city or 
county is located;
    (C) If grant amounts remain, to units of general local government in 
the State; and
    (D) If grant amounts remain, to other States.
    (2) Indian tribes. Returned grant amounts that were allocated to an 
Indian tribe will be made available to other Indian tribes.
    (3) Territories. Returned grant amounts that were allocated to a 
territory will be made available, first, to other territories and, if 
grant amounts remain, then to States.
    (4) Further reallocation: States, formula cities and counties, 
territories, and Indian tribes. HUD will reallocate under paragraph (e) 
of this section any grant amounts that remain after applying the 
preceding provisions of paragraph (c) of this section or that are 
returned to HUD after reallocation under those provisions.
    (5) The responsible HUD field office will announce the availability 
of returned grant amounts. The announcement will establish deadlines for 
submitting applications, and will set out other terms and conditions 
relating to grant awards, consistent with this part. The announcement 
will specify the application documents to be submitted.
    (6) The responsible HUD field office may establish maximum grant 
amounts, considering the grant amounts available, and will rank the 
applications using the criteria in paragraph (e) of this section.
    (7) HUD may make a grant award for less than the amount applied for 
or for fewer than all of the activities identified in the application, 
based on competing demands for grant amounts and the extent to which the 
respective activities address the needs of the homeless.
    (8) HUD will endeavor to make grant awards within 30 days of the 
application deadline or as soon thereafter as practicable.
    (9) Grants awarded under this section are subject to environmental 
review under Sec. 576.57.
    (d) Reallocation--unused grant amounts. Unused grant amounts will be 
added to the appropriation for the fiscal year immediately following the 
fiscal year in which the amounts become

[[Page 220]]

available to HUD for reallocation, and will be allocated in accordance 
with the provisions of Sec. 576.5 of this part.
    (e) Selection criteria. HUD will award grants under paragraph (c) of 
this section based on consideration of the following criteria:
    (1) The nature and extent of the unmet homeless need within the 
jurisdiction in which the grant amounts will be used;
    (2) The extent to which the proposed activities address this need; 
and
    (3) The ability of the grantee to carry out the proposed activities 
promptly.
    (f) Definitions--returned or unused grant amounts. (1) For purposes 
of this section, emergency shelter grant amounts are considered 
``returned'' when they become available for reallocation because a 
jurisdiction does not execute a grant agreement with HUD for them.
    (2) For purposes of this section, emergency shelter grant amounts 
are considered ``unused'' (i.e., Federal deobligation):
    (i) When they become available for reallocation by HUD after a 
grantee has executed a grant agreement with HUD for those amounts; or
    (ii) The amounts remain after reallocation under Sec. 576.43 or 
paragraph (c) of this section.

[54 FR 46799, Nov. 7, 1989, as amended at 57 FR 54507, Nov. 19, 1992; 60 
FR 1918, Jan. 5, 1995. Redesignated and amended at 61 FR 51551, Oct. 2, 
1996]



                     Subpart E--Program Requirements

    Source: 54 FR 46799, Nov. 7, 1989, unless otherwise noted. 
Redesignated at 61 FR 51550, Oct. 2, 1996.



Sec. 576.51  Matching funds.

    (a) General. Each grantee, other than a territory, must match the 
funding provided by HUD under this part as set forth in 42 U.S.C. 11375. 
The first $100,000 of any assistance provided to a recipient that is a 
State is not required to be matched, but the benefit of the unmatched 
amount must be shared as provided in 42 U.S.C. 11375(c)(4). Matching 
funds must be provided after the date of the grant award to the grantee. 
Funds used to match a previous ESG grant may not be used to match a 
subsequent grant award under this part. A grantee may comply with this 
requirement by providing the matching funds itself, or through matching 
funds or voluntary efforts provided by any State recipient or nonprofit 
recipient (as appropriate).
    (b) Calculating the matching amount. In calculating the amount of 
matching funds, in accordance with 42 U.S.C. 11375(a)(3), the time 
contributed by volunteers shall be determined at the rate of $5 per 
hour. For purposes of this paragraph, the grantee will determine the 
value of any donated material or building, or of any lease, using a 
method reasonably calculated to establish a fair market value.

[61 FR 51552, Oct. 2, 1996]



Sec. 576.53  Use as an emergency shelter.

    (a)(1) Restrictions and definition. Period of use restrictions 
applicable to assistance provided under this part are governed by 42 
U.S.C. 11375(a). Use of grant amounts for developing and implementing 
homeless prevention activities does not trigger period of use 
requirements.
    (2) For purposes of the requirements under this section, the term 
same general population means either the same types of homeless persons 
originally served with ESG assistance (i.e., battered spouses, runaway 
children, families, or mentally ill individuals), or persons in the same 
geographic area.
    (b) Calculating the applicable period. The 3- and 10-year periods 
applicable under paragraph (a) of this section begin to run:
    (1) In the case of a building that was not operated as an emergency 
shelter for the homeless before receipt of grant amounts under this 
part, on the date of initial occupancy as an emergency shelter for the 
homeless.
    (2) In the case of a building that was operated as an emergency 
shelter before receipt of grant amounts under this part, on the date 
that grant amounts are first obligated for the shelter.

[54 FR 46799, Nov. 7, 1989. Redesignated and amended at 61 FR 51552, 
Oct. 2, 1996]

[[Page 221]]



Sec. 576.55  Building standards.

    (a) Any building for which emergency shelter grant amounts are used 
for conversion, major rehabilitation, rehabilitation, or renovation must 
meet local government safety and sanitation standards.
    (b) For projects of 15 or more units, when rehabilitation costs are:
    (1) 75 percent or more of the replacement cost of the building, that 
project must meet the requirements of Sec. 8.23(a) of this title; or
    (2) Less than 75 percent of the replacement cost of the building, 
that project must meet the requirements of Sec. 8.23(b) of this title.

[61 FR 51552, Oct. 2, 1996]



Sec. 576.56  Homeless assistance and participation.

    (a) Assistance. (1) Grantees and recipients must assure that 
homeless individuals and families are given assistance in obtaining:
    (i) Appropriate supportive services, including permanent housing, 
medical health treatment, mental health treatment, counseling, 
supervision, and other services essential for achieving independent 
living; and
    (ii) Other Federal, State, local, and private assistance available 
for such individuals.
    (2) Requirements to ensure confidentiality of records pertaining to 
the provision of family violence prevention or treatment services with 
assistance under this part are set forth in 42 U.S.C. 11375(c)(5).
    (3) Grantees and recipients may, in accordance with 42 U.S.C. 
11375(e), terminate assistance provided under this part to an individual 
or family who violates program requirements.
    (b) Participation. (1) Each unit of local government, Indian tribe, 
and nonprofit recipient that receives funds under this part must provide 
for the participation of homeless individuals on its policymaking entity 
in accordance with 42 U.S.C. 11375(d).
    (2) Each State, territory, Indian tribe, unit of local government, 
and nonprofit recipient that receives funds under this part must involve 
homeless individuals and families in providing work or services 
pertaining to facilities or activities assisted under this part, in 
accordance with 42 U.S.C. 11375(c)(7).

[61 FR 51552, Oct. 2, 1996]



Sec. 576.57  Other Federal requirements.

    In addition to the Federal requirements set forth in 24 CFR part 5, 
use of emergency shelter grant amounts must comply with the following 
requirements:
    (a) Nondiscrimination and equal opportunity. The nondiscrimination 
and equal opportunity requirements at 24 CFR part 5 are modified as 
follows:
    (1) Rehabilitation Act requirements. HUD's regulations at 24 CFR 
part 8 implement section 504 of the Rehabilitation Act of 1973 (29 
U.S.C. 794). For purposes of the emergency shelter grants program, the 
term ``dwelling units'' in 24 CFR part 8 shall include sleeping 
accommodations.
    (2) Use of emergency shelter grant amounts must also comply with the 
requirement that the grantee or the State recipient make known that use 
of the facilities and services is available to all on a 
nondiscriminatory basis. If the procedures that the grantee or recipient 
intends to use to make known the availability of the facilities and 
services are unlikely to reach persons of any particular race, color, 
religion, sex, age, national origin, familial status, or disability who 
may qualify for such facilities and services, the grantee or recipient 
must establish additional procedures that will ensure that such persons 
are made aware of the facilities and services. Grantees and recipients 
must also adopt procedures which will make available to interested 
persons information concerning the location of services and facilities 
that are accessible to persons with disabilities.
    (b) Applicability of OMB Circulars. \1\ The policies, guidelines, 
and requirements of 24 CFR part 85 (codified pursuant to OMB Circular 
No. A-102) and OMB Circular No. A-87, as they relate to the acceptance 
and use of emergency

[[Page 222]]

shelter grant amounts by States and units of general local government, 
and Nos. A-110 and A-122 as they relate to the acceptance and use of 
emergency shelter grant amounts by private nonprofit organizations.
---------------------------------------------------------------------------

    \1\ OMB Circulars referenced in this section are available at the 
Entitlement Cities Division, Room 7282, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410.
---------------------------------------------------------------------------

    (c) The Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821-
4846), the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 
U.S.C. 4851-4856), and implementing regulations at part 35, subparts A, 
B, J, K, and R of this title apply to activities under this program.
    (d) Conflicts of interest. In addition to the conflict of interest 
requirements in OMB Circulars A-102 and A-110, no person--
    (1)(i) Who is an employee, agent, consultant, officer, or elected or 
appointed official of the grantee, State recipient, or nonprofit 
recipient (or of any designated public agency) that receives emergency 
shelter grant amounts and
    (ii) Who exercises or has exercised any functions or 
responsibilities with respect to assisted activities, or
    (2) Who is in a position to participate in a decisionmaking process 
or gain inside information with regard to such activities, may obtain a 
personal or financial interest or benefit from the activity, or have an 
interest in any contract, subcontract, or agreement with respect 
thereto, or the proceeds thereunder, either for him or herself or for 
those with whom he or she has family or business ties, during his or her 
tenure, or for one year thereafter. HUD may grant an exception to this 
exclusion as provided in Sec. 570.611 (d) and (e) of this chapter.
    (e) Environmental review responsibilities--(1) Generally. 
Responsible entities must assess the environmental effects of each 
application under part 58 of this title. An applicant must include in 
its application an assurance that the applicant will assume all the 
environmental review responsibility that would otherwise be performed by 
HUD as the responsible Federal official under the National Environmental 
Policy Act of 1969 (NEPA) and related authorities listed in part 58 of 
this title. The grant award is subject to completion of the 
environmental responsibilities set out in part 58 of this title within a 
reasonable time period after notification of the award. This provision 
does not preclude the applicant from enclosing its environmental 
certification and Request for Release of Funds with its application.
    (2) Awards to States. In the case of emergency shelter grants to 
States that are distributed to:
    (i) Units of general local government, the unit of general local 
government shall be the responsible entity, and the State will assume 
HUD's functions with regard to the release of funds; or
    (ii) Nonprofit organizations, the State shall be the responsible 
entity, and HUD will perform functions regarding release of funds under 
part 58 of this title.
    (3) Release of funds. HUD will not release funds for an eligible 
activity if the grantee, recipient, or any other party commits emergency 
shelter grant funds before the grantee submits, and HUD approves, any 
required Request for Release of Funds.
    (f) Audit. The financial management systems used by a State, formula 
city or county, governmental entity, or an Indian tribe that is a 
grantee under this program must provide for audits in accordance with 
part 44 of this title. A private nonprofit organization is subject to 
the audit requirements of OMB Circular A-133, as set forth in part 45 of 
this title. (OMB Circulars are available from the Executive Office of 
the President, Publication Service, 725 17th Street, NW., Suite G-2200, 
Washington, DC 20503, Telephone, 202-395-7332.)
    (g) Audit. The financial management system used by a State or unit 
of general local government that is a grantee or State recipient must 
provide for audits in accordance with 24 CFR part 44. A private 
nonprofit organization is subject to the audit requirements of OMB 
Circular A-133, as set forth in 24 CFR part 45.
    (h) Lobbying and disclosure requirements. The disclosure 
requirements and prohibitions of 42 U.S.C. 3537a and 3545 and 31 U.S.C. 
1352 (the Byrd Amendment), and the implementing regulations at parts 4 
and 87 of this title.
    (i) Davis-Bacon Act. The provisions of the Davis-Bacon Act (40 
U.S.C. 276a-276a-5) do not apply to this program.
    (j) Intergovernmental review. The requirements of Executive Order 
12372

[[Page 223]]

and the regulations issued under the order at 24 CFR part 52, to the 
extent provided by Federal Register notice in accordance with 24 CFR 
52.3.

