[Federal Register Volume 77, Number 147 (Tuesday, July 31, 2012)]
[Rules and Regulations]
[Pages 45421-45467]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17546]



[[Page 45421]]

Vol. 77

Tuesday,

No. 147

July 31, 2012

Part II





Department of Housing and Urban Development





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24 CFR Part 578





Homeless Emergency Assistance and Rapid Transition to Housing: 
Continuum of Care Program; Interim Final Rule

Federal Register / Vol. 77 , No. 147 / Tuesday, July 31, 2012 / Rules 
and Regulations

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 578

[Docket No. FR-5476-I-01]
RIN 2506-AC29


Homeless Emergency Assistance and Rapid Transition to Housing: 
Continuum of Care Program

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, HUD.

ACTION: Interim rule.

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SUMMARY: The Homeless Emergency Assistance and Rapid Transition to 
Housing Act of 2009 (HEARTH Act), enacted into law on May 20, 2009, 
consolidates three of the separate homeless assistance programs 
administered by HUD under the McKinney-Vento Homeless Assistance Act 
into a single grant program, and revises the Emergency Shelter Grants 
program and renames it the Emergency Solutions Grants program. The 
HEARTH Act also codifies in law the Continuum of Care planning process, 
a longstanding part of HUD's application process to assist homeless 
persons by providing greater coordination in responding to their needs. 
The HEARTH Act also directs HUD to promulgate regulations for these new 
programs and processes.
    This interim rule focuses on regulatory implementation of the 
Continuum of Care program, including the Continuum of Care planning 
process. The existing homeless assistance programs that comprise the 
Continuum of Care program are the following: the Supportive Housing 
program, the Shelter Plus Care program, and the Moderate 
Rehabilitation/Single Room Occupancy (SRO) program. This rule 
establishes the regulations for the Continuum of Care program, and, 
through the establishment of such regulations, the funding made 
available for the Continuum of Care program in the statute 
appropriating Fiscal Year (FY) 2012 funding for HUD can more quickly be 
disbursed, consistent with the HEARTH Act requirements, and avoid any 
disruption in current Continuum of Care activities.

DATES: Effective Date: August 30, 2012.
    Comment Due Date. October 1, 2012.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, 451 
7th Street SW., Room 10276, Department of Housing and Urban 
Development, Washington, DC 20410-0500. Communications must refer to 
the above docket number and title. There are two methods for submitting 
public comments. All submissions must refer to the above docket number 
and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov Web site can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at 202-708-3055 (this is 
not a toll-free number). Individuals with speech or hearing impairments 
may access this number through TTY by calling the Federal Relay Service 
at 800-877-8339. Copies of all comments submitted are available for 
inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Ann Marie Oliva, Director, Office of 
Special Needs Assistance Programs, Office of Community Planning and 
Development, Department of Housing and Urban Development, 451 7th 
Street SW., Washington, DC 20410-7000; telephone number 202-708-4300 
(this is not a toll-free number). Hearing- and speech-impaired persons 
may access this number through TTY by calling the Federal Relay Service 
at 800-877-8339 (this is a toll-free number).

SUPPLEMENTARY INFORMATION:

Executive Summary

Purpose of and Legal Authority for This Interim Rule

    This interim rule implements the Continuum of Care program 
authorized by the Homeless Emergency Assistance and Rapid Transition to 
Housing Act of 2009 (HEARTH Act). Section 1504 of the HEARTH Act 
directs HUD to establish regulations for this program. (See 42 U.S.C. 
11301.) The purpose of the Continuum of Care program is to promote 
communitywide commitment to the goal of ending homelessness; provide 
funding for efforts by nonprofit providers, and State and local 
governments to quickly rehouse homeless individuals and families while 
minimizing the trauma and dislocation caused to homeless individuals, 
families, and communities by homelessness; promote access to and 
effective utilization of mainstream programs by homeless individuals 
and families; and optimize self-sufficiency among individuals and 
families experiencing homelessness.
    The HEARTH Act streamlines HUD's homeless grant programs by 
consolidating the Supportive Housing, Shelter Plus Care, and Single 
Room Occupancy grant programs into one grant program: The Continuum of 
Care program. Local continuums of care, which are community-based 
homeless assistance program planning networks, will apply for Continuum 
of Care grants. By consolidating homeless assistance grant programs and 
creating the Continuum of Care planning process, the HEARTH Act 
intended to increase the efficiency and effectiveness of coordinated, 
community-based systems that provide housing and services to the 
homeless. Through this interim final rule, HUD will implement the 
Continuum of Care program by establishing the framework for 
establishing a local continuum of care and the process for applying for 
Continuum of Care grants.

Summary of Major Provisions

    The major provisions of this rulemaking relate to how to establish 
and operate a Continuum of Care, how to apply for funds under the 
program, and how to use the funds for projects approved by HUD. These 
provisions are summarized below.
    1. General Provisions (Subpart A): The Continuum of Care program 
includes transitional housing, permanent supportive housing for

[[Page 45423]]

disabled persons, permanent housing, supportive services, and Homeless 
Management Information Systems (HMIS). To implement the program, HUD 
had to define several key terms. In particular, HUD distinguishes 
between ``Continuum of Care,'' ``applicant,'' and ``collaborative 
applicant.'' A ``Continuum of Care'' is a geographically based group of 
representatives that carries out the planning responsibilities of the 
Continuum of Care program, as set out in this regulation. These 
representatives come from organizations that provide services to the 
homeless, or represent the interests of the homeless or formerly 
homeless. A Continuum of Care then designates certain ``applicants'' as 
the entities responsible for carrying out the projects that the 
Continuum has identified through its planning responsibilities. A 
``Continuum of Care'' also designates one particular applicant to be a 
``collaborative applicant.'' The collaborative applicant is the only 
entity that can apply for a grant from HUD on behalf of the Continuum 
that the collaborative applicant represents.
    2. Establishing and Operating a Continuum of Care (Subpart B): In 
order to be eligible for funds under the Continuum of Care program, 
representatives from relevant organizations within a geographic area 
must establish a Continuum of Care. The three major duties of a 
Continuum of Care are to: (1) Operate the Continuum of Care, (2) 
designate an HMIS for the Continuum of Care, and (3) plan for the 
Continuum of Care. HUD has delineated certain operational requirements 
of each Continuum to help measure a Continuum's overall performance at 
reducing homelessness, in addition to tracking of performance on a 
project-by-project basis. In addition, each Continuum is responsible 
for establishing and operating a centralized or coordinated assessment 
system that will provide a comprehensive assessment of the needs of 
individuals and families for housing and services. HUD has also defined 
the minimum planning requirements for a Continuum so that it 
coordinates and implements a system that meets the needs of the 
homeless population within its geographic area. Continuums are also 
responsible for preparing and overseeing an application for funds. 
Continuums will have to establish the funding priorities for its 
geographic area when submitting an application.
    3. Application and Grant Award Process (Subpart C): The Continuum 
of Care grant award process begins with a determination of a 
Continuum's maximum award amount. As directed by statute, HUD has 
developed a formula for determining award amounts that includes the 
following factors: A Continuum's Preliminary Pro Rata Need (PPRN) 
amount; renewal demand; any additional increases in amounts for 
leasing, rental assistance, and operating costs based on Fair Market 
Rents, planning and Unified Funding Agency cost funds, and amounts 
available for bonus dollars. HUD has established selection criteria for 
determining which applications will receive funding under the Continuum 
of Care program. Recipients awarded Continuum of Care funds must 
satisfy several conditions prior to executing their grant agreements. 
All grants submitted for renewal must also submit an annual performance 
report. For those applicants not awarded funding, the process also 
provides an appeals process.
    4. Program Components and Eligible Costs (Subpart D): Continuum of 
Care funds may be used for projects under five program components: 
Permanent housing, transitional housing, supportive services only, 
HMIS, and, in some limited cases, homelessness prevention. The rule 
further clarifies how the following activities are considered eligible 
costs under the Continuum of Care program: Continuum of Care planning 
activities, Unified Funding Agency costs, acquisition, rehabilitation, 
new construction, leasing, rental assistance, supportive services, 
operating costs, HMIS, project administrative costs, relocation costs, 
and indirect costs.
    5. High-Performing Communities (Subpart E): HUD will annually, 
subject to the availability of appropriate data, select those 
Continuums of Care that best meet application requirements to be 
designated a high-performing community (HPC). An HPC may use grant 
funds to provide housing relocation and stabilization services, and 
short- and/or medium-term rental assistance to individuals and families 
at risk of homelessness. This is the only time that Continuum of Care 
funds may be used to serve individuals and families at risk of 
homelessness.
    6. Program Requirements (Subpart F): All recipients of Continuum of 
Care funding must comply with the program regulations and the 
requirements of the Notice of Funding Availability that HUD will issue 
each year. Notably, the HEARTH Act requires that all eligible funding 
costs, except leasing, must be matched with no less than 25 percent 
cash or in-kind match by the Continuum. Other program requirements of 
recipients include: Abiding by housing quality standards and suitable 
dwelling size, assessing supportive services on an ongoing basis, 
initiating and completing approved activities and projects within 
certain timelines, and providing a formal process for termination of 
assistance to participants who violate program requirements or 
conditions of occupancy.
    7. Grant Administration (Subpart G): To effectively administer the 
grants, HUD will provide technical assistance to those who apply for 
Continuum of Care funds, as well as those who are selected for 
Continuum of Care funds. After having been selected for funding, grant 
recipients must satisfy certain recordkeeping requirements so that HUD 
can assess compliance with the program requirements. For any amendments 
to grants after the funds have been awarded, HUD has established a 
separate amendment procedure. As appropriate, HUD has also established 
sanctions to strengthen its enforcement procedures.

Benefits and Costs

    This interim rule is intended to help respond to and work toward 
the goal of eliminating homelessness. This interim rule provides 
greater clarity and guidance about planning and performance review to 
the more than 430 existing Continuums of Care that span all 50 states 
and 6 United States territories. As reported in HUD's Annual 
Homelessness Assessment Report to Congress, there were approximately 
1.59 million homeless persons who entered emergency shelters or 
transitional housing in FY 2010. HUD serves roughly half that many 
persons, nearly 800,000 annually, through its three programs that will 
be consolidated into the Continuum of Care program under the McKinney-
Vento Act as amended by the HEARTH Act (i.e., Shelter Plus Care, 
Supportive Housing Program, Single Room Occupancy). The changes 
initiated by this interim rule will encourage Continuums of Care to 
establish formal policies and review procedures, including evaluation 
of the effectiveness of their projects, by emphasizing performance 
measurement and developing performance targets for homeless 
populations. HUD is confident that this systematic review by Continuums 
of Care will lead to better use of limited resources and more efficient 
service models, with the end result of preventing and ending 
homelessness.
    The Consolidated and Further Continuing Appropriations Act, 2012 
(Pub. L. 112-55) appropriated $1,593,000,000 for the Continuum of Care 
and Rural Housing Stability

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Assistance programs. Upon publication of this rule, those FY 2012 funds 
will be available for distribution, as governed by these Continuum of 
Care regulations.

I. Background--HEARTH Act

    On May 20, 2009, the President signed into law ``An Act to Prevent 
Mortgage Foreclosures and Enhance Mortgage Credit Availability,'' which 
became Public Law 111-22. This law implements a variety of measures 
directed toward keeping individuals and families from losing their 
homes. Division B of this law is the HEARTH Act, which consolidates and 
amends three separate homeless assistance programs carried out under 
title IV of the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11371 
et seq.) (McKinney-Vento Act) into a single grant program that is 
designed to improve administrative efficiency and enhance response 
coordination and effectiveness in addressing the needs of homeless 
persons. The HEARTH Act codifies in law and enhances the Continuum of 
Care planning process, the coordinated response to addressing the needs 
of the homeless, which was established administratively by HUD in 1995. 
The single Continuum of Care program established by the HEARTH Act 
consolidates the following programs: The Supportive Housing program, 
the Shelter Plus Care program, and the Moderate Rehabilitation/Single 
Room Occupancy program. The Emergency Shelter Grants program is renamed 
the Emergency Solutions Grants program and is revised to broaden 
existing emergency shelter and homelessness prevention activities and 
to add short- and medium-term rental assistance and services to rapidly 
rehouse homeless people. The HEARTH Act also creates the Rural Housing 
Stability program to replace the Rural Homelessness Grant program.
    HUD commenced the process to implement the HEARTH Act with 
rulemaking that focused on the definition of ``homeless.'' HUD 
published a proposed rule, entitled ``Defining Homeless'' on April 20, 
2010 (75 FR 20541), which was followed by a final rule that was 
published on December 5, 2011 (76 FR 75994). The Defining Homeless rule 
clarified and elaborated upon the new McKinney-Vento Act definitions 
for ``homeless'' and ``homeless individual with a disability.'' In 
addition, the Defining Homeless rule included recordkeeping 
requirements related to the ``homeless'' definition. On December 5, 
2011, HUD also published an interim rule for the Emergency Solutions 
Grants program (76 FR 75954). This interim rule established the program 
requirements for the Emergency Solutions Grants program and contained 
corresponding amendments to the Consolidated Plan regulations. On 
December 9, 2011, HUD continued the process to implement the HEARTH 
Act, with the publication of the proposed rule titled ``Homeless 
Management Information Systems Requirements'' (76 FR 76917), which 
provides for uniform technical requirements for Homeless Management 
Information Systems (HMIS), for proper data collection and maintenance 
of the database, and ensures the confidentiality of the information in 
the database. Today's publication of the interim rule for the Continuum 
of Care program continues HUD's implementation of the HEARTH Act.
    This rule establishes the regulatory framework for the Continuum of 
Care program and the Continuum of Care planning process, including 
requirements applicable to the establishment of a Continuum of Care. 
Prior to the amendment of the McKinney-Vento Act by the HEARTH Act, 
HUD's competitively awarded homeless assistance grant funds were 
awarded to organizations that participate in local homeless assistance 
program planning networks referred to as a Continuum of Care, a system 
administratively established by HUD in 1995. A Continuum of Care is 
designed to address the critical problem of homelessness through a 
coordinated community-based process of identifying needs and building a 
system of housing and services to address those needs. The approach is 
predicated on the understanding that homelessness is not caused merely 
by a lack of shelter, but involves a variety of underlying, unmet 
needs--physical, economic, and social.
    The HEARTH Act not only codified in law the planning system known 
as Continuum of Care, but consolidated the three existing competitive 
homeless assistance grant programs (Supportive Housing, Shelter Plus 
Care, and Single Room Occupancy) into the single grant program known as 
the Continuum of Care program. The consolidation of the three existing 
homeless assistance programs into the Continuum of Care grant program 
and the codification in law of the Continuum of Care planning process 
are intended to increase the efficiency and effectiveness of the 
coordination of the provision of housing and services to address the 
needs of the homeless. The regulations established by this rule are 
directed to carrying out this congressional intent.

II. Overview of Interim Rule

    As amended by the HEARTH Act, Subpart C of the McKinney-Vento 
Homeless Assistance Act establishes the Continuum of Care program. The 
purpose of the program is to promote communitywide commitment to the 
goal of ending homelessness; provide funding for efforts by nonprofit 
providers, and State and local governments to quickly rehouse homeless 
individuals and families while minimizing the trauma and dislocation 
caused to homeless individuals, families, and communities by 
homelessness; promote access to and effective utilization of mainstream 
programs by homeless individuals and families; and optimize self-
sufficiency among individuals and families experiencing homelessness.
    This interim rule establishes the Continuum of Care as the planning 
body responsible for meeting the goals of the Continuum of Care 
program. Additionally, in order to meet the purpose of the HEARTH Act, 
established in section 1002(b), and the goals of ``Opening Doors: 
Federal Strategic Plan to Prevent and End Homelessness,'' the Continuum 
of Care must be involved in the coordination of other funding streams 
and resources--federal, local, or private--of targeted homeless 
programs and other mainstream resources. In many communities, the 
Continuum of Care is the coordinating body, while in other communities 
it is a local Interagency Council on Homelessness (both would be 
acceptable forms of coordination under this interim rule). As noted 
earlier, HUD published on December 9, 2011, a proposed rule to 
establish HMIS regulations in accordance with the HEARTH Act. However, 
while the HEARTH Act directed that regulations be established for HMIS, 
HMIS is not new to many HUD grantees. Until regulations for HMIS are 
promulgated in final, grantees should continue to follow HUD's existing 
HMIS instructions and guidance.
    The following provides an overview of the proposed rule.

General Provisions (Subpart A)

    Purpose and scope. The Continuum of Care program is designed to 
promote community-wide goals to end homelessness; provide funding to 
quickly rehouse homeless individuals (including unaccompanied youth) 
and families while minimizing trauma and dislocation to those persons; 
promote access to, and effective utilization of, mainstream programs; 
and optimize self-sufficiency among individuals and

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families experiencing homelessness. The program is composed of 
transitional housing, permanent supportive housing for disabled 
persons, permanent housing, supportive services, and HMIS.
    Definitions. The interim rule adopts the definitions of 
``developmental disability,'' ``homeless,'' ``homeless individual,'' 
and ``homeless person'' established by the December 5, 2011 Defining 
Homeless final rule. Public comments have already been solicited and 
additional public comment is not solicited through this rule. The 
December 5, 2011, final rule was preceded by an April 20, 2010, 
proposed rule, which sought public comment on these definitions. The 
final definitions of these terms took into consideration the public 
comments received on the proposed definitions as set out in the April 
20, 2010, proposed rule. This interim rule adopts the definition of 
``at risk of homelessness'' established by the December 5, 2011, the 
Emergency Solutions Grants program interim rule. The interim rule 
sought public comment on this definition, and additional public comment 
is not being sought through this rule.
    HUD received valuable public comment on the definition of 
``chronically homeless,'' through the public comment process on the 
Emergency Solutions Grants program interim rule. Based on public 
comment, this rule for the Continuum of Care program is not adopting 
the full definition of ``chronically homeless'' that was included in 
the conforming amendments to the Consolidated Plan that were published 
as a part of the Emergency Solutions Grants program rule. Commenters 
raised concerns with the meaning of the phrase ``where each homeless 
occasion was at least 15 days.'' The concerns raised about this phrase, 
used for the first time in a definition of ``chronically homeless,'' 
has caused HUD to reconsider proceeding to apply a definition that 
includes this phrase, without further consideration and opportunity for 
comment. In this rule, HUD therefore amends the definition of 
``chronically homeless'' in the Consolidated Plan regulations to strike 
this phrase. The removal of this phrase returns the definition to one 
with which service providers are familiar. The following highlights key 
definitions used in the Continuum of Care program regulations, and HUD 
solicits comment on these definitions.
    Applicant is defined to mean an entity that has been designated by 
the Continuum of Care as eligible to apply for assistance on behalf of 
that Continuum. HUD highlights that the Act does not contain different 
definitions for ``applicant'' and ``collaborative applicant.'' HUD 
distinguishes between the applicant(s) designated to apply for and 
carry out projects (the ``applicant'') and the collaborative applicant 
designated to apply for a grant on behalf of the Continuum of Care (the 
``collaborative applicant''). Please see below for more information on 
the definition of a collaborative applicant, which is the only entity 
that may apply for and receive Continuum of Care planning funds.
    Centralized or coordinated assessment system is defined to mean a 
centralized or coordinated process designed to coordinate program 
participant intake, assessment, and provision of referrals. A 
centralized or coordinated assessment system covers the geographic 
area, is easily accessed by individuals and families seeking housing or 
services, is well advertised, and includes a comprehensive and 
standardized assessment tool. This definition establishes basic minimum 
requirements for the Continuum's centralized or coordinated assessment 
system.
    Collaborative applicant is defined to mean an eligible applicant 
that has been designated by the Continuum of Care to apply for a grant 
for Continuum of Care planning funds on behalf of the Continuum. As 
discussed above, the ``applicant'' is the entity(ies) designated to 
apply for and carry out projects on behalf of the Continuum. In 
contrast to the definition of ``applicant'' above, the collaborative 
applicant applies for a grant to carry out the planning activities on 
behalf of the Continuum of Care. The interim rule simplifies the 
statutory language in order to make the Continuum of Care planning 
process clear.
    HUD highlights that its definition of collaborative applicant does 
not track the statutory definition, which is found in section 401 of 
the McKinney-Vento Act. As will be discussed in further detail later in 
this preamble, the concept of collaborative applicant, its duties and 
functions, as provided in the statute, is provided for in this rule. 
However, HUD uses the term Continuum of Care to refer to the 
organizations that carry out the duties and responsibilities assigned 
to the collaborative applicant, with the exception of applying to HUD 
for grant funds. The clarification is necessary in this rule because 
Continuums of Care are not required to be legal entities, but HUD can 
enter into contractual agreements with legal entities only.
    Continuum of Care and Continuum are defined to mean the group that 
is organized to carry out the responsibilities required under this part 
and that is composed of representatives of organizations including 
nonprofit homeless providers, victim service providers, faith-based 
organizations, governments, businesses, advocates, public housing 
agencies, school districts, social service providers, mental health 
agencies, hospitals, universities, affordable housing developers, law 
enforcement, organizations that serve homeless and formerly homeless 
veterans, and homeless and formerly homeless persons. These 
organizations consist of the relevant parties in the geographic area. 
Continuums are expected to include representation to the extent that 
the type of organization exists within the geographic area that the 
Continuum represents and is available to participate in the Continuum. 
For example, if a Continuum of Care did not have a university within 
its geographic boundaries, then HUD would not expect the Continuum to 
have representation from a university within the Continuum.
    These organizations carry out the responsibilities and duties 
established under Subpart B of this interim rule. The Continuum of 
Care, as noted above, carries out the statutory duties and 
responsibilities of a collaborative applicant. HUD established the 
Continuum of Care in 1995. Local grantees and stakeholders are familiar 
with the Continuum of Care as the coordinating body for homeless 
services and homelessness prevention activities across the geographic 
area. Consequently, HUD is maintaining the Continuum of Care 
terminology, and the rule provides for the duties and responsibilities 
of a collaborative applicant to be carried out under the name Continuum 
of Care.
    High-performing community is defined to mean the geographic area 
under the jurisdiction of a Continuum of Care that has been designated 
as a high-performing community by HUD. Section 424 of the McKinney-
Vento Act provides that HUD shall designate, on an annual basis, which 
collaborative applicants represent high-performing communities. 
Consistent with HUD's substitution of the term ``Continuum of Care'' 
for ``collaborative applicant,'' the definition of ``high-performing 
community'' in this interim rule provides for designation of Continuums 
of Care that represent geographic areas designated as high-performing 
communities. The standards for becoming a high-performing community can 
be found in Sec.  578.65 of this interim

[[Page 45426]]

rule and will be discussed later in this preamble.
    Private nonprofit organization is based on the statutory definition 
for ``private nonprofit organization.'' The term ``private nonprofit 
organization'' is defined in section 424 of the McKinney-Vento Act as 
follows: ``The term `private nonprofit organization' means an 
organization: `(A) No part of the net earnings of which inures to the 
benefit of any member, founder, contributor, or individual; (B) that 
has a voluntary board; (C) that has an accounting system, or has 
designated a fiscal agent in accordance with requirements established 
by the Secretary; and (D) that practices nondiscrimination in the 
provision of assistance.' '' In HUD's regulatory definition of 
``private nonprofit organization,'' HUD clarifies that the 
organization's accounting system must be functioning and operated in 
accordance with generally accepted accounting principles. HUD has 
included this language to make certain that accounting systems are 
workable and abide by definite, accurate standards. As reflected in the 
statutory definition of ``private nonprofit organization,'' HUD may 
establish requirements for the designation of a fiscal agent. HUD has 
determined that the fiscal agent, such as a Unified Funding Agency, a 
term that is also defined in section 424 of the McKinney-Vento Act, 
must maintain a functioning accounting system for the organization in 
accordance with generally accepted accounting principles.
    Permanent housing is consistent with the statutory definition of 
``permanent housing'' in section 401 of the McKinney-Vento Act, but 
does not track the statutory language. HUD's regulatory definition of 
``permanent housing'' states: ``The term `permanent housing' means 
community-based housing without a designated length of stay, and 
includes both permanent supportive housing and rapid re-housing.'' 
Additionally, in the regulatory definition of ``permanent housing,'' 
HUD clarifies that to be permanent housing, ``the program participant 
must be the tenant on a lease for a term of at least one year that is 
renewable and is terminable only for cause. The lease must be renewable 
for terms that are a minimum of one month long. HUD has determined that 
requiring a lease for a term of at least one year that is renewable and 
terminable only for cause, assists program participants in obtaining 
stability in housing, even when the rental assistance is temporary. 
These requirements are consistent with Section 8 requirements.
    Specific request for comment. HUD specifically requests comment on 
requiring a lease for a term of at least one year to be considered 
permanent housing.
    Project is consistent with the statutory definition of ``project'' 
in section 401 of the McKinney-Vento Act, but does not track the 
statutory language. Section 401 defines ``project'' as, with respect to 
activities carried out under subtitle C, eligible activities described 
in section 423(a), undertaken pursuant to a specific endeavor, such as 
serving a particular population or providing a particular resource. In 
HUD's definition of ``project'' in this interim rule, the eligible 
activities described in section 423(a) of the McKinney-Vento Act have 
been identified. In the regulatory text, HUD has clarified that it is a 
group of one or more of these eligible costs that are identified as a 
project in an application to HUD for Continuum of Care funds.
    Recipient is defined to mean an applicant that signs a grant 
agreement with HUD. HUD's definition of ``recipient'' is consistent 
with the statutory definition of ``recipient,'' but does not track the 
statutory language. Section 424 of the McKinney-Vento Act defines 
``recipient'' as ``an eligible entity who--(A) submits an application 
for a grant under section 422 that is approved by the Secretary; (B) 
receives the grant directly from the Secretary to support approved 
projects described in the application; and (C)(i) serves as a project 
sponsor for the projects; or (ii) awards the funds to project sponsors 
to carry out the projects.'' All of the activities specified by the 
statutory definition are in the rule: (A) and (B) are contained in the 
definition and (C) is covered in the sections of the rule dealing with 
what a recipient can do with grant funds.
    Safe haven is based on the definition of safe haven in the 
McKinney-Vento Act prior to amendment by the HEARTH Act. Although no 
longer used in statute, HUD's position is that the term remains 
relevant for implementation of the Continuum of Care program and, 
therefore, HUD proposes to include the term in the Continuum of Care 
program regulations. The term ``safe haven'' is used for purposes of 
determining whether a person is chronically homeless. The housing must 
serve hard-to-reach homeless persons with severe mental illness who 
came from the streets and have been unwilling or unable to participate 
in supportive services. In addition, the housing must provide 24-hour 
residence for eligible persons for an unspecified period, have an 
overnight capacity limited to 25 or fewer persons, and provide low-
demand services and referrals for the residents.
    Subrecipient is defined to mean a private nonprofit organization, 
State or local government, or instrumentality of a State or local 
government that receives a subgrant from the recipient to operate a 
project. The definition of ``subrecipient'' is consistent with the 
definition of ``project sponsor'' found in section 401 of the McKinney-
Vento Act, but does not track the statutory language. To be consistent 
with the Emergency Solutions Grants program regulation, and also to 
ensure that the relationship between the recipient and subrecipient is 
clear, HUD is using the term subrecipient, instead of project sponsor, 
throughout this regulation.
    Transitional housing is based on the definition of ``transitional 
housing'' in section 401 of the McKinney-Vento Act, as follows: ``The 
term `transitional housing' means housing, the purpose of which is to 
facilitate the movement of individuals and families experiencing 
homelessness to permanent housing within 24 months or such longer 
period as the Secretary determines necessary.'' The definition has been 
expanded to distinguish this type of housing from emergency shelter. 
This distinction is necessitated by the McKinney-Vento Act's explicit 
distinction between what activities can or cannot be funded under the 
Continuum of Care program. The regulatory definition clarifies that, to 
be transitional housing, program participants must have signed a lease 
or occupancy agreement that is for a term of at least one month and 
that ends in 24 months and cannot be extended.
    Unified Funding Agency (UFA) means an eligible applicant selected 
by the Continuum of Care to apply for a grant for the entire Continuum, 
which has the capacity to carry out the duties delegated to a UFA in 
this rule, which is approved by HUD and to which HUD awards a grant. 
HUD's regulatory definition of UFA departs slightly from the statutory 
definition. The statutory definition refers to the collaborative 
applicant. The differences between the statutory definition and HUD's 
regulatory definition reflect HUD's substitution of Continuum of Care 
for collaborative applicant.

