Submission for Community Development Block Grant Program, Consolidated Plans, and Indian Community Development Block Grant Program Changes

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 91, 570, and 1003

[Docket No. FR-6148-P-01]

RIN 2506-AC52

Submission for Community Development Block Grant Program, Consolidated Plans, and Indian Community Development Block Grant Program Changes

AGENCY:

Office of Assistant Secretary for Community Planning and Development and Office of Assistant Secretary for Public and Indian Housing, HUD.

ACTION:

Proposed rule.

SUMMARY:

HUD is proposing to revise the Community Development Block Grant (CDBG) and related Section 108 loan guarantee program regulations to make it easier for recipients to promote economic development and recovery in low- and moderate-income communities and support investments in underserved areas. This proposed rule also would revise provisions related to Consolidated Plan and citizen participation requirements for the CDBG program and institute quarterly reporting to improve performance with respect to timeliness. HUD is also proposing to make certain corresponding changes to the Indian Community Development Block Grant (ICDBG) program regulations to align the ICDBG program with the revisions being made to the CDBG program regulations.

DATES:

Comments are due by March 11, 2024.

ADDRESSES:

Interested persons are invited to submit comments regarding this rule. Communications must refer to the above docket number and title. There are two (2) 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

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

website can be viewed by other commenters and interested members of the public. Commenters should follow the instructions provided on that website 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 comments and communications properly 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). HUD welcomes and is prepared to receive calls from individuals who are deaf or hard of hearing, as well as individuals with speech or communication disabilities. To learn more about how to make an accessible telephone call, please visit

https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

Copies of all comments submitted are available for inspection and downloading at

http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT:

Jessie Handforth Kome, Director, Office of Block Grant Assistance, Room 7282, U.S. Department of Housing and Urban Development, 451 7th Street SW, Washington, DC 20410; telephone (202) 708-3587 (this is not a toll-free number) for the CDBG and Section 108 loan programs. Heidi Frechette, Deputy Assistant Secretary for Native American Programs, Room 4108 U.S. Department of Housing and Urban Development, 451 7th Street SW, Washington, DC 20410; telephone (202) 402-6321 (this is not a toll-free number) for the ICDBG program. HUD welcomes and is prepared to receive calls from individuals who are deaf or hard of hearing, as well as individuals with speech or communication disabilities. To learn more about how to make an accessible telephone call, please visit

https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION:

I. Statutory Authority

Title I of the Housing and Community Development Act of 1974 (42 U.S.C. 5301-5320) (hereinafter “the Act”) establishes the CDBG and complementary Section 108 loan guarantee (Section 108) programs, and the ICDBG program. HUD's regulations implementing: (1) the Consolidated Plan and citizen participation requirements governing the CDBG program are located at 24 CFR part 91, entitled, “Consolidated Submissions for Community Planning and Development Programs;” (2) the CDBG program are located at 24 CFR part 570, entitled “Community Development Block Grants;” and (3) the Section 108 program are located at 24 CFR 570 subpart M, entitled “Loan Guarantees.” The Consolidated Plan regulations were promulgated in 1994 and 1995 (60 FR 1878 and 60 FR 1943; January 5, 1994, and January 5, 1995, respectively), and amended HUD's existing regulations to replace the then-current Comprehensive Housing Affordability Strategies with a rule that combined into a single consolidated submission the planning and application aspects of, among others, the CDBG program. The Consolidated Plan regulations reflected HUD's view that the purpose of the Consolidated Plan submission is to enable States and localities to examine their needs and design ways to address those needs that are appropriate to their circumstances. The ICDBG program regulations, which are located at 24 CFR part 1003, entitled “Community Development Block Grants for Indian Tribes and Alaska Native Villages,” were promulgated in 1996 (61 FR 40084, July 31, 1996), and set forth the requirements and procedures for awarding CDBG funds to Indian Tribes.

II. Background

The CDBG and Section 108 Programs

The CDBG program and its loan guarantee component, the Section 108 program, are some of the most potent Federal tools for local governments to assist community and economic development. State and local governments nationwide—each State, more than 1,200 cities and counties, the District of Columbia, Puerto Rico, and four U.S. territories—rely on annual formula CDBG funds to develop meaningful projects and provide essential services that create sustainable, healthy, and prosperous communities for primarily low- and moderate-income persons. The programs' unique flexibility allows grantees to use CDBG funds, as well as Section 108 guaranteed loan proceeds

leveraged from their CDBG allocations, for projects and services that meet each community's needs. As a grantee develops strategies for addressing its needs, however, it generally evaluates the viability of activities that it wishes to include in its program. It may, for example, decide that it wants to invest in an underserved area that it has determined to be a food desert. This investment could take the form of a loan to a business that would agree to construct a food store to serve residents of that area. Such assistance to a business would be subject to the CDBG national objectives criteria and public benefit standards. However, HUD has not substantively updated the national objectives criteria and public benefit standards for economic development activities carried out with CDBG, ICDBG, and Section 108 funds for over twenty years. Changes over time in market conditions, inflation, and evolving community development practices have effectively limited the types of activities grantees could carry out. As a consequence, the grantee's plans could be short-circuited by the inability or unwillingness of a business to comply with the current requirements.

The limitations under the current regulations have thus deprived grantees of viable alternatives when developing programs that would best address their needs, and in some cases prevented communities from using CDBG funds to stimulate potentially transformative economic revitalization outcomes. By removing the impediments and disincentives to the use of CDBG funds for economic development activities, the proposed changes could result in a greater proportion of available CDBG funds being used for economic development. It does not follow, however, that spending more on economic development must result in less spending on other activities, because the additional economic development spending could be funded with loans guaranteed under the Section 108 program. For example, if a grantee wants to undertake an economic development activity but also wishes to carry out another activity,

e.g.,

housing rehabilitation, it could use Section 108 as the funding source for the economic development activity and its CDBG allocation for the other activity. If relatively more CDBG funds are expended for economic development purposes, however, it must be presumed that such increase is the result of grantees having determined that the higher spending level is necessary and prioritized to address their local community and economic development needs.

The ICDBG Program

Under the ICDBG program, HUD provides competitive grants annually to Indian Tribes to carry out eligible activities. The program regulations largely mirror the CDBG program regulations.

Lessons Learned From the COVID-19 Pandemic

HUD and CDBG grantees experienced an unusual opportunity to employ new program policies before making them part of the CDBG program's regulatory canon. The COVID-19 pandemic created a historical economic crisis resulting in the closure of small businesses, significant job loss, and other economic hardship with notable disparities in underserved communities. These exposed and exacerbated impacts and inequities that largely affected underserved persons and communities across the United States, particularly among low-income and underserved populations who were already economically marginalized and lacked housing security. Historically marginalized communities of color, particularly those in racially or ethnically concentrated areas of poverty, disproportionately experienced disinvestment and have been denied economic opportunities. In 2020, HUD oversaw the Community Development Block Grant CARES Act (CDBG-CV) program to provide grants to States, insular areas, and local governments to prevent, prepare for, and respond to the spread of COVID-19. Lessons learned from the quick deployment of CDBG-CV accelerated the grantees' and HUD's understanding of needed program improvements.

The insights gleaned from the CDBG-CV Program informed this important but routine opportunity to update CDBG and ICDBG regulations to introduce pre-tested flexibilities, mainly related to economic development activities; is responsive to feedback from HUD communities; and is informed by the implementation of CDBG and ICDBG over the past several decades. The new regulatory flexibilities implemented with $5 billion in CDBG-CV for communities revealed longstanding hindrances to long-term economic growth, particularly for low- and moderate-income persons.

The flexibilities, waivers and alternative requirements introduced through CDBG-CV for Economic Development Activities enabled grantees to move quickly to help small businesses, particularly for underserved communities while retaining sufficient regulatory controls to ensure program benefit is planned and delivered compliantly. This Proposed Rule enables the Federal Government to continue bolstering economic recovery through job creation while addressing economic inequities, by, for example, strengthening small businesses and investing in enduring job opportunities in underserved communities. On January 20, 2021, the President issued Executive Order 13985, Advancing Racial Equity and Support for Underserved Communities Through the Federal Government (86 FR 7009), and in February 2023, the President issued Executive Order 14091, Further Advancing Racial Equity and Support for Underserved Communities Through the Federal Government (88 FR 10825), both which call for a whole-of-government effort to advance racial equity and support underserved communities. Further, through Executive Order 14002, Economic Relief Related to the COVID-19 Pandemic (86 FR 7229), issued on January 22, 2021, the President directed Federal agencies to use their full resources to address the economic crisis, specifically to reduce unnecessary barriers and improve coordination among programs funded by the Federal Government. The approach seeks to create opportunities for the improvement of communities that have been historically underserved.

III. This Proposed Rule

Consistent with Executive Orders 13985, 14002, and 14091 and in response to changed market conditions, HUD seeks to provide authority that would allow CDBG grantees and Section 108 borrowers (hereinafter referred to collectively as “recipients”) to implement funding more effectively and efficiently in their communities.

The proposed changes also would enhance the CDBG program's goal of primarily benefitting low- and moderate-income (“LMI”) persons while removing obstacles that prevent the use of the program in targeted areas and for economic development activities. The proposed changes will not have any impact on the allocation of CDBG funds among recipients. The changes would particularly benefit underserved communities, including historically marginalized communities of color experiencing disproportionate disinvestment and denial of economic opportunities.

The proposed rule also aims to improve data collection to measure effectiveness and improve program outcomes through more effective use of CDBG funds, while ensuring CDBG and

Section 108 recipients use funds efficiently and in a timely manner to benefit their communities. The proposed rule would change national objectives criteria to remove impediments to carrying out economic development activities, update the public benefit standards to allow CDBG and Section 108 recipients greater flexibility in undertaking economic development activities, and incorporate several changes to eligible activities under the CDBG and Section 108 programs. The proposed rule would also simplify regulations to encourage CDBG and Section 108 recipients to invest CDBG funds

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in underserved communities.

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As the term “CDBG funds” is defined at § 570.3 to include Section 108 guaranteed loan funds, references to use of “CDBG” funds or “CDBG”-assisted activities in this preamble also applies to Section 108 guaranteed loan funds unless otherwise noted.

Further, the proposed rule would make corresponding changes to the ICDBG regulations in part 1003, where appropriate, to ensure that the CDBG and ICDBG regulations continue to [align. Finally, the proposed rule would remove outdated provisions and make technical corrections.

The proposed rule could result in incentivizing investment in communities by streamlining and improving mechanisms for greater flexibility of funds to flow to economically distressed communities while signaling the Federal Government's willingness to support these investments. These investments would enable communities to encourage, build, and expand activities that revitalize communities.

A. Targeting Resources Towards Communities With the Greatest Need

HUD wants CDBG and Section 108 recipients to make greater use of CDBG funds in economically distressed communities, particularly those designated through other Federal or State programs. The proposed rule addresses aspects of 24 CFR part 570 that HUD considers to be unnecessarily cumbersome to economic development activities and otherwise proposes to revise or add additional flexibility for CDBG and Section 108 recipients in facilitating economic development. The proposed rule would make it easier for CDBG and Section 108 recipients to carry out job creation and retention activities while reducing recordkeeping burdens on CDBG and Section 108 recipients and assisted businesses

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alike. HUD has re-envisioned the public benefit standard and proposes to simultaneously remove disincentives for economic development, add flexibility in demonstrating public benefit, and update standards to reflect current and future market conditions. HUD believes these proposed changes would provide CDBG and Section 108 recipients with a greater ability to support business development and assist States and local governments in bolstering job creation.

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An assisted business receives CDBG and/or Section 108 guaranteed loan funds from a recipient to carry out an eligible activity, and must comply with CDBG and/or Section 108 requirements.

National Objectives Criteria

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This preamble divides the discussion of proposed changes to § 570.208 into multiple sections. In this “Targeting Resources Towards Communities with the Greatest Need” section, the preamble discusses proposed changes to §§ 570.208(a)(4) and (b) and 570.483(b)(4) and (c) because the proposed changes affect primarily economic development activities.

HUD's regulations at §§ 570.208,

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570.483,

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and 1003.208 provide the criteria for determining whether a CDBG-, Section 108-,

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or ICDBG-assisted activity complies with one or more of the national objectives. CDBG recipients must use at least 70 percent of their CDBG funds for activities that benefit LMI persons. An activity may meet the LMI national objective through providing benefit to residents of a particular geographic area, serving a limited clientele, supporting housing activities, or creating or retaining permanent jobs. Additionally, CDBG and Section 108 recipients may meet a national objective by using funds for activities that aid in the prevention or elimination of slums or blight or that meet an urgent community development need. However, the current criteria, including presumptions, are unnecessarily complicated and outdated and can impose substantial burdens on prospective CDBG and Section 108 recipients and assisted businesses. Similarly, the regulations for activities that assist in the prevention or elimination of slums or blight restrict the ability to use CDBG funds for certain types of activities in such areas. HUD therefore proposes the following changes.

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24 CFR part 570 Subpart C—Eligible Activities (§§ 570.200-570.210) applies to CDBG entitlement recipients and Section 108 borrowers.

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24 CFR part 570 Subpart I—State Community Development Block Grant Program (§§ 570.480-570.497) applies to States, nonentitlement public entities receiving Section 108 guaranteed loan funds assistance, and units of general local government in a State's nonentitlement areas that receive CDBG funds.

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Nonentitlement public entities receiving Section 108 guaranteed loan funds may be subject to 24 CFR 570.480 through 24 CFR 570.497.

Low- and Moderate-Income Criteria—Creating or Retaining Jobs

The most widely used national objective for economic development activities under the CDBG program is the creation or retention of permanent jobs where at least 51 percent of those jobs, computed on a full-time equivalent basis, involve the employment of LMI persons. To demonstrate compliance with the LMI job creation/retention national objective (§§ 570.208(a)(4), 570.483(b)(4), and 1003.208(d)), the activity must be designed to create or retain jobs where at least 51 percent of those jobs are held by or made available to LMI persons. For the retention of jobs, the recipient must also demonstrate that the jobs would be lost without CDBG assistance, and the jobs are known to be held by LMI persons and/or the job(s) can reasonably be expected to turn over within the following two years and that steps will be taken to ensure that the job(s) will be filled by or made available to LMI persons upon turnover. The primary CDBG-assisted activity that uses these national objectives criteria is a special economic development activity carried out under § 570.203 for Entitlement Communities and activities under section 105(a)(17) of the Act by units of general local government in a State's nonentitlement areas.

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These criteria may also be met by other CDBG-assisted activities, such as assistance to microenterprises under § 570.201(o) or § 570.483(c)(1).

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24 CFR part 570, subpart I—State Community Development Block Grant Program (§§ 570.480-570.497) applies to States, Section 108 borrowers, and units of general local government that receive CDBG funds.