[54 FR 46799, Nov. 7, 1989, as amended at 57 FR 33256, July 27, 1992; 61 
FR 5210, Feb. 9, 1996. Redesignated and amended at 61 FR 51552, Oct. 2, 
1996; 64 FR 50226, Sept. 15, 1999]



Sec. 576.59  Relocation and acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, grantees and recipients must assure that they 
have taken all reasonable steps to minimize the displacement of persons 
(families, individuals, businesses, nonprofit organizations, and farms) 
as a result of a project assisted under this part.
    (b) Relocation assistance for displaced persons. A displaced person 
(defined in paragraph (f)(1) of this section) must be provided 
relocation assistance at the levels described in, and in accordance 
with, 49 CFR part 24, which contains the government-wide regulations 
implementing the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (URA) (42 U.S.C. 4601-4655).
    (c) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (d) Responsibility of grantees and recipients. Each grantee and 
recipient must assure that it will comply with the URA, the regulations 
at 49 CFR part 24, and the requirements of this section. The cost of 
assistance required by this section may be paid from local public funds, 
funds provided in accordance with this part, or funds available from 
other sources.
    (e) Appeals. A person who disagrees with the grantee's or 
recipient's determination concerning a payment or other assistance 
required by this section may file a written appeal of that determination 
with the grantee or recipient. The appeal procedures to be followed are 
described in 49 CFR 24.10.
    (f) Definition--(1) Displaced person. (i) The term ``displaced 
person'' means a person (family, individual, business, nonprofit 
organization, or farm) that moves from real property, or moves personal 
property from real property, permanently and involuntarily, as a direct 
result of acquisition, rehabilitation, or demolition for a project 
assisted under this part. Permanent, involuntary moves for an assisted 
project include:
    (A) A permanent move from the real property (building or complex) 
following notice by the grantee, recipient or property owner to move 
permanently from the property, if the move occurs on or after the date 
that the grantee or recipient submits to HUD an application for 
assistance that is later approved and funded;
    (B) A permanent move from the real property that occurs before the 
submission of the application to HUD, if the grantee, recipient or HUD 
determines that the displacement resulted directly from acquisition, 
rehabilitation, or demolition for the project, or
    (C) A permanent move from the real property by a tenant-occupant of 
a dwelling unit that occurs after the execution of the agreement between 
the recipient and HUD if:
    (1) The tenant has not been provided a reasonable opportunity to 
lease and occupy a suitable, decent, safe and sanitary dwelling in the 
same building/complex following the completion of the project at a rent, 
including estimated average utility costs, that does not exceed the 
greater of the tenant's rent and estimated average utility costs before 
the initiation of negotiations, or 30 percent of gross household income; 
or
    (2) The tenant has been required to relocate temporarily but the 
tenant is not offered payment for all reasonable out-of-pocket expenses 
incurred in connection with the temporary relocation or other conditions 
of the temporary relocation are not reasonable, and the tenant does not 
return to the building/complex; or
    (3) The tenant is required to move to another unit in the same 
building/complex but is not offered reimbursement for all reasonable 
out-of-pocket expenses incurred in connection with the move.
    (ii) A person does not qualify as a ``displaced person'' if:
    (A) The person has been evicted for cause based upon a serious or 
repeated violation of material terms of the lease

[[Page 224]]

or occupancy agreement and HUD determines that the eviction was not 
undertaken for the purpose of evading the obligation to provide 
relocation assistance;
    (B) The person moved into the property after the submission of the 
application and, before commencing occupancy, received written notice of 
the expected displacement;
    (C) The person is ineligible under 49 CFR 24.2(g)(2); or
    (D) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (iii) The grantee or recipient may, at any time, request a HUD 
determination of whether a displacement is or would be covered under 
this section.
    (2) Initiation of negotiations. For purposes of determining the type 
of replacement housing payment to be made to a residential tenant 
displaced as a direct result of privately undertaken rehabilitation, 
demolition, or acquisition of the real property, the term ``initiation 
of negotiations'' means the execution of the agreement between the 
grantee and HUD.

(Approved by the Office of Management and Budget under OMB control 
number 2506-0089)

[54 FR 46799, Nov. 7, 1989, as amended at 54 FR 52397, Dec. 21, 1989. 
Redesignated at 61 FR 51553, Oct. 2, 1996]



                     Subpart F--Grant Administration

    Source: 54 FR 46799, Nov. 7, 1989, unless otherwise noted. 
Redesignated at 61 FR 51550, Oct. 2, 1996.



Sec. 576.61  Responsibility for grant administration.

    Grantees are responsible for ensuring that emergency shelter grant 
amounts are administered in accordance with the requirements of this 
part and other applicable laws. The State, territory, Indian tribe, or 
unit of local government is responsible for ensuring that its recipients 
carry out the recipients' emergency shelter grant programs in compliance 
with all applicable requirements in the case of:
    (a) A State making grant amounts available to State recipients; or
    (b) A territory, Indian tribe, or unit of general local government 
distributing grant amounts to nonprofit recipients.

[54 FR 46799, Nov. 7, 1989. Redesignated and amended at 61 FR 51553, 
Oct. 2, 1996]



Sec. 576.63  Method of payment.

    Payments are made to a grantee upon its request after the grant 
agreement has been fully executed, and may include a working capital 
advance for 30 days' cash needs or an advance of $5,000, whichever is 
greater. Thereafter, the grantee will be reimbursed for the amount of 
its actual cash disbursements. If a grantee requests a working capital 
advance, it must base the request on a realistic, firm estimate of the 
amounts required to be disbursed over the 30-day period in payment of 
eligible activity costs.

[54 FR 46799, Nov. 7, 1989. Redesignated and amended at 61 FR 51553, 
Oct. 2, 1996]



Sec. 576.65  Recordkeeping.

    (a) Each grantee must ensure that records are maintained for a 4-
year period to document compliance with the provisions of this part.
    (b) Requirements to ensure confidentiality of records pertaining to 
the provision of family violence prevention or treatment services with 
assistance under this part are set forth in 42 U.S.C. 11375(c)(5).

[61 FR 51553, Oct. 2, 1996]



Sec. 576.67  Sanctions.

    (a) HUD sanctions. If HUD determines that a grantee is not complying 
with the requirements of this part or of other applicable Federal law, 
HUD may (in addition to any remedies that may otherwise be available) 
take any of the following sanctions, as appropriate:
    (1) Issue a warning letter that further failure to comply with such 
requirements will result in a more serious sanction;
    (2) Condition a future grant;
    (3) Direct the grantee to stop the incurring of costs with grant 
amounts;
    (4) Require that some or all of the grant amounts be remitted to 
HUD;
    (5) Reduce the level of funds the grantee would otherwise be 
entitled to receive; or
    (6) Elect not to provide future grant funds to the grantee until 
appropriate

[[Page 225]]

actions are taken to ensure compliance.
    (b) State sanctions. If a State determines that a State recipient is 
not complying with the requirements of this part or other applicable 
Federal laws, the State must take appropriate actions, which may include 
the actions described in paragraph (a) of this section. Any grant 
amounts that become available to a State as a result of a sanction under 
this section must, at the option of the State, be made available (as 
soon as practicable) to other nonprofit organizations or units of 
general local government located in the State for use within the time 
periods specified in Sec. 576.35(a)(2), or to HUD for reallocation under 
Sec. 576.45(d).
    (c) Reallocations. Any grant amounts that become available to HUD as 
a result of the imposition of a sanction under this section will be 
reallocated under Sec. 576.45(d).

[54 FR 46799, Nov. 7, 1989. Redesignated and amended at 61 FR 51553, 
Oct. 2, 1996]



PART 581--USE OF FEDERAL REAL PROPERTY TO ASSIST THE HOMELESS--Table of Contents




Sec.
581.1  Definitions.
581.2  Applicability.
581.3  Collecting the information.
581.4  Suitability determination.
581.5  Real property reported excess to GSA.
581.6  Suitability criteria.
581.7  Determination of availability.
581.8  Public notice of determination.
581.9  Application process.
581.10  Action on approved applications.
581.11  Unsuitable properties.
581.12  No applications approved.
581.13  Waivers.

    Authority: 42 U.S.C. 11411 note; 42 U.S.C. 3535(d).

    Source: 56 FR 23794, 23795, May 24, 1991, unless otherwise noted.



Sec. 581.1  Definitions.

    Applicant means any representative of the homeless which has 
submitted an application to the Department of Health and Human Services 
to obtain use of a particular suitable property to assist the homeless.
    Checklist or property checklist means the form developed by HUD for 
use by landholding agencies to report the information to be used by HUD 
in making determinations of suitability.
    Classification means a property's designation as unutilized, 
underutilized, excess, or surplus.
    Day means one calendar day including weekends and holidays.
    Eligible organization means a State, unit of local government or a 
private non-profit organization which provides assistance to the 
homeless, and which is authorized by its charter or by State law to 
enter into an agreement with the Federal government for use of real 
property for the purposes of this subpart. Representatives of the 
homeless interested in receiving a deed for a particular piece of 
surplus Federal property must be section 501(c)(3) tax exempt.
    Excess property means any property under the control of any Federal 
executive agency that is not required for the agency's needs or the 
discharge of its responsibilities, as determined by the head of the 
agency pursuant to 40 U.S.C. 483.
    GSA means the General Services Administration.
    HHS means the Department of Health and Human Services.
    Homeless means:
    (1) An individual or family that lacks a fixed, regular, and 
adequate nighttime residence; and
    (2) An individual or family that has a primary nighttime residence 
that is:
    (i) A supervised publicly or privately operated shelter designed to 
provide temporary living accommodations (including welfare hotels, 
congregate shelters, and transitional housing for the mentally ill);
    (ii) An institution that provides a temporary residence for 
individuals intended to be institutionalized; or
    (iii) A public or private place not designed for, or ordinarily used 
as, a regular sleeping accommodation for human beings. This term does 
not include any individual imprisoned or otherwise detained under an Act 
of the Congress or a State law.
    HUD means the Department of Housing and Urban Development.
    ICH means the Interagency Council on the Homeless.

[[Page 226]]

    Landholding agency means a Federal department or agency with 
statutory authority to control real property.
    Lease means an agreement between either the Department of Health and 
Human Services for surplus property, or landholding agencies in the case 
of non-excess properties or properties subject to the Base Closure and 
Realignment Act (Public Law 100-526; 10 U.S.C. 2687), and the applicant, 
giving rise to the relationship of lessor and lessee for the use of 
Federal real property for a term of at least one year under the 
conditions set forth in the lease document.
    Non-profit organization means an organization no part of the net 
earnings of which inures to the benefit of any member, founder, 
contributor, or individual; that has a voluntary board; that has an 
accounting system or has designated an entity that will maintain a 
functioning accounting system for the organization in accordance with 
generally accepted accounting procedures; and that practices 
nondiscrimination in the provision of assistance.
    Permit means a license granted by a landholding agency to use 
unutilized or underutilized property for a specific amount of time under 
terms and conditions determined by the landholding agency.
    Property means real property consisting of vacant land or buildings, 
or a portion thereof, that is excess, surplus, or designated as 
unutilized or underutilized in surveys by the heads of landholding 
agencies conducted pursuant to section 202(b)(2) of the Federal Property 
and Administrative Services Act of 1949 (40 U.S.C. 483(b)(2).)
    Regional homeless coordinator means a regional coordinator of the 
Interagency Council on the Homeless.
    Representative of the homeless means a State or local government 
agency, or private nonprofit organization which provides, or proposes to 
provide, services to the homeless.
    Screen means the process by which GSA surveys Federal agencies, or 
State, local and non-profit entities, to determine if any such entity 
has an interest in using excess Federal property to carry out a 
particular agency mission or a specific public use.
    State homeless coordinator means a state contact person designated 
by a state to receive and disseminate information and communications 
received from the Interagency Council on the Homeless in accordance with 
section 210(a) of the Stewart B. McKinney Act of 1987, as amended.
    Suitable property means that HUD has determined that a particular 
property satisfies the criteria listed in Sec. 581.6.
    Surplus property means any excess real property not required by any 
Federal landholding agency for its needs or the discharge of its 
responsibilities, as determined by the Administrator of GSA.
    Underutilized means an entire property or portion thereof, with or 
without improvements which is used only at irregular periods or 
intermittently by the accountable landholding agency for current program 
purposes of that agency, or which is used for current program purposes 
that can be satisfied with only a portion of the property.
    Unsuitable property means that HUD has determined that a particular 
property does not satisfy the criteria in Sec. 581.6.
    Unutilized property means an entire property or portion thereof, 
with or without improvements, not occupied for current program purposes 
for the accountable executive agency or occupied in caretaker status 
only.



Sec. 581.2  Applicability.

    (a) This part applies to Federal real property which has been 
designated by Federal landholding agencies as unutilized, underutilized, 
excess or surplus and is therefore subject to the provisions of title V 
of the McKinney Act (42 U.S.C. 11411).
    (b) The following categories of properties are not subject to this 
subpart (regardless of whether they may be unutilized or underutilized).
    (1) Machinery and equipment.
    (2) Government-owned, contractor-operated machinery, equipment, 
land, and other facilities reported excess for sale only to the using 
contractor and subject to a continuing military requirement.
    (3) Properties subject to special legislation directing a particular 
action.

[[Page 227]]

    (4) Properties subject to a court order.
    (5) Property not subject to survey requirements of Executive Order 
12512 (April 29, 1985).
    (6) Mineral rights interests.
    (7) Air space interests.
    (8) Indian Reservation land subject to section 202(a)(2) of the 
Federal Property and Administrative Service Act of 1949, as amended.
    (9) Property interests subject to reversion.
    (10) Easements.
    (11) Property purchased in whole or in part with Federal funds if 
title to the property is not held by a Federal landholding agency as 
defined in this part.



Sec. 581.3  Collecting the information.

    (a) Canvass of landholding agencies. On a quarterly basis, HUD will 
canvass landholding agencies to collect information about property 
described as unutilized, underutilized, excess, or surplus, in surveys 
conducted by the agencies under section 202 of the Federal Property and 
Administrative Services Act (40 U.S.C. 483), Executive Order 12512, and 
41 CFR part 101-47.800. Each canvass will collect information on 
properties not previously reported and about property reported 
previously the status or classification of which has changed or for 
which any of the information reported on the property checklist has 
changed.
    (1) HUD will request descriptive information on properties 
sufficient to make a reasonable determination, under the criteria 
described below, of the suitability of a property for use as a facility 
to assist the homeless.
    (2) HUD will direct landholding agencies to respond to requests for 
information within 25 days of receipt of such requests.
    (b) Agency annual report. By December 31 of each year, each 
landholding agency must notify HUD regarding the current availability 
status and classification of each property controlled by the agency 
that:
    (1) Was included in a list of suitable properties published that 
year by HUD, and
    (2) Remains available for application for use to assist the 
homeless, or has become available for application during that year.
    (c) GSA inventory. HUD will collect information, in the same manner 
as described in paragraph (a) of this section, from GSA regarding 
property that is in GSA's current inventory of excess or surplus 
property.
    (d) Change in status. If the information provided on the property 
checklist changes subsequent to HUD's determination of suitability, and 
the property remains unutilized, underutilized, excess or surplus, the 
landholding agency shall submit a revised property checklist in response 
to the next quarterly canvass. HUD will make a new determination of 
suitability and, if it differs from the previous determination, 
republish the property information in the Federal Register. For example, 
property determined unsuitable for national security concerns may no 
longer be subject to security restrictions, or property determined 
suitable may subsequently be found to be contaminated.