Establishing and Operating the Continuum of Care (Subpart B)

    In general. The statutory authority for the Continuum of Care 
program is section 422 of the McKinney-Vento Act. As stated under 
section 1002 of the HEARTH Act, one of the main purposes of the HEARTH 
Act is to codify the Continuum of Care planning process. Consequently, 
under this interim rule,

[[Page 45427]]

HUD focuses on the rules and responsibilities of those involved in the 
Continuum of Care planning process and describes how applications and 
grant funds will be processed.
    As discussed earlier in the preamble, HUD's interim rule provides 
for the duties and functions of the collaborative applicant found in 
section 401 of the McKinney-Vento Act to be designated to the Continuum 
of Care, with the exception of applying to HUD for grant funds. HUD 
chose this approach because the Continuum might not be a legal entity, 
and therefore cannot enter into enforceable contractual agreements, but 
is the appropriate body for establishing and implementing decisions 
that affect the entire geographic area covered by the Continuum, 
including decisions related to funding. This approach allows the 
Continuum to retain its duties related to planning and prioritizing 
need (otherwise designated by statute to the collaborative applicant), 
while the authority to sign a grant agreement with HUD is designated to 
an eligible applicant that can enter into a contractual agreement. All 
of the duties assigned to the Continuum are based on the comparable 
duties of section 402(f) of the McKinney-Vento Act.
    Subpart B of the interim rule identifies how Continuums of Care are 
established, as well as the required duties and functions of the 
Continuum of Care.
    Establishing the Continuum of Care. In order to be eligible for 
funds under the Continuum of Care program, representatives from 
relevant organizations within a geographic area must establish a 
Continuum of Care. As discussed earlier in this preamble, this body is 
responsible for carrying out the duties identified in this interim 
regulation. Representatives from relevant organizations include 
nonprofit homeless assistance providers, victim service providers, 
faith-based organizations, governments, businesses, advocates, public 
housing agencies, school districts, social service providers, mental 
health agencies, hospitals, universities, affordable housing 
developers, law enforcement, and organizations that serve veterans and 
homeless and formerly homeless individuals. Where these organizations 
are located within the geographic area served by the Continuum of Care, 
HUD expects a representative of the organization to be a part of the 
Continuum of Care.
    Specific request for comment. HUD specifically requests comments on 
requiring Continuums of Care to have a board that makes the decisions 
for the Continuum. HUD requires two characteristics for all board 
compositions. These characteristics are that the Board must be 
representative of the subpopulations of homeless persons that exist 
within the geographic area, and include a homeless or formerly homeless 
person. Continuums will have 2 years from the effective date of the 
interim rule to establish a board that meets the criteria established 
in this section. No board member may participate or influence 
discussions or decisions concerning the award of a grant or other 
financial benefits for an organization that the member represents.
    HUD is considering four additional characteristics for all board 
compositions for incorporation in the final rule. HUD did not implement 
them at this stage in order to seek public comment prior to 
implementing them as requirements. HUD proposes that all boards must 
have a chair or co-chairs; be composed of an uneven number, serving 
staggered terms; include members from the public and private sectors; 
and include a member from at least one Emergency Solutions Grants 
program (ESG) recipient's agency located within the Continuum's 
geographic area. HUD is requesting comment on all of these proposed 
requirements; however, HUD specifically requests comments from 
Continuums of Care and ESG recipients on the requirement that the Board 
include an ESG recipient as part of its membership. HUD invites ESG 
recipients and Continuums to share challenges that will be encountered 
when implementing this requirement. Ensuring that ESG recipients are 
represented on the Board is important to HUD; therefore, in communities 
where ESG recipients and/or Continuums do not feel this requirement is 
feasible, HUD asks commenters to provide suggestions for how ESG 
recipients can be involved in the Continuum at one of the core 
decision-making levels.
    Responsibilities of the Continuum of Care. The interim rule 
establishes three major duties for which the Continuum of Care is 
responsible: To operate the Continuum of Care, to designate an HMIS for 
the Continuum of Care, and to plan for the Continuum of Care.
    This section of the interim rule establishes requirements within 
these three major duties.
    Operating the Continuum of Care. The interim rule provides that the 
Continuum of Care must abide by certain operational requirements. These 
requirements will ensure the effective management of the Continuum of 
Care process and ensure that the process is inclusive and fair. HUD has 
established eight duties required of the Continuum necessary to 
effectively operate the Continuum of Care. HUD has established the 
specific minimum standards for operating and managing a Continuum of 
Care for two main reasons. First, the selection criteria established 
under section 427 of the McKinney-Vento Act require HUD to measure the 
Continuum of Care's performance in reducing homelessness by looking at 
the overall performance of the Continuum, as opposed to measuring 
performance project-by-project as was done prior to the enactment of 
the HEARTH Act. This Continuum of Care performance approach results in 
cooperation and coordination among providers. Second, because 
Continuums of Care will have grants of up to 3 percent of Final Pro 
Rata Need (FPRN) to be used for eligible Continuum of Care planning 
costs, HUD is requiring more formal decision-making and operating 
standards for the Continuum of Care. This requirement ensures that the 
Continuums have appropriate funding to support planning costs.
    One of the duties established in this interim rule is the 
requirement that the Continuum establish and operate a centralized or 
coordinated assessment system that provides an initial, comprehensive 
assessment of the needs of individuals and families for housing and 
services. As detailed in the Emergency Solutions Grants program interim 
rule published on December 5, 2011, through the administration of the 
Rapid Re-Housing for Families Demonstration program and the 
Homelessness Prevention and Rapid Re-Housing program, as well as best 
practices identified in communities, HUD has learned that centralized 
or coordinated assessment systems are important in ensuring the success 
of homeless assistance and homeless prevention programs in communities. 
In particular, such assessment systems help communities systematically 
assess the needs of program participants and effectively match each 
individual or family with the most appropriate resources available to 
address that individual or family's particular needs.
    Therefore, HUD has required, through this interim rule, each 
Continuum of Care to develop and implement a centralized or coordinated 
assessment system for its geographic area. Such a system must be 
designed locally in response to local needs and conditions. For 
example, rural areas will have significantly different systems than 
urban ones. While the common thread between typical models is the use 
of a

[[Page 45428]]

common assessment tool, the form, detail, and use of that tool will 
vary from one community to the next. Some examples of centralized or 
coordinated assessment systems include: A central location or locations 
within a geographic area where individuals and families must be present 
to receive homeless services; a 211 or other hotline system that 
screens and directly connects callers to appropriate homeless housing/
service providers in the area; a ``no wrong door'' approach in which a 
homeless family or individual can show up at any homeless service 
provider in the geographic area but is assessed using the same tool and 
methodology so that referrals are consistently completed across the 
Continuum of Care; a specialized team of case workers that provides 
assessment services to providers within the Continuum of Care; or in 
larger geographic areas, a regional approach in which ``hubs'' are 
created within smaller geographic areas. HUD intends to develop 
technical assistance materials on a range of centralized and 
coordinated assessment types, including those most appropriate for 
rural areas.
    HUD recognizes that imposing a requirement for a centralized or 
coordinated assessment system may have certain costs and risks. Among 
the risks that HUD wishes specifically to address are the risks facing 
individuals and families fleeing domestic violence, dating violence, 
sexual assault, and stalking. In developing the baseline requirements 
for a centralized or coordinated intake system, HUD is considering 
whether victim service providers should be exempt from participating in 
a local centralized or coordinated assessment process, or whether 
victim service providers should have the option to participate or not.
    Specific request for comment. HUD specifically seeks comment from 
Continuum of Care-funded victim service providers on this question. As 
set forth in this interim rule, each Continuum of Care is to develop a 
specific policy on how its particular system will address the needs of 
individuals and families who are fleeing, or attempting to flee, 
domestic violence, dating violence, sexual assault, or stalking, but 
who are seeking shelter or services from non-victim service providers. 
These policies could include reserving private areas at an assessment 
location for evaluations of individuals or families who are fleeing, or 
attempting to flee, domestic violence, dating violence, sexual assault, 
or stalking; a separate ``track'' within the assessment framework that 
is specifically designed for domestic violence victims; or the location 
of victim service providers with centralized assessment teams.
    HUD invites suggestions for ensuring that the requirements it 
imposes regarding centralized or coordinated assessment systems will 
best help communities use their resources effectively and best meet the 
needs of all families and individuals who need assistance. Questions 
that HUD asks commenters to specifically address are: What barriers to 
accessing housing/services might a centralized or coordinated intake 
system pose to victims of domestic violence? How can those barriers be 
eliminated? What specific measures should be implemented to ensure 
safety and confidentiality for individuals and families who are fleeing 
or attempting to flee domestic violence situations? How should those 
additional standards be implemented to ensure that victims of domestic 
violence have immediate access to housing and services without 
increasing the burden on those victims? For communities that already 
have centralized or coordinated assessment systems in place, are 
victims of domestic violence and/or domestic violence service providers 
integrated into that system? Under either scenario (they are integrated 
into an assessment process or they are not integrated into it), how 
does your community ensure the safety and confidentiality of this 
population, as well as access to homeless housing and services? What 
HUD-sponsored training would be helpful to assist communities in 
completing the initial assessment of victims of domestic violence in a 
safe and confidential manner?
    In addition to comments addressing the needs of victims of domestic 
violence, dating violence, sexual assault, and stalking, HUD invites 
general comments on the use of a centralized or coordinated assessment 
system, particularly from those in communities that have already 
implemented one of these systems who can share both what has worked 
well and how these systems could be improved. HUD specifically seeks 
comment on any additional risks that a centralized or coordinated 
assessment system may create for victims of domestic violence, dating 
violence, sexual assault, or stalking who are seeking emergency shelter 
services due to immediate danger, regardless of whether they are 
seeking services through a victim service provider or nonvictim service 
provider.
    Another duty set forth in this part, is the requirement to 
establish and consistently follow written standards when administering 
assistance under this part. These requirements, established in 
consultation with recipients of Emergency Solutions Grants program 
funds within the geographic area, are intended to coordinate service 
delivery across the geographic area and assist Continuums of Care and 
their recipients in evaluating the eligibility of individuals and 
families consistently and administering assistance fairly and 
methodically. The written standards can be found in Sec.  578.7(a)(9) 
of this interim rule.
    Designating and operating an HMIS. The Continuum of Care is 
responsible for designating an HMIS and an eligible applicant to manage 
the HMIS, consistent with the requirements, which will be codified in 
24 CFR part 580. This duty is listed under section 402(f)(2) of the 
McKinney-Vento Act. In addition, the Continuum is responsible for 
reviewing, revising, and approving a privacy plan, security plan, and 
data quality plan for the HMIS and ensuring consistent participation of 
recipients and subrecipients in the HMIS.
    Continuum of Care planning. The Continuum is responsible for 
coordinating and implementing a system for its geographic area to meet 
the needs of the homeless population and subpopulations within the 
geographic area. The interim rule defines the minimum requirements for 
this systematic approach under Sec.  578.7(c)(1), such as emergency 
shelters, rapid rehousing, transitional housing, permanent supportive 
housing, and prevention strategies. Because there are not sufficient 
resources available through the Continuum of Care program to prevent 
and end homelessness, coordination and integration of other funding 
streams, including the Emergency Solutions Grants program and 
mainstream resources, is integral to carrying out the Continuum of Care 
System.
    HUD has determined that since the Continuum of Care will be the 
larger planning organization, the Continuum of Care must develop and 
follow a Continuum of Care plan that adheres, not only to the 
requirements being established by this interim rule, but to the 
requirements and directions of the most recently issued notice of 
funding availability (NOFA).
    While these planning duties are not explicitly provided in section 
402(f) of the Act, HUD has included them to facilitate and clarify the 
Continuum of Care planning process. Consistent with the goals of the 
HEARTH Act, HUD strives, through this interim rule, to provide a 
comprehensive, well-

[[Page 45429]]

coordinated and clear planning process, which involves the creation of 
the Continuum of Care and the duties the Continuum of Care will have to 
fulfill.
    Other planning duties for Continuums established in this section of 
the interim rule are planning for and conducting at least a biennial-
point-in-time count of homeless persons within the geographic area, 
conducting an annual gaps analysis of the homeless needs and services 
available within the geographic area, providing information necessary 
to complete the Consolidated Plan(s) within the geographic area, and 
consulting with State and local government Emergency Solutions Grants 
program recipients within the Continuum of Care on the plan for 
allocating Emergency Solutions Grants program funds and reporting on 
and evaluating the performance of Emergency Solutions Grants program 
recipients and subrecipients.
    Preparing an application for funds. A major function of the 
Continuum of Care is preparing and overseeing an application for funds 
under this part. This section of the interim rule establishes the 
duties of the Continuum of Care related to the preparation of the 
application. This section of the interim rule establishes that the 
Continuum is responsible for designing, operating, and following a 
collaborative process for the development of applications, as well as 
approving the submission of applications, in response to a NOFA 
published by HUD.
    The Continuum must also establish priorities for funding projects 
within the geographic area and determine the number of applications 
being submitted for funding. As previously noted in this preamble, 
since the Continuum of Care might not be a legal entity, and therefore 
may not be able to enter into a contractual agreement with HUD, the 
Continuum must select one or more eligible applicants to submit an 
application for funding to HUD on its behalf. If the Continuum of Care 
is an eligible applicant, the Continuum of Care may submit an 
application. If the Continuum selects more than one application, the 
Continuum must select one eligible applicant to be the collaborative 
applicant. That applicant will collect and combine the required 
application information from all of the other eligible applicants and 
for all projects within the geographic area that the Continuum has 
designated. If only one application is submitted by the collaborative 
applicant, the collaborative applicant will collect and combine the 
required application information from all projects within the 
geographic area that the Continuum has designated for funding. The 
collaborative applicant will always be the only applicant that can 
apply for Continuum of Care planning costs. In the case that there is 
one application for projects, the recipient of the funds is required to 
have signed agreements with its subrecipients as set forth in Sec.  
578.23(c), and is required to monitor and sanction subrecipients in 
compliance with Sec.  578.107.
    Whether the Continuum of Care submits the application or designates 
an eligible applicant to submit the application for funding, the 
Continuum of Care retains all of its duties.
    Unified Funding Agencies. To be designated as the Unified Funding 
Agency (UFA) for the Continuum of Care, the Continuum must select the 
collaborative applicant to apply to HUD to be designated as the UFA for 
the Continuum. The interim rule establishes the criteria HUD will use 
when determining whether to designate the collaborative applicant as a 
UFA. These standards were developed to ensure that collaborative 
applicants have the capacity to manage the grant and carry out the 
duties in 578.11(b), and are described below.
    The duties of the UFA established in Sec.  578.11 are consistent 
with the duties set forth in section 402(g) of the Act. Even if the 
Continuum designates a UFA to submit the application for funding, the 
Continuum of Care retains all of its duties.
    Remedial actions. Section 402(c) of the McKinney-Vento Act gives 
HUD the authority to ensure the fair distribution of grant amounts for 
this program, such as designating another body as a collaborative 
applicant, replacing the Continuum of Care for the geographic area, or 
permitting other eligible entities to apply directly for grants. 
Section 578.13 of this interim rule addresses the remedial actions that 
may be taken.

Overview of the Application and Grant Award Process (Subpart C)

    Eligible applicants. Under this interim rule, eligible applicants 
consist of nonprofit organizations, State and local governments, and 
instrumentalities of local governments. An eligible applicant must have 
been designated by the Continuum of Care to submit an application for 
grant funds under this part. The Continuum's designation must state 
whether the Continuum is designating more than one applicant to apply 
for funds, and if it is, which applicant is being designated the 
collaborative applicant. A Continuum of Care that is designating only 
one applicant for funds must designate that applicant to be the 
collaborative applicant. For-profit entities are not eligible to apply 
for grants or to be subrecipients of grant funds.
    Section 401(10) of the McKinney-Vento Act identifies that 
collaborative applicants may be legal entities, and a legal entity may 
include a consortium of instrumentalities of a State or local 
government that has constituted itself as an entity. HUD has not 
included a consortium in the list of eligible applicants. As noted 
earlier in this preamble, a Continuum of Care is defined to mean a 
group that is composed of representatives of organizations across the 
entire geographic area claimed by the Continuum of Care. A Continuum is 
able to combine more than one metropolitan city or county into the 
geographic area that the Continuum represents. In essence, the 
Continuum of Care acts as a consortium, and it is therefore HUD's 
position that the inclusion of consortiums in the interim rule would be 
redundant.
    Determining the Continuum's maximum award amount. The total amount 
for which a Continuum of Care is eligible to apply and be awarded is 
determined through a four-step process, including the following 
factors: A Continuum's PPRN amount; renewal demand; any additional 
increases in amounts for leasing, rental assistance, and operating 
costs based on Fair Market Rents (FMRs); planning and UFA cost funds; 
and the amounts available for bonus dollars.
    Using the formula that will be discussed below, HUD will first 
determine a Continuum of Care's PPRN amount, as authorized under 
section 427(b)(2)(B) of the McKinney-Vento Act. This amount is the sum 
of the PPRN amounts for each metropolitan city, urban county, non-urban 
county, and insular area claimed by the Continuum of Care as part of 
its geographic area, excluding any counties applying for, or receiving 
funds under the Rural Housing Stability Assistance program, the 
regulations for which will be established in 24 CFR part 579. The PPRN 
for each of these areas is based upon the ``need formula'' under Sec.  
579.17(a)(2) and (3). Under the McKinney-Vento Act, HUD is required to 
publish, by regulation, the formula used to establish grant amounts. 
The need formula under Sec.  579.17(a)(2) and (3) satisfies this 
requirement, and HUD specifically seeks comment on this formula. HUD 
will announce the PPRN amounts prior to the publication of the NOFA on 
its Web site.
    To establish the amount on which the need formula is run, HUD will 
deduct an amount, which will be published in

[[Page 45430]]

the NOFA, to be set aside to provide a bonus, and the amount necessary 
to fund Continuum of Care planning activities and UFA costs from the 
total funds made available for the program each fiscal year. On this 
amount, HUD will use the following process to establish an area's PPRN. 
First, 2 percent of the total funds available shall be allocated among 
the four insular areas (American Samoa, Guam, the Commonwealth of the 
Northern Marianas, and the Virgin Islands) based upon the percentage 
each area received in the previous fiscal year under section 106 of the 
Housing and Community Development Act of 1974. Second, 75 percent of 
the remaining funds made available shall be allocated to metropolitan 
cities and urban counties that have been funded under the Emergency 
Solutions Grants program (formerly known as the Emergency Shelter 
Grants program) every year since 2004. Third, the remaining funds made 
available shall be allocated to Community Development Block Grant 
(CDBG) metropolitan cities and urban counties that have not been funded 
under the Emergency Solutions Grants program every year since 2004 and 
all other counties in the United States and Puerto Rico.
    Recognizing that in some federal fiscal years, the amount available 
for the formula may be less than the amount required to renew all 
existing projects eligible for renewal in that year for at least one 
year, HUD has included a method for distributing the reduction of funds 
proportionally across all Continuums of Care in Sec.  578.17(a)(4) of 
this interim rule. HUD will publish the total dollar amount that each 
Continuum will be required to deduct from renewal projects Continuum-
wide, and Continuums will have the authority to determine how to 
administer the cuts to projects across the Continuum.
    Specific request for comment. HUD specifically requests comment on 
the method established in Sec.  578.17(a)(4) to reduce the total amount 
required to renew all projects eligible for renewal in that one year, 
for at least one year, for each Continuum of Care when funding is not 
sufficient to renew all projects nationwide for at least one year.
    The second step in determining a Continuum's maximum award amount 
is establishing a Continuum of Care's ``renewal demand.'' The 
Continuum's renewal demand is the sum of the annual renewal amounts of 
all projects eligible within the Continuum of Care's geographic area to 
apply for renewal in that federal fiscal year's competition before any 
adjustments to rental assistance, leasing, and operating line items 
based on changes to the FMRs in the geographic area.
    Third, HUD will determine the Continuum of Care's Final Pro Rata 
Need (FPRN), which is the higher of: (1) PPRN, or (2) renewal demand 
for the Continuum of Care. The FPRN establishes the base for the 
maximum award amount for the Continuum of Care.
    Fourth, HUD will determine the maximum award amount. The maximum 
award amount for the Continuum of Care is the FPRN amount plus any 
additional eligible amounts for Continuum planning; establishing fiscal 
controls for the Continuum; updates to leasing, operating, and rental 
assistance line items based on changes to FMR; and the availability of 
any bonus funding during the competition.
    Application process. Each fiscal year, HUD will issue a NOFA. All 
applications, including applications for grant funds, and requests for 
designation as a UFA or HPC, must be submitted to HUD in accordance 
with the requirements of the NOFA and contain such information as the 
NOFA specifies. Applications may request up to the maximum award amount 
for Continuums of Care.
    An applicant that is a State or a unit of general local government 
must have a HUD-approved, consolidated plan in accordance with HUD's 
Consolidated Plan regulations in 24 CFR part 91. The applicant must 
submit a certification that the application for funding is consistent 
with the HUD-approved consolidated plan(s) in the project's 
jurisdiction(s). Applicants that are not States or units of general 
local government must submit a certification that the 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 HUD's regulations in 24 CFR 
part 91, subpart F. The required certification must be submitted by the 
funding application submission deadline announced in the NOFA.
    An applicant may provide assistance under this program only in 
accordance with HUD subsidy layering requirements in section 102 of the 
Housing and Urban Development Reform Act of 1989 (42 U.S.C. 3545). In 
this interim rule, HUD clarifies that the applicant must submit 
information in its application on other sources of funding the 
applicant has received, or reasonably expects to receive, for a 
proposed project or activities.
    Awarding funds. HUD will review applications in accordance with the 
guidelines and procedures specified in the NOFA and award funds to 
recipients through a national competition based on selection criteria 
as defined in section 427 of the McKinney-Vento Act. HUD will announce 
the awards and notify selected applicants of any conditions imposed on 
the awards.
    Grant agreements. A recipient of a conditionally awarded grant must 
satisfy all requirements for obligation of funds; otherwise, HUD will 
withdraw its offer of the award. These conditions include establishing 
site control, providing proof of match, complying with environmental 
review under Sec.  578.31, and documenting financial feasibility within 
the deadlines under Sec.  578.21(a)(3). HUD has included in the interim 
rule the deadlines for conditions that may be extended and the reasons 
for which HUD will consider an extension.
    The interim rule requires that site control be established by each 
recipient receiving funds for acquisition, rehabilitation funding, new 
construction, or operating costs, or for providing supportive services. 
HUD has determined that the time to establish site control is 12 months 
for projects not receiving new construction, acquisition, or 
rehabilitation funding, as stated under section 426(a) of the McKinney-
Vento Act, not 9 months as stated under section 422(d) of the McKinney-
Vento Act, for projects receiving operating and supportive service 
funds. HUD's determination on the time needed to establish site control 
is based on previous program policy, and the longer time frame takes 
into consideration the reality of the housing market. Projects 
receiving acquisition, rehabilitation, or new construction funding must 
provide evidence of site control no later than 24 months after the 
announcement of grant awards, as provided under section 422(d) of the 
McKinney-Vento Act.
    The interim rule requires that HUD perform an environmental review 
for each property as required under HUD's environmental regulations in 
24 CFR part 50. All recipients of Continuum of Care program funding 
under this part must supply all available, relevant information 
necessary to HUD, and carry out mitigating measures required by HUD. 
The recipient, its project partners, and its project partner's 
contractors may not perform any eligible activity for a project under 
this part, or commit or expend HUD or local funds for such activities 
until HUD has performed an environmental review and the recipient has 
received HUD approval of the property agreements.
    Executing grant agreements. If a Continuum designates more than one 
applicant for the geographic area, HUD

[[Page 45431]]

will enter into a grant agreement with each designated recipient for 
which an award is announced. If a Continuum designates only one 
recipient for the geographic area, HUD may enter into one grant 
agreement with that recipient for new awards, if any; and one grant 
agreement for renewals and Continuum of Care planning costs and UFA 
costs, if any. These two grant agreements will cover the entire 
geographic area, and a default by the recipient under one of these 
agreements will also constitute a default under the other. If the 
Continuum is a UFA, HUD will enter into one grant agreement with the 
UFA for new awards, if any; and one for renewal and Continuum of Care 
planning costs and UFA costs, if any. Similarly, these two grant 
agreements will cover the entire geographic area and a default by the 
recipient under one of those agreements will also constitute a default 
under the other.
    HUD requires the recipient to enter into the agreement described in 
Sec.  578.23(c). Under this agreement, the grant recipient must agree 
to ensure that the operation of the project will be in accordance with 
the McKinney-Veto Act and the requirements under this part. In 
addition, the recipient must monitor and report the progress of the 
projects to the Continuum of Care and to HUD. The recipient must ensure 
that individuals and families experiencing homelessness are involved in 
the operation of the project, maintain confidentiality of program 
participants, and monitor and report matching funds to HUD, among other 
requirements. The recipient must also agree to use the centralized or 
coordinated assessment system established by the Continuum of Care, 
unless the recipient or subrecipient is a victim service provider. 
Victim service providers may choose not to use the centralized or 
coordinated assessment system provided that all victim service 
providers in the area use a centralized or coordinated assessment 
system that meets HUD's minimum requirements. HUD has provided this 
optional exception because it understands the unique role that victim 
service providers have within the Continuum of Care.
    Renewals. The interim rule provides that HUD may fund, through the 
Continuum of Care program, all projects that were previously eligible 
under the McKinney-Vento Act prior to the enactment of the HEARTH Act. 
These projects may be renewed to continue ongoing leasing, operations, 
supportive services, rental assistance, HMIS, and administration beyond 
the initial funding period even if those projects would not be eligible 
under the Continuum of Care program. For projects that would no longer 
be eligible under the Continuum of Care program (e.g., safe havens), 
but which are serving homeless persons; HUD wants to ensure that 
housing is maintained and that persons do not become homeless because 
funding is withdrawn.
    HUD may renew projects that were submitted on time and in such 
manner as required by HUD, but did not have a total score that would 
allow the project to be competitively funded. HUD may choose to 
exercise this option to ensure that homeless or formerly homeless 
persons do not lose their housing. The interim rule provides, based on 
the language in section 421(e) of the McKinney-Vento Act, that HUD may 
renew the project, upon a finding that the project meets the purposes 
of the Continuum of Care program, for up to one year and under such 
conditions as HUD deems appropriate.
    Annual Performance Report. The interim rule also provides that HUD 
may terminate the renewal of any grant and require the recipient to 
repay the renewal grant if the recipient fails to submit a HUD Annual 
Performance Report (APR) within 90 days of the end of the program year 
or if the recipient submits an APR that HUD deems unacceptable or shows 
noncompliance with the requirements of the grant and this part. Section 
578.103(e) of the Continuum of Care program regulations further 
clarifies that recipients receiving grant funds for acquisition, 
rehabilitation, or new construction are expected to submit APRs for 15 
years from the date of initial occupancy or the date of initial service 
provision, unless HUD provides an exception. The recipient's submission 
of the APR helps HUD review whether the recipient is carrying out the 
project in the manner proposed in the application. Recipients agree to 
submit an APR as a condition of their grant agreement. This requirement 
allows HUD to ensure that recipients submit APRs on grant agreements 
that have expired as a condition of receiving approval for a new grant 
agreement for the renewal project.
    Appeals. The interim rule provides certain appeal options for 
applicants that were not awarded funding.
    Under section 422(g) of the McKinney-Vento Act, if more than one 
collaborative applicant submits an application covering the same 
geographic area, HUD must award funds to the application that scores 
the highest score based on the selection criteria set forth in section 
427 of the Act. Consistent with HUD's use of the term Continuum of Care 
in the interim rule where the statute uses collaborative applicant, as 
explained earlier in the preamble, the interim rule stipulates that if 
more than one Continuum of Care claims the same geographic area, then 
HUD will award funds to the Continuum applicant(s) whose application(s) 
has the highest total score and that no projects from the lower scoring 
Continuum of Care will be funded (and that any projects submitted with 
both applications will not be funded). To appeal HUD's decision to fund 
the competing Continuum of Care, the applicant(s) from the lower-
scoring Continuum of Care must file the written appeal in such form and 
manner as HUD may require within 45 days of the date of HUD's 
announcement of award.
    If an applicant has had a certification of consistency with a 
consolidated plan withheld, that applicant may appeal such a decision 
to HUD. HUD has established a procedure to process the appeals and no 
later than 45 days after the date of receipt of an appeal, HUD will 
make a decision.
    Section 422(h) of the McKinney-Vento Act provides the authority for 
a solo applicant to submit an application to HUD and be awarded a grant 
by HUD if it meets the criteria under section 427 of the McKinney-Vento 
Act. The interim rule clarifies that a solo applicant must submit its 
application to HUD by the deadline established in the NOFA to be 
considered for funding. The statute also requires that HUD establish an 
appeal process for organizations that attempted to participate in the 
Continuum of Care's process and believe they were denied the right to 
reasonable participation, as reviewed in the context of the local 
Continuum's process. An organization may submit a solo application to 
HUD and appeal the Continuum's decision not to include it in the 
Continuum's application. If HUD finds that the solo applicant was not 
permitted to participate in the Continuum of Care process in a 
reasonable manner, then HUD may award the grant to that solo applicant 
and may direct the Continuum to take remedial steps to ensure 
reasonable participation in the future. HUD may also reduce the award 
to the Continuum's applicant(s).
    Section 422(h)(1) of the McKinney-Vento Act requires that ``HUD 
establish a timely appeal procedure for grant amounts awarded or denied 
under this subtitle to a collaborative application.'' The interim rule 
sets an appeal process for denied or decreased funding under Sec.  
578.35(c). Applicants that are denied funds by HUD, or that requested 
more funds than HUD awarded, may appeal

[[Page 45432]]

by filing a written appeal within 45 days of the date of HUD's 
announcement of the award. HUD will notify applicant of its decision on 
the appeal within 60 days of the date of HUD's receipt of the written 
appeal.

Program Components and Eligible Costs (Subpart D)

    Program components. The interim rule provides that Continuum of 
Care funds may be used for projects under five program components: 
Permanent housing, transitional housing, supportive services only, 
HMIS, and, in some cases, homelessness prevention. Administrative costs 
are eligible under all components. Where possible, the components set 
forth in the Continuum of Care program are consistent with the 
components set forth under the Emergency Solutions Grants program. This 
will ease the administrative burden on recipients of both programs and 
will ensure that reporting requirements and data quality benchmarks are 
consistently established and applied to like projects. One significant 
distinction between the Emergency Solutions Grants program and this 
part can be found in the eligible activities and administration 
requirements for assistance provided under the rapid rehousing 
component in this interim rule. The significant differences between 
this component in the Emergency Solutions Grants program and this part 
are discussed below.
    The interim rule sets forth the costs eligible for each program 
component in Sec.  578.37(a). The eligible costs for contributing data 
to the HMIS designated by the Continuum of Care are also eligible under 
all components.
    Consistent with the definition of permanent housing in section 401 
of the McKinney-Vento Act and Sec.  578.3 of this interim rule, the 
permanent housing component is community-based housing without a 
designated length of stay that permits formerly homeless individuals 
and families to live as independently as possible. The interim rule 
clarifies that Continuum of Care funds may be spent on two types of 
permanent housing: Permanent supportive housing for persons with 
disabilities (PSH) and rapid rehousing that provides temporary 
assistance (i.e., rental assistance and/or supportive services) to 
program participants in a unit that the program participant retains 
after the assistance ends.
    Although the McKinney-Vento Act authorizes permanent housing 
without supportive services, the interim rule does not. Based on its 
experience with the Supportive Housing and Shelter Plus Care programs, 
HUD has determined that programs should require at least case 
management for some initial period after exiting homelessness. HUD has 
imposed the requirement that rapid rehousing include, at a minimum, 
monthly case management meetings with program participants (except 
where prohibited by the Violence Against Women Act (VAWA) and the 
Family Violence Prevention and Services Act (FVPSA)) and allows for a 
full range of supportive services to be provided for up to 6 months 
after the rental assistance stops. Many other HUD programs, such as 
Section 8 and HOME, provide housing without supportive services to low-
income individuals and families.
    With respect to rapid rehousing, the interim rule provides that 
funds under this part may be used to provide supportive services and 
short-term and/or medium-term rental assistance. While the time frames 
under which a program participant may receive short-term or medium-term 
rental assistance set forth in this part match the time frames set 
forth in the Emergency Solutions Grants program, the supportive 
services available to program participants receiving rapid rehousing 
assistance under the Continuum of Care program are not limited to 
housing relocation and stabilization services as they are in the 
Emergency Solutions Grants program. Program participants receiving 
rapid rehousing under this part may receive any of the supportive 
services set forth in Sec.  578.53 during their participation in the 
program. The Continuum of Care, however, does have the discretion to 
develop written policies and procedures that limit the services 
available to program participants that better align the services 
available to program participants with those set forth in the Emergency 
Solutions Grants program.
    Specific request for comment. While HUD's experience with the 
Supportive Housing and Shelter Plus Care programs is the basis for 
HUD's determination to require case management for some initial period 
after exiting homelessness, HUD specifically welcomes comment on other 
experiences with monthly case management.
    The interim rule provides that the HMIS component is for funds that 
are used by HMIS Leads only. Eligible costs include leasing a structure 
in which the HMIS is operated, operating funds to operate a structure 
in which the HMIS is operated, and HMIS costs related to establishing, 
operating, and customizing a Continuum of Care's HMIS.
    As set forth in Section 424(c) of the McKinney-Veto Act, Continuum 
of Care funds may be used only for the homelessness prevention 
component by recipients in Continuums of Care that have been designated 
HPCs by HUD. Eligible activities are housing relocation and 
stabilization services, and short- and/or medium-term rental 
assistance, as set forth in 24 CFR 576.103, necessary to prevent an 
individual or family from becoming homeless.
    Planning activities. Under this interim rule, HUD lists eligible 
planning costs for the Continuum of Care under Sec.  578.39(b) and (c). 
HUD will allow no more than 3 percent of the FPRN, or a maximum amount 
to be established by the NOFA, to be used for certain costs. These 
costs must be related to designing a collaborative process for an 
application to HUD, evaluating the outcomes of funded projects under 
the Continuum of Care and Emergency Solutions Grants programs, and 
participating in the consolidated plan(s) for the geographic area(s). 
Under section 423 of the McKinney-Vento Act, a collaborative applicant 
may use no more than 3 percent of total funds made available to pay for 
administrative costs related to Continuum of Care planning.
    HUD is defining ``of the total funds made available'' to mean FPRN, 
the higher of PPRN or renewal demand, in the interim rule. HUD has 
determined that FPRN strikes the correct balance, as it is the higher 
of PPRN or renewal demand. This will help Continuums of Care (CoC) 
balance: (1) Having sufficient planning dollars to be successful in its 
duties and compete for new money (which would be the PPRN), and (2) 
being able to monitor and evaluate actual projects in operation (and 
plan for renewal demand). The administrative funds related to CoC 
planning made available will be added to a CoC's FPRN to establish the 
CoCs maximum award amount.
    Unified Funding Agency Costs. Under this interim rule, HUD lists 
eligible UFA costs in Sec.  578.41(b) and (c). Similar to the cap on 
planning costs for CoC, HUD will allow no more than 3 percent of the 
FPRN, or a maximum amount to be established by the NOFA, whichever is 
less, to be used for UFA costs. This amount is in addition to the 
amount made available for CoC planning costs. UFA costs include costs 
associated with ensuring that all financial transactions carried out 
under the Continuum of Care program are conducted and records 
maintained in accordance with generally accepted accounting principles, 
including arranging for an annual survey, audit, or evaluation of the 
financial records of each project carried out by a subrecipient funded 
by a grant received through the Continuum of Care program. The funds 
made