Based on programmatic experience, documenting whether a job is held by or made available to an LMI person can present a financial and administrative burden on recipients due to the data that recipients must gather and collect from assisted businesses. To help alleviate this burden, HUD is proposing to make changes to the presumptions provided in current §§ 570.208(a)(4)(iv), 570.483(b)(4)(iv), and 1003.208(d) (with references to, respectively, §§ 570.208(a)(4)(v) and 570.483(b)(4)(v)) to add a presumption based on the location of an assisted business. Revising the criteria for the presumption would significantly clarify the standards for recipients and encourage greater use of CDBG and ICDBG funds for job creation and retention activities in LMI areas.

The proposed revised regulations accomplish these goals by: (1) standardizing the presumptive poverty

rate with the same standard as was generally required to designate areas as economically distressed

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(2) requiring recipients to use poverty rates based on American Community Survey

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(ACS) data, instead of only from the most recently available decennial census; and (3) removing the higher poverty requirement for central business districts, which is not required by statute; this will encourage investments in economically distressed communities, particularly with central business districts that serve as hubs of economic activity. Further, other proposed revisions to the LMI jobs national objective would improve readability and remove references to outdated programs.

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Census tract poverty rate of 20 percent.

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HUD chooses to use ACS data which provides poverty rates determined by Census Bureau data provided by HUD. This data set includes linkages between HUD's administrative records and a range of information, spanning race to employment status. This enables HUD to use a more cost-effective approach to match its data assets.

Question for comment #1:

Would the proposed revised presumption encourage recipients to increase their use of funds for economic development activities? Would the reduced burden on businesses be a significant or decisive factor in encouraging them to use CDBG funds for projects in underserved communities? What is the anticipated effect of eliminating the higher poverty requirement and the other poverty-related policies on private business investment in communities that lack access to opportunity? What are the trade-offs between reaching more areas and having less targeting if the neighborhood poverty threshold is reduced from 30 percent to 20 percent? What other incentives could CDBG recipients establish that would encourage investment in communities, including historically marginalized communities of color, that have historically not received CDBG-funded investment or that experience relatively low private sector investment? How might HUD better encourage economic development in underserved communities, including historically marginalized communities of color, who have had disproportionately experienced disinvestment and have been denied economic opportunities?

Modifying Prohibition on Assisting Relocation

HUD proposes to revise the definition of labor market area (LMA) to allow CDBG grantees and Section 108 recipients more flexibility in providing assistance to relocating businesses. Currently, §§ 570.210(a) (for CDBG entitlement recipients) and 570.482(h) (for States) prohibit grantees from directly assisting businesses that relocate from one LMA to another if the relocation is likely to result in a significant loss of employment in the LMA from which the relocation occurs. Sections 570.210(b)(2) and 570.482(h)(2)(ii) also prevent communities from combining metropolitan LMAs or metropolitan LMAs with non-metropolitan LMAs so that they can provide assistance to a business that relocates within a (combined) LMA. This revision leaves the prohibition intact but provides CDBG and Section 108 recipients with greater flexibility (through revisions of §§ 570.210(b)(2) and 570.482(h)(2)(ii)

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allowing combination of LMAs) to stay in compliance with requirements.

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These regulations implement the anti-pirating provisions in section 105(h) of the HCDA, added in 1998.

While the prohibition in §§ 570.210(b)(2) and 570.482(h)(2)(ii) is intended to prevent communities from using CDBG funds to “shift” jobs from other communities, it has on balance made it unnecessarily difficult for grantees to provide assistance to businesses even when relocation would not necessarily cause job losses in another community. The definition of LMA (as defined by the Bureau of Labor Statistics) has changed multiple times since HUD instituted the prohibition in 2006, the boundaries of LMAs have changed, and some communities have fallen outside the definitions of both metropolitan and non-metropolitan LMAs. Further, logistics and supply chain changes and developmental changes across communities could allow businesses to retain jobs within a newly defined LMA within commuting distance of the old location (thus not poaching jobs from another community).

For example, a business with a processing plant in a metropolitan LMA received a code enforcement violation that required the business to either expand the plant to remedy the violation or relocate. Since the business was in a denser metropolitan area, it did not have the space to expand the plant. The business identified a location within commuting distance of the plant in an adjacent non-metropolitan LMA. The State CDBG grantee wanted to provide assistance through the non-entitlement unit of general local government to the business as part of the relocation but was prohibited by § 570.482(h)(1) because the relocation would have resulted in job loss in the metropolitan LMA from which the relocation would have occurred. The business could not find other assistance to relocate the plant, and as a result had to close the plant and terminate the jobs at the plant.

Therefore, HUD proposes to allow grantees to combine a metropolitan LMA and a non-metropolitan LMA if the relocation is necessary for business reasons such as code enforcement compliance, or expansion. This would allow CDBG grantees to provide assistance to businesses for relocation for valid business reasons while still preventing communities from poaching jobs from nearby communities.

Prevention or Elimination of Slums or Blight

HUD also proposes to revise the criteria for activities that address slums and blight on an area basis. Some of the criteria for activities to address slums or blight on an area basis are subjective and difficult for HUD to verify and monitor. The proposed revisions to §§ 570.208(b)(1)(ii) and 570.483(c)(1)(ii) would allow the recipient to determine the type of objectively verifiable data that demonstrates that the area is experiencing physical or economic distress, such as abandoned properties and properties with known or suspected environmental contamination. The proposed rule also would update recordkeeping requirements for this revision at § 570.506(b)(8)(ii).

For activities that address slums or blight on a spot basis, the proposed revisions at §§ 570.208(b)(2) and 570.483(c)(2) would remove the requirement that rehabilitation activities be limited to eliminating conditions detrimental to public health and safety. HUD has interpreted “detrimental to public health and safety” to mean that the condition must pose a threat to the general public. This requirement presents a major hurdle for recipients seeking to address slums and blight in their communities because it limits rehabilitation activities that recipients can carry out.

For example, a recent Section 108 applicant sought to redevelop a blighted former hotel into a modern mixed-use commercial and residential development; the project required extensive environmental remediation. However, the requirement that rehabilitation activities eliminate conditions detrimental to public health and safety prevented the applicant from allocating CDBG funds toward uses of the project because the conditions were contained within the blighted site and therefore did not pose a threat to the general public. Although the applicant was eventually able to allocate CDBG

funds to meet the criteria, it was unnecessarily difficult, and the restriction threatened to prevent the applicant from being able to fill the project's financing gap with Section 108 funds.

Question for comment #2:

Relative to current requirements, would the proposed revision encourage recipients to carry out activities in underserved and blighted communities and therefore allow recipients to assist economic development in areas most in need of jobs and economic revitalization? If the proposed revision does not encourage recipients to carry out activities in underserved and blighted communities, please explain why and share possible alternative standards that might more effectively balance HUD's goal of enabling recipients broader flexibility with using funds for remediation while still ensuring funds are allocated in a manner that broadly benefits the general public.

Documentation of National Objectives Criteria Compliance—Creation or Retention of Jobs § 570.506

Section 570.506 (for entitlement CDBG and Section 108 recipients) requires each recipient to establish and maintain records sufficient to enable HUD to determine whether the recipient has met applicable requirements, including whether activities meet the criteria for national objectives at § 570.208. Recipients may meet those criteria by carrying out activities (

e.g.,

economic development activities) that benefit LMI persons based on the creation or retention of jobs. The recipient must maintain information on the size and annual income of the person's family, except for activities presumed to benefit LMI persons based upon the census tract where the person resides or in which a business is located. Currently, this information is gathered primarily by the assisted business from employees and their family members. HUD does not prescribe methods for documenting LMI status, so they will vary by grantee (as to the information it requires the business to collect) and by business (ranging from self-certification to externally provided information).

The proposed rule would make two changes to the documentation requirements at § 570.506 to reduce the burden on businesses in documenting jobs held by or made available to LMI persons. First, HUD proposes to clarify that the recipient, instead of the assisted business, may collect information regarding the size and annual income of the person's family to document compliance with the national objective for economic development activities (HUD notes that the recipient may still choose to require that the assisted business collect the data if it prefers). Second, HUD proposes to allow the recipient to substitute records (such as, for example, a certification by the assisted business) showing the annual wages or salary of the job claimed to be held by an LMI person in lieu of maintaining records of the person's family size and income to reduce the information collection burden. Absent evidence to the contrary,

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HUD will consider a job applicant/taker income-qualified if the annual wages or salary of the job is at or under the HUD-established income limit for a one-person family. HUD already provides similar options to CDBG-Disaster Recovery (CDBG-DR) grantees.

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Such as, for example, evidence that might be brought to HUD's attention based on audits or HUD monitoring.

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This approach was pioneered in collaboration with the State of New York after 9/11/2001 and honed further in 2006 after Katrina with the five Gulf Coast States. It has remained in continuous use in CDBG-DR and CDBG-CV and reduced burden substantially for businesses and the grantee while enabling sufficient documentation to support conclusions that at least 51 percent of jobs created or retained are LMI. (It is key to note that 100 percent is not the goal here.) Despite multiple OIG audits reviewing these programs, no findings have emerged bearing on issues with this approach. Given the track record, the main program has probably been overly conservative in not adopting this approach sooner.

As an example of how this would change how potential LMI jobs are evaluated, under HUD's current policy if an assisted business employed an individual at an LMI-eligible wage, but that individual lived in a family with multiple incomes that, in total, exceeded the LMI-eligibility threshold, then the recipient would not be able to claim that the individual was in an LMI-created or retained job. However, under our proposal, a recipient would now be able to demonstrate eligibility simply through examining the income provided by the job instead of the income received by the job-holder's family. As a result, the assisted business would now be able to claim this individual was in an LMI-created or retained job. HUD notes that while this may, on the margins, result in certain jobs being newly identified as LMI, overall HUD expects this change will substantially reduce burden on documenting these jobs while broadly still identifying the same set of jobs. Moreover, working at the business/position level has the added advantage for auditors of allowing cross checking with State labor databases, which may allow for improved oversight.

This clarification and alternative method would streamline the documentation process, reduce the burden on assisted businesses, and remove a disincentive to use CDBG funds for job creation and retention activities. Presently, the burden of collecting information on family income often falls on the businesses assisted with CDBG funds. Recipients are typically more willing and better equipped than the assisted businesses to collect information regarding the size and annual income of the person's family. This burden operates as a disincentive to many businesses that would otherwise be willing to partner with recipients to carry out job creation and retention activities.

Other entities that receive funding from CDBG recipients to carry out activities, such as non-profit subrecipients, are typically viewed as “standing in the shoes of the grantee” and, as such, are required to fulfill the responsibilities that would otherwise belong to the grantee. Businesses, on the other hand, are not subrecipients and typically are inexperienced in executing the functions required of a grantee or a subrecipient, such as collecting income data on family members (

i.e.,

non-employees). Because a business lacks such experience, it often views itself as ill-equipped to perform those functions and is more likely to decline participation in economic development projects. The changes to the documentation requirements for economic development activities address the unique status of businesses in the CDBG program's compliance framework and increase the likelihood that grantees can successfully implement community and economic development strategies.

Question for comment #3:

Are the proposed changes to the regulations, such as simplifying recordkeeping requirements, enough of an incentive for recipients to use CDBG funds for economic development activities? Would the reduced burden on businesses encourage them to carry out economic development projects with CDBG funds in underserved communities? Because most grantees provide one-time assistance (such as a loan or grant) to each assisted business and because the wage for the job to be filled must be sufficient to allow the business to attract and retain the employee it needs, HUD does not anticipate this provision will produce any wage pressures. However, would the proposed change to substitute wage information for records of family size and income incentivize employers to keep wages at or below LMI levels in

order to qualify for assistance? Are there alternative ways that might HUD better encourage economic development in underserved communities, including historically marginalized communities of color, particularly racially or ethnically concentrated areas of poverty, who have disproportionately experienced disinvestment and have been denied economic opportunities?

Special Economic Development Activities § 570.203

Section 570.203 governs the use of CDBG funds for special economic development activities and includes an illustrative list of eligible forms of assistance to private for-profit businesses. Section 570.203(b) already lists forms of support by which recipients can provide assistance to private, for-profit businesses where the assistance is appropriate to carry out an economic development project. HUD has previously interpreted this provision to allow CDBG assistance to New Markets Tax Credit (NMTC) investment vehicles. The proposed revisions would explicitly allow recipients to provide assistance to an economic development project through a for-profit entity that passes the funds through a financing mechanism (

e.g.,

Qualified Opportunity Funds and NMTC investment vehicles). This clarification would make clear that such assistance through a financing mechanism is not limited to NMTC investment vehicles and is eligible under § 570.203(b). Many economic development activities are carried out in conjunction with other forms of assistance and Federal tax benefits that provide additional sources of financing for economic development, particularly in LMI areas. HUD wants to facilitate the use of CDBG funds by recipients to fill financing gaps that cannot be met by other sources and launch critical economic development projects, particularly in underserved communities with a history of disinvestment, by eliminating the time to seek additional clarification from HUD on activity eligibility for individual projects to streamline the process for use of CDBG funds.

HUD proposes to clarify at § 570.203(c) the types of eligible job training or employment services. Currently, to be eligible as an economic development service under § 570.203(c), the job training or employment support services must be provided to or involve specific job positions resulting from the assistance being provided. HUD has discovered numerous situations in which grantees have provided CDBG funds for general employment readiness programs (such as interviewing skills or resume-writing classes) and attempted to categorize such classes as economic development services. To be eligible economic development services, the beneficiaries must either have been selected for or be under active consideration for specific job positions. If the individuals are not receiving training for specific positions at a specific business, general employment readiness programs or trainings for individuals in career fields are eligible only as public service activities or, in limited cases, as part of a § 570.204 community economic development project carried out by a Community-Based Development Organization.

HUD notes that it is not proposing any changes that would expand microenterprise assistance under § 570.203. Section 570.201(o) of the Code of Federal Regulations and section 105(a)(22) of the Act provide thorough avenues for CDBG grantees to assist microenterprise activities; likewise, sufficient authority currently exists for Section 108 borrowers to assist many microenterprise activities through economic development activities authorized under § 570.203(b).

Public Benefit Standards § 570.209

Section 570.209 contains guidelines and standards for carrying out economic development activities under § 570.203 and, in some instances, § 570.204.

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The recipient is responsible for ensuring that at least a minimum level of public benefit is obtained from the expenditure of CDBG funds. HUD has discretion in identifying and determining the nature of the public benefit and their standards for measuring their acceptability. The changes proposed for the public benefit standards are based on feedback and experiences of recipients for the past thirty years. The public benefit standards set forth the types of public benefit that will be recognized and the minimum level of each that must be obtained for the amount of CDBG funds used. CDBG recipients must meet standards for their aggregated activities during the program year as well as for each individual activity. The current regulations provide two options for meeting the aggregate and individual standards: creating or retaining permanent jobs or providing goods or services to LMI residents of the area served by the activity. For activities addressing public benefit through creation/retention of jobs, the maximum amount of CDBG/Section 108 assistance per full-time equivalent (“FTE”) job for activities in the aggregate is $35,000; for individual activities, the maximum is $50,000. For activities providing goods or services to residents of an area (

e.g.,

grocery stores, laundromats, food banks, pantry items, drug stories), the maximum amount of CDBG/Section 108 assistance per LMI person served for activities in the aggregate is $350; for individual activities, the maximum is $1,000.

