[Federal Register Volume 77, Number 78 (Monday, April 23, 2012)]
[Rules and Regulations]
[Pages 24139-24146]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9693]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 570
[Docket No. FR-5181-F-02]
RIN 2506-AC22
State Community Development Block Grant Program: Administrative
Rule Changes
AGENCY: Office of the Assistant Secretary for Community Planning and
Development, HUD.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule makes changes to several sections of the
regulations for the Community Development Block Grant (CDBG) program
for states (State CDBG program). This final rule streamlines and
updates the regulations to reflect statutory changes, clarifies the
program income requirements, provides other clarifications to the State
CDBG program regulations, and makes a conforming change to the
regulations applicable to the CDBG Entitlement program. This final rule
also provides additional flexibility to states in their administration
of the program. The final rule follows publication of an October 17,
2008, proposed rule and takes into consideration the public comments
received on the proposed rule.
DATES: Effective Date: May 23, 2012.
FOR FURTHER INFORMATION CONTACT: Eva C. Fontheim, Community Planning
and Development Specialist, Office of Community Planning and
Development, Department of Housing and Urban Development, 451 Seventh
Street SW., Room 7182, Washington, DC 20410; telephone number 202-708-
1322 (this number is not toll-free). Individuals with speech or hearing
impairments may access this number through TTY by calling the toll-free
Federal Relay Service at 800-877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
On October 17, 2008, at 73 FR 61757, HUD published for public
comment a proposed rule that would revise HUD's regulations for the
State CDBG program in 24 CFR part 570, subpart I, in order to conform
the regulations to current statutory requirements concerning program
income, and to provide additional flexibility to states in implementing
their programs. Title I of the Housing and Community Development Act of
1974 (42 U.S.C. 5301-5320) (HCDA) established the statutory framework
for the CDBG program. The primary statutory objective of the CDBG
program is to develop viable communities, by providing decent housing
and a suitable living environment and by expanding economic
opportunities, principally for persons of low- and moderate-income.
HUD's regulations implementing the CDBG program are located in 24 CFR
part 570 (entitled ``Community Development Block Grants'').
Under the State CDBG program, states have the opportunity to
administer CDBG funds for nonentitlement areas. Nonentitlement areas
include those units of general local government that do not receive
CDBG funds directly. States participating in the State CDBG program
award grants only to units of general local government that carry out
development activities. Annually, each state develops funding
priorities and criteria for selecting projects. HUD's role under the
State CDBG program is to ensure state compliance with federal laws,
regulations, and policies. The regulations for the State CDBG program
are codified in subpart I of the part 570 regulations.
The proposed regulatory amendments described in the October 17,
2008, proposed rule were designed to clarify how HUD will administer
the State CDBG program. HUD proposed to streamline and update the
regulations to reflect statutory changes, clarify the program income
requirements, and provide other clarifications to the State CDBG
regulations that will provide states with additional flexibility in
their administration of the program. Interested readers should refer to
the preamble to the October 17, 2008, proposed rule for additional
information on the proposed regulatory changes to the State CDBG
program.
II. This Final Rule; Changes to the October 17, 2008, Proposed Rule
This final rule follows publication of the October 17, 2008,
proposed rule and takes into consideration the public comments received
on the proposed rule. The public comment period on the proposed rule
closed on December 16, 2008. HUD received eight responses. Commenters
included one public interest group and seven units of local government.
Most of the public comments pertained to the provisions of the proposed
rule concerning program income requirements.
After careful consideration of the issues raised by the commenters,
HUD has decided to adopt an amended version of the proposed rule.
Specifically, HUD has made the following changes to the October 17,
2008, proposed rule:
1. Administrative Expense Cap Time Period. The final rule
clarifies, at Sec. 570.489(a)(1), that the program income included in
the calculation determining the amount of allowable administrative and
technical assistance per program year is all of the program income
received in the program year, regardless of the fiscal year in which
the state grant funds were appropriated that generated the program
income.
2. Identifies Parties in the Grant Agreement for Calculating
Program Income. Section 570.489(e)(2)(v) of the final rule specifies
that the grant agreement referred to in this section is between the
state and the unit of general local government.
3. Entitlement Jurisdictions Receive Only an Incidental Benefit
From State CDBG Program Expenditures. The final rule, at Sec.
570.486(c), no longer mandates
[[Page 24140]]
that entitlement jurisdictions receive only an incidental benefit from
State CDBG program expenditures. Instead, if State CDBG program funds
are expended on activities located in entitlement jurisdictions, the
activities must significantly benefit residents of the state grant
recipient, must meet the nonentitlement jurisdiction's needs, and the
entitlement jurisdiction must make a meaningful contribution to the
project.
4. State Action Plans Including a Return of Program Income
Requirement on Local Governments. The final rule clarifies, at Sec.
570.489(e)(3)(ii)(A), that states that intend to require units of
general local government to return program income to the state, after
the action plan is already submitted and approved by HUD, may submit a
substantial amendment.