[[Page 45433]]

available to UFAs related to establishing fiscal controls will be added 
to a CoC's FPRN to establish the CoC maximum award amount.
    Leasing. Under this interim rule, grant funds may be used to pay 
the costs of leasing a structure or structures, or portions of 
structures, to provide housing or supportive services. The interim rule 
further clarifies that leasing means that the lease is between the 
recipient of funds and the landlord. HUD recognizes that some grantees 
receiving funds through the Supportive Housing Program may have been 
using their leasing funds in a manner consistent with the rental 
assistance requirements established in Sec.  578.51; therefore, since 
the Continuum of Care program authorizes both leasing and rental 
assistance, the rule provides for an allowance for projects originally 
approved to carry out leasing to renew and request funds for rental 
assistance, so long as the rental assistance meets the requirements in 
Sec.  578.51. The rule provides that a recipient of a grant awarded 
under the McKinney-Vento Act, prior to enactment of the HEARTH Act, 
must apply for leasing if the lease is between the recipient and the 
landlord, notwithstanding that the grant was awarded prior to the 
HEARTH Act amendments to the McKinney-Vento Act.
    The interim rule provides that leasing funds may not be used to 
lease units or structures owned by the recipient, subrecipient, their 
parent organization(s), any other related organization(s), or 
organizations that are members of a partnership where the partnership 
owns the structure, unless HUD authorizes an exception for good cause. 
The interim rule establishes minimum requirements that a request for an 
exception must include. These exceptions are based on HUD's experience 
in administering the Homelessness Prevention and Rapid Re-Housing 
Program (HPRP).
    The interim rule establishes that projects for leasing may require 
that program participants pay an occupancy charge (or in the case of a 
sublease, rent) of no more than 30 percent of their income. Income must 
be calculated in accordance with HUD's regulations in 24 CFR 5.609 and 
24 CFR 5.611(a). However, the interim rule clarifies that projects may 
not charge program fees.
    Rental assistance. Under this interim rule, rental assistance is an 
eligible cost for permanent and transitional housing, and this rule 
clarifies that the rental assistance may be short-term, up to 3 months 
of rent; medium-term, for 3 to 24 months of rent; and long-term, for 
longer than 24 months of rent. This section provides that rental 
assistance may include tenant-based, project-based, or sponsor-based 
rental assistance. This section also provides that project-based rental 
assistance may include rental assistance to preserve existing permanent 
supportive housing for homeless individuals and families. Given that 
the availability of affordable rental housing has been shown to be a 
key factor in reducing homelessness, the availability of funding for 
short-term, medium-term, and long-term rental assistance under both the 
Emergency Solutions Grants program and the Continuum of Care program is 
not inefficient use of program funds, but rather effective use of 
funding for an activity that lowers the number of homeless persons.
    As noted in the above discussion of rental housing available for 
funding under the Continuum of Care program, one eligible form of 
rental assistance is tenant-based, which allows the program participant 
to retain rental assistance for another unit. The interim rule limits 
this retention to within the Continuum of Care boundaries. HUD has 
determined that Continuum of Care program funds must be used within the 
Continuum's geographic boundaries. If program participants move outside 
of the Continuum, the Continuum may pay moving costs, security 
deposits, and the first month of rent for another unit; however, the 
Continuum would have to organize assistance with the relevant Continuum 
of Care for the program participant if rental assistance is to 
continue. The program participant may be transferred to a rental 
assistance program in a different Continuum without having to become 
homeless again. The recipient may also limit the movement of the 
assistance to a smaller area if this is necessary to coordinate service 
delivery.
    Under this interim rule, the only exception to the limitation for 
retention of tenant-based rental assistance is for program participants 
who are victims of domestic violence, dating violence, sexual assault, 
or stalking. Under the definition of ``tenant-based'' in the McKinney-
Vento Act (section 401(28) of the McKinney-Vento Act), these 
participants must have complied with all other obligations of the 
program and reasonably believe that he or she is imminently threatened 
by harm from further violence if he or she remains in the assisted 
dwelling unit.
    In the interim rule, HUD has clarified that the imminent threat of 
harm must be from further domestic violence, dating violence, sexual 
assault, or stalking, which would include threats from a third party, 
such as a friend or family member of the perpetrator of the violence. 
HUD requires that the program participant provide appropriate 
documentation of the original incident of domestic violence, dating 
violence, sexual assault, or stalking, and any evidence of the current 
imminent threat of harm. Examples of appropriate documentation of the 
original incident of domestic violence, dating violence, sexual 
assault, or stalking include written observation by the housing or 
service provider; a letter or other documentation from a victim service 
provider, social worker, legal assistance provider, pastoral counselor, 
mental health provider, or other professional from whom the victim has 
sought assistance; or medical or dental, court, or law enforcement 
records. Documentation of reasonable belief of further domestic 
violence, dating violence, sexual assault, or stalking includes written 
observation by the housing or service provider; a letter or other 
written documentation from a victim service provider, social worker, 
legal assistance provider, pastoral counselor, mental health provider, 
or other professional from whom the victim has requested assistance; a 
current restraining order, recent court order, or other court records; 
or law enforcement reports or records. The housing or service provider 
may also consider other documentation such as emails, voicemails, text 
messages, social media posts, and other communication. Because of the 
particular safety concerns surrounding victims of domestic violence, 
the interim rule provides that acceptable evidence for both the 
original violence and the reasonable belief include an oral statement. 
This oral statement does not need to be verified, but it must be 
documented by a written certification by the individual or head of 
household.
    This provision is specific to victims of domestic violence, dating 
violence, sexual assault, and stalking who are receiving tenant-based 
rental assistance in permanent housing. This interim rule contains 
other policies for moving program participants receiving any type of 
assistance under this interim rule, including tenant-based rental 
assistance, within the Continuum of Care geographic area, or smaller 
geographic area required by the provider to coordinate service 
delivery. Moving program participants outside of the geographic area 
where providers can coordinate service-delivery is administratively 
difficult for providers and makes it difficult to monitor that program 
participants have access to, and are receiving, appropriate supportive

[[Page 45434]]

services; therefore, moves outside of the geographic area where the 
provider can effectively deliver and monitor service coordination are 
allowed only under exceptional circumstances. HUD has established these 
provisions to provide an exception and to address the challenges that 
are associated with such a move.
    Based on HUD's experience in administering the Shelter Plus Care 
program, the interim rule includes provisions to clarify when rental 
payments may continue to be made to a landlord when the program 
participant no longer resides in the unit. For vacated units, the 
interim rule provides that assistance may continue for a maximum of 30 
days from the end of the month in which the unit was vacated, unless 
the unit is occupied by another eligible person. A person staying in an 
institution for less than 90 days is not considered as having vacated 
the unit. Finally, the recipient may use grant funds, in an amount not 
to exceed one month's rent, to pay for any damage to housing due to the 
action of the program participant, one-time, per program participant, 
per unit. This assistance can be provided only at the time the program 
participant exits the housing unit.
    Supportive services. Grant funds may be used to pay eligible costs 
of supportive services for the special needs of program participants. 
All eligible costs are eligible to the same extent for program 
participants who are unaccompanied homeless youth; persons living with 
Human Immunodeficiency Virus (HIV)/Acquired Immune Deficiency Syndrome 
(AIDS) (HIV/AIDS); and victims of domestic violence, dating violence, 
sexual assault, or stalking. Any cost that is not described as an 
eligible cost under this interim rule is not an eligible cost of 
providing supportive services. Eligible costs consist of assistance 
with moving costs, case management, child care, education services, 
employment assistance and job training, housing search and counseling 
services, legal services, life skills training, mental health services, 
outpatient health services, outreach services, substance abuse 
treatment services, transportation, and utility deposits.
    The definition of ``supportive services'' in section 401(27) of the 
McKinney-Vento Act includes the provision of mental health services, 
trauma counseling, and victim services. HUD has determined that victim 
services are eligible as supportive services, and are included as 
eligible program costs in this interim rule. Providers are allowed to 
provide services specifically to victims of domestic violence, dating 
violence, sexual assault, and stalking. The eligible costs for 
providing victim services are listed as eligible costs in the 
supportive services funding category. Rather than create a new eligible 
line item in the project budget, HUD has determined that these costs 
can be included in the funding categories already established.
    Indirect costs. Indirect costs are allowed as part of eligible 
program costs. Programs using indirect cost allocations must be 
consistent with Office of Management and Budget (OMB) Circulars A-87 
and A-122, as applicable. OMB Circular A-87 and the regulations at 2 
CFR part 225 pertain to ``Cost Principles for State, Local, and Indian 
Tribal Governments.'' OMB Circular A-122 and the regulations codified 
at 24 CFR part 230 pertain to ``Cost Principles for Non-Profit 
Organizations.''
    Other costs. In addition to the eligible costs described in this 
preamble, the regulation addresses the following other eligible costs: 
acquisition, rehabilitation, new construction, operating costs, HMIS, 
project administrative costs, and relocation costs.

High-Performing Communities (Subpart E)

    Section 424 of the McKinney-Vento Act establishes the authority for 
the establishment of and requirements for HPCs. Applications must be 
submitted by the collaborative applicant at such time and in such 
manner as HUD may require and contain such information as HUD 
determines necessary under Sec.  578.17(b). Applications will be posted 
on the HUD Web site (www.hud.gov) for public comments. In addition to 
HUD's review of the applications, interested members of the public will 
be able to provide comment to HUD regarding the applications.
    Requirements. The Continuum of Care must use HMIS data (HUD will 
publish data standards and measurement protocols) to determine that the 
standards for qualifying as a HPC are met. An applicant must submit a 
report showing how the Continuum of Care program funds were expended in 
the prior year, and provide information that the Continuum meets the 
standards for HPCs.
    Standards. In order to qualify as an HPC, a Continuum of Care must 
demonstrate through reliable data that it meets all of the required 
standards. The interim rule clarifies which standards will be measured 
with reliable data from a Continuum's HMIS and which standards will be 
measured through reliable data from other sources and presented in a 
narrative form or other format prescribed by HUD.
    Continuums must use the HMIS to demonstrate the following measures: 
(1) That the mean length of homelessness must be less than 20 days for 
the Continuum's geographic area, or the Continuum's mean length of 
episodes for individuals and families in similar circumstances was 
reduced by at least 10 percent from the preceding year; (2) that less 
than 5 percent of individuals and families that leave homelessness 
become homeless again any time within the next 2 years, or the 
percentage of individuals and families in similar circumstances who 
became homeless again within 2 years after leaving homelessness was 
decreased by at least 20 percent from the preceding year; and (3) for 
Continuums of Care that served homeless families with youth defined as 
homeless under other federal statutes, that 95 percent of those 
families did not become homeless again within a 2-year period following 
termination of assistance and that 85 percent of those families 
achieved independent living in permanent housing for at least 2 years 
following the termination of assistance.
    The McKinney-Vento Act requires that HUD set forth standards for 
preventing homelessness among the subset of those at the highest risk 
of becoming homeless among those homeless families and youth defined as 
homeless under other federal statutes, the third measure above, one of 
which includes achieving independent living in permanent housing among 
this population. HUD has set forth the standards of 95 percent and 85 
percent. HUD recognizes that these standards are high, but standards 
are comparable to the other standards in the Act, which are high. It is 
HUD's position that HPCs should be addressing the needs of those 
homeless individuals within their communities prior to receiving 
designation of a HPC and being allowed to spend funds in accordance 
with Sec.  578.71.
    The final standard that the Continuum must use its HMIS data to 
demonstrate is provided under section 424(d)(4) of the Act. The statute 
requires each homeless individual or family who sought homeless 
assistance to be included in the data system used by that community. 
HUD has defined this as bed-coverage and service-volume coverage rates 
of at least 80 percent. The documentation that each homeless individual 
or family who sought homeless assistance be included in the HMIS is not 
measurable by HUD. This type of standard would be entirely reliant upon 
self-reporting. Additionally, individuals and families

[[Page 45435]]

have the right to decline having their data entered into the HMIS. HUD 
uses bed-coverage rates and service-volume coverage rates as a proxy 
for measuring the rate of inclusion of persons who are present for 
services or housing in the HMIS. This is a measurable standard, and HUD 
defines the calculation in the HMIS rule; therefore, the measurement 
will be consistent between Continuums.
    Continuums must use reliable data from other sources and presented 
in a narrative form or other format prescribed by HUD to measure two 
standards: Community action and renewing HPC status. Section 424(d)(4) 
of the McKinney-Vento Act establishes another standard for HPCs, which 
is ``community action.'' This statutory section provides that 
communities that compose the geographic area must have actively 
encouraged homeless individuals and families to participate in housing 
and services available in the geographic area and included each 
homeless individual or family who sought homeless assistance services 
in the data system used by that community for determining compliance. 
HUD has defined ``communities that compose the geographic area'' to 
mean the entire geographic area of the Continuum. This definition will 
also provide consistency of measurement since most of HUD's 
measurements are across the entire Continuum of Care geographic area. 
HUD has further defined ``actively encourage'' within this standard as 
a comprehensive outreach plan, including specific steps for identifying 
homeless persons and referring them to appropriate housing and services 
in that geographic area. The measurement of the last part of this 
standard, ``each homeless individual or family who sought homeless 
assistance services in the data system used by that community,'' will 
be measured using reliable data from an HMIS and has been discussed 
earlier in this preamble. HUD has determined this will provide clarity 
and ensure consistent measurement across Continuums.
    The interim rule provides that a Continuum of Care that was an HPC 
in the prior year and used Continuum funds for activities described 
under Sec.  578.71 must demonstrate that these activities were 
effective at reducing the number of persons who became homeless in that 
community, to be renewed as a HPC.
    Selection. HUD will select up to 10 Continuums of Care each year 
that best meet the application requirements and the standards set forth 
in Sec.  578.65. Consistent with section 424 of the McKinney-Vento Act, 
the interim rule provides a HPC designation for the grants awarded in 
the same competition in which the designation is applied for and made. 
The designation will be for a period of one year.
    Eligible activities. Recipients and subrecipients in Continuums 
that have been designated an HPC may use grant funds to provide housing 
relocation and stabilization services and short- and/or medium-term 
rental assistance to individuals and families at risk of homelessness 
as set for in the Emergency Solutions Grants program. All eligible 
activities discussed in this section must be effective at stabilizing 
individuals and families in their current housing, or quickly moving 
such individuals and families to other permanent housing. This is the 
only time that Continuum of Care funds may be used to serve nonhomeless 
individuals and families. Recipients and subrecipients using grant 
funds on these eligible activities must follow the written standards 
established by the Continuum of Care in Sec.  578.7(a)(9)(v), and the 
recordkeeping requirements set for the Emergency Solutions Grants 
program rule.

Program Requirements (Subpart F)

    All recipients of Continuum of Care funding must comply with the 
program regulations and the requirements of the NOFA issued annually by 
HUD.
    Matching. The HEARTH Act allows for a new, simplified match 
requirement. All eligible funding costs except leasing must be matched 
with no less than a 25 percent cash or in-kind match. The interim rule 
clarifies that the match must be provided for the entire grant, except 
that recipients that are UFAs or are the sole recipient for the 
Continuum may provide the match on a Continuum-wide basis.
    For in-kind match, the governmentwide grant requirements of HUD's 
regulations in 24 CFR 84.23 (for private nonprofit organizations) and 
85.24 (for governments) apply. The regulations in 24 CFR parts 84 and 
85 establish uniform administrative requirements for HUD grants. The 
requirements of 24 CFR part 84 apply to subrecipients that are private 
nonprofit organizations. The requirements of 24 CFR part 85 apply to 
the recipient and subrecipients that are units of general purpose local 
government. The match requirement in 24 CFR 84.23 and in 24 CFR 85.24 
applies to administration funds, as well as Continuum of Care planning 
costs and UFA's financial management costs. All match must be spent on 
eligible activities as required under subpart D of this interim rule, 
except that recipients and subrecipients in HPCs may use match on 
eligible activities described under Sec.  578.71.
    General operations. Recipients of grant funds must provide housing 
or services that comply with all applicable State and local housing 
codes, licensing requirements, and any other requirements in the 
project's jurisdiction. In addition, this interim rule clarifies that 
recipients must abide by housing quality standards and suitable 
dwelling size. Recipients must also assess supportive services on an 
ongoing basis, have residential supervision, and provide for 
participation of homeless individuals as required under section 426(g) 
of the McKinney-Vento Act.
    Specific request for comment. With respect to housing quality 
standards, HUD includes in this rule the longstanding requirement from 
the Shelter Plus Care program that recipients or subrecipients, prior 
to providing assistance on behalf of a program participant, must 
physically inspect each unit to assure that the unit meets housing 
quality standards. This requirement is designed to ensure that program 
participants are placed in housing that is suitable for living. 
Additionally, these requirements are consistent with HUD's physical 
inspection requirements in its other mainstream rental assistance 
programs. Notwithstanding that this is a longstanding requirement, HUD 
welcomes comment on alternatives to inspection of each unit that may be 
less burdensome but ensure that the housing provided to a program 
participant is decent, safe, and sanitary.
    Under Section 578.75, General Operations, subsection (h), entitled 
``Supportive Service Agreements,'' states that recipients and 
subrecipients may require program participants to take part in 
supportive services so long as they are not disability-related 
services, provided through the project as a condition of continued 
participation in the program. Examples of disability-related services 
include, but are not limited to, mental health services, outpatient 
health services, and provision of medication, which are provided to a 
person with a disability to address a condition caused by the 
disability.
    This provision further states that if the purpose of the project is 
to provide substance abuse treatment services, recipients and 
subrecipients may require program participants to take part in such 
services as a condition of continued participation in the program. For 
example, if a Continuum of Care recipient operates a transitional 
housing program with substance abuse treatment

[[Page 45436]]

services, the recipient may require program participants to participate 
in those services. By contrast, in a program that offers services but 
whose purpose is not substance abuse treatment, a recipient may not 
require a person who is an alcoholic, for example, to sign a supportive 
service agreement at initial occupancy stating that he or she will 
participate in substance abuse treatment services as a condition of 
occupancy. All program participants must, however, meet all terms and 
conditions of tenancy, including lease requirements. If, as a result of 
a person's behavior stemming from substance use, a person violates the 
terms of the lease, a recipient may consider requiring participation in 
services or any other action necessary in order for such a person to 
successfully meet the requirements of tenancy.
    Finally, the interim rule clarifies that in units where the 
qualifying member of the household has died, or has been incarcerated 
or institutionalized for more than 90 days, assistance may continue 
until the expiration of the lease in effect at the time of the 
qualifying member's death, incarceration, or institutionalization.
    Displacement, relocation, and acquisition. All recipients must 
ensure that they have taken all reasonable steps to minimize the 
displacement of persons as a result of projects assisted under this 
part. This section of the interim rule is substantially revised from 
the previous programs to increase clarity and comprehension of the 
directions to recipients and subrecipients in the use of grant funds.
    Timeliness standards. Recipients must initiate approved activities 
and projects promptly. Recipients of funds for rehabilitation and new 
construction must begin construction activities within 9 months of the 
signing of the grant, and such activities must be completed within 24 
months. HUD is providing these requirements to assist communities in 
meeting the obligation and expenditure deadline historically imposed by 
the annual HUD appropriations act. HUD may reduce a grant term to a 
term of one year if implementation delays reduce the amount of funds 
that can be used during the original grant term.
    Limitation on use of funds. Recipients of funds provided under this 
part must abide by any limitations that apply to the use of such funds, 
such as use of funds for explicitly religious activities.
    The limitation on use of funds also addresses limitation on uses 
where religious activities may be concerned. It is HUD's position that 
faith-based organizations are able to compete for HUD funds and 
participate in HUD programs on an equal footing with other 
organizations; that no group of applicants competing for HUD funds 
should be subject, as a matter of discretion, to greater or fewer 
requirements than other organizations solely because of their religious 
character or affiliation, or, alternatively, the absence of religious 
character or affiliation. HUD's general principles regarding the equal 
participation of such organizations in its programs are codified at 24 
CFR 5.109. Program-specific requirements governing faith-based 
activities are codified in the regulations for the individual HUD 
programs. (See, for example, 24 CFR 574.300(c), 24 CFR 582.115(c), and 
24 CFR 583.150(b).)
    HUD's equal participation regulations were prompted by Executive 
Order 13279, Equal Protection of the Laws for Faith-Based and Community 
Organizations, issued by President Bush on December 12, 2002, and 
published in the Federal Register on December 16, 2002 (67 FR 77141). 
Executive Order 13279 set forth principles and policymaking criteria to 
guide federal agencies in ensuring the equal protection of the laws for 
faith-based and community organizations. Executive Order 13279 was 
amended by Executive Order 13559 (Fundamental Principles and 
Policymaking Criteria for Partnerships With Faith-Based and Other 
Neighborhood Organizations), issued by President Obama on November 17, 
2010, and published in the Federal Register on November 22, 2010 (75 FR 
71319).
    Executive Order 13559 expands on the equal participation principles 
provided in Executive Order 13279 to strengthen the capacity of faith-
based and other neighborhood organizations to deliver services 
effectively and ensure the equal treatment of program beneficiaries. 
Executive Order 13559 reiterates a key principle underlying 
participation of faith-based organizations in federally funded 
activities and that is that faith-based organizations be eligible to 
compete for federal financial assistance used to support social service 
programs and to participate fully in social service programs supported 
with federal financial assistance without impairing their independence, 
autonomy, expression outside the programs in question, or religious 
character.
    With respect to program beneficiaries, the Executive Order states 
that organizations, in providing services supported in whole or in part 
with federal financial assistance, and in their outreach activities 
related to such services, should not be allowed to discriminate against 
current or prospective program beneficiaries on the basis of religion, 
a religious belief, a refusal to hold a religious belief, or a refusal 
to attend or participate in a religious practice. The Executive Order 
directs that organizations that engage in explicitly religious 
activities (including activities that involve overt religious content 
such as worship, religious instruction, or proselytization) must 
perform such activities and offer such services outside of programs 
that are supported with direct federal financial assistance (including 
through prime awards or subawards), separately in time or location from 
any such programs or services supported with direct federal financial 
assistance, and participation in any such explicitly religious 
activities must be voluntary for the beneficiaries of the social 
service program supported with such federal financial assistance. For 
purposes of greater clarity and comprehensibility, the Executive Order 
uses the term ``explicitly religious'' in lieu of ``inherently 
religious.'' The Executive Order further directs that if a beneficiary 
or prospective beneficiary of a social service program supported by 
federal financial assistance objects to the religious character of an 
organization that provides services under the program, that 
organization shall, within a reasonable time after the date of the 
objection, refer the beneficiary to an alternative provider.
    Executive Order 13559 provides for the establishment of an 
Interagency Working Group on Faith-Based and Other Neighborhood 
Partnerships (Working Group) to review and evaluate existing 
regulations, guidance documents, and policies, and directs the OMB to 
issue guidance to agencies on uniform implementation following receipt 
of the Working Group's report. On April 27, 2012, the Working Group 
issued its report, recommending a model set of regulations and guidance 
for agencies to adopt.\1\
---------------------------------------------------------------------------

    \1\ The report is available at: http://www.whitehouse.gov/sites/default/files/uploads/finalfaithbasedworkinggroupreport.pdf.
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    HUD intends to wait for OMB guidance before initiating any 
rulemaking directed to broader changes to HUD's existing faith-based 
regulations, to ensure consistency with faith-based regulations of 
other federal agencies. However, HUD has revised its regulatory 
provisions governing faith-based activities to incorporate the 
principles of Executive Order 13559 pertaining to equal treatment of 
program beneficiaries and to adopt terminology, such as ``explicitly 
religious'' and ``overt

[[Page 45437]]

religious content,'' that offers greater clarity to the limitations 
placed on faith-based organizations when using federal funds for their 
supportive services. Additionally, HUD is putting in place through this 
rulemaking the provision of Executive Order 13559 that directs the 
referral to alternative providers. Executive Order 13559 provides that 
if a beneficiary or prospective beneficiary of a social service program 
supported by federal financial assistance objects to the religious 
character of an organization that provides services under the program, 
that organization shall, within a reasonable time frame after the date 
of the objection, refer the beneficiary to an alternative provider. 
While HUD will benefit from OMB guidance on other provisions of the 
Executive Order, specifically those which the Working Group is charged 
to provide recommendations, the ``referral'' provision of the Executive 
Order is one that HUD believes it can immediately put in place. HUD 
may, following receipt of public comment and further consideration of 
this issue, revise how recipients and subrecipients document the 
referral to other providers when beneficiaries may assert objections to 
the original provider. For now, HUD is requiring that any objections 
and any referrals be documented in accordance with the recordkeeping 
provisions of Sec.  578.013.
    This section of the interim rule also contains limitations on the 
types of eligible assistance that may not be combined in a single 
structure or housing unit. As the Continuum of Care substantially 
increases the types of assistance that may be combined in a project 
from previous programs, HUD has established standards in this section 
to provide recipients with clarity about the types of activities that 
may not be carried out in a single structure or housing unit.
    Termination of assistance. The interim rule provides that a 
recipient may terminate assistance to a participant who violates 
program requirements or conditions of occupancy. The recipient must 
provide a formal process that recognizes the due process of law. 
Recipients may resume assistance to a participant whose assistance has 
been terminated.
    Recipients that are providing permanent supportive housing for 
hard-to-house populations of homeless persons must exercise judgment 
and examine all circumstances in determining whether termination is 
appropriate. Under this interim rule, HUD has determined that a 
participant's assistance should be terminated only in the most severe 
cases. HUD is carrying over this requirement from the Shelter Plus Care 
program.
    Fair Housing and Equal Opportunity requirements. The Continuum of 
Care, as well as its members and subrecipients, are required to comply 
with applicable civil rights laws. Section 578.93, addressing 
nondiscrimination and equal opportunity requirements, is provided to 
offer greater direction to recipients and subrecipients on the use of 
grant funds. Section 578.93(a) states that the nondiscrimination and 
equal opportunity requirements set forth in 24 CFR 5.105(a) apply. This 
includes, but is not limited to, the Fair Housing Act, Title VI of the 
Civil Rights Act of 1964, Section 504 of the Rehabilitation Act of 1973 
(Section 504), and title II of the Americans with Disabilities Act.
    Section 578.93(b) explains when recipients and subrecipients may 
exclusively serve a particular subpopulation in transitional or 
permanent housing. As part of these requirements, recipients must also 
administer programs and activities receiving federal financial 
assistance in the most integrated setting appropriate to the needs of 
qualified individuals with disabilities. This ``integration mandate'' 
requires that HUD-funded programs or activities enable individuals with 
disabilities to interact with nondisabled persons to the fullest extent 
possible. In reviewing requests for funding through the Continuum of 
Care NOFA, HUD will be considering each recipient's proposals to 
provide integrated housing to individuals with disabilities.
    There are certain situations in which a recipient or subrecipient 
may limit housing to a specific subpopulation, so long as admission 
does not discriminate against any protected class, as well as instances 
where recipients or subrecipients may limit admission or provide a 
preference to certain subpopulations of homeless persons and families 
who need the specialized services provided in the housing. For example, 
Sec.  578.93(b)(2) states that the housing may be limited to homeless 
veterans, so long as admission is not denied based on any membership in 
a protected class; e.g., homeless veterans with families must be 
admitted. Similarly, housing may be limited to domestic violence 
victims and their families or persons who are at risk of 
institutionalization, so long as admission is not denied based on any 
membership in a protected class.
    Section 578.93(b)(3) states that housing may be limited to families 
with children.
    Section 578.93(b)(1) states that, in consideration of personal 
privacy, housing may only be limited to a single sex when such housing 
consists of a single structure with shared bedrooms or bathing 
facilities such that the considerations of personal privacy and the 
physical limitations of the configuration of the housing make it 
appropriate for the housing to be limited to one sex.
    Further, Sec. Sec.  578.93(b)(4) and (5) clearly outline instances 
when sex offenders or violent offenders may be excluded from housing, 
and when projects providing sober housing may exclude persons.
    HUD's Section 504 regulations permit housing funded under a 
particular program to be reserved for persons with a specific 
disability when a federal statute or executive order specifically 
authorizes such a limitation. Section 578.93(b)(6) states that if the 
housing is assisted with funds under a federal program that is limited 
by federal statute or executive order to a specific subpopulation, the 
housing may be limited to that subpopulation.
    Section 578.93(b)(7) provides clarification to recipients of funds 
under this part as to when a project can limit admission to a specific 
subpopulation of homeless individuals and families based on the service 
package offered in the project. To help recipients better understand 
these requirements, the following paragraphs provide a detailed 
explanation of the regulatory provision, along with a few examples.
    Section 578.93(b)(7) states that recipients may limit admission to 
or provide a preference for the housing to subpopulations of homeless 
persons and families who need the specialized supportive services that 
are provided in the housing. The regulation contains the following 
examples: Substance abuse addiction treatment, domestic violence 
services, or a high-intensity package designed to meet the needs of 
hard-to-reach homeless persons. However, Sec.  578.93(b)(7) further 
states that while the housing may offer services for a particular type 
of disability, no otherwise eligible individual with a disability, or 
family that includes an individual with a disability, who may benefit 
from the services provided may be excluded on the grounds that they do 
not have a particular disability. Below are general examples to offer 
guidance on this subsection. Please note that these examples are 
nonexhaustive, but emphasize that the proper focus is on the services 
available as part of the Continuum of Care project as opposed to a 
person's category or subcategory of disability. While these general 
principles are offered to help clarify this

[[Page 45438]]

section, a change in the factual scenario may change the analysis.
    One clarifying example is as follows. A private, nonprofit 
organization or a local government applies for and receives a new grant 
under this part to provide project-based rental assistance and 
services, including case management, intensive therapy provided by a 
psychiatrist, and medication management. The recipient or subrecipient 
may establish a preference for individuals who are chronically 
homeless. When filling an opening in the housing, the recipient or 
subrecipient may target chronically homeless individuals or families, 
but if there are no such individuals or families either on a waiting 
list or applying for entrance to the program, the recipient or 
subrecipient cannot deny occupancy to individuals or families who apply 
for entrance into the program and who may benefit from the services 
provided. When filling a vacancy in the housing, the recipient or 
subrecipient, if presented with two otherwise eligible persons, one who 
is chronically homeless and one who is not, may give a preference to 
the chronically homeless individual.
    By comparison, Sec.  578.93(b)(6) addresses situations where 
Continuum of Care funds are combined with HUD funding for housing that 
may be restricted to a specific disability. For example, if Continuum 
of Care funds for a specific project are combined with construction or 
rehabilitation funding for housing from the Housing Opportunities for 
People With AIDS program, the program may limit eligibility for the 
project to persons with HIV/AIDS and their families. An individual or a 
family that includes an individual with a disability may be denied 
occupancy if the individual or at least one member of the family does 
not have HIV/AIDS.
    In another example, a private, nonprofit organization applies for 
and receives Continuum of Care funds from a local governmental entity 
to rehabilitate a five-unit building, and provides services including 
assistance with daily living and mental health services. While the 
nonprofit organization intends to target and advertise the project as 
offering services for persons with developmental disabilities, an 
individual with a severe psychiatric disability who does not have a 
developmental disability but who can benefit from these services cannot 
be denied.
    Section 578.93(e) incorporates the ``preventing involuntary family 
separation'' requirement set forth in Section 404 of the McKinney-Veto 
Act into this interim rule. This provision clarifies, especially for 
projects where the current policy is to deny the admittance of a boy 
under the age of 18, that denying admittance to a project based on age 
and gender is no longer permissible. HUD encourages Continuums of Care 
to use their centralized or coordinated assessment systems to find 
appropriate shelter or housing for families with male children under 
the age of 18.
    Specific request for comment. HUD specifically seeks comments from 
Continuum of Care-funded recipients on this requirement. HUD invites 
comments about the difficulty that recipients are going to experience, 
if any, in implementing this requirement. In addition to comments about 
the difficulties, HUD invites communities that have already implemented 
this requirement locally to describe their methods for use in HUD's 
technical assistance materials and for posting on the HUD Homeless 
Resource Exchange.
    Other standards. In addition to the program requirements described 
in this preamble, the interim rule sets forth other program 
requirements by which all recipients of grant funds must abide. These 
include a limitation on the use of grant funds to serve persons defined 
as homeless under other federal laws, conflicts of interest standards, 
and standards for identifying uses of program income.
    Additionally, recipients are required to follow other federal 
requirements contained in this interim rule under Sec.  578.99. These 
include compliance with such federal requirements as the Coastal 
Barriers Resources Act, OMB Circulars, HUD's Lead-Based Paint 
regulations, and audit requirements. The wording of these requirements 
has been substantially revised from previous programs, with the 
objective being to increase clarity and comprehension of the directions 
to recipients and subrecipients in the use of grant funds.