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For recipients under subpart I, § 570.482(f) applies to activities pursuant to sections 105(a)(14), (15), and (17), and certain activities eligible under section 105(a)(2) of the Act.

HUD established these standards in 1995 as required by section 806(a) of the Housing and Community Development Act of 1992 (the “1992 Act”) (Pub. L. 102-550, 106 Stat. 3672). This provision of the 1992 Act required HUD to establish by regulation guidelines to assist CDBG recipients to evaluate and select economic development activities for assistance with CDBG funds. Subsequent inflation has resulted in CDBG funds no longer supporting the same proportion of the costs of creating and retaining jobs as they did when HUD created the standards. This precludes recipients from using CDBG funds for some economic development activities and has made recipients increasingly less able to feasibly implement economic development activities. For example, in program year 2012, approximately $238 million in CDBG funds were used to support almost 2,000 economic development activities, whereas, by 2022, only $69 million in CDBG funds were used to support about 1,100 economic development activities. Further, HUD believes the two options do not provide recipients enough flexibility in demonstrating a public benefit.

The proposed changes re-envision the public benefit standards for economic development activities and would allow recipients to better support business development, stimulate job growth, and provide needed goods and services to LMI persons. HUD can facilitate economic development while simultaneously furthering the purpose of the 1992 Act through the following proposed reforms to the public benefit standards: (1) eliminating the aggregate standard; (2) raising the individual standard to $100,00 per full-time equivalent, permanent job created or retained and $2,000 per LMI person to whom goods or services are provided by the activity; (3) adding an alternative standard which HUD must approve in writing whereby recipients can demonstrate that the activity would create a significant public benefit despite not meeting the jobs or services standards (such as being part of a hazard mitigation and climate change resilience

strategy for an LMI area, supporting critical infrastructure, or meeting a community benefit defined or described in the requirements governing another Federal program); and (4) providing Section 108 applicants the option to allow HUD to calculate the cost of an economic development activity on a net present value basis to more accurately reflect the lower cost of an activity funded with a loan (which generates a return of the original CDBG outlay) versus an activity that involves a grant or other form of subsidy.

First, HUD's proposal to eliminate the aggregate standard at §§ 570.209(b)(1) and 570.482(f)(2) stems from the disincentive it has created to use CDBG funds for economic development and because it is burdensome beyond any observed benefit. (The Public Benefit Standards are applied to the average of the expenditures for the activities funded over a 12-month period.) In particular, recipients with low-volume economic development programs effectively apply the aggregate standards to individual activities in an effort to reduce the risk of failing to comply. In other words, the original intention to an aggregate standard was to give recipients flexibility to occasionally target activities that were more costly. That flexibility has not worked out in practice.

For example, a grantee may identify a high-impact project at the beginning of its program year that would create one job per $50,000 of CDBG assistance; however, local market conditions could make it difficult to predict how many other economic development activities would be assisted and how many jobs would be created. Faced with this uncertainty, the grantee may hesitate to provide funds to the high-impact project for fear of not meeting the aggregate standard. This scenario reflects how the aggregate standard restricts the ability of recipients to leverage CDBG funds for high-impact investments in their communities, particularly through Section 108 loan guarantees, because providing funds at the maximum level of the individual standard for one activity would require funding other economic development activities at public benefit levels significantly below the aggregate standard.

Additionally, the number of exceptions from the aggregate standard creates confusion for borrowers in planning their economic development programs, making the standard overly burdensome. (See current §§ 570.209(b)(2)(v)(A) through (N) and 570.482(f)(3)(v)(A) through (N)).

Second, HUD proposes to raise the dollar thresholds at §§ 570.209(b)(3)(i)(A) and (B) and 570.482(f)(4)(i)(A) and (B) for the individual standard. Maintaining the current standards would continue to hinder recipients' ability to use CDBG funds for future economic development activities and limit recipients' ability to leverage CDBG funds through revolving loan funds and Section 108 loan guarantees. The $100,000 and $2,000 amounts approximate the inflation-adjusted value of the current standards. HUD believes that updating these standards to reflect market conditions would allow CDBG funds to be more competitive for use in economic development activities. By comparison, the Small Business Administration (SBA) 504 Loan program allows a benefit of up to $100,000 per job created depending on the type of activity. HUD also proposes to include a provision at §§ 570.209(b)(5) and 570.482(f)(6) that would permit HUD to issue periodic notices to update those values (and the net present values for Section 108 borrowers, as described below) to reflect inflation.

Question for comment #4:

Would the proposed changes encourage a recipient to target CDBG projects in underserved communities in their jurisdiction? Would the proposed individual standards more accurately reflect the amount of CDBG funds necessary to carry out job creating activities? What is the likely effect on investment in underserved areas? How might HUD better encourage economic development in underserved communities, including historically marginalized communities of color, particularly racially or ethnically concentrated areas of poverty, who have disproportionately experienced disinvestment and have been denied economic opportunities? How frequently should the standard be updated for inflation, and should HUD update the standard automatically with a self-executing inflation calculation?

Third, the public benefit standards provide a narrow choice of two measures for determining a public benefit: amount of assistance per job created or retained or amount per LMI person served by the activity. HUD believes these measures provide insufficient options to measure the public benefit a project may provide. For example, the SBA 504 Loan program offers recipients who cannot meet the minimum jobs requirement an alternative of meeting one of eighteen community development, public policy, or energy reduction measures. While HUD understands the value of having objective and uniform benchmarks for demonstrating public benefit, the current standards unduly restrict recipients' ability to demonstrate public benefit through use of CDBG funds for economic development activities. Further, CDBG assistance for small businesses may be used with funding under another Federal program (

e.g.,

SBA) that has different standards. To provide flexibility to recipients in demonstrating such an alternative public benefit, proposed provisions at §§ 570.209(b)(3)(iii) and 570.482(f)(4)(iii) would permit HUD to approve requests by recipients that an applicable activity demonstrates an acceptable public benefit if the activity would result in a significant contribution to the goals and purposes of the CDBG program.

Question for comment #5:

How can recipients demonstrate an alternative public benefit? For example, an increasing number of communities have either used or explored using CDBG funds for critical lifeline projects that have received funding from other Federal agencies, including the U.S. Department of Energy and the Federal Emergency Management Agency. Would it be appropriate to use objectives for other Federal programs to satisfy the CDBG program public benefit standards? Should there be additional criteria for what can be considered an alternative public benefit, and if so what might they be?

Fourth, HUD proposes to add a new option for Section 108 applicants at §§ 570.209(b)(3)(ii) and 570.482(f)(4)(ii) that would address the concerns expressed by program participants regarding a disparity in treatment of economic development assistance in the form of a loan and other forms of assistance, such as grants, when measuring public benefit. When a recipient uses CDBG funds for an economic development activity in the form of a loan to a third party (

e.g.,

a business), the loan is expected to be repaid over some term. Any repayment of that loan reduces the ultimate cost of that activity to the CDBG program. On the other hand, when a recipient uses CDBG funds to make grants to third parties, the cost to the CDBG program is the actual amount of the grant. The existing regulations Section 108 treat activities that involve loans in the same way they treat activities that involve grants:

i.e.,

the cost of an activity is measured based on the nominal amount of the assistance provided to the third party. This treatment distorts the cost per unit of output (

e.g.,

jobs) for an activity that provides assistance in the form of a loan because the standard fails to measure the actual cost of the activity accurately. Although HUD recognized this disparity when it first proposed the

public benefit regulations, it did not provide an alternative to use of the nominal amount of the loan for calculation of the public benefit due to the complexity of implementing an alternative methodology for use by recipients. Now, however, HUD could use the procedures and models prescribed by the Office of Management and Budget (OMB) for determining the “credit subsidy cost” to the Federal Government of making direct Federal loans to determine the cost to a grantee's CDBG program of carrying out activities that involve loans from Section 108 recipients to third parties. These proposed procedures for determining the cost of such third-party loans through calculating the cost of the activity based on the net present value of the activity would address the concerns expressed to HUD by recipients regarding measuring the true cost to the CDBG program of an economic development activity that involves a loan to a third party. HUD can address its original concern about using an alternative methodology by reserving the use of an alternative measure of public benefit to Section 108-funded activities when HUD can determine the cost of a loan to the CDBG program through using a methodology routinely applied under Federal credit programs. HUD will describe in a separate notice the procedures it will use in calculating the cost of a loan.

Question for comment #6:

Would the proposed option for measuring the public benefit for loan activities on a net present value basis facilitate the use of Section 108 financing for economic development activities?

B. Improving Data Collection From the CDBG Program To Measure Effectiveness

Revision of Consolidated Plan Publication Requirements as Identified in Citizen Participation Plans §§ 91.105(b), 91.115(b)

Entitlement and State recipients must identify in their citizen participation plans how they will publish their Consolidated Plans in a manner that permits their residents, public agencies, and other interested parties an opportunity to examine their contents and submit comments. HUD expects each grantee to undertake a multifaceted approach to publication after considering the nature of the jurisdiction and its citizens. The principle for jurisdictions is to create and implement a citizen participation plan designed to get program-related information to and from persons who will be affected by the contents of the Consolidated Plan or who may seek to participate in the grantee's programs.

HUD proposes to amend §§ 91.105(b)(2) and 91.115(b)(2) to encourage grantees to use additional forms of communication to make citizens aware of publication of the Consolidated Plan. The proposal adds methods of making the Consolidated Plan publicly accessible to persons with disabilities and provide meaningful access to limited English proficient persons, such as: email; text message (SMS); social media; media advertisements; public service announcements; notifying neighborhood organizations; and placement of hard copies of the Plan in public places such as libraries and neighborhood centers, and notifications on grocery store bulletin boards. These sections illustrate new examples of optional publication methods but are not required. HUD already considers these proposed methods to be valid and useful methods of publishing Consolidated Plans and encourages grantees to update citizen participation plans to include these methods. Recipients are reminded that section 504 of the Rehabilitation Act of 1973, 29 U.S.C. 794, and the implementing regulations at 24 CFR part 8, which provides rights to persons with disabilities in HUD-funded programs and activities, continue to require grantees to ensure effective communication for persons with disabilities, and that Title VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d

et seq.,

and its implementing regulations, require a recipient to take reasonable steps to provide language assistance to ensure meaningful access to programs and activities for persons who are limited English proficient (LEP).

Adding Substantial Amendment Criterion to the Citizen Participation Plan § 91.105(c)

Section 91.105(c)(1) requires an entitlement grantee to identify in its citizen participation plan what it considers to be a substantial amendment to its Consolidated Plan. This provision also states that a recipient must consider a change in the use of CDBG funds from one eligible activity to another as a substantial amendment to its Consolidated Plan. However, the provision does not state that adding activities not previously listed in a recipient's Consolidated Plan or Action Plan is a substantial amendment.

Since a recipient is required to notify the public of all the activities it intends to carry out with CDBG funds, HUD proposes to clarify that adding an activity not previously identified in the Consolidated Plan or Action Plan must be considered a substantial amendment in the citizen participation plan.

Setting Quantitative, Neighborhood Level Goals in the Consolidated Plan and Measuring Performance in Reports §§ 91.215, 91.520

Section 91.215(a)(1) requires local government recipients to identify the general priorities for allocating investment geographically within the jurisdiction. HUD has observed that many grantees target some or all activities geographically. To the extent that a local government recipient chooses to target investment (as opposed to undertaking jurisdiction-wide activities), HUD proposes to require recipients to set at least one quantitative, neighborhood-level outcome goal in their Consolidated Plan and to report performance in the Consolidated Annual Performance and Evaluation Reports (CAPERs). This would enable HUD to assess local government recipients' progress in addressing housing, homeless assessment, and other identified needs on a sub-jurisdiction level and provide a richer understanding of how grant funds enable grantees to achieve local community development objectives. HUD proposes to change § 91.520(d) to require an entitlement grantee to report in the CAPER at least one quantitative, neighborhood-level outcome goal accomplishment related to one or more sub-jurisdiction priority, if established pursuant to § 91.215(a)(1).

Section 91.215(g) encourages entitlement recipients, through the Consolidated Plan, to identify locally designated areas that are being targeted for neighborhood revitalization efforts that are carried out through multiple activities in a concentrated or coordinated manner. In this rule, HUD proposes to add examples of areas that may be targeted for neighborhood revitalization efforts. These areas can include areas that were designated as economically distressed areas by the Federal Government or the State that exhibit significantly high levels of poverty or low median income, including historically underserved and marginalized communities. HUD believes that encouraging entitlement recipients to consider targeting efforts in these areas during the planning process will result in recipients developing a more holistic understanding of the needs of these areas and how they can best use CDBG funds to revitalize such areas.

C. Improving Program Outcomes

Mixed-Use Properties §§ 570.3, 570.200

Mixed-use properties have become increasingly popular as development trends across the country have encouraged locating residential units, office space, and/or commercial space on the same property and often in the same building. Section 570.200(b)(1) contains special policies governing facilities containing both eligible and ineligible uses. It allows recipients to provide funds for a public facility otherwise eligible for assistance under the CDBG program even if it is part of a multiple-use building containing ineligible uses. Recipients may also provide funds for an eligible activity in a multiple-use property (that is not a public facility), but the existing regulation lacks clarity on the circumstances when such use is permissible. This lack of clarity limits recipients from using CDBG funds for eligible activities in mixed-use properties.

HUD proposes to revise § 570.200(b)(1) to clarify that recipients can assist eligible activities if they are part of mixed-use properties that also contain ineligible uses, so long as the recipient expends CDBG funds only on the eligible use. The revised provision would continue to allow for CDBG and Section 108 guaranteed loan funds to be involved in such a project so long as there is an eligible activity that costs can be allocated to cover. While the prohibition on new housing construction is applicable for both Section 108 borrowers and CDBG recipients pursuant to § 570.207(b)(3), costs in mixed-use and mixed finance developments may be allocable under the new draft regulation and our current interpretation of the requirements. HUD expects this revision would facilitate economic development by expanding the scope of activities for which recipients can use CDBG funds. The proposed rule also would add a definition of “mixed-use property” at § 570.3.

Closeout § 570.509

HUD proposes to amend the CDBG closeout regulations at § 570.509 to conform with 2 CFR 200.344 and with the proposed modifications to timeliness at § 570.902. Under this proposal, HUD would have the flexibility to separately cancel a grantee's financial access to a grant and remove the grant's availability from the line of credit while allowing some additional time, if needed, for a grantee to meet certain program requirements, such as meeting a national objective. HUD expects that each grantee will expend all funds and close out each grant financially by the end of the eighth program year of the grant.