III. Discussion of Public Comments on the October 17, 2008, Proposed
Rule
The following section presents a summary of the significant issues
raised by the public comments in response to the October 17, 2008
proposed rule, and HUD's responses to those issues.
The summary of public comments is organized by category: section
III.A. discusses the administrative cap, section III.B. discusses
program-income requirements, section III.C. discusses spending funds
outside a jurisdiction of the recipient, and section III.D. discusses
audits.
A. Comments on the Administrative Expense Cap
Comments: Several commenters posed the following questions: ``What
is the time period used to calculate the amount of program income
received by the units of local government? Is it the amount received
from the preceding year? The preceding 2 years? If the state is able to
add additional program income to the current allocation to increase the
administrative costs, where does the program income come from--the
annual allocation to the state or the program income funds that come
back to the local grantees?''
HUD Response. To determine the program income portion of the
administrative expense cap, program income is counted in the program
year that it is received by the unit of general local government, or by
the unit of general local government's subgrantee. As noted above, HUD
has revised Sec. 570.489 to clarify that the program income included
in the calculation determining the amount of allowable administrative
and technical assistance per program year is all of the program income
received in the program year, regardless of the fiscal year in which
the state grant funds were appropriated that generated the program
income. For example, if the state is determining the administrative cap
for program year 2011, then the program income received by the unit of
general local government in 2011 is used in the calculation. The
program income that is used as part of the calculation to determine the
administrative cap is the program income that is received by the unit
of general local government during each program year regardless of
which year's allocation of funds generated the program income. The
administrative cap is based on the state's grant, program income, and
reallocated funds received by the state in the program year. This sets
the maximum State CDBG program funds that the state may expend on
administration.
Comment: Increase the administrative cap. Two commenters suggested
that HUD support an increase to the administrative cap.
HUD Response. The administrative cap is a statutory requirement.
Accordingly, because the change requested by the commenters is outside
HUD's authority, no change has been made to the proposed rule in
response to those comments.
B. Comments on Program Income Requirements
Comment: The program income threshold should be raised from $35,000
to $50,000. Three commenters expressed appreciation that the program
income threshold was increased from $25,000 to $35,000; however, they
felt that by increasing it further to $50,000, the states would be
further relieved of administrative requirements for program income.
HUD Response. HUD has not revised the proposed rule in response to
these comments. As noted in the preamble to the proposed rule, HUD's
proposal to increase the annual threshold to $35,000 was to account for
inflation that occurred since the program income threshold was
increased to $25,000 in 1995. As a result, any CDBG income below
$35,000 would not be considered program income and would therefore not
be subject to CDBG requirements, including tracking and reporting of
program income. The higher amount requested by the commenters would
exceed the adjustment required for inflation.
Comment: Concerning the Requirements That States Include the Use of
Program Income Retained by Local Governments in Their Annual
Performance and Evaluation Reports (PERs). Six commenters wrote that
the changes to the program income requirements would create an
administrative burden that would be duplicative of reports already
submitted by states. One commenter questioned if the state would need
to amend its PER if a unit of local government were late reporting its
program income. Another commenter suggested that program income
tracking should discontinue 5 years after closeout of the grant between
the state and the unit of general local government to be consistent
with the 5-year continued use requirements. Another commenter thought
the language in the proposed rule was confusing regarding the
``proceeds from the sale of real property purchased or improved with
CDBG funds, if the proceeds are received more than 5 years after the
expiration of the grant agreement.'' The commenter suggested that the
final rule should identify whether the grant agreement is between HUD
and the state or the unit of general local government and the state.
HUD Response. HUD is responsible to taxpayers for ensuring that all
CDBG program funds are spent in compliance with CDBG program
requirements and regulations. In order to fulfill this responsibility,
it is necessary that states report to HUD on all program income whether
retained by units of general local government or paid to the state, to
ensure that all program income is accounted for and is used for
eligible activities. States, in turn, need to require that local
governments report on program income. It is the state's responsibility
to collect program income data from their units of general local
government in a timely manner so that the data can be included in the
annual PER. States should make findings against units of general local
government that do not report program income in a timely manner. If a
state receives program income data after the PER due date, the data
must be included in the PER the following year with an explanation.
The requirement for states to track program income indefinitely is
governed by section 104(j)(2) of the HCDA (42 U.S.C. 104(j)(2)), which
mandates that program income is indefinite and subject to all the CDBG
requirements even after the grant is closed out between the state and
the unit of general local government. However, HUD recognizes the
potential administrative burdens imposed on states by the reporting
requirement and has made two modifications to the proposed rule in
response to the suggestions raised by the commenters. First, the final
rule revises Sec. 570.489(e)(2)(v), by clarifying that proceeds
received from the sale of real
[[Page 24141]]
property acquired or improved in whole or part with CDBG funds will not
be considered program income if the proceeds are received more than 5
years after expiration of the grant agreement and are, therefore,
exempt from being tracked. Further, HUD has adopted the suggestion to
identify the parties to the grant agreement. The final rule specifies
that the grant agreement is ``between the state and the unit of general
local government.''