Administration (Subpart G)

    Technical assistance. The purpose of technical assistance under the 
Continuum of Care program is to increase the effectiveness with which 
Continuums of Care, eligible applicants, recipients, subrecipients, and 
UFAs implement and administer their Continuum of Care planning process. 
Technical assistance will also improve the capacity to prepare 
applications, and prevent the separation of families in projects funded 
under the Emergency Solutions Grants, Continuum of Care, and Rural 
Housing Stability Assistance programs. Under this interim rule, 
technical assistance means the transfer of skills and knowledge to 
entities that may need, but do not possess, such skills and knowledge. 
The assistance may include written information, such as papers, 
manuals, guides, and brochures; person-to-person exchanges; and 
training and related costs.
    Therefore, as needed, HUD may advertise and competitively select 
providers to deliver technical assistance. HUD may enter into 
contracts, grants, or cooperative agreements to implement the technical 
assistance. HUD may also enter into agreements with other federal 
agencies when awarding technical assistance funds.
    Recordkeeping requirements. Grant recipients under the Supportive 
Housing Program and the Shelter Plus Care program have always been 
required to show compliance with regulations through appropriate 
records. However, the existing regulations are not specific about the 
records to be maintained. The interim rule for the Continuum of Care 
program elaborates upon the recordkeeping requirements to provide 
sufficient notice and clarify the documentation that HUD requires for 
assessing compliance with the program requirements. The recordkeeping 
requirements for documenting homeless status were published in the 
December 5, 2011, Defining Homeless final rule. Because these 
recordkeeping requirements already went through a 60-day comment 
period, HUD is not seeking further comment on these requirements. 
Additionally, recordkeeping requirements with similar levels of 
specificity apply to documentation of ``at risk of homelessness'' and 
these requirements can be found in Sec.  576.500(c) of the Emergency 
Solutions Grants program interim rule published on December 5, 2011. 
Because the documentation requirements pertaining to ``at risk of 
homelessness'' were already subject to a 60-day public comment period, 
HUD is not seeking additional comment on these requirements. Further 
requirements are modeled after the recordkeeping requirements for the 
HOME Investment Partnerships Program (24 CFR 92.508) and other HUD 
regulations.
    Included along with these changes are new or expanded requirements 
regarding confidentiality, rights of access to records, record 
retention periods, and reporting requirements. Most significantly, to 
protect the safety and privacy of all program participants, the 
Continuum of Care rule broadens the program's confidentiality 
requirements. The McKinney-Vento Act requires only procedures to ensure 
the

[[Page 45439]]

confidentiality of records pertaining to any individual provided family 
violence prevention or treatment services under this program. The 
interim rule requires written procedures to ensure the security and 
confidentiality of all records containing personally identifying 
information of any individual or family who applies for and/or receives 
Continuum of Care assistance.
    Grant and project changes. The interim rule provides that 
recipients of grants may not make any significant changes to use of 
grant funds without prior HUD approval, evidenced by a grant amendment 
signed by HUD and the recipient. The interim rule provides separate 
standards for determining when a grant amendment is required for 
Continuums having only one recipient, including UFAs, and Continuums 
having more than one recipient. Additionally, the interim rule provides 
contingencies that must be met before HUD will approve the grant 
amendment. These contingencies are necessary to ensure that recipients 
meet the capacity requirements established in the NOFA and to ensure 
that eligible persons within the geographic area are better served and, 
since the Continuum of Care program is a competitive program, that the 
priorities established under the NOFA continue to be met. Any changes 
to an approved grant or project that do not require a grant amendment, 
as set forth in this section, must be fully documented in the 
recipient's or subrecipient's records.
    Sanctions. The interim rule establishes sanctions based on existing 
regulations and strengthens the enforcement procedures and array of 
remedial actions and sanctions for recipients and subrecipients of 
Continuum of Care funds. These revisions draw from the requirements at 
24 CFR 85.43 and other HUD program regulations.
    Close-out. The interim rule provides that grants must be closed out 
at the end of their grant term if recipients are not seeking renewal. 
Section 578.109 of this interim rule specifies the actions that must be 
taken after the closeout, including grantee submission of financial, 
final performance, or other reports required by HUD within 90 days of 
the end of the grant term. Any unused funds must be deobligated and 
returned to HUD.
    The interim rule stipulates, for grants seeking renewal, that 
failure to submit final performance reports, or other reports required 
by HUD within 90 days, may cause renewal funds to be withdrawn and 
grant funds expended on the renewal grant to be repaid.

III. Regulations for HUD Homeless Assistance Programs Existing Prior to 
Enactment of HEARTH Act

    Because grants are still being administered under the Shelter Plus 
Care program and the Supportive Housing program, the regulations for 
these programs in 24 CFR parts 582, and 583, respectively, will remain 
in the Code of Federal Regulations for the time being. When no more, or 
very few, grants remain under these programs, HUD will remove the 
regulations in these parts by a separate rule (if no grants exist) or 
will replace them with a savings clause, which will continue to govern 
grant agreements executed prior to the effective date of the HEARTH Act 
regulations.

IV. Conforming Regulations

    In addition to establishing the new regulations for the Continuum 
of Care program, HUD is amending the following regulations, which 
reference the Shelter Plus Care Program and the Supportive Housing 
Program, to include reference to the Continuum of Care program. These 
regulations are the regulations pertaining to: (1) Family Income and 
Family Payment; Occupancy Requirements for Section 8 and Public 
Housing, Other HUD-Assisted Housing Serving Persons with Disabilities, 
and Section 8 Project-Based Assistance, the regulations for which are 
in 24 CFR part 5, subpart F, specifically, Sec.  5.601 (Purpose and 
Applicability), paragraphs (d) and (e) of this section; Sec.  5.603 
(Definitions), specifically the definition of ``Responsible Entity;'' 
Sec.  5.617 (Self-Sufficiency Incentives for Persons with 
Disabilities--Disallowance of Increase in Annual Income), paragraph (a) 
of this section; (2) Environmental Review Responsibilities for Entities 
Assuming HUD Environmental Responsibilities, the regulations for which 
are in 24 CFR part 58, specifically Sec.  58.1 (Purpose and 
Applicability), paragraph (b)(3) of this section; and (3) the 
Consolidated Submissions for Community Planning and Development 
Programs, the regulations for which are in 24 CFR part 91, 
specifically, Sec.  91.2 (Applicability), paragraph (b) of this 
section.

V. Justification for Interim Rulemaking

    In accordance with its regulations on rulemaking at 24 CFR part 10, 
HUD generally publishes its rules for advance public comment.\2\ Notice 
and public procedures may be omitted, however, if HUD determines that, 
in a particular case or class of cases, notice and public comment 
procedure are ``impracticable, unnecessary, or contrary to the public 
interest.'' (See 24 CFR 10.1.)
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    \2\ The Administrative Procedure Act (5 U.S.C. Subchapter II) 
(APA), which governs federal rulemaking, provides in section 553(a) 
that matters involving a military or foreign affairs function of the 
United States or a matter relating to federal agency management or 
personnel or to public property, loans, grants, benefits, or 
contracts are exempt from the advance notice and public comment 
requirement of sections 553(b) and (c) of the APA. In its 
regulations in 24 CFR 10.1, HUD has waived the exemption for advance 
notice and public comment for matters that relate to public 
property, loans, grants, benefits, or contracts, and has committed 
to undertake notice and comment rulemaking for these matters.
---------------------------------------------------------------------------

    In this case, HUD has determined that it would be contrary to the 
public interest to delay promulgation of the regulations for the 
Continuum of Care program.\3\ Congress has provided funding for this 
new program in the Consolidated and Further Continuing Appropriations 
Act, 2012 (Pub. L. 112-55, approved November 18, 2011) (FY 2012 
Appropriations Act). The FY 2012 Appropriations Act, under the account 
for Homeless Assistance Grants, appropriates not less than $1.593 
billion for the Continuum of Care and Rural Housing Stability programs. 
While many federal programs, including HUD programs, received a 
reduction in funding in the FY 2012 Appropriations Act, Congress 
increased funding for HUD's homeless assistance grants, including the 
Continuum of Care program. Additionally, the Conference Report 
accompanying the FY 2012 Appropriations Act (House Report 112-284) 
states in relevant part, as follows: ``The conferees express concern 
that HUD continued to implement pre-HEARTH grant programs in FY 2011, 
due to a lack of regulations. The conferees direct HUD to publish at 
least interim guidelines for the Emergency Solutions Grants and 
Continuum of Care programs this fiscal year and to implement the new 
grant programs as soon as possible so that the updated policies and 
practices in HEARTH can begin to govern the delivery of homeless 
assistance funding.'' (See Conf. Rpt. at page 319. Emphasis added.) 
Given this congressional direction, HUD is issuing this rule providing 
for regulations for the Continuum of Care program as an interim rule. 
Having interim regulations in place will allow HUD to move forward in 
making FY 2012 funds available to grantees, and avoid a significant 
delay that would result from issuance, first, of a proposed rule. As

[[Page 45440]]

has been discussed in this preamble, the foundation for the Continuum 
of Care regulations is the criteria and requirements provided in NOFAs 
for the Continuum of Care Homeless Assistance Grants Competition 
program, which HUD has funded for more than 10 years. Through the 
Continuum of Care Homeless Assistance Grants Competition program, HUD 
provided funding for the Supportive Housing program, the Shelter Plus 
Care program, and the Section 8 Moderate Rehabilitation Single Room 
Occupancy program. The HEARTH Act consolidated these three competitive 
programs into the statutorily established Continuum of Care program, 
which was established as a single grant program. Interim regulations 
will provide certainty with respect to funding requirements and 
eligible expenditures for FY 2012, and the public comment solicited 
through this interim rule will help inform the public procedures that 
HUD is contemplating in its regulations in 24 CFR part 10, and this 
public comment, in turn, will inform the final rule that will follow 
this interim rule and govern the funding years following FY 2012.
---------------------------------------------------------------------------

    \3\ Although HUD's regulation in 24 CFR 10.1 provide that HUD 
will involve public participation in its rulemaking, this regulation 
also provides that notice and public procedure will be omitted if 
HUD determines in a particular case or class of cases that notice 
and public procedure are impracticable, unnecessary, or contrary to 
the public interest.
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    For the reasons stated above, HUD is issuing this rule to take 
immediate effect, but welcomes all comments on this interim rule and 
all comments will be taken into consideration in the development of the 
final rule.

VI. Findings and Certifications

Regulatory Review--Executive Orders 12866 and 13563

    Under Executive Order 12866 (Regulatory Planning and Review), a 
determination must be made whether a regulatory action is significant 
and, therefore, subject to review by the Office of Management and 
Budget (OMB) in accordance with the requirements of the order. 
Executive Order 13563 (Improving Regulations and Regulatory Review) 
directs executive agencies to analyze regulations that are ``outmoded, 
ineffective, insufficient, or excessively burdensome, and to modify, 
streamline, expand, or repeal them in accordance with what has been 
learned.'' Executive Order 13563 also directs that, where relevant, 
feasible, and consistent with regulatory objectives, and to the extent 
permitted by law, agencies are to identify and consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public. This rule was determined to be a ``significant 
regulatory action,'' as defined in section 3(f) of Executive Order 
12866 (although not an economically significant regulatory action, as 
provided under section 3(f)(1) of the Executive Order).
    As has been discussed in this preamble, this interim rule 
establishes the regulations for the Continuum of Care program, which is 
the HEARTH Act's codification of HUD's long-standing Continuum of Care 
planning process. The HEARTH Act not only codified in law the planning 
system known as Continuum of Care, but consolidated the three existing 
competitive homeless assistance grant programs (Supportive Housing, 
Shelter Plus Care, and Single Room Occupancy) into the single grant 
program known as the Continuum of Care program. As discussed in the 
preceding section of the preamble, HUD funded these three programs for 
more than 10 years through a NOFA, which was titled the Continuum of 
Care Homeless Assistance Grants Competition Program. However, the 
funding of the three competitive grant programs, although done through 
a single NOFA, delineated the different statutes and regulations that 
governed each of the three programs (see, for example, HUD's 2008 
Continuum of Care NOFA at 73 FR 398450, specifically page 39845). In 
consolidating these three competitive programs into a single grant 
program, the HEARTH Act achieves the administrative efficiency that HUD 
strived to achieve to the extent possible, through its administrative 
establishment of the Continuum of Care planning process. To the extent 
permitted by the HEARTH Act and where feasible, the regulations build-
in flexibility for grantees, based on experience in administering the 
Continuum of Care program to date. Given the transition from 
administrative operation of the Continuum of Care program to statutory 
operation of the Continuum of Care program, this interim rule would 
also have no discernible impact upon the economy.
    The docket file is available for public inspection in the 
Regulations Division, Office of the General Counsel, Room 10276, 451 
7th Street SW., Washington, DC 20410-0500. Due to security measures at 
the HUD Headquarters building, please schedule an appointment to review 
the docket file by calling the Regulations Division at 202-708-3055 
(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.
Environmental Impact
    A Finding of No Significant Impact (FONSI) with respect to the 
environment has been made in accordance with HUD regulations at 24 CFR 
part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The Finding of 
No Significant Impact is available for public inspection between the 
hours of 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office 
of General Counsel, Department of Housing and Urban Development, 451 
7th Street SW., Room 10276, Washington, DC 20410-0500. Due to security 
measures at the HUD Headquarters building, please schedule an 
appointment to review the FONSI by calling the Regulations Division at 
202-708-3055 (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.
Unfunded Mandates Reform Act
    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) 
(UMRA) establishes requirements for federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and on the private sector. This interim rule does not 
impose a federal mandate on any State, local, or tribal government, or 
on the private sector, within the meaning of UMRA.
Regulatory Flexibility Act
    The Regulatory Flexibility Act (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 solely 
addresses the allocation and use of grant funds under the new McKinney-
Vento Act homeless assistance programs, as consolidated and amended by 
the HEARTH Act. As discussed in the preamble, the majority of the 
regulatory provisions proposed by this rule track the regulatory 
provisions of the Continuum of Care program, with which prospective 
recipients of the Supportive Housing program and the Shelter Plus Care 
program are familiar. Accordingly, the program requirements should 
raise minimal issues because applicants and grantees are familiar with 
these requirements, and in response to HUD's solicitations to them on 
the burden of the requirements for the Supportive Housing program and 
the Shelter Plus Care program, grantees have not advised that such 
requirements are burdensome. Therefore, HUD has determined that this 
rule would not

[[Page 45441]]

have a significant economic impact on a substantial number of small 
entities.
    Notwithstanding HUD's determination that this rule will not have a 
significant effect on a substantial number of small entities, HUD 
specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.
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 Executive Order. This final rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments nor preempts State law 
within the meaning of the Executive Order.
 Paperwork Reduction Act
    The information collection requirements contained in this interim 
rule have been submitted to the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). 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.
    The burden of the information collections in this interim rule is 
estimated as follows:

                                       Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                     Response
     Information collection         Number of       frequency      Total annual    Burden hours    Total annual
                                   respondents      (average)        responses     per response        hours
----------------------------------------------------------------------------------------------------------------
Sec.   578.5(a) Establishing                450               1              450             8.0           3,600
 the CoC.......................
Sec.   578.5(b) Establishing                450               1              450             5.0           2,250
 the Board.....................
Sec.   578.7(a)(1) Hold CoC                 450               2              900             4.0           3,600
 Meetings......................
Sec.   578.7(a)(2) Invitation               450               1              450             1.0             450
 for New Members...............
Sec.   578.7(a)(4) Appoint                  450               2              900             0.5             450
 committees....................
Sec.   578.7(a)(5) Governance               450               1              450             7.0           3,150
 charter.......................
Sec.   578.7(a)(6) and (7)                  450               4              450             9.0           4,050
 Monitor performance and
 evaluation....................
Sec.   578.7(a)(8) Centralized              450               1              450             8.0           3,600
 or coordinated assessment
 system........................
Sec.   578.7(a)(9) Written                  450               1              450             5.0           2,250
 standards.....................
Sec.   578.7(b) Designate HMIS.             450               1              450            10.0           4,500
Sec.   578.9 Application for                450               1              450           180.0          81,000
 funds.........................
Sec.   578.11(c) Develop CoC                450               1              450             9.0           4,050
 plan..........................
Sec.   578.21(c) Satisfying               8,000               1            8,000             4.0          32,000
 conditions....................
Sec.   578.23 Executing grant             8,000               1            8,000             1.0           8,000
 agreements....................
Sec.   578.35(b) Appeal--solo..              10               1               10             4.0              40
Sec.   578.35(c) Appeal--denied              15               1               15             1.0              15
 or decreased funding..........
Sec.   578.35(d) Appeal--                    10               1               10             5.0              50
 competing CoC.................
Sec.   578.35(e) Appeal--                     5               1                5             2.0              10
 Consolidated Plan
 certification.................
Sec.   578.49(a)--Leasing                     5               1                5             1.5             7.5
 exceptions....................
Sec.   578.65 HPC Standards....              20               1               20            10.0             200
Sec.   578.75(a)(1) State and             7,000               1            7,000             0.5           3,500
 local requirements--
 appropriate service provision.
Sec.   578.75(a)(1) State and                20               1               20             3.0              60
 local requirements--housing
 codes.........................
Sec.   578.75(b) Housing                 72,800               2          145,600             1.0         145,600
 quality standards.............
Sec.   578.75(b) Suitable                72,800               2          145,600            0.08          11,648
 dwelling size.................
Sec.   578.75(c) Meals.........          70,720               1           70,720             0.5          35,360
Sec.   578.75(e) Ongoing                  8,000               1            8,000             1.5          12,000
 assessment of supportive
 services......................
Sec.   578.75(f) Residential              6,600               3           19,800            0.75          14,850
 supervision...................
Sec.   578.75(g) Participation           11,500               1           11,500             1.0          11,500
 of homeless individuals.......
Sec.   578.75(h) Supportive               3,000             100           30,000             0.5          15,000
 service agreements............
Sec.   578.77(a) Signed leases/         104,000               2          208,000             1.0         208,000
 occupancy agreements..........
Sec.   578.77(b) Calculating              1,840             200          368,000            0.75         276,000
 occupancy charges.............
Sec.   578.77(c) Calculating              2,000             200          400,000            0.75         300,000
 rent..........................
Sec.   578.81(a) Use                         20               1               20             0.5              10
 restriction...................
Sec.   578.91(a) Termination of             400               1              400            4.00           1,600
 assistance....................
Sec.   578.91(b) Due process              4,500               1            4,500             3.0          13,500
 for termination of assistance.
Sec.   578.95(d)--Conflict-of-               10               1               10             3.0              30
 Interest exceptions...........
Sec.   578.103(a)(3)                    300,000               1          300,000            0.25          75,000
 Documenting homelessness......
Sec.   578.103(a)(4)                     10,000               1           10,000            0.25           2,500
 Documenting at risk of
 homelessness..................
Sec.   578.103(a)(5)                        200               1              200             0.5             100
 Documenting imminent threat of
 harm..........................
Sec.   578.103(a)(7)                    350,000               6        2,100,000            0.25         525,000
 Documenting program
 participant records...........
Sec.   578.103(a)(7)                      8,000              12           96,000             1.0          96,000
 Documenting case management...
Sec.   578.103(a)(13)                     8,000               1            8,000             1.0           8,000
 Documenting faith-based
 activities....................
Sec.   578.103(b)                        11,500               1           11,500             1.0          11,500
 Confidentiality procedures....
Sec.   578.105(a) Grant/project              20               2               40             2.0              80
 changes--UFAs.................
Sec.   578.105(b) Grant/project             800               1              800             2.0           1,600
 changes--multiple project
 applicants....................
                                --------------------------------------------------------------------------------
    Total......................  ..............  ...............  ..............  ..............     1,921,710.5
----------------------------------------------------------------------------------------------------------------


[[Page 45442]]

    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning this 
collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions HUD, including 
whether the information will have practical utility;
    (2) Evaluate the accuracy of HUD's estimate of the burden of the 
proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated 
collection techniques or other forms of information technology; e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this rule. Comments must refer 
to the proposal by name and docket number (FR-5476-I-01) and be sent 
to: HUD Desk Officer, Office of Management and Budget, New Executive 
Office Building, Washington, DC 20503, Fax: (202) 395-6947, and Reports 
Liaison Officer, Office of the Assistant Secretary for Community 
Planning and Development, Department of Housing and Urban Development, 
451 Seventh Street SW., Room 7233, Washington, DC 20410-7000.
    Interested persons may submit comments regarding the information 
collection requirements electronically through the Federal eRulemaking 
Portal at http://www.regulations.gov. HUD strongly encourages 
commenters to submit comments electronically. Electronic submission of 
comments allows the commenter maximum time to prepare and submit a 
comment, ensures timely receipt by HUD, and enables HUD to make them 
immediately available to the public. Comments submitted electronically 
through the http://www.regulations.gov Web site can be viewed by other 
commenters and interested members of the public. Commenters should 
follow the instructions provided on that site to submit comments 
electronically.

List of Subjects in 24 CFR Part 578

    Community facilities, Continuum of Care, Emergency solutions 
grants, Grant programs--housing and community development, Grant 
program--social programs, Homeless, Rural housing, Reporting and 
recordkeeping requirements, Supportive housing programs-- housing and 
community development, Supportive services.

    Accordingly, for the reasons described in the preamble, HUD adds 
part 578 to subchapter C of chapter V of subtitle B of 24 CFR to read 
as follows:

PART 578--CONTINUUM OF CARE PROGRAM

Subpart A--General Provisions
Sec.
578.1 Purpose and scope.
578.3 Definitions.
Subpart B--Establishing and Operating a Continuum of Care
578.5 Establishing the Continuum of Care.
578.7 Responsibilities of the Continuum of Care.
578.9 Preparing an application for funds.
578.11 Unified Funding Agency.
578.13 Remedial action.
Subpart C--Application and Grant Award Process
578.15 Eligible applicants.
578.17 Overview of application and grant award process.
578.19 Application process.
578.21 Awarding funds.
578.23 Executing grant agreements.
578.25 Site control.
578.27 Consolidated plan.
578.29 Subsidy layering.
578.31 Environmental review.
578.33 Renewals.
578.35 Appeal.
Subpart D--Program Components and Eligible Costs
578.37 Program components and uses of assistance.
578.39 Continuum of Care planning activities.
578.41 Unified Funding Agency costs.
578.43 Acquisition.
578.45 Rehabilitation.
578.47 New construction.
578.49 Leasing.
578.51 Rental assistance.
578.53 Supportive services.
578.55 Operating costs.
578.57 Homeless Management Information System.
578.59 Project administrative costs.
578.61 Relocation costs.
578.63 Indirect costs.
 Subpart E--High-Performing Communities
578.65 Standards.
578.67 Publication of application.
578.69 Cooperation among entities.
578.71 HPC-eligible activities.
Subpart F--Program Requirements
578.73 Matching requirements.
578.75 General operations.
578.77 Calculating occupancy charges and rent.
578.79 Limitation on transitional housing.
578.81 Term of commitment, repayment of grants, and prevention of 
undue benefits.
578.83 Displacement, relocation, and acquisition.
578.85 Timeliness standards.
578.87 Limitation on use of funds.
578.89 Limitation on use of grant funds to serve persons defined as 
homeless under other federal laws.
578.91 Termination of assistance to program participants.
578.93 Fair Housing and Equal Opportunity.
578.95 Conflicts of interest.
578.97 Program income.
578.99 Applicability of other federal requirements.
Subpart G--Grant Administration
578.101 Technical assistance.
578.103 Recordkeeping requirements.
578.105 Grant and project changes.
578.107 Sanctions.
578.109 Closeout.

    Authority:  42 U.S.C. 11371 et seq., 42 U.S.C. 3535(d).

Subpart A--General Provisions


Sec.  578.1  Purpose and scope.

    (a) The Continuum of Care program is authorized by subtitle C of 
title IV of the McKinney-Vento Homeless Assistance Act (42 U.S.C. 
11381-11389).
    (b) The program is designed to:
    (1) Promote communitywide commitment to the goal of ending 
homelessness;
    (2) Provide funding for efforts by nonprofit providers, States, and 
local governments to quickly rehouse homeless individuals (including 
unaccompanied youth) and families, while minimizing the trauma and 
dislocation caused to homeless individuals, families, and communities 
by homelessness;
    (3) Promote access to and effective utilization of mainstream 
programs by homeless individuals and families; and
    (4) Optimize self-sufficiency among individuals and families 
experiencing homelessness.


Sec.  578.3  Definitions.

    As used in this part:
    Act means the McKinney-Vento Homeless Assistance Act as amended (42 
U.S.C. 11371 et seq.).
    Annual renewal amount means the amount that a grant can be awarded 
on an annual basis when renewed. It includes funds only for those 
eligible activities (operating, supportive services, leasing, rental 
assistance, HMIS, and administration) that were funded in the original 
grant (or the original grant as amended), less the unrenewable 
activities (acquisition, new construction, rehabilitation, and any 
administrative costs related to these activities).
    Applicant means an eligible applicant that has been designated by 
the Continuum of Care to apply for assistance under this part on behalf 
of that Continuum.

[[Page 45443]]

    At risk of homelessness. (1) An individual or family who:
    (i) Has an annual income below 30 percent of median family income 
for the area, as determined by HUD;
    (ii) Does not have sufficient resources or support networks, e.g., 
family, friends, faith-based or other social networks, immediately 
available to prevent them from moving to an emergency shelter or 
another place described in paragraph (1) of the ``Homeless'' definition 
in this section; and
    (iii) Meets one of the following conditions:
    (A) Has moved because of economic reasons two or more times during 
the 60 days immediately preceding the application for homelessness 
prevention assistance;
    (B) Is living in the home of another because of economic hardship;
    (C) Has been notified in writing that their right to occupy their 
current housing or living situation will be terminated within 21 days 
of the date of application for assistance;
    (D) Lives in a hotel or motel and the cost of the hotel or motel 
stay is not paid

by charitable organizations or by federal, State, or local government 
programs for low-income individuals;
    (E) Lives in a single-room occupancy or efficiency apartment unit 
in which there reside more than two persons, or lives in a larger 
housing unit in which there reside more than 1.5 people per room, as 
defined by the U.S. Census Bureau;
    (F) Is exiting a publicly funded institution, or system of care 
(such as a health-care facility, a mental health facility, foster care 
or other youth facility, or correction program or institution); or
    (G) Otherwise lives in housing that has characteristics associated 
with instability and an increased risk of homelessness, as identified 
in the recipient's approved consolidated plan;
    (2) A child or youth who does not qualify as ``homeless'' under 
this section, but qualifies as ``homeless'' under section 387(3) of the 
Runaway and Homeless Youth Act (42 U.S.C. 5732a(3)), section 637(11) of 
the Head Start Act (42 U.S.C. 9832(11)), section 41403(6) of the 
Violence Against Women Act of 1994 (42 U.S.C. 14043e-2(6)), section 
330(h)(5)(A) of the Public Health Service Act (42 U.S.C. 
254b(h)(5)(A)), section 3(m) of the Food and Nutrition Act of 2008 (7 
U.S.C. 2012(m)), or section 17(b)(15) of the Child Nutrition Act of 
1966 (42 U.S.C. 1786(b)(15)); or
    (3) A child or youth who does not qualify as ``homeless'' under 
this section, but qualifies as ``homeless'' under section 725(2) of the 
McKinney-Vento Homeless Assistance Act (42 U.S.C. 11434a(2)), and the 
parent(s) or guardian(s) of that child or youth if living with her or 
him.
    Centralized or coordinated assessment system means a centralized or 
coordinated process designed to coordinate program participant intake 
assessment and provision of referrals. A centralized or coordinated 
assessment system covers the geographic area, is easily accessed by 
individuals and families seeking housing or services, is well 
advertized, and includes a comprehensive and standardized assessment 
tool.
    Chronically homeless. (1) An individual who:
    (i) Is homeless and lives in a place not meant for human 
habitation, a safe haven, or in an emergency shelter; and
    (ii) Has been homeless and living or residing in a place not meant 
for human habitation, a safe haven, or in an emergency shelter 
continuously for at least one year or on at least four separate 
occasions in the last 3 years; and
    (iii) Can be diagnosed with one or more of the following 
conditions: substance use disorder, serious mental illness, 
developmental disability (as defined in section 102 of the 
Developmental Disabilities Assistance Bill of Rights Act of 2000 (42 
U.S.C. 15002)), post-traumatic stress disorder, cognitive impairments 
resulting from brain injury, or chronic physical illness or disability;
    (2) An individual who has been residing in an institutional care 
facility, including a jail, substance abuse or mental health treatment 
facility, hospital, or other similar facility, for fewer than 90 days 
and met all of the criteria in paragraph (1) of this definition, before 
entering that facility; or
    (3) A family with an adult head of household (or if there is no 
adult in the family, a minor head of household) who meets all of the 
criteria in paragraph (1) of this definition, including a family whose 
composition has fluctuated while the head of household has been 
homeless.
    Collaborative applicant means the eligible applicant that has been 
designated by the Continuum of Care to apply for a grant for Continuum 
of Care planning funds under this part on behalf of the Continuum.
    Consolidated plan means the HUD-approved plan developed in 
accordance with 24 CFR 91.
    Continuum of Care and Continuum means the group organized to carry 
out the responsibilities required under this part and that is composed 
of representatives of organizations, including nonprofit homeless 
providers, victim service providers, faith-based organizations, 
governments, businesses, advocates, public housing agencies, school 
districts, social service providers, mental health agencies, hospitals, 
universities, affordable housing developers, law enforcement, 
organizations that serve homeless and formerly homeless veterans, and 
homeless and formerly homeless persons to the extent these groups are 
represented within the geographic area and are available to 
participate.
    Developmental disability means, as defined in section 102 of the 
Developmental Disabilities Assistance and Bill of Rights Act of 2000 
(42 U.S.C. 15002):
    (1) A severe, chronic disability of an individual that--
    (i) Is attributable to a mental or physical impairment or 
combination of mental and physical impairments;
    (ii) Is manifested before the individual 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;
    (G) Economic self-sufficiency.
    (v) Reflects the individual's need for a combination and sequence 
of special, interdisciplinary, or generic services, individualized 
supports, or other forms of assistance that are of lifelong or extended 
duration and are individually planned and coordinated.
    (2) An individual from birth to age 9, inclusive, who has a 
substantial developmental delay or specific congenital or acquired 
condition, may be considered to have a developmental disability without 
meeting three or more of the criteria described in paragraphs (1)(i) 
through (v) of the definition of ``developmental disability'' in this 
section if the individual, without services and supports, has a high 
probability of meeting these criteria later in life.
    Eligible applicant means a private nonprofit organization, State, 
local government, or instrumentality of State and local government.
    Emergency shelter is defined in 24 CFR part 576.
    Emergency Solutions Grants (ESG) means the grants provided under 24 
CFR part 576.