    Effective Date Note: At 56 FR 23794, 23795, May 24, 1991, part 581 
was added, effective on May 24, 1991, except for Sec. 581.3 which will 
not become effective until approved by the District Court for the 
District of Columbia, pending further proceedings.



Sec. 581.4  Suitability determination.

    (a) Suitability determination. Within 30 days after the receipt of 
information from landholding agencies regarding properties which were 
reported pursuant to the canvass described in Sec. 581.3(a), HUD will 
determine, under criteria set forth in Sec. 581.6, which properties are 
suitable for use as facilities to assist the homeless and report its 
determination to the landholding agency. Properties that are under 
lease, contract, license, or agreement by which a Federal agency retains 
a real property interest or which are scheduled to become unutilized or 
underutilized will be reviewed for suitability no earlier than six 
months prior to the expected date when the property will become 
unutilized or underutilized, except that properties subject to the Base 
Closure and Realignment Act may be reviewed up to eighteen months prior 
to the expected date when the property

[[Page 228]]

will become unutilized or underutilized.
    (b) Scope of suitability. HUD will determine the suitability of a 
property for use as a facility to assist the homeless without regard to 
any particular use.
    (c) Environmental information. HUD will evaluate the environmental 
information contained in property checklists forwarded to HUD by the 
landholding agencies solely for the purpose of determining suitability 
of properties under the criteria in Sec. 581.6.
    (d) Written record of suitability determination. HUD will assign an 
identification number to each property reviewed for suitability. HUD 
will maintain a written public record of the following:
    (1) The suitability determination for a particular piece of 
property, and the reasons for that determination; and
    (2) The landholding agency's response to the determination pursuant 
to the requirements of Sec. 581.7(a).
    (e) Property determined unsuitable. Property that is reviewed by HUD 
under this section and that is determined unsuitable for use to assist 
the homeless may not be made available for any other purpose for 20 days 
after publication in the Federal Register of a Notice of unsuitability 
to allow for review of the determination at the request of a 
representative of the homeless.
    (f) Procedures for appealing unsuitability determinations. (1) To 
request review of a determination of unsuitability, a representative of 
the homeless must contact HUD within 20 days of publication of notice in 
the Federal Register that a property is unsuitable. Requests may be 
submitted to HUD in writing or by calling 1-800-927-7588 (Toll Free). 
Written requests must be received no later than 20 days after notice of 
unsuitability is published in the Federal Register.
    (2) Requests for review of a determination of unsuitability may be 
made only by representatives of the homeless, as defined in Sec. 581.1.
    (3) The request for review must specify the grounds on which it is 
based, i.e., that HUD has improperly applied the criteria or that HUD 
has relied on incorrect or incomplete information in making the 
determination (e.g., that property is in a floodplain but not in a 
floodway).
    (4) Upon receipt of a request to review a determination of 
unsuitability, HUD will notify the landholding agency that such a 
request has been made, request that the agency respond with any 
information pertinent to the review, and advise the agency that it 
should refrain from initiating disposal procedures until HUD has 
completed its reconsideration regarding unsuitability.
    (i) HUD will act on all requests for review within 30 days of 
receipt of the landholding agency's response and will notify the 
representative of the homeless and the landholding agency in writing of 
its decision.
    (ii) If a property is determined suitable as a result of the review, 
HUD will request the landholding agency's determination of availability 
pursuant to Sec. 581.7(a), upon receipt of which HUD will promptly 
publish the determination in the Federal Register. If the determination 
of unsuitability stands, HUD will inform the representative of the 
homeless of its decision.



Sec. 581.5  Real property reported excess to GSA.

    (a) Each landholding agency must submit a report to GSA of 
properties it determines excess. Each landholding agency must also 
provide a copy of HUD's suitability determination, if any, including 
HUD's identification number for the property.
    (b) If a landholding agency reports a property to GSA which has been 
reviewed by HUD for homeless assistance suitability and HUD determined 
the property suitable, GSA will screen the property pursuant to 
Sec. 581.5(g) and will advise HUD of the availability of the property 
for use by the homeless as provided in Sec. 581.5(e). In lieu of the 
above, GSA may submit a new checklist to HUD and follow the procedures 
in Sec. 581.5(c) through Sec. 581.5(g).
    (c) If a landholding agency reports a property to GSA which has not 
been reviewed by HUD for homeless assistance suitability, GSA will 
complete a property checklist, based on information provided by the 
landholding agency, and will forward this checklist to HUD for a 
suitability determination. This

[[Page 229]]

checklist will reflect any change in classification, i.e., from 
unutilized or underutilized to excess.
    (d) Within 30 days after GSA's submission, HUD will advise GSA of 
the suitability determination.
    (e) When GSA receives a letter from HUD listing suitable excess 
properties in GSA's inventory, GSA will transmit to HUD within 45 days a 
response which includes the following for each identified property:
    (1) A statement that there is no other compelling Federal need for 
the property, and therefore, the property will be determined surplus; or
    (2) A statement that there is further and compelling Federal need 
for the property (including a full explanation of such need) and that, 
therefore, the property is not presently available for use to assist the 
homeless.
    (f) When an excess property is determined suitable and available and 
notice is published in the Federal Register, GSA will concurrently 
notify HHS, HUD, State and local government units, known homeless 
assistance providers that have expressed interest in the particular 
property, and other organizations, as appropriate, concerning suitable 
properties.
    (g) Upon submission of a Report of Excess to GSA, GSA may screen the 
property for Federal use. In addition, GSA may screen State and local 
governmental units and eligible nonprofit organizations to determine 
interest in the property in accordance with current regulations. (See 41 
CFR 101-47.203-5, 101-47.204-1 and 101-47.303-2.)
    (h) The landholding agency will retain custody and accountability 
and will protect and maintain any property which is reported excess to 
GSA as provided in 41 CFR 101-47.402.



Sec. 581.6  Suitability criteria.

    (a) All properties, buildings and land will be determined suitable 
unless a property's characteristics include one or more of the following 
conditions:
    (1) National security concerns. A property located in an area to 
which the general public is denied access in the interest of national 
security (e.g., where a special pass or security clearance is a 
condition of entry to the property) will be determined unsuitable. Where 
alternative access can be provided for the public without compromising 
national security, the property will not be determined unsuitable on 
this basis.
    (2) Property containing flammable or explosive materials. A property 
located within 2000 feet of an industrial, commercial or Federal 
facility handling flammable or explosive material (excluding underground 
storage) will be determined unsuitable. Above ground containers with a 
capacity of 100 gallons or less, or larger containers which provide the 
heating or power source for the property, and which meet local safety, 
operation, and permitting standards, will not affect whether a 
particular property is determined suitable or unsuitable. Underground 
storage, gasoline stations and tank trucks are not included in this 
category and their presence will not be the basis of an unsuitability 
determination unless there is evidence of a threat to personal safety as 
provided in paragraph (a)(5) of this section.
    (3) Runway clear zone and military airfield clear zone. A property 
located within an airport runway clear zone or military airfield clear 
zone will be determined unsuitable.
    (4) Floodway. A property located in the floodway of a 100 year 
floodplain will be determined unsuitable. If the floodway has been 
contained or corrected, or if only an incidental portion of the property 
not affecting the use of the remainder of the property is in the 
floodway, the property will not be determined unsuitable.
    (5) Documented deficiencies. A property with a documented and 
extensive condition(s) that represents a clear threat to personal 
physical safety will be determined unsuitable. Such conditions may 
include, but are not limited to, contamination, structural damage or 
extensive deterioration, friable asbestos, PCB's, or natural hazardous 
substances such as radon, periodic flooding, sinkholes or earth slides.
    (6) Inaccessible. A property that is inaccessible will be determined 
unsuitable. An inaccessible property is one that is not accessible by 
road (including property on small off-shore islands) or is land locked 
(e.g., can be reached only by crossing private property and

[[Page 230]]

there is no established right or means of entry).



Sec. 581.7  Determination of availability.

    (a) Within 45 days after receipt of a letter from HUD pursuant to 
Sec. 581.4(a), each landholding agency must transmit to HUD a statement 
of one of the following:
    (1) In the case of unutilized or underutilized property:
    (i) An intention to declare the property excess,
    (ii) An intention to make the property available for use to assist 
the homeless, or
    (iii) The reasons why the property cannot be declared excess or made 
available for use to assist the homeless. The reasons given must be 
different than those listed as suitability criteria in Sec. 581.6.
    (2) In the case of excess property which had previously been 
reported to GSA:
    (i) A statement that there is no compelling Federal need for the 
property, and that, therefore, the property will be determined surplus; 
or
    (ii) A statement that there is a further and compelling Federal need 
for the property (including a full explanation of such need) and that, 
therefore, the property is not presently available for use to assist the 
homeless.



Sec. 581.8  Public notice of determination.

    (a) No later than 15 days after the last 45 day period has elapsed 
for receiving responses from the landholding agencies regarding 
availability, HUD will publish in the Federal Register a list of all 
properties reviewed, including a description of the property, its 
address, and classification. The following designations will be made:
    (1) Properties that are suitable and available.
    (2) Properties that are suitable and unavailable.
    (3) Properties that are suitable and to be declared excess.
    (4) Properties that are unsuitable.
    (b) Information about specific properties can be obtained by 
contacting HUD at the following toll free number, 1-800-927-7588.
    (c) HUD will transmit to the ICH a copy of the list of all 
properties published in the Federal Register. The ICH will immediately 
distribute to all state and regional homeless coordinators area-relevant 
portions of the list. The ICH will encourage the state and regional 
homeless coordinators to disseminate this information widely.
    (d) No later than February 15 of each year, HUD shall publish in the 
Federal Register a list of all properties reported pursuant to 
Sec. 581.3(b).
    (e) HUD shall publish an annual list of properties determined 
suitable but which agencies reported unavailable including the reasons 
such properties are not available.
    (f) Copies of the lists published in the Federal Register will be 
available for review by the public in the HUD headquarters building 
library (room 8141); area-relevant portions of the lists will be 
available in the HUD regional offices and in major field offices.



Sec. 581.9  Application process.

(OMB approval number 09370191)
    (a) Holding period. (1) Properties published as available for 
application for use to assist the homeless shall not be available for 
any other purpose for a period of 60 days beginning on the date of 
publication. Any representative of the homeless interested in any 
underutilized, unutilized, excess or surplus Federal property for use as 
a facility to assist the homeless must send to HHS a written expression 
of interest in that property within 60 days after the property has been 
published in the Federal Register.
    (2) If a written expression of interest to apply for suitable 
property for use to assist the homeless is received by HHS within the 60 
day holding period, such property may not be made available for any 
other purpose until the date HHS or the appropriate landholding agency 
has completed action on the application submitted pursuant to that 
expression of interest.
    (3) The expression of interest should identify the specific 
property, briefly describe the proposed use, include the name of the 
organization, and indicate whether it is a public body or a private non-
profit organization. The expression of interest must be sent to the 
Division

[[Page 231]]

of Health Facilities Planning (DHFP) of the Department of Health and 
Human Services at the following address:

Director, Division of Health Facilities Planning, Public Health Service, 
room 17A-10, Parklawn Building, 5600 Fishers Lane, Rockville, Maryland 
20857.


HHS will notify the landholding agency (for unutilized and underutilized 
properties) or GSA (for excess and surplus properties) when an 
expression of interest has been received for a particular property.
    (4) An expression of interest may be sent to HHS any time after the 
60 day holding period has expired. In such a case, an application 
submitted pursuant to this expression of interest may be approved for 
use by the homeless if:
    (i) No application or written expression of interest has been made 
under any law for use of the property for any purpose; and
    (ii) In the case of excess or surplus property, GSA has not received 
a bona fide offer to purchase that property or advertised for the sale 
of the property by public auction.
    (b) Application requirements. Upon receipt of an expression of 
interest, DHFP will send an application packet to the interested entity. 
The application packet requires the applicant to provide certain 
information, including the following--
    (1) Description of the applicant organization. The applicant must 
document that it satisfies the definition of a ``representative of the 
homeless,'' as specified in Sec. 581.1 of this subpart. The applicant 
must document its authority to hold real property. Private non-profit 
organizations applying for deeds must document that they are section 
501(c)(3) tax-exempt.
    (2) Description of the property desired. The applicant must describe 
the property desired and indicate that any modifications made to the 
property will conform to local use restrictions except for local zoning 
regulations.
    (3) Description of the proposed program. The applicant must fully 
describe the proposed program and demonstrate how the program will 
address the needs of the homeless population to be assisted. The 
applicant must fully describe what modifications will be made to the 
property before the program becomes operational.
    (4) Ability to finance and operate the proposed program. The 
applicant must specifically describe all anticipated costs and sources 
of funding for the proposed program. The applicant must indicate that it 
can assume care, custody, and maintenance of the property and that it 
has the necessary funds or the ability to obtain such funds to carry out 
the approved program of use for the property.
    (5) Compliance with non-discrimination requirements. Each applicant 
and lessee under this part must certify in writing that it will comply 
with the requirements of the Fair Housing Act (42 U.S.C. 3601-3619) and 
implementing regulations; and as applicable, Executive Order 11063 
(Equal Opportunity in Housing) and implementing regulations; title VI of 
the Civil Rights Act of 1964 (42 U.S.C. 2000d to d-4) (Nondiscrimination 
in Federally Assisted Programs) and implementing regulations; the 
prohibitions against discrimination on the basis of age under the Age 
Discrimination Act of 1975 (42 U.S.C. 6101-6107) and implementing 
regulations; and the prohibitions against otherwise qualified 
individuals with handicaps under section 504 of the Rehabilitation Act 
of 1973 (29 U.S.C. 794) and implementing regulations. The applicant must 
state that it will not discriminate on the basis of race, color, 
national origin, religion, sex, age, familial status, or handicap in the 
use of the property, and will maintain the required records to 
demonstrate compliance with Federal laws.
    (6) Insurance. The applicant must certify that it will insure the 
property against loss, damage, or destruction in accordance with the 
requirements of 45 CFR 12.9.
    (7) Historic preservation. Where applicable, the applicant must 
provide information that will enable HHS to comply with Federal historic 
preservation requirements.
    (8) Environmental information. The applicant must provide sufficient 
information to allow HHS to analyze the potential impact of the 
applicant's proposal on the environment, in accordance with the 
instructions provided