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Further, the proposed rule would make clear that certain requirements survive grant closeout, such as but not limited to record retention responsibilities and property management. Although the proposed changes would explicitly separate the grant programmatic closeout procedures from financial account cancellation procedures, they would not change the requirement that final annual performance reports are due within 90 days after the close of the jurisdiction's program year.

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CDBG grant funds not disbursed from the grantee's line of credit after eight years will be cancelled and recaptured by the U.S. Department of Treasury at the end of the eighth Federal fiscal year due to statutory and regulatory requirements.

For example, a grantee uses the remainder of one grant's funds to acquire a school to convert to housing. The grantee uses funds from other sources for construction costs. Under this proposal, HUD could cancel the financial account while explicitly retaining the ability to enforce compliance with all program requirements related to the activity underway, particularly those bearing on national objectives. The regulations would continue to govern change of use requirements (

e.g.,

investments such as community centers or parks).

HUD recognizes that there are many things that could disrupt a grantee's intended timeline for activity completion: litigation, disasters, limited construction seasons due to weather, or other extenuating circumstances. To complete all program activities, including, but not limited to, meeting national objectives and satisfying reporting requirements, grantees are permitted to request an extension of up to two years of the six-year period of performance proposed in the

Continuing Capacity

section of this rule.

Question for comment #7:

Would other or additional modifications to the closeout process ease grantee burden and ensure that HUD can confirm that grantees have met programmatic requirements prior to closeout?

D. Addressing Poor Performance

Repayment of CDBG Funds for Disallowed Costs §§ 570.495, 570.910

Sections 570.495 (for State recipients) and 570.910 (for entitlement recipients) provide corrective and remedial actions that HUD may impose on recipients when HUD identifies deficiencies in recipient performance. HUD may disallow costs if recipients expend CDBG funds for ineligible activities or for activities that do not meet a national objective, or do not comply with 2 CFR part 200, subpart E, cost principles. Currently, HUD advises recipients to reimburse their CDBG program account or letter of credit with non-Federal funds based on 2 CFR 200.405(c), which states that any cost allocable to a particular Federal award (or cost objective) under the principles provided for in 2 CFR part 200 may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by Federal statutes, regulations, or terms and conditions of the Federal awards, or for other reasons. However, this prohibition would not preclude the non-Federal entity from shifting costs that are allowable under two or more Federal awards in accordance with existing Federal statutes, regulations, or the terms and conditions of the Federal awards. In addition, 2 CFR 200.441 states that costs resulting from non-Federal entity violations of, alleged violations of, or failure to comply with, Federal, State, Tribal, local or foreign laws and regulations are unallowable, except when incurred as a result of compliance with specific provisions of the Federal award, or with prior written approval of the Federal awarding agency.

However, part 570 does not clearly state the source of repayments as the result of such violations. The proposed rule would explicitly do so in §§ 570.495(a)(4) and 570.910(b)(5) and would also make clear that recipients must make repayments for disallowed costs with non-Federal funds. In lieu of such repayments, HUD proposes to revise § 570.495(a)(4) and add § 570.910(c) to permit a recipient to request a voluntary grant reduction (VGR) from a current or future year's allocation of funds. VGRs have long been used in lieu of repayment, and this proposed rule would codify the policy and the procedure for requesting a VGR.

Timely Performance § 570.902

This rule proposes to revise § 570.902 to institute regular quarterly public reporting by HUD on grant progress for entitlement grantees, with each grant labeled (

e.g.,

“first year,” “on track,” or “under target”) based on the pace of expenditure necessary to achieve grant closeout by the target date at the end of the period of performance. HUD's increase in frequency of public reports will use existing grant data to provide grantees with additional time to make adjustments to their respective programs. The public report may be used by citizens for information, grantees for management information,

and HUD for risk assessment, oversight, and as a signal for technical assistance needs. HUD believes this would improve the current system of only providing timeliness feedback to grantees and HUD Field offices annually. With more frequent progress information, grantees should be able to adjust their programs more nimbly and avoid timeliness issues.

Section 104(e)(1) of the Act requires that HUD annually determine whether each CDBG grantee has carried out its activities in a timely manner. HUD must also assess whether each grantee has continuing capacity to carry out activities in a timely manner. Under the existing entitlement regulations at § 570.902, HUD measures timely performance at a single, annual point in time and communicates any issues to a grantee via letter. In accordance with the existing regulations, an entitlement grantee must meet an “all open CDBG grants” portfolio standard, requiring it to have a total undisbursed portfolio balance no greater than 1.5 times its most recent annual grant amount remaining in the line of credit. HUD conducts this test 60 days prior to the end of the grantee's program year, and in recent years, HUD has put increased emphasis on enforcing timely expenditure using this standard.

HUD considers a grantee to have timely performance issues if its portfolio balance exceeds 1.5 times its most recent annual grant amount for two years in a row. If this happens, HUD first offers the grantee a chance for an informal consultation with program officials prior to determining a corrective action or sanction. A common course of action for HUD in cases of continued grantee timeliness issues is reducing the next year's grant allocation of a grantee.

Although the timeliness regulations and procedures comply with the statutory direction, the combination of the annual 1.5 standard with the adoption of grant-based accounting and stagnant CDBG grant amounts appears to have created an unintended—and undesired—consequence. HUD has observed grantees budget and use more funds for annual “soft” expenditures, such as code enforcement, administration, planning, public services, and salaries for activity delivery, and less funds directly assisting major brick-and-mortar activities. HUD's observations and grantee feedback indicate that HUD's enforcement of the existing timeliness standard has resulted in pressuring grantees' local funding decisions away from large brick-and-mortar activities, which characteristically deliver greater benefits but require longer expenditure timeframes. Grantees are making funding and priority decisions based less on long-term community needs than on a need to comply with the portfolio balance requirement. For example, a large Midwest city recently identified the need to comply with the 1.5 requirement as the reason for its choice to assist an activity providing sidewalk improvements in low-income neighborhoods even though it believed a better fit for its community development priorities would be a significant multi-unit, multi-structure, housing rehabilitation project. HUD has noted numerous other similar examples during informal timeliness consultations.

This concerns HUD because the objectives of the CDBG program at section 101(c) of the Act emphasize development of viable urban communities by providing suitable living environments. If the timeliness enforcement standard is causing grantees to shift funding decisions away from activities generating long-lasting improvements, the standard undercuts the purposes of the Act.

Further, the current timeliness standard incorrectly captures both high- and low-capacity grantees. An adjusted line of credit balance in excess of 1.5 times the grant amount, measured at a point in time in the grantee's program year, is not always an indicator of poor performance. Higher-capacity grantees who try to budget substantial portions of two or more grants for a major local project are identified incorrectly by the existing standard as low-performing. These grantees do not typically exhibit non-compliance in other areas of their portfolio and their HUD Field office grant managers frequently vouch for their capacity to deliver the expected project benefits. Current timeliness requirements can discourage activities that if not for these requirements would otherwise advance statutory program objectives. Conversely, low-capacity grantees with known problems across a decade or more, have sometimes not been captured under this current requirement.

Lessons learned from implementation of other programs incorporating the CDBG framework, including the Neighborhood Stabilization Program (NSP) and other CDBG-DR appropriations, helped inform this proposal. Several versions of obligation, expenditure, and other progress standards have existed in these programs, with mixed results. For example, obligation deadlines in the first NSP funding round and some early CDBG-DR grants caused grantees to select some projects less aligned with community needs and goals. Recent CDBG-DR rules, which combine a period of performance based on actual community development practice with public tracking reports, have provided a simple, workable standard that enables local choices while enhancing transparency and accountability. The takeaway from HUD's experience with timeliness is that the enforcement mechanism influences local choices towards or away from significant construction activities and may affect the pace of grant disbursement, and that applying a new standard for CDBG grantees will better serve the purpose of the Act.

This proposal seeks to enhance oversight of timeliness while reducing pressure on grantees to fund minor, quickly implementable activities or soft costs rather than providing assistance for larger projects with more significant local community development outcomes. This approach would set a standard for a clear lack of continuing capacity for timely implementation, comply with the Act, and better accommodate eligible major construction activities. The rule would also set, for the first time, a separate standard for grantee continuing capacity (see below for further detail).

Timeliness and Program Income §§ 570.489, 570.504

Note that the rules related to the intersection of timeliness and program income would not change under this proposal. The Act and the current regulations provide that program income received by a grant recipient or subrecipient is additional CDBG funds. The regulations would continue to require that grantees use available program income prior to additional drawdown of line of credit funds. However, revolving funds are a special case. This proposed rule addresses revolving funds because some grantees have inappropriately used these accounts to simply hold program income, effectively evading timely expenditure requirements. The proposed timely expenditure standard for revolving funds is that grantees use at least one half of a fund's balance (taken at the beginning of the program year) for eligible revolving fund activities or re-program the unused amount each year. The proposed rule seeks to prevent grantees from placing program income in revolving funds indefinitely with new language at § 570.504(f) that would permit HUD to take corrective actions against entitlement grantees with inactive or excessive revolving funds. HUD also

proposes to hold States accountable for ensuring that revolving funds remain active adding a new § 570.489(f)(4).

Continuing Capacity § 570.902

The current regulations do not provide a standard for determining that a grantee no longer has the continuing capacity to carry out activities in a timely manner. Although this proposed rule does not change HUD's ability to assess capacity on a case-by-case basis to determine capacity, it would add a data-driven measure of lack of capacity: a portfolio consideration of a grantee's continuing capacity to deliver activities in a timely manner based on overall progress under multiple grants over a rolling four-quarter period rather than by a single annual snapshot of the aggregate balance. At any given time, each grantee will have up to six grants (or up to eight if a period of performance waiver is provided) available in its CDBG line of credit. Proposed § 570.902(a)(4) would provide that if any three or more of those grants are simultaneously identified as Slow Spenders for four or more consecutive quarters, HUD would determine that the grantee lacks the continuing capacity to undertake timely program activities, will provide an opportunity for an informal consultation meeting, and will then take appropriate action, including corrective action or sanction up to and including a reduction to the grant amount for the succeeding program year.

Question for comment #8:

In proposing this shift, HUD is aware that the overall balance of funds in CDBG lines of credit may increase. Given the commitment to quarterly public status reports at the grant level, is this problematic? If yes, how? Also, if yes, suggest an alternate approach. If you are a grantee, will the timeliness proposal affect your local activity choices in favor of transformative or major construction projects? Additionally, the Department seeks feedback from the public, including from States, on whether it would be appropriate to apply the proposed new timeliness requirements for entitlements to States.

Criteria for National Objectives—Meeting a National Objective, Appropriate Data Source §§ 570.200, 570.208, 570.483

The proposed rule would add a time period for CDBG-assisted activities to meet one of the three national objectives of the CDBG program. Currently, there is no time period in which CDBG-assisted activities must meet a national objective. This lack of a defined period of time for an activity to meet a national objective undercuts the primary purpose of the Act because recipients cannot demonstrate that they are using CDBG-funded activities to develop viable urban communities by providing decent housing, a suitable living environment, and expanding economic opportunities, principally for LMI persons.

To ensure that recipients fulfill the purpose of the Act and that CDBG-assisted activities benefit LMI persons and households, HUD proposes that activities be given six years from the initial drawdown of CDBG funds to meet a national objective or the length of the period of performance and any extension permitted under § 570.509, whichever is shorter. HUD believes that six years is an adequate time period for recipients to demonstrate that an activity will meet a national objective. HUD proposes to revise § 570.200(a)(2) requiring recipients to demonstrate that activities carried out under Subpart C meet a national objective within six years of the initial drawdown of CDBG funds for an activity.

HUD also proposes to remove multiple references in §§ 570.208(a) (for entitlement recipients) and 570.483 (for State recipients) to sources of data recipients should use in determining income characteristics, such as poverty and income levels, of potential beneficiaries or areas served. Notice CPD-19-02, published February 14, 2019 (

https://www.hud.gov/sites/dfiles/OCHCO/documents/19-02cpdn.pdf

), provides recipients guidance on using data for compliance with CDBG, CDBG-DR, and NSP grant requirements.

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The proposed rule would direct recipients to use information provided by HUD to the fullest extent feasible as opposed to the most recently available decennial census data, which may have become outdated and difficult to locate.

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This data is based on the American Community Survey 2011-2015 5-year estimates and may be found at

https://www.hudexchange.info/programs/acs-low-mod-summary-data/.

Question for comment #9:

Is six years from the initial drawdown of CDBG funds an adequate time period to demonstrate that activities have met a national objective?

E. Clarifying the Eligible Uses of CDBG

Definitions §§ 570.3, 570.206, 570.481

Activity Delivery Costs

Recipients and subrecipients may incur costs related to carrying out specific activities eligible under §§ 570.201-570.204 and 570.703, which are typically referred to as “activity delivery costs.” Unlike program administrative costs that are eligible under § 570.206 for overall program management, coordination, monitoring, and evaluation, a recipient incurs activity delivery costs on an activity-by-activity basis. The regulations do not specifically define this term; therefore, HUD proposes to add a definition at § 570.3. HUD proposes to define activity delivery costs as the allowable costs of work performed by a recipient, subrecipient, or contractor in carrying out specific activities eligible under §§ 570.201-570.204 (for CDBG entitlement recipients) and 570.703 (for Section 108 borrowers). For example, under this proposal, a grantee could charge 20 percent of an employee's salary and related expenses (

e.g.,

fringe benefits) to an activity provided it maintains records that support the allocation of costs to the activity. Some grantees would choose to maintain such records to ensure they do not exceed the cap on program administrative costs.

Recipients, subrecipients, and contractors must use the cost principles at 2 CFR part 200, subpart E in determining the allowability of the costs. In particular, recipients, subrecipients, and contractors must ensure that activity delivery costs consisting of staff salaries are allocable to the specific activity and adequately documented. HUD proposes a new reference in the introductions to § 570.206 to emphasize that activity delivery costs for CDBG entitlement recipients are separate from program administrative costs.

Elderly

CDBG recipients and subrecipients carry out public services that specifically benefit elderly persons. Recipients across the United States have widely varying definitions of “elderly” that they use for CDBG-assisted activities that specifically target this population. Because part 570 does not define the term “elderly,” HUD has received requests for guidance regarding the definition of elderly. Although “elderly person” is defined at § 5.100, HUD believes including the definition at § 570.3 would make clear the definition of “elderly” for certain CDBG-assisted activities. HUD proposes to add the definition of elderly at § 570.3 that states that for activities pursuant to § 570.202, “elderly” means a person 62 years of age or older. This definition would align CDBG-assisted housing activities with other HUD programs. However, HUD would continue to permit CDBG recipients and subrecipients to define “elderly” consistent with State law to permit recipients the flexibility to carry out non-housing activities that benefit elderly persons.