[[Page 45444]]

    Fair Market Rent (FMR) means the Fair Market Rents published in the 
Federal Register annually by HUD.
    High-performing community (HPC) means a Continuum of Care that 
meets the standards in subpart E of this part and has been designated 
as a high-performing community by HUD.
    Homeless means:
    (1) An individual or family who lacks a fixed, regular, and 
adequate nighttime residence, meaning:
    (i) An individual or family with a primary nighttime residence that 
is a public or private place not designed for or ordinarily used as a 
regular sleeping accommodation for human beings, including a car, park, 
abandoned building, bus or train station, airport, or camping ground;
    (ii) An individual or family living in a supervised publicly or 
privately operated shelter designated to provide temporary living 
arrangements (including congregate shelters, transitional housing, and 
hotels and motels paid for by charitable organizations or by federal, 
State, or local government programs for low-income individuals); or
    (iii) An individual who is exiting an institution where he or she 
resided for 90 days or less and who resided in an emergency shelter or 
place not meant for human habitation immediately before entering that 
institution;
    (2) An individual or family who will imminently lose their primary 
nighttime residence, provided that:
    (i) The primary nighttime residence will be lost within 14 days of 
the date of application for homeless assistance;
    (ii) No subsequent residence has been identified; and
    (iii) The individual or family lacks the resources or support 
networks, e.g., family, friends, faith-based or other social networks, 
needed to obtain other permanent housing;
    (3) Unaccompanied youth under 25 years of age, or families with 
children and youth, who do not otherwise qualify as homeless under this 
definition, but who:
    (i) Are defined as homeless under section 387 of the Runaway and 
Homeless Youth Act (42 U.S.C. 5732a), section 637 of the Head Start Act 
(42 U.S.C. 9832), section 41403 of the Violence Against Women Act of 
1994 (42 U.S.C. 14043e-2), section 330(h) of the Public Health Service 
Act (42 U.S.C. 254b(h)), section 3 of the Food and Nutrition Act of 
2008 (7 U.S.C. 2012), section 17(b) of the Child Nutrition Act of 1966 
(42 U.S.C. 1786(b)), or section 725 of the McKinney-Vento Homeless 
Assistance Act (42 U.S.C. 11434a);
    (ii) Have not had a lease, ownership interest, or occupancy 
agreement in permanent housing at any time during the 60 days 
immediately preceding the date of application for homeless assistance;
    (iii) Have experienced persistent instability as measured by two 
moves or more during the 60-day period immediately preceding the date 
of applying for homeless assistance; and
    (iv) Can be expected to continue in such status for an extended 
period of time because of chronic disabilities; chronic physical health 
or mental health conditions; substance addiction; histories of domestic 
violence or childhood abuse (including neglect); the presence of a 
child or youth with a disability; or two or more barriers to 
employment, which include the lack of a high school degree or General 
Education Development (GED), illiteracy, low English proficiency, a 
history of incarceration or detention for criminal activity, and a 
history of unstable employment; or
    (4) Any individual or family who:
    (i) Is fleeing, or is attempting to flee, domestic violence, dating 
violence, sexual assault, stalking, or other dangerous or life-
threatening conditions that relate to violence against the individual 
or a family member, including a child, that has either taken place 
within the individual's or family's primary nighttime residence or has 
made the individual or family afraid to return to their primary 
nighttime residence;
    (ii) Has no other residence; and
    (iii) Lacks the resources or support networks, e.g., family, 
friends, and faith-based or other social networks, to obtain other 
permanent housing.
    Homeless Management Information System (HMIS) means the information 
system designated by the Continuum of Care to comply with the HMIS 
requirements prescribed by HUD.
    HMIS Lead means the entity designated by the Continuum of Care in 
accordance with this part to operate the Continuum's HMIS on its 
behalf.
    Permanent housing means community-based housing without a 
designated length of stay, and includes both permanent supportive 
housing and rapid rehousing. To be permanent housing, the program 
participant must be the tenant on a lease for a term of at least one 
year, which is renewable for terms that are a minimum of one month 
long, and is terminable only for cause.
    Permanent supportive housing means permanent housing in which 
supportive services are provided to assist homeless persons with a 
disability to live independently.
    Point-in-time count means a count of sheltered and unsheltered 
homeless persons carried out on one night in the last 10 calendar days 
of January or at such other time as required by HUD.
    Private nonprofit organization means an organization:
    (1) No part of the net earnings of which inure to the benefit of 
any member, founder, contributor, or individual;
    (2) That has a voluntary board;
    (3) That has a functioning accounting system that is operated in 
accordance with generally accepted accounting principles, or has 
designated a fiscal agent that will maintain a functioning accounting 
system for the organization in accordance with generally accepted 
accounting principles; and
    (4) That practices nondiscrimination in the provision of 
assistance.
    A private nonprofit organization does not include governmental 
organizations, such as public housing agencies.
    Program participant means an individual (including an unaccompanied 
youth) or family who is assisted with Continuum of Care program funds.
    Project means a group of eligible activities, such as HMIS costs, 
identified as a project in an application to HUD for Continuum of Care 
funds and includes a structure (or structures) that is (are) acquired, 
rehabilitated, constructed, or leased with assistance provided under 
this part or with respect to which HUD provides rental assistance or 
annual payments for operating costs, or supportive services under this 
subtitle.
    Recipient means an applicant that signs a grant agreement with HUD.
    Safe haven means, for the purpose of defining chronically homeless, 
supportive housing that meets the following:
    (1) Serves hard to reach homeless persons with severe mental 
illness who came from the streets and have been unwilling or unable to 
participate in supportive services;
    (2) Provides 24-hour residence for eligible persons for an 
unspecified period;
    (3) Has an overnight capacity limited to 25 or fewer persons; and
    (4) Provides low-demand services and referrals for the residents.
    State means each of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, American Samoa, Guam, the Commonwealth of 
the Northern Marianas, and the Virgin Islands.
    Subrecipient means a private nonprofit organization, State, local 
government, or instrumentality of State or local government that 
receives a

[[Page 45445]]

subgrant from the recipient to carry out a project.
    Transitional housing means housing, where all program participants 
have signed a lease or occupancy agreement, the purpose of which is to 
facilitate the movement of homeless individuals and families into 
permanent housing within 24 months or such longer period as HUD 
determines necessary. The program participant must have a lease or 
occupancy agreement for a term of at least one month that ends in 24 
months and cannot be extended.
    Unified Funding Agency (UFA) means an eligible applicant selected 
by the Continuum of Care to apply for a grant for the entire Continuum, 
which has the capacity to carry out the duties in Sec.  578.11(b), 
which is approved by HUD and to which HUD awards a grant.
    Victim service provider means a private nonprofit organization 
whose primary mission is to provide services to victims of domestic 
violence, dating violence, sexual assault, or stalking. This term 
includes rape crisis centers, battered women's shelters, domestic 
violence transitional housing programs, and other programs.

Subpart B--Establishing and Operating a Continuum of Care


Sec.  578.5  Establishing the Continuum of Care.

    (a) The Continuum of Care. Representatives from relevant 
organizations within a geographic area shall establish a Continuum of 
Care for the geographic area to carry out the duties of this part. 
Relevant organizations include nonprofit homeless assistance providers, 
victim service providers, faith-based organizations, governments, 
businesses, advocates, public housing agencies, school districts, 
social service providers, mental health agencies, hospitals, 
universities, affordable housing developers, law enforcement, and 
organizations that serve veterans and homeless and formerly homeless 
individuals.
    (b) The board. The Continuum of Care must establish a board to act 
on behalf of the Continuum using the process established as a 
requirement by Sec.  578.7(a)(3) and must comply with the conflict-of-
interest requirements at Sec.  578.95(b). The board must:
    (1) Be representative of the relevant organizations and of projects 
serving homeless subpopulations; and
    (2) Include at least one homeless or formerly homeless individual.
    (c) Transition. Continuums of Care shall have 2 years after August 
30, 2012 to comply with the requirements of paragraph (b) of this 
section.


Sec.  578.7  Responsibilities of the Continuum of Care.

    (a) Operate the Continuum of Care. The Continuum of Care must:
    (1) Hold meetings of the full membership, with published agendas, 
at least semi-annually;
    (2) Make an invitation for new members to join publicly available 
within the geographic at least annually;
    (3) Adopt and follow a written process to select a board to act on 
behalf of the Continuum of Care. The process must be reviewed, updated, 
and approved by the Continuum at least once every 5 years;
    (4) Appoint additional committees, subcommittees, or workgroups;
    (5) In consultation with the collaborative applicant and the HMIS 
Lead, develop, follow, and update annually a governance charter, which 
will include all procedures and policies needed to comply with subpart 
B of this part and with HMIS requirements as prescribed by HUD; and a 
code of conduct and recusal process for the board, its chair(s), and 
any person acting on behalf of the board;
    (6) Consult with recipients and subrecipients to establish 
performance targets appropriate for population and program type, 
monitor recipient and subrecipient performance, evaluate outcomes, and 
take action against poor performers;
    (7) Evaluate outcomes of projects funded under the Emergency 
Solutions Grants program and the Continuum of Care program, and report 
to HUD;
    (8) In consultation with recipients of Emergency Solutions Grants 
program funds within the geographic area, establish and operate either 
a centralized or coordinated assessment system that provides an 
initial, comprehensive assessment of the needs of individuals and 
families for housing and services. The Continuum must develop a 
specific policy to guide the operation of the centralized or 
coordinated assessment system on how its system will address the needs 
of individuals and families who are fleeing, or attempting to flee, 
domestic violence, dating violence, sexual assault, or stalking, but 
who are seeking shelter or services from nonvictim service providers. 
This system must comply with any requirements established by HUD by 
Notice.
    (9) In consultation with recipients of Emergency Solutions Grants 
program funds within the geographic area, establish and consistently 
follow written standards for providing Continuum of Care assistance. At 
a minimum, these written standards must include:
    (i) Policies and procedures for evaluating individuals' and 
families' eligibility for assistance under this part;
    (ii) Policies and procedures for determining and prioritizing which 
eligible individuals and families will receive transitional housing 
assistance;
    (iii) Policies and procedures for determining and prioritizing 
which eligible individuals and families will receive rapid rehousing 
assistance;
    (iv) Standards for determining what percentage or amount of rent 
each program participant must pay while receiving rapid rehousing 
assistance;
    (v) Policies and procedures for determining and prioritizing which 
eligible individuals and families will receive permanent supportive 
housing assistance; and
    (vi) Where the Continuum is designated a high-performing community, 
as described in subpart G of this part, policies and procedures set 
forth in 24 CFR 576.400(e)(3)(vi), (e)(3)(vii), (e)(3)(viii), and 
(e)(3)(ix).
    (b) Designating and operating an HMIS. The Continuum of Care must:
    (1) Designate a single Homeless Management Information System 
(HMIS) for the geographic area;
    (2) Designate an eligible applicant to manage the Continuum's HMIS, 
which will be known as the HMIS Lead;
    (3) Review, revise, and approve a privacy plan, security plan, and 
data quality plan for the HMIS.
    (4) Ensure consistent participation of recipients and subrecipients 
in the HMIS; and
    (5) Ensure the HMIS is administered in compliance with requirements 
prescribed by HUD.
    (c) Continuum of Care planning. The Continuum must develop a plan 
that includes:
    (1) Coordinating the implementation of a housing and service system 
within its geographic area that meets the needs of the homeless 
individuals (including unaccompanied youth) and families. At a minimum, 
such system encompasses the following:
    (i) Outreach, engagement, and assessment;
    (ii) Shelter, housing, and supportive services;
    (iii) Prevention strategies.
    (2) Planning for and conducting, at least biennially, a point-in-
time count of homeless persons within the geographic area that meets 
the following requirements:
    (i) Homeless persons who are living in a place not designed or 
ordinarily used as a regular sleeping accommodation for

[[Page 45446]]

humans must be counted as unsheltered homeless persons.
    (ii) Persons living in emergency shelters and transitional housing 
projects must be counted as sheltered homeless persons.
    (iii) Other requirements established by HUD by Notice.
    (3) Conducting an annual gaps analysis of the homeless needs and 
services available within the geographic area;
    (4) Providing information required to complete the Consolidated 
Plan(s) within the Continuum's geographic area;
    (5) Consulting with State and local government Emergency Solutions 
Grants program recipients within the Continuum's geographic area on the 
plan for allocating Emergency Solutions Grants program funds and 
reporting on and evaluating the performance of Emergency Solutions 
Grants program recipients and subrecipients.


Sec.  578.9  Preparing an application for funds.

    (a) The Continuum must:
    (1) Design, operate, and follow a collaborative process for the 
development of applications and approve the submission of applications 
in response to a NOFA published by HUD under Sec.  578.19 of this 
subpart;
    (2) Establish priorities for funding projects in the geographic 
area;
    (3) Determine if one application for funding will be submitted for 
all projects within the geographic area or if more than one application 
will be submitted for the projects within the geographic area;
    (i) If more than one application will be submitted, designate an 
eligible applicant to be the collaborative applicant that will collect 
and combine the required application information from all applicants 
and for all projects within the geographic area that the Continuum has 
selected funding. The collaborative applicant will also apply for 
Continuum of Care planning activities. If the Continuum is an eligible 
applicant, it may designate itself;
    (ii) If only one application will be submitted, that applicant will 
be the collaborative applicant and will collect and combine the 
required application information from all projects within the 
geographic area that the Continuum has selected for funding and apply 
for Continuum of Care planning activities;
    (b) The Continuum retains all of its responsibilities, even if it 
designates one or more eligible applicants other than itself to apply 
for funds on behalf of the Continuum. This includes approving the 
Continuum of Care application.


Sec.  578.11  Unified Funding Agency.

    (a) Becoming a Unified Funding Agency. To become designated as the 
Unified Funding Agency (UFA) for a Continuum, a collaborative applicant 
must be selected by the Continuum to apply to HUD to be designated as 
the UFA for the Continuum.
    (b) Criteria for designating a UFA. HUD will consider these 
criteria when deciding whether to designate a collaborative applicant a 
UFA:
    (1) The Continuum of Care it represents meets the requirements in 
Sec.  578.7;
    (2) The collaborative applicant has financial management systems 
that meet the standards set forth in 24 CFR 84.21 (for nonprofit 
organizations) and 24 CFR 85.20 (for States);
    (3) The collaborative applicant demonstrates the ability to monitor 
subrecipients; and
    (4) Such other criteria as HUD may establish by NOFA.
    (c) Requirements. HUD-designated UFAs shall:
    (1) Apply to HUD for funding for all of the projects within the 
geographic area and enter into a grant agreement with HUD for the 
entire geographic area.
    (2) Enter into legally binding agreements with subrecipients, and 
receive and distribute funds to subrecipients for all projects within 
the geographic area.
    (3) Require subrecipients to establish fiscal control and 
accounting procedures as necessary to assure the proper disbursal of 
and accounting for federal funds in accordance with the requirements of 
24 CFR parts 84 and 85 and corresponding OMB circulars.
    (4) Obtain approval of any proposed grant agreement amendments by 
the Continuum of Care before submitting a request for an amendment to 
HUD.


Sec.  578.13  Remedial action.

    (a) If HUD finds that the Continuum of Care for a geographic area 
does not meet the requirements of the Act or its implementing 
regulations, or that there is no Continuum for a geographic area, HUD 
may take remedial action to ensure fair distribution of grant funds 
within the geographic area. Such measures may include:
    (1) Designating a replacement Continuum of Care for the geographic 
area;
    (2) Designating a replacement collaborative applicant for the 
Continuum's geographic area; and
    (3) Accepting applications from other eligible applicants within 
the Continuum's geographic area.
    (b) HUD must provide a 30-day prior written notice to the Continuum 
and its collaborative applicant and give them an opportunity to 
respond.

Subpart C--Application and Grant Award Process


Sec.  578.15  Eligible applicants.

    (a) Who may apply. Nonprofit organizations, States, local 
governments, and instrumentalities of State or local governments are 
eligible to apply for grants.
    (b) Designation by the Continuum of Care. Eligible applicant(s) 
must have been designated by the Continuum of Care to submit an 
application for grant funds under this part. The designation must state 
whether the Continuum is designating more than one applicant to apply 
for funds and, if it is, which applicant is being designated as the 
collaborative applicant. If the Continuum is designating only one 
applicant to apply for funds, the Continuum must designate that 
applicant to be the collaborative applicant.
    (c) Exclusion. For-profit entities are not eligible to apply for 
grants or to be subrecipients of grant funds.


Sec.  578.17  Overview of application and grant award process.

    (a) Formula. (1) After enactment of the annual appropriations act 
for each fiscal year, and issuance of the NOFA, HUD will publish, on 
its Web site, the Preliminary Pro Rata Need (PPRN) assigned to 
metropolitan cities, urban counties, and all other counties.
    (2) HUD will apply the formula used to determine PPRN established 
in paragraph (a)(3) of this section, to the amount of funds being made 
available under the NOFA. That amount is calculated by:
    (i) Determining the total amount for the Continuum of Care 
competition in accordance with section 413 of the Act or as otherwise 
directed by the annual appropriations act;
    (ii) From the amount in paragraph (a)(2)(i) of this section, 
deducting the amount published in the NOFA as being set aside to 
provide a bonus to geographic areas for activities that have proven to 
be effective in reducing homelessness generally or for specific 
subpopulations listed in the NOFA or achieving homeless prevention and 
independent living goals established in the NOFA and to meet policy 
priorities set in the NOFA; and
    (iii) Deducting the amount of funding necessary for Continuum of 
Care planning activities and UFA costs.
    (3) PPRN is calculated on the amount determined under paragraph 
(a)(2) of this section by using the following formula:

[[Page 45447]]

    (i) Two percent will be allocated among the four insular areas 
(American Samoa, Guam, the Commonwealth of the Northern Marianas, and 
the Virgin Islands) on the basis of the ratio of the population of each 
insular area to the population of all insular areas.
    (ii) Seventy-five percent of the remaining amount will be 
allocated, using the Community Development Block Grant (CDBG) formula, 
to metropolitan cities and urban counties that have been funded under 
either the Emergency Shelter Grants or Emergency Solutions Grants 
programs in any one year since 2004.
    (iii) The amount remaining after the allocation under paragraphs 
(a)(1) and (2) of this section will be allocated, using the CDBG 
formula, to metropolitan cities and urban counties that have not been 
funded under the Emergency Solutions Grants program in any year since 
2004 and all other counties in the United States and Puerto Rico.
    (4) If the calculation in paragraph (a)(2) of this section results 
in an amount less than the amount required to renew all projects 
eligible for renewal in that year for at least one year, after making 
adjustments proportional to increases in fair market rents for the 
geographic area for leasing, operating, and rental assistance for 
permanent housing, HUD will reduce, proportionately, the total amount 
required to renew all projects eligible for renewal in that year for at 
least one year, for each Continuum of Care. HUD will publish, via the 
NOFA, the total dollar amount that every Continuum will be required to 
deduct from renewal projects Continuum-wide.
    (b) Calculating a Continuum of Care's maximum award amount. (1) 
Establish the PPRN amount. First, HUD will total the PPRN amounts for 
each metropolitan city, urban county, other county, and insular area 
claimed by the Continuum as part of its geographic area, excluding any 
counties applying for or receiving funding from the Rural Housing 
Stability Assistance program under 24 CFR part 579.
    (2) Establishing renewal demand. Next, HUD will determine the 
renewal demand within the Continuum's geographic area. Renewal demand 
is the sum of the annual renewal amounts of all projects within the 
Continuum eligible to apply for renewal in that fiscal year's 
competition, before any adjustments to rental assistance, leasing, and 
operating line items based on FMR changes.
    (3) Establishing FPRN. The higher of PPRN or renewal demand for the 
Continuum of Care is the FPRN, which is the base for the maximum award 
amount for the Continuum.
    (4) Establishing the maximum award amount. The maximum award amount 
for the Continuum is the FPRN amount plus any additional eligible 
amounts for Continuum planning; UFA costs; adjustments to leasing, 
operating and rental assistance line items based on changes to FMR; and 
available bonuses.


Sec.  578.19  Application process.

    (a) Notice of Funding Availability. After enactment of the annual 
appropriations act for the fiscal year, HUD will issue a NOFA in 
accordance with the requirements of 24 CFR part 4.
    (b) Applications. All applications to HUD, including applications 
for grant funds and requests for designation as a UFA or HPC, must be 
submitted at such time and in such manner as HUD may require, and 
contain such information as HUD determines necessary. At a minimum, an 
application for grant funds must contain a list of the projects for 
which it is applying for funds; a description of the projects; a list 
of the projects that will be carried out by subrecipients and the names 
of the subrecipients; a description of the subpopulations of homeless 
or at risk of homelessness to be served by projects; the number of 
units to be provided and/or the number of persons to be served by each 
project; a budget request by project; and reasonable assurances that 
the applicant, or the subrecipient, will own or have control of a site 
for the proposed project not later than the expiration of the 12-month 
period beginning upon notification of an award for grant assistance.


Sec.  578.21  Awarding funds.

    (a) Selection. HUD will review applications in accordance with the 
guidelines and procedures provided in the NOFA and will award funds to 
recipients through a national competition based on selection criteria 
as defined in section 427 of the Act.
    (b) Announcement of awards. HUD will announce awards and notify 
selected applicants of any conditions imposed on awards. Conditions 
must be satisfied before HUD will execute a grant agreement with the 
applicant.
    (c) Satisfying conditions. HUD will withdraw an award if the 
applicant does not satisfy all conditions imposed on it. Correcting all 
issues and conditions attached to an award must be completed within the 
time frame established in the NOFA. Proof of site control, match, 
environmental review, and the documentation of financial feasibility 
must be completed within 12 months of the announcement of the award, or 
24 months in the case of funds for acquisition, rehabilitation, or new 
construction. The 12-month deadline may be extended by HUD for up to 12 
additional months upon a showing of compelling reasons for delay due to 
factors beyond the control of the recipient or subrecipient.


Sec.  578.23  Executing grant agreements.

    (a) Deadline. No later than 45 days from the date when all 
conditions are satisfied, the recipient and HUD must execute the grant 
agreement.
    (b) Grant agreements. (1) Multiple applicants for one Continuum. If 
a Continuum designates more than one applicant for the geographic area, 
HUD will enter into a grant agreement with each designated applicant 
for which an award is announced.
    (2) One applicant for a Continuum. If a Continuum designates only 
one applicant for the geographic area, after awarding funds, HUD may 
enter into a grant agreement with that applicant for new awards, if 
any, and one grant agreement for renewals, Continuum of Care planning, 
and UFA costs, if any. These two grants will cover the entire 
geographic area. A default by the recipient under one of those grant 
agreements will also be a default under the other.
    (3) Unified Funding Agencies. If a Continuum is a UFA that HUD has 
approved, then HUD will enter into one grant agreement with the UFA for 
new awards, if any, and one grant agreement for renewals, Continuum of 
Care planning and UFA costs, if any. These two grants will cover the 
entire geographic area. A default by the UFA under one of those grant 
agreements will also be a default under the other.
    (c) Required agreements. Recipients will be required to sign a 
grant agreement in which the recipient agrees:
    (1) To ensure the operation of the project(s) in accordance with 
the provisions of the McKinney-Veto Act and all requirements under 24 
CFR part 578;
    (2) To monitor and report the progress of the project(s) to the 
Continuum of Care and HUD;
    (3) To ensure, to the maximum extent practicable, that individuals 
and families experiencing homelessness are involved, through 
employment, provision of volunteer services, or otherwise, in 
constructing, rehabilitating, maintaining, and operating facilities for 
the project and in providing supportive services for the project;
    (4) To require certification from all subrecipients that:

[[Page 45448]]

    (i) Subrecipients will maintain the confidentiality of records 
pertaining to any individual or family that was provided family 
violence prevention or treatment services through the project;
    (ii) The address or location of any family violence project 
assisted under this part will not be made public, except with written 
authorization of the person responsible for the operation of such 
project;
    (iii) Subrecipients will establish policies and practices that are 
consistent with, and do not restrict, the exercise of rights provided 
by subtitle B of title VII of the Act and other laws relating to the 
provision of educational and related services to individuals and 
families experiencing homelessness;
    (iv) In the case of projects that provide housing or services to 
families, that subrecipients will designate a staff person to be 
responsible for ensuring that children being served in the program are 
enrolled in school and connected to appropriate services in the 
community, including early childhood programs such as Head Start, part 
C of the Individuals with Disabilities Education Act, and programs 
authorized under subtitle B of title VII of the Act;
    (v) The subrecipient, its officers, and employees are not debarred 
or suspended from doing business with the Federal Government; and
    (vi) Subrecipients will provide information, such as data and 
reports, as required by HUD; and
    (5) To establish such fiscal control and accounting procedures as 
may be necessary to assure the proper disbursal of, and accounting for 
grant funds in order to ensure that all financial transactions are 
conducted, and records maintained in accordance with generally accepted 
accounting principles, if the recipient is a UFA;
    (6) To monitor subrecipient match and report on match to HUD;
    (7) To take the educational needs of children into account when 
families are placed in housing and will, to the maximum extent 
practicable, place families with children as close as possible to their 
school of origin so as not to disrupt such children's education;
    (8) To monitor subrecipients at least annually;
    (9) To use the centralized or coordinated assessment system 
established by the Continuum of Care as set forth in Sec.  578.7(a)(8). 
A victim service provider may choose not to use the Continuum of Care's 
centralized or coordinated assessment system, provided that victim 
service providers in the area use a centralized or coordinated 
assessment system that meets HUD's minimum requirements and the victim 
service provider uses that system instead;
    (10) To follow the written standards for providing Continuum of 
Care assistance developed by the Continuum of Care, including the 
minimum requirements set forth in Sec.  578.7(a)(9);
    (11) Enter into subrecipient agreements requiring subrecipients to 
operate the project(s) in accordance with the provisions of this Act 
and all requirements under 24 CFR part 578; and
    (12) To comply with such other terms and conditions as HUD may 
establish by NOFA.


Sec.  578.25  Site control.

    (a) In general. When grant funds will be used for acquisition, 
rehabilitation, new construction, operating costs, or to provide 
supportive services, the recipient or subrecipient must demonstrate 
that it has site control within the time frame established in section 
Sec.  578.21 before HUD will execute a grant agreement. This 
requirement does not apply to funds used for housing that will 
eventually be owned or controlled by the individuals or families served 
or for supportive services provided at sites not operated by the 
recipient or subrecipient.
    (b) Evidence. Acceptable evidence of site control is a deed or 
lease. If grant funds will be used for acquisition, acceptable evidence 
of site control will be a purchase agreement. The owner, lessee, and 
purchaser shown on these documents must be the selected applicant or 
intended subrecipient identified in the application for assistance.
    (c) Tax credit projects. (1) Applicants that plan to use the low-
income housing tax credit authorized under 26 U.S.C. 42 to finance a 
project must prove to HUD's satisfaction that the applicant or 
subrecipient identified in the application is in control of the limited 
partnership or limited liability corporation that has a deed or lease 
for the project site.
    (i) To have control of the limited partnership, the applicant or 
subrecipient must be the general partner of the limited partnership or 
have a 51 percent controlling interest in that general partner.
    (ii) To have control of the limited liability company, the 
applicant or subrecipient must be the sole managing member.
    (2) If grant funds are to be used for acquisition, rehabilitation, 
or new construction, the recipient or subrecipient must maintain 
control of the partnership or corporation and must ensure that the 
project is operated in compliance with law and regulation for 15 years 
from the date of initial occupancy or initial service provision. The 
partnership or corporation must own the project site throughout the 15-
year period. If grant funds were not used for acquisition, 
rehabilitation, or new construction, then the recipient or subrecipient 
must maintain control for the term of the grant agreement and any 
renewals thereof.


Sec.  578.27  Consolidated plan.

    (a) States or units of general local government. An applicant that 
is a State or a unit of general local government must have a HUD-
approved, complete or abbreviated, consolidated plan in accordance with 
24 CFR part 91. The applicant must submit a certification that the 
application for funding is consistent with the HUD-approved 
consolidated plan(s) for the jurisdiction(s) in which the proposed 
project will be located. Funded applicants must certify in a grant 
agreement that they are following the HUD-approved consolidated plan.
    (b) Other applicants. Applicants that are not States or units of 
general local government must submit a certification by the 
jurisdiction(s) in which the proposed project will be located that 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 under 24 CFR 
part 91, subpart F. If the jurisdiction refuses to provide a 
certification of consistency, the applicant may appeal to HUD under 
Sec.  578.35.
    (c) Timing of consolidated plan certification submissions. 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.


Sec.  578.29  Subsidy layering.

    HUD may provide assistance under this program only in accordance 
with HUD subsidy layering requirements in section 102 of the Housing 
and Urban Development Reform Act of 1989 (42 U.S.C. 3545) and 24 CFR 
part 4, subpart A. An applicant must submit information in its 
application on other sources of governmental assistance that the 
applicant has received, or reasonably expects to receive, for a 
proposed project or activities. HUD's review of this information is 
intended to prevent excessive public assistance for

[[Page 45449]]

proposed project or activities by combining (layering) assistance under 
this program with other governmental housing assistance from federal, 
State, or local agencies, including assistance such as tax concessions 
or tax credits.


Sec.  578.31  Environmental review.

    (a) Activities under this part are subject to environmental review 
by HUD under 24 CFR part 50. The recipient or subrecipient shall supply 
all available, relevant information necessary for HUD to perform, for 
each property, any environmental review required by 24 CFR part 50. The 
recipient or subrecipient must carry out mitigating measures required 
by HUD or select an alternate eligible property. HUD may eliminate from 
consideration any application that would require an Environmental 
Impact Statement.
    (b) The recipient or subrecipient, its project partners, and their 
contractors may not acquire, rehabilitate, convert, lease, repair, 
dispose of, demolish, or construct property for a project under this 
part, or commit or expend HUD or local funds for such eligible 
activities under this part, until HUD has performed an environmental 
review under 24 CFR part 50 and the recipient or subrecipient has 
received HUD approval of the property.


Sec.  578.33  Renewals.

    (a) In general. Awards made under this part and title IV of the 
Act, as in effect before August 30, 2012 (the Supportive Housing 
Program and the Shelter Plus Care program), may be renewed to continue 
ongoing leasing, operations, supportive services, rental assistance, 
HMIS, and administration beyond the initial funding period. To be 
considered for funding, recipients must submit a request in a form 
specified by HUD, must meet the requirements of this part, and must 
submit the request within the time frame established by HUD.
    (b) Length of renewal. HUD may award up to 3 years of funds for 
supportive services, leasing, HMIS, and operating costs. Renewals of 
tenant-based and sponsor-based rental assistance may be for up to one 
year of rental assistance. Renewals of project-based rental assistance 
may be for up to 15 years of rental assistance, subject to availability 
of annual appropriations.
    (c) Assistance available. (1) Assistance during each year of a 
renewal period may be for:
    (i) Up to 100 percent of the amount for supportive services and 
HMIS costs in the final year of the prior funding period;
    (ii) Up to 100 percent of the amount for leasing and operating in 
the final year of the prior funding period adjusted in proportion to 
changes in the FMR for the geographic area; and
    (iii) For rental assistance, up to 100 percent of the result of 
multiplying the number and unit size(s) in the grant agreement by the 
number of months in the renewal grant term and the applicable FMR.
    (d) Review criteria. (1) Awards made under title IV of the Act, as 
in effect before August 30, 2012 are eligible for renewal in the 
Continuum of Care program even if the awardees would not be eligible 
for a new grant under the program, so long as they continue to serve 
the same population and the same number of persons or units in the same 
type of housing as identified in their most recently amended grant 
agreement signed before August 30, 2012. Grants will be renewed if HUD 
receives a certification from the Continuum that there is a 
demonstrated need for the project, and HUD finds that the project 
complied with program requirements applicable before August 30, 2012. 
For purposes of meeting the requirements of this part, a project will 
continue to be administered in accordance with 24 CFR 582.330, if the 
project received funding under the Shelter Plus Care program, or 24 CFR 
583.325, if the project received funding under the Supportive Housing 
Program.
    (2) Renewal of awards made after August 30, 2012. Review criteria 
for competitively awarded renewals made after August 30, 2012 will be 
described in the NOFA.
    (e) Unsuccessful projects. HUD may renew a project that was 
eligible for renewal in the competition and was part of an application 
that was not funded despite having been submitted on time, in the 
manner required by HUD, and containing the information required by HUD, 
upon a finding that the project meets the purposes of the Continuum of 
Care program. The renewal will not exceed more than one year and will 
be under such conditions as HUD deems appropriate.
    (f) Annual Performance Report condition. HUD may terminate the 
renewal of any grant and require the recipient to repay the renewal 
grant if:
    (1) The recipient fails to timely submit a HUD Annual Performance 
Report (APR) for the grant year immediately prior to renewal; or
    (2) The recipient submits an APR that HUD deems unacceptable or 
shows noncompliance with the requirements of the grant and this part.


Sec.  578.35  Appeal.

    (a) In general. Failure to follow the procedures or meet the 
deadlines established in this section will result in denial of the 
appeal.
    (b) Solo applicants. (1) Who may appeal. Nonprofits, States, and 
local governments, and instrumentalities of State or local governments 
that attempted to participate in the Continuum of Care planning process 
in the geographic area in which they operate, that believe they were 
denied the right to participate in a reasonable manner, and that 
submitted a solo application for funding by the application deadline 
established in the NOFA, may appeal the decision of the Continuum to 
HUD.
    (2) Notice of intent to appeal. The solo applicant must submit a 
written notice of intent to appeal, with a copy to the Continuum, with 
their funding application.
    (3) Deadline for submitting proof. No later than 30 days after the 
date that HUD announces the awards, the solo applicant shall submit in 
writing, with a copy to the Continuum, all relevant evidence supporting 
its claim, in such manner as HUD may require by Notice.
    (4) Response from the Continuum of Care. The Continuum shall have 
30 days from the date of its receipt of the solo applicant's evidence 
to respond to HUD in writing and in such manner as HUD may require, 
with a copy to the solo applicant.
    (5) Decision. HUD will notify the solo applicant and the Continuum 
of its decision within 60 days of receipt of the Continuum's response.
    (6) Funding. If HUD finds that the solo applicant was not permitted 
to participate in the Continuum of Care planning process in a 
reasonable manner, then HUD may award a grant to the solo applicant 
when funds next become available and may direct the Continuum of Care 
to take remedial steps to ensure reasonable participation in the 
future. HUD may also reduce the award to the Continuum's applicant(s).
    (c) Denied or decreased funding. (1) Who may appeal. Eligible 
applicants that are denied funds by HUD, or that requested more funds 
than HUD awarded to them, may appeal the award by filing a written 
appeal, in such form and manner as HUD may require by Notice, within 45 
days of the date of HUD's announcement of the award.
    (2) Decision. HUD will notify the applicant of its decision on the 
appeal within 60 days of HUD's receipt of the written appeal. HUD will 
reverse a decision only when the applicant can show that HUD error 
caused the denial or decrease.

