Notice of Funding Availability (NOFA) and Program Guidelines for the Economic Development Initiative (EDI)

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Community Planning and

Development

[Docket No. N-94-3801; FR 3750-N-01]

Notice of Funding Availability (NOFA) and Program Guidelines for

the Economic Development Initiative (EDI)

AGENCY: Office of the Assistant Secretary for Community Planning and

Development, HUD.

SUMMARY: This NOFA announces the availability of funds for grants under

Section 108(q) of the Housing and Community Development Act of 1974, as

amended. HUD reserves the right to award grants under this NOFA up to

the maximum amount authorized by law. As of the date of this NOFA and

subject to funding availability, HUD intends to award at least $19

million in EDI funds.

Communities which may obtain Section 108 loan guarantee commitments

to carry out qualifying projects also may be eligible under this NOFA

to receive EDI grants to enhance the security of the guaranteed loan or

to improve the feasibility of proposed projects through techniques such

as interest rate subsides, loan loss reserves, etc. The NOFA sets out

program guidelines which will govern the application, application

review, and award process for EDI grants.

DATES: Applications are due in HUD Headquarters at the address stated

below under Addresses, by September 16, 1994, 4:30 pm Eastern Daylight

time. HUD will not accept applications that are submitted to HUD via

facsimile (FAX) transmission.

ADDRESSES: Completed applications should be submitted to the Office of

Community Planning and Development, Department of Housing and Urban

Development, 451 Seventh Street SW., room 7180, Washington, DC 20410.

Interested persons are invited to submit comments on the program

guidelines for the Economic Development Initiative. Comments should be

submitted to the Office of the General Counsel, Rules Docket Clerk,

Room 10276, Department of Housing and Urban Development, 451 Seventh

Street SW., Washington, DC 20410. Communications should refer to the

above docket number and title. A copy of each communication submitted

will be available for public inspection during regular business hours.

FOR FURTHER INFORMATION CONTACT: Paul Webster, Director, Financial

Management Division, Office of Block Grant Assistance, Department of

Housing and Urban Development, room 7178, Washington, DC 20410.

Telephone (202) 708-1871. The TDD number is (202) 708-2565. (These are

not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

The information collection requirements contained in this NOFA have

been submitted to the Office of Management and Budget (OMB) for review

under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520). The

Department has requested that OMB complete its review within 10 days

from the date of this publication. No person may be subjected to a

penalty for failure to comply with these information collection

requirements until they have been approved and assigned an OMB control

number. The OMB control number, when assigned, will be announced by

separate notice in the Federal Register.

I. Purpose and Substantive Description

(A) Authority. Title I, Housing and Community Development Act of

1974, as amended, (42 U.S.C. 5301-5320) (the ``Act''); 24 CFR part 570.

(B) Definitions.

CDBG funds means, in addition to those funds specified at

Sec. 570.3(e), grant funds received pursuant to Section 108(q).

Economic Development Initiative (EDI) means the provision of

economic development grant assistance under Section 108(q) of the Act,

as authorized by Section 232 of the Multifamily Housing Property

Disposition Reform Act of 1994 (P.L. 103-233) (the ``1994 Act'').

Economic development project means an activity or activities

(including mixed use projects with housing components) that are

eligible under the Act and under 24 CFR Sec. 570.703, and that increase

economic opportunity for persons of low- and moderate-income or that

stimulate or retain businesses or jobs or that otherwise lead to

economic revitalization.

Unless otherwise defined herein, terms defined in 24 CFR part 570

and used in this NOFA shall have the respective meanings given thereto

in that part.

(C) Background.

EDI is intended to complement and enhance the Section 108 Loan

Guarantee program (see 24 CFR Secs. 570.700-710 for regulations

governing the Section 108 program). This provision of the Community

Development Block Grant (CDBG) program provides communities with a

source of financing for economic development, housing rehabilitation,

and large scale physical development projects. HUD is authorized

pursuant to Section 108 to guarantee notes issued by CDBG entitlement

communities and nonentitlement units of general local government

eligible to receive funds under the State CDBG program. Regulations

governing the Section 108 program are found at 24 CFR part 570, subpart

M.