Entitlement Amount

The definition of entitlement amount contains a reference to “a metropolitan city and an urban county.” Periodically, OMB issues bulletins that contain revised delineations of metropolitan statistical areas, micropolitan statistical areas, and combined statistical areas. These bulletins update OMB's designations of metropolitan areas, counties included in metropolitan areas, and principal cities of those metropolitan areas. These principal cities usually have populations below the statutory threshold of 50,000 to become a metropolitan city but are considered principal cities of the metropolitan areas in which they are located. Therefore, HUD proposes to add the term “principal cities” as designated by OMB in the definition of “entitlement amount” at § 570.3 because HUD considers principal cities entitlement recipients that will receive a CDBG grant if they accept entitlement status.

Period of Performance

HUD proposes to add a definition of “period of performance” in §§ 570.3 and 570.481(a)(4) that would provide recipients a six-year time period to expend a grant's funds or the length of the origin year grant's period of availability for expenditure in accordance with §§ 570.200(k) or 570.480(h), whichever is shorter, beginning on HUD's approval of a grant agreement for a given grant. The proposed definition would apply to the proposed closeout procedures at § 570.509 and timeliness requirements at § 570.902. For Section 108 loan guarantees, the period of performance begins on the date of HUD's guarantee of a promissory note or other obligation and confers the same six-year time limit.

Under the Federal financial rules at 2 CFR 200.211(b)(5) every Federal grant must have a designated period of performance. For CDBG grants, HUD began adopting these rules in 2015. Under CDBG appropriations, HUD has allowed the period of performance to be the statutory availability of grant funds. In general, HUD has up to three years to obligate grants, and there are five additional years of funding availability. For example, grants from the 2014 appropriation are no longer available for expenditure after September 30, 2021.

Drawing from lessons learned, HUD looked to CDBG-DR grantees' fund expenditure patterns. In developing the CDBG-DR timely expenditure expectations, HUD reviewed the spending performance of CDBG-DR grants awarded in response to disasters in 2006 and 2008. In May 2013, HUD reviewed historical data on quarterly disbursements of funds from these appropriations. This analysis concluded that most CDBG-DR-funded recovery activity is completed within three to four years, and the recovery of CDBG-DR grantees is largely complete after six years. For an average grant, the third year following grant agreement execution typically shows the peak amount of expenditures. Program experience with annual CDBG grantees, who generally have fewer challenging programs than do CDBG-DR grantees, indicates that a six-year period of performance would be generous for both entitlements and State grantees.

Question for comment #10:

Is the proposed six-year period of performance an appropriate period of time to expend funds for activities under a given grant?

Overall Benefit Requirement § 570.200

Section § 570.200(a)(3) currently states that entitlement recipients, non-entitlement CDBG recipients in Hawaii, and recipients of insular area funds must ensure that over a period of time specified in their certification, not to exceed three years, not less than 70 percent of the aggregate of CDBG fund expenditures shall be for activities meeting the criteria under § 570.208(a), (d)(5), or (6) for benefiting LMI persons. These recipients must ensure that during their chosen period of certification not less than 70 percent of the aggregate of CDBG funds expended during that period benefit LMI persons. This requirement is identified in the Act at section 101(c) and cannot be waived. Therefore, HUD proposes to revise § 570.200(a)(3) to reinforce that recipients may not expend more CDBG funds in a subsequent certification period to meet the statutory requirement.

Eligible and Ineligible Activities §§ 570.200, 570.201, 570.202, 570.206, 570.207, 570.703

Applicable Environmental Review Procedures in Part 58

HUD proposes to make a slight revision to § 570.200(h)(1)(iii), which requires that costs and activities funded are in compliance with the environmental review procedures stated in 24 CFR part 58. There has been some confusion whether the intent of this provision is just to apply whatever part 58 requirements would otherwise apply, or to actually extend applicability of part 58 choice-limiting prohibitions even to pre-application activities that aren't prohibited under Part 58 itself. In order to clarify that this provision is not meant to add a prohibition on reimbursement of expenses for activities that began before application for CDBG, where the pre-application activities commenced prior to a completed environmental review and Release of Funds, the revision would refer to compliance with “applicable” environmental review procedures in 24 CFR part 58.

Acquisition of Real Property

Section 570.201(a) currently permits grantees to use CDBG funds to acquire real property by long-term lease. However, it does not specify the length of time that constitutes a long-term lease for the purpose of compliance with § 570.201(a). “Long-term lease” has been interpreted in various ways. The 1998 Guide to National Objectives and Eligible Activities for Entitlement Communities defines a long-term lease as 15 years or more. Consistent with this guidance, HUD proposes to add a parenthetical statement to § 570.201(a) that would clearly define a “long-term lease” as 15 years or more.

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Under the CDBG program, long-term leases of 15 years are considered acquisition for URA purposes and subject the URA's 49 CFR part 24, subpart B, real property acquisition requirements. See HUD Handbook 1378 Chapter 1-4.I.7 page 1-8 for more details.

Tornado Safe Shelters

Section 2 of the Tornado Shelters Act (Pub. L. 108-146; 117 Stat. 1883, enacted December 3, 2003) amended section 105(a) of the Act to permit the construction or improvement of tornado shelters for residents of manufactured housing in certain neighborhoods as an eligible activity under the CDBG program. The Tornado Shelters Act permits tornado shelters as an eligible activity if they are located in a neighborhood that (1) contains at least 20 manufactured housing units within such proximity to the shelter that the shelter is available to the resident in the event of a tornado, (2) consists predominantly of persons of low and moderate income (

i.e.,

recipients must be able to document that at least 51 percent of the residents of the service area of the tornado shelter are of low and moderate income); and (3) is located within a State in which a tornado has occurred during the fiscal year for which with amounts to be used were made available or the preceding 3 fiscal years, as determined by the Secretary in consultation with the Administrator of the Federal Emergency Management Agency. HUD has not codified this use of CDBG funds in the regulations, but recipients may use such funds for the construction of tornado-

safe shelters under the authority provided by statute. HUD proposes to add a provision at § 570.201(r) that would codify the use of CDBG funds for tornado safe shelters as an eligible activity in accordance with the statute. Since the statute requires that neighborhoods where tornado shelters are constructed or improved with CDBG funds be predominantly LMI, recipients must be able to document that at least 51 percent of the residents of the service area of the tornado shelter are of low and moderate income.

Ineligible Activities

HUD proposes at § 570.207(a)(4) to explicitly list general administrative and operating expenses of public or nonprofit entities as an ineligible activity. HUD's experience is that these entities believe that general administrative costs and operating expenses are eligible activities under §§ 570.201-570.206. However, while recipients may use CDBG funds for program administrative costs, the regulations do not allow public or nonprofit entities to do so. HUD believes that the proposed addition of this ineligible activity, in addition to the proposed addition of the definition of “activity delivery costs” in § 570.3, would provide greater clarity to public and nonprofit entities and encourage them to use CDBG funds directly for activities (as well as for activity delivery costs). Public and nonprofit entities also cannot categorize these ineligible expenses as providing technical assistance; the proposed rule would revise the definition of “technical assistance” at § 570.201(p) to reflect that prohibition.

Use of CDBG Grant Funds for Section 108 Activities

HUD proposes to clarify eligible uses of CDBG funds for loan repayment, issuance, underwriting, servicing, and other cost associated with Section 108 activities. Although already described at § 570.705(c), HUD believes that adding a cross-reference in subpart C (with a new § 570.201(s)) may provide potential borrowers a better understanding of their ability to finance Section 108 activities with CDBG funds.

Reconstruction Under § 570.202

Reconstruction of buildings or structures has been eligible for CDBG assistance since 1996. Section 105(a)(4) of the Act states that clearance, removal, reconstruction, and rehabilitation of buildings and improvements (including interim assistance and financing public or private acquisition for reconstruction or rehabilitation, and reconstruction or rehabilitation of privately owned properties, and including the renovation of closed school buildings) is an eligible CDBG-assisted activity. Buildings reconstructed with CDBG funds may be publicly or privately owned and residential or non-residential.

Unlike other parts of the CDBG regulations that explicitly state that recipients and subrecipients may use CDBG funds to reconstruct public facilities and improvements (§ 570.201(c)), privately owned utilities (§ 570.201(l)), and commercial/industrial structures as part of a special economic development activity (§ 570.203(a)), § 570.202 does not clearly identify reconstruction as an eligible activity related to housing. To make clear that reconstruction is an eligible activity under § 570.202, HUD proposes to add the words “and reconstruction” to the introductory language at § 570.202(a).

Administrative Expenses To Facilitate Housing

The provision at § 570.206(g), Administrative expenses to facilitate housing, is no longer an eligible activity in the CDBG program because the provision applied only to units identified in a grantee's Housing Assistance Plan (HAP). HUD discontinued use of the HAP by CDBG grant recipients in the mid-1990s. Section 570.206(g) cannot be read to just substitute costs related to the Consolidated Plan for costs formerly eligible in connection with the HAP. Therefore, HUD proposes to remove § 570.206(g) and replace it with a provision addressing how CDBG funds may be used to support eligible administrative and planning costs for the HOME Investment Partnerships Program (HOME).

Section 17 of the United States Housing Act of 1937

Section 570.206(h) refers to the Rental Rehabilitation and the Housing Development programs that were authorized by Section 17 of the United States Housing Act of 1937 (“the 1937 Act”), Public Law 75-412, 50 Stat. 888. Congress repealed Section 17 in Section 289 of the Cranston-Gonzalez National Affordable Housing Act of 1990 (42 U.S.C. 12839) and terminated assistance to these programs. HUD therefore proposes to remove and reserve § 570.206(h). HUD similarly proposes to remove and reserve § 570.201(m), which allowed CDBG funds to be used for construction of housing under Section 17 of the 1937 Act, as well as to remove a corresponding cross-reference to § 570.201(m) at § 570.207(b)(3)(ii).

Section 108 Eligible Activities

Section 108 borrowers can undertake site preparation activities related to redeveloping real property that borrowers have acquired or rehabilitated with Section 108 funds or that is for an economic development purpose. The wording of § 570.703(f) makes it unclear that all such site preparation activities must relate to either of those two purposes. This proposed rule would clarify this requirement.

Finally, the proposed rule would remove and reserve an eligible activity, § 570.703(j), related to activities authorized under section 17(d) of the 1937 Act (42 U.S.C. 1437o(d)); such authorized activities are no longer carried out since the repeal of the statute in 1991.

Criteria for National Objectives §§ 570.208, 570.483

Timeline To Meet a National Objective

HUD seeks to ensure that the recipients use CDBG-funded activities to develop viable urban communities by providing decent housing, a suitable living environment, and expanding economic opportunities, principally for LMI persons. CDBG-funded activities that fail to meet a national objective within a reasonable timeframe undercut the purpose of the Act. HUD proposes to require at § 570.200(a)(2) that recipients demonstrate that the acquisition meets a national objective within six years of the date of the initial drawdown of CDBG funds for the activity or the length of the period of performance and any extension permitted under 24 CFR 570.509, whichever is shorter. To reinforce this requirement in the national objectives criteria sections of part 570, HUD proposes to insert the six-year timeframe to meet a national objective at §§ 570.208(e) and 570.483(g).

For example, recipients may acquire real property but fail or struggle to meet a national objective based on unforeseen circumstances. The recipient or subrecipient may acquire property with the intention of constructing a public facility such as a recreation center on the site or making infrastructure improvements where affordable housing will later be developed, but unforeseen circumstances prevent the proposed activity from occurring as planned. Rather than change the use of the real property for a purpose that will meet the planned or other national objective, the recipient or subrecipient may simply hold the property indefinitely. In this circumstance, Office of Inspector General audits have documented that the length of time between acquiring

property and meeting a national objective will be excessively long.

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The proposed change would ensure that activities meet a national objective in a timely manner to meet the purpose of the Act.

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In 2014, the HUD OIG sampled CDBG projects and audited corresponding activities. OIG found the possibility that stalled activities did not meet a national objective compliance due to reporting problems or delayed implementation (resulting in stalled status). For reference, this is an example report:

https://www.hudoig.gov/sites/default/files/documents/2014-LA-1007_0.pdf.

Low and Moderate Income—Area Benefit

To demonstrate compliance with the national objective of benefit to LMI persons on an area basis (§§ 570.208(a)(1) and 570.483(b)(1)), a CDBG-assisted activity must have a defined service area. The service area must be primarily residential, and at least 51 percent of the residents in this service area must be LMI persons. Certain exception requirements at § 570.208(a)(1)(ii) allow a threshold of lower than 51 percent in limited circumstances. When designating the service area for a CDBG-assisted activity, the service area should be accurately described and proportionate to the size of the CDBG-assisted activity. For example, a recipient cannot automatically presume a large park serves just the neighborhood in which it is located; it may serve the entire jurisdiction of the recipient. To meet the criteria at § 570.208(a)(1) or § 570.483(b)(1), the recipient must use the most recent Census Bureau data provided by HUD or conduct a survey to determine if a minimum of 51 percent of the residents in the defined service area are LMI.

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CDBG-assisted activities that often use this national objective include water/sewer installation and/or improvements, rehabilitation or construction of public facilities and improvements, acquisition and/or disposition of real property, clearance and remediation activities, and some public service activities.

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HUD issued technical assistance for conducting local income surveys. For more information, please visit

https://www.hudexchange.info/programs/cdbg/cdbg-income-survey-toolkit/.

Low- and Moderate-Income—Limited Clientele

To demonstrate compliance with the national objective of benefit to LMI persons-limited clientele (§§ 570.208(a)(2) and 570.483(b)(2)), a CDBG-assisted activity must: (1) benefit members of a group presumed to be LMI, as such groups are described in § 570.208(a)(2)(i)(A) and § 570.483(b)(2)(ii)(A); (2) require information on family size and income to demonstrate that not less than 51 percent of the beneficiaries are LMI; (3) be restricted to low- and moderate-income persons; or (4) be of such nature and be in such location that it may be concluded that the beneficiaries of the CDBG-assisted activity are low and moderate income, as such nature and locations are described in §§ 570.208(a)(2)(i)(D) and 570.483(b)(2)(ii)(D). The LMI limited clientele national objective is often met by CDBG-assisted activities that are: restricted to children, such as tutoring and recreation programs; senior services, such as Meals on Wheels; the removal of architectural barriers; and public facilities for special populations such as the homeless and domestic violence shelters.

HUD proposes revisions to the limited clientele provision that would state the requirements more clearly and that would provide better guidance to recipients. In addition to the proposed definition of “elderly” at § 570.3, HUD proposes references to that definition at §§ 570.208(a)(2)(i)(A) and 570.483(b)(2)(ii)(A) with parenthetical statements after “elderly persons.”

Further, HUD proposes to clarify the presumed LMI group of “illiterate adults.” Some CDBG recipients have interpreted the term “illiterate adults” to mean illiterate in a person's native language, while other recipients have interpreted it to mean adults that are illiterate in English. Neither the Act nor part 570 define illiteracy. HUD's position at one time was that, for the CDBG program, an illiterate adult is one who is unable to read or write in any language. However, HUD has reconsidered that definition and proposes to codify HUD's current interpretation at §§ 570.208(a)(2)(i)(A) and 570.483(b)(2)(ii)(A) that illiterate adults are adults unable to read and write in English and in their first language, if the adult's first language is not English.