[[Page 45450]]

    (3) Funding. Awards and increases to awards made upon appeal will 
be made from next available funds.
    (d) Competing Continuums of Care. (1) In general. If more than one 
Continuum of Care claims the same geographic area, HUD will award funds 
to the Continuum applicant(s) whose application(s) has the highest 
total score. No projects will be funded from the lower scoring 
Continuum. No projects that are submitted in two or more competing 
Continuum of Care applications will be funded.
    (2) Who may appeal. The designated applicant(s) for the lower 
scoring Continuum may appeal HUD's decision to fund the application(s) 
from the competing Continuum by filing a written appeal, in such form 
and manner as HUD may require by Notice, within 45 days of the date of 
HUD's announcement of the award.
    (3) Decision. HUD will notify the applicant(s) of its decision on 
the appeal within 60 days of the date of HUD's receipt of the written 
appeal. HUD will reverse a decision only upon a showing by the 
applicant that HUD error caused the denial.
    (e) Consolidated plan certification. (1) In general. An applicant 
may appeal to HUD a jurisdiction's refusal to provide a certification 
of consistency with the Consolidated Plan.
    (2) Procedure. The applicant must submit a written appeal with its 
application to HUD and send a copy of the appeal to the jurisdiction 
that denied the certification of consistency. The appeal must include, 
at a minimum:
    (i) A copy of the applicant's request to the jurisdiction for the 
certification of consistency with the Consolidated Plan;
    (ii) A copy of the jurisdiction's response stating the reasons for 
denial, including the reasons the proposed project is not consistent 
with the jurisdiction's Consolidated Plan in accordance with 24 CFR 
91.500(c); and
    (iii) A statement of the reasons why the applicant believes its 
project is consistent with the jurisdiction's Consolidated Plan.
    (3) Jurisdiction response. The jurisdiction that refused to provide 
the certification of consistency with the jurisdiction's Consolidated 
Plan shall have 10 days after receipt of a copy of the appeal to submit 
a written explanation of the reasons originally given for refusing to 
provide the certification and a written rebuttal to any claims made by 
the applicant in the appeal.
    (4) HUD review. (i) HUD will issue its decision within 45 days of 
the date of HUD's receipt of the jurisdiction's response. As part of 
its review, HUD will consider:
    (A) Whether the applicant submitted the request to the appropriate 
political jurisdiction; and
    (B) The reasonableness of the jurisdiction's refusal to provide the 
certificate.
    (ii) If the jurisdiction did not provide written reasons for 
refusal, including the reasons why the project is not consistent with 
the jurisdiction's Consolidated Plan in its initial response to the 
applicant's request for a certification, HUD will find for the 
applicant without further inquiry or response from the political 
jurisdiction.

Subpart D--Program Components and Eligible Costs


Sec.  578.37  Program components and uses of assistance.

    (a) Continuum of Care funds may be used to pay for the eligible 
costs listed in Sec.  578.39 through Sec.  578.63 when used to 
establish and operate projects under five program components: permanent 
housing; transitional housing; supportive services only; HMIS; and, in 
some cases, homelessness prevention. Although grant funds may be used 
by recipients and subrecipients in all components for the eligible 
costs of contributing data to the HMIS designated by the Continuum of 
Care, only HMIS Leads may use grant funds for an HMIS component. 
Administrative costs are eligible for all components. All components 
are subject to the restrictions on combining funds for certain eligible 
activities in a single project found in Sec.  578.87(c). The eligible 
program components are:
    (1) Permanent housing (PH). Permanent housing is community-based 
housing, the purpose of which is to provide housing without a 
designated length of stay. Grant funds may be used for acquisition, 
rehabilitation, new construction, leasing, rental assistance, operating 
costs, and supportive services. PH includes:
    (i) Permanent supportive housing for persons with disabilities 
(PSH). PSH can only provide assistance to individuals with disabilities 
and families in which one adult or child has a disability. Supportive 
services designed to meet the needs of the program participants must be 
made available to the program participants.
    (ii) Rapid rehousing. Continuum of Care funds may provide 
supportive services, as set forth in Sec.  578.53, and/or short-term 
(up to 3 months) and/or medium-term (for 3 to 24 months) tenant-based 
rental assistance, as set forth in Sec.  578.51(c), as necessary to 
help a homeless individual or family, with or without disabilities, 
move as quickly as possible into permanent housing and achieve 
stability in that housing. When providing short-term and/or medium-term 
rental assistance to program participants, the rental assistance is 
subject to Sec.  578.51(a)(1), but not Sec.  578.51(a)(1)(i) and (ii); 
(a)(2); (c) and (f) through (i); and (l)(1). These projects:
    (A) Must follow the written policies and procedures established by 
the Continuum of Care for determining and prioritizing which eligible 
families and individuals will receive rapid rehousing assistance, as 
well as the amount or percentage of rent that each program participant 
must pay.
    (B) May set a maximum amount or percentage of rental assistance 
that a program participant may receive, a maximum number of months that 
a program participant may receive rental assistance, and/or a maximum 
number of times that a program participant may receive rental 
assistance. The recipient or subrecipient may also require program 
participants to share in the costs of rent. For the purposes of 
calculating rent for rapid rehousing, the rent shall equal the sum of 
the total monthly rent for the unit and, if the tenant pays separately 
for utilities, the monthly allowance for utilities (excluding 
telephone) established by the public housing authority for the area in 
which the housing is located.
    (C) Limit rental assistance to no more than 24 months to a 
household.
    (D) May provide supportive services for no longer than 6 months 
after rental assistance stops.
    (E) Must re-evaluate, not less than once annually, that the program 
participant lacks sufficient resources and support networks necessary 
to retain housing without Continuum of Care assistance and the types 
and amounts of assistance that the program participant needs to retain 
housing. The recipient or subrecipient may require each program 
participant receiving assistance to notify the recipient or 
subrecipient of changes in the program participant's income or other 
circumstances (e.g., changes in household composition) that affect the 
program participant's need for assistance. When notified of a relevant 
change, the recipient or subrecipient must reevaluate the program 
participant's eligibility and the amount and types of assistance that 
the program participant needs.
    (F) Require the program participant to meet with a case manager not 
less than once per month to assist the program participant in ensuring 
long-term housing stability. The project is exempt

[[Page 45451]]

from this requirement if the Violence Against Women Act of 1994 (42 
U.S.C. 13925 et seq.) or the Family Violence Prevention and Services 
Act (42 U.S.C. 10401 et seq.) prohibits the recipient carrying out the 
project from making its housing conditional on the participant's 
acceptance of services.
    (2) Transitional Housing (TH). Transitional housing facilitates the 
movement of homeless individuals and families to PH within 24 months of 
entering TH. Grant funds may be used for acquisition, rehabilitation, 
new construction, leasing, rental assistance, operating costs, and 
supportive services.
    (3) Supportive Service Only (SSO). Funds may be used for 
acquisition, rehabilitation, relocation costs, or leasing of a facility 
from which supportive services will be provided, and supportive 
services in order to provide supportive services to unsheltered and 
sheltered homeless persons for whom the recipient or subrecipient is 
not providing housing or housing assistance. SSO includes street 
outreach.
    (4) HMIS. Funds may be used by HMIS Leads to lease a structure in 
which the HMIS is operated or as operating funds to operate a structure 
in which the HMIS is operated, and for other costs eligible in Sec.  
578.57.
    (5) Homelessness prevention. Funds may be used by recipients in 
Continuums of Care-designated high-performing communities for housing 
relocation and stabilization services, and short- and/or medium-term 
rental assistance, as described in 24 CFR 576.105 and 24 CFR 576.106, 
that are necessary to prevent an individual or family from becoming 
homeless.
    (b) Uses of assistance. Funds are available to pay for the eligible 
costs listed in Sec.  578.39 through Sec.  578.63 when used to:
    (1) Establish new housing or new facilities to provide supportive 
services;
    (2) Expand existing housing and facilities in order to increase the 
number of homeless persons served;
    (3) Bring existing housing and facilities into compliance with 
State and local government health and safety standards, as described in 
Sec.  578.87;
    (4) Preserve existing permanent housing and facilities that provide 
supportive services;
    (5) Provide supportive services for residents of supportive housing 
or for homeless persons not residing in supportive housing;
    (6) Continue funding permanent housing when the recipient has 
received funding under this part for leasing, supportive services, 
operating costs, or rental assistance;
    (7) Establish and operate an HMIS or comparable database; and
    (8) Establish and carry out a Continuum of Care planning process 
and operate a Continuum of Care.
    (c) Multiple purposes. Structures used to provide housing, 
supportive housing, supportive services, or as a facility for HMIS 
activities may also be used for other purposes. However, assistance 
under this part will be available only in proportion to the use of the 
structure for supportive housing or supportive services. If eligible 
and ineligible activities are carried out in separate portions of the 
same structure or in separate structures, grant funds may not be used 
to pay for more than the actual cost of acquisition, construction, or 
rehabilitation of the portion of the structure or structures used for 
eligible activities. If eligible and ineligible activities are carried 
out in the same structure, the costs will be prorated based on the 
amount of time that the space is used for eligible versus ineligible 
activities.


Sec.  578.39  Continuum of Care planning activities.

    (a) In general. Collaborative applicants may use up to 3 percent of 
their FPRN, or a maximum amount to be established by the NOFA, for 
costs of:
    (1) Designing and carrying out a collaborative process for the 
development of an application to HUD;
    (2) Evaluating the outcomes of projects for which funds are awarded 
in the geographic area under the Continuum of Care and the Emergency 
Solutions Grants programs; and
    (3) Participating in the consolidated plan(s) for the geographic 
area(s).
    (b) Continuum of Care planning activities. Eligible planning costs 
include the costs of:
    (1) Developing a communitywide or regionwide process involving the 
coordination of nonprofit homeless providers, victim service providers, 
faith-based organizations, governments, businesses, advocates, public 
housing agencies, school districts, social service providers, mental 
health agencies, hospitals, universities, affordable housing 
developers, law enforcement, organizations that serve veterans, and 
homeless and formerly homeless individuals;
    (2) Determining the geographic area that the Continuum of Care will 
serve;
    (3) Developing a Continuum of Care system;
    (4) Evaluating the outcomes of projects for which funds are awarded 
in the geographic area, including the Emergency Solutions Grants 
program;
    (5) Participating in the consolidated plan(s) of the 
jurisdiction(s) in the geographic area; and
    (6) Preparing and submitting an application to HUD on behalf of the 
entire Continuum of Care membership, including conducting a sheltered 
and unsheltered point-in-time count and other data collection as 
required by HUD.
    (c) Monitoring costs. The costs of monitoring recipients and 
subrecipients and enforcing compliance with program requirements are 
eligible.


Sec.  578.41  Unified Funding Agency costs.

    (a) In general. UFAs may use up to 3 percent of their FPRN, or a 
maximum amount to be established by the NOFA, whichever is less, for 
fiscal control and accounting costs necessary to assure the proper 
disbursal of, and accounting for, federal funds awarded to 
subrecipients under the Continuum of Care program.
    (b) UFA costs. UFA costs include costs of ensuring that all 
financial transactions carried out under the Continuum of Care program 
are conducted and records are maintained in accordance with generally 
accepted accounting principles, including arranging for an annual 
survey, audit, or evaluation of the financial records of each project 
carried out by a subrecipient funded by a grant received through the 
Continuum of Care program.
    (c) Monitoring costs. The costs of monitoring subrecipients and 
enforcing compliance with program requirements are eligible for costs.


Sec.  578.43  Acquisition.

    Grant funds may be used to pay up to 100 percent of the cost of 
acquisition of real property selected by the recipient or subrecipient 
for use in the provision of housing or supportive services for homeless 
persons.


Sec.  578.45  Rehabilitation.

    (a) Use. Grant funds may be used to pay up to 100 percent of the 
cost of rehabilitation of structures to provide housing or supportive 
services to homeless persons.
    (b) Eligible costs. Eligible rehabilitation costs include 
installing cost-effective energy measures, and bringing an existing 
structure to State and local government health and safety standards.
    (c) Ineligible costs. Grant funds may not be used for 
rehabilitation of leased property.


Sec.  578.47  New construction.

    (a) Use. Grant funds may be used to:
    (1) Pay up to 100 percent of the cost of new construction, 
including the

[[Page 45452]]

building of a new structure or building an addition to an existing 
structure that increases the floor area by 100 percent or more, and the 
cost of land associated with that construction, for use as housing.
    (2) If grant funds are used for new construction, the applicant 
must demonstrate that the costs of new construction are substantially 
less than the costs of 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 of 
rehabilitation or new construction may include the cost of real 
property acquisition.
    (b) Ineligible costs. Grant funds may not be used for new 
construction on leased property.


Sec.  578.49  Leasing.

    (a) Use. (1) Where the recipient or subrecipient is leasing the 
structure, or portions thereof, grant funds may be used to pay for 100 
percent of the costs of leasing a structure or structures, or portions 
thereof, to provide housing or supportive services to homeless persons 
for up to 3 years. Leasing funds may not be used to lease units or 
structures owned by the recipient, subrecipient, their parent 
organization(s), any other related organization(s), or organizations 
that are members of a partnership, where the partnership owns the 
structure, unless HUD authorized an exception for good cause.
    (2) Any request for an exception must include the following:
    (i) A description of how leasing these structures is in the best 
interest of the program;
    (ii) Supporting documentation showing that the leasing charges paid 
with grant funds are reasonable for the market; and
    (iii) A copy of the written policy for resolving disputes between 
the landlord and tenant, including a recusal for officers, agents, and 
staff who work for both the landlord and tenant.
    (b) Requirements. (1) Leasing structures. When grants are used to 
pay rent for all or part of a structure or 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 unassisted 
space.
    (2) Leasing individual units. When 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 for comparable units, and the rent paid may not exceed HUD-
determined fair market rents.
    (3) Utilities. If electricity, gas, and water are included in the 
rent, these utilities may be paid from leasing funds. If utilities are 
not provided by the landlord, these utility costs are an operating 
cost, except for supportive service facilities. If the structure is 
being used as a supportive service facility, then these utility costs 
are a supportive service cost.
    (4) Security deposits and first and last month's rent. Recipients 
and subrecipients may use grant funds to pay security deposits, in an 
amount not to exceed 2 months of actual rent. An advance payment of the 
last month's rent may be provided to the landlord in addition to the 
security deposit and payment of the first month's rent.
    (5) Occupancy agreements and subleases. Occupancy agreements and 
subleases are required as specified in Sec.  578.77(a).
    (6) Calculation of occupancy charges and rent. Occupancy charges 
and rent from program participants must be calculated as provided in 
Sec.  578.77.
    (7) Program income. Occupancy charges and rent collected from 
program participants are program income and may be used as provided 
under Sec.  578.97.
    (8) Transition. Beginning in the first year awards are made under 
the Continuum of Care program, renewals of grants for leasing funds 
entered into under the authority of title IV, subtitle D of the Act as 
it existed before May 20, 2009, will be renewed either as grants for 
leasing or as rental assistance, depending on the characteristics of 
the project. Leasing funds will be renewed as rental assistance if the 
funds are used to pay rent on units where the lease is between the 
program participant and the landowner or sublessor. Projects requesting 
leasing funds will be renewed as leasing if the funds were used to 
lease a unit or structure and the lease is between the recipient or 
subrecipient and the landowner.


Sec.  578.51  Rental assistance.

    (a) Use. (1) Grant funds may be used for rental assistance for 
homeless individuals and families. Rental assistance cannot be provided 
to a program participant who is already receiving rental assistance, or 
living in a housing unit receiving rental assistance or operating 
assistance through other federal, State, or local sources.
    (i) The rental assistance may be short-term, up to 3 months of 
rent; medium-term, for 3 to 24 months of rent; or long-term, for longer 
than 24 months of rent and must be administered in accordance with the 
policies and procedures established by the Continuum as set forth in 
Sec.  578.7(a)(9) and this section.
    (ii) The rental assistance may be tenant-based, project-based, or 
sponsor-based, and may be for transitional or permanent housing.
    (2) Grant funds may be used for security deposits in an amount not 
to exceed 2 months of rent. An advance payment of the last month's rent 
may be provided to the landlord, in addition to the security deposit 
and payment of first month's rent.
    (b) Rental assistance administrator. Rental assistance must be 
administered by a State, unit of general local government, or a public 
housing agency.
    (c) Tenant-based rental assistance. Tenant-based rental assistance 
is rental assistance in which program participants choose housing of an 
appropriate size in which to reside. When necessary to facilitate the 
coordination of supportive services, recipients and subrecipients may 
require program 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. Program participants who are receiving rental assistance 
in transitional housing may be required to live in a specific structure 
for their entire period of participation in transitional housing.
    (1) Up to 5 years worth of rental assistance may be awarded to a 
project in one competition.
    (2) Program participants who have complied with all program 
requirements during their residence retain the rental assistance if 
they move within the Continuum of Care geographic area.
    (3) Program participants who have complied with all program 
requirements during their residence and who have been a victim of 
domestic violence, dating violence, sexual assault, or stalking, and 
who reasonably believe they are imminently threatened by harm from 
further domestic violence, dating violence, sexual assault, or stalking 
(which would include threats from a third party, such as a friend or 
family member of the perpetrator of the violence), if they remain in 
the assisted unit, and are able to document the violence and basis for 
their belief, may retain the rental assistance and move to a different 
Continuum of Care geographic area if they move out of the

[[Page 45453]]

assisted unit to protect their health and safety.
    (d) Sponsor-based rental assistance. Sponsor-based rental 
assistance is provided through contracts between the recipient and 
sponsor organization. A sponsor may be a private, nonprofit 
organization, or a community mental health agency established as a 
public nonprofit organization. Program participants must reside in 
housing owned or leased by the sponsor. Up to 5 years worth of rental 
assistance may be awarded to a project in one competition.
    (e) Project-based rental assistance. Project-based rental 
assistance is provided through a contract with the owner of an existing 
structure, where the owner agrees to lease the subsidized units to 
program participants. Program participants will not retain rental 
assistance if they move. Up to 15 years of rental assistance may be 
awarded in one competition.
    (f) Grant amount. The amount of rental assistance in each project 
will be based on the number and size of units proposed by the applicant 
to be assisted over the grant period. The amount of rental assistance 
in each project will be calculated by multiplying the number and size 
of units proposed by the FMR of each unit on the date the application 
is submitted to HUD, by the term of the grant.
    (g) Rent reasonableness. HUD will only provide rental assistance 
for a unit if the rent is reasonable. The recipient or subrecipient 
must 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. Reasonable rent must not exceed rents currently being 
charged by the same owner for comparable unassisted units.
    (h) Payment of grant. (1) The amount of rental assistance in each 
project will be reserved for rental assistance over the grant period. 
An applicant's request for rental assistance in each grant is an 
estimate of the amount needed for rental assistance. Recipients will 
make draws from the grant funds to pay the actual costs of rental 
assistance for program participants.
    (2) For tenant-based rental assistance, on demonstration of need:
    (i) Up to 25 percent of the total rental assistance awarded may be 
spent in any year of a 5-year grant term; or
    (ii) A higher percentage if approved in advance by HUD, if the 
recipient provides evidence satisfactory to HUD that it is financially 
committed to providing the housing assistance described in the 
application for the full 5-year period.
    (3) A recipient must serve at least as many program participants as 
shown in its application for assistance.
    (4) If the amount in each grant 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 factors as contract 
rents being lower than FMRs and program participants being able to pay 
a portion of the rent, recipients or subrecipients may use the excess 
funds for covering the costs of rent increases, or for serving a 
greater number of program participants.
    (i) Vacancies. If a unit assisted under this section is vacated 
before the expiration of the lease, 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. Brief periods of stays in institutions, not to 
exceed 90 days for each occurrence, are not considered vacancies.
    (j) Property damage. Recipients and subrecipients may use grant 
funds in an amount not to exceed one month's rent to pay for any damage 
to housing due to the action of a program participant. This shall be a 
one-time cost per participant, incurred at the time a participant exits 
a housing unit.
    (k) Resident rent. Rent must be calculated as provided in Sec.  
578.77. Rents collected from program participants are program income 
and may be used as provided under Sec.  578.97.
    (l) Leases. (1) Initial lease. For project-based, sponsor-based, or 
tenant-based rental assistance, program participants must enter into a 
lease agreement for a term of at least one year, which is terminable 
for cause. The leases must be automatically renewable upon expiration 
for terms that are a minimum of one month long, except on prior notice 
by either party.
    (2) Initial lease for transitional housing. Program participants in 
transitional housing must enter into a lease agreement for a term of at 
least one month. The lease must be automatically renewable upon 
expiration, except on prior notice by either party, up to a maximum 
term of 24 months.


Sec.  578.53  Supportive services.

    (a) In general. Grant funds may be used to pay the eligible costs 
of supportive services that address the special needs of the program 
participants. If the supportive services are provided in a supportive 
service facility not contained in a housing structure, the costs of 
day-to-day operation of the supportive service facility, including 
maintenance, repair, building security, furniture, utilities, and 
equipment are eligible as a supportive service.
    (1) Supportive services must be necessary to assist program 
participants obtain and maintain housing.
    (2) Recipients and subrecipients shall conduct an annual assessment 
of the service needs of the program participants and should adjust 
services accordingly.
    (b) Duration. (1) For a transitional housing project, supportive 
services must be made available to residents throughout the duration of 
their residence in the project.
    (2) Permanent supportive housing projects must provide supportive 
services for the residents to enable them to live as independently as 
is practicable throughout the duration of their residence in the 
project.
    (3) Services may also be provided to former residents of 
transitional housing and current residents of permanent housing who 
were homeless in the prior 6 months, for no more than 6 months after 
leaving transitional housing or homelessness, respectively, to assist 
their adjustment to independent living.
    (4) Rapid rehousing projects must require the program participant 
to meet with a case manager not less than once per month as set forth 
in Sec.  578.37(a)(1)(ii)(F), to assist the program participant in 
maintaining long-term housing stability.
    (c) Special populations. All eligible costs are eligible to the 
same extent for program participants who are unaccompanied homeless 
youth; persons living with HIV/AIDS; and victims of domestic violence, 
dating violence, sexual assault, or stalking.
    (d) Ineligible costs. Any cost that is not described as an eligible 
cost under this section is not an eligible cost of providing supportive 
services using Continuum of Care program funds. Staff training and the 
costs of obtaining professional licenses or certifications needed to 
provide supportive services are not eligible costs.
    (e) Eligible costs.
    (1) Annual Assessment of Service Needs. The costs of the assessment 
required by Sec.  578.53(a)(2) are eligible costs.
    (2) Assistance with moving costs. Reasonable one-time moving costs 
are eligible and include truck rental and hiring a moving company.

[[Page 45454]]

    (3) Case management. The costs of assessing, arranging, 
coordinating, and monitoring the delivery of individualized services to 
meet the needs of the program participant(s) are eligible costs. 
Component services and activities consist of:
    (i) Counseling;
    (ii) Developing, securing, and coordinating services;
    (iii) Using the centralized or coordinated assessment system as 
required under Sec.  578.23(c)(9).
    (iv) Obtaining federal, State, and local benefits;
    (v) Monitoring and evaluating program participant progress;
    (vi) Providing information and referrals to other providers;
    (vii) Providing ongoing risk assessment and safety planning with 
victims of domestic violence, dating violence, sexual assault, and 
stalking; and
    (viii) Developing an individualized housing and service plan, 
including planning a path to permanent housing stability.
    (4) Child care. The costs of establishing and operating child care, 
and providing child-care vouchers, for children from families 
experiencing homelessness, including providing meals and snacks, and 
comprehensive and coordinated developmental activities, are eligible.
    (i) The children must be under the age of 13, unless they are 
disabled children.
    (ii) Disabled children must be under the age of 18.
    (iii) The child-care center must be licensed by the jurisdiction in 
which it operates in order for its costs to be eligible.
    (5) Education services. The costs of improving knowledge and basic 
educational skills are eligible.
    (i) Services include instruction or training in consumer education, 
health education, substance abuse prevention, literacy, English as a 
Second Language, and General Educational Development (GED).
    (ii) Component services or activities are screening, assessment and 
testing; individual or group instruction; tutoring; provision of books, 
supplies, and instructional material; counseling; and referral to 
community resources.
    (6) Employment assistance and job training. The costs of 
establishing and operating employment assistance and job training 
programs are eligible, including classroom, online and/or computer 
instruction, on-the-job instruction, services that assist individuals 
in securing employment, acquiring learning skills, and/or increasing 
earning potential. The cost of providing reasonable stipends to program 
participants in employment assistance and job training programs is also 
an eligible cost.
    (i) Learning skills include those skills that can be used to secure 
and retain a job, including the acquisition of vocational licenses and/
or certificates.
    (ii) Services that assist individuals in securing employment 
consist of:
    (A) Employment screening, assessment, or testing;
    (B) Structured job skills and job-seeking skills;
    (C) Special training and tutoring, including literacy training and 
pre-vocational training;
    (D) Books and instructional material;
    (E) Counseling or job coaching; and
    (F) Referral to community resources.
    (7) Food. The cost of providing meals or groceries to program 
participants is eligible.
    (8) Housing search and counseling services. Costs of assisting 
eligible program participants to locate, obtain, and retain suitable 
housing are eligible.
    (i) Component services or activities are tenant counseling; 
assisting individuals and families to understand leases; securing 
utilities; and making moving arrangements.
    (ii) Other eligible costs are:
    (A) Mediation with property owners and landlords on behalf of 
eligible program participants;
    (B) Credit counseling, accessing a free personal credit report, and 
resolving personal credit issues; and
    (C) The payment of rental application fees.
    (9) Legal services. Eligible costs are the fees charged by licensed 
attorneys and by person(s) under the supervision of licensed attorneys, 
for advice and representation in matters that interfere with the 
homeless individual or family's ability to obtain and retain housing.
    (i) Eligible subject matters are child support; guardianship; 
paternity; emancipation; legal separation; orders of protection and 
other civil remedies for victims of domestic violence, dating violence, 
sexual assault, and stalking; appeal of veterans and public benefit 
claim denials; landlord tenant disputes; and the resolution of 
outstanding criminal warrants.
    (ii) Component services or activities may include receiving and 
preparing cases for trial, provision of legal advice, representation at 
hearings, and counseling.
    (iii) Fees based on the actual service performed (i.e., fee for 
service) are also eligible, but only if the cost would be less than the 
cost of hourly fees. Filing fees and other necessary court costs are 
also eligible. If the subrecipient is a legal services provider and 
performs the services itself, the eligible costs are the subrecipient's 
employees' salaries and other costs necessary to perform the services.
    (iv) Legal services for immigration and citizenship matters and 
issues related to mortgages and homeownership are ineligible. Retainer 
fee arrangements and contingency fee arrangements are ineligible.
    (10) Life skills training. The costs of teaching critical life 
management skills that may never have been learned or have been lost 
during the course of physical or mental illness, domestic violence, 
substance abuse, and homelessness are eligible. These services must be 
necessary to assist the program participant to function independently 
in the community. Component life skills training are the budgeting of 
resources and money management, household management, conflict 
management, shopping for food and other needed items, nutrition, the 
use of public transportation, and parent training.
    (11) Mental health services. Eligible costs are the direct 
outpatient treatment of mental health conditions that are provided by 
licensed professionals. Component services are crisis interventions; 
counseling; individual, family, or group therapy sessions; the 
prescription of psychotropic medications or explanations about the use 
and management of medications; and combinations of therapeutic 
approaches to address multiple problems.
    (12) Outpatient health services. Eligible costs are the direct 
outpatient treatment of medical conditions when provided by licensed 
medical professionals including:
    (i) Providing an analysis or assessment of an individual's health 
problems and the development of a treatment plan;
    (ii) Assisting individuals to understand their health needs;
    (iii) Providing directly or assisting individuals to obtain and 
utilize appropriate medical treatment;
    (iv) Preventive medical care and health maintenance services, 
including in-home health services and emergency medical services;
    (v) Provision of appropriate medication;
    (vi) Providing follow-up services; and
    (vii) Preventive and noncosmetic dental care.
    (13) Outreach services. The costs of activities to engage persons 
for the purpose of providing immediate support and intervention, as 
well as identifying

[[Page 45455]]

potential program participants, are eligible.
    (i) Eligible costs include the outreach worker's transportation 
costs and a cell phone to be used by the individual performing the 
outreach.
    (ii) Component activities and services consist of: initial 
assessment; crisis counseling; addressing urgent physical needs, such 
as providing meals, blankets, clothes, or toiletries; actively 
connecting and providing people with information and referrals to 
homeless and mainstream programs; and publicizing the availability of 
the housing and/or services provided within the geographic area covered 
by the Continuum of Care.
    (14) Substance abuse treatment services. The costs of program 
participant intake and assessment, outpatient treatment, group and 
individual counseling, and drug testing are eligible. Inpatient 
detoxification and other inpatient drug or alcohol treatment are 
ineligible.
    (15) Transportation. Eligible costs are:
    (i) The costs of program participant's travel on public 
transportation or in a vehicle provided by the recipient or 
subrecipient to and from medical care, employment, child care, or other 
services eligible under this section.
    (ii) Mileage allowance for service workers to visit program 
participants and to carry out housing quality inspections;
    (iii) The cost of purchasing or leasing a vehicle in which staff 
transports program participants and/or staff serving program 
participants;
    (iv) The cost of gas, insurance, taxes, and maintenance for the 
vehicle;
    (v) The costs of recipient or subrecipient staff to accompany or 
assist program participants to utilize public transportation; and
    (vi) If public transportation options are not sufficient within the 
area, the recipient may make a one-time payment on behalf of a program 
participant needing car repairs or maintenance required to operate a 
personal vehicle, subject to the following:
    (A) Payments for car repairs or maintenance on behalf of the 
program participant may not exceed 10 percent of the Blue Book value of 
the vehicle (Blue Book refers to the guidebook that compiles and quotes 
prices for new and used automobiles and other vehicles of all makes, 
models, and types);
    (B) Payments for car repairs or maintenance must be paid by the 
recipient or subrecipient directly to the third party that repairs or 
maintains the car; and
    (C) The recipients or subrecipients may require program 
participants to share in the cost of car repairs or maintenance as a 
condition of receiving assistance with car repairs or maintenance.
    (16) Utility deposits. This form of assistance consists of paying 
for utility deposits. Utility deposits must be a one-time fee, paid to 
utility companies.
    (17) Direct provision of services. If the service described in 
paragraphs (e)(1) through (e)(16) of this section is being directly 
delivered by the recipient or subrecipient, eligible costs for those 
services also include:
    (i) The costs of labor or supplies, and materials incurred by the 
recipient or subrecipient in directly providing supportive services to 
program participants; and
    (ii) The salary and benefit packages of the recipient and 
subrecipient staff who directly deliver the services.


Sec.  578.55  Operating costs.

    (a) Use. Grant funds may be used to pay the costs of the day-to-day 
operation of transitional and permanent housing in a single structure 
or individual housing units.
    (b) Eligible costs. (1) The maintenance and repair of housing;
    (2) Property taxes and insurance;
    (3) Scheduled payments to a reserve for replacement of major 
systems of the housing (provided that the payments must be based on the 
useful life of the system and expected replacement cost);
    (4) Building security for a structure where more than 50 percent of 
the units or area is paid for with grant funds;
    (5) Electricity, gas, and water;
    (6) Furniture; and
    (7) Equipment.
    (c) Ineligible costs. Program funds may not be used for rental 
assistance and operating costs in the same project. Program funds may 
not be used for the operating costs of emergency shelter- and 
supportive service-only facilities. Program funds may not be used for 
the maintenance and repair of housing where the costs of maintaining 
and repairing the housing are included in the lease.


Sec.  578.57  Homeless Management Information System.

    (a) Eligible costs. (1) The recipient or subrecipient may use 
Continuum of Care program funds to pay the costs of contributing data 
to the HMIS designated by the Continuum of Care, including the costs 
of:
    (i) Purchasing or leasing computer hardware;
    (ii) Purchasing software or software licenses;
    (iii) Purchasing or leasing equipment, including telephones, fax 
machines, and furniture;
    (iv) Obtaining technical support;
    (v) Leasing office space;
    (vi) Paying charges for electricity, gas, water, phone service, and 
high-speed data transmission necessary to operate or contribute data to 
the HMIS;
    (vii) Paying salaries for operating HMIS, including:
    (A) Completing data entry;
    (B) Monitoring and reviewing data quality;
    (C) Completing data analysis;
    (D) Reporting to the HMIS Lead;
    (E) Training staff on using the HMIS; and
    (F) Implementing and complying with HMIS requirements;
    (viii) Paying costs of staff to travel to and attend HUD-sponsored 
and HUD-approved training on HMIS and programs authorized by Title IV 
of the McKinney-Vento Homeless Assistance Act;
    (ix) Paying staff travel costs to conduct intake; and
    (x) Paying participation fees charged by the HMIS Lead, as 
authorized by HUD, if the recipient or subrecipient is not the HMIS 
Lead.
    (2) If the recipient or subrecipient is the HMIS Lead, it may also 
use Continuum of Care funds to pay the costs of:
    (i) Hosting and maintaining HMIS software or data;
    (ii) Backing up, recovering, or repairing HMIS software or data;
    (iii) Upgrading, customizing, and enhancing the HMIS;
    (iv) Integrating and warehousing data, including development of a 
data warehouse for use in aggregating data from subrecipients using 
multiple software systems;
    (v) Administering the system;
    (vi) Reporting to providers, the Continuum of Care, and HUD; and
    (vii) Conducting training on using the system, including traveling 
to the training.
    (3) If the recipient or subrecipient is a victim services provider, 
or a legal services provider, it may use Continuum of Care funds to 
establish and operate a comparable database that complies with HUD's 
HMIS requirements.
    (b) General restrictions. Activities funded under this section must 
comply with the HMIS requirements.


