Community Development Block Grants: Small Cities Program and Related Amendments; Proposed Rule

Federal RegisterSep 15, 1994

Ask Donna

What actually matters in this document.

Text

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Community Planning and

Development

24 CFR Part 570

[Docket No. R-94-1591; FR-2879-P-02]

RIN 2506-AB11

Community Development Block Grants: Small Cities Program and

Related Amendments

AGENCY: Office of the Assistant Secretary for Community Planning and

Development, HUD.

ACTION: Proposed rule.

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

SUMMARY: This proposed rule would revise HUD regulations in 24 CFR part

570, subpart F, which govern the administration of the Community

Development Block Grant (CDBG) Small Cities Program. The purpose of

subpart F is to set forth the procedures by which CDBG funds are

provided to non-entitled units of general local government in those

States which have not elected to assume administration of the CDBG

formula allocations for use in non-entitled units of general local

government within such States. The proposed rule would amend subpart F

to incorporate the statutory changes made to the Small Cities Program

since the subpart F regulations were issued in 1982, and to streamline

the operation and administration of the program. In addition, the

proposed rule makes additional changes to subpart F, and various

changes to subparts I and M which are necessary to permit use of the

section 108 loan guarantee authority by non-entitled units of general

local government in States which have not elected to assume

administration of the CDBG formula allocations for nonentitlement areas

of such States.

DATES: Comments Due Date: October 17, 1994.

ADDRESSES: Interested persons are invited to submit comments regarding

this proposed rule to the Rules Docket Clerk, Office of the General

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

7th Street, SW., Washington, DC 20410-0500. Comments should refer to

the above docket number and title. A copy of each comment submitted

will be available for public inspection during regular business hours

at the above address. Facsimile (FAX) comments are not acceptable.

FOR FURTHER INFORMATION CONTACT: Stephen M. Rhodeside, State and Small

Cities Division, Office of Community Planning and Development,

Department of Housing and Urban Development, Room 7184, 451 Seventh

Street, SW., Washington, DC 20410. Telephone (202) 708-1322 (voice) or

(202) 708-2565 (TDD). (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

This proposed rule does not propose to add information collection

requirements to the regulations in 24 CFR part 570, subparts F, I, or

II. Background

Title I of the Housing and Community Development Act of 1974 (Title

I) establishes the Community Development Block Grant (CDBG) Program.

Seventy percent of the annual appropriation for the CDBG Program is

awarded as formula-based grants to entitlement jurisdictions with the

remaining thirty percent available for non-entitled units of general

local government, based upon formula allocations by State. CDBG funds

for non-entitled jurisdictions are made available through one of two

methods: the State CDBG Program or the HUD-administered Small Cities

Program (Small Cities Program). These programs both serve smaller

communities, including those located in rural areas.

The regulations governing the CDBG Program are set forth in 24 CFR

part 570. The regulations governing the Small Cities Program are set

forth in 24 CFR part 570, subpart F (Secs. 570.420-570.438).

The purpose of subpart F is to set forth the procedures by which

CDBG funds are provided to non-entitled units of general local

government in those States which have not elected to assume

administration of the CDBG Program for non-entitled units of general

local government within their jurisdiction.

Prior to the enactment of the Omnibus Budget Reconciliation Act

(OBRA) of 1981 (Pub. L. 97-35, approved August 13, 1981), HUD

administered the CDBG Small Cities Program in all States. However, OBRA

contained a provision which afforded States the opportunity to assume

administrative responsibility for the Small Cities Program, thereby

creating the State CDBG Program (i.e., State administration of CDBG

nonentitlement funds). Thirty-eight (38) States elected to administer

the non-entitled CDBG Program in Fiscal Year 1982 with an additional

nine making the election beginning with Fiscal Year 1983. Currently,

forty-nine (49) ``States'' (as defined in Sec. 570.3, which includes

Puerto Rico) administer the CDBG Program for non-entitled units of

general local government.

If a State that currently administers the CDBG Program declines to

continue its administration, under existing law CDBG funds would not be

available to non-entitled units of general local government in that

State during the Fiscal Year for which the State did not administer the

program. Any CDBG funds not allocated in a Fiscal Year for this reason

would be reallocated among all States in the succeeding Fiscal Year.

Only two States, Hawaii and New York, have not exercised their option

to assume administration of the CDBG Program for non-entitled units of

general local government. Accordingly, for some time, the regulations

in subpart F have been applicable only to Hawaii and New York.

The existing subpart F regulations were promulgated in 1982 and

remain essentially unchanged from the original language despite

substantial statutory amendments to Title I, and several changes to the

nature of the Small Cities Program subsequent to 1982.

This proposed rule would amend subpart F to specifically address

HUD's administration of the Small Cities Program in the States of

Hawaii and New York. Additionally, the proposed rule would incorporate

the amendment made by section 902 of the National Affordable Housing

Act (Pub. L. 101-625, approved November 28, 1990) (NAHA) which requires

an overall low- and moderate-income benefit of not less than 70 percent

in the use of grant funds. HUD emphasizes that this requirement applies

to each grant made through the Small Cities Program. Individual

activities are still required to provide at least 51 percent low- and

moderate-income benefit in order to meet the national objective

standard of benefit for low- and moderate-income persons.

HUD is considering aggregating the 70 percent requirement for

grants in the New York Small Cities Program to include grants received

over a one, two, or three year period as well as section 108 loan

guarantees received during the period chosen by the grantee. The

Department is also considering aggregating guaranteed loan funds in

Hawaii with Small Cities Funds received over a one, two or three year

period. The Department specifically requests comments on this proposal,

including specifics on how it would work.

The majority of the other statutory changes since 1982 which affect

the CDBG Program, including the Small Cities Program, are proposed to

be incorporated in subpart F by reference to other subparts within part

570, which already have implemented these statutory changes. These

statutory changes are not specifically addressed in the proposed rule

and, as a result, will not be discussed in this preamble.

The most significant change that is proposed to be made to subpart

F by this rule is the elimination of the sections setting forth the

selection system for Single Purpose and Comprehensive Small Cities

Grants. As a result of this change, the grant process for New York

State will be more flexible for the small communities of New York

State, and the Small Cities Program will be able to more readily

respond to changing priorities. The specific requirements for the

process of awarding grants to particular grantees will be contained in

a Notice of Funding Availability (NOFA) which will be promulgated for

each Fiscal Year's funding. The NOFA will contain the specific

guidelines for all competition(s) that HUD will hold during a fiscal

year. If it is decided to hold a competition among the three eligible

entities in Hawaii, a separate NOFA may be issued for the Hawaii

competition.

In addition, two non-competitive uses of funds are proposed by the

regulation; the use of funds to eliminate imminent threats to health

and safety, and the use of funds to make payments on Section 108 loan

guarantees to non-entitlement units of general local government in New

York or Hawaii. These are more fully described below. Other non-

competitive uses of funds may be added by a NOFA.

HUD specifically invites comments from the public on these changes.

The new program flexibility will allow HUD to consider taking such

actions as having one or several Economic Development set asides with

an emphasis on providing funding for high impact Economic Development

activities that are oriented to helping the very low income families

(families whose income does not exceed 50 percent of median income).

This could possibly include microenterprises. A microenterprise is

defined by section 807(c)(2) of the Housing and Community Development

Act of 1992 as a ``commercial enterprise that has five or fewer

employees, one or more of whom owns the enterprise.''

Other possibilities include providing funding to support

communities that have been designated as being part of an Empowerment

Zone or Enterprise Community, and providing support to communities that

have suffered base closures. HUD is considering having more than one

competition in each fiscal year.

The Department is also considering developing a selection system

for grants to fund projects with multiyear comprehensive strategies and

funding for projects to be done in stages. The Department is trying to

structure this in a manner that will be consistent with the

requirements of the Anti-Deficiency Act (31 U.S.C. 1241(a)(1)). If

actions such as these are to be taken, they will be described in the

NOFA.

The provisions governing the program in the State of Hawaii have

been changed. Unless the NOFA provides otherwise, the three eligible

entities in Hawaii will be treated in these regulations as much like

entitlement grantees as is possible under the statute. This includes

using the Grantee Performance Report for all grants received after FY

1994, and the elimination of the closeout requirement for all grants

received after FY 1994. Starting in FY 1995, the 20 percent planning

and administrative cost limitation will be based on 20 percent of the

grant amount plus the program income received from post FY 1994 grants

during the program year. Starting in FY 1996, the 15 percent public

service limitation will be based on 15 percent of the grant amount plus

15 percent of the program income received in the previous program year.

This is a change from the existing policy which tracks administrative

costs and public service expenditures on a grant by grant basis.

Starting in FY 1996 the counties in Hawaii will be covered by the

requirements of Sec. 570.902(a) which requires grantees to have less

than 1.5 times their grant outstanding 60 days prior to the beginning

of their next program year. If a grantee does not meet this threshold,

it will be up to the Honolulu Office to make a finding and negotiate a

resolution with the Hawaii grantees which could include adjusting the

size of the grant.

Section 570.432 of the proposed rule permits the Secretary to make

grants to pay the amounts due on Section 108 obligations, if necessary

to prevent default. This proposed change would support the proposed

change to the regulations in 24 CFR part 570, subpart M, which would

expand the Section 108 program to non-entitled units of general local

government in New York and Hawaii.

Making grants under Sec. 570.432 would be the first priority use of

funds during any fiscal year, and would be demand-based rather than

competitive. The Department expects that most loan guarantees for non-

entitled units of local government in New York and Hawaii will be for

economic development activities which will generate program income

sufficient to repay the section 108-guaranteed loan. However, if a

default were about to occur because the economic development activity

did not generate the anticipated program income, or in those limited

instances in which the applicant's repayment plan anticipates the use

of CDBG grant funds to make repayments, the noncompetitive authority in

Sec. 570.432 is necessary to permit HUD to make a grant to the unit of

local government to cover the payment due, since non-entitled units of

local government do not receive a continuing stream of grants that are

available to make payments on section 108 loan guarantees as

entitlement CDBG recipients do. The related changes to subpart M and

subpart I are discussed in Section V of this preamble.