Comments: Concerning the Requirement To Add Program Income Data for
Local Governments Into the Integrated Disbursement and Information
System (IDIS). Six commenters wrote that the IDIS reporting requirement
is an additional burden on the already heavy CDBG administrative
workload. Another commenter suggested that the reporting requirements
should be reduced to annually instead of quarterly. Two commenters
requested additional time to phase in compliance because many local
partners are small organizations that do not have the administrative
capacity to comply immediately. One commenter wrote that it is
burdensome to include loan receipts in both IDIS and the paper PER. One
commenter requested that HUD be more specific about what data are to be
collected and in what format.
HUD Response. HUD has not revised the proposed rule in response to
these comments. HUD is cognizant of the potential administrative
burdens that may be imposed by the reporting requirements and has
attempted to craft a regulation that fulfills HUD's oversight
responsibilities while minimizing such burdens. As an initial matter,
HUD notes that the revised regulations recommend, but do not mandate
quarterly reporting on IDIS. The final rule establishes an annual IDIS
reporting requirement. HUD encourages states to enter IDIS data
quarterly as a way to keep the data and reporting current and spread
out the states' workload during the year. Quarterly entry of data would
better enable both grantees and HUD to report accomplishments to
community development stakeholders. Moreover, HUD also notes that the
PER reporting is now automated in IDIS, making reporting less
burdensome to states and more user-friendly. HUD has also provided
guidance for reporting in the Notice: CPD-11-03, ``Reporting
Requirements for the State Performance and Evaluation Report,'' which
can be accessed at the following link: http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/notices/cpd.
Comments: Regarding Program Income Retained at the Local Level. Two
commenters objected to the provision of the proposed rule stating that
if program income on hand exceeds projected cash needs for the
reasonably near future, the state may require the local government to
return all or part of the program income to the state until such time
as the program income is needed by the local government. The commenters
questioned why a state would want to require local governments to
return program income to it until the local government is able to spend
it. The commenters wrote that the proposed regulatory provision would
create accounting difficulties for states and local governments, and
risk the prospect of state accounts having insufficient funds when the
local government is ready to spend its program income. The commenters
advocated that the final rule provide greater flexibility to states in
addressing program income.
HUD Response. With the exception of a clarifying change, HUD has
not revised the proposed rule in response to these comments. HUD
already provides the state with maximum feasible deference to decide
whether to require a unit of general local government to return all or
a portion of program income to the state in cases where the local
government's program income exceeds projected cash needs for that same
activity in the near future. A state that requires local governments to
return program income in this instance must return the program income
to the local government when it is needed to carry out the same
activity from which it was derived. The advantage to the states
utilizing this option is to keep the program income liquid and
available to other local governments that are in need of immediate
funding. Although HUD is leaving it up to the states to determine
whether to allow units of general local government to retain their
program income, states must have a method to ensure that funds are
available to those units of general local government that are looking
to receive their funds back to continue the same project activity.
Further, each state is permitted to define ``continuing the same
project activity.''
HUD also provides flexibility for states to choose whether to allow
units of local government to retain the program income to implement
another eligible CDBG activity under 24 CFR 570.489(e)(3)(ii)(A). If
the state finds the unit of general local government is funding a
different CDBG activity from which the program income was originally
derived, the state may request that the locality return the program
income entirely or when the income generated meets a specific
threshold. States can employ one or more methods to ensure that local
governments comply with applicable program income requirements. In
addition, with HUD Field Office approval, the state can design its own
method that will ensure compliance with the program income requirements
by units of general local government. As noted, HUD has made a
clarifying change to the following provision of the proposed rule.
Proposed Sec. 570.489(e)(3)(ii)(A) would have required states to
indicate in their action plans their intent to require units of general
local government to return program income. This final rule clarifies
that a state may also indicate such intent in a substantial amendment
to the plan in the event that the action plan has already been
submitted and approved by HUD.
C. Comments on Spending Funds Outside the Jurisdiction of the Recipient
Comment: Definitions needed.
Two comments were made that the term ``significantly benefit,'' as
used in the following phrase, ``State CDBG-funded activities must
significantly benefit residents of the grant recipient's
jurisdiction,'' needs to be defined. A definition for ``incidental
benefit,'' as used in the sentence ``residents of Entitlement
jurisdiction may not receive more than an incidental benefit from the
state grantee's expenditure of funds,'' was also requested.
Additionally, a comment was made that states should be given more
flexibility to partner and share resources and solutions in a more
regional approach that encourages smart growth and sustainable
development.
HUD Response. Section 106(d)(1) of the HCDA (42 U.S.C. 106(d)(1)),
allocates 30 percent of CDBG program funds to states for use in
nonentitlement areas. The intent of this section of the HCDA is for the
funds to significantly benefit nonentitlement areas. Allocation amounts
for states are based on the demographics of each state's nonentitlement
communities and are intended for use in nonentitlement areas.