Additionally, assistance provided under this NOFA is subject to the

requirements of section 3 of the Housing and Urban Development Act of

1968, and the implementing regulations in 24 CFR part 135, as amended

by an interim rule published on June 30, 1994 (59 FR 33866). Section 3

requires that to the greatest extent feasible, and consistent with

Federal, State, and local laws and regulations, job training,

employment and other contracting opportunities generated from certain

HUD financial assistance be directed to low- and very-low income

persons. The eligible activities for which funding is provided under

this NOFA are consistent with the objectives of section 3. Public

entities awarded funds under this NOFA and that intend to use the funds

for housing rehabilitation, housing construction, or other public

construction should consult the regulations published on June 30, 1994,

to determine applicable requirements.

The Section 108 program is authorized at $2.054 billion in loan

guarantee authority in Fiscal Year 1994. Under this program communities

and (States, if applicable) pledge future years' CDBG allocations as

security for loans guaranteed by HUD. The full faith and credit of the

United States is pledged to the payment of all guarantees made under

Section 108. The Section 108 program, however, does not require CDBG

funds to be escrowed for loan repayment, which means that the community

can continue to spend its existing allocation for other CDBG purposes,

unless needed for loan repayment. Further, EDI minimizes the potential

loss of future CDBG allocations by lowering the cost of borrowing under

Section 108, reducing the risk that the pledged annual CDBG allocation

would be required to fund repayment shortfall, and enhancing the

ability of communities to leverage federal resources and private funds.

An EDI grant can reduce the risk to future CDBG funds:

(1) By strengthening the economic feasibility of the projects

financed with Section 108 funds (and thereby increasing the probability

that the project will generate enough cash to repay the guaranteed

loan),

(2) By directly enhancing the security of the guaranteed loan, or

(3) Through a combination of these risk mitigation techniques.

HUD envisions that the following project structures could be typical.

Provision of financing to for-profit businesses at a below market

rate--While the rates on loans guaranteed under Section 108 are only

slightly above the rates on comparable U.S. Treasury obligations, they

may nonetheless be higher than can be afforded by many businesses. The

EDI grant can be used to make Section 108 financing affordable, as

illustrated in the following example:

A public entity wishes to make financing available for businesses

located in a distressed neighborhood. The public entity applies for

Section 108/EDI assistance to carry out a $5.75 million economic

development (ED) program. The ED loans will be funded from a financing

package that includes a $5,000,000 Section 108 loan and a $750,000 EDI

grant. If the rate on the Section 108 loan is 7.25 percent and the term

is 15 years, the rate on the ED loans can be reduced to 5.1 percent (a

level which is approximately 30% lower than the Section 108 rate).

Thus, the EDI grant serves to ``buy down'' the interest rate on the ED

loans, thus reducing the income the business needs to generate to

provide program income to the public entity to repay the Section 108

loan. (Note that the extent to which rates on ED loans can be reduced

depends on the maturity of the Section 108 loan and the amount of the

EDI grant.)

Direct enhancement of the security of the Section 108 loan--The EDI

grant can be used to cover the cost of providing enhanced security. An

example of how the EDI grant can be used for this purpose is by using

the grant funds to cover the cost of a standby letter of credit, issued

in favor of HUD. This letter of credit will be available to fund

amounts due on the Section 108 loan if other sources fail to

materialize and will, thus, serve to protect the public entity's future

CDBG funds.

Funding reserves--The cash flow generated by an economic

development project may be expected to be relatively thin in the early

stages of the project. The EDI grant can make it possible for debt

service or operating reserves to be established in a way that does not

jeopardize the economic feasibility of the project.

An example is a supermarket or neighborhood shopping area that is

designed to provide basic services to and jobs in a distressed

neighborhood. The public entity must be prepared for a period after

completion during which space in that shopping center is not fully

leased. It may therefore require the developer to establish with a

trustee a reserve account (or accounts) that would be available to

cover operating expenses and/or debt service during the lease-up

period. While such reserves are commonplace, their cost may be so high

as to make an already risky neighborhood shopping center project

economically infeasible. The increased cost resulting from establishing

such reserves may be defrayed by the EDI grant. As with the letter of

credit example above, the reserves protect the CDBG program against the

risk that CDBG funds will have to be used to cover shortfalls in the

intended source for repayment of the Section 108 loan.

Over-collateralizing the Section 108 loan--The use of EDI grant

funds may be structured in appropriate cases so as to improve the

chances that cash flow will be sufficient to cover debt service on the

Section 108 loan and directly enhance the guaranteed loan. One

technique for accomplishing this approach is over-collateralization of

the Section 108 loan.