Question for comment #11:

Would the proposed definition for adult illiteracy accurately reflect the presumed LMI group of “illiterate adults”?

HUD also proposes to broaden the application of the presumed LMI group of “battered spouses” to cover all survivors of domestic violence. Survivors of dating violence, sexual assault, and stalking are categories included in survivors of domestic violence. The current category of “battered spouses” limits the presumption to spouses. However, unmarried survivors of violence may be presumed to be LMI. Therefore, HUD proposes to remove “battered spouses” from the presumed categories of LMI persons and replace it with “survivors of domestic violence” at §§ 570.208(a)(2)(i)(A) and 570.483(b)(2)(ii)(A). HUD interprets “battered spouses” to be a subcategory of “survivors of domestic violence” still presumed to be LMI under those provisions.

Furthermore, HUD proposes to interpret survivors of human trafficking to be a subcategory of homeless persons, which is presumed to be LMI under these provisions. HUD considers human trafficking, including both labor and sex trafficking, to be “other dangerous or life-threatening conditions that relate to violence against the individual or family member” under paragraph 4 of the definition of “homeless” at § 578.3. Where an individual or family is fleeing, or is attempting to flee human trafficking, 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; and the individual or family has no other residence; and the individual or family lacks the resources or support networks to obtain other permanent housing; HUD would consider that individual or family to qualify as “homeless” under the definition. By including survivors of human trafficking as a subcategory of homeless, HUD would be better able to ensure that they have access to the benefits and services necessary for their safety, protection, and basic well-being.

Finally, HUD proposes to add categories of groups of persons at §§ 570.208(a)(2)(i)(A) and 570.483(b)(2)(ii)(A) that, when served exclusively or in combination with groups of persons in other listed categories, may be presumed to benefit persons, 51 percent of whom are LMI, barring any evidence to the contrary: persons who meet the Federal poverty guidelines and persons who are insured by Medicaid. The Federal poverty guidelines, established by the Department of Health and Human Services based on poverty thresholds published by the Census Bureau, estimate the minimum amount of income needed to cover basic needs. Medicaid coverage varies by State and other eligibility requirements, but income qualification is generally less than four times the Federal poverty guidelines. Further, while nearly all jurisdictions in the U.S. have more LMI persons than persons in poverty, in a small number of jurisdictions more persons are in poverty than are LMI. Allowing grantees to presume that persons in poverty are LMI will address

such anomalies and simplify requirements across other Federal programs that also provide benefits to persons who meet the Federal poverty guidelines.

Low and Moderate Income—Housing Activities

To demonstrate compliance with the LMI housing national objective (§§ 570.208(a)(3) and 570.483(b)(3)), a CDBG-assisted residential structure must be occupied by predominantly LMI households. Unlike the other LMI national objectives, meeting the LMI housing national objective is based on households rather than individuals or families. A household is all the persons that occupy a housing unit, whether related or unrelated. Meeting the LMI housing national objectives criteria is also based on the number of housing units. Each single-unit structure must be occupied by an LMI household. In a two-unit structure, one unit must be so occupied. Where there are three or more units in a structure, a minimum of 51 percent of the households must be occupied by LMI households. CDBG-assisted activities that may meet this national objective include homeownership assistance, housing rehabilitation (single and multifamily), and acquisition of real property where a recipient or subrecipient will construct housing units using another funding source. Pursuant to § 570.207(b)(3), recipients or subrecipients may not use CDBG or Section 108 funds for new housing construction unless it is provided under the last resort housing provisions of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (42 U.S.C. 4601

et seq.

) (URA) regulations at 49 CFR part 24, it is authorized as part of direct homeownership assistance for LMI households under § 570.201(n), or a qualified Community-Based Development Organization is carrying out the activity under § 570.204.

Some exceptions permit eligible activities to meet the LMI housing national objective where less than 51 percent of multifamily units are occupied by LMI households. Such activities include assistance for an eligible activity to reduce the development cost of the new construction of a multifamily, non-elderly rental housing project where not less than 20 percent of the units will be occupied by LMI households at affordable rents. In addition, the proportion of the total cost of developing the project to be paid with CDBG funds must be no more than the proportion of units in the project that will be occupied by LMI households (§§ 570.208(a)(3)(i) and 570.483(b)(3)(i)). The proposed rule would add as additional exceptions substantial rehabilitation (as defined at § 5.100) and conversion of a nonresidential structure to a multifamily, non-elderly rental housing project. This change would align treatment of substantial rehabilitation with new construction for purposes of meeting the national objectives criteria for housing activities.

HUD Review of Consolidated Plan § 91.500

Some recipients believe that a Consolidated Plan that is not disapproved by HUD pursuant to § 91.500(a) constitutes an approval of the eligibility of the activities for the applicable programs identified in the plan. Because the Consolidated Plan is a planning document, HUD is unable to determine that a grantee will carry out the activity in compliance with program requirements, including eligible activity requirements. Grantees may amend plans, including planned activities, at any time and amendments are not subject to HUD review. However, because the Plan describes a substantial number of activities for many different CPD programs; reviewing each individual activity within the plan for compliance would be burdensome for CPD field offices and significantly lengthen review of the Consolidated Plan and delay grantees' ability to carry out activities. CPD seeks to ensure the eligibility of activities through risk analysis and monitoring after grantees have carried out activities. Therefore, HUD proposes to add language to § 91.500(a) stating that the fact that HUD has not disapproved the Consolidated Plan does not constitute approval of the activities identified in the Plan as being compliant with relevant program requirements and does not confer a determination of the eligibility of the activities in the Consolidated Plan.

Urban County Qualification/Requalification Process § 570.307

Currently, § 570.307 requires the Secretary to determine, after reviewing qualification documentation from an urban county, whether the county is qualified to receive CDBG funds. Each year, HUD publishes a notice,

Instructions for Urban County Qualification for Participation in the Community Development Block Grant (CDBG) Program,

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setting forth the qualification process, which generally runs from May to September. Once urban counties complete the qualification/requalification process, they remain qualified for three successive Federal fiscal years, as stated in § 570.307(d). However, the CDBG urban county qualification process does not have a statutory or regulatory completion date. Therefore, HUD proposes to insert a provision at § 570.307(h) that would require urban counties to complete the urban county qualification or requalification process no later than September 30 of the year of qualification or requalification.

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Available at:

https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-02cpdn.pdf.

Section 217(b)(3) of title II of the Cranston-Gonzalez National Affordable Housing Act, as amended (NAHA) (42 U.S.C. 12747(b)(3)), and §§ 92.50(a) and 92.101(a)(1) require that, in order to receive a HOME formula allocation for a fiscal year as a consortium, units of general local government be qualified/requalified as consortia in accordance with HOME requirements by the last day of the prior fiscal year, which is September 30 of each year. Most urban counties and HOME consortia select the same three-year qualification period to simplify the qualification process for both entities, and HOME consortia may change their three-year qualification cycles so that they coincide with the urban county's three-year qualification period. Because the CDBG program does not currently have a deadline to complete the process, however, an urban county that is also a HOME consortium may not complete the qualification process for the consortium by September 30 because of an issue that arises with a participating unit of local government with regard to its participation in the urban county's CDBG program. While this will not affect a consortium's CDBG funding, such an action may result in a loss of its HOME funding for that fiscal year. Therefore, a September 30 deadline for the urban county qualification process may help align the programs and eliminate problems that arise regarding a consortium's timely completion of its qualification or requalification as a HOME consortium under the requirements in 24 CFR part 92.

Exclusion of Section 108-Generated Revenue From Program Income § 570.500

HUD proposes to remove language from § 570.500(a)(4)(ii) that excludes from the definition of “program income” revenues generated by certain activities financed by a Section 108 loan guarantee. HUD adopted § 570.500(a)(4)(ii) to promote the use of Section 108 financing for economic development activities. However, the regulations are confusing to recipients

who want to use Section 108-generated revenue for other eligible activities because the recipients may infer that such revenue is not subject to any restrictions. That inference would be incorrect, however, because significant restrictions on the use of the program income do exist. Access to the revenue is restricted because it is by default pledged as security for repayment of the guaranteed loan for the term of the loan, which may be up to 20 years. Further, some recipients have noted that the requirement to use miscellaneous revenue for activities located in a HUD-approved Neighborhood Revitalization Strategy Area (NRSA) limits the provision's utility when implementing an NRSA would not be practicable for them. Given these problems and given that this exclusion has not provided any apparent benefits to Section 108 borrowers, HUD proposes to remove this provision. HUD believes that other proposed changes to the regulations will promote the increased use of CDBG and Section 108 funding for economic development more effectively and efficiently than maintaining the program income exclusion.

Treatment of Excess Program Income § 570.504

Currently, § 570.504(b)(2)(iii) requires each recipient to calculate the amount of program income cash balances on hand at the end of each program year (except those needed for immediate cash needs, cash balances of a revolving loan fund, cash balances in lump sum drawdown accounts, and cash and investments held for Section 108 loan guarantee security needs). After all deductions, the recipient must determine if the cash balances as of the end of the program year exceed

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of the most recent annual grant. The recipient must remit any excess amount to HUD as soon as practicable after the end of the program year. The regulations provide for the excess amount to be placed in the recipient's line of credit. HUD has determined that it cannot place the excess program income in a line of credit. Therefore, HUD proposes to require that the recipient send such excess program income to the United States Treasury. Note that the amount to be remitted to HUD does not include program income cash balances needed for various program purposes,

e.g.,

amount pledged as security for a Section 108 loan.

Definition of Program Income—State CDBG Program § 570.489

In the definition of program income for the State CDBG program at § 570.489(e)(2)(iv)(C), an exclusion allows a unit of general local government funded by a State to retain up to $100 per year in interest on deposit of grant funds before disbursement of the funds for activities for CDBG administrative expenses. The amount of $100 previously aligned with § 85.21(h)(2)(i), which has been replaced by 2 CFR 200.305(b)(9), and which currently allows a unit of general local government funded by a State to retain up to $500 per year. Therefore, HUD proposes to update § 570.489(e)(2)(iv)(C) by replacing the dollar amount with a reference to 2 CFR 200.305(b)(9).

Reporting Data on Use of CDBG Funds § 570.507

HUD proposes to add a requirement at § 570.507(d) to require a recipient to collect and report data on its use of CDBG funds in the Integrated Disbursement and Information System (IDIS). HUD has required recipients to report program activity and expenditure data in IDIS since 1996, but part 570 requires only that recipients must generally “submit such other reports and information as HUD determines are necessary.” The revision would make it clear to recipients that they must use IDIS to submit such reports as required by § 570.507.

Conflict of Interest Public Disclosure Requirements §§ 570.489, 570.611

Currently, §§ 570.489(h)(4)(i) (for State recipients) and 570.611(d)(1)(i) (for entitlement recipients) require that when recipients request that HUD consider an exception to the conflict-of-interest requirements, recipients must have documentation of disclosure of the nature of the conflict accompanied by an assurance that there has been a public disclosure of the conflict and a description of how the public disclosure was made. The regulations do not make clear what “public disclosure” means. Some recipients define public disclosure as public hearings or publication in a newspaper of general local circulation; others believe that posting it on the recipient's website is sufficient. To clarify and make standard what public disclosure means, HUD proposes to add language to §§ 570.489(h)(4)(i) and 570.611(d)(1)(i) that would define public disclosure as disclosure through any of the following media: publication on the recipient's website, including social media; electronic mailings; media advertisements; public service announcements; and display in public areas such as libraries, grocery store bulletin boards, and neighborhood centers. HUD also clarifies the existing requirement to make it explicit that grantees must provide HUD evidence of the public disclosure.

Section 108 Loan Guarantees §§ 570.704, 570.705

Application Requirements

The Section 108 application submission requirements at § 570.704(b) state that an applicant should provide the application “to the appropriate HUD Office,” but do not distinguish whether the application should go to the applicant's local HUD Field office or Headquarters. The proposed rule would explicitly state that applicants should submit applications for Section 108 loan guarantee assistance to HUD Headquarters, ensuring that HUD Headquarters can promptly review such applications concurrently with HUD Field office staff.

Prior to 2015, the regulations implied, but did not clearly state, that HUD Field offices reviewed applications first and then forwarded the application together with its recommendation for approval or disapproval to HUD Headquarters. HUD removed this provision in a 2015 rulemaking, leaving the rule silent as to which HUD office(s) applicants should submit an application. In concert with the 2015 rulemaking, CPD's Financial Management Division (FMD) at HUD Headquarters (which administers the Section 108 program) implemented a concurrent review process with CPD Field office staff. However, some applicants have continued to submit applications only to HUD Field offices. HUD Field office staff are responsible for many CPD programs and may not review a submitted application as promptly as FMD or notify FMD that they have received a new application. Applications submitted only to HUD Field offices may therefore result in a delay in the start of the concurrent review process.

The submission requirements also do not clearly reiterate the basic information an applicant needs to include in an application: specifically, the proposed eligible activity under § 570.703 and the source of the payment of fees under § 570.712 (in addition to the national objectives criteria at § 570.208, which is already identified in the current program regulation at § 570.704(b)(1)). Other parts of subpart M include these requirements, but the proposed rule would reiterate those requirements to clearly identify what information the Section 108 application must contain. HUD proposes to add these references to § 570.704(b)(1) and (2), respectively.

Finally, HUD proposes to better organize the submission requirements at

§ 570.704(b) pertaining to necessary certifications. The proposed revisions would reorganize the required certifications in a format better suited for applicants to understand. HUD believes such clarity will help applicants prepare an application correctly and ensure that requests for missing certifications do not delay HUD's review. Another revision would correct an error in the current regulation and would require Section 108 applicants to certify that they must impose assessments on properties owned and occupied by moderate-income persons, to recover the

non

-guaranteed loan funded portion of the capital cost without paying such assessments on their behalf from guaranteed loan funds, instead of the current language which discusses only the “guaranteed” loan funded portion of the capital cost.

Loan Requirements

The limitations on commitments at § 570.705(a)(1)(iii) permit HUD to place a higher priority on applications containing activities to be carried out in areas designated as empowerment zones/enterprise communities by the Federal Government or a State. Statutory authorization for such activities has lapsed, removing the need to place a higher priority on activities carried out in such areas. Therefore, HUD proposes to delete the language in § 570.705(a)(1)(iii) referring to empowerment zones/enterprise communities and replace it with language describing areas designated as economically distressed by the Federal Government or by any State.