Entitlement grantees receive their own CDBG allocation based on the
demographics of their jurisdictions. If it is more practical and
feasible for an activity to be located within the boundaries of an
entitlement community to benefit nonentitlement residents, the
entitlement community is expected to provide a reasonable share of the
CDBG program funds if the entitlement community benefits from the
activity as well. An example would be locating a senior center in an
entitlement city that is served by public transportation from outlying
areas of the
[[Page 24142]]
city. HUD has decided not to define ``significant benefit'' at this
time but will provide maximum feasible deference to each state's
interpretation of this term.
HUD has taken into consideration the comment concerning the use of
a more regional approach that would allow projects to benefit
jurisdictions within nonentitlement and entitlement areas. HUD has
modified the rule to be less restrictive, at the same time emphasizing
that the funding must significantly benefit the state grantee's
residents. Additionally, there have been more proposals recently that
have involved funding projects in entitlement jurisdictions, and HUD
has decided to modify the proposed rule in 24 CFR 570.486(c), to remove
the requirement that entitlement jurisdictions receive only an
incidental benefit from State CDBG program expenditures. State CDBG
program funds still must be used to significantly benefit the residents
of the unit of general local government receiving the grant and cannot
be used to provide significant benefit to an entitlement jurisdiction
unless the entitlement grantee provides a meaningful contribution to
the project. The new regulatory requirement at 570.486(c) supersedes
HUD's policy memo to all State CDBG program grantees on ``State CDBG
Activities benefiting Entitlement Community Residents,'' dated May 26,
2006.
D. Comment on Audits
Comment: The commenter is concerned that states will be held
responsible for guaranteeing their grantees' compliance with the Single
Audit Act rather than ensuring that CDBG grants are awarded only to
localities that can provide professional certification from an auditor
that demonstrates compliance.
HUD Response. The rule revises 24 CFR 570.489(m), by including
language that audits be conducted in accordance with 24 CFR 85.26(a),
which incorporates compliance with the Single Audit Act and the
provisions of the Office of Management and Budget (OMB) Circular A-133
(62 FR 35278). This is not an additional requirement of Sec.
570.489(m), but an update to replace the citation to 24 CFR part 44
with section 85.26(a). It is a statutory requirement that states must
comply with the requirements of the Single Audit Act and OMB Circular
A-133; therefore, states are responsible to ensure that their funded
localities are in compliance.
IV. Findings and Certifications
Public Reporting Burden
The information collection requirements contained in this rule have
been approved by OMB under the Paperwork Reduction Act of 1995 (44
U.S.C. 3501-3520) and assigned OMB control number 2506-0085. In
accordance with the Paperwork Reduction Act, an agency may not conduct
or sponsor, and a person is not required to respond to, a collection of
information, unless the collection displays a currently valid OMB
control number.
Environmental Impact
In accordance with HUD regulations in 24 CFR part 50 that implement
section 102(2)(C) of the National Environmental Policy Act of 1969 (42
U.S.C. 4332(2)(C)), a Finding of No Significant Impact with respect to
the environment was made at the proposed rule stage and remains
applicable to this final rule. The Finding is available for public
inspection during regular business hours in the Regulations Division,
Office of General Counsel, Department of Housing and Urban Development,
451 Seventh Street SW., Room 10276, Washington, DC 20410-0500. Due to
security measures at the HUD Headquarters building, please schedule an
appointment to review the Finding by calling the Regulations Division
at 202-402-3055 (this is not a toll-free number). Individuals with
speech or hearing impairments may access this number via TTY by calling
the Federal Relay Service at 800-877-8339.
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial direct compliance costs on state and local
governments and is not required by statute, or the rule preempts state
law, unless the agency meets the consultation and funding requirements
of section 6 of the Order. This rule does not have federalism
implications and would not impose substantial direct compliance costs
on state and local governments nor preempt state law within the meaning
of the Order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA)
establishes requirements for federal agencies to assess the effects of
their regulatory actions on state, local, and tribal governments and
the private sector. This final rule does not impose a federal mandate
on any state, local, or tribal government, or the private sector within
the meaning of UMRA.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.)
generally requires an agency to conduct a regulatory flexibility
analysis of any rule subject to notice and comment rulemaking
requirements, unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
This rule would revise certain requirements that apply to the
management of CDBG funds, program income, and other administrative
matters by state governments. The changes will not impose new economic
burdens on states and local governments participating in the State CDBG
program. Rather, as detailed in the preamble to this final rule, the
regulatory amendments will codify existing HUD policy, update obsolete
provisions, or revise regulations to reflect statutory language.
Therefore, the undersigned certifies that this rule will not have a
significant impact on a substantial number of small entities.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance (CFDA) program number
for the State CDBG program is 14.228, and the CFDA program number for
the Entitlement program is 14.218.
List of Subjects in 24 CFR Part 570
Administrative practice and procedure, American Samoa, Community
Development Block Grants, Grant programs--education, Grant programs--
housing and community development, Guam, Indians, Loan programs--
housing and community development, Low and moderate income housing,
Northern Mariana Islands, Pacific Islands Trust Territory, Puerto Rico,
Reporting and recordkeeping requirements, Student aid, Virgin Islands.
Accordingly, for the reasons described in the preamble, HUD amends
24 CFR part 570, as follows:
PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS
0
1. The authority citation for part 570 continues to read as follows:
Authority: 42 U.S.C. 5300-5320.