An example is the project which involves the joint use of a Section

108 loan and EDI grant to fund a loan pool project. For instance, a

community might borrow $5 million under Section 108 and obtain an EDI

grant of $500,000. It can then make $5.5 million in loans to various

businesses at a rate equal to or greater than the rate on the Section

108 loan. The total loan pool of $5.5 million would be pledged to the

repayment of the $5 million Section 108 loan. Since the program income

from the $5.5 million will be greater than the debt service on the

Section 108 loan, the community can accumulate a loss reserve that will

further mitigate the risk to future CDBG funds. This kind of loan pool

project has the added benefit of reducing the risk to future CDBG funds

through diversification of the community's loan portfolio.

(D) Timing of Grant Awards

EDI applications will be evaluated concurrently with requests for

Section 108 guarantee commitments or for the approval of amendments to

previously approved Section 108 applications that will be enhanced by

the EDI assistance. (See II.B. of this NOFA.)

(E) Limitations on Grant Amounts

HUD expects to approve EDI grant amounts with respect to any

application generally in the range of 7 to 15 percent of the related

Section 108 guaranteed loan. In certain instances HUD may award more

than 15 percent of the related Section 108 loan. Applicants, however,

cannot request grants exceeding 15 percent. In the case of requested

amendments, the EDI assistance will be determined on the increased

amount of Section 108 loan guarantee assistance. HUD reserves the right

to determine a maximum amount of any EDI award per project and to

modify requests, accordingly.

(F) Eligibility to Apply for Grant Assistance

Any public entity eligible to apply for loan guarantee assistance

pursuant to Sec. 570.702 may apply for grant assistance under Section

108(q). Eligible applicants are entitlement units of general local

government and nonentitlement units of general local government

eligible to receive loan guarantees under Sec. 570.702.

(G) Eligible Activities

EDI grant funds may be used for:

(1) Activities listed at Sec. 570.703, provided such activities are

carried out as part of an economic development project.

(2) Payment of costs of private financial guaranty insurance

policies, letters of credit, or other credit enhancements for the notes

or other obligations guaranteed by HUD pursuant to Section 108,

provided such notes or obligations are used to finance an economic

development project. Such enhancements shall be specified in the

contract required by Sec. 570.705(b)(1), and shall be satisfactory in

form and substance to HUD for security purposes.

II. The Application Process

Public entities seeking EDI assistance must make a specific request

for that assistance, in accordance with this NOFA. The EDI application

shall be accompanied by a request for a Section 108 loan guarantee

commitment, as further described in Section II.B. of this NOFA below.

Application guidelines for the Section 108 program are found at

Sec. 570.704.

(A) Timing of Submission

Applications for EDI assistance shall be received at HUD

Headquarters at the address listed above at ``Addresses'' by September

16, 1994 by 4:30 p.m. Eastern Daylight time. HUD will not accept

applications which are submitted to HUD via facsimile (FAX)

transmission.

(B) Submission Requirements

The EDI application shall be accompanied by a request for loan

guarantee assistance under Section 108. The request for Section 108

loan guarantee can be either:

(1) A formal application for Section 108 loan guarantee, including

the documents listed at Sec. 570.704(b);

(2) A description, not to exceed three (3) pages, of a Section 108

loan guarantee application to be submitted within one month of a notice

of EDI selection (EDI awards will be conditioned on approval of actual

Section 108 loan commitments). This description must be sufficient to

support the basic eligibility of the proposed project or activities for

Section 108 assistance;

(3) A copy of a Section 108 loan guarantee application which was

approved after the date of this NOFA; or

(4) A request for a Section 108 loan guarantee amendment (analogous

to subparagraph (1) or (2) above) which proposes to increase the amount

of a previously approved application. However, a Section 108 loan

guarantee application approved before the date of this NOFA is not

eligible for EDI awards.

In addition, the public entity shall submit for EDI grant

assistance the following:

(i) SF 424, Application for Federal Assistance.

(ii) The certification regarding lobbying required under 24 CFR

part 87 (Appendix A).

(iii) A narrative statement describing the activities that will be

carried out with the EDI grant funds and explaining how the use of EDI

grant funds meets the criteria in paragraph II.(C) below. The narrative

statement shall not exceed one 8.5'' by 11'' page for the description

of the activities to be carried out with the EDI grant funds and one

page for each of the listed selection criteria.