Sec.  578.59  Project administrative costs.

    (a) Eligible costs. The recipient or subrecipient may use up to 10 
percent of any grant awarded under this part, excluding the amount for 
Continuum of Care Planning Activities and UFA costs, for the payment of 
project administrative costs related to the planning and execution of 
Continuum

[[Page 45456]]

of Care activities. This does not include staff and overhead costs 
directly related to carrying out activities eligible under Sec.  578.43 
through Sec.  578.57, because those costs are eligible as part of those 
activities. Eligible administrative costs include:
    (1) General management, oversight, and coordination. Costs of 
overall program management, coordination, monitoring, and evaluation. 
These costs include, but are not limited to, necessary expenditures for 
the following:
    (i) Salaries, wages, and related costs of the recipient's staff, 
the staff of subrecipients, or other staff engaged in program 
administration. In charging costs to this category, the recipient may 
include the entire salary, wages, and related costs allocable to the 
program of each person 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 for each fiscal year grant. Program 
administration assignments include the following:
    (A) Preparing program budgets and schedules, and amendments to 
those budgets and schedules;
    (B) Developing systems for assuring compliance with program 
requirements;
    (C) Developing agreements with subrecipients and contractors to 
carry out program activities;
    (D) Monitoring program activities for progress and compliance with 
program requirements;
    (E) Preparing reports and other documents directly related to the 
program for submission to HUD;
    (F) Coordinating the resolution of audit and monitoring findings;
    (G) Evaluating program results against stated objectives; and
    (H) Managing or supervising persons whose primary responsibilities 
with regard to the program include such assignments as those described 
in paragraph (a)(1)(i)(A) through (G) of this section.
    (ii) Travel costs incurred for monitoring of subrecipients;
    (iii) Administrative services performed under third-party contracts 
or agreements, including general legal services, accounting services, 
and audit services; and
    (iv) Other costs for goods and services required for administration 
of the program, including rental or purchase of equipment, insurance, 
utilities, office supplies, and rental and maintenance (but not 
purchase) of office space.
    (2) Training on Continuum of Care requirements. Costs of providing 
training on Continuum of Care requirements and attending HUD-sponsored 
Continuum of Care trainings.
    (3) Environmental review. Costs of carrying out the environmental 
review responsibilities under Sec.  578.31.
    (b) Sharing requirement. (1) UFAs. If the recipient is a UFA that 
carries out a project, it may use up to 10 percent of the grant amount 
awarded for the project on project administrative costs. The UFA must 
share the remaining project administrative funds with its 
subrecipients.
    (2) Recipients that are not UFAs. If the recipient is not a UFA, it 
must share at least 50 percent of project administrative funds with its 
subrecipients.


Sec.  578.61  Relocation costs.

    (a) In general. Relocation costs under the Uniform Relocation 
Assistance and Real Property Acquisition Policies Act of 1970 are 
eligible.
    (b) Eligible relocation costs. Eligible costs are costs to provide 
relocation payments and other assistance to persons displaced by a 
project assisted with grant funds in accordance with Sec.  578.83.


Sec.  578.63  Indirect costs.

    (a) In general. Continuum of Care funds may be used to pay indirect 
costs in accordance with OMB Circulars A-87 or A-122, as applicable.
    (b) Allocation. Indirect costs may be allocated to each eligible 
activity as provided in subpart D, so long as that allocation is 
consistent with an indirect cost rate proposal developed in accordance 
with OMB Circulars A-87 or A-122, as applicable.
    (c) Expenditure limits. The indirect costs charged to an activity 
subject to an expenditure limit under Sec. Sec.  578.39, 578.41, and 
578.59 must be added to the direct costs charged for that activity when 
determining the total costs subject to the expenditure limits.

Subpart E--High-Performing Communities


Sec.  578.65  Standards.

    (a) In general. The collaborative applicant for a Continuum may 
apply to HUD to have the Continuum be designated a high-performing 
community (HPC). The designation shall be for grants awarded in the 
same competition in which the designation is applied for and made.
    (b) Applying for HPC designation. The application must be submitted 
at such time and in such manner as HUD may require, must use HMIS data 
where required to show the standards for qualifying are met, and must 
contain such information as HUD requires, including at a minimum:
    (1) A report showing how the Continuum of Care program funds 
received in the preceding year were expended;
    (2) A specific plan for how grant funds will be expended; and
    (3) Information establishing that the Continuum of Care meets the 
standards for HPCs.
    (c) Standards for qualifying as an HPC. To qualify as an HPC, a 
Continuum must demonstrate through:
    (1) Reliable data generated by the Continuum of Care's HMIS that it 
meets all of the following standards:
    (i) Mean length of homelessness. Either the mean length of episode 
of homelessness within the Continuum's geographic area is fewer than 20 
days, or the mean length of episodes of homelessness for individuals or 
families in similar circumstances was reduced by at least 10 percent 
from the preceding federal fiscal year.
    (ii) Reduced recidivism. Of individuals and families who leave 
homelessness, less than 5 percent become homeless again at any time 
within the next 2 years; or the percentage of individuals and families 
in similar circumstances who become homeless again within 2 years after 
leaving homelessness was decreased by at least 20 percent from the 
preceding federal fiscal year.
    (iii) HMIS coverage. The Continuum's HMIS must have a bed coverage 
rate of 80 percent and a service volume coverage rate of 80 percent as 
calculated in accordance with HUD's HMIS requirements.
    (iv) Serving families and youth. With respect to Continuums that 
served homeless families and youth defined as homeless under other 
federal statutes in paragraph (3) of the definition of homeless in 
Sec.  576.2:
    (A) 95 percent of those families and youth did not become homeless 
again within a 2-year period following termination of assistance; or
    (B) 85 percent of those families achieved independent living in 
permanent housing for at least 2 years following termination of 
assistance.
    (2) Reliable data generated from sources other than the Continuum's 
HMIS that is provided in a narrative or other form prescribed by HUD 
that it meets both of the following standards:
    (i) Community action. All the metropolitan cities and counties 
within the Continuum's geographic area have a

[[Page 45457]]

comprehensive outreach plan, including specific steps for identifying 
homeless persons and referring them to appropriate housing and services 
in that geographic area.
    (ii) Renewing HPC status. If the Continuum was designated an HPC in 
the previous federal fiscal year and used Continuum of Care grant funds 
for activities described under Sec.  578.71, that such activities were 
effective at reducing the number of individuals and families who became 
homeless in that community.


Sec.  578.67  Publication of application.

    HUD will publish the application to be designated an HPC through 
the HUD Web site, for public comment as to whether the Continuum 
seeking designation as an HPC meets the standards for being one.


Sec.  578.69  Cooperation among entities.

    An HPC must cooperate with HUD in distributing information about 
its successful efforts to reduce homelessness.


Sec.  578.71  HPC-eligible activities.

    In addition to using grant funds for the eligible costs described 
in subpart D of this part, recipients and subrecipients in Continuums 
of Care designated as HPCs may also use grant funds to provide housing 
relocation and stabilization services and short- and/or medium-term 
rental assistance to individuals and families at risk of homelessness 
as set forth in 24 CFR 576.103 and 24 CFR 576.104, if necessary to 
prevent the individual or family from becoming homeless. Activities 
must be carried out in accordance with the plan submitted in the 
application. When carrying out housing relocation and stabilization 
services and short- and/or medium-term rental assistance, the written 
standards set forth in Sec.  578.7(a)(9)(v) and recordkeeping 
requirements of 24 CFR 576.500 apply.

Subpart F--Program Requirements


Sec.  578.73  Matching requirements.

    (a) In general. The recipient or subrecipient must match all grant 
funds, except for leasing funds, with no less than 25 percent of funds 
or in-kind contributions from other sources. For Continuum of Care 
geographic areas in which there is more than one grant agreement, the 
25 percent match must be provided on a grant-by-grant basis. Recipients 
that are UFAs or are the sole recipient for their Continuum, may 
provide match on a Continuum-wide basis. Cash match must be used for 
the costs of activities that are eligible under subpart D of this part, 
except that HPCs may use such match for the costs of activities that 
are eligible under Sec.  578.71.
    (b) Cash sources. A recipient or subrecipient may use funds from 
any source, including any other federal sources (excluding Continuum of 
Care program funds), as well as State, local, and private sources, 
provided that funds from the source are not statutorily prohibited to 
be used as a match. The recipient must ensure that any funds used to 
satisfy the matching requirements of this section are eligible under 
the laws governing the funds in order to be used as matching funds for 
a grant awarded under this program.
    (c) In-kind contributions. (1) The recipient or subrecipient may 
use the value of any real property, equipment, goods, or services 
contributed to the project as match, provided that if the recipient or 
subrecipient had to pay for them with grant funds, the costs would have 
been eligible under Subpart D, or, in the case of HPCs, eligible under 
Sec.  578.71.
    (2) The requirements of 24 CFR 84.23 and 85.24 apply.
    (3) Before grant execution, services to be provided by a third 
party must be documented by a memorandum of understanding (MOU) between 
the recipient or subrecipient and the third party that will provide the 
services. Services provided by individuals must be valued at rates 
consistent with those ordinarily paid for similar work in the 
recipient's or subrecipient's organization. If the recipient or 
subrecipient does not have employees performing similar work, the rates 
must be consistent with those ordinarily paid by other employers for 
similar work in the same labor market.
    (i) The MOU must establish the unconditional commitment, except for 
selection to receive a grant, by the third party to provide the 
services, the specific service to be provided, the profession of the 
persons providing the service, and the hourly cost of the service to be 
provided.
    (ii) During the term of the grant, the recipient or subrecipient 
must keep and make available, for inspection, records documenting the 
service hours provided.


Sec.  578.75  General operations.

    (a) State and local requirements. (1) Housing and facilities 
constructed or rehabilitated with assistance under this part must meet 
State or local building codes, and in the absence of State or local 
building codes, the International Residential Code or International 
Building Code (as applicable to the type of structure) of the 
International Code Council.
    (2) Services provided with assistance under this part must be 
provided in compliance with all applicable State and local 
requirements, including licensing requirements.
    (b) Housing quality standards. Housing leased with Continuum of 
Care program funds, or for which rental assistance payments are made 
with Continuum of Care program funds, must meet the applicable housing 
quality standards (HQS) under 24 CFR 982.401 of this title, except that 
24 CFR 982.401(j) applies only to housing occupied by program 
participants receiving tenant-based rental assistance. For housing 
rehabilitated with funds under this part, the lead-based paint 
requirements in 24 CFR part 35, subparts A, B, J, and R apply. For 
housing that receives project-based or sponsor-based rental assistance, 
24 CFR part 35, subparts A, B, H, and R apply. For residential property 
for which funds under this part are used for acquisition, leasing, 
services, or operating costs, 24 CFR part 35, subparts A, B, K, and R 
apply.
    (1) Before any assistance will be provided on behalf of a program 
participant, the recipient, or subrecipient, must physically inspect 
each unit to assure that the unit meets HQS. Assistance will not be 
provided for units that fail to meet HQS, unless the owner corrects any 
deficiencies within 30 days from the date of the initial inspection and 
the recipient or subrecipient verifies that all deficiencies have been 
corrected.
    (2) Recipients or subrecipients must inspect all units at least 
annually during the grant period to ensure that the units continue to 
meet HQS.
    (c) Suitable dwelling size. The dwelling unit must have at least 
one bedroom or living/sleeping room for each two persons.
    (1) Children of opposite sex, other than very young children, may 
not be required to occupy the same bedroom or living/sleeping room.
    (2) If household composition changes during the term of assistance, 
recipients and subrecipients may relocate the household to a more 
appropriately sized unit. The household must still have access to 
appropriate supportive services.
    (d) Meals. Each recipient and subrecipient of assistance under this 
part who provides supportive housing for homeless persons with 
disabilities must provide meals or meal preparation facilities for 
residents.
    (e) Ongoing assessment of supportive services. To the extent 
practicable, each

[[Page 45458]]

project must provide supportive services for residents of the project 
and homeless persons using the project, which may be designed by the 
recipient or participants. Each recipient and subrecipient of 
assistance under this part must conduct an ongoing assessment of the 
supportive services needed by the residents of the project, the 
availability of such services, and the coordination of services needed 
to ensure long-term housing stability and must make adjustments, as 
appropriate.
    (f) Residential supervision. Each recipient and subrecipient of 
assistance under this part must provide residential supervision as 
necessary to facilitate the adequate provision of supportive services 
to the residents of the housing throughout the term of the commitment 
to operate supportive housing. Residential supervision may include the 
employment of a full- or part-time residential supervisor with 
sufficient knowledge to provide or to supervise the provision of 
supportive services to the residents.
    (g) Participation of homeless individuals. (1) Each recipient and 
subrecipient must provide for the participation of not less than one 
homeless individual or formerly homeless individual on the board of 
directors or other equivalent policymaking entity of the recipient or 
subrecipient, to the extent that such entity considers and makes 
policies and decisions regarding any project, supportive services, or 
assistance provided under this part. This requirement is waived if a 
recipient or subrecipient is unable to meet such requirement and 
obtains HUD approval for a plan to otherwise consult with homeless or 
formerly homeless persons when considering and making policies and 
decisions.
    (2) Each recipient and subrecipient of assistance under this part 
must, to the maximum extent practicable, involve homeless individuals 
and families through employment; volunteer services; or otherwise in 
constructing, rehabilitating, maintaining, and operating the project, 
and in providing supportive services for the project.
    (h) Supportive service agreement. Recipients and subrecipients may 
require the program participants to take part in supportive services 
that are not disability-related services provided through the project 
as a condition of continued participation in the program. Examples of 
disability-related services include, but are not limited to, mental 
health services, outpatient health services, and provision of 
medication, which are provided to a person with a disability to address 
a condition caused by the disability. Notwithstanding this provision, 
if the purpose of the project is to provide substance abuse treatment 
services, recipients and subrecipients may require program participants 
to take part in such services as a condition of continued participation 
in the program.
    (i) Retention of assistance after death, incarceration, or 
institutionalization for more than 90 days of qualifying member. For 
permanent supportive housing projects surviving, members of any 
household who were living in a unit assisted under this part at the 
time of the qualifying member's death, long-term incarceration, or 
long-term institutionalization, have the right to rental assistance 
under this section until the expiration of the lease in effect at the 
time of the qualifying member's death, long-term incarceration, or 
long-term institutionalization.


Sec.  578.77  Calculating occupancy charges and rent.

    (a) Occupancy agreements and leases. Recipients and subrecipients 
must have signed occupancy agreements or leases (or subleases) with 
program participants residing in housing.
    (b) Calculation of occupancy charges. Recipients and subrecipients 
are not required to impose occupancy charges on program participants as 
a condition of residing in the housing. However, if occupancy charges 
are imposed, they may not exceed the highest of:
    (1) 30 percent of the family's monthly adjusted income (adjustment 
factors include the number of people in the family, age of family 
members, medical expenses, and child-care expenses);
    (2) 10 percent of the family's monthly 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 family's actual housing costs) is specifically designated by the 
agency to meet the family's housing costs, the portion of the payments 
that is designated for housing costs.
    (4) Income. Income must be calculated in accordance with 24 CFR 
5.609 and 24 CFR 5.611(a). Recipients and subrecipients must examine a 
program participant's income initially, and if there is a change in 
family composition (e.g., birth of a child) or a decrease in the 
resident's income during the year, the resident may request an interim 
reexamination, and the occupancy charge will be adjusted accordingly.
    (c) Resident rent. (1) Amount of rent. (i) Each program participant 
on whose behalf rental assistance payments are made must pay a 
contribution toward rent in accordance with section 3(a)(1) of the U.S. 
Housing Act of 1937 (42 U.S.C. 1437a(a)(1)).
    (ii) Income of program participants must be calculated in 
accordance with 24 CFR 5.609 and 24 CFR 5.611(a).
    (2) Review. Recipients or subrecipients must examine a program 
participant's income initially, and at least annually thereafter, to 
determine the amount of the contribution toward rent payable by the 
program participant. Adjustments to a program participant's 
contribution toward the rental payment must be made as changes in 
income are identified.
    (3) Verification. As a condition of participation in the program, 
each program participant must agree to supply the information or 
documentation necessary to verify the program participant's income. 
Program participants must provide the recipient or subrecipient with 
information at any time regarding changes in income or other 
circumstances that may result in changes to a program participant's 
contribution toward the rental payment.


Sec.  578.79  Limitation on transitional housing.

    A homeless individual or family may remain in transitional housing 
for a period longer than 24 months, if permanent housing for the 
individual or family has not been located or if the individual or 
family requires additional time to prepare for independent living. 
However, HUD may discontinue assistance for a transitional housing 
project if more than half of the homeless individuals or families 
remain in that project longer than 24 months.


Sec.  578.81  Term of commitment, repayment of grants, and prevention 
of undue benefits.

    (a) In general. All recipients and subrecipients receiving grant 
funds for acquisition, rehabilitation, or new construction must operate 
the housing or provide supportive services in accordance with this 
part, for at least 15 years from the date of initial occupancy or date 
of initial service provision. Recipient and subrecipients must execute 
and record a HUD-approved Declaration of Restrictive Covenants before 
receiving payment of grant funds.
    (b) Conversion. Recipients and subrecipients carrying out a project 
that provides transitional or permanent housing or supportive services 
in a structure may submit a request to HUD to convert a project for the 
direct benefit of very low-income persons. The request must be made 
while the project is operating as homeless housing or supportive 
services for homeless

[[Page 45459]]

individuals and families, must be in writing, and must include an 
explanation of why the project is no longer needed to provide 
transitional or permanent housing or supportive services. The primary 
factor in HUD's decision on the proposed conversion is the unmet need 
for transitional or permanent housing or supportive services in the 
Continuum of Care's geographic area.
    (c) Repayment of grant funds. If a project is not operated as 
transitional or permanent housing for 10 years following the date of 
initial occupancy, HUD will require repayment of the entire amount of 
the grant used for acquisition, rehabilitation, or new construction, 
unless conversion of the project has been authorized under paragraph 
(b) of this section. If the housing is used for such purposes for more 
than 10 years, the payment amount will be reduced by 20 percentage 
points for each year, beyond the 10-year period in which the project is 
used for transitional or permanent housing.
    (d) Prevention of undue benefits. Except as provided under 
paragraph (e) of this section, upon any sale or other disposition of a 
project site that received grant funds for acquisition, rehabilitation, 
or new construction, occurring before the 15-year period, the recipient 
must comply with such terms and conditions as HUD may prescribe to 
prevent the recipient or subrecipient from unduly benefiting from such 
sale or disposition.
    (e) Exception. A recipient or subrecipient will not be required to 
comply with the terms and conditions prescribed under paragraphs (c) 
and (d) of this section if:
    (1) The sale or disposition of the property used for the project 
results in the use of the property for the direct benefit of very low-
income persons;
    (2) All the proceeds are used to provide transitional or permanent 
housing that meet the requirements of this part;
    (3) Project-based rental assistance or operating cost assistance 
from any federal program or an equivalent State or local program is no 
longer made available and the project is meeting applicable performance 
standards, provided that the portion of the project that had benefitted 
from such assistance continues to meet the tenant income and rent 
restrictions for low-income units under section 42(g) of the Internal 
Revenue Code of 1986; or
    (4) There are no individuals and families in the Continuum of Care 
geographic area who are homeless, in which case the project may serve 
individuals and families at risk of homelessness.


Sec.  578.83  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, recipients and subrecipients must ensure that 
they have taken all reasonable steps to minimize the displacement of 
persons (families, individuals, businesses, nonprofit organizations, 
and farms) as a result of projects assisted under this part. 
``Project,'' as used in this section, means any activity or series of 
activities assisted with Continuum of Care funds received or 
anticipated in any phase of an undertaking.
    (b) Temporary relocation. (1) Existing Building Not Assisted under 
Title IV of the McKinney-Vento Act. No tenant may be required to 
relocate temporarily for a project if the building in which the project 
is being undertaken or will be undertaken is not currently assisted 
under Title IV of the McKinney-Vento Act. The absence of such 
assistance to the building means the tenants are not homeless and the 
tenants are therefore not eligible to receive assistance under the 
Continuum of Care program. When a tenant moves for such a project under 
conditions that cause the Uniform Relocation Assistance and Real 
Property Acquisition Policies Act of 1970 (URA), 42 U.S.C. 4601-4655, 
to apply, the tenant must be treated as permanently displaced and 
offered relocation assistance and payments consistent with paragraph 
(c) of this section.
    (2) Existing Transitional Housing or Permanent Housing Projects 
Assisted Under Title IV of the McKinney-Vento Act. Consistent with 
paragraph (c)(2)(ii) of this section, no program participant may be 
required to relocate temporarily for a project if the person cannot be 
offered a decent, safe, and sanitary unit in the same building or 
complex upon project completion under reasonable terms and conditions. 
The length of occupancy requirements in Sec.  578.79 may prevent a 
program participant from returning to the property upon completion (See 
paragraph (c)(2)(iii)(D) of this section). Any program participant who 
has been temporarily relocated for a period beyond one year must be 
treated as permanently displaced and offered relocation assistance and 
payments consistent with paragraph (c) of this section. Program 
participants temporarily relocated in accordance with the policies 
described in this paragraph must be provided:
    (i) Reimbursement 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 monthly rent/occupancy charges and utility costs; and
    (ii) Appropriate advisory services, including reasonable advance 
written notice of:
    (A) The date and approximate duration of the temporary relocation;
    (B) The location of the suitable, decent, safe, and sanitary 
dwelling to be made available for the temporary period;
    (C) The reasonable terms and conditions under which the program 
participant will be able to occupy a suitable, decent, safe, and 
sanitary dwelling in the building or complex upon completion of the 
project; and
    (D) The provisions of paragraph (b)(2)(i) of this section.
    (c) Relocation assistance for displaced persons. (1) In general. A 
displaced person (defined in paragraph (c)(2) of this section) must be 
provided relocation assistance in accordance with the requirements of 
the URA and implementing regulations at 49 CFR part 24. A displaced 
person must be advised of his or her rights under the Fair Housing Act. 
Whenever possible, minority persons must be given reasonable 
opportunities to relocate to decent, safe, and sanitary replacement 
dwellings, not located in an area of minority concentration, that are 
within their financial means. This policy, however, does not require 
providing a person a larger payment than is necessary to enable a 
person to relocate to a comparable replacement dwelling. See 49 CFR 
24.205(c)(2)(ii)(D).
    (2) Displaced person. (i) For the purposes of paragraph (c) 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, as a direct result of acquisition, rehabilitation, or 
demolition for a project. This includes any permanent, involuntary move 
for a project, including any permanent move from the real property that 
is made:
    (A) After the owner (or person in control of the site) issues a 
notice to move permanently from the property, or refuses to renew an 
expiring lease, if the move occurs after the date of the submission by 
the recipient or subrecipient of an application for assistance to HUD 
(or the recipient, as applicable) that is later approved and funded and 
the recipient or subrecipient has site control as evidenced in 
accordance with Sec.  578.25(b); or

[[Page 45460]]

    (B) After the owner (or person in control of the site) issues a 
notice to move permanently from the property, or refuses to renew an 
expiring lease, if the move occurs after the date the recipient or 
subrecipient obtains site control, as evidenced in accordance with 
Sec.  578.25(b), if that occurs after the application for assistance; 
or
    (C) Before the date described under paragraph (c)(2)(i)(A) or (B) 
of this section, if the recipient or HUD determines that the 
displacement resulted directly from acquisition, rehabilitation, or 
demolition for the project; or
    (D) By a tenant of a building that is not assisted under Title IV 
of the McKinney-Vento Act, if the tenant moves after execution of the 
agreement covering the acquisition, rehabilitation, or demolition of 
the property for the project; or
    (ii) For the purposes of paragraph (c) 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, as a direct 
result of acquisition, rehabilitation, or demolition for a project. 
This includes any permanent, involuntary move for a project that is 
made by a program participant occupying transitional housing or 
permanent housing assisted under Title IV of the McKinney-Vento Act, if 
any one of the following three situations occurs:
    (A) The program participant moves after execution of the agreement 
covering the acquisition, rehabilitation, or demolition of the property 
for the project and is either not eligible to return upon project 
completion or the move occurs before the program participant is 
provided written notice offering the program participant an opportunity 
to occupy a suitable, decent, safe, and sanitary dwelling in the same 
building or complex upon project completion under reasonable terms and 
conditions. Such reasonable terms and conditions must include a lease 
(or occupancy agreement, as applicable) consistent with Continuum of 
Care program requirements, including a monthly rent or occupancy charge 
and monthly utility costs that does not exceed the maximum amounts 
established in Sec.  578.77; or
    (B) The program participant is required to relocate temporarily, 
does not return to the building or complex, and any one of the 
following situations occurs:
    (1) The program participant is not offered payment for all 
reasonable out-of-pocket expenses incurred in connection with the 
temporary relocation;
    (2) The program participant is not eligible to return to the 
building or complex upon project completion; or
    (3) Other conditions of the temporary relocation are not 
reasonable; or
    (C) The program participant is required to move to another unit in 
the same building or complex, and any one of the following situations 
occurs:
    (1) The program participant is not offered reimbursement for all 
reasonable out-of-pocket expenses incurred in connection with the move;
    (2) The program participant is not eligible to remain in the 
building or complex upon project completion; or
    (3) Other conditions of the move are not reasonable.
    (iii) Notwithstanding the provisions of paragraph (c)(2)(i) or (ii) 
of this section, a person does not qualify as a ``displaced person'' 
if:
    (A) The person has been evicted for serious or repeated violation 
of the terms and conditions of the lease or occupancy agreement; the 
eviction complied with applicable federal, State, or local requirements 
(see Sec.  578.91); and the recipient or subrecipient 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 but, before signing a lease or occupancy agreement and 
commencing occupancy, was provided written notice of the project's 
possible impact on the person (e.g., the person may be displaced, 
temporarily relocated, or incur a rent increase) and the fact that the 
person would not qualify as a ``displaced person'' (or for any 
relocation assistance provided under this section), as a result of the 
project;
    (C) The person is ineligible under 49 CFR 24.2(a)(9)(ii));
    (D) The person is a program participant occupying transitional 
housing or permanent housing assisted under Title IV of the Act who 
must move as a direct result of the length-of- occupancy restriction 
under Sec.  578.79; or
    (E) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (iv) The recipient may request, at any time, HUD's determination of 
whether a displacement is or would be covered under this section.
    (3) Initiation of negotiations. For purposes of determining the 
formula for computing replacement housing payment assistance to be 
provided to a displaced person pursuant to this section, if the 
displacement is a direct result of privately undertaken rehabilitation, 
demolition, or acquisition of the real property, ``initiation of 
negotiations'' means the execution of the agreement between the 
recipient and the subrecipient, or between the recipient (or 
subrecipient, as applicable) and the person owning or controlling the 
property. In the case of an option contract to acquire property, the 
initiation of negotiations does not become effective until execution of 
a written agreement that creates a legally enforceable commitment to 
proceed with the purchase, such as a purchase agreement.
    (d) Real property acquisition requirements. Except for acquisitions 
described in 49 CFR 24.101(b)(1) through (5), the URA and the 
requirements of 49 CFR part 24, subpart B apply to any acquisition of 
real property for a project where there are Continuum of Care funds in 
any part of the project costs.
    (e) Appeals. A person who disagrees with the recipient's (or 
subrecipient's, if applicable) 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 (see 49 CFR 24.10). 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 local HUD field office.


Sec.  578.85  Timeliness standards.

    (a) In general. Recipients must initiate approved activities and 
projects promptly.
    (b) Construction activities. Recipients of funds for rehabilitation 
or new construction must meet the following standards:
    (1) Construction activities must begin within 9 months of the later 
of signing of the grant agreement or of signing an addendum to the 
grant agreement authorizing use of grant funds for the project.
    (2) Construction activities must be completed within 24 months of 
signing the grant agreement.
    (3) Activities that cannot begin until after construction 
activities are completed must begin within 3 months of the date that 
construction activities are completed.
    (c) Distribution. A recipient that receives funds through this part 
must:
    (1) Distribute the funds to subrecipients (in advance of 
expenditures by the subrecipients);

[[Page 45461]]

    (2) Distribute the appropriate portion of the funds to a 
subrecipient no later than 45 days after receiving an approvable 
request for such distribution from the subrecipient; and
    (3) Draw down funds at least once per quarter of the program year, 
after eligible activities commence.


Sec.  578.87  Limitation on use of funds.

    (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) Faith-based activities. (1) Equal treatment of program 
participants and program beneficiaries. (i) Program participants. 
Organizations that are religious or faith-based are eligible, on the 
same basis as any other organization, to participate in the Continuum 
of Care program. Neither the Federal Government nor a State or local 
government receiving funds under the Continuum of Care program shall 
discriminate against an organization on the basis of the organization's 
religious character or affiliation. Recipients and subrecipients of 
program funds shall not, in providing program assistance, discriminate 
against a program participant or prospective program participant on the 
basis of religion or religious belief.
    (ii) Beneficiaries. In providing services supported in whole or in 
part with federal financial assistance, and in their outreach 
activities related to such services, program participants shall not 
discriminate against current or prospective program beneficiaries on 
the basis of religion, a religious belief, a refusal to hold a 
religious belief, or a refusal to attend or participate in a religious 
practice.
    (2) Separation of explicitly religious activities. Recipients and 
subrecipients of Continuum of Care funds that engage in explicitly 
religious activities, including activities that involve overt religious 
content such as worship, religious instruction, or proselytization, 
must perform such activities and offer such services outside of 
programs that are supported with federal financial assistance 
separately, in time or location, from the programs or services funded 
under this part, and participation in any such explicitly religious 
activities must be voluntary for the program beneficiaries of the HUD-
funded programs or services.
    (3) Religious identity. A faith-based organization that is a 
recipient or subrecipient of Continuum of Care program funds is 
eligible to use such funds as provided under the regulations of this 
part without impairing its independence, autonomy, expression of 
religious beliefs, or religious character. Such organization will 
retain its independence from federal, State, and local government, and 
may continue to carry out its mission, including the definition, 
development, practice, and expression of its religious beliefs, 
provided that it does not use direct program funds to support or engage 
in any explicitly religious activities, including activities that 
involve overt religious content, such as worship, religious 
instruction, or proselytization, or any manner prohibited by law. Among 
other things, faith-based organizations may use space in their 
facilities to provide program-funded services, without removing or 
altering religious art, icons, scriptures, or other religious symbols. 
In addition, a Continuum of Care program-funded religious organization 
retains its authority over its internal governance, and it may retain 
religious terms in its organization's name, select its board members on 
a religious basis, and include religious references in its 
organization's mission statements and other governing documents.
    (4) Alternative provider. If a program participant or prospective 
program participant of the Continuum of Care program supported by HUD 
objects to the religious character of an organization that provides 
services under the program, that organization shall, within a 
reasonably prompt time after the objection, undertake reasonable 
efforts to identify and refer the program participant to an alternative 
provider to which the prospective program participant has no objection. 
Except for services provided by telephone, the Internet, or similar 
means, the referral must be to an alternate provider in reasonable 
geographic proximity to the organization making the referral. In making 
the referral, the organization shall comply with applicable privacy 
laws and regulations. Recipients and subrecipients shall document any 
objections from program participants and prospective program 
participants and any efforts to refer such participants to alternative 
providers in accordance with the requirements of Sec.  578.103(a)(13). 
Recipients shall ensure that all subrecipient agreements make 
organizations receiving program funds aware of these requirements.
    (5) Structures. Program funds may not be used for the acquisition, 
construction, or rehabilitation of structures to the extent that those 
structures are used for explicitly religious activities. Program funds 
may be used for the acquisition, construction, or rehabilitation of 
structures only to the extent that those structures are used for 
conducting eligible activities under this part. When a structure is 
used for both eligible and explicitly religious activities, program 
funds may not exceed the cost of those portions of the acquisition, new 
construction, or rehabilitation that are attributable to eligible 
activities in accordance with the cost accounting requirements 
applicable to the Continuum of Care program. Sanctuaries, chapels, or 
other rooms that a Continuum of Care program-funded religious 
congregation uses as its principal place of worship, however, are 
ineligible for Continuum of Care program-funded improvements. 
Disposition of real property after the term of the grant, or any change 
in the use of the property during the term of the grant, is subject to 
governmentwide regulations governing real property disposition (see 24 
CFR parts 84 and 85).
    (6) Supplemental funds. If a State or local government voluntarily 
contributes its own funds to supplement federally funded activities, 
the State or local government has the option to segregate the federal 
funds or commingle them. However, if the funds are commingled, this 
section applies to all of the commingled funds.
    (c) Restriction on combining funds. In a single structure or 
housing unit, the following types of assistance may not be combined:
    (1) Leasing and acquisition, rehabilitation, or new construction;
    (2) Tenant-based rental assistance and acquisition, rehabilitation, 
or new construction;
    (3) Short- or medium-term rental assistance and acquisition, 
rehabilitation, or new construction;
    (4) Rental assistance and leasing; or
    (5) Rental assistance and operating.
    (d) Program fees. Recipients and subrecipients may not charge 
program participants program fees.