Section 570.424 would replace current Sec. 570.432 to provide

grants for imminent threats. Under the proposed section, fifteen

percent of the funds allocated to New York State would be reserved to

alleviate imminent threats to public health and safety unless a lower

amount was specified in a NOFA. These funds would be made available on

a non-competitive basis to alleviate imminent threats to public health

and safety that require an immediate resolution. HUD shall verify the

urgency and immediacy of the threat with an authority other than the

grantee.

Section 570.426 would be added to the regulations to address the

subject of program income. This section would state that if a unit of

local government has no open CDBG grants at the time of project

closeout, program income of the unit of general local government or its

subrecipients which amounts to less than $25,000 per year will not be

considered program income.

For clarity during review of this rule by the public, the rule sets

out all the regulations in subpart F, including those that are not

proposed to be revised by this rule. The following highlights the most

significant of the changes that are proposed to be made to subpart F by

this rule.

III. Summary of Significant Changes Proposed to Subpart F

Section 570.420 General

Paragraphs (c) Eligible applicants, (d) Types of grants, (e)

Distribution of funds between Comprehensive Grants and Single Purpose

Grants, (f) Size of grants, (g) Restrictions on applying for grants,

(h) Method of selecting grantees, (i) Data used for the needs factors.,

and (j) Previous audit findings and outstanding monetary obligations

are proposed to be removed from Sec. 570.420.

Section 570.421 New York Small Cities Program Design

A new Sec. 570.421 would replace existing Sec. 570.421 (existing

Sec. 570.421 would become Sec. 570.422, as discussed below). Section

570.421 would be titled ``New York Small Cities Program Design.''

Paragraph (a) would set forth who has responsibility for administration

of the program. Paragraph (b) would provide that a NOFA, which will be

issued at least once per Federal Fiscal Year, will indicate the

selection criteria, rating factors for competitive grants, amount of

funds available, grants limits, and application requirements. Paragraph

percent public service grants to be made as long as the 15 percent

statewide cap is not exceeded.

Section 570.422 Applications from Joint Applicants

New section Sec. 570.422 (currently a reserved section) would

contain the provisions currently in existing section Sec. 570.421, as

noted above, with the exception that existing paragraph (b) of

Sec. 570.421, which addresses data requirements, would be removed. Data

requirements will be addressed in the NOFA to be issued each Fiscal

Year.

Section 570.423 Application for the HUD-administered New York Small

Cities Grants

New Sec. 570.423 would replace existing Sec. 570.423

(``Comprehensive Grant Program, General Requirements'') and would

address the application requirements for the New York Small Cities

Program, and indicate that threshold requirements will be stated in the

NOFA that governs the distribution of funds.

Section 570.424 Grants for Imminent Threats to Public Health and

Safety

New Sec. 570.424 would replace existing Sec. 570.424 (``Selection

System for Comprehensive Grants''), and would address grants for

imminent threats to public health and safety as discussed in Section II

of this preamble.

Section 570.425 HUD Review and Actions on Applications for New York

State Applicants

New Sec. 570.425 (currently a reserved section) would incorporate

the requirements of existing Sec. 570.433 (``HUD Review and Actions on

Final Applications for Single Purpose and Comprehensive Applicants''),

with the exception that paragraphs (b)(2) Fundable applications, and

(b)(4) Non-fundable applications of existing Sec. 570.433 would be

removed. Additionally, the enumerated criteria for conditional grants

in paragraph (b)(3) of existing Sec. 570.433 also would be removed.

Section 570.426 Program Income

New Sec. 570.426 would replace existing Sec. 570.426 (``Application

for Comprehensive Grants'') and address program income, as discussed in

Section II of this preamble.

Section 570.427 Program Amendments

New Sec. 570.427 would replace existing Sec. 570.427 (Single

Purpose Grant Program General Requirements) and incorporate the

requirements of existing Sec. 570.434 which addresses program

amendments. Section 570.427 (a)(3) would address amendments for grants

received on a non-competitive basis.

Section 570.428 Reallocated Funds

New Sec. 570.428 would replace existing Sec. 570.428 (Selection

System for Single Purpose Grants) and would incorporate the

requirements of existingSec. 570.438 which addresses reallocated funds.

Section 570.429 Hawaii General and Grant Requirements

New Sec. 570.429 (currently a reserved section) would address the

general and grant requirements applicable to the State of Hawaii Small

Cities Program as discussed in Section II of the preamble.

Section 570.430 Hawaii Program Operation Requirements

New Sec. 570.430 would replace existing Sec. 570.430 (Application

for Single Purpose Grants) and address program operation requirements

for the State of Hawaii as discussed in Section II of the preamble.

Section 570.431 Citizen Participation

Existing Sec. 570.431 which pertains to citizen participation would

be revised to incorporate statutory changes made to the citizen

participation requirements by the Housing and Community Development Act

of 1988.

Section 570.432 Repayment of Section 108 Loans

New Sec. 570.432 would replace existing Sec. 570.432 (Single

Purpose Grants for Imminent Threat to Public Health or Safety), and

would address the repayment of Section 108 loans as discussed in

Sections II and V of the preamble.

IV. Conforming Amendments Proposed by this Rule

In addition to the changes to be made to 24 CFR part 570, subpart

F, this proposed rule would make a conforming amendment to 24 CFR

570.507(a)(2)(ii)(A). Section 570.507(a)(2)(ii)(A) sets forth the

submission dates for the performance and evaluation report for the

Small Cities Program. Currently grantees are required to submit reports

12 months after grant award and annually thereafter. This requirement

means that reports are submitted over a wide time frame, and that one

community could be required to submit its reports for multiple projects

at different times. Standardizing the reporting date will ease the

burden on grantees by allowing them to do all of their reports at the

same time. Standardized submission dates will help the field office

complete its annual performance review at one time for all of a

grantee's projects.

V. Summary of Significant Changes Proposed to Subpart M and Subpart I

Because there are numerous small clarifying changes to subpart M in

the proposed rule, it is also being repeated in its entirety for the

convenience of the reader. Only the substantive changes are described

in this Section V of the preamble.

The most important change proposed to subpart M would allow non-

entitled jurisdictions in New York and Hawaii (3 counties) to

participate in the section 108 program for the first time. With the

increasing emphasis on the use of section 108 loan guarantees in

general and for economic development activities in particular, the

Department believes it would be unfair to continue to deny the use of

section 108 to non-entitled communities in New York and Hawaii. This

decision necessitates a series of related changes in subpart F, subpart

I and subpart M of the CDBG regulations in 24 CFR 570.

In subpart M, a new section 570.702(c) is added to expressly make

nonentitlement ``public entities'' (the term used in subpart M to refer

to units of general local government) eligible to apply for assistance

under subpart F (Small Cities Program, now covering only New York and

Hawaii) also eligible to apply for section 108 assistance under subpart

M. To simplify reference in the rest of subpart M to nonentitlement

public entities in the States' Program, a new definition of ``State-

assisted public entity'' is added in Sec. 570.702(c). Generally,

nonentitlement public entities in New York and Hawaii are referred to

in proposed subpart M as ``nonentitlement public entities eligible

under subpart F.'' Most related changes in subpart M amount to nothing

more than use of these new terms and will not be further discussed

here.

The other principal change in subpart M which affects

nonentitlement public entities in New York and Hawaii is the limitation

on loan guarantee amounts in Sec. 570.705(a)(2)(iii). The limit for

nonentitlement public entities in Hawaii is five times the most recent

grant made to the public entity, similar to that for entitlement public

entities. For non-entitlement public entities in New York the limit on

loan guarantee amounts is five times the larger of (i) the most recent

grant made to the public entity, (ii) the average of the most recent

three grants made to the public entity, or (iii) the average of all the

grants made in New York State in the previous fiscal year.

It should be noted that two other changes are being made that

affect State-assisted public entities. In Sec. 570.704(b)(3), all

public entities will now be required to certify that they possess the

legal authority necessary to pledge their CDBG grants as required by

Sec. 570.705(b)(2). Since all public entities are statutorily required

to make this pledge as a condition of receiving a section 108 loan

guarantee, there is little reason to limit this certification to

entitlement recipients only. Also, in Sec. 570.710 misleading language

requiring the State to administer ``guaranteed loan funds in the same

manner as it administers'' CDBG grants is being deleted, since the

State is not initially required to receive guaranteed loan proceeds at

all, and may or may not have a direct role in supervising the carrying

out of the guaranteed loan activity. The extent of the State's role in

handling the guaranteed loan proceeds is a matter for negotiation

between the State and the public entity involved in a particular

guarantee, although the State can deny the public entity the necessary

pledge of its grants in support of the guarantee if it is not satisfied

with the arrangements for handling the proceeds and carrying out the

activity.

The related change in subpart F, adding a new section Sec. 570.432

to permit HUD to make grants in accordance with section 106(d)(3)(B) of

Title I to nonentitlement units of general local government where

necessary to make payments on section 108 guaranteed loans, has already

been alluded to in Sections II and III of this preamble.

Finally, the last change to part 570 necessary to make section 108

loan guarantees available in New York and Hawaii is to provide that

should such States later elect to administer the CDBG formula

allocations for use in nonentitlement areas of such States, they must

agree (pledge) to use such allocations to make any necessary payments

on loan guarantees previously approved in such States. Since HUD will

no longer be administering the CDBG allocations for non-entitlement

areas of such a State if the State elects to do so itself, HUD will no

longer have the ability to assure that CDBG grant funds are available

to make the necessary payments, and the applicable State must do so.

The regulatory change necessary to accomplish this is in new

Sec. 570.497 of subpart I, as set forth in the text of the proposed

rule below.

In addition, the proposed rule would clarify subpart M by expressly

including two new eligibility provisions added by the 1994 Act. Section

231 of the 1994 Act expanded the activities eligible for loan guarantee

assistance under section 108 to make acquisition, construction,

reconstruction, rehabilitation and installation of public facilities

eligible for all applicants, and in the case of activities benefitting

colonias, such activities with respect to public works and site or

other improvements were made eligible. Although HUD views these

statutory eligibility amendments as self-executing and is implementing

them in advance of publication of this rule, conforming changes are

included in Secs. 570.703(l) and (m) of the proposed rule. As an

editorial change, Sec. 570.703(h)(3) has been deleted and

Sec. 570.703(f)(2) modified to retain eligibility of site preparation,

as further described therein, which is undertaken for an economic

development purpose.