0
2. In Sec. 570.480, revise paragraph (a) and add paragraphs (f) and
(g), to read as follows:
[[Page 24143]]
Sec. 570.480 General.
(a) This subpart describes policies and procedures applicable to
states that have permanently elected to receive Community Development
Block Grant (CDBG) funds for distribution to units of general local
government in the state's nonentitlement areas under the Housing and
Community Development Act of 1974, as amended (the Act). Other subparts
of part 570 are not applicable to the State CDBG program, except as
expressly provided otherwise. Regulations of part 570 outside of this
subpart that apply to the State CDBG program include Sec. Sec.
570.200(j) and 570.606.
* * * * *
(f) In administering the CDBG program, a state may impose
additional or more restrictive provisions on units of general local
government participating in the state's program, provided that such
provisions are not inconsistent with the Act or other statutory or
regulatory provisions that are applicable to the State CDBG program.
(g) States shall make CDBG program grants only to units of general
local government. This restriction does not limit a state's authority
to make payments to other parties for state administrative expenses and
technical assistance activities authorized in section 106(d) of the
Act.
0
3. In Sec. 570.486, revise paragraph (b) and add paragraph (c), to
read as follows:
Sec. 570.486 Local Government requirements.
* * * * *
(b) Activities serving beneficiaries outside the jurisdiction of
the unit of general local government. Any activity carried out by a
recipient of State CDBG program funds must significantly benefit
residents of the jurisdiction of the grant recipient, and the unit of
general local government must determine that the activity is meeting
its needs in accordance with section 106(d)(2)(D) of the Act. For an
activity to significantly benefit residents of the recipient
jurisdiction, the CDBG funds expended by the unit of general local
government must not be unreasonably disproportionate to the benefits to
its residents.
(c) Activities located in Entitlement jurisdictions. Any activity
carried out by a recipient of State CDBG program funds in entitlement
jurisdictions must significantly benefit residents of the jurisdiction
of the grant recipient, and the State CDBG recipient must determine
that the activity is meeting its needs in accordance with section
106(d)(2)(D) of the Act. For an activity to significantly benefit
residents of the recipient jurisdiction, the CDBG funds expended by the
unit of general local government must not be unreasonably
disproportionate to the benefits to its residents. In addition, the
grant cannot be used to provide a significant benefit to the
entitlement jurisdiction unless the entitlement grantee provides a
meaningful contribution to the project.
0
4. Amend Sec. 570.489 as follows:
0
a. Revise paragraphs (a)(1), (b), and (c);
0
b. Add paragraphs (d)(2)(iii)(A) and (d)(2)(iii)(B);
0
c. Revise paragraphs (e)(1), (e)(2), (e)(3)(i), and (e)(3)(ii);
0
d. Add paragraphs (e)(3)(iii), (e)(3)(iv), and (e)(4);
0
e. Revise the first sentence of paragraph (f)(2);
0
f. Revise paragraph (m); and
0
g. Add paragraph (n) to read as follows:
Sec. 570.489 Program administrative requirements.
(a) Administrative and planning costs--(1) State administrative and
technical assistance costs. (i) The state is responsible for the
administration of all CDBG funds. The state shall pay from its own
resources all administrative expenses incurred by the state in carrying
out its responsibilities under this subpart, except as provided in this
paragraph (a)(1)(i) of this section, which is subject to the time
limitations in paragraph (a)(1)(iv) of this section. To pay
administrative expenses, the state may use CDBG funds not to exceed
$100,000, plus 50 percent of administrative expenses incurred in excess
of $100,000. Amounts of CDBG funds used to pay administrative expenses
in excess of $100,000 shall not, subject to paragraph (a)(1)(iii) of
this section, exceed 3 percent of the sum of the state's annual grant,
program income received by units of general local government during
each program year, regardless of the fiscal year in which the state
grant funds that generate the program income were appropriated (whether
retained by units of general local government or paid to the state),
and of funds reallocated by HUD to the state.
(ii) To pay the costs of providing technical assistance to local
governments and nonprofit program recipients, a state may, subject to
paragraph (a)(1)(iii) of this section, use CDBG funds received on or
after January 23, 2004, in an amount not to exceed 3 percent of the sum
of its annual grant, program income received by units of general local
government during each program year, regardless of the fiscal year in
which the state grant funds that generate the program income were
appropriated (whether retained by units of general local government or
paid to the state), and funds reallocated by HUD to the state during
each program year.
(iii) The amount of CDBG funds used to pay the sum of
administrative costs in excess of $100,000 paid pursuant to paragraph
(a)(1)(i) of this section and technical assistance costs paid pursuant
to paragraph (a)(1)(ii) of this section must not exceed 3 percent of
the sum of a state's annual grant, program income received by units of
general local government during each program year, regardless of the
fiscal year in which the state grant funds generate the program income
were appropriated (whether retained by the unit of general local
government or paid to the state), and funds reallocated by HUD to the
state.