[[Page 232]]

with the application packet. HHS will assist applicants in obtaining any 
pertinent environmental information in the possession of HUD, GSA, or 
the landholding agency.
    (9) Local government notification. The applicant must indicate that 
it has informed the applicable unit of general local government 
responsible for providing sewer, water, police, and fire services, in 
writing of its proposed program.
    (10) Zoning and local use restrictions. The applicant must indicate 
that it will comply with all local use restrictions, including local 
building code requirements. Any applicant which applies for a lease or 
permit for a particular property is not required to comply with local 
zoning requirements. Any applicant applying for a deed of a particular 
property, pursuant to Sec. 581.9(b)(3), must comply with local zoning 
requirements, as specified in 45 CFR part 12.
    (c) Scope of evaluations. Due to the short time frame imposed for 
evaluating applications, HHS' evaluation will, generally, be limited to 
the information contained in the application.
    (d) Deadline. Completed applications must be received by DHFP, at 
the above address, within 90 days after an expression of interest is 
received from a particular applicant for that property. Upon written 
request from the applicant, HHS may grant extensions, provided that the 
appropriate landholding agency concurs with the extension. Because each 
applicant will have a different deadline based on the date the applicant 
submitted an expression of interest, applicants should contact the 
individual landholding agency to confirm that a particular property 
remains available prior to submitting an application.
    (e) Evaluations. (1) Upon receipt of an application, HHS will review 
it for completeness, and, if incomplete, may return it or ask the 
applicant to furnish any missing or additional required information 
prior to final evaluation of the application.
    (2) HHS will evaluate each completed application within 25 days of 
receipt and will promptly advise the applicant of its decision. 
Applications are evaluated on a first-come, first-serve basis. HHS will 
notify all organizations which have submitted expressions of interest 
for a particular property regarding whether the first application 
received for that property has been approved or disapproved. All 
applications will be reviewed on the basis of the following elements, 
which are listed in descending order of priority, except that paragraphs 
(e)(2)(iv) and (e)(2)(v) of this section are of equal importance.
    (i) Services offered. The extent and range of proposed services, 
such as meals, shelter, job training, and counseling.
    (ii) Need. The demand for the program and the degree to which the 
available property will be fully utilized.
    (iii) Implementation time. The amount of time necessary for the 
proposed program to become operational.
    (iv) Experience. Demonstrated prior success in operating similar 
programs and recommendations attesting to that fact by Federal, State, 
and local authorities.
    (v) Financial ability. The adequacy of funding that will likely be 
available to run the program fully and properly and to operate the 
facility.
    (3) Additional evaluation factors may be added as deemed necessary 
by HHS. If additional factors are added, the application packet will be 
revised to include a description of these additional factors.
    (4) If HHS receives one or more competing applications for a 
property within 5 days of the first application HHS will evaluate all 
completed applications simultaneously. HHS will rank approved 
applications based on the elements listed in Sec. 581.8(e)(2), and 
notify the landholding agency, or GSA, as appropriate, of the relative 
ranks.



Sec. 581.10  Action on approved applications.

    (a) Unutilized and underutilized properties. (1) When HHS approves 
an application, it will so notify the applicant and forward a copy of 
the application to the landholding agency. The landholding agency will 
execute the lease, or permit document, as appropriate, in consultation 
with the applicant.
    (2) The landholding agency maintains the discretion to decide the 
following:

[[Page 233]]

    (i) The length of time the property will be available. (Leases and 
permits will be for a period of at least one year unless the applicant 
requests a shorter term.)
    (ii) Whether to grant use of the property via a lease or permit;
    (iii) The terms and conditions of the lease or permit document.
    (b) Excess and surplus properties. (1) When HHS approves an 
application, it will so notify the applicant and request that GSA assign 
the property to HHS for leasing. Upon receipt of the assignment, HHS 
will execute a lease in accordance with the procedures and requirements 
set out in 45 CFR part 12. In accordance with 41 CFR 101-47.402, custody 
and accountability of the property will remain throughout the lease term 
with the agency which initially reported the property as excess.
    (2) Prior to assignment to HHS, GSA may consider other Federal uses 
and other important national needs; however, in deciding the disposition 
of surplus real property, GSA will generally give priority of 
consideration to uses to assist the homeless. GSA may consider any 
competing request for the property made under section 203(k) of the 
Federal Property and Administrative Services Act of 1949 (40 U.S.C. 
484(k)) that is so meritorious and compelling that it outweighs the 
needs of the homeless, and HHS may likewise consider any competing 
request made under subsection 203(k)(1) of that law.
    (3) Whenever GSA or HHS decides in favor of a competing request over 
a request for property for homeless assistance use as provided in 
paragraph (b)(2) of this section, the agency making the decision will 
transmit to the appropriate committees of the Congress an explanatory 
statement which details the need satisfied by conveyance of the surplus 
property, and the reasons for determining that such need was so 
meritorious and compelling as to outweigh the needs of the homeless.
    (4) Deeds. Surplus property may be conveyed to representatives of 
the homeless pursuant to section 203(k) of the Federal Property and 
Administrative Services Act of 1949 (40 U.S.C. 484(k)(1), and section 
501(f) of the McKinney Act as amended, 42 U.S.C. 11411. Representatives 
of the homeless must complete the application packet pursuant to the 
requirements of Sec. 581.9 of this part and in accordance with the 
requirements of 45 CFR part 12.
    (c) Completion of lease term and reversion of title. Lessees and 
grantees will be responsible for the protection and maintenance of the 
property during the time that they possess the property. Upon 
termination of the lease term or reversion of title to the Federal 
government, the lessee or grantee will be responsible for removing any 
improvements made to the property and will be responsible for 
restoration of the property. If such improvements are not removed, they 
will become the property of the Federal government. GSA or the 
landholding agency, as appropriate, will assume responsibility for 
protection and maintenance of a property when the lease terminates or 
title reverts.



Sec. 581.11  Unsuitable properties.

    The landholding agency will defer, for 20 days after the date that 
notice of a property is published in the Federal Register, action to 
dispose of properties determined unsuitable for homeless assistance. HUD 
will inform landholding agencies or GSA if appeal of an unsuitability 
determination is filed by a representative of the homeless pursuant to 
Sec. 581.4(f)(4). HUD will advise the agency that it should refrain from 
initiating disposal procedures until HUD has completed its 
reconsideration process regarding unsuitability. Thereafter, or if no 
appeal has been filed after 20 days, GSA or the appropriate landholding 
agency may proceed with disposal action in accordance with applicable 
law.



Sec. 581.12  No applications approved.

    (a) At the end of the 60 day holding period described in 
Sec. 581.9(a), HHS will notify GSA, or the landholding agency, as 
appropriate, if an expression of interest has been received for a 
particular property. Where there is no expression of interest, GSA or 
the landholding agency, as appropriate, will proceed with disposal in 
accordance with applicable law.
    (b) Upon advice from HHS that all applications have been 
disapproved, or

[[Page 234]]

if no completed applications or requests for extensions have been 
received by HHS within 90 days from the date of the last expression of 
interest, disposal may proceed in accordance with applicable law.



Sec. 581.13  Waivers.

    The Secretary may waive any requirement of this part that is not 
required by law, whenever it is determined that undue hardship would 
result from applying the requirement, or where application of the 
requirement would adversely affect the purposes of the program. Each 
waiver will be in writing and will be supported by documentation of the 
pertinent facts and grounds. The Secretary periodically will publish 
notice of granted waivers in the Federal Register.



PART 582--SHELTER PLUS CARE--Table of Contents




                           Subpart A--General

Sec.
582.1  Purpose and scope.
582.5  Definitions.

                     Subpart B--Assistance Provided

582.100  Program component descriptions.
582.105  Rental assistance amounts and payments.
582.110  Matching requirements.
582.115  Limitations on assistance.
582.120  Consolidated plan.

                 Subpart C--Application and Grant Award

582.200  Application and grant award.
582.230  Environmental review requirements.

                     Subpart D--Program Requirements

582.300  General operation.
582.305  Housing quality standards; rent reasonableness.
582.310  Resident rent.
582.315  Occupancy agreements.
582.320  Termination of assistance to participants.
582.325  Outreach activities.
582.330  Nondiscrimination and equal opportunity requirements.
582.335  Displacement, relocation, and real property acquisition.
582.340  Other Federal requirements.

                        Subpart E--Administration

582.400  Grant agreement.
582.405  Program changes.
582.410  Obligation and deobligation of funds.

    Authority: 42 U.S.C. 3535(d) and 11403-11407b.

    Source: 58 FR 13892, Mar. 15, 1993, unless otherwise noted.



                           Subpart A--General



Sec. 582.1  Purpose and scope.

    (a) General. The Shelter Plus Care program (S+C) is authorized by 
title IV, subtitle F, of the Stewart B. McKinney Homeless Assistance Act 
(the McKinney Act) (42 U.S.C. 11403-11407b). S+C is designed to link 
rental assistance to supportive services for hard-to-serve homeless 
persons with disabilities (primarily those who are seriously mentally 
ill; have chronic problems with alcohol, drugs, or both; or have 
acquired immunodeficiency syndrome (AIDS) and related diseases) and 
their families. The program provides grants to be used for rental 
assistance for permanent housing for homeless persons with disabilities. 
Rental assistance grants must be matched in the aggregate by supportive 
services that are equal in value to the amount of rental assistance and 
appropriate to the needs of the population to be served. Recipients are 
chosen on a competitive basis nationwide.
    (b) Components. Rental assistance is provided through four 
components described in Sec. 582.100. Applicants may apply for 
assistance under any one of the four components, or a combination.

[58 FR 13892, Mar. 15, 1993, as amended at 61 FR 51169, Sept. 30, 1996]



Sec. 582.5  Definitions.

    The terms Fair Market Rent (FMR), HUD, Public Housing Agency (PHA), 
Indian Housing Authority (IHA), and Secretary are defined in 24 CFR part 
5.
    As used in this part:
    Acquired immunodeficiency syndrome (AIDS) and related diseases has 
the meaning given in section 853 of the AIDS Housing Opportunity Act (42 
U.S.C. 12902).
    Applicant has the meaning given in section 462 of the McKinney Act 
(42 U.S.C. 11403g).
    Eligible person means a homeless person with disabilities (primarily 
persons who are seriously mentally ill; have chronic problems with 
alcohol, drugs,

[[Page 235]]

or both; or have AIDS and related diseases) and, if also homeless, the 
family of such a person. To be eligible for assistance, persons must be 
very low income, except that low-income individuals may be assisted 
under the SRO component in accordance with 24 CFR 813.105(b).
    Homeless or homeless individual has the meaning given in section 103 
of the McKinney Act (42 U.S.C. 11302).
    Indian tribe has the meaning given in section 102 of the Housing and 
Community Development Act of 1974 (42 U.S.C. 5302).
    Low-income means an annual income not in excess of 80 percent of the 
median income for the area, as determined by HUD. HUD may establish 
income limits higher or lower than 80 percent of the median income for 
the area on the basis of its finding that such variations are necessary 
because of the prevailing levels of construction costs or unusually high 
or low family incomes.
    Nonprofit organization has the meaning given in section 104 of the 
Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12704). The 
term nonprofit organization also includes a community mental health 
center established as a public nonprofit organization.
    Participant means an eligible person who has been selected to 
participate in S+C.
    Person with disabilities means a household composed of one or more 
persons at least one of whom is an adult who has a disability.
    (1) A person shall be considered to have a disability if such person 
has a physical, mental, or emotional impairment which is expected to be 
of long-continued and indefinite duration; substantially impedes his or 
her ability to live independently; and is of such a nature that such 
ability could be improved by more suitable housing conditions.
    (2) A person will also be considered to have a disability if he or 
she has a developmental disability, which is a severe, chronic 
disability that--
    (i) Is attributable to a mental or physical impairment or 
combination of mental and physical impairments;
    (ii) Is manifested before the person attains age 22;
    (iii) Is likely to continue indefinitely;
    (iv) Results in substantial functional limitations in three or more 
of the following areas of major life activity:
    (A) Self-care;
    (B) Receptive and expressive language;
    (C) Learning;
    (D) Mobility;
    (E) Self-direction;
    (F) Capacity for independent living; and
    (G) Economic self-sufficiency; and
    (v) Reflects the person's need for a combination and sequence of 
special, interdisciplinary, or generic care, treatment, or other 
services which are of lifelong or extended duration and are individually 
planned and coordinated.
    (3) Notwithstanding the preceding provisions of this definition, the 
term person with disabilities includes, except in the case of the SRO 
component, two or more persons with disabilities living together, one or 
more such persons living with another person who is determined to be 
important to their care or well-being, and the surviving member or 
members of any household described in the first sentence of this 
definition who were living, in a unit assisted under this part, with the 
deceased member of the household at the time of his or her death. (In 
any event, with respect to the surviving member or members of a 
household, the right to rental assistance under this part will terminate 
at the end of the grant period under which the deceased member was a 
participant.)
    Recipient means an applicant approved to receive a S+C grant.
    Seriously mentally ill has the meaning given in section 462 of the 
McKinney Act (42 U.S.C. 11403g).
    Single room occupancy (SRO) housing means a unit for occupancy by 
one person, which need not but may contain food preparation or sanitary 
facilities, or both.
    Sponsor means a nonprofit organization which owns or leases dwelling 
units and has contracts with a recipient to make such units available to 
eligible homeless persons and receives

[[Page 236]]

rental assistance payments under the SRA component.
    State has the meaning given in section 462 of the McKinney Act (42 
U.S.C. 11403g).
    Supportive service provider, or service provider, means a person or 
organization licensed or otherwise qualified to provide supportive 
services, either for profit or not for profit.
    Supportive services means assistance that--
    (1) Addresses the special needs of eligible persons; and
    (2) Provides appropriate services or assists such persons in 
obtaining appropriate services, including health care, mental health 
treatment, alcohol and other substance abuse services, child care 
services, case management services, counseling, supervision, education, 
job training, and other services essential for achieving and maintaining 
independent living.