Section 233 of the 1994 Act also permitted HUD to guarantee trust

certificates or other obligations backed by section 108-guaranteed

obligations, a technical change which should simplify the section 108

public offering process and slightly lower interest rates. While the

new authority in section 233 will be implemented internally by HUD, by

changes in the section 108 loan documents and other revisions to the

public offering process without the need for new regulations, the

proposed rule contains a new, expanded definition of ``debt

obligation'' and other limited revisions which will clarify the

regulations and incorporate new statutory language in Secs. 570.705(h)

and 570.706.

Additional Note Concerning Review of Proposed Rule

In the proposed rule that follows, the term ``Act'' in the rule

refers to Title I of the Housing and Community Development Act of 1974.

The term ``Act'' is defined in 24 CFR 570.3, and is not redefined in

subparts F or M.

VI. Justification for Reduced Comment Period

It is the Department's general policy to provide a 60-day public

comment period on proposed rules. For this proposed rule, however, the

Department is providing a 30-day period. The purpose of the reduced

public comment period is to expedite the publication of updated and

streamlined regulations for the Small Cities Program.

Non-entitled units of general local government in the States of New

York and Hawaii are well familiar with the unwieldy notice of funding

availability (NOFA) that is issued each year for the Small Cities

Program. Each fiscal year's NOFA for the Small Cities Program becomes

lengthier and lengthier because the NOFA, for all intents and purposes,

serves as the revised rule. As stated earlier in this preamble, the

regulations for the Small Cities Program have not been revised since

1982 even though several statutory changes and administrative changes

have been made to the program since that date. Thus, each fiscal year's

NOFA must incorporate all the statutory and administrative changes to

the program that the existing regulations fail to include. Accordingly,

by having updated and streamlined Small Cities Program regulations

issued as quickly as possible, the Department anticipates that one

significant benefit to non-entitled units of general local government

in the States of New York and Hawaii is that the FY 95 funding round

for the Small Cities Program will produce a considerably less

cumbersome NOFA process.

Additionally, because each fiscal year's NOFA has incorporated the

statutory and administrative changes to the Small Cities Program, many

of the revisions proposed to be made by this rule are well familiar to

the non-entitled units of general local government in the States of New

York and Hawaii, and thus, extensive review is not necessary. However,

to ensure that these affected entities have sufficient opportunity to

review the proposed rule, the Department's New York, Buffalo and

Honolulu Offices will have copies of the proposed rule available on the

date of publication and ready to be distributed to these entities.

The Department believes that it is in the interest of the non-

entitled units of general local government in the States of New York

and Hawaii to have revised final regulations in place as quickly as

possible.

VII. 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,

which implement section 102(2)(C) of the National Environmental Policy

Act of 1969. The Finding of No Significant Impact is available for

public inspection during regular business hours in the Office of the

Rules Docket Clerk, Office of the General Counsel, Department of

Housing and Urban Development, Room 10276, 451 Seventh Street SW.,

Washington, DC 20410.

Impact on Small Entities

The Secretary, in accordance with 5 U.S.C. 605(b) (the Regulatory

Flexibility Act), has reviewed this proposed rule before publication,

and by approving it certifies that this proposed rule would not have a

significant economic impact on a substantial number of small entities.

The rule proposes to modify, simplify and update the administration and

procedural requirements of the CDBG Small Cities Program to conform

with legislation applicable to this program. Accordingly, the proposed

rule is anticipated to have some beneficial impact on small entities.

However, the number of small entities that may be affected by this rule

would not be substantial and the economic impact would not be

significant.

Federalism Impact

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that this proposed

rule does not have Federalism implications and therefore is not subject

to review under the Order. No programmatic or policy changes would

result from this rule's promulgation which would have a substantial

direct effect on the States, or on the relationship between the Federal

government and the States, or on the distribution of power and

responsibility among the various levels of government.

Family Impact

The General Counsel, as the Designated Official under Executive

Order 12606, The Family, has determined that this proposed rule does

not have the potential for significant impact on family formation,

maintenance and general well-being, and thus is not subject to review

under the Order. No significant changes in existing HUD policies or

programs will result from promulgation of this rule.

Regulatory Agenda

This proposed rule was listed as sequence number 1635 in the

Department's Semiannual Agenda of Regulations published on April 25,

1994 (59 FR 20424, 20458) pursuant to Executive Order 12866 and the

Regulatory Flexibility Act.

Catalogue of Federal Domestic Assistance

The Catalogue of Federal Domestic Assistance program number is

14.219, Community Development Block Grants--Small Cities Program.

List of Subjects in 24 CFR Part 570

Administrative practice and procedure, American Samoa, Community

development block grants, Grant programs--education, Grant programs--

housing and community development, Grant programs--education, Guam,

Indians, Lead poisoning, Loan programs--housing and community

development, Low and moderate income housing, New communities, Northern

Mariana Islands, Pacific Islands Trust Territory, Pockets of poverty,

Puerto Rico, Reporting and recordkeeping requirements, Small cities,

Student aid, Virgin Islands.

Accordingly, 24 CFR part 570 would be amended as follows:

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

1. The authority citation for part 570 would be revised to read as

follows:

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

2. Subpart F would be revised to read as follows:

Subpart F--Small Cities Program

Sec.

570.420 General.

570.421 New York Small Cities Program Design.

570.422 Applications from joint applicants.

570.423 Application for the HUD-administered New York Small Cities

Grants.

570.424 Grants for imminent threats to public health and safety.

570.425 HUD review and actions on applications for New York State

applicants.

570.426 Program income.

570.427 Program amendments.

570.428 Reallocated funds.

570.429 Hawaii general and grant requirements.

570.430 Hawaii program operation requirements.

570.431 Citizen participation.

570.432 Repayment of section 108 loans.

Subpart F--Small Cities Program

Sec. 570.420 General.

(a) HUD administration of nonentitlement CDBG funds. Title I of the

Housing and Community Development Act of 1974 permits each State to

elect to administer all aspects of the Community Development Block

Grant (CDBG) Program annual fund allocation for the nonentitlement

areas within its jurisdiction. This subpart sets forth policies and

procedures applicable to grants for nonentitlement areas in States that

elect not to administer the CDBG Program. States that elected to

administer the program after the close of fiscal year 1984 cannot

return administration of the program to HUD. A decision by a State to

discontinue administration of the program would result in the loss of

CDBG funds for nonentitled areas in that State and the reallocation of

those funds to all States in the succeeding fiscal year.

(b) Scope and applicability. (1) This subpart describes the

policies and procedures of the Small Cities Program which apply to

nonentitlement areas in States where HUD administers the CDBG Program.

HUD currently administers the Small Cities Program in only two States--

New York and Hawaii. This subpart addresses the requirements for New

York, and Sec. 570.429-30 identifies special procedures applicable to

Hawaii.

(2) The allocation of formula CDBG funds for use in non-entitled

areas of Hawaii and New York is as provided in subpart A of this part.

The policies and procedures set forth in the following identified

subparts of this part 570 apply to the HUD-administered Small Cities

Program, except as modified or limited under the provisions thereof or

this subpart:

(i) Subpart A--General Provisions;

(ii) Subpart C--Eligible Activities;

(iii) Subpart J--Grant Administration;

(iv) Subpart K--Other Program Requirements; and

(v) Subpart O--Performance Reviews.

Department of Housing and Urban Development Reform Act of 1989 (42

U.S.C. 3545) contains a number of provisions that are designed to

ensure greater accountability and integrity in the provision of certain

types of assistance administered by the Department. All competitive

grants in the HUD-administered Small Cities Program in New York are

affected by this legislation, and the requirements identified at 24 CFR

part 12 apply to them. Imminent threat grants under Sec. 570.424 and

section 108 repayment grants under Sec. 570.432 are not affected by

section 102 as they are not competitive grants.

(2) Unless a NOFA provides for competition, the Hawaii HUD-

administered Small Cities Program is not subject to section 102, since

the funds are not distributed in a competitive manner.

(d) Comprehensive Housing Affordability Strategy. Applications for

the HUD-administered Small Cities Program which contain housing

activities must include a certification that the proposed housing

activities are consistent with the applicant's Comprehensive Housing

Affordability Strategy as described at 24 CFR part 91.

(e) National and primary objectives. (1) Each activity funded

through the Small Cities Program must meet one of the following

national objectives as defined under the criteria in Sec. 570.208. Each

activity must either:

(i) Benefit low- and moderate-income families;

(ii) Aid in the prevention or elimination of slums or blight; or

(iii) Be an activity which the grantee certifies is designed to

meet other community development needs having a particular urgency

because existing conditions pose a serious and immediate threat to the

health or welfare of the community where other financial resources are

not available to meet such needs.

(2) In addition to the objectives described in paragraph (e)(1) of

this section, with respect to each grant made through the Small Cities

Program, not less than 70 percent of the grant funds must be expended

for activities which benefit low- and moderate-income persons under the

criteria of Sec. 570.208(a). In determining the percentage of funds

expended for such activity, the provisions of Sec. 570.200(a)(3)(i),

(iv) and (v) shall apply.

(Approved by the Office of Management and Budget under control

number 2506-0060)

Sec. 570.421 New York Small Cities Program Design.

(a) Program administration. Administrative responsibility for the

HUD-administered Small Cities Program in New York is divided between

HUD's New York City and Buffalo Offices. For purposes of this subpart,

the term ``HUD Office'' refers to both the New York City and Buffalo

Offices.

(b) Notice of funding availability. The Department will issue one

or more Notice(s) of Funding Availability (NOFA) each fiscal year which

will indicate the amount of funds available and set forth the grant

limits, type of grants available and the application requirements. The

NOFA will set forth the selection criteria for all grants, as well as

the rating factors that will be used for those grants which are

competitive.

units of general local government, excluding: Metropolitan cities,

urban counties, units of general local government which are

participating in urban counties or metropolitan cities, even if only

part of the participating unit of government is located in the urban

county or metropolitan city, and Indian tribes eligible for assistance

under section 106 of the Act. An application may be submitted

individually or jointly by eligible applicants.