(iv) In calculating the amount of CDBG funds that may be used to
pay state administrative expenses prior to January 23, 2004, the state
may include in the calculation the following elements only to the
extent that they are within the following time limitations:
(A) $100,000 per annual grant beginning with FY 1984 allocations;
(B) Two percent of the sum of a state's annual grant and funds
reallocated by HUD to the state within a program year, without
limitation based on when such amounts were received;
(C) Two percent of program income returned by units of general
local government to states after August 21, 1985; and
(D) Two percent of program income received and retained by units of
general local government after February 11, 1991.
(v) In regard to its administrative costs, the state has the option
of selecting its approach for demonstrating compliance with the
requirements of this paragraph (a)(1) of this section. Any state whose
matching cost contributions toward state administrative expense
matching requirements are in arrears must bring matching cost
contributions up to the level of CDBG funds expended for such costs. 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 for demonstrating compliance with this
paragraph (a)(1) of this section are:
(A) Cumulative accounting of administrative costs incurred by the
[[Page 24144]]
state since its assumption of the CDBG program. Under this approach,
the state will identify, for each grant it has received, the CDBG funds
eligible to be used for state administrative expenses, as well as the
minimum amount of matching funds that the state is required to
contribute. 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 that were used for state
administrative expenses, as well as matching amounts that were
contributed by the state. The state will be considered to be in
compliance with the applicable requirements if the aggregate of the
actual amounts of CDBG funds spent on state administrative expenses
does not exceed the aggregate maximum allowable amount and if the
aggregate amount of matching funds that the state has expended is equal
to or greater than the aggregate amount of CDBG funds in excess of
$100,000 (for each annual grant within the subject period) spent on
administrative expenses during its 3- to 5-year Consolidated Planning
period. If the state grant for any grant year within the 3- to 5-year
period has been closed out, the aggregate amount of CDBG funds spent on
state administrative expenses, the aggregate maximum allowable amount,
the aggregate matching funds expended, and the aggregate amount of CDBG
funds in excess of $100,000 (for each annual grant within the subject
period) will be reduced by amounts attributable to the grant year for
which the state grant has been closed out.
(B) Year-to-year tracking and limitation on drawdown of funds. For
each grant year, the state will calculate the maximum allowable amount
of CDBG funds that may be used for state administrative expenses, and
will draw down amounts of those funds only upon its own expenditure of
an equal or greater amount of matching funds from its own resources
after the expenditure of the initial $100,000 for state administrative
expenses. The state will be considered to be in compliance with the
applicable requirements if the actual amount of CDBG funds spent on
state administrative expenses does not exceed the maximum allowable
amount, and if the amount of matching funds that the state has expended
for that grant year is equal to or greater than the amount of CDBG
funds in excess of $100,000 spent during that same grant year. Under
this approach, the state must demonstrate that it has paid from its own
funds at least 50 percent of its administrative expenses in excess of
$100,000 by the end of each grant year.
* * * * *
(b) Reimbursement of pre-agreement costs. The state may permit, in
accordance with such procedures as the state may establish, a unit of
general 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 part and 24 CFR
part 58. A state may incur costs prior to entering into a grant
agreement with HUD and charge those pre-agreement costs to the grant,
provided that the activities are eligible and are undertaken in
accordance with the requirements of this part, part 58 of this title,
and the citizen participation requirements of part 91 of this title.
(c) Federal grant payments. The state's requests for payment, and
the Federal Government's payments upon such requests, must comply with
31 CFR part 205. The state must 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. States must also
have procedures in place, and units of general local government must
use these procedures to minimize the time elapsing between the transfer
of funds by the state and disbursement for CDBG activities.
(d) * * *
(2) * * *
(iii) * * *
(A) A state that opts to satisfy this requirement for fiscal
controls and administrative procedures by applying the provisions of
part 85 must comply with the requirements therein.
(B) A state that opts to satisfy this requirement for fiscal
controls and administrative procedures by applying the provisions of
part 85 of this title must also ensure that recipients of the state's
CDBG funds comply with part 84 of this title, ``Uniform Administrative
Requirements for Grants and Agreements with Institutions of Higher
Education, Hospitals, and Other Non-Profit Organizations,'' as
applicable.