(Inpatient acute hospital care does not qualify as a supportive 
service.).
    Unit of general local government has the meaning given in section 
102 of the Housing and Community Development Act of 1974 (42 U.S.C. 
5302).
    Very low-income means an annual income not in excess of 50 percent 
of the median income for the area, as determined by HUD, with 
adjustments for smaller and larger families. HUD may establish income 
limits higher or lower than 50 percent of the median income for the area 
on the basis of its finding that such variations are necessary because 
of unusually high or low family incomes.

[61 FR 51169, Sept. 30, 1996; 62 FR 13539, Mar. 21, 1997]



                     Subpart B--Assistance Provided



Sec. 582.100  Program component descriptions.

    (a) Tenant-based rental assistance (TRA). Tenant-based rental 
assistance provides grants for rental assistance which permit 
participants to choose housing of an appropriate size in which to 
reside. Participants retain the rental assistance if they move. Where 
necessary to facilitate the coordination of supportive services, grant 
recipients may require participants to live in a specific area for their 
entire period of participation or in a specific structure for the first 
year and in a specific area for the remainder of their period of 
participation. Recipients may not define the area in a way that violates 
the Fair Housing Act or the Rehabilitation Act of 1973. The term of the 
grant between HUD and the grant recipient for TRA is five years.
    (b) Project-based rental assistance (PRA). Project-based rental 
assistance provides grants for rental assistance to the owner of an 
existing structure, where the owner agrees to lease the subsidized units 
to participants. Participants do not retain rental assistance if they 
move. Rental subsidies are provided to the owner for a period of either 
five or ten years. To qualify for ten years of rental subsidies, the 
owner must complete at least $3,000 of eligible rehabilitation for each 
unit (including the unit's prorated share of work to be accomplished on 
common areas or systems), to make the structure decent, safe and 
sanitary. This rehabilitation must be completed with in 12 months of the 
grant award.
    (c) Sponsor-based rental assistance (SRA). Sponsor-based rental 
assistance provides grants for rental assistance through contracts 
between the grant recipient and sponsor organizations. A sponsor may be 
a private, nonprofit organization or a community mental health agency 
established as a public nonprofit organization. Participants reside in 
housing owned or leased by the sponsor. The term of the grant between 
HUD and the grant recipient for SRA is five years.
    (d) Moderate rehabilitation for single room occupancy dwellings 
(SRO). (1) The SRO component provides grants for rental assistance in 
connection with the moderate rehabilitation of single room occupancy 
housing units. Resources to initially fund the cost of rehabilitating 
the dwellings must be obtained from other sources. However, the rental 
assistance covers operating expenses of the rehabilitated SRO units 
occupied by homeless persons, including debt service to retire the cost 
of the moderate rehabilitation over a ten-year period.
    (2) SRO housing must be in need of moderate rehabilitation and must 
meet

[[Page 237]]

the requirements of 24 CFR 882.803(a). Costs associated with 
rehabilitation of common areas may be included in the calculation of the 
cost for assisted units based on the proportion of the number of units 
to be assisted under this part to the total number of units.
    (3) SRO assistance may also be used for efficiency units selected 
for rehabilitation under this program, but the gross rent (contract rent 
plus any utility allowance) for those units will be no higher than for 
SRO units (i.e., 75 percent of the 0-bedroom Moderate Rehabilitation 
Fair Market Rent).
    (4) The requirements regarding maintenance, operation, and 
inspections described in 24 CFR 882.806(b)(4) and 882.808(n) must be 
met.
    (5) Governing regulations. Except where there is a conflict with any 
requirement under this part or where specifically provided, the SRO 
component will be governed by the regulations set forth in 24 CFR part 
882, subpart H.



Sec. 582.105  Rental assistance amounts and payments.

    (a) Eligible activity. S+C grants may be used for providing rental 
assistance for housing occupied by participants in the program and 
administrative costs as provided for in paragraph (e) of this section, 
except that the housing may not be currently receiving Federal funding 
for rental assistance or operating costs under other HUD programs. 
Recipients may design a housing program that includes a range of housing 
types with differing levels of supportive services. Rental assistance 
may include security deposits on units in an amount up to one month's 
rent.
    (b) Amount of the grant. The amount of the grant is based on the 
number and size of units proposed by the applicant to be assisted over 
the grant period. The grant amount is calculated by multiplying the 
number of units proposed times the applicable Fair Market Rent (FMR) of 
each unit times the term of the grant.
    (c) Payment of grant. (1) The grant amount will be reserved for 
rental assistance over the grant period. An applicant's grant request is 
an estimate of the amount needed for rental assistance. Recipients will 
make draws from the reserved amount to pay the actual costs of rental 
assistance for program participants. For TRA, on demonstration of need, 
up to 25 percent of the total rental assistance awarded may be spent in 
any one of the five years, or a higher percentage if approved by HUD, 
where the applicant provides evidence satisfactory to HUD that it is 
financially committed to providing the housing assistance described in 
the application for the full five-year period.
    (2) A recipient must serve at least as many participants as shown in 
its application. Where the grant amount reserved for rental assistance 
over the grant period exceeds the amount that will be needed to pay the 
actual costs of rental assistance, due to such factor as contract rents 
being lower than FMRs and participants are being able to pay a portion 
of the rent, recipients may use the remaining funds for the costs of 
administering the housing assistance, as described in paragraph (e) of 
this section, for damage to property, as described in paragraph (f) of 
this section, for covering the costs of rent increases, or for serving a 
great number of participants.
    (d) Vacancies. (1) If a unit assisted under this part is vacated 
before the expiration of the occupancy agreement described in 
Sec. 582.315 of this part, the assistance for the unit may continue for 
a maximum of 30 days from the end of the month in which the unit was 
vacated, unless occupied by another eligible person. No additional 
assistance will be paid until the unit is occupied by another eligible 
person.
    (2) As used in this paragraph (d), the term ``vacate'' does not 
include brief periods of inpatient care, not to exceed 90 days for each 
occurrence.
    (e) Administrative costs. (1) Up to eight percent of the grant 
amount may be used to pay the costs of administering the housing 
assistance. Recipients may contract with another entity approved by HUD 
to administer the housing assistance.
    (2) Eligible administrative activities include processing rental 
payments to landlords, examining participant income and family 
composition, providing housing information and assistance, inspecting 
units for compliance

[[Page 238]]

with housing quality standards, and receiving into the program new 
participants. This administrative allowance does not include the cost of 
administering the supportive services or the grant (e.g., costs of 
preparing the application, reports or audits required by HUD), which are 
not eligible activities under a S+C grant.
    (f) Property damage. Recipients may use grant funds in an amount up 
to one month's rent to pay for any damage to housing due to the action 
of a participant.

[58 FR 13892, Mar. 15, 1993, as amended at 61 FR 51170, Sept. 30, 1996]



Sec. 582.110  Matching requirements.

    (a) Matching rental assistance with supportive services. To qualify 
for rental assistance grants, an applicant must certify that it will 
provide or ensure the provision of supportive services, including 
funding the services itself if the planned resources do not become 
available for any reason, appropriate to the needs of the population 
being served and at least equal in value to the aggregate amount of 
rental assistance funded by HUD. The supportive services may be newly 
created for the program or already in operation, and may be provided or 
funded by other Federal, State, local, or private programs. Only 
services that are provided after the execution of the grant agreement 
may count toward the match.
    (b) Availability to participants. Recipients must give reasonable 
assurances that supportive services will be available to participants 
for the entire term of the rental assistance. The value of the services 
provided to a participant, however, does not have to equal the amount of 
rental assistance provided that participant, nor does the value have to 
be equal to the amount of rental assistance on a year-to-year basis.
    (c) Calculating the value of supportive services. In calculating the 
amount of the matching supportive services, applicants may count:
    (1) Salaries paid to staff of the recipient to provide supportive 
services to S+C participants;
    (2) The value of supportive services provided by other persons or 
organizations to S+C participants;
    (3) The value of time and services contributed by volunteers at the 
rate of $10.00 an hour, except for donated professional services which 
may be counted at the customary charge for the service provided 
(professional services are services ordinarily performed by donors for 
payment, such as the services of health professionals, that are 
equivalent to the services they provide in their occupations);
    (4) The value of any lease on a building used for the provision of 
supportive services, provided the value included in the match is no more 
than the prorated share used for the program; and
    (5) The cost of outreach activities, as described in Sec. 582.325(a) 
of this part.



Sec. 582.115  Limitations on assistance.

    (a) Current occupants. Current occupants of the real property are 
not eligible for assistance under this part. However, as described in 
Sec. 582.335, persons displaced as a direct result of acquisition, 
rehabilitation, or demolition for a project under the S+C program are 
eligible for and must be provided relocation assistance at Uniform 
Relocation Act levels.
    (b) Amount of assistance provided within a jurisdiction. HUD will 
limit the amount of assistance provided within the jurisdiction of any 
one unit of local government to no more than 10 percent of the amount 
available.
    (c) Primarily religious organizations. HUD will provide assistance 
to a recipient that contracts with a primarily religious organization, 
or a wholly secular organization established by a primarily religious 
organization, to provide, manage, or operate housing and supportive 
services if the organization agrees to provide the housing and services 
in a manner that is free from religious influences and in accordance 
with the following principles:
    (1) It will not discriminate against any employee or applicant for 
employment on the basis of religion and will not limit employment or 
give preference in employment to persons on the basis of religion;
    (2) It will not discriminate against any person applying for housing 
or supportive services on the basis of religion

[[Page 239]]

and will not limit such housing or services or give preference to 
persons on the basis of religion;
    (3) It will provide no religious instruction or counseling, conduct 
no religious worship or services, engage in no religious proselytizing, 
and exert no other religious influence in the provision of housing and 
supportive services.
    (d) Maintenance of effort. No assistance received under this part 
(or any State or local government funds used to supplement this 
assistance) may be used to replace funds provided under any State or 
local government assistance programs previously used, or designated for 
use, to assist persons with disabilities, homeless persons, or homeless 
persons with disabilities.



Sec. 582.120  Consolidated plan.

    (a) Applicants that are States or units of general local government. 
The applicant must have a HUD-approved complete or abbreviated 
consolidated plan, in accordance with 24 CFR part 91, and must submit a 
certification that the application for funding is consistent with the 
HUD-approved consolidated plan. Funded applicants must certify in a 
grant agreement that they are following the HUD-approved consolidated 
plan. If the applicant is a State, and the project will be located in a 
unit of general local government that is required to have, or has, a 
complete consolidated plan, or that is applying for Shelter Plus Care 
assistance under the same Notice of Fund Availability (NOFA) and will 
have an abbreviated consolidated plan with respect to that application, 
the State also must submit a certification by the unit of general local 
government that the State's application is consistent with the unit of 
general local government's HUD-approved consolidated plan.
    (b) Applicants that are not States or units of general local 
government. The applicant must submit a certification by the 
jurisdiction in which the proposed project will be located that the 
jurisdiction is following its HUD-approved consolidated plan and the 
applicant's application for funding is consistent with the 
jurisdiction's HUD-approved consolidated plan. The certification must be 
made by the unit of general local government or the State, in accordance 
with the consistency certification provisions of the consolidated plan 
regulations, 24 CFR part 91, subpart F.
    (c) Indian tribes and the Insular Areas of Guam, the U.S. Virgin 
Islands, American Samoa, and the Northern Mariana Islands. These 
entities are not required to have a consolidated plan or to make 
consolidated plan certifications. An application by an Indian tribe or 
other applicant for a project that will be located on a reservation of 
an Indian tribe will not require a certification by the tribe or the 
State. However, where an Indian tribe is the applicant for a project 
that will not be located on a reservation, the requirement for a 
certification under paragraph (b) of this section will apply.
    (d) Timing of consolidated plan certification submissions. Unless 
otherwise set forth in the NOFA, the required certification that the 
application for funding is consistent with the HUD-approved consolidated 
plan must be submitted by the funding application submission deadline 
announced in the NOFA.

[60 FR 16379, Mar. 30, 1995]



                 Subpart C--Application and Grant Award



Sec. 582.200  Application and grant award.

    (a) Review. When funds are made available for assistance, HUD will 
publish a notice of fund availability in the Federal Register in 
accordance with the requirements of 24 CFR part 4. Applications will be 
reviewed and screened in accordance with the guidelines, rating criteria 
and procedures published in the notice.
    (b) Rating criteria. HUD will award funds based on the criteria 
specified in section 455(a)(1) through (8) of the McKinney Act (42 
U.S.C. 11403d(1)--11403d(8)) and on the following criteria authorized by 
section 455(a)(9) of the McKinney Act (42 U.S.C. 11403d(9)):
    (1) The extent to which the applicant has demonstrated coordination 
with other Federal, State, local, private and other entities serving 
homeless persons in the planning and operation of the project, to the 
extent practicable;

[[Page 240]]

    (2) Extent to which the project targets homeless persons living in 
emergency shelters, supportive housing for homeless persons, or in 
places not designed for, or ordinarily used as, a regular sleeping 
accommodation for human beings;
    (3) Quality of the project; and
    (4) Extent to which the program will serve homeless persons who are 
seriously mentally ill, have chronic alcohol and/or drug abuse problems, 
or have AIDS and related diseases.

(Approved by the Office of Management and Budget under control number 
2506-0118)

[61 FR 51170, Sept. 30, 1996]



Sec. 582.230  Environmental review requirements.