(2) Counties, cities, towns, and villages may apply and receive

funding for separate projects to be done in the same jurisdiction. Only

one grant will be made under each funding round for the same type of

project to be located within the jurisdiction of a unit of general

local government. (e.g. both the county and village cannot receive

funding for a sewer system to be located in the same village, but the

county can receive funding for a sewer system that is located in the

same village as a rehabilitation project that the village receives

funding for.) The NOFA will contain additional information on applicant

eligibility.

(d) Public service activities cap. Public service activities may be

funded up to a maximum of fifteen (15) percent of a State's

nonentitlement allocation for any fiscal year. HUD may award a grant to

a unit of general local government for public service activities with

up to 100 percent of the funds intended for public service activities.

HUD will apply the 15 percent statewide cap to public service

activities by funding public service activities in the highest rated

applications in each NOFA until the cap is reached.

(e) Activities outside an applicant's boundaries. An applicant may

conduct eligible CDBG activities outside its boundaries. These

activities must be demonstrated to be appropriate to meeting the

applicant's needs and objectives, and must be consistent with State and

local law. This provision includes using funds provided under this

subpart in a metropolitan city or an urban county.

Sec. 570.422 Applications from joint applicants.

Units of general local government may submit a joint application

which addresses common problems faced by the jurisdictions, to the

extent permitted by the NOFA. A joint application must be pursuant to a

written cooperation agreement submitted with the application. The

cooperation agreement must authorize one of the participating units of

government to act as the lead applicant which will submit the

application to HUD, and must delineate the responsibilities of each

participating unit of government with respect to the Small Cities

Program. The lead applicant is responsible for ensuring compliance with

all laws, regulations, and Executive Orders applicable to the CDBG

Program. HUD will deal exclusively with the lead applicant with respect

to issues of program administration and performance, including remedial

actions.

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

Cities Grants.

(a) Proposed application. The applicant shall prepare and publish a

proposed application, and comply with citizen participation

requirements as described in Sec. 570.431.

(b) Final application. The applicant shall submit to HUD a final

application containing its community development objectives and

activities. This final application shall be submitted, in a form

prescribed by HUD, to the appropriate HUD Office.

form prescribed by HUD. If the application contains any housing

activities, the applicant shall certify that the proposed housing

activities are consistent with its Comprehensive Housing Affordability

Strategy as described at 24 CFR part 91.

(2) In the absence of evidence (which may, but need not, be derived

from performance reviews or other sources) which tends to challenge in

a substantial manner the certifications made by the applicant, the

certifications will be accepted by HUD. However, if HUD does have

available independent evidence, HUD may require the submission of

additional information or assurances before determining whether an

applicant's certifications are satisfactory.

(d) Thresholds. The HUD Office may use any information available to

it to make the threshold judgments required by the applicable NOFA,

including information related to the applicant's performance with

respect to any previous assistance under this subpart. The annual

performance and evaluation report required under Sec. 570.507(a)(2)(ii)

is the primary source of this information. The HUD Office may request

additional information in cases where it is essential to make the

required performance judgments.

(Approved by the Office of Management and Budget under control

number 2506-0060)

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

(a) Criteria. The following criteria apply for an imminent threat

to public health or safety:

(1) The Director of Community Planning and Development of the HUD

office may, at any time, invite an application for funds available

under this subpart in response to a request for assistance to alleviate

an imminent threat to public health or safety that requires immediate

resolution. HUD shall verify the urgency and the immediacy of the

threat with an appropriate authority other than the applicant prior to

acceptance of the application, and the Director of Community Planning

and Development of the HUD office shall review the claim to determine

if, in fact, an imminent threat to public health or safety does exist.

For example, an applicant with documented cases of disease resulting

from a contaminated drinking water supply has an imminent threat to

public health, while an applicant ordered to improve the quality of its

drinking water supply over the next two years does not have an imminent

threat within the definition of this paragraph (a). These funds are to

be used to deal with those threats which represent a unique and unusual

circumstance, not for the type of threat that occurs with frequency in

a number of communities within the State of New York.

(2) The applicant does not have sufficient local resources, and

other Federal or State resources are unavailable to alleviate the

imminent threat.

(3) All imminent threat projects must meet the requirement of

Sec. 570.420(e).

(b) HUD action. (1) Fifteen percent of the funds allocated to New

York State in the Small Cities Program will be reserved to alleviate

imminent threats to the public health or safety unless a lesser amount

is specified in a NOFA. Applications shall be submitted in accordance

with Sec. 570.423.

(2) Applications which meet the requirements of this section may be

approved by the Director of Community Planning and Development of the

HUD Office without competition.

(3) The only funds reserved for imminent threats to the public

health or safety are those specified by this section as modified by the

NOFA. After the funds have been depleted, HUD shall not consider

further requests for grants relating to imminent threats during that

fiscal year.

determination has been made that an imminent threat exists, HUD may

issue the applicant a letter to proceed to incur costs to alleviate the

imminent threat. Reimbursement of such costs is dependent upon HUD

approval of the final application.

(d) Environmental review. Pursuant to 24 CFR 58.34(a)(8), grants

for imminent threat to public health or safety are excluded from some

or all of the environmental review requirements of 24 CFR part 58, to

the extent provided therein.

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

applicants.

(a) Final application submission. (1) Submission deadline. HUD will

establish a time period during which final applications must be

submitted to the appropriate office. The dates for this period will be

published in a notice in the Federal Register.

(2) Incomplete applications. Applications must contain the

information required by HUD. Information relative to the application

will not be accepted or considered if received after the submission

deadline, unless the information is specifically requested in writing

by HUD.

(3) Costs incurred by the applicant. (i) HUD will not reimburse or

recognize any costs incurred before submission of the final

application.

(ii) HUD will not normally reimburse or recognize costs incurred

before HUD approval of the final application. However, under unusual

circumstances, the Director of Community Planning and Development of

the HUD office may consider and approve written requests to recognize

and reimburse costs otherwise incurred in accordance with this part,

after the submission of the application, where failure to do so would

impose undue or unreasonable hardship on the applicant. The described

authorization will be made only where the conditions for the release of

funds under the provisions for environmental review have been met to

HUD's satisfaction, in accordance with 24 CFR part 58, and with the

understanding that HUD has no obligation to approve the application.

(b) HUD action on final application. (1) Review and notification.

Following the review of the applications, HUD will promptly notify each

applicant of the action taken with regard to its application.

Documentation which supports HUD's decisions on applications will be

available to the public.

(2) Conditional approval. HUD may make a conditional approval, in

which case the grant will be approved but the obligation and

utilization of funds will be restricted. The reasons for the

conditional approval and the actions necessary to remove the condition

will be specified. Failure to satisfy the condition may result in a

termination of the grant.

Sec. 570.426 Program income.

(a) The provisions of Sec. 570.504(b) apply to all program income

generated by a specific grant and received prior to grant closeout.

(b) If the unit of general local government has another ongoing

CDBG grant at the time of closeout, the program income will be

considered to be program income of the ongoing grant. The grantee can

choose which grant to credit the program income to if it has multiple

open CDBG grants.

CDBG grant at the time of closeout, program income of the unit of

general local government or its subrecipients which amounts to less

than $25,000 per year will not be considered to be program income. When

more than $25,000 of program income is generated from one or more

closed out grants in a year after closeout, the entire amount of the

program income is subject to the requirements of this part.

Sec. 570.427 Program amendments.

(a) HUD approval of certain program amendments. Grantees shall

request prior HUD approval for all program amendments involving new

activities or alteration of existing activities that will significantly

change the scope, location, or objectives of the approved activities or

beneficiaries. Approval is subject to the following:

(1) Programs or projects that include new or significantly altered

activities are rated in accordance with the criteria for selection

applicable at the time the original preapplication or application

(whichever is applicable) was rated. The rating of the program or

projects proposed which include the new or altered activities proposed

by the amendment must be equal to or greater than the lowest rating

received by a funded project or program during that cycle of ratings.

(2) Consideration shall be given to whether any new activity

proposed can be completed promptly.

(3) If the grant was received on a non-competitive basis, the

proposed amended project must be able to be completed promptly, and

must meet all of the threshold requirements that were required for the

original project. If the proposal is to amend the project to a type of

project that was rated competitively in the Fiscal Year that the non-

competitive project was funded, the new or altered activities proposed

by the amendment must receive a rating equal to or greater than the

lowest rating received by a funded project or program during that cycle

of ratings.

(b) Documentation of program amendments. Any program amendments

that do not require HUD approval must be fully documented in the

grantee's records.

requires HUD approval, the requirements for citizen participation in

Sec. 570.431 must be met.

Sec. 570.428 Reallocated funds.

(a) General. This section governs reallocated funds originally

allocated for use under 24 CFR part 570, subpart F (Small Cities

Program).

(b) Assignment of funds to be reallocated. Reallocated funds may

be:

(1) Used at any time necessary for a section 108 repayment grant

under Sec. 570.432;

(2) Added to the next Small Cities Program competition;

(3) Used to fund any application not selected for funding in the

most recent Small Cities competition, because of a procedural error

made by HUD; or

(4) Used to fund the most highly ranked unfunded application or

applications from the most recent Small Cities Program competition.

practicable.

Sec. 570.429 Hawaii general and grant requirements.

(a) General. This section shall apply to the HUD-administered Small

Cities Program in the State of Hawaii.

(b) Scope and applicability. Except as otherwise provided in this

section, the policies and procedures outlined in subparts A, C, J, K, O

of this part, and in Secs. 570.420 and 570.430 through 570.432 of this

subpart, shall apply to the HUD-administered Small Cities Program in

the State of Hawaii.

provides for a different method of distribution for eligible Hawaii

units of general local government, which could include competition, or

a set aside, grants will be distributed as follows: For each eligible

unit of general local government, a formula grant amount will be

determined which bears the same ratio to the total amount available for

the nonentitlement area of the State as the weighted average of the

ratios between:

(i) The population of that eligible unit of general local

government and the population of all eligible units of general local

government in the nonentitlement areas of the State;

(ii) The extent of poverty in that eligible unit of general local

government and the extent of poverty in all the eligible units of

general local government in the nonentitled areas of the State; and

(iii) The extent of housing overcrowding in that eligible unit of

general local government and the extent of housing overcrowding in all

the eligible units of general local government in the nonentitled areas

of the State.