(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 subgrantee of the unit of general local
government that was generated from the use of CDBG funds, regardless of
when the CDBG funds were appropriated and whether the activity has been
closed out, 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 must be prorated to reflect the percentage
of CDBG funds used (e.g., a single loan supported by CDBG funds and
other funds; or 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, except as provided
in paragraph (e)(2)(v) of this section;
(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 subgrantee
of the 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 other entity carrying out a
CDBG activity 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, except as provided in paragraph (e)(2)(iii) of this section;
(vi) Proceeds from the sale of loans made with CDBG funds, less
reasonable legal and other costs incurred in the course of such sale
that are not otherwise eligible costs under sections 105(a)(13) or
106(d)(3)(A) of the Act;
(vii) Proceeds from the sale of obligations secured by loans made
with CDBG funds, less reasonable legal and other costs incurred in the
course of such sale that are not otherwise eligible costs under
sections 105(a)(13) or 106(d)(3)(A) of the Act;
(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
nonresidential properties and properties owned and occupied by
households not of low and moderate income, if the special assessments
are used to recover all or part of the CDBG portion of a public
improvement; and
(xi) Gross income paid to a unit of general local government or
subgrantee of the unit of general local government from the ownership
interest in a for-
[[Page 24145]]
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 does not exceed $35,000
received in a single year from activities, other than revolving loan
funds that is retained by a unit of general local government and its
subgrantees (all funds received from revolving loan funds are
considered program income, regardless of amount);
(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) Payments of principal and interest made by a subgrantee
carrying out a CDBG activity for a unit of general local government,
toward a loan from the local government to the subgrantee, to the
extent that program income received by the subgrantee is used for such
payments;
(iv) The following classes of interest, which must be remitted to
HUD for transmittal to the Department of the Treasury, and will not be
reallocated under section 106(c) or (d) of the Act:
(A) Interest income from loans or other forms of assistance
provided with CDBG funds that are used for activities determined by HUD
to be not eligible under Sec. 570.482 or section 105(a) of the Act, to
fail to meet a national objective in accordance with the requirements
of Sec. 570.483, or to fail substantially to meet any other
requirement of this subpart or the Act;
(B) Interest income from deposits of amounts reimbursed to a
state's CDBG program account prior to the state's disbursement of the
reimbursed funds for eligible purposes; and
(C) Interest income received by units of general local government
on deposits of grant funds before disbursement of the funds for
activities, except that the unit of general local government may keep
interest payments of up to $100 per year for administrative expenses
otherwise permitted to be paid with CDBG funds.
(v) Proceeds from the sale of real property purchased or improved
with CDBG funds, if the proceeds are received more than 5 years after
expiration of the grant agreement between the state and the unit of
general local government.
(3) * * *
(i) Program income paid to the state. Except as described in
paragraph (e)(3)(ii)(A) of this section, the state may require the unit
of general local government that receives or will receive program
income to return the program income to the state. Program income that
is paid to the state is treated as additional CDBG funds subject to the
requirements of this subpart. Except for program income retained and
used by the state for administrative costs or technical assistance
under paragraph (a) of this section, program income paid to the state
must be distributed to units of general local government in accordance
with the method of distribution in the action plan under Sec.
91.320(k)(1)(i) of this title that is in effect at the time the program
income is distributed. To the maximum extent feasible, the state must
distribute program income before it makes additional withdrawals from
the Department of the Treasury, except as provided in paragraph (f) of
this section.
(ii) Program income retained by a unit of general local government.
A state may permit a unit of general local government that receives or
will receive program income to retain the program income.
Alternatively, subject to the exception in paragraph (e)(3)(ii)(A) of
this section, a state may require that the unit of general local
government pay any such income to the state.
(A) A state 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 it was derived. A state will determine
when an activity will be considered to be continued, and HUD will give
maximum feasible deference to a state's determination, in accordance
with Sec. 570.480(c). In making such a determination, a state may
consider whether the unit of general local government is or will be
unable to comply with the requirements of paragraph (e)(3)(ii)(B) of
this section or other requirements of this part, and the extent to
which the program income is unlikely to be applied to continue the
activity within the reasonably near future. When a state determines
that the program income will be applied to continue the activity from
which it was derived, but that the amount of program income held by the
unit of general local government exceeds projected cash needs for the
reasonably near future, the state may require the local government to
return all or part of the program income to the state until such time
as the program income is needed by the unit of general local
government. When a state determines that a unit of local government is
not likely to apply any significant amount of program income to
continue the activity within a reasonable amount of time, or that it
will not likely apply the program income in accordance with applicable
requirements, the state may require the unit of general local
government to return all of the program income to the state for
disbursement to other units of local government. A state that intends
to require units of general local government to return program income
in accordance with this paragraph (e)(3)(ii)(A) of this section must
describe its approach in the state's action plan required under Sec.
91.320 of this title or in a substantial amendment if the state intends
to implement this option after the action plan is submitted to and
approved by HUD.
(B) Program income that is received and retained by the unit of
general local government is treated as additional CDBG funds and is
subject to all applicable requirements of this subpart, regardless of
whether the activity that generated the program income has been closed
out. If the grant that generated the program income is still open when
the program income is generated, program income permitted to be
retained will be considered part of the unit of general local
government's grant that generated the program income. If the grant is
closed, program income permitted to be retained will be considered to
be part of the unit of general local government's most recently awarded
open grant. If the unit of general local government has no open grants,
the program income retained by the unit of general local government
will be counted as part of the state's grant year in which the program
income was generated. A state must employ one or more of the following
methods to ensure that units of general local government comply with
applicable program income requirements:
(1) Maintaining contractual relationships with units of general
local government for the duration of the existence of the program
income;
(2) Closing out the underlying activity, but requiring as a
condition of closeout that the unit of general local government obtain
advance state approval of either a unit of general local government's
plan for the use of program income, or of each use of program income by
grant recipients via regularly occurring reports and requests for
approval;
(3) Closing out the underlying activity, but requiring as a
condition of closeout that the unit of general local government notify
the state when new program income is received; or
(4) With prior HUD approval, other approaches that demonstrate that
the state will ensure compliance with the requirements of this subpart
by units of general local government.