    (a) Responsibility for review. (1) HUD will perform the 
environmental review, in accordance with part 50 of this title, for 
conditionally selected applications received from PHA applicants and 
from IHA applicants. HUD is not permitted to approve such applications 
prior to its completion of this review, nor is the PHA or IHA permitted 
to enter into a contract for, or otherwise commit HUD or local funds 
for, acquisition, rehabilitation, conversion, lease, repair, or 
construction of property to provide housing under the program, prior to 
HUD's completion of this review and approval of the application, except 
under the SRO component.
    (2) Applicants that are States, units of general local government, 
or Indian tribes must assume responsibility as ``responsible entities'' 
for environmental review, decisionmaking, and action for each 
application for assistance in accordance with part 58 of this title. In 
addition, for PHA projects and IHA projects under the SRO component, 
environmental reviews will be performed by State, local government, 
Indian tribe, or Alaska native village ``nonrecipient responsible 
entities'' as provided under part 58 of this title. HUD is permitted to 
approve such applications subject to the completion of reviews by the 
applicant in accordance with part 58 of this title. Applicants 
performing these reviews may adopt relevant and adequate prior reviews 
conducted by HUD or another governmental entity if the reviews meet the 
particular requirements of the Federal environmental law or authority 
under which they would be adopted, and only under certain conditions 
(e.g., a determination that no environmentally significant changes have 
occurred since the review was done). Applicants who adopt such relevant 
and adequate prior reviews may include the environmental certification 
and Request for Release of Funds with their applications.
    (b) Environmental review by HUD. With regard to the environmental 
effects of applications for which HUD performs the review, HUD will 
undertake its review in accordance with the provisions of NEPA and the 
related authorities listed in 24 CFR 50.4. HUD may eliminate an 
application from consideration where the application would require an 
Environmental Impact Statement (EIS). PHA applicants and IHA applicants 
(other than under the SRO component) must include in their application 
an assurance that the applicant will:
    (1) Not enter into a contract for, or otherwise commit HUD or local 
funds for, acquisition, rehabilitation, conversion, lease, repair, or 
construction of property to provide housing under the program, prior to 
HUD's completion of the review and approval of the application;
    (2) Supply HUD with information necessary for HUD to perform any 
applicable environmental review when requested under Sec. 582.225(a); 
and
    (3) Carry out mitigating measures required by HUD or ensure that 
alternate sites are utilized.
    (c) Environmental review by applicants or nonrecipient responsible 
entities. (1) An applicant that is required under paragraph (a)(2) of 
this section to assume environmental review responsibility must include 
in its application an assurance that the applicant will assume all the 
environmental review responsibility that would otherwise be performed by 
HUD as the responsible Federal official under NEPA and related 
authorities listed in 24 CFR 58.5. A PHA or IHA applicant under the SRO 
component must include in its application an assurance by the 
nonrecipient responsible entity that the entity will assume all the 
environmental review responsibility that would otherwise be performed by 
HUD as the responsible

[[Page 241]]

Federal official under NEPA and related authorities listed in 24 CFR 
58.5.
    (2) For applicants required to assume environmental review 
responsibility and for PHAs and IHAs under the SRO component, the award 
of funding is subject to completion of the environmental 
responsibilities set out in 24 CFR part 58 within a reasonable time 
period after notification of the award. (This provision does not 
preclude the applicant from enclosing its environmental certification 
and Request for Release of Funds with its application.)
    (i) Upon completion of the requirements in 24 CFR part 58:
    (A) Applicants required to assume environmental review 
responsibility must certify the completion;
    (B) PHA and IHA applicants under the SRO component must submit the 
nonrecipient responsible entities' certification of completion; and
    (C) All applicants must submit a Request for Release of Funds. This 
submission is not required in cases in which the applicant determines, 
in accordance with part 58 that its program components are totally 
exempt.
    (ii) HUD will not release grant funds if the recipient or any other 
party commits grant funds (i.e., incurs any costs or expenditures to be 
paid or reimbursed with such funds) before the grantee submits and HUD 
approves its Request for Release of Funds (when such submission is 
required).

[61 FR 51170, Sept. 30, 1996]



                     Subpart D--Program Requirements



Sec. 582.300  General operation.

    (a) Participation of homeless individuals. (1) Each recipient must 
provide for the consultation and participation of not less than one 
homeless individual or formerly homeless individual on the board of 
directors or other equivalent policy-making entity of the recipient, to 
the extent that the entity considers and makes policies and decisions 
regarding any housing assisted under this part or services for the 
participants. This requirement is waived if the applicant is unable to 
meet the requirement and presents a plan, which HUD approves, to 
otherwise consult with homeless or formerly homeless individuals in 
considering and making such policies and decisions. Participation by 
such an individual who also is a participant under the program does not 
constitute a conflict of interest under Sec. 582.340(b) of this part.
    (2) To the maximum extent practicable, each recipient must involve 
homeless individuals and families, through employment, volunteer 
services, or otherwise, in constructing or rehabilitating housing 
assisted under this part and in providing supportive services required 
under Sec. 582.215 of this part.
    (b) Ongoing assessment of housing and supportive services. Each 
recipient of assistance must conduct an ongoing assessment of the 
housing assistance and supportive services required by the participants, 
and make adjustments as appropriate.
    (c) Adequate supportive services. Each recipient must assure that 
adequate supportive services are available to participants in the 
program.
    (d) Records and reports. (1) Each recipient must keep any records 
and, within the timeframe required, make any reports (including those 
pertaining to race, ethnicity, gender, and disability status data) that 
HUD may require.
    (2) Each recipient must keep on file, and make available to the 
public on request, a description of the procedures used to select 
sponsors under the SRA component and buildings under the SRO, SRA, and 
PRA components.
    (3) Each recipient must develop, and make available to the public 
upon request, its procedures for managing the rental housing assistance 
funds provided by HUD. At a minimum, such procedures must describe how 
units will be identified and selected; how the responsibility for 
inspections will be handled; the process for deciding which unit a 
participant will occupy; how participants will be placed in, or assisted 
in finding appropriate housing; how rent calculations will be made and 
the amount of rental assistance payments determined; and what safeguards

[[Page 242]]

will be used to prevent the misuse of funds.

(Approved by the Office of Management and Budget under control number 
2506-0118)

[58 FR 13892, Mar. 15, 1993, as amended at 61 FR 51171, Sept. 30, 1996]



Sec. 582.305  Housing quality standards; rent reasonableness.

    (a) Housing quality standards. Housing assisted under this part must 
meet the applicable housing quality standards (HQS) under Sec. 982.401 
of this title--except that Sec. 982.401(j) of this title does not apply 
and instead part 35, subparts A, B, K and R of this title apply--and, 
for SRO under Sec. 882.803(b) of this title. Before any assistance will 
be provided on behalf of a participant, the recipient, or another entity 
acting on behalf of the recipient (other than the owner of the housing), 
must physically inspect each unit to assure that the unit meets the HQS. 
Assistance will not be provided for units that fail to meet the HQS, 
unless the owner corrects any deficiencies within 30 days from the date 
of the lease agreement and the recipient verifies that all deficiencies 
have been corrected. Recipients must also inspect all units at least 
annually during the grant period to ensure that the units continue to 
meet the HQS.
    (b) Rent reasonableness. HUD will only provide assistance for a unit 
for which the rent is reasonable. For TRA, PRA, and SRA, it is the 
responsibility of the recipient to determine whether the rent charged 
for the unit receiving rental assistance is reasonable in relation to 
rents being charged for comparable unassisted units, taking into account 
the location, size, type, quality, amenities, facilities, and management 
and maintenance of each unit, as well as not in excess of rents 
currently being charged by the same owner for comparable unassisted 
units. For SRO, rents are calculated in accordance with 24 CFR 
882.805(g).

[58 FR 13892, Mar. 15, 1993, as amended at 61 FR 51171, Sept. 30, 1996; 
64 FR 50226, Sept. 15, 1999]



Sec. 582.310  Resident rent.

    (a) Amount of rent. Each participant must pay rent in accordance 
with section 3(a)(1) of the U.S. Housing Act of 1937 (42 U.S.C. 
1437a(a)(1)), except that in determining the rent of a person occupying 
an intermediate care facility assisted under title XIX of the Social 
Security Act, the gross income of this person is the same as if the 
person were being assisted under title XVI of the Social Security Act.
    (b) Calculating income. (1) Income of participants must be 
calculated in accordance with 24 CFR 5.609 and 24 CFR 5.611(a).
    (2) Recipients must examine a participant's income initially, and at 
least annually thereafter, to determine the amount of rent payable by 
the participant. Adjustments to a participant's rental payment must be 
made as necessary.
    (3) As a condition of participation in the program, each participant 
must agree to supply the information or documentation necessary to 
verify the participant's income. Participants must provide the recipient 
information at any time regarding changes in income or other 
circumstances that may result in changes to a participant's rental 
payment.

[66 FR 6225, Jan. 19, 2001]



Sec. 582.315  Occupancy agreements.

    (a) Initial occupancy agreement. Participants must enter into an 
occupancy agreement for a term of at least one month. The occupancy 
agreement must be automatically renewable upon expiration, except on 
prior notice by either party.
    (b) Terms of agreement. In addition to standard lease provisions, 
the occupancy agreement may also include a provision requiring the 
participant to take part in the supportive services provided through the 
program as a condition of continued occupancy.



Sec. 582.320  Termination of assistance to participants.

    (a) Termination of assistance. The recipient may terminate 
assistance to a participant who violates program requirements or 
conditions of occupancy. Recipients must exercise judgment and examine 
all extenuating circumstances in determining when violations are serious 
enough to warrant termination, so that a participant's assistance is 
terminated only in the most severe

[[Page 243]]

cases. Recipients are not prohibited from resuming assistance to a 
participant whose assistance has been terminated.
    (b) Due process. In terminating assistance to a participant, the 
recipient must provide a formal process that recognizes the rights of 
individuals receiving assistance to due process of law. This process, at 
a minimum, must consist of:
    (1) Written notice to the participant containing a clear statement 
of the reasons for termination;
    (2) A review of the decision, in which the participant is given the 
opportunity to present written or oral objections before a person other 
than the person (or a subordinate of that person) who made or approved 
the termination decision; and
    (3) Prompt written notice of the final decision to the participant.



Sec. 582.325  Outreach activities.

    Recipients must use their best efforts to ensure that eligible hard-
to-reach persons are served by S+C. Recipients are expected to make 
sustained efforts to engage eligible persons so that they may be brought 
into the program. Outreach should be primarily directed toward eligible 
persons who have a nighttime residence that is an emergency shelter or a 
public or private place not designed for, or ordinarily used as, a 
regular sleeping accommodation for human beings (e.g., persons living in 
cars, streets, and parks). Outreach activities are considered to be a 
supportive service, and the value of such activities that occur after 
the execution of the grant agreement may be included in meeting the 
matching requirement.



Sec. 582.330  Nondiscrimination and equal opportunity requirements.

    (a) General. Recipients may establish a preference as part of their 
admissions procedures for one or more of the statutorily targeted 
populations (i.e., seriously mentally ill, alcohol or substance abusers, 
or persons with AIDS and related diseases). However, other eligible 
disabled homeless persons must be considered for housing designed for 
the target population unless the recipient can demonstrate that there is 
sufficient demand by the target population for the units, and other 
eligible disabled homeless persons would not benefit from the primary 
supportive services provided.
    (b) Compliance with requirements. (1) In addition to the 
nondiscrimination and equal opportunity requirements set forth in 24 CFR 
part 5, recipients serving a designated population of homeless persons 
must, within the designated population, comply with the prohibitions 
against discrimination against handicapped individuals under section 503 
of the Rehabilitation Act of 1973 (29 U.S.C. 794) and implementing 
regulations at 41 CFR chapter 60-741.
    (2) The nondiscrimination and equal opportunity requirements set 
forth at part 5 of this title are modified as follows:
    (i) The Indian Civil Rights Act (25 U.S.C. 1301 et seq.) applies to 
tribes when they exercise their powers of self-government, and to IHAs 
when established by the exercise of such powers. When an IHA is 
established under State law, the applicability of the Indian Civil 
Rights Act will be determined on a case-by-case basis. Projects subject 
to the Indian Civil Rights Act must be developed and operated in 
compliance with its provisions and all implementing HUD requirements, 
instead of title VI and the Fair Housing Act and their implementing 
regulations.
    (ii) [Reserved]
    (c) Affirmative outreach. (1) If the procedures that the recipient 
intends to use to make known the availability of the program are 
unlikely to reach persons of any particular race, color, religion, sex, 
age, national origin, familial status, or handicap who may qualify for 
assistance, the recipient must establish additional procedures that will 
ensure that interested persons can obtain information concerning the 
assistance.
    (2) The recipient must adopt procedures to make available 
information on the existence and locations of facilities and services 
that are accessible to persons with a handicap and maintain evidence of 
implementation of the procedures.

[[Page 244]]

    (d) The accessibility requirements, reasonable modification, and 
accommodation requirements of the Fair Housing Act and of section 504 of 
the Rehabilitation Act of 1973, as amended.