(2) In determining the average of the ratios under this paragraph

(c), the ratio involving the extent of poverty shall be counted twice

and each of the other ratios shall be counted once.

(0.25+0.50+0.25=1.00).

(d) Adjustments to grants. Grant amounts under this section may be

adjusted where an applicant's performance is judged inadequate,

considering:

(1) Capacity to utilize the grant amount effectively and

efficiently;

(2) Compliance with the requirements of Sec. 570.902(a) for timely

expenditure of funds beginning with grants made in FY 1996. In making

this calculation, all outstanding grants will be considered. For the FY

1995 grant the requirement is substantial compliance with the

applicant's schedule or schedules submitted in each previously funded

application;

(3) Compliance with other program requirements based on monitoring

visits and audits.

(e) Reallocation. (1) Any amounts that become available as a result

of adjustments under paragraph (d) of this section, or any reductions

under subpart O of this part, shall be reallocated in the same fiscal

year to any remaining eligible applicants on a pro rata basis.

(2) Any formula grant amounts reserved for an applicant that

chooses not to submit an application shall be reallocated to any

remaining eligible applicants on a pro rata basis.

(3) No amounts shall be reallocated under paragraph (e) of this

section in any fiscal year to any applicant whose grant amount was

adjusted under paragraph (d) of this section or reduced under subpart O

of this part.

(4) This section may be superseded by requirements promulgated in a

NOFA.

(f) Applications. (1) Presubmission. The applicant will follow the

requirements of Sec. 570.301(a) and (c), as well as the requirements of

this section, unless these requirements are superseded by instructions

in a published NOFA.

(2) Submission. (i) HUD will require all applicants to submit an

application for the amount established under paragraphs (c) through (e)

of this section by a date established by HUD, and to follow the

requirements of Sec. 570.302(a)(1) and (2) unless these requirements

are superseded by instructions in a published NOFA.

(ii) Certifications. The certifications shall be submitted in a

form prescribed by HUD. If the application contains any housing

activities, the applicant shall certify that the proposed housing

activities are consistent with its Comprehensive Housing Affordability

Strategy as described at 24 CFR part 91.

(g) Application Approval. HUD will approve the application and

certifications unless it is determined that one or more of the

following requirements have not been met, or unless this process is

superseded by instructions in a published NOFA.

(1) Completeness. The submission shall include all of the

components required in paragraph (f) of this section.

(2) Timeliness. The submission must be received within the time

period established in paragraph (f) of this section.

(3) Certifications. The certifications made by the grantee will be

satisfactory to the Secretary if made in conformance with the

requirements of paragraph (f) of this section, unless the Secretary has

determined pursuant to subpart O of this part that the grantee has not

complied with the requirements of this part or has failed to carry out

its Comprehensive Housing Affordability Strategy in a timely manner, or

determined that there is evidence, not directly involving the grantee's

past performance under this program, which tends to challenge in a

substantial manner the grantee's certification of future performance.

If the Secretary makes any such determination, however, further

assurances may be required to be submitted by the grantee as the

Secretary may deem warranted or necessary to find the grantee's

certification satisfactory.

(h) Grant agreement. The grant will be made by means of a grant

agreement executed by both HUD and the grantee.

(i) Conditional grant. The Secretary may make a conditional grant

in which case the obligation and use of grant funds for activities may

be restricted. Conditional grants may be made where there is

substantial evidence that there has been, or there will be, a failure

to meet the performance requirements or criteria described in subpart O

of this part. In such case, the conditional grant will be made by means

of a grant agreement, executed by HUD, which includes the terms of the

condition specifying the reason for the conditional grant, the actions

necessary to remove the condition and the deadline for taking those

actions. The grantee shall execute and return such an agreement to HUD

within 60 days of the date of its transmittal. Failure of the grantee

to execute and return the grant agreement within 60 days may be deemed

by HUD to constitute rejection of the grant by the grantee and shall be

cause for HUD to determine that the funds provided in the grant

agreement are available for reallocation in accordance with section

106(c) of the Act. Failure to satisfy the condition may result in a

reduction in the grant amount pursuant to Sec. 570.911. (Approved by

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

Sec. 570.430 Hawaii program operation requirements.

(a) Limitation on planning and administrative costs. For grants

made prior to FY 1995, no more than 20 percent of the sum of the grant

plus program income received during the grant period shall be expended

for planning and program administrative costs. For grants received in

FY 1995 and thereafter, a grantee will be considered to be in

conformance with the requirements of Sec. 570.200(g) if expenditures

for planning and administration during the most recently completed

program year do not exceed 20 percent of the sum of the grant made for

that program year and the program income received from post FY 1994

grants during that program year.

(b) Performance and evaluation reports. Grantees will follow the

requirements of Sec. 570.507(a) for entitlement grant recipients for

all grants received in FY 1995 and thereafter. Grantees will continue

following the requirements of Sec. 570.507(a) for HUD-administered

small cities grants for grants received prior to FY 1995 until those

grants are closed out.

closed out in accordance with the procedures in Sec. 570.509. Grants

received in FY 1995 and thereafter shall not be closed out

individually. A grantee's entire program shall be closed upon program

completion if a grantee ceases its participation in the Small Cities

Program.

(d) Public Services. Starting with the FY 1996 grant, grantees may

follow the provisions of Sec. 570.201(e)(1) that refer to entitlement

grantees, allowing grantees to use 15 percent of the program income

received in the previous program year in addition to 15 percent of the

grant amount for public services.

(e) Compliance with the primary objective. Starting with the FY

1995 grant, grantees may select a time period of one, two or three

years in which to meet the requirement that not less than 70 percent of

the aggregate of CDBG fund expenditures be for activities benefitting

low-and moderate-income persons. Grants made prior to FY 1995 will be

considered individually for meeting the primary objective, and

expenditures for pre FY 1995 grants made during and after FY 1995 will

not be considered in determining whether the primary objective has been

met for post 1994 grants. If the State of Hawaii decides to administer

the Community Development Block Grant Program for non-entitled units of

general local government in Hawaii, the State will be bound by the time

period for meeting the primary objective that was chosen by each non-

entitled grantee within the State until those time periods have

expired.

(f) Amendments. (1) The grantee shall amend its application

whenever it decides not to carry out an activity described in its

application, to carry out an activity not previously described, or to

substantially change the purpose, scope, location, or beneficiaries of

an activity. Prior to the submission of its FY 1995 application, each

grantee shall develop and make public its criteria for what constitutes

a substantial change for this purpose.

(2) Prior to amending its application, a grantee shall follow the

citizen participation requirements of Sec. 570.431 except that HUD is

not required to approve the amendment.

Sec. 570.431 Citizen participation.

(a) General. An applicant that is located in a nonentitlement area

of a State that has not elected to distribute funds shall comply with

the citizen participation requirements described in this section,

including requirements for the preparation of the proposed application

and the final application. The requirements for citizen participation

do not restrict the responsibility or authority of the applicant for

the development and execution of its community development program.

(b) Citizen participation plan. The applicant must develop and

follow a detailed citizen participation plan and must make the plan

public. The plan must be completed and available before the application

for assistance is submitted to HUD, and the applicant must certify that

it is following the plan. The plan must set forth the applicant's

policies and procedures for:

(1) Giving citizens timely notice of local meetings and reasonable

and timely access to local meetings, information, and records relating

to the grantee's proposed and actual use of CDBG funds including, but

not limited to:

(i) The amount of CDBG funds expected to be made available for the

coming year, including the grant and anticipated program income;

(ii) The range of activities that may be undertaken with those

funds;

(iii) The estimated amount of those funds proposed to be used for

activities that will benefit low and moderate income persons;

(iv) The proposed CDBG activities likely to result in displacement

and the applicant's plans, consistent with the policies developed under

Sec. 570.606(b), for minimizing displacement of persons as a result of

its proposed activities; and

(v) The types and levels of assistance the applicant plans to make

available (or to require others to make available) to persons displaced

by CDBG-funded activities, even if the applicant expects no

displacement to occur;

(2) Providing technical assistance to groups representative of

persons of low and moderate income that request assistance in

developing proposals. The level and type of assistance to be provided

is at the discretion of the applicant. The assistance need not include

the provision of funds to the groups;

(3) Holding a minimum of two public hearings, for the purpose of

obtaining citizen's views and formulating or responding to proposals

and questions. Each public hearing must be conducted at a different

stage of the CDBG program. Together, the hearings must address

community development and housing needs, development of proposed

activities and review of program performance. There must be reasonable

notice of the hearings and the hearings must be held at times and

accessible locations convenient to potential or actual beneficiaries,

with reasonable accommodations including material in accessible formats

for persons with disabilities. The applicant must specify in its plan

how it will meet the requirement for hearings at times and locations

convenient to potential or actual beneficiaries;

(4) Meeting the needs of non-English speaking residents in the case

of public hearings where a significant number of non-English speaking

residents can reasonably be expected to participate;

(5) Responding to citizen complaints and grievances, including the

procedures that citizens must follow when submitting complaints and

grievances. The applicant's policies and procedures must provide for

timely written answers to written complaints and grievances within 15

working days of the receipt of the complaint, where practicable; and

(6) Encouraging citizen participation, particularly by low- and

moderate-income persons who reside in slum or blighted areas, and in

other areas in which CDBG funds are proposed to be used.

publish a proposed application consisting of the proposed community

development activities and community development objectives in order to

afford affected citizens an opportunity to:

(1) Examine the application's contents to determine the degree to

which they may be affected;

(2) Submit comments on the proposed application; and

(3) Submit comments on the performance of the applicant.

(d) Preparation of a final application. An applicant must prepare a

final application. In the preparation of the final application, the

applicant shall consider comments and views received related to the

proposed application and may, if appropriate, modify the final

application. The final application shall be made available to the

public and shall include the community development objectives and use

of funds, and the community development activities.