Security Requirements

Security requirements outlined in § 570.705(b) list examples of acceptable forms of additional security (other than CDBG funds) for loan guarantees that the loan guarantee contract between HUD and a borrower will specify. However, the limited examples of security may mislead potential applicants into believing that the regulations limit the security pledged for loan guarantees to the listed types of security. Publishing such information through guidance documents and marketing materials and engaging in direct outreach to potential applicants are clearer and more effective ways to communicate the types of security that a borrower may pledge. Therefore, HUD proposes to remove and reserve the examples of security HUD may accept at § 570.705(b)(3)(i) through (iv).

Additionally, HUD proposes to delete subsections that are unnecessary or inconsistent with other provisions. Section 570.705(a)(2)(iii)(A) through (C) appear to provide three methods of calculating limitations on commitments to guarantee loans for recipients that receive grants under subpart F. However, paragraph (a)(2)(iii)(A) is duplicative of 570.705(a)(2)(iii), and paragraphs (a)(2)(iii)(B) and (C), which allow for using an average of the three most recent grants, are inconsistent with § 570.705(a)(2)(iii).

F. ICDBG Program

HUD also proposes certain corresponding changes to Part 1003, where appropriate, that are intended to align the ICDBG program with the CDBG program.

Definitions § 1003.4

HUD proposes amending the Definitions section to include “activity delivery costs.” Similar to CDBG recipients and subrecipients, ICDBG recipients and subrecipients may incur costs typically referred to as “activity delivery costs” related to carrying out specific ICDBG eligible activities. The ICDBG regulations do not specifically define this term; therefore, HUD proposes to add a definition at § 1003.4. This addition makes clear that recipients and subrecipients must use the cost principles at 2 CFR part 200, subpart E, in determining the allowability of the costs. In particular, recipients and subrecipients must ensure that activity delivery costs consisting of staff salaries are allocable to the specific activity and adequately documented.

Eligible Activities §§ 1003.201, 1003.202, 1003.203

Basic Eligible Activities

HUD proposes to add a new § 1003.201(r) to clarify that recipients can assist eligible activities if they are part of mixed-use properties that also contain ineligible uses, so long as the recipient expends ICDBG funds only on the eligible use. The proposed rule also would add a definition of “mixed-use property” to the new § 1003.201(r). This is a conforming change to the ICDBG regulations to align them with the proposed changes to the CDBG regulations in this proposed rule.

Additionally, the Tornado Shelters Act (Pub. L. 108-146; 117 Stat. 1883, enacted December 3, 2003) (42 U.S.C. 5301, note), authorized the construction or improvement of tornado shelters in certain neighborhoods and manufactured housing communities as an eligible activity under the CDBG program. Consistent with the change to § 570.201, HUD proposes to insert a provision at § 1003.201(p) that would codify the use of ICDBG funds for tornado safe shelters as an eligible activity under certain conditions. As discussed above with respect to CDBG, this activity is already eligible under ICDBG. HUD is simply codifying in regulations a statutory change that has been codified in law for many years.

Finally, consistent with CDBG, HUD proposes to add a new paragraph (q) to clarify that essential repairs and operating expenses necessary to maintain the habitability of housing units acquired through tax foreclosures is also an eligible activity.

Eligible Rehabilitation and Preservation Activities

HUD proposes to amend § 1003.202(a) to clarify that reconstruction of housing is an eligible ICDBG activity. Reconstruction of buildings or structures, including housing, has been an eligible ICDBG activity since 1996. However, the program regulations do not clearly and expressly identify reconstruction as an eligible activity related to housing. To make clear that reconstruction is an eligible activity under § 1003.202(a), HUD proposes to add the words “and reconstruction” to the introductory language at § 1003.202(a). This update will be a conforming change for the ICDBG regulations to align them with the same proposed changes to the CDBG regulations in this proposed rule.

Special Economic Development Activities

HUD proposes to amend § 1003.203(b) governing special economic development activities. Section 1003.203 governs the use of ICDBG funds for special economic development activities and includes an illustrative list of eligible forms of assistance to private for-profit businesses. The ICDBG regulations already list forms of support by which recipients can provide assistance to private, for-profit businesses where the assistance is appropriate to carry out an economic development project. HUD has previously interpreted this provision to allow ICDBG assistance to New Markets Tax Credit (NMTC) investment vehicles. The proposed revisions would explicitly indicate that ICDBG recipients are allowed to provide assistance to an economic development project through a for-profit entity that passes the funds through a financing mechanism (

e.g.,

Qualified Opportunity Funds and NMTC investment vehicles). This update is a conforming change to the ICDBG regulations to align them with the same proposed changes to the CDBG regulations in this proposed rule.

Program Administration Costs § 1003.206

HUD proposes to amend § 1003.206 to add a reference to the new proposed definition of “activity delivery costs” in § 1003.4 to help ICDBG recipients distinguish between administrative costs and activity delivery costs. This update is a conforming change to the ICDBG regulations to align them with the proposed changes to the CDBG regulations in this proposed rule.

Criteria for Compliance With the Primary Objective § 1003.208

HUD's regulation at § 1003.208 provides the criteria for determining whether an ICDBG-assisted activity complies with one or more of the national objectives. HUD proposes conforming changes to paragraphs (b), (c), and (d) Limited Clientele activities, Low- and Moderate-Income Housing Activities, and Job creation or retention activities. This update is a conforming change to the ICDBG regulations to align them with the proposed changes to the CDBG regulations in this proposed rule.

With respect to Limited Clientele activities, HUD proposes revisions to paragraph (b) to clarify requirements and provide better guidance to recipients. Consistent with the reasons stated above in section III.E with respect to the CDBG program, HUD proposes to clarify in the ICDBG program that the presumed LMI group of “illiterate adults” means adults unable to read and write in English and in their first language, if the adult's first language is not English. HUD also proposes to broaden the application of the presumed LMI group of “battered spouses” to cover all survivors of domestic violence. The current category of “battered spouses” limits the presumption to spouses. However, unmarried survivors of violence may be presumed to be LMI. Therefore, HUD proposes to remove “battered spouses” from the presumed categories of LMI persons and replace it with “survivors of domestic violence.” HUD interprets “battered spouses” to be a subcategory of “survivors of domestic violence” still presumed to be LMI under the ICDBG regulations. As stated earlier, HUD also proposes to interpret survivors of human trafficking to be a subcategory of homeless persons, which is presumed to be LMI under these provisions, in order to ensure that they have access to the benefits and services necessary for their safety, protection, and basic wellbeing.

Finally, HUD proposes to add categories of groups of persons at § 1003.208(b)(1)(i) that, when served exclusively or in combination with groups of persons in other listed categories, may be presumed to benefit persons, 51 percent of whom are LMI, barring any evidence to the contrary: persons who meet the Federal poverty guidelines and persons who are insured by Medicaid. As stated in reference to the same changes being proposed in CDBG in §§ 570.208(a)(2) and 570.483(b)(2), the Federal poverty guidelines, established by the Department of Health and Human Services based on poverty thresholds published by the Census Bureau, estimate the minimum amount of income needed to cover basic needs. Medicaid coverage varies by State and other eligibility requirements, but income qualification is generally less than four times the Federal poverty guidelines. Further, while nearly all jurisdictions in the U.S. have more LMI persons than persons in poverty, in a small number of jurisdictions more persons are in poverty than are LMI. Allowing ICDBG grantees to presume that persons in poverty are LMI will address such anomalies and simplify requirements across other Federal programs that also provide benefits to persons who meet the Federal poverty guidelines.

With respect to the Low- and Moderate-Income Housing activities in paragraph (c), to demonstrate compliance with the LMI housing national objective, an ICDBG-assisted residential structure must be occupied by LMI households. Meeting the LMI housing national objective is based on households rather than individuals or families. A household is all the persons that occupy a housing unit, whether related or unrelated. Meeting the LMI housing national objectives criteria is also based on the number of housing units. Generally, ICDBG funds may only be used to assist housing units occupied by LMI households. Accordingly, in order for an activity to meet the LMI housing national objective, each single-unit structure that is assisted with ICDBG funds must be occupied by an LMI household. When ICDBG funds are used to assist a two-unit structure, to meet the LMI housing national objective, at least one unit must be so occupied. Where there are three or more units in a structure, a minimum of 51 percent of the units must be occupied by LMI households. ICDBG-assisted activities that may meet this national objective include homeownership assistance, housing rehabilitation (single and multifamily), and acquisition of real property where a recipient or subrecipient will construct housing units using another funding source.

Some exceptions permit eligible activities to meet the LMI housing national objective where less than 51 percent of multifamily units are occupied by LMI households. Such activities include assistance for an eligible activity to reduce the development cost of the new construction of a multifamily, non-elderly rental housing project where not less than 20 percent of the units will be occupied by LMI households at affordable rents. In addition, the proportion of the total cost of developing the project to be paid with ICDBG funds must be no more than the proportion of units in the project that will be occupied by LMI households. The proposed rule would add as additional exceptions substantial rehabilitation and conversion of a nonresidential structure to a multifamily, non-elderly rental housing project. This change would align treatment of substantial rehabilitation with new construction, as is also proposed in the CDBG section 24 CFR 570.208(a)(3)(i) and 570.483(b)(3) of this rule for purposes of meeting the national objectives criteria for housing activities.

Finally, with respect to job creation or retention activities in paragraph (d), documenting whether a job is held by or made available to an LMI person can present a financial and administrative burden on ICDBG recipients due to the data that recipients must gather and collect from assisted businesses. This aligns with changes proposed in CDBG regulations at 24 CFR 570.208(a)(4) and 570.483(b)(4) above. As noted there, to help alleviate this burden, HUD is proposing to revise the regulations to add a presumption based on the location of an assisted business and based on where the person holding the job resides. The revised regulation would provide that, for purposes of determining whether a job is held by or made available to a low or moderate income person, the person may be presumed to be a low or moderate income person if: he/she resides within a census tract where not less than 70 percent of the residents have incomes at or below 80 percent of the area median; or, if he/she resides in a census tract designated as economically distressed by the Federal Government; or, if the assisted business is located in and the job under consideration is to be located in such a tract or area. Revising the criteria for the presumption would significantly clarify the standards for recipients and encourage greater use of ICDBG funds for job creation and

retention activities in many Tribal communities.

Reports § 1003.506

HUD is proposing to amend the due dates for annual status and evaluation reports (ASERs) in § 1003.506(a) to accommodate ICDBG grantees that have a Tribal program year different than the Federal Fiscal year. The term “Tribal program year” is defined in the Indian Housing Block Grant (IHBG) regulations at § 1000.10 as the fiscal year of the IHBG recipient. Under the proposed rule, ASERs would be due 90, rather than 45 days, after the end of the grantee's Tribal program year, or after the end of the Federal fiscal year if the grantee has a Tribal program year that ends on the same date the Federal fiscal year ends. The amendment would align the ASER due dates with the due dates for Annual Performance Reports under the IHBG program to assist grantees of both programs to more easily track and schedule submission of reports due to HUD. ASERs would also continue to be required at grant close-out in accordance with the requirements of § 1003.508.

HUD also proposes to revise the language in § 1003.506(a) with respect to the form of ASER reports. The current regulation requires a narrative for the ASER which has resulted in significant variations in the reports submitted as well as difficulty in capturing relevant and useful data. HUD intends in the future, through the PRA process, to develop and promulgate a standardized ASER form with drop down boxes and set data points to assist recipients in meeting the reporting requirements in a consistent manner, which will both improve the usefulness of the data received and facilitate data retention and analysis. The proposed revision to the current language will make it easier for HUD to implement such a form in the future.

Conflict of Interest § 1003.606

To clarify and standardize the meaning of the term “public disclosure,” HUD proposes to add language to § 1003.606 that would define public disclosure as disclosure through any of the following media: publication on the recipient's website, including social media; electronic mailings; media advertisements; public service announcements; and display in public areas such as libraries, grocery store bulletin boards, and neighborhood centers. Currently, § 1003.606 requires that when recipients request that HUD consider an exception to the conflict-of-interest requirements, recipients must have documentation of disclosure of the nature of the conflict accompanied by an assurance that there has been a public disclosure of the conflict and a description of how the public disclosure was made. The regulations do not make clear what “public disclosure” means. Some recipients define public disclosure as public hearings or publication in a newspaper of general local circulation; others believe that posting it on the recipient's website is sufficient. This update will clarify the meaning of the term and is a conforming change for the ICDBG regulations to align them with the proposed changes to the CDBG regulations in this proposed rule. HUD also clarifies the existing requirement to make it explicit that grantees must provide HUD evidence of the public disclosure.

G. Technical Corrections and Outdated Provisions

HUD proposes the following technical corrections:

Sections 91.225(b)(2) (for entitlement recipients) and 91.325(b)(3) (for State recipients) refer to § 570.2 in certifying the consolidated housing and community development plan; however, § 570.2 was removed from the regulations in 1996. The provisions should instead refer to implementing the primary objective of the Act at § 570.200(a)(3). Therefore, HUD proposes to replace the citation to § 570.2 with a citation to § 570.200(a)(3).

HUD proposes to correct a typographical error in § 570.201(k), which refers to section 105(a)(21) of the Act concerning assistance to institutions of higher education but should instead refer to housing services activities under section 105(a)(20) of the Act.

HUD proposes to redesignate § 570.205(a)(6) as § 570.205(b), as HUD originally intended policy, planning, management, and capacity building activities to be a subheader for the activities below and separate from paragraph (a).

HUD proposes to correct a reference in § 570.207 to a non-existent section of § 570.3. The definitions in section 570.3 are undesignated; however, § 570.207(a)(1) contains a reference to § 570.3(d), which does not exist.

HUD proposes to correct § 570.208(d)(5), which refers to § 91.215(e) in discussing area revitalization strategy areas, but should refer to § 91.215(g), which discusses neighborhood revitalization.

HUD proposes to correct references in § 570.307 to non-existent sections of § 570.3. The definitions in section 570.3 are undesignated; however, § 570.307(b)(1) and (d)(1) both contain references to § 570.3(3), which does not exist.

HUD proposes to correct §§ 570.482(c)(1) and 570.482(c)(2)(i), which cite to section 105(a)(23) of the Act, which concerns treatment of property acquired in tax foreclosure proceedings; but should instead cite to section 105(a)(22) of the Act, which discusses microenterprise assistance activities.

HUD proposes to restore § 570.489(e)(3)(ii)(C), which was mistakenly omitted from the Code of Federal Regulations in 2015.

HUD proposes to correct the citation in § 570.490(a)(2) to § 91.320(j)(1), which should instead be to CDBG requirements in the action plan at § 91.320(k)(1).

HUD proposes to correct § 570.504(c) regarding the disposition of program income by subrecipients, which states that subrecipients holding program income after the expiration of a subrecipient agreement shall pay such funds to the recipient as required by § 570.503(b)(8). However, the correct citation is to § 570.503(b)(7).

The proposed rule would delete subparts E and G of part 570. Subpart E governs a variety of special purpose grants that no longer exist. Subpart G governs Urban Development Action Grants, which likewise no longer exist. In concert, HUD proposes revisions to remove references to subparts E and G in the definition of “CDBG funds” at § 570.3; the conflict-of-interest requirements at § 570.611(a)(2); and subpart K applicability at § 570.600(a).