[58 FR 13892, Mar. 15, 1993, as amended at 61 FR 5210, Feb. 9, 1996]



Sec. 582.335  Displacement, relocation, and real property acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, recipients must assure that they have taken all 
reasonable steps to minimize the displacement of persons (families, 
individuals, businesses, nonprofit organizations, and farms) as a result 
of supportive housing assisted under this part.
    (b) Relocation assistance for displaced persons. A displaced person 
(defined in paragraph (f) of this section) must be provided relocation 
assistance at the levels described in, and in accordance with, the 
requirements of the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (URA) (42 U.S.C. 4601-4655) and 
implementing regulations at 49 CFR part 24.
    (c) Real property acquisition requirements. The acquisition of real 
property for supportive housing is subject to the URA and the 
requirements described in 49 CFR part 24, subpart B.
    (d) Responsibility of recipient. (1) The recipient must certify 
(i.e., provide assurance of compliance) that it will comply with the 
URA, the regulations at 49 CFR part 24, and the requirements of this 
section, and must ensure such compliance notwithstanding any third 
party's contractual obligation to the recipient to comply with these 
provisions.
    (2) The cost of required relocation assistance is an eligible 
project cost in the same manner and to the same extent as other project 
costs. Such costs also may be paid for with local public funds or funds 
available from other sources.
    (3) The recipient must maintain records in sufficient detail to 
demonstrate compliance with provisions of this section.
    (e) Appeals. A person who disagrees with the recipient's 
determination concerning whether the person qualifies as a ``displaced 
person,'' or the amount of relocation assistance for which the person is 
eligible, may file a written appeal of that determination with the 
recipient. A low-income person who is dissatisfied with the recipient's 
determination on his or her appeal may submit a written request for 
review of that determination to the HUD field office.
    (f) Definition of displaced person. (1) For purposes of this 
section, the term ``displaced person'' means a person (family, 
individual, business, nonprofit organization, or farm) that moves from 
real property, or moves personal property from real property permanently 
as a direct result of acquisition, rehabilitation, or demolition for 
supportive housing project assisted under this part. The term 
``displaced person'' includes, but may not be limited to:
    (i) A person that moves permanently from the real property after the 
property owner (or person in control of the site) issues a vacate notice 
or refuses to renew an expiring lease, if the move occurs on or after:
    (A) The date that the recipient submits to HUD an application for 
assistance that is later approved and funded, if the recipient has 
control of the project site; or
    (B) The date that the recipient obtains control of the project site, 
if such control is obtained after the submission of the application to 
HUD.
    (ii) Any person, including a person who moves before the date 
described in paragraph (f)(1)(i) of this section, if the recipient or 
HUD determines that the displacement resulted directly from acquisition, 
rehabilitation, or demolition for the assisted project.
    (iii) A tenant-occupant of a dwelling unit who moves permanently 
from the building/complex on or after the date of the ``initiation of 
negotiations'' (see paragraph (g) of this section) if the move occurs 
before the tenant has been provided written notice offering him or her 
the opportunity to lease and occupy a suitable, decent, safe and 
sanitary dwelling in the same building/complex, under reasonable terms 
and conditions, upon completion of the project. Such reasonable terms 
and conditions must include a monthly rent and estimated average monthly 
utility costs that do not exceed the greater of:

[[Page 245]]

    (A) The tenant's monthly rent before the initiation of negotiations 
and estimated average utility costs, or
    (B) 30 percent of gross household income. If the initial rent is at 
or near the maximum, there must be a reasonable basis for concluding at 
the time the project is initiated that future rent increases will be 
modest.
    (iv) A tenant of a dwelling who is required to relocate temporarily, 
but does not return to the building/complex, if either:
    (A) A tenant is not offered payment for all reasonable out-of-pocket 
expenses incurred in connection with the temporary relocation, or
    (B) Other conditions of the temporary relocation are not reasonable.
    (v) A tenant of a dwelling who moves from the building/complex 
permanently after he or she has been required to move to another unit in 
the same building/complex, if either:
    (A) The tenant is not offered reimbursement for all reasonable out-
of-pocket expenses incurred in connection with the move; or
    (B) Other conditions of the move are not reasonable.
    (2) Notwithstanding the provisions of paragraph (f)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State, or local or tribal law, or other good 
cause, and HUD determines that the eviction was not undertaken for the 
purpose of evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
application and, before signing a lease and commencing occupancy, was 
provided written notice of the project, its possible impact on the 
person (e.g., the person may be displaced, temporarily relocated, or 
suffer a rent increase) and the fact that the person would not qualify 
as a ``displaced person'' (or for any assistance provided under this 
section), if the project is approved;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The recipient may request, at any time, HUD's determination of 
whether a displacement is or would be covered under this section.
    (g) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a residential tenant displaced as a direct result of 
privately undertaken rehabilitation, demolition, or acquisition of the 
real property, the term ``initiation of negotiations'' means the 
execution of the agreement between the recipient and HUD, or selection 
of the project site, if later.



Sec. 582.340  Other Federal requirements.

    In addition to the Federal requirements set forth in 24 CFR part 5, 
the following requirements apply to this program:
    (a) OMB Circulars.\1\ (1) The policies, guidelines, and requirements 
of OMB Circular No. A-87 (Cost Principles Applicable to Grants, 
Contracts and Other Agreements with State and Local Governments) and 24 
CFR part 85 apply to the acceptance and use of assistance under the 
program by governmental entities, and OMB Circular Nos. A-110 (Grants 
and Cooperative Agreements with Institutions of Higher Education, 
Hospitals, and Other Nonprofit Organizations) and 24 CFR part 84 and A-
122 (Cost Principles Applicable to Grants, Contracts and Other 
Agreements with Nonprofit Institutions) apply to the acceptance and use 
of assistance by private nonprofit organizations, except where 
inconsistent with provisions of the McKinney Act, other Federal 
statutes, or this part.
---------------------------------------------------------------------------

    \1\ Copies of OMB Circulars may be obtained from E.O.P. 
Publications, room 2200, New Executive Office Building, Washington, DC 
20503, telephone (202) 395-7332. (This is not a toll-free number.) There 
is a limit of two free copies.
---------------------------------------------------------------------------

    (2) The financial management systems used by recipients under this 
program must provide for audits in accordance with the provisions of 24 
CFR

[[Page 246]]

part 44. Private nonprofit organizations who are subrecipients are 
subject to the audit requirements of 24 CFR part 45. HUD may perform or 
require additional audits as it finds necessary or appropriate.
    (b) Conflict of interest. (1) In addition to the conflict of 
interest requirements in 24 CFR part 85, no person who is an employee, 
agent, consultant, officer, or elected or appointed official of the 
recipient and who exercises or has exercised any functions or 
responsibilities with respect to assisted activities, or who is in a 
position to participate in a decisionmaking process or gain inside 
information with regard to such activities, may obtain a personal or 
financial interest or benefit from the activity, or have an interest in 
any contract, subcontract, or agreement with respect thereto, or the 
proceeds thereunder, either for himself or herself or for those with 
whom he or she has family or business ties, during his or her tenure or 
for one year thereafter. Participation by homeless individuals who also 
are participants under the program in policy or decisionmaking under 
Sec. 582.300 of this part does not constitute a conflict of interest.
    (2) Upon the written request of the recipient, HUD may grant an 
exception to the provisions of paragraph (b)(1) of this section on a 
case-by-case basis when it determine that the exception will serve to 
further the purposes of the program and the effective and efficient 
administration of the recipient's project. An exception may be 
considered only after the recipient has provided the following:
    (i) For States, units of general local governments, PHAs and IHAs, a 
disclosure of the nature of the conflict, accompanied by an assurance 
that there has been public disclosure of the conflict and a description 
of how the public disclosure was made; and
    (ii) For all recipients, an opinion of the recipient's attorney that 
the interest for which the exception is sought would not violate State 
or local law.
    (3) In determining whether to grant a requested exception after the 
recipient has satisfactorily met the requirement of paragraph (b)(2) of 
this section, HUD will consider the cumulative effect of the following 
factors, where applicable:
    (i) Whether the exception would provide a significant cost benefit 
or an essential degree of expertise to the project which would otherwise 
not be available;
    (ii) Whether the person affected is a member of a group or class of 
eligible persons and the exception will permit such person to receive 
generally the same interests or benefits as are being made available or 
provided to the group or class;
    (iii) Whether the affected person has withdrawn from his or her 
functions or responsibilities, or the decisionmaking process with 
respect to the specific assisted activity in question;
    (iv) Whether the interest or benefit was present before the affected 
person was in a position as described in paragraph (b)(1) of this 
section;
    (v) Whether undue hardship will result either to the recipient or 
the person affected when weighed against the public interest served by 
avoiding the prohibited conflict; and
    (vi) Any other relevant considerations.

[58 FR 13892, Mar. 15, 1993, as amended at 61 FR 5210, Feb. 9, 1996; 61 
FR 51171, Sept. 30, 1996; 62 FR 13539, Mar. 21, 1997]



                        Subpart E--Administration



Sec. 582.400  Grant agreement.

    (a) General. The grant agreement will be between HUD and the 
recipient. HUD will hold the recipient responsible for the overall 
administration of the program, including overseeing any subrecipients or 
contractors. Under the grant agreement, the recipient must agree to 
operate the program in accordance with the provisions of this part and 
other applicable HUD regulations.
    (b) Enforcement. HUD will enforce the obligations in the grant 
agreement through such action as may be necessary, including recapturing 
assistance awarded under the program.



Sec. 582.405  Program changes.

    (a) Changes. HUD must approve, in writing, any significant changes 
to an approved program. Significant changes that require approval 
include, but are not limited to, a change in sponsor , a change in the 
project site for SRO or

[[Page 247]]

PRA with rehabilitation projects, and a change in the type of persons 
with disabilities to be served. Depending on the nature of the change, 
HUD may require a new certification of consistency with the CHAS (see 
Sec. 582.120).
    (b) Approval. Approval for such changes is contingent upon the 
application ranking remaining high enough to have been competitively 
selected for funding in the year the application was selected.



Sec. 582.410  Obligation and deobligation of funds.

    (a) Obligation of funds. When HUD and the applicant execute a grant 
agreement, HUD will obligate funds to cover the amount of the approved 
grant. The recipient will be expected to carry out the activities as 
proposed in the application. After the initial obligation of funds, HUD 
is under no obligation to make any upward revisions to the grant amount 
for any approved assistance.
    (b) Deobligation. (1) HUD may deobligate all or a portion of the 
approved grant amount if such amount is not expended in a timely manner, 
or the proposed housing for which funding was approved or the supportive 
services proposed in the application are not provided in accordance with 
the approved application, the requirements of this part, and other 
applicable HUD regulations. The grant agreement may set forth other 
circumstances under which funds may be deobligated, and other sanctions 
may be imposed.
    (2) HUD may readvertise, in a notice of fund availability, the 
availability of funds that have been deobligated, or may reconsider 
applications that were submitted in response to the most recently 
published notice of fund availability and select applications for 
funding with the deobligated funds. Such selections would be made in 
accordance with the selection process described in Sec. 582.220 of this 
part. Any selections made using deobligated funds will be subject to 
applicable appropriation act requirements governing the use of 
deobligated funding authority.

(Approved by the Office of Management and Budget under control number 
2506-0118)



PART 583--SUPPORTIVE HOUSING PROGRAM--Table of Contents




                           Subpart A--General

Sec.
583.1  Purpose and scope.
583.5  Definitions.

                     Subpart B--Assistance Provided

583.100  Types and uses of assistance.
583.105  Grants for acquisition and rehabilitation.
583.110  Grants for new construction.
583.115  Grants for leasing.
583.120  Grants for supportive service costs.
583.125  Grants for operating costs.
583.130  Commitment of grant amounts for leasing, supportive services, 
          and operating costs.
583.135  Administrative costs.
583.140  Technical assistance.
583.145  Matching requirements.
583.150  Limitations on use of assistance.
583.155  Consolidated plan.

             Subpart C--Application and Grant Award Process

583.200  Application and grant award.
583.230  Environmental review.
583.235  Renewal grants.

                     Subpart D--Program Requirements

583.300  General operation.
583.305  Term of commitment; repayment of grants; prevention of undue 
          benefits.
583.310  Displacement, relocation, and acquisition.
583.315  Resident rent.
583.320  Site control.
583.325  Nondiscrimination and equal opportunity requirements.
583.330  Applicability of other Federal requirements.

                        Subpart E--Administration

583.400  Grant agreement.
583.405  Program changes.
583.410  Obligation and deobligation of funds.

    Authority: 42 U.S.C. 11389 and 3535(d).

    Source: 58 FR 13871, Mar. 15, 1993, unless otherwise noted.



                           Subpart A--General



Sec. 583.1  Purpose and scope.

    (a) General. The Supportive Housing Program is authorized by title 
IV of the Stewart B. McKinney Homeless Assistance Act (the McKinney Act) 
(42 U.S.C. 11381-11389). The Supportive

[[Page 248]]

Housing program is designed to promote the development of supportive 
housing and supportive services, including innovative approaches to 
assist homeless persons in the transition from homelessness, and to 
promote the provision of supportive housing to homeless persons to 
enable them to live as independently as possible.
    (b) Components. Funds under this part may be used for:
    (1) Transitional housing to facilitate the movement of homeless 
individuals and families to permanent housing;
    (2) Permanent housing that provides long-term housing for homeless 
persons with disabilities;
    (3) Housing that is, or is part of, a particularly innovative 
project for, or alternative methods of, meeting the immediate and long-
term needs of homeless persons; or
    (4) Supportive services for homeless persons not provided in 
conjunction with supportive housing.

[58 FR 13871, Mar. 15, 1993, as amended at 61 FR 51175, Sept. 30, 1996]



Sec. 583.5  Definitions.

    As used in this part:
    Applicant is defined in section 422(1) of the McKinney Act (42 
U.S.C. 11382(1)). For purposes of this definition, governmental entities 
include those that have general governmental powers (such as a city or 
county), as well as those that have limited or special powers (such as 
public housing agencies).
    Consolidated plan means the plan that a jurisdiction prepares and 
submits to HUD in accordance with 24 CFR part 91.
    Date of initial occupancy means the date that the supportive housing 
is initially occupied by a homeless person for whom HUD provides 
assistance under this part. If the assistance is for an existing 
homeless facility, the date of initial occupancy is the date that 
services are first provided to the residents of supportive housing with 
funding under this part.
    Date of initial service provision means the date that supportive 
services are initially provided with funds under this part to homeless 
persons who do not reside in supportive housing. This definition applies 
only to projects funded under this part that do not provide supportive 
housing.
    Disability is defined in section 422(2) of the McKinney Act (42 
U.S.C. 11382(2)).
    Homeless person means an individual or family that is described in 
section 103 of the McKinney Act (42 U.S.C. 11302).
    Metropolitan city is defined in section 102(a)(4) of the Housing and 
Community Development Act of 1974 (42 U.S.C. 5302(a)(4)). In general, 
metropolitan cities are those cities that are eligible for an 
entitlement grant under 24 CFR part 570, subpart D.
    New construction means the building of a structure where none 
existed or an addition to an existing structure that increases the floor 
area by more than 100 percent.
    Operating costs is defined in section 422(5) of the McKinney Act (42 
U.S.C. 11382(5)).
    Outpatient health services is defined in section 422(6) of the 
McKinney Act (42 U.S.C. 11382(6)).
    Permanent housing for homeless persons with disabilities is defined 
in section 424(c) of the McKinney Act (42 U.S.C. 11384(c)).
    Private nonprofit organization is defined in section 422(7) (A), 
(B), and (D) of the McKinney Act (42 U.S.C. 11382(7) (A), (B), and (D)). 
The organization must also have a functioning accounting system that is 
operated in accordance with generally accepted accounting principles, or 
designate an entity that will maintain a functioning accounting system 
for the organization in accordance with generally accepted accounting 
principles.
    Project is defined in sections 422(8) and 424(d) of the McKinney Act 
(42 U.S.C. 11382(8), 11384(d)).
    Recipient is defined in section 422(9) of the McKinney Act (42 
U.S.C. 11382(9)).
    Rehabilitation means the improvement or repair of an existing 
structure or an addition to an existing structure that does not increase 
the floor area by more than 100 percent. Rehabilitation does not include 
minor or routine repairs.
    State is defined in section 422(11) of the McKinney Act (42 U.S.C. 
11382(11)).