(e) Amendments. To assure citizen participation on amendments to

final applications that require HUD approval under Sec. 570.427, the

grantee shall:

(1) Furnish citizens information concerning the amendment;

(2) Hold one or more public hearings to obtain the views of

citizens on the proposed amendment;

(3) Develop and publish the proposed amendment in such a manner as

to afford affected citizens an opportunity to examine the contents, and

to submit comments on the proposed amendment;

(4) Consider any comments and views expressed by citizens on the

proposed amendment and, if the grantee finds it appropriate, modify the

final amendment accordingly; and

(5) Make the final amendment to the community development program

available to the public before its submission to HUD.

Sec. 570.432 Repayment of section 108 loans.

Notwithstanding any other provision of this subpart, a unit of

general local government in a nonentitlement area where the State has

not elected to administer the CDBG program shall be eligible for Small

Cities Grant assistance hereunder for the sole purpose of paying any

amounts due on debt obligations issued by such unit of general local

government (or its designated public agency) and guaranteed by the

Secretary pursuant to section 108 of the Act (see subpart M of this

part). The award of grant assistance for such purpose shall be

consistent with section 106(d)(3)(B) of the Act, in such amount, and

subject to such conditions as the Secretary may determine. Since

guaranteed loan funds (as defined in Sec. 570.701) are required to be

used in accordance with national and primary objective requirements,

and other applicable requirements of this part, any grant made to make

payments on the debt obligations evidencing the guaranteed loan shall

be presumed to meet such requirements, unless HUD determines that the

guaranteed loan funds were not used in accordance with such

requirements. Any such determination by HUD shall not prevent the

making of the grant in amount of the payment due, but it may be grounds

for HUD to take appropriate action under subpart O based on the

original noncompliance.

3. In 24 CFR part 570, subpart I, a new Sec. 570.497 would be added

to read as follows:

Sec. 570.497 Condition of State election to administer State CDBG

Program.

Pursuant to section 106(d)(2)(A)(i) of the Act, a State has the

right to elect, in such manner and at such time as the Secretary may

prescribe, to administer funds allocated under subpart A of this part

for use in nonentitlement areas of the State. After [insert effective

date of final rule], any State which elects to administer the

allocation of CDBG funds for use in nonentitlement areas of the State

in any year must, in addition to all other requirements of this

subpart, submit a pledge by the State in accordance with section

108(d)(2) of the Act, and in a form acceptable to HUD, of any future

CDBG grants it may receive under subpart A and this subpart. Such

pledge shall be for the purpose of assuring repayment of any debt

obligations (as defined in Sec. 570.701 of this part), in accordance

with their terms, that HUD may have guaranteed in the respective State

on behalf of any nonentitlement public entity (as defined in

Sec. 570.701) or its designated public agency prior to the State's

election.

4. In Sec. 570.507, paragraph (a)(2)(ii)(A) would be revised to

read as follows:

Sec. 570.507 Reports.

(a) * * *

(2) * * *

(ii) * * *

(A) The first report on a small cities grant should be submitted no

later than fifteen working days after September 30 for all grants

executed prior to April 1 of the same calendar year. The first report

should cover the period from the execution of the grant until September

30. Reports on grants made after March 31 of a calendar year will be

due fifteen working days after September 30 of the following calendar

year and the reports will cover the period of time from the execution

of the grant until September 30 of the calendar year following grant

execution. After the initial submission, the performance and evaluation

report will be submitted annually on the fifteenth working day after

September 30 until completion of the activities funded under the grant;

and

* * * * *

5. In 24 part 570, subpart M, consisting of Secs. 570.700 through

570.710, would be revised in its entirety, to read as follows:

Subpart M--Loan Guarantees

Sec.

570.700 Purpose.

570.701 Definitions.

570.702 Eligible applicants.

570.703 Eligible activities.

570.704 Application requirements.

570.705 Loan requirements.

570.706 Federal guarantee; subrogation.

570.707 Applicability of rules and regulations.

570.708 Sanctions.

570.709 Allocation of loan guarantee assistance.

570.710 State responsibilities.

Sec. 570.700 Purpose.

This subpart contains requirements governing the guarantee under

section 108 of the Act of debt obligations as defined in Sec. 570.701.

Sec. 570.701 Definitions.

Borrower means the public entity or its designated public agency

that issues debt obligations under this subpart.

Debt obligation means a promissory note or other obligation issued

by a public entity or its designated public agency and guaranteed by

HUD under this subpart, or a trust certificate or other obligation

offered by HUD or any other offeror approved for purpose of this

subpart by HUD which is guaranteed by HUD under this subpart and is

based on and backed by a trust or pool composed of notes or other

obligations issued by public entities or their designated public

agencies and guaranteed or eligible for guarantee by HUD under this

subpart.

Designated public agency means a public agency designated by a

public entity to issue debt obligations as borrower under this subpart.

Entitlement public entity means a metropolitan city or an urban

county receiving a grant under subpart D of this part.

Guaranteed loan funds means the proceeds payable to the borrower

from the issuance of debt obligations under this subpart.

Nonentitlement public entity means any unit of general local

government in a nonentitlement area.

Public entity means any unit of general local government, including

units of general local government in a nonentitlement area.

State-assisted public entity means a unit of general local

government in a nonentitlement area which is assisted by a State as

required in Sec. 570.704(b)(9) and Sec. 570.705(b)(2).

Sec. 570.702 Eligible applicants.

The following public entities may apply for loan guarantee

assistance under this subpart.

(a) Entitlement public entities.

(b) Nonentitlement public entities that are assisted in the

submission of applications by States that administer the CDBG program

(under subpart I of this part). Such assistance shall consist, at a

minimum, of the certifications required under Sec. 570.704(b)(9) (and

actions pursuant thereto).

assistance under subpart F of this part.

Sec. 570.703 Eligible activities.

Guaranteed loan funds may be used for the following activities,

provided such activities meet the requirements of Sec. 570.200.

However, guaranteed loan funds may not be used to reimburse the CDBG

program account or line of credit for costs incurred by the public

entity or designated public agency and paid with CDBG grant funds or

program income.

(a) Acquisition of improved or unimproved real property in fee or

by long-term lease, including acquisition for economic development

purposes.

(b) Rehabilitation of real property owned or acquired by the public

entity or its designated public agency.

subpart.

(d) Relocation payments and other relocation assistance for

individuals, families, businesses, nonprofit organizations, and farm

operations who must relocate permanently or temporarily as a result of

an activity financed with guaranteed loan funds, where the assistance

is:

(1) Required under the provisions of Secs. 570.488 (b) or (c) or

570.606 (b) or (c); or

(2) Determined by the public entity to be appropriate under the

provisions of Secs. 570.488(d) or 570.606(d).

(e) Clearance, demolition and removal, including movement of

structures to other sites, of buildings and improvements on real

property acquired or rehabilitated pursuant to paragraphs (a) and (b)

of this section.

(f) Site preparation, including construction, reconstruction, or

installation of public and other site improvements, utilities, or

facilities (other than buildings), which is:

(1) Related to the redevelopment or use of the real property

acquired or rehabilitated pursuant to paragraphs (a) and (b) of this

section, or

(2) For an economic development purpose.

(g) Payment of issuance, underwriting, servicing, and other costs

associated with private sector financing of debt obligations under this

subpart.

(h) Housing rehabilitation eligible under Sec. 570.202.

(i) The following economic development activities:

(1) Activities eligible under Sec. 570.203; and

(2) Community economic development projects eligible under

Sec. 570.204.

(j) Construction of housing by nonprofit organizations for

homeownership under section 17(d) of the United States Housing Act of

1937 (Housing Development Grants Program, 24 CFR part 850) or title VI

of the Housing and Community Development Act of 1987 (Nehemiah Housing

Opportunity Grants Program, 24 CFR part 280).

(k) A debt service reserve to be used in accordance with

requirements specified in the contract entered into pursuant to

Sec. 570.705(b)(1).

(l) Acquisition, construction, reconstruction, rehabilitation, or

installation of public facilities (except for buildings for the general

conduct of government).

(m) In the case of applications by public entities which are, or

which contain, ``colonias'' as defined in section 916 of the Cranston-

Gonzalez National Affordable Housing Act (42 U.S.C. 5306 note), as

amended by section 810 of the Housing and Community Development Act of

1992), acquisition, construction, reconstruction, rehabilitation or

installation of public works and site or other improvements which serve

the colonia.

Sec. 570.704 Application requirements.

(a) Presubmission and citizen participation requirements.

(1) Before submission of an application for loan guarantee

assistance to HUD, the public entity must:

(i) Develop a proposed application that includes the following

items:

(A) The community development objectives the public entity proposes

to pursue with the guaranteed loan funds.

(B) The activities the public entity proposes to carry out with the

guaranteed loan funds. Each activity must be described in sufficient

detail, including the specific provision of Sec. 570.703 under which it

is eligible and the national objective to be met, amount of guaranteed

loan funds expected to be used, and location, to allow citizens to

determine the degree to which they will be affected. The proposed

application must indicate which activities are expected to generate

program income. The application must also describe where citizens may

obtain additional information about proposed activities.

Sec. 570.705(b)(2). In the case of applications by State-assisted

public entities, the description shall note that pledges of grants will

be made by the State and by the public entity.

(ii) Fulfill the applicable requirements in its citizen

participation plan developed in accordance with Sec. 570.704(a)(2).

(iii) Publish community-wide its proposed application so as to

afford affected citizens an opportunity to examine the application's

contents and to provide comments on the proposed application.

(iv) Prepare its final application. Once the public entity has held

the public hearing and published the proposed application as required

by paragraphs (a)(1) (ii) and (iii) of this section, respectively, the

public entity must consider any such comments and views received and if

the public entity deems appropriate, modify the proposed application.

Upon completion, the public entity must make the final application

available to the public. The final application must describe each

activity in sufficient detail to permit a clear understanding of the

nature of each activity, as well as identify the specific provision of

Sec. 570.703 under which it is eligible, the national objective to be

met, and the amount of guaranteed loan funds to be used. The final

application must also indicate which activities are expected to

generate program income.