The proposed rule would also remove § 570.613, “Eligibility restrictions for certain resident aliens.” This section provides restrictions for “certain newly legalized aliens” as they were described in 24 CFR part 49, which no longer exists. The rule was intended to address the 1986 amendments to the Immigration and Naturalization Act of 1952, which prohibited certain noncitizens from receiving Federal financial assistance furnished on the basis of financial need for a period of five years. (Section 245A(h) of the Immigration and Nationality Act, 8 U.S.C. 1255a(h)). As this provision applied to newly legalized aliens that entered the country before January 1, 1982, and admitted for lawful residence in accordance with the 1986 amendments, HUD has removed 24 CFR part 49, which described this population, and is now removing the regulation that referenced this statutory requirement.

HUD proposes to revise Uniform Relocation Act (URA) citations in the CDBG and ICDBG program regulations

(§§ 570.606 and 1003.602) to update an outdated URA regulatory citation (49 CFR 24.2(g)(2)). The URA regulatory citation changed to 49 CFR 24.2(a)(9)(ii) in the 2005 URA final rule but was never updated in the CDBG and ICDBG program regulations.

H. Interaction of This Proposed Rule With HUD's Proposed Rule on Affirmatively Furthering Fair Housing

HUD acknowledges that this proposed rule proposes to amend sections of the Code of Federal Regulations that HUD has also previously proposed to amend in its Affirmatively Furthering Fair Housing (AFFH NPRM), published February 9, 2023 (88 FR 8516). Both rules propose amendments to §§ 91.105(b)(2) and (c) and 91.115(b)(2). The AFFH NPRM and this NPRM propose to amend these provisions in different ways that do not conflict with each other.

HUD will consider public comments received on each proposed rule. The public comment period on the AFFH NPRM closed on April 24, 2023, and HUD is considering the public comments received on the AFFH NPRM's proposed changes to the referenced provisions as part of that rulemaking. HUD invites the public to comment on the revisions and additions proposed as part of this rulemaking.

Although the proposed regulatory amendments in this NPRM do not reflect the amendments proposed in the AFFH NPRM, HUD intends this rule to ultimately be consistent with a final AFFH rule. HUD will consider all relevant comments received on the AFFH NPRM, as well as on this NPRM. HUD will reconcile the regulatory language in its final rules, ensuring that the final version of this rule, if published after a final AFFH rule is codified, is consistent with all changes made in that published final AFFH rule.

For example, both NPRMs propose to add new language to 24 CFR 91.115(b)(2). The AFFH NPRM proposes to apply certain requirements of this provision to the Equity Plans that could be established by an AFFH final rule. The proposed language in this NPRM does not account for such Equity Plan requirements since that is not the subject of this rulemaking. However, if HUD adds Equity Plan requirements to 24 CFR 91.115(b)(2) in its AFFH final rule, a subsequent final rule published as part of this rulemaking will include that change, and appropriately reconcile the additions made in each rule.

IV. Findings and Certifications

Regulatory Review (Executive Orders 12866, 13563, and 14094)

Pursuant to Executive Order 12866 (Regulatory Planning and Review), a determination must be made whether a regulatory action is significant, and therefore, subject to review by 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. Executive Order 14094 entitled “Modernizing Regulatory Review” (hereinafter referred to as the “Modernizing E.O.”) amends section 3(f) of Executive Order 12866 (Regulatory Planning and Review), among other things.

HUD believes that this proposed rule, by revising the Community Development Block Grant (CDBG) and related Section 108 loan guarantee program regulations to make it easier for recipients to promote economic development and recovery in low- and moderate-income communities and support investments in underserved areas, together with corresponding changes in the ICDBG program, will increase the effectiveness of these grant programs. The proposed rule has been determined to be a “significant regulatory action,” as defined in section 3(f) of Executive Order 12866, but not economically significant under section 3(f)(1) of the Order. The docket file is available for public inspection online at

www.regulations.gov.

Paperwork Reduction Act

The information collection requirements contained in this rule are currently approved by OMB and have been given OMB Control Numbers 2506-0077, 2506-0085, and 2577-0191. 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.

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 analysis also considers the potential impact on Indian Tribes.

As discussed in the preamble, the proposed rule would update CDBG's and ICDBG's economic development regulations to make it easier for recipients to promote economic development and recovery in low- and moderate-income communities and support investments in underserved areas. Because the CDBG economic development regulations and standards have not been updated since 1995, the proposed rule would provide a much-needed update to ease the expenditure of funds for economic development activities. The proposed rule would lessen the economic impact on grantees, small entities and recipients by reducing eligibility and recordkeeping burdens. This would likely result in increased economic development activities and the associated creation of economic opportunities principally for low- and moderate-income persons.

The proposed rule would primarily impact CDBG, Section 108 borrowers, and ICDBG grantees. CDBG grantees and section 108 borrowers are State and local governments, some of which are small government entities, and ICDBG grantees are Indian Tribes and Tribal organizations which are eligible under Title I of the Indian Self-Determination and Education Assistance Act. These grantees administer the CDBG, section 108, and ICDBG programs, are familiar with the regulatory requirements, and are ultimately responsible for program compliance. While some impacts may filter down to smaller governmental and non-governmental entities, the expected impact would be a decrease in economic burden, as discussed above. As such, the proposed rule would likely have a positive impact on small businesses and entities. The purpose of the proposed rule would be to make more funding available for all types of economic development projects. For small entities, including small governments, the lessening of regulatory burden would likely benefit those that receive CDBG, ICDBG, and section 108 funds.

Accordingly, it is HUD's determination that this proposed rule will not have a significant economic impact on a substantial number of small

entities. Notwithstanding HUD's determination that this proposed 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 proposed rule that will meet HUD's objectives as described in this preamble.

Environmental Review

A Finding of No Significant Impact 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, Room 10276, Department of Housing and Urban Development, 451 Seventh Street SW, Washington, DC 20410-0500. The FONSI is also available through the Federal eRulemaking Portal at

http://www.regulations.gov.

Federalism (Executive Order 13132)

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 the Act does not require those costs; or the rule preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments nor preempt State law within the meaning of the Executive Order.

Unfunded Mandates Reform Act

Title II of 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 proposed rule does not impose any Federal mandates on any State, local, or Tribal governments, or on the private sector, within the meaning of UMRA.

Consultation With Indian Tribes (Executive Order 13175)

HUD strives to strengthen its government-to-government relationship with Indian Tribes through a commitment to consultation with Indian Tribes and recognition of their right to self-governance and Tribal sovereignty. HUD has evaluated this proposed rule under the Department's consultation policy and under the criteria in Executive Order 13175 and has determined that Tribal consultation is necessary regarding the proposed changes. A Dear Tribal Leader was sent out to Indian Tribes on November 15, 2021, seeking comments on the proposed changes to the ICDBG regulations in this proposed rule. HUD received comments from two Tribes and one grant writer with experience providing grant writing services to Tribes under the ICDBG program. The three Tribal commenters were generally supportive of the proposed rule. Two of the three commenters did suggest additional areas for expansion of the proposed rule and/or areas that may be appropriate for separate rulemaking. Among the suggestions were clarification of the term “economically distressed” as it relates to census tracts and overall improvements to the ICDBG application process. One Tribal commenter expressed general agreement with the proposed changes but went on to comment that the entire ICDBG regulation is overdue for an overhaul. Among this commenter's specific concerns were rules governing the use of ICDBG funds for new housing construction and rehabilitation, as well as HUD's weighting of criteria in Notices of Funding Opportunity. In developing this proposed rule, HUD considered all Tribal feedback provided and HUD will conduct additional consultation before issuing a final rule.

List of Subjects

24 CFR Part 91

Aged, Grant programs—housing and community development, Homeless, Individuals with disabilities, Low- and moderate-income housing, Reporting and recordkeeping requirements.

24 CFR Part 570

Administrative practice and procedure; American Samoa; Community development block grants; Grant programs—education; Grant programs—housing and community development; Guam; Indians; Loan programs—housing and community development; Low- and moderate-income housing; Northern Mariana Islands; Pacific Islands Trust Territory; Puerto Rico; Reporting and recordkeeping requirements; Student aid; Virgin Islands.

24 CFR Part 1003

Alaska; Community development block grants; Grant programs—housing and community development; Grant programs—Indians; Indians; Reporting and recordkeeping requirements.

Accordingly, for the reasons described in the preamble, HUD proposes to amend 24 CFR parts 91, 570, and 1003 as follows:

PART 91—CONSOLIDATED SUBMISSIONS FOR COMMUNITY PLANNING AND DEVELOPMENT PROGRAMS

1. The authority citation for part 91 continues to read as follows:

Authority:

42 U.S.C. 3535(d), 3601-3619, 5301-5315, 11331-11388, 12701-12711, 12741-12756, and 12901-12912.

2. Amend § 91.105 by revising paragraphs (b)(2) and (c)(1) to read as follows:

§ 91.105

Citizen participation plan; local governments.

(b) * * *

(2) The citizen participation plan must require the jurisdiction to publish the proposed consolidated plan in a manner that affords its residents, public agencies, and other interested parties a reasonable opportunity to examine its content and to submit comments. The citizen participation plan must set forth how the jurisdiction will publish the proposed consolidated plan and give reasonable opportunity to examine the document's content. The requirement for publishing may be met by publication of a summary of the document in one or more newspapers of general circulation or on the jurisdiction's official government website. The summary must describe the content and purpose of the consolidated plan and must include a list of the locations where copies of the entire proposed document may be examined. Such listings of locations shall include libraries and government offices. A jurisdiction is encouraged to use all available social media and electronic communication at its disposal to make citizens and residents aware of the availability of the proposed consolidated plan for comment and to include such methods in its citizen participation plan, as appropriate. This includes but is not limited to: emails; text messaging (SMS); media advertisements; public service announcements made through broadcast media or through a pre-recorded message delivered by using an automatic telephone dialing system; and electronic notifications to public and private agencies identified in accordance with § 91.100. A jurisdiction may also make citizens and residents

aware of the availability of the proposed consolidated plan for comment through postings in public places, such as grocery store bulletin boards and neighborhood centers. Publications must be accessible to persons with disabilities. Publications must also provide meaningful access to limited English proficient persons as more fully described in paragraph (a)(4) of this section. In addition, the jurisdiction must provide a reasonable number of free hardcopies of the plan to residents and groups that request it.

(c) * * *

(1) The citizen participation plan must specify the criteria the jurisdiction will use for determining what changes in the jurisdiction's planned or actual activities constitute a substantial amendment to the consolidated plan. (See § 91.505.) The citizen participation plan must include, among the criteria for a substantial amendment, changes in the use of CDBG funds from one eligible activity to another and adding an activity not previously identified in the Consolidated Plan or Action Plan.

3. Amend § 91.115 by revising paragraph (b)(2) to read as follows:

§ 91.115

Citizen participation plan; States.

(b) * * *

(2) The citizen participation plan must require the State to publish the proposed consolidated plan in a manner that affords residents, units of general local governments, public agencies, and other interested parties a reasonable opportunity to examine the document's content and to submit comments. The citizen participation plan must set forth how the State will make publicly available the proposed consolidated plan and give reasonable opportunity to examine the document's content. To ensure that the consolidated plan and the PHA plan are informed by meaningful community participation, program participants should employ communications means designed to reach the broadest audience. The requirement for publishing may be met by publication of a summary of the document in one or more newspapers of general circulation or on the State's official government website. The summary must describe the content and purpose of the consolidated plan and must include a list of the locations where copies of the entire proposed document may be examined. Such listings of locations shall include libraries and government offices. A State is encouraged to use all available social media and electronic communication at its disposal to make citizens and residents aware of the availability of the proposed consolidated plan for comment and to include such methods in its citizen participation plan, as appropriate. This includes but is not limited to, emails, text messaging (SMS); media advertisements, public service announcements made through broadcast media or through a pre-recorded message delivered by using an automatic telephone dialing system, and electronic notifications to public and private agencies identified in accordance with § 91.100. A State may also make citizens and residents aware of the availability of the proposed consolidated plan for comment through postings in public places such as grocery store bulletin boards and neighborhood centers. Publications must be accessible to persons with disabilities. Publications must also provide meaningful access to limited English proficient persons as more fully described in paragraph (a)(4) of this section. In addition, the State must provide a reasonable number of free copies of the plan to its residents and groups that request a copy of the plan.

4. Amend § 91.205 by revising paragraph (a) to read as follows:

§ 91.205

Housing and homeless needs assessment.

(a)

General.

The consolidated plan must provide a concise summary of the jurisdiction's estimated housing needs (including manufactured housing) projected for the ensuing five-year period. Housing data included in this portion of the plan shall be based on U.S. Census data, as provided by HUD, as updated by any properly conducted local study, or any other reliable source that the jurisdiction clearly identifies and should reflect the consultation with social service agencies and other entities conducted in accordance with § 91.100 and the citizen participation process conducted in accordance with § 91.105. For a jurisdiction seeking funding on behalf of an eligible metropolitan statistical area under the HOPWA program, the needs described for housing and supportive services must address the unmet needs of low-income persons with HIV/AIDS and their families throughout the eligible metropolitan statistical area.

5. Amend § 91.210 by revising paragraph (a)(1) to read as follows:

§ 91.210

Housing market analysis.

(a) * * *

(1) Based on information available to the jurisdiction, the plan must describe the significant characteristics of the jurisdiction's housing market, including the supply, demand, and condition and cost of housing and the housing stock (including manufactured housing) available to serve persons with disabilities, and to serve other low-income persons with special needs, including persons with HIV/AIDS and their families.

6. Amend § 91.215 by revising paragraphs (a)(1) and (g) to read as follows:

§ 91.215

Strategic plan.

(a) * * *

(1) Indicate the general priorities for allocating investment geographically within the jurisdiction and among different eligible activities and needs. Also provide quantitative, neighborhood-level outcome goal accomplishments in the performance report as required at § 91.520.

(g)

Neighborhood revitalization.

Jurisdictions are encouraged to identify locally designated areas where geographically targeted revitalization efforts are carried out through multiple activities in a concentrated and coordinated manner. Such areas may include those designated as economically distressed by the Federal Government or by the State that exhibit significantly high levels of poverty or low median income. In addition, a jurisdiction may elect to carry out a HUD-approved neighborhood revitalization strategy that includes the economic empowerment of low-income residents with respect to one or more of its areas. If HUD approves such a strategy, the jurisdiction can obtain greater flexibility in the use of the CDBG funds in the revitalization area(s) as described in 24 CFR part 570, subpart C. This strategy must identify long-term and short-term objectives (

e.g.,

physical improvements, social initiatives and economic empowerment), expressing them in terms of measures of outputs and outcomes the jurisdiction expects to achieve in the nei

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