[[Page 249]]

    Supportive housing is defined in section 424(a) of the McKinney Act 
(42 U.S.C. 11384(a)).
    Supportive services is defined in section 425 of the McKinney Act 
(42 U.S.C. 11385).
    Transitional housing is defined in section 424(b) of the McKinney 
Act (42 U.S.C. 11384(b)). See also Sec. 583.300(j).
    Tribe is defined in section 102 of the Housing and Community 
Development Act of 1974 (42 U.S.C. 5302).
    Urban county is defined in section 102(a)(6) of the Housing and 
Community Development Act of 1974 (42 U.S.C. 5302(a)(6)). In general, 
urban counties are those counties that are eligible for an entitlement 
grant under 24 CFR part 570, subpart D.

[61 FR 51175, Sept. 30, 1996]



                     Subpart B--Assistance Provided



Sec. 583.100  Types and uses of assistance.

    (a) Grant assistance. Assistance in the form of grants is available 
for acquisition of structures, rehabilitation of structures, acquisition 
and rehabilitation of structures, new construction, leasing, operating 
costs for supportive housing, and supportive services, as described in 
Secs. 583.105 through 583.125. Applicants may apply for more than one 
type of assistance.
    (b) Uses of grant assistance. Grant assistance may be used to:
    (1) Establish new supportive housing facilities or new facilities to 
provide supportive services;
    (2) Expand existing facilities in order to increase the number of 
homeless persons served;
    (3) Bring existing facilities up to a level that meets State and 
local government health and safety standards;
    (4) Provide additional supportive services for residents of 
supportive housing or for homeless persons not residing in supportive 
housing;
    (5) Purchase HUD-owned single family properties currently leased by 
the applicant for use as a homeless facility under 24 CFR part 291; and
    (6) Continue funding supportive housing where the recipient has 
received funding under this part for leasing, supportive services, or 
operating costs.
    (c) Structures used for multiple purposes. Structures used to 
provide supportive housing or supportive services may also be used for 
other purposes, except that assistance under this part will be available 
only in proportion to the use of the structure for supportive housing or 
supportive services.
    (d) Technical assistance. HUD may offer technical assistance, as 
described in Sec. 583.140.

[58 FR 13871, Mar. 15, 1993, as amended at 59 FR 36891, July 19, 1994]



Sec. 583.105  Grants for acquisition and rehabilitation.

    (a) Use. HUD will grant funds to recipients to:
    (1) Pay a portion of the cost of the acquisition of real property 
selected by the recipients for use in the provision of supportive 
housing or supportive services, including the repayment of any 
outstanding debt on a loan made to purchase property that has not been 
used previously as supportive housing or for supportive services;
    (2) Pay a portion of the cost of rehabilitation of structures, 
including cost-effective energy measures, selected by the recipients to 
provide supportive housing or supportive services; or
    (3) Pay a portion of the cost of acquisition and rehabilitation of 
structures, as described in paragraphs (a)(1) and (2) of this section.
    (b) Amount. The maximum grant available for acquisition, 
rehabilitation, or acquisition and rehabilitation is the lower of:
    (1) $200,000; or
    (2) The total cost of the acquisition, rehabilitation, or 
acquisition and rehabilitation minus the applicant's contribution toward 
the cost.
    (c) Increased amounts. In areas determined by HUD to have high 
acquisition and rehabilitation costs, grants of more than $200,000, but 
not more than $400,000, may be available.



Sec. 583.110  Grants for new construction.

    (a) Use. HUD will grant funds to recipients to pay a portion of the 
cost of new construction, including cost-effective energy measures and 
the cost of land associated with that construction, for use in the 
provision of supportive housing. If the grant funds are used for new 
construction, the applicant must demonstrate that the costs associated

[[Page 250]]

with new construction are substantially less than the costs associated 
with rehabilitation or that there is a lack of available appropriate 
units that could be rehabilitated at a cost less than new construction. 
For purposes of this cost comparison, costs associated with 
rehabilitation or new construction may include the cost of real property 
acquisition.
    (b) Amount. The maximum grant available for new construction is the 
lower of:
    (1) $400,000; or
    (2) The total cost of the new construction, including the cost of 
land associated with that construction, minus the applicant's 
contribution toward the cost of same.



Sec. 583.115  Grants for leasing.

    (a) General. HUD will provide grants to pay (as described in 
Sec. 583.130 of this part) for the actual costs of leasing a structure 
or structures, or portions thereof, used to provide supportive housing 
or supportive services for up to five years.
    (b)(1) Leasing structures. Where grants are used to pay rent for all 
or part of structures, the rent paid must be reasonable in relation to 
rents being charged in the area for comparable space. In addition, the 
rent paid may not exceed rents currently being charged by the same owner 
for comparable space.
    (2) Leasing individual units. Where grants are used to pay rent for 
individual housing units, the rent paid must be reasonable in relation 
to rents being charged for comparable units, taking into account the 
location, size, type, quality, amenities, facilities, and management 
services. In addition, the rents may not exceed rents currently being 
charged by the same owner for comparable unassisted units, and the 
portion of rents paid with grant funds may not exceed HUD-determined 
fair market rents. Recipients may use grant funds in an amount up to one 
month's rent to pay the non-recipient landlord for any damages to leased 
units by homeless participants.

[58 FR 13871, Mar. 15, 1993, as amended at 59 FR 36891, July 19, 1994]



Sec. 583.120  Grants for supportive services costs.

    (a) General. HUD will provide grants to pay (as described in 
Sec. 583.130 of this part) for the actual costs of supportive services 
for homeless persons for up to five years. All or part of the supportive 
services may be provided directly by the recipient or by arrangement 
with public or private service providers.
    (b) Supportive services costs. Costs associated with providing 
supportive services include salaries paid to providers of supportive 
services and any other costs directly associated with providing such 
services. For a transitional housing project, supportive services costs 
also include the costs of services provided to former residents of 
transitional housing to assist their adjustment to independent living. 
Such services may be provided for up to six months after they leave the 
transitional housing facility.

[58 FR 13871, Mar. 15, 1993, as amended at 59 FR 36891, July 19, 1994]



Sec. 583.125  Grants for operating costs.

    (a) General. HUD will provide grants to pay a portion (as described 
in Sec. 583.130) of the actual operating costs of supportive housing for 
up to five years.
    (b) Operating costs. Operating costs are those associated with the 
day-to-day operation of the supportive housing. They also include the 
actual expenses that a recipient incurs for conducting on-going 
assessments of the supportive services needed by residents and the 
availability of such services; relocation assistance under Sec. 583.310, 
including payments and services; and insurance.
    (c) Recipient match requirement for operating costs. Assistance for 
operating costs will be available for up to 75 percent of the total cost 
in each year of the grant term. The recipient must pay the percentage of 
the actual operating costs not funded by HUD. At the end of each 
operating year, the recipient must demonstrate that it has met its match 
requirement of the costs for that year.

[58 FR 13871, Mar. 15, 1993, as amended at 61 FR 51175, Sept. 30, 1996; 
65 FR 30823, May 12, 2000]

[[Page 251]]



Sec. 583.130  Commitment of grant amounts for leasing, supportive services, and operating costs.

    Upon execution of a grant agreement covering assistance for leasing, 
supportive services, or operating costs, HUD will obligate amounts for a 
period not to exceed five operating years. The total amount obligated 
will be equal to an amount necessary for the specified years of 
operation, less the recipient's share of operating costs.

(Approved by the Office of Management and Budget under OMB control 
number 2506-0112)

[59 FR 36891, July 19, 1994]



Sec. 583.135  Administrative costs.

    (a) General. Up to five percent of any grant awarded under this part 
may be used for the purpose of paying costs of administering the 
assistance.
    (b) Administrative costs. Administrative costs include the costs 
associated with accounting for the use of grant funds, preparing reports 
for submission to HUD, obtaining program audits, similar costs related 
to administering the grant after the award, and staff salaries 
associated with these administrative costs. They do not include the 
costs of carrying out eligible activities under Secs. 583.105 through 
583.125.

[58 FR 13871, Mar. 15, 1993, as amended at 61 FR 51175, Sept. 30, 1996]



Sec. 583.140  Technical assistance.

    (a) General. HUD may set aside funds annually to provide technical 
assistance, either directly by HUD staff or indirectly through third-
party providers, for any supportive housing project. This technical 
assistance is for the purpose of promoting the development of supportive 
housing and supportive services as part of a continuum of care approach, 
including innovative approaches to assist homeless persons in the 
transition from homelessness, and promoting the provision of supportive 
housing to homeless persons to enable them to live as independently as 
possible.
    (b) Uses of technical assistance. HUD may use these funds to provide 
technical assistance to prospective applicants, applicants, recipients, 
or other providers of supportive housing or services for homeless 
persons, for supportive housing projects. The assistance may include, 
but is not limited to, written information such as papers, monographs, 
manuals, guides, and brochures; person-to-person exchanges; and training 
and related costs.
    (c) Selection of providers. From time to time, as HUD determines the 
need, HUD may advertise and competitively select providers to deliver 
technical assistance. HUD may enter into contracts, grants, or 
cooperative agreements, when necessary, to implement the technical 
assistance.

[59 FR 36892, July 19, 1994]



Sec. 583.145  Matching requirements.

    (a) General. The recipient must match the funds provided by HUD for 
grants for acquisition, rehabilitation, and new construction with an 
equal amount of funds from other sources.
    (b) Cash resources. The matching funds must be cash resources 
provided to the project by one or more of the following: the recipient, 
the Federal government, State and local governments, and private 
resources.
    (c) Maintenance of effort. State or local government funds used in 
the matching contribution are subject to the maintenance of effort 
requirements described at Sec. 583.150(a).



Sec. 583.150  Limitations on use of assistance.

    (a) Maintenance of effort. No assistance provided under this part 
(or any State or local government funds used to supplement this 
assistance) may be used to replace State or local funds previously used, 
or designated for use, to assist homeless persons.
    (b) Primarily religious organizations-- (1) Provision of assistance. 
(i) HUD will provide assistance to a recipient that is a primarily 
religious organization if the organization agrees to provide housing and 
supportive services in a manner that is free from religious influences 
and in accordance with the following principles:
    (A) It will not discriminate against any employee or applicant for 
employment on the basis of religion and will not limit employment or 
give preference in employment to persons on the basis of religion;

[[Page 252]]

    (B) It will not discriminate against any person applying for housing 
or supportive services on the basis of religion and will not limit such 
housing or services or give preference to persons on the basis of 
religion;
    (C) It will provide no religious instruction or counseling, conduct 
no religious worship or services, engage in no religious proselytizing, 
and exert no other religious influence in the provision of housing and 
supportive services.
    (ii) HUD will provide assistance to a recipient that is a primarily 
religious organization if the assistance will not be used by the 
organization to construct a structure, acquire a structure or to 
rehabilitate a structure owned by the organization, except as described 
in paragraph (c)(2) of this section.
    (2) Rehabilitation of structures owned by a primarily religious 
organization. Rehabilitation grants may be used to rehabilitate a 
structure owned by a primarily religious organization, if the following 
conditions are met:
    (i) The structure (or portion of the structure) that is to be 
rehabilitated with HUD assistance has been leased to a recipient that is 
an existing or newly established wholly secular organization (which may 
be established by the primarily religious organization under the 
provisions of paragraph (c)(3) of this section);
    (ii) The HUD assistance is provided to the wholly secular 
organization (and not the primarily religious organization) to make the 
improvements;
    (iii) The leased structure will be used exclusively for secular 
purposes available to all persons regardless of religion;
    (iv) The lease payments paid to the primarily religious organization 
do not exceed the fair market rent of the structure before the 
rehabilitation was done;
    (v) The portion of the cost of any improvements that benefit any 
unleased portion of the structure will be allocated to, and paid for by, 
the primarily religious organization;
    (vi) The primarily religious organization agrees that, if the 
recipient does not retain the use of the leased premises for wholly 
secular purposes for the useful life of the improvements, the primarily 
religious organization will pay an amount equal to the residual value of 
the improvements to the secular organization, and the secular 
organization will remit the amount to HUD.
    (3) Assistance to a wholly secular private nonprofit organization 
established by a primarily religious organization. (i) A primarily 
religious organization may establish a wholly secular private nonprofit 
organization to serve as a recipient. The wholly secular organization 
may be eligible to receive other forms of assistance available under 
this part.
    (A) The wholly secular organization must agree to provide housing 
and supportive services in a manner that is free from religious 
influences and in accordance with the principles set forth in paragraph 
(c)(1)(i) of this section.
    (B) The wholly secular organization may enter into a contract with 
the primarily religious organization to operate the supportive housing 
or to provide supportive services for the residents. In such a case, the 
primarily religious organization must agree in the contract to carry out 
its contractual responsibilities in a manner free from religious 
influences and in accordance with the principles set forth in paragraph 
(c)(1)(i) of this section.
    (C) The rehabilitation grants are subject to the requirements of 
paragraph (c)(2) of this section.
    (ii) HUD will not require the primarily religious organization to 
establish the wholly secular organization before the selection of its 
application. In such a case, the primarily religious organization may 
apply on behalf of the wholly secular organization. The application will 
be reviewed on the basis of the primarily religious organization's 
financial responsibility and capacity, and its commitment to provide 
appropriate resources to the wholly secular organization after 
formation. The requirement with regard to site control, described in 
Sec. 583.320, may be satisfied if the primarily religious organization 
demonstrates site control and a commitment to transfer control of the 
site to the wholly secular organization afte