(v) If an application for loan guarantee assistance is to be

submitted by an entitlement public entity simultaneously with the

public entity's submission for its entitlement grant, the public entity

shall include and identify in its proposed and final statements of

community development objectives and projected use of funds prepared

for its annual grant pursuant to Sec. 570.301 the activities to be

undertaken with the guaranteed loan funds, the national objective to be

met by each of these activities, the amount of any program income

expected to be received during the program year, and the amount of

guaranteed loan funds to be used; the public entity shall also include

in these statements a description of the pledge of grants required

under Sec. 570.705(b)(2). In such cases the proposed and final

application requirements of paragraphs (i), (iii), and (iv) of this

section will be deemed to have been met.

(2) Citizen participation plan. The public entity must develop and

follow a detailed citizen participation plan and make the plan public.

The plan must be completed and available before the application is

submitted to HUD. The plan may be the plan required for the CDBG

program, modified to include guaranteed loan funds. The public entity

is not required to hold a separate public hearing for its CDBG program

and for the guaranteed loan funds to obtain citizens' views on

community development and housing needs. The plan must set forth the

public entity's policies and procedures for:

(i) Giving citizens timely notice of local meetings and reasonable

and timely access to local meetings, information, and records relating

to the public entity's proposed and actual use of guaranteed loan

funds, including, but not limited to:

(A) The amount of guaranteed loan funds expected to be made

available for the coming year, including program income anticipated to

be generated by the activities carried out with guaranteed loan funds;

(B) The range of activities that may be undertaken with guaranteed

loan funds;

program income derived therefrom) proposed to be used for activities

that will benefit low and moderate income persons;

(D) The proposed activities likely to result in displacement and

the public entity's plans, consistent with the policies developed under

Sec. 570.606 or Sec. 570.488 for minimizing displacement of persons as

a result of its proposed activities.

(ii) Providing technical assistance to groups representative of

persons of low and moderate income that request assistance in

developing proposals. The level and type of assistance to be provided

is at the discretion of the public entity. Such assistance need not

include the provision of funds to such groups.

(iii) Holding a minimum of two public hearings, each at a different

stage of the public entity's program, for the purpose of obtaining the

views of citizens and formulating or responding to proposals and

questions. Together the hearings must address community development and

housing needs, development of proposed activities and review of program

performance. At least one of these hearings must be held before

submission of the application to obtain the views of citizens on

community development and housing needs. Reasonable notice of the

hearing must be provided and the hearing must be held at times and

locations convenient to potential or actual beneficiaries, with

accommodation for the handicapped. The public entity must specify in

its plan how it will meet the requirement for a hearing at times and

locations convenient to potential or actual beneficiaries.

(iv) Meeting the needs of non-English speaking residents in the

case of public hearings where a significant number of non-English

speaking residents can reasonably be expected to participate.

(v) Providing affected citizens with reasonable advance notice of,

and opportunity to comment on, proposed activities not previously

included in an application and activities which are proposed to be

deleted or substantially changed in terms of purpose, scope, location,

or beneficiaries. The criteria the public entity will use to determine

what constitutes a substantial change for this purpose must be

described in the citizen participation plan.

(vi) Responding to citizens' complaints and grievances, including

the procedures that citizens must follow when submitting complaints and

grievances. The public entity's policies and procedures must provide

for timely written answers to written complaints and grievances within

15 working days of the receipt of the complaint, where practicable.

(vii) Encouraging citizen participation, particularly by low and

moderate income persons who reside in slum or blighted areas, and other

areas in which guaranteed loan funds are proposed to be used.

(b) Submission requirements. An application for loan guarantee

assistance may be submitted at any time. The application (or final

statement) shall be submitted to the appropriate HUD Office and shall

be accompanied by the following:

(1) A description of how each of the activities to be carried out

with the guaranteed loan funds meets one of the criteria in

Sec. 570.208.

(2) A schedule for repayment of the loan which identifies the

sources of repayment, together with a statement identifying the entity

that will act as borrower and issue the debt obligations.

(3) A certification providing assurance that the public entity

possesses the legal authority to make the pledge of grants required

under Sec. 570.705(b)(2).

(4) A certification providing assurance that the public entity has

made efforts to obtain financing for activities described in the

application without the use of the loan guarantee, the public entity

will maintain documentation of such efforts for the term of the loan

guarantee, and the public entity cannot complete such financing

consistent with the timely execution of the program plans without such

guarantee.

(5) The drug-free workplace certification required under 24 CFR

part 24 (Appendix C).

(6) The certification regarding debarment and suspension required

under 24 CFR part 24 (Appendix A).

(7) The anti-lobbying statement required under 24 CFR part 87

(Appendix A).

(8) Certifications by the public entity that:

(i) It possesses the legal authority to submit the application for

assistance under this subpart and to use the guaranteed loan funds in

accordance with the requirements of this subpart.

(ii) Its governing body has duly adopted or passed as an official

act a resolution, motion or similar action authorizing the person

identified as the official representative of the public entity to

submit the application and amendments thereto and all understandings

and assurances contained therein, and directing and authorizing the

person identified as the official representative of the public entity

to act in connection with the application to provide such additional

information as may be required.

(iii) Before submission of its application to HUD, the public

entity has:

(A) Furnished citizens with information required by

Sec. 570.704(a)(2)(i);

(B) Held at least one public hearing to obtain the views of

citizens on community development and housing needs; and

Sec. 570.704(a)(1)(iv) and made the application available to the

public.

(iv) It is following a detailed citizen participation plan which

meets the requirements described in Sec. 570.704(a)(2).

(v) The public entity will affirmatively further fair housing, and

the guaranteed loan funds will be administered in compliance with:

(A) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et

seq.); and

(B) The Fair Housing Act (42 U.S.C. 3601-20).

(vi) (A) (For entitlement public entities only.) In the aggregate,

at least 70 percent of all CDBG funds, as defined at Sec. 570.3, to be

expended during the one, two, or three consecutive years specified by

the public entity for its CDBG program will be for activities which

benefit low and moderate income persons, as described in criteria at

Sec. 570.208(a).

(B) (For nonentitlement public entities eligible under subpart F of

this part only) It will comply with national objectives requirements,

as applicable under subpart F of this part.

(vii) It will comply with the requirements governing displacement,

relocation, real property acquisition, and the replacement of low and

moderate income housing described in Sec. 570.488 or Sec. 570.606.

(viii) It will comply with the requirements of Sec. 570.200(c)(2)

with regard to the use of special assessments to recover the capital

costs of activities assisted with guaranteed loan funds.

(ix) (Where applicable, the public entity may also include the

following additional certification.) It lacks sufficient resources from

funds provided under this subpart or program income to allow it to

comply with the provisions of Sec. 570.200(c)(2), and it must therefore

assess properties owned and occupied by moderate income persons, to

recover the guaranteed loan funded portion of the capital cost without

paying such assessments in their behalf from guaranteed loan funds.

(x) It will comply with the other provisions of the Act and with

other applicable laws.

(9) In the case of an application submitted by a State-assisted

public entity, certifications by the State that:

(i) It agrees to make the pledge of grants required under

Sec. 570.705(b)(2).

(ii) It possesses the legal authority to make such pledge.

(iii) At least 70 percent of the aggregate use of CDBG grant funds

received by the State, guaranteed loan funds, and program income during

the one, two, or three consecutive years specified by the State for its

CDBG program will be for activities that benefit low and moderate

income persons.

(iv) It agrees to assume the responsibilities described in

Sec. 570.710.

accept the certifications submitted with the application. HUD may,

however, consider relevant information which challenges the

certifications and require additional information or assurances from

the public entity or State as warranted by such information.

(2) The HUD Office shall review the application for compliance with

requirements specified in this subpart and forward the application

together with its recommendation for approval or disapproval of the

requested loan guarantee to HUD Headquarters.

(3) HUD may disapprove an application, or may approve loan

guarantee assistance for an amount less than requested, for any of the

following reasons:

(i) HUD determines that the guarantee constitutes an unacceptable

financial risk. Factors that will be considered in assessing financial

risk shall include, but not be limited to, the following:

(A) The length of the proposed repayment period;

(B) The ratio of expected annual debt service requirements to

expected annual grant amount;

receive grant assistance under this part during the proposed repayment

period;

(D) The public entity's ability to furnish adequate security

pursuant to Sec. 570.705(b), and

(E) The amount of program income the proposed activities are

reasonably estimated to contribute toward repayment of the guaranteed

loan.

(ii) The requested loan amount exceeds any of the limitations

specified under Sec. 570.705(a).

(iii) Funds are not available in the amount requested.

(iv) The performance of the public entity, its designated public

agency or State under this part is unacceptable.

(v) Activities to be undertaken with the guaranteed loan funds are

not eligible under Sec. 570.703.

(vi) Activities to be undertaken with the guaranteed loan funds do

not meet the criteria in Sec. 570.208 for compliance with one of the

national objectives of the Act.

(4) HUD will notify the public entity in writing that the loan

guarantee request has either been approved, reduced or disapproved. If

the request is reduced or disapproved, the public entity shall be

informed of the specific reasons for reduction or disapproval. If the

request is approved, HUD shall issue an offer of commitment to

guarantee debt obligations of the borrower identified in the

application subject to compliance with the requirements authorized by

Sec. 570.705 (b), (d), (g) and (h) for securing and issuing debt

obligations, the conditions for release of funds described in paragraph

(d) of this section, and such other conditions as HUD may specify in

the commitment documents in a particular case.

(5) Amendments. If the public entity wishes to carry out an

activity not previously described in its application or to

substantially change the purpose, scope, location, or beneficiaries of

an activity, the amendment must be approved by HUD. Amendments by

State-assisted public entities must also be approved by the State. The

public entity shall follow the citizen participation requirements for

amendments in Sec. 570.704(a)(2).

(d) Environmental review. The public entity shall comply with HUD

environmental review procedures (24 CFR part 58) for the release of

funds for each project carried out with loan guarantee assistance.

These procedures set forth the regulations, policies, responsibilities

and procedures governing the carrying out of environmental review

responsibilities of public entities. All public entities, including

nonentitlement public entities, shall submit the request for release of

funds and related certification for each project to be assisted with

guaranteed loan funds to the appropriate HUD Field Office.