(C) Selection Criteria

All applications will be considered for selection based on the

following criteria that demonstrate the quality of the proposed

project, and the applicant's creativity, capacity and commitment to

maximize the use of the EDI funds, in accordance with the purposes of

the Act.

(1) Distress--(up to 20 points). The level of distress in the

immediate community to be served and/or the jurisdiction applying for

assistance. This may include factors indicative of distress such as

poverty, income, unemployment, drug use, homelessness and other

indicators of distress.

(2) Extent of need for assistance--(up to 15 points). This may

include factors such as:

(i) Projects costs and financial requirements.

(ii) The amount of any debt service or operating reserve accounts

to be established in connection with the economic development project.

(iii) The reasonableness of the costs of any credit enhancement

paid with EDI grant funds.

(iv) The amount of program income (if any) to be received each year

during the repayment period for the guaranteed loan.

(v) Interest rates on those loans to third parties (other than

subrecipients) (either as an absolute rate or as a plus/minus spread to

the Section 108 rate).

(vi) Underwriting guidelines used (or expected to be used) in

determining project feasibility

(vii) Other relevant information

(3) The extent to which the proposed activities effectively support

important National interests--(up to 15 points). These activities

include:

(i) The provision of jobs for low- and moderate-income individuals

with special consideration for participants in any of the following

programs: Jobs Training Partnership Act (JTPA), Jobs Opportunities for

Basic Skills (JOBS), or Aid to Families with Dependent Children (AFDC);

(ii) The provision of jobs for participants in Unemployment

Insurance programs;

(iii) The provision of jobs for residents of Public and Indian

Housing or other assisted housing units;

(iv) The provision of jobs for homeless persons;

(v) The provision of jobs that provide clear opportunities for

promotion for low- and moderate-income individuals, such as through the

provision of training;

(vi) The establishment, stabilization, or expansion of

microenterprises that employ low- and moderate-income individuals;

(vii) The stabilization or revitalization of a neighborhood that is

predominantly low and moderate income;

(viii) The provision of assistance to a community development

financial institution whose service area is predominantly low and

moderate income;

(ix) The provision of assistance to a neighborhood-based nonprofit

organization serving a neighborhood that is predominantly low and

moderate income;

(x) The provision of employment opportunities that are an integral

component of a community's strategy to promote spatial deconcentration

of low- and moderate-income and minority families;

(xi) The provision of assistance to business(es) that operate(s)

within a census tract (or block numbering area) that has at least 20

percent of its residents who are in poverty; or

(xii) Other innovative approaches that provide substantial benefit

to low-and moderate-income persons.

(4) Quality of the plan--(up to 45 points). HUD will consider the

quality of the plan, including but not limited to the extent to which

the applicant's proposed plan for the EDI grant/Section 108 loan

guarantee will address its described need in the applicant's immediate

community and/or its jurisdiction, and the extent to which the plan is

logically, feasibly, and substantially likely to achieve its stated

purpose.

(5) The capacity or potential of the public entity to successfully

carry out the plan--(up to 15 points). This may include factors such as

the public entity's performance in the administration of its CDBG

program; its previous experience, if any, in administering a section

108 loan guarantee; its performance and capacity in carrying out

economic development projects; its ability to conduct prudent

underwriting; and its capacity to manage and service loans made with

the guaranteed loan funds or EDI grant funds.

(6) The extent to which the proposed plan follows a comprehensive

and coordinated approach in addressing the community and economic

development needs of the public entity and furthers neighborhood

revitalization--(up to 20 points).

(7) Innovation and creativity--(up to 20 points). The extent to

which the applicant incorporated innovation and/or creativity in the

design and proposed implementation of the proposed activities carried

out with Section 108/EDI funds.

HUD, in its discretion, may choose to award EDI assistance to a

lower rated approvable application over a higher rated application in

order to increase the level of geographic diversity of grants approved

under this part.

Timing of grant awards--In most cases, EDI grants will be obligated

contemporaneously with HUD approval of the related Section 108 loan

guarantee commitment. However, the EDI grant may be awarded prior to

HUD approval of the Section 108 commitment if HUD determines that such

award will further the purposes of the Act. EDI funds shall not be

disbursed to the public entity before the issuance of the related

Section 108 guaranteed obligations.