(C) The state must require units of general local government, to
the maximum extent feasible, to disburse program income that is subject
to the
[[Page 24146]]
requirements of this subpart before requesting additional funds from
the state for activities, except as provided in paragraph (f) of this
section.
(iii) Transfer of program income to Entitlement program. A unit of
general local government that becomes eligible to be an Entitlement
grantee may request the state's approval to transfer State CDBG grant-
generated program income to the unit of general local government's
Entitlement program. A state may approve the transfer, provided that
the unit of general local government:
(A) Has officially elected to participate in the Entitlement grant
program;
(B) Agrees to use such program income in accordance with
Entitlement program requirements; and
(C) Has set up Integrated Disbursement Information System (IDIS)
access and agrees to enter receipt of program income into IDIS.
(iv) Transfer of program income of grantees losing Entitlement
status. Upon entry into the State CDBG program, a unit of general local
government that has lost or relinquished its Entitlement status must,
with respect to program income that a unit of general local government
would otherwise be permitted to retain, either:
(A) Retain program income generated under Entitlement grants and
continue to comply with Entitlement program requirements for program
income; or
(B) Retain the program income and transfer it to the State CDBG
program, in which case the unit of general local government must comply
with the state's rules for program income and the requirements of this
paragraph (e).
(4) The state must report on the receipt and use of all program
income (whether retained by units of general local government or paid
to the state) in its annual performance and evaluation report.
(f) * * *
(2) The state may establish one or more state revolving funds to
distribute grants to units of general local government throughout a
state or a region of the state to carry out specific, identified
activities. * * *
* * * * *
(m) Audits. Notwithstanding any other provision of this title,
audits of a state and units of general local government shall be
conducted in accordance with Sec. 85.26 of this title, which
implements the Single Audit Act (31 U.S.C. 7501-07) and incorporates
OMB Circular A-133. States shall develop and administer an audits
management system to ensure that audits of units of general local
government are conducted in accordance with OMB Circular A-133, if
applicable.
(n) Cost principles and prior approval. (1) A state must ensure
that costs incurred by the state and by its recipients are in
conformance with the following cost principles, as applicable:
(i) ``Cost Principles for State, Local, and Indian Tribal
Governments (OMB Circular A-87),'' which is codified at 2 CFR part 225;
(ii) ``Cost Principles for Non-Profit Organizations (OMB Circular
A-122),'' which is codified at 2 CFR part 230; and
(iii) ``Cost Principles for Educational Institutions (OMB Circular
A-21),'' which is codified at 2 CFR part 220.
(2) All cost items described in Appendix B of 2 CFR part 225 that
require federal agency approval are allowable without prior approval of
HUD, to the extent that they otherwise comply with the requirements of
2 CFR part 225 and are otherwise eligible under this subpart I, except
for the following:
(i) Depreciation methods for fixed assets shall not be changed
without the express approval of HUD or, if charged through a cost
allocation plan, of the cognizant federal agency.
(ii) Fines and penalties (including punitive damages) are
unallowable costs to the CDBG program.
0
5. Add Sec. 570.490(a)(3) to read as follows:
Sec. 570.490 Recordkeeping requirements.
(a) * * *
(3) Integrated Disbursement and Information System (IDIS). The
state shall make entries into IDIS in a form prescribed by HUD to
accurately capture the state's accomplishment and funding data,
including program income, for each program year. It is recommended that
the state enter IDIS data on a quarterly basis and it is required to be
entered annually.
* * * * *
0
6. Add Sec. 570.504(e) to read as follows:
Sec. 570.504 Program income.
* * * * *
(e)(1) Transfer of program income to Entitlement program. A unit of
general local government that becomes eligible to be an Entitlement
grantee may request the state's approval to transfer State CDBG grant-
generated program income to the unit of general local government's
Entitlement program. A state may approve the transfer, provided that
the unit of general local government:
(i) Has officially elected to participate in the Entitlement grant
program;
(ii) Agrees to use such program income in accordance with
Entitlement program requirements; and
(iii) Has set up Integrated Disbursement and Information System
(IDIS) access and agrees to enter receipt of program income into IDIS.
(2) Transfer of program income of grantees losing Entitlement
status. Upon entry into the State CDBG program, a unit of general local
government that has lost or relinquished its Entitlement status must,
with respect to program income that a unit of general local government
would otherwise be permitted to retain, either:
(i) Retain the program income generated under Entitlement grants
and continue to comply with Entitlement program requirements for
program income; or
(ii) Retain the program income and transfer it to the State CDBG
program, in which case the unit of general local government must comply
with the state's rules for program income and the requirements of Sec.
570.489(e).
Dated: April 16, 2012.
Mercedes M. M[aacute]rquez,
Assistant Secretary for Community Planning and Development.
[FR Doc. 2012-9693 Filed 4-20-12; 8:45 am]
BILLING CODE 4210-67-P