(e) Displacement, relocation, acquisition, and replacement of

housing. The public entity (or the designated public agency) shall

comply with the displacement, relocation, acquisition and replacement

of low/moderate-income housing requirements in Secs. 570.488 or 570.606

in connection with any activity financed in whole or in part with

guaranteed loan funds.

Sec. 570.705 Loan requirements.

(a) Limitations on commitments. (1) If loan guarantee commitments

have been issued in any fiscal year in an aggregate amount equal to 50

percent of the amount approved in an appropriation act for that fiscal

year, HUD may limit the amount of commitments any one public entity may

receive during such fiscal year as follows (except that HUD will not

decrease commitments already issued):

(i) The amount any one entitlement public entity may receive may be

limited to $35,000,000.

(ii) The amount any one nonentitlement public entity may receive

may be limited to $7,000,000.

(iii) The amount any one public entity may receive may be limited

to such amount as is necessary to allow HUD to give priority to

applications containing activities to be carried out in areas

designated as empowerment zones/enterprise communities by the Federal

Government or by any State.

(2) In addition to the limitations specified in paragraph (a)(1) of

this section, the following limitations shall apply.

(i) Entitlement public entities. No commitment to guarantee shall

be made if the total unpaid balance of debt obligations guaranteed

under this subpart (excluding any amount defeased under the contract

entered into under Sec. 570.705(b)(1)) on behalf of the public entity

would thereby exceed an amount equal to five times the amount of the

most recent grant made pursuant to Sec. 570.304 to the public entity.

(ii) State-assisted public entities. No commitment to guarantee

shall be made if the total unpaid balance of debt obligations

guaranteed under this subpart (excluding any amount defeased under the

contract entered into under Sec. 570.705(b)(1)) on behalf of the public

entity and all other State-assisted public entities in the State would

thereby exceed an amount equal to five times the amount of the most

recent grant received by such State under subpart I.

(iii) Nonentitlement public entities eligible under subpart F of

this part. No commitment to guarantee shall be made with respect to a

nonentitlement public entity in the State of Hawaii if the total unpaid

balance of debt obligations guaranteed under this subpart (excluding

any amount defeased under the contract entered into under

Sec. 570.705(b)(1)) on behalf of the public entity would thereby exceed

an amount equal to five times the amount of the most recent grant made

pursuant to Sec. 570.429 to the public entity. No commitment to

guarantee shall be made with respect to a nonentitlement public entity

in the State of New York if the total unpaid balance of debt

obligations guaranteed under this subpart (excluding any amount

defeased under the contract entered into under Sec. 570.705(b)(1)) on

behalf of the public entity would thereby exceed the greater of five

times:

(A) The most recent grant approved for the public entity pursuant

to subpart F of this part,

(B) The average of the most recent three grants approved for the

public entity pursuant subpart F of this part, excluding any grant in

the same fiscal year as the commitment, or

to units of general local government in New York State in the previous

fiscal year.

(b) Security requirements. To assure the repayment of debt

obligations and the charges incurred under paragraph (g) of this

section and as a condition for receiving loan guarantee assistance, the

public entity (and State and/or designated public agency, as

applicable) shall:

(1) Enter into a contract for loan guarantee assistance with HUD,

in a form acceptable to HUD, including provisions for repayment of debt

obligations guaranteed hereunder;

(2) Pledge all grants made or for which the public entity or State

may become eligible under this part; and

(3) Furnish, at the discretion of HUD, such other security as may

be deemed appropriate by HUD in making such guarantees. Other security

shall be required for all loans with repayment periods of ten years or

longer. Such other security shall be specified in the contract entered

into pursuant to Sec. 570.705(b)(1). Examples of other security HUD may

require are:

(i) Program income as defined in Sec. 570.500(a);

(ii) Liens on real and personal property;

(iii) Debt service reserves; and

(iv) Increments in local tax receipts generated by activities

carried out with the guaranteed loan funds.

provision of this part:

(1) Community Development Block Grants allocated pursuant to

section 106 of the Act (including program income derived therefrom) may

be used for:

(i) Paying principal and interest due (including such issuance,

servicing, underwriting, or other costs as may be incurred under

paragraph (g) of this section) on the debt obligations guaranteed under

this subpart;

(ii) Defeasing such debt obligations; and

(iii) Establishing debt service reserves as additional security

pursuant to paragraph (b)(3) of this section.

(2) HUD may apply grants pledged pursuant to paragraph (b)(2) of

this section to any amounts due under the debt obligations, the payment

of costs incurred under paragraph (g) of this section, or to the

purchase or defeasance of such debt obligations, in accordance with the

terms of the contract required by paragraph (b)(1) of this section.

(d) Debt obligations. Debt obligations guaranteed under this

subpart shall be in the form and denominations prescribed by HUD. Such

debt obligations may be issued and sold only under such terms and

conditions as may be prescribed by HUD. HUD may prescribe the terms and

conditions of debt obligations, or of their issuance and sale, by

regulation or by contractual arrangements authorized by section

108(r)(4) of the Act and paragraph (h) of this section. Unless

specifically provided otherwise in the contract for loan guarantee

assistance required under paragraph (b) of this section, debt

obligations shall not constitute general obligations of any public

entity or State secured by its full faith and credit.

(e) Taxable obligations. Interest earned on debt obligations under

this subpart shall be subject to Federal taxation as provided in

section 108(j) of the Act.

(f) Loan repayment period. The term of debt obligations under this

subpart shall not exceed twenty years.

(g) Issuance, underwriting, servicing, and other costs. Each public

entity or its designated public agency issuing debt obligations under

this subpart must pay the issuance, underwriting, servicing, and other

costs associated with the private sector financing of the debt

obligations. Such costs are payable out of the guaranteed loan funds.

(h) Contracting with respect to issuance and sale of debt

obligations; effect of other laws. No State or local law, and no

Federal law, shall preclude or limit HUD's exercise of:

(1) The power to contract with respect to public offerings and

other sales of debt obligations under this subpart upon such terms and

conditions as HUD deems appropriate;

(2) The right to enforce any such contract by any means deemed

appropriate by HUD;

(3) Any ownership rights of HUD, as applicable, in debt obligations

under this subpart.

Sec. 570.706 Federal guarantee; subrogation.

The full faith and credit of the United States is pledged to the

payment of all guarantees made under this subpart. Any such guarantee

made by HUD shall be conclusive evidence of the eligibility of the debt

obligations for such guarantee with respect to principal and interest,

and the validity of such guarantee so made shall be incontestable in

the hands of a holder of the guaranteed debt obligations. If HUD pays a

claim under a guarantee made under section 108 of the Act, HUD shall be

fully subrogated for all the rights of the holder of the guaranteed

debt obligation with respect to such obligation.

Sec. 570.707 Applicability of rules and regulations.

(a) Entitlement public entities. The provisions of subparts A, C,

J, K and O of this part applicable to entitlement grants shall apply

equally to guaranteed loan funds and other CDBG funds, except to the

extent they are specifically modified or augmented by the provisions of

this subpart.

(b) State-assisted public entities. The provisions of subpart I of

this part, and the requirements the State imposes on units of general

local government receiving Community Development Block Grants or

program income to the extent applicable, shall apply equally to

guaranteed loan funds and Community Development Block Grants (including

program income derived therefrom) administered by the State under the

CDBG program, except to the extent they are specifically modified or

augmented by the provisions of this subpart.

provisions of subpart F of this part shall apply equally to guaranteed

loan funds and other CDBG funds, except to the extent they are

specifically modified or augmented by the provisions of this subpart.

Sec. 570.708 Sanctions.

(a) Non-State Assisted Public Entities. The performance review

procedures described in subpart O of this part apply to all public

entities receiving guaranteed loan funds other than State-assisted

public entities. Performance deficiencies in the use of guaranteed loan

funds made available to such public entities (or program income derived

therefrom) or violations of the contract entered into pursuant to

Sec. 570.705(b)(1) may result in the imposition of a sanction

authorized pursuant to Sec. 570.900(b)(7) against pledged CDBG grants.

In addition, upon a finding by HUD that the public entity has failed to

comply substantially with any provision of the Act with respect to

either the pledged grants or the guaranteed loan funds or program

income, HUD may take action against the pledged grants as provided in

Sec. 570.913 and/or may take action as provided in the contract for

loan guarantee assistance.

(b) State-assisted public entities. Performance deficiencies in the

use of guaranteed loan funds (or program income derived therefrom) or

violations of the contract entered into pursuant to Sec. 570.705(b)(1)

may result in an action authorized pursuant to Secs. 570.495 or

570.496. In addition, upon a finding by HUD that the State or public

entity has failed to comply substantially with any provision of the Act

with respect to the pledged CDBG nonentitlement funds, the guaranteed

loan funds, or program income, HUD may take action against the pledged

funds as provided in Sec. 570.496 and/or may take action as provided in

the contract.

Sec. 570.709 Allocation of loan guarantee assistance.

Of the amount approved in any appropriation act for guarantees

under this subpart in any fiscal year, 70 percent shall be allocated

for entitlement public entities and 30 percent shall be allocated for

nonentitlement public entities. HUD need not comply with these

percentage requirements in any fiscal year to the extent that there is

an absence of applications approvable under this subpart from

entitlement or nonentitlement public entities.

Sec. 570.710 State responsibilities.

The State is responsible for choosing public entities that it will

assist under this subpart. States are free to develop procedures and

requirements for determining which activities will be assisted, subject

to the requirements of this subpart. Upon approval by HUD of an

application from a State-assisted public entity, the State will be

principally responsible, subject to HUD oversight under subpart I of

this part, for ensuring that the public entity complies with all

applicable requirements governing the use of the guaranteed loan funds.

Notwithstanding the State's responsibilities described above, HUD may

take any action necessary for ensuring compliance with requirements

affecting the security interests of HUD with respect to the guaranteed

loan.

Dated: September 12, 1994.

Andrew Cuomo,

Assistant Secretary for Community Planning and Development.

[FR Doc. 94-22798 Filed 9-14-94; 8:45 am]

BILLING CODE 4210-29-P

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.