III. Technical Assistance

To the extent permitted by law, HUD may advise applicants of

technical deficiencies in the EDI applications and permit them to be

corrected. Due to the requirements of the HUD Reform Act, HUD staff is

limited in the assistance it is permitted to provide regarding

applications for EDI grants. The assistance and advice that can be

provide includes such activities as explaining and responding to

questions about program regulations, identification of those parts of

an application that need substantive improvement, the dates by which

decisions will be made and procedures that are required to be performed

to process an application. This term, however, does not include

advising the applicant how to make those improvements.

In addition, any information published in the Federal Register and

in this NOFA and any information that has been made public through a

means other than the Federal Register or NOFA, may be discussed.

HUD staff will be available throughout the EDI application period

to provide extensive advice and assistance, as is currently provided,

to develop 108 loan applications since the 108 program is not subject

to the HUD Reform Act. Staff providing such assistance may provide

technical advice to the EDI selection panel but in no case will such

staff participate in the panel's voting process for EDI awards under

this NOFA.

IV. Other Matters

Environmental Impact. A Finding of No Significant Impact with

respect to the environment has been made in accordance with HUD

regulations at 24 CFR part 50, implementing section 102(2)(C) of the

National Environmental Policy Act of 1969 (42 U.S.C. 4332). The Finding

of No Significant Impact is available for public inspection and copying

between 7:30 a.m. and 5:30 p.m. weekdays at the Office of the Rules

Docket Clerk, 451 Seventh Street, SW., Room 10276, Washington, DC

20410.

Federalism. The General Counsel, as the Designated Official under

section 6(a) of Executive Order 12612, Federalism, has determined that

this NOFA will not have substantial, direct effects on States, on their

political subdivisions, or on their relationship with the Federal

Government, or on the distribution of power and responsibilities

between them and other levels of government. While the NOFA offers

financial assistance to units of general local government, none of its

provisions will have an effect on the relationship between the Federal

Government and the States, or the States' political subdivisions.

Family. The General Counsel, as the Designated Official for

Executive Order 12606, The Family, has determined that the policies

announced in this NOFA would not have the potential for significant

impact on family formation, maintenance and general well-being within

the meaning of the Order. No significant change in existing HUD

policies and programs will result from issuance of this NOFA, as those

policies and programs relate to family concerns.

Prohibition Against Lobbying Activities. The use of funds awarded

under this NOFA is subject to the disclosure requirements and

prohibitions of section 319 of the Department of Interior and Related

Agencies Appropriations Act for Fiscal Year 1990 (31 U.S.C. 1352) and

the implementing regulations at 24 CFR part 87. These authorities

prohibit recipients of Federal contracts, grants, or loans from using

appropriated funds for lobbying the Executive or Legislative Branches

of the Federal Government in connection with a specific contract,

grant, or loan. The prohibition also covers the awarding of contracts,

grants, cooperative agreements, or loans unless the recipient has made

an acceptable certification regarding lobbying. Under 24 CFR part 87,

applicants, recipients, and subrecipients of assistance exceeding

$100,000 must certify that no Federal funds have been or will be spent

on lobbying activities in connection with the assistance.

Prohibition Against Lobbying of HUD Personnel. Section 13 of the

Department of Housing and Urban Development Act (42 U.S.C. 3537b)

contains two provisions dealing with efforts to influence HUD's

decisions with respect to financial assistance. The first imposes

disclosure requirements on those who are typically involved in these

efforts--those who pay others to influence the award of assistance or

the taking of a management action by the Department and those who are

paid to provide the influence. The second restricts the payment of fees

to those who are paid to influence the award of HUD assistance, if the

fees are tied to the number of housing units received or are based on

the amount of assistance received, or if they are contingent upon the

receipt of assistance. HUD's regulation implementing section 13 is

codified at 24 CFR part 86. If readers are involved in any efforts to

influence the Department in these ways, they are urged to read the

final rule, particularly the examples contained in Appendix A of the

rule. Appendix A of this rule contains examples of activities covered

by this rule.

Any questions concerning the rule should be directed to the Office

of Ethics, Room 2158, Department of Housing and Urban Development, 451

Seventh Street SW., Washington DC 20410-3000. Telephone: (202) 708-3815

(voice/TDD). (This is not a toll-free number.) Forms necessary for

compliance with the rule may be obtained from the local HUD Office.

Dated: August 10, 1994.

Andrew Cuomo,

Assistant Secretary for Community, Planning and Development.

[FR Doc. 94-19981 Filed 8-15-94; 8:45 am]

BILLING CODE 4210-29-P