Sec.  578.89  Limitation on use of grant funds to serve persons defined 
as homeless under other federal laws.

    (a) Application requirement. Applicants that intend to serve 
unaccompanied youth and families with children and youth defined as 
homeless under other federal laws in paragraph (3) of the homeless 
definition in Sec.  576.2 must demonstrate in their application, to 
HUD's satisfaction, that the use of grant funds to serve such persons 
is an equal or greater priority than serving persons defined as 
homeless under paragraphs (1), (2), and (4) of the

[[Page 45462]]

definition of homeless in Sec.  576.2. To demonstrate that it is of 
equal or greater priority, applicants must show that it is equally or 
more cost effective in meeting the overall goals and objectives of the 
plan submitted under section 427(b)(1)(B) of the Act, especially with 
respect to children and unaccompanied youth.
    (b) Limit. No more than 10 percent of the funds awarded to 
recipients within a single Continuum of Care's geographic area may be 
used to serve such persons.
    (c) Exception. The 10 percent limitation does not apply to 
Continuums in which the rate of homelessness, as calculated in the most 
recent point-in-time count, is less than one-tenth of one percent of 
the total population.


Sec.  578.91  Termination of assistance to program participants.

    (a) Termination of assistance. The recipient or subrecipient may 
terminate assistance to a program participant who violates program 
requirements or conditions of occupancy. Termination under this section 
does not bar the recipient or subrecipient from providing further 
assistance at a later date to the same individual or family.
    (b) Due process. In terminating assistance to a program 
participant, the recipient or subrecipient must provide a formal 
process that recognizes the rights of individuals receiving assistance 
under the due process of law. This process, at a minimum, must consist 
of:
    (1) Providing the program participant with a written copy of the 
program rules and the termination process before the participant begins 
to receive assistance;
    (2) Written notice to the program participant containing a clear 
statement of the reasons for termination;
    (3) A review of the decision, in which the program 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
    (4) Prompt written notice of the final decision to the program 
participant.
    (c) Hard-to-house populations. Recipients and subrecipients that 
are providing permanent supportive housing for hard-to-house 
populations of homeless persons must exercise judgment and examine all 
extenuating circumstances in determining when violations are serious 
enough to warrant termination so that a program participant's 
assistance is terminated only in the most severe cases.


Sec.  578.93  Fair Housing and Equal Opportunity.

    (a) Nondiscrimination and equal opportunity requirements. The 
nondiscrimination and equal opportunity requirements set forth in 24 
CFR 5.105(a) are applicable.
    (b) Housing for specific subpopulations. Recipients and 
subrecipients may exclusively serve a particular homeless subpopulation 
in transitional or permanent housing if the housing addresses a need 
identified by the Continuum of Care for the geographic area and meets 
one of the following:
    (1) The housing may be limited to one sex where such housing 
consists of a single structure with shared bedrooms or bathing 
facilities such that the considerations of personal privacy and the 
physical limitations of the configuration of the housing make it 
appropriate for the housing to be limited to one sex;
    (2) The housing may be limited to a specific subpopulation, so long 
as admission does not discriminate against any protected class under 
federal nondiscrimination laws in 24 CFR 5.105 (e.g., the housing may 
be limited to homeless veterans, victims of domestic violence and their 
children, or chronically homeless persons and families).
    (3) The housing may be limited to families with children.
    (4) If the housing has in residence at least one family with a 
child under the age of 18, the housing may exclude registered sex 
offenders and persons with a criminal record that includes a violent 
crime from the project so long as the child resides in the housing.
    (5) Sober housing may exclude persons who refuse to sign an 
occupancy agreement or lease that prohibits program participants from 
possessing, using, or being under the influence of illegal substances 
and/or alcohol on the premises.
    (6) If the housing is assisted with funds under a federal program 
that is limited by federal statute or Executive Order to a specific 
subpopulation, the housing may be limited to that subpopulation (e.g., 
housing also assisted with funding from the Housing Opportunities for 
Persons with AIDS program under 24 CFR part 574 may be limited to 
persons with acquired immunodeficiency syndrome or related diseases).
    (7) Recipients may limit admission to or provide a preference for 
the housing to subpopulations of homeless persons and families who need 
the specialized supportive services that are provided in the housing 
(e.g., substance abuse addiction treatment, domestic violence services, 
or a high intensity package designed to meet the needs of hard-to-reach 
homeless persons). While the housing may offer services for a 
particular type of disability, no otherwise eligible individuals with 
disabilities or families including an individual with a disability, who 
may benefit from the services provided may be excluded on the grounds 
that they do not have a particular disability.
    (c) Affirmatively furthering fair housing. A recipient must 
implement its programs in a manner that affirmatively furthers fair 
housing, which means that the recipient must:
    (1) Affirmatively market their housing and supportive services to 
eligible persons regardless of race, color, national origin, religion, 
sex, age, familial status, or handicap who are least likely to apply in 
the absence of special outreach, and maintain records of those 
marketing activities;
    (2) Where a recipient encounters a condition or action that impedes 
fair housing choice for current or prospective program participants, 
provide such information to the jurisdiction that provided the 
certification of consistency with the Consolidated Plan; and
    (3) Provide program participants with information on rights and 
remedies available under applicable federal, State and local fair 
housing and civil rights laws.
    (d) Accessibility and integrative housing and services for persons 
with disabilities. Recipients and subrecipients must comply with the 
accessibility requirements of the Fair Housing Act (24 CFR part 100), 
Section 504 of the Rehabilitation Act of 1973 (24 CFR part 8), and 
Titles II and III of the Americans with Disabilities Act, as applicable 
(28 CFR parts 35 and 36). In accordance with the requirements of 24 CFR 
8.4(d), recipients must ensure that their program's housing and 
supportive services are provided in the most integrated setting 
appropriate to the needs of persons with disabilities.
    (e) Prohibition against involuntary family separation. The age and 
gender of a child under age 18 must not be used as a basis for denying 
any family's admission to a project that receives funds under this 
part.


Sec.  578.95  Conflicts of interest.

    (a) Procurement. For the procurement of property (goods, supplies, 
or equipment) and services, the recipient and its subrecipients must 
comply with the codes of conduct and conflict-of-interest requirements 
under 24 CFR 85.36 (for governments) and 24 CFR

[[Page 45463]]

84.42 (for private nonprofit organizations).
    (b) Continuum of Care board members. No Continuum of Care board 
member may participate in or influence discussions or resulting 
decisions concerning the award of a grant or other financial benefits 
to the organization that the member represents.
    (c) Organizational conflict. An organizational conflict of interest 
arises when, because of activities or relationships with other persons 
or organizations, the recipient or subrecipient is unable or 
potentially unable to render impartial assistance in the provision of 
any type or amount of assistance under this part, or when a covered 
person's, as in paragraph (d)(1) of this section, objectivity in 
performing work with respect to any activity assisted under this part 
is or might be otherwise impaired. Such an organizational conflict 
would arise when a board member of an applicant participates in 
decision of the applicant concerning the award of a grant, or provision 
of other financial benefits, to the organization that such member 
represents. It would also arise when an employee of a recipient or 
subrecipient participates in making rent reasonableness determinations 
under Sec.  578.49(b)(2) and Sec.  578.51(g) and housing quality 
inspections of property under Sec.  578.75(b) that the recipient, 
subrecipient, or related entity owns.
    (d) Other conflicts. For all other transactions and activities, the 
following restrictions apply:
    (1) No covered person, meaning a person who is an employee, agent, 
consultant, officer, or elected or appointed official of the recipient 
or its subrecipients and who exercises or has exercised any functions 
or responsibilities with respect to activities assisted under this 
part, or who is in a position to participate in a decision-making 
process or gain inside information with regard to activities assisted 
under this part, may obtain a financial interest or benefit from an 
assisted activity, have a financial interest in any contract, 
subcontract, or agreement with respect to an assisted activity, or have 
a financial interest in the proceeds derived from an assisted activity, 
either for him or herself or for those with whom he or she has 
immediate family or business ties, during his or her tenure or during 
the one-year period following his or her tenure.
    (2) Exceptions. Upon the written request of the recipient, HUD may 
grant an exception to the provisions of this section on a case-by-case 
basis, taking into account the cumulative effects of the criteria in 
paragraph (d)(2)(ii) of this section, provided that the recipient has 
satisfactorily met the threshold requirements of paragraph (d)(2)(ii) 
of this section.
    (i) Threshold requirements. HUD will consider an exception only 
after the recipient has provided the following documentation:
    (A) Disclosure of the nature of the conflict, accompanied by a 
written assurance, if the recipient is a government, that there has 
been public disclosure of the conflict and a description of how the 
public disclosure was made; and if the recipient is a private nonprofit 
organization, that the conflict has been disclosed in accordance with 
their written code of conduct or other conflict-of-interest policy; and
    (B) An opinion of the recipient's attorney that the interest for 
which the exception is sought would not violate State or local law, or 
if the subrecipient is a private nonprofit organization, the exception 
would not violate the organization's internal policies.
    (ii) Factors to be considered for exceptions. In determining 
whether to grant a requested exception after the recipient has 
satisfactorily met the threshold requirements under paragraph (c)(3)(i) 
of this section, HUD must conclude that the exception will serve to 
further the purposes of the Continuum of Care program and the effective 
and efficient administration of the recipient's or subrecipient's 
project, taking into account the cumulative effect of the following 
factors, as applicable:
    (A) 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;
    (B) Whether an opportunity was provided for open competitive 
bidding or negotiation;
    (C) Whether the affected person has withdrawn from his or her 
functions, responsibilities, or the decision-making process with 
respect to the specific activity in question;
    (D) Whether the interest or benefit was present before the affected 
person was in the position described in paragraph (c)(1) of this 
section;
    (E) Whether undue hardship will result to the recipient, the 
subrecipient, or the person affected, when weighed against the public 
interest served by avoiding the prohibited conflict;
    (F) Whether the person affected is a member of a group or class of 
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; and
    (G) Any other relevant considerations.


Sec.  578.97  Program income.

    (a) Defined. Program income is the income received by the recipient 
or subrecipient directly generated by a grant-supported activity.
    (b) Use. Program income earned during the grant term shall be 
retained by the recipient, and added to funds committed to the project 
by HUD and the recipient, used for eligible activities in accordance 
with the requirements of this part. Costs incident to the generation of 
program income may be deducted from gross income to calculate program 
income, provided that the costs have not been charged to grant funds.
    (c) Rent and occupancy charges. Rents and occupancy charges 
collected from program participants are program income. In addition, 
rents and occupancy charges collected from residents of transitional 
housing may be reserved, in whole or in part, to assist the residents 
from whom they are collected to move to permanent housing.


Sec.  578.99  Applicability of other federal requirements.

    In addition to the requirements set forth in 24 CFR part 5, use of 
assistance provided under this part must comply with the following 
federal requirements:
    (a) Environmental review. Activities under this part are subject to 
environmental review by HUD under 24 CFR part 50 as noted in Sec.  
578.31.
    (b) Section 6002 of the Solid Waste Disposal Act. State agencies 
and agencies of a political subdivision of a state that are using 
assistance under this part for procurement, and any person contracting 
with such an agency with respect to work performed under an assisted 
contract, must comply with the requirements of Section 6003 of the 
Solid Waste Disposal Act, as amended by the Resource Conservation and 
Recovery Act. In accordance with Section 6002, these agencies and 
persons must:
    (1) Procure items designated in guidelines of the Environmental 
Protection Agency (EPA) at 40 CFR part 247 that contain the highest 
percentage of recovered materials practicable, consistent with 
maintaining a satisfactory level of competition, where the purchase 
price of the item exceeds $10,000 or the value of the quantity acquired 
in the preceding fiscal year exceeded $10,000;
    (2) Procure solid waste management services in a manner that 
maximizes energy and resource recovery; and

[[Page 45464]]

    (3) Must have established an affirmative procurement program for 
the procurement of recovered materials identified in the EPA 
guidelines.
    (c) Transparency Act Reporting. Section 872 of the Duncan Hunter 
Defense Appropriations Act of 2009, and additional requirements 
published by the Office of Management and Budget (OMB), requires 
recipients to report subawards made either as pass-through awards, 
subrecipient awards, or vendor awards in the Federal Government Web 
site www.fsrs.gov or its successor system. The reporting of award and 
subaward information is in accordance with the requirements of the 
Federal Financial Assistance Accountability and Transparency Act of 
2006, as amended by section 6202 of Public Law 110-252 and in OMB 
Policy Guidance issued to the federal agencies on September 14, 2010 
(75 FR 55669).
    (d) The Coastal Barrier Resources Act of 1982 (16 U.S.C. 3501 et 
seq.) may apply to proposals under this part, depending on the 
assistance requested.
    (e) Applicability of OMB Circulars. The requirements of 24 CFR part 
85--Administrative Requirements for Grants and Cooperative Agreements 
to State, Local, and Federally Recognized Indian Tribal Governments and 
2 CFR part 225--Cost Principles for State, Local and Indian Tribal 
Governments (OMB Circular A-87)--apply to governmental recipients and 
subrecipients except where inconsistent with the provisions of this 
part. The requirements of 24 CFR part 84--Uniform Administrative 
Requirements for Grants and Agreements with Institutions of Higher 
Education, Hospitals, and Other Non-Profit Organizations; 2 CFR part 
230--Cost Principles for Non-Profit Organizations (OMB Circular A-122); 
and 2 CFR part 220--Cost Principles for Education Institutions apply to 
the nonprofit recipients and subrecipients, except where inconsistent 
with the provisions of the McKinney-Vento Act or this part.
    (f) 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 24 CFR part 35, subparts A, B, H, J, K, M, and R apply 
to activities under this program.
    (g) Audit. Recipients and subrecipients must comply with the audit 
requirements of OMB Circular A-133, ``Audits of States, Local 
Governments, and Non-profit Organizations.''
    (h) Davis-Bacon Act. The provisions of the Davis-Bacon Act do not 
apply to this program.
    (i) Section 3 of the Housing and Urban Development Act. Recipients 
and subrecipients must, as applicable, comply with Section 3 of the 
Housing and Urban Development Act of 1968 and its implementing 
regulations at 24 CFR part 135, as applicable.

Subpart G--Grant Administration


Sec.  578.101  Technical assistance.

    (a) Purpose. The purpose of Continuum of Care technical assistance 
is to increase the effectiveness with which Continuums of Care, 
eligible applicants, recipients, subrecipients, and UFAs implement and 
administer their Continuum of Care planning process; improve their 
capacity to prepare applications; prevent the separation of families in 
projects funded under the Emergency Solutions Grants, Continuum of 
Care, and Rural Housing Stability Assistance programs; and adopt and 
provide best practices in housing and services for persons experiencing 
homelessness.
    (b) Defined. Technical assistance means the transfer of skills and 
knowledge to entities that may need, but do not possess, such skills 
and knowledge. The assistance may include, but is not limited to, 
written information such as papers, manuals, guides, and brochures; 
person-to-person exchanges; web-based curriculums, training and 
Webinars, and their costs.
    (c) Set-aside. HUD may set aside funds annually to provide 
technical assistance, either directly by HUD staff or indirectly 
through third-party providers.
    (d) Awards. 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. HUD 
may also enter into agreements with other federal agencies for awarding 
the technical assistance funds.


Sec.  578.103  Recordkeeping requirements.

    (a) In general. The recipient and its subrecipients must establish 
and maintain standard operating procedures for ensuring that Continuum 
of Care program funds are used in accordance with the requirements of 
this part and must establish and maintain sufficient records to enable 
HUD to determine whether the recipient and its subrecipients are 
meeting the requirements of this part, including:
    (1) Continuum of Care records. Each collaborative applicant must 
keep the following documentation related to establishing and operating 
a Continuum of Care:
    (i) Evidence that the Board selected by the Continuum of Care meets 
the requirements of Sec.  578.5(b);
    (ii) Evidence that the Continuum has been established and operated 
as set forth in subpart B of this part, including published agendas and 
meeting minutes, an approved Governance Charter that is reviewed and 
updated annually, a written process for selecting a board that is 
reviewed and updated at least once every 5 years, evidence required for 
designating a single HMIS for the Continuum, and monitoring reports of 
recipients and subrecipients;
    (iii) Evidence that the Continuum has prepared the application for 
funds as set forth in Sec.  578.9, including the designation of the 
eligible applicant to be the collaborative applicant.
    (2) Unified funding agency records. UFAs that requested grant 
amendments from HUD, as set forth in Sec.  578.105, must keep evidence 
that the grant amendment was approved by the Continuum. This evidence 
may include minutes of meetings at which the grant amendment was 
discussed and approved.
    (3) Homeless status. Acceptable evidence of the homeless as status 
is set forth in 24 CFR 576.500(b).
    (4) At risk of homelessness status. For those recipients and 
subrecipients that serve persons at risk of homelessness, the recipient 
or subrecipient must keep records that establish ``at risk of 
homelessness'' status of each individual or family who receives 
Continuum of Care homelessness prevention assistance. Acceptable 
evidence is found in 24 CFR 576.500(c).
    (5) Records of reasonable belief of imminent threat of harm. For 
each program participant who moved to a different Continuum of Care due 
to imminent threat of further domestic violence, dating violence, 
sexual assault, or stalking under Sec.  578.51(c)(3), each recipient or 
subrecipient of assistance under this part must retain:
    (i) Documentation of the original incidence of domestic violence, 
dating violence, sexual assault, or stalking, only if the original 
violence is not already documented in the program participant's case 
file. This may be written observation of the housing or service 
provider; a letter or other documentation from a victim service 
provider, social worker, legal assistance provider, pastoral counselor, 
mental health provider, or other professional from whom the victim has 
sought assistance; medical or dental records; court records or law 
enforcement records; or written certification by the

[[Page 45465]]

program participant to whom the violence occurred or by the head of 
household.
    (ii) Documentation of the reasonable belief of imminent threat of 
further domestic violence, dating violence, or sexual assault or 
stalking, which would include threats from a third-party, such as a 
friend or family member of the perpetrator of the violence. This may be 
written observation by the housing or service provider; a letter or 
other documentation from a victim service provider, social worker, 
legal assistance provider, pastoral counselor, mental health provider, 
or other professional from whom the victim has sought assistance; 
current restraining order; recent court order or other court records; 
law enforcement report or records; communication records from the 
perpetrator of the violence or family members or friends of the 
perpetrator of the violence, including emails, voicemails, text 
messages, and social media posts; or a written certification by the 
program participant to whom the violence occurred or the head of 
household.
    (6) Annual income. For each program participant who receives 
housing assistance where rent or an occupancy charge is paid by the 
program participant, the recipient or subrecipient must keep the 
following documentation of annual income:
    (i) Income evaluation form specified by HUD and completed by the 
recipient or subrecipient; and
    (ii) Source documents (e.g., most recent wage statement, 
unemployment compensation statement, public benefits statement, bank 
statement) for the assets held by the program participant and income 
received before the date of the evaluation;
    (iii) To the extent that source documents are unobtainable, a 
written statement by the relevant third party (e.g., employer, 
government benefits administrator) or the written certification by the 
recipient's or subrecipient's intake staff of the oral verification by 
the relevant third party of the income the program participant received 
over the most recent period; or
    (iv) To the extent that source documents and third-party 
verification are unobtainable, the written certification by the program 
participant of the amount of income that the program participant is 
reasonably expected to receive over the 3-month period following the 
evaluation.
    (7) Program participant records. In addition to evidence of 
``homeless'' status or ``at-risk-of-homelessness'' status, as 
applicable, the recipient or subrecipient must keep records for each 
program participant that document:
    (i) The services and assistance provided to that program 
participant, including evidence that the recipient or subrecipient has 
conducted an annual assessment of services for those program 
participants that remain in the program for more than a year and 
adjusted the service package accordingly, and including case management 
services as provided in Sec.  578.37(a)(1)(ii)(F); and
    (ii) Where applicable, compliance with the termination of 
assistance requirement in Sec.  578.91.
    (8) Housing standards. The recipient or subrecipient must retain 
documentation of compliance with the housing standards in Sec.  
578.75(b), including inspection reports.
    (9) Services provided. The recipient or subrecipient must document 
the types of supportive services provided under the recipient's program 
and the amounts spent on those services. The recipient or subrecipient 
must keep record that these records were reviewed at least annually and 
that the service package offered to program participants was adjusted 
as necessary.
    (10) Match. The recipient must keep records of the source and use 
of contributions made to satisfy the match requirement in Sec.  578.73. 
The records must indicate the grant and fiscal year for which each 
matching contribution is counted. The records must show how the value 
placed on third party in-kind contributions was derived. To the extent 
feasible, volunteer services must be supported by the same methods that 
the organization uses to support the allocation of regular personnel 
costs.
    (11) Conflicts of interest. The recipient and its subrecipients 
must keep records to show compliance with the organizational conflict-
of-interest requirements in Sec.  578.95(c), the Continuum of Care 
board conflict-of-interest requirements in Sec.  578.95(b), the other 
conflict requirements in Sec.  578.95(d), a copy of the personal 
conflict-of-interest policy developed and implemented to comply with 
the requirements in Sec.  578.95, and records supporting exceptions to 
the personal conflict-of-interest prohibitions.
    (12) Homeless participation. The recipient or subrecipient must 
document its compliance with the homeless participation requirements 
under Sec.  578.75(g).
    (13) Faith-based activities. The recipient and its subrecipients 
must document their compliance with the faith-based activities 
requirements under Sec.  578.87(b).
    (14) Affirmatively Furthering Fair Housing. Recipients and 
subrecipients must maintain copies of their marketing, outreach, and 
other materials used to inform eligible persons of the program to 
document compliance with the requirements in Sec.  578.93(c).
    (15) Other federal requirements. The recipient and its 
subrecipients must document their compliance with the federal 
requirements in Sec.  578.99, as applicable.
    (16) Subrecipients and contractors. (i) The recipient must retain 
copies of all solicitations of and agreements with subrecipients, 
records of all payment requests by and dates of payments made to 
subrecipients, and documentation of all monitoring and sanctions of 
subrecipients, as applicable.
    (ii) The recipient must retain documentation of monitoring 
subrecipients, including any monitoring findings and corrective actions 
required.
    (iii) The recipient and its subrecipients must retain copies of all 
procurement contracts and documentation of compliance with the 
procurement requirements in 24 CFR 85.36 and 24 CFR part 84.
    (17) Other records specified by HUD. The recipient and 
subrecipients must keep other records specified by HUD.
    (b) Confidentiality. In addition to meeting the specific 
confidentiality and security requirements for HMIS data, the recipient 
and its subrecipients must develop and implement written procedures to 
ensure:
    (1) All records containing protected identifying information of any 
individual or family who applies for and/or receives Continuum of Care 
assistance will be kept secure and confidential;
    (2) The address or location of any family violence project assisted 
with Continuum of Care funds will not be made public, except with 
written authorization of the person responsible for the operation of 
the project; and
    (3) The address or location of any housing of a program participant 
will not be made public, except as provided under a preexisting privacy 
policy of the recipient or subrecipient and consistent with State and 
local laws regarding privacy and obligations of confidentiality;
    (c) Period of record retention. All records pertaining to Continuum 
of Care funds must be retained for the greater of 5 years or the period 
specified below. Copies made by microfilming, photocopying, or similar 
methods may be substituted for the original records.
    (1) Documentation of each program participant's qualification as a 
family or individual at risk of homelessness or as a homeless family or 
individual and other program participant records must

[[Page 45466]]

be retained for 5 years after the expenditure of all funds from the 
grant under which the program participant was served; and
    (2) Where Continuum of Care funds are used for the acquisition, new 
construction, or rehabilitation of a project site, records must be 
retained until 15 years after the date that the project site is first 
occupied, or used, by program participants.
    (d) Access to records. (1) Federal Government rights. 
Notwithstanding the confidentiality procedures established under 
paragraph (b) of this section, HUD, the HUD Office of the Inspector 
General, and the Comptroller General of the United States, or any of 
their authorized representatives, must have the right of access to all 
books, documents, papers, or other records of the recipient and its 
subrecipients that are pertinent to the Continuum of Care grant, in 
order to make audits, examinations, excerpts, and transcripts. These 
rights of access are not limited to the required retention period, but 
last as long as the records are retained.
    (2) Public rights. The recipient must provide citizens, public 
agencies, and other interested parties with reasonable access to 
records regarding any uses of Continuum of Care funds the recipient 
received during the preceding 5 years, consistent with State and local 
laws regarding privacy and obligations of confidentiality and 
confidentiality requirements in this part.
    (e) Reports. In addition to the reporting requirements in 24 CFR 
parts 84 and 85, the recipient must collect and report data on its use 
of Continuum of Care funds in an Annual Performance Report (APR), as 
well as in any additional reports as and when required by HUD. Projects 
receiving grant funds only for acquisition, rehabilitation, or new 
construction must submit APRs for 15 years from the date of initial 
occupancy or the date of initial service provision, unless HUD provides 
an exception under Sec.  578.81(e).


Sec.  578.105  Grant and project changes.

    (a) For Unified Funding Agencies and Continuums having only one 
recipient. (1) The recipient may not make any significant changes 
without prior HUD approval, evidenced by a grant amendment signed by 
HUD and the recipient. Significant grant changes include a change of 
recipient, a shift in a single year of more than 10 percent of the 
total amount awarded under the grant for one approved eligible activity 
category to another activity and a permanent change in the 
subpopulation served by any one project funded under the grant, as well 
as a permanent proposed reduction in the total number of units funded 
under the grant.
    (2) Approval of substitution of the recipient is contingent on the 
new recipient meeting the capacity criteria in the NOFA under which the 
grant was awarded, or the most recent NOFA. Approval of shifting funds 
between activities and changing subpopulations is contingent on the 
change being necessary to better serve eligible persons within the 
geographic area and ensuring that the priorities established under the 
NOFA in which the grant was originally awarded, or the most recent 
NOFA, are met.
    (b) For Continuums having more than one recipient. (1) The 
recipients or subrecipients may not make any significant changes to a 
project without prior HUD approval, evidenced by a grant amendment 
signed by HUD and the recipient. Significant changes include a change 
of recipient, a change of project site, additions or deletions in the 
types of eligible activities approved for a project, a shift of more 
than 10 percent from one approved eligible activity to another, a 
reduction in the number of units, and a change in the subpopulation 
served.
    (2) Approval of substitution of the recipient is contingent on the 
new recipient meeting the capacity criteria in the NOFA under which the 
grant was awarded, or the most recent NOFA. Approval of shifting funds 
between activities and changing subpopulations is contingent on the 
change being necessary to better serve eligible persons within the 
geographic area and ensuring that the priorities established under the 
NOFA in which the grant was originally awarded, or the most recent 
NOFA, are met.
    (c) Documentation of changes not requiring a grant amendment. Any 
other changes to an approved grant or project must be fully documented 
in the recipient's or subrecipient's records.


Sec.  578.107  Sanctions.

    (a) Performance reviews. (1) HUD will review the performance of 
each recipient in carrying out its responsibilities under this part, 
with or without prior notice to the recipient. In conducting 
performance reviews, HUD will rely primarily on information obtained 
from the records and reports from the recipient and subrecipients, as 
well as information from on-site monitoring, audit reports, and 
information generated from HUD's financial and reporting systems (e.g., 
LOCCS and e-snaps) and HMIS. Where applicable, HUD may also consider 
relevant information pertaining to the recipient's performance gained 
from other sources, including citizen comments, complaint 
determinations, and litigation.
    (2) If HUD determines preliminarily that the recipient or one of 
its subrecipients has not complied with a program requirement, HUD will 
give the recipient 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 the recipient has complied with the 
requirements. HUD may change the method of payment to require the 
recipient to submit documentation before payment and obtain HUD's prior 
approval each time the recipient draws down funds. To obtain prior 
approval, the recipient may be required to manually submit its payment 
requests and supporting documentation to HUD in order to show that the 
funds to be drawn down will be expended on eligible activities in 
accordance with all program requirements.
    (3) If the recipient fails to demonstrate to HUD's satisfaction 
that the activities were carried out in compliance with program 
requirements, HUD may take one or more of the remedial actions or 
sanctions specified in paragraph (b) of this section.
    (b) Remedial actions and sanctions. Remedial actions and sanctions 
for a failure to meet a program requirement will be designed to prevent 
a continuation of the deficiency; to mitigate, to the extent possible, 
its adverse effects or consequences; and to prevent its recurrence.
    (1) HUD may instruct the recipient to submit and comply with 
proposals for action to correct, mitigate, and prevent noncompliance 
with program requirements, including:
    (i) Preparing and following a schedule of actions for carrying out 
activities and projects affected by the noncompliance, including 
schedules, timetables, and milestones necessary to implement the 
affected activities and projects;
    (ii) Establishing and following a management plan that assigns 
responsibilities for carrying out the remedial actions;
    (iii) Canceling or revising activities or projects likely to be 
affected by the noncompliance, before expending grant funds for them;
    (iv) Reprogramming grant funds that have not yet been expended from 
affected activities or projects to other eligible activities or 
projects;
    (v) Suspending disbursement of grant funds for some or all 
activities or projects;
    (vi) Reducing or terminating the remaining grant of a subrecipient 
and either reallocating those funds to other

[[Page 45467]]

subrecipients or returning funds to HUD; and
    (vii) Making matching contributions before or as draws are made 
from the recipient's grant.
    (2) HUD may change the method of payment to a reimbursement basis.
    (3) HUD may suspend payments to the extent HUD determines necessary 
to preclude the further expenditure of funds for affected activities or 
projects.
    (4) HUD may continue the grant with a substitute recipient of HUD's 
choosing.
    (5) HUD may deny matching credit for all or part of the cost of the 
affected activities and require the recipient to make further matching 
contributions to make up for the contribution determined to be 
ineligible.
    (6) HUD may require the recipient to reimburse the recipient's line 
of credit in an amount equal to the funds used for the affected 
activities.
    (7) HUD may reduce or terminate the remaining grant of a recipient.
    (8) HUD may condition a future grant.
    (9) HUD may take other remedies that are legally available.
    (c) Recipient sanctions. If the recipient determines that a 
subrecipient is not complying with a program requirement or its 
subrecipient agreement, the recipient must take one of the actions 
listed in paragraphs (a) and (b) of this section.
    (d) Deobligation. HUD may deobligate funds for the following 
reasons:
    (1) If the timeliness standards in Sec.  578.85 are not met;
    (2) If HUD determines that delays completing construction 
activities for a project will mean that the funds for other funded 
activities cannot reasonably be expected to be expended for eligible 
costs during the remaining term of the grant;
    (3) If the actual total cost of acquisition, rehabilitation, or new 
construction for a project is less than the total cost agreed to in the 
grant agreement;
    (4) If the actual annual leasing costs, operating costs, supportive 
services costs, rental assistance costs, or HMIS costs are less than 
the total cost agreed to in the grant agreement for a one-year period;
    (5) Program participants have not moved into units within 3 months 
of the time that the units are available for occupancy; and
    (6) The grant agreement may set forth in detail other circumstances 
under which funds may be deobligated and other sanctions may be 
imposed.


Sec.  578.109  Closeout.

    (a) In general. Grants will be closed out in accordance with the 
requirements of 24 CFR parts 84 and 85, and closeout procedures 
established by HUD.
    (b) Reports. Applicants must submit all reports required by HUD no 
later than 90 days from the date of the end of the project's grant 
term.
    (c) Closeout agreement. Any obligations remaining as of the date of 
the closeout must be covered by the terms of a closeout agreement. The 
agreement will be prepared by HUD in consultation with the recipient. 
The agreement must 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 Continuum of Care program funds after the 
closeout agreement is signed;
    (2) Identification of any unused grant funds to be deobligated 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 in using program 
income on deposit at the time the closeout agreement is signed and in 
using any other remaining Continuum of Care program funds available for 
closeout costs and contingent liabilities;
    (ii) Use of real property assisted with Continuum of Care program 
funds in accordance with the terms of commitment and principles;
    (iii) Use of personal property purchased with Continuum of Care 
program funds; and
    (iv) Compliance with requirements governing program income received 
subsequent to grant closeout.
    (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.

    Dated: June 28, 2012.
Mark Johnston,
Assistant Secretary for Community Planning and Development (Acting).
[FR Doc. 2012-17546 Filed 7-30-12; 8:45 am]
BILLING CODE 4210-67-P