Community Development Block Grants: Small Cities Program and Related Amendments; Final Rule DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

SUMMARY: This final rule revises the 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 rule amends subpart F to incorporate

the statutory changes made to the Small Cities Program since the

subpart F regulations were issued in 1982, and streamlines the

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

EFFECTIVE DATE: January 26, 1995.

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. Background--September 15, 1994 Proposed Rule

On September 15, 1994 (59 FR 47500), HUD published a proposed rule

that would amend HUD's regulations in 24 CFR part 570, subpart F, which

govern the administration of the Community Development Block Grant

(CDBG) Small Cities Program. The proposed rule provided for a 30-day

public comment period. By the end of the comment period on October 17,

1994, 21 comments had been received. The 21 commenters consisted of 11

units of general local government (7 New York, 3 Hawaii, 1 Arizona), 5

consultants, and 5 public and private non-profits. These commenters

made approximately 75 different comments about the September 15, 1994

proposed rule; many of these comments were made by more than one

commenter. Section II of this preamble describes the changes made to

the proposed rule at the final rule stage, and Section III of the

preamble sets forth the issues and questions raised by the public

commenters, and HUD's responses to these issues and questions.

II. Principal Differences Between Proposed Rule and Final Rule

This final rule is substantially the same as the September 15, 1994

proposed rule. The principal differences are as follows:

1. Multiyear Plans

The final rule provides that HUD may issue notices of funding

availability that provide for a competition for applications that have

multiyear plans (see Sec. 570.421(a)(2)).

2. Economic Development Grants

The final rule also provides that HUD intends to use the section

108 loan guarantee program to the maximum extent feasible to fund

economic development projects in the nonentitlement areas of New York

State (see Sec. 570.421(a)(5)).

3. Counties Applying on Behalf of Units of General Local Government

The final rule provides criteria under which counties may apply on

behalf of units of general local government located within their

jurisdiction when the unit of general local government has authorized

the county to apply.

4. Pre-Agreement Costs

The final rule provides that HUD authorizes a unit of general local

government to incur costs during the same or the prior Federal Fiscal

Year for preparation of a CDBG grant application, planning costs

eligible under Sec. 570.205, environmental assessments, and project

engineering and design costs for eligible activities under

Sec. 570.201-204 before the establishment of a formal grant

relationship between the applicant and HUD. Such costs for the funded

activities may be charged to the grant should it be funded, provided

that the activities are undertaken in accordance with the requirements

of subpart F (see Sec. 570.425(a)(3)). This includes compliance with

selection of contractors under 24 CFR 85.36 if, for example, a

contractor prepares the application or plans and specifications.

5. HUD Action on Final Application

The final rule adds two new paragraphs to Sec. 570.425(b).

Paragraph (b)(3) provides that HUD will not make a Small Cities grant

when it is determined that the grant will only have a minimal or

insignificant impact on the grantee. Paragraph (b)(4) provides that in

determining appropriate grant amounts to be awarded, HUD may take into

account the size of the applicant, the level of demand, the scale of

the activity proposed relative to need and operational capacity, among

others. (See Sec. 570.425(b) (3) and (4).)

6. Streamlined Application Requirements for Previous Applicants

The final rule adds a new paragraph (c) to Sec. 570.425 to provide

for streamlined application requirements for previous applicants. (See

Sec. 570.425(c).)

7. Clarification of ``Publication of Proposed Application''

The final rule adds a new paragraph to Sec. 570.431(c) to explain

what is meant by publication of the proposed application. (See

Sec. 570.431(c)(4).)

8. Hawaii Grantee Amendments

The final rule clarifies the procedures that Hawaii grantees must

follow in making amendments to final applications. (See

Sec. 570.431(f).)

9. Report Submission Date.

The final rule extends the deadline for New York Grantees to submit

their performance and evaluation report on the small cities grant to

October 31 (see Sec. 570.507(a)(2)(ii)(A)) and sets forth the date

Hawaii grantees must submit their performance and evaluation report

(see Sec. 570.507(a)(2)(ii)(B).)

III. Comments on the Proposed Rule and HUD's Responses

This section sets forth the issues and comments made by the public

commenters on the September 15, 1994 proposed rule, and HUD's responses

to these issues and questions.

A. General Comments

Comments Concerning NOFA for Small Cities Program

There were several comments that the application time period to

respond to the Small Cities NOFA should be more than 60 days. The final

rule will not establish the application time period for the Small

Cities NOFA. The request for a longer application time period was taken

into consideration in development of the Federal Fiscal Year (FY) 1995

NOFA.

Ten commenters commented on the number of funding competitions that

should be held for the Small Cities Program during each fiscal year.

Since the optimum number of competitive rounds will vary according to

circumstances, the Small Cities NOFA will state the number of

competitions that will be held in the time period that is covered by

the NOFA.

Four commenters stated that the issue date for the NOFA and the due

date of competitive applications should be established by regulation.

To retain maximum flexibility to address changing conditions, the

Department has decided that these dates should not be established by

regulation.

Five commenters submitted comments on the maximum grant limits. In

order to retain flexibility due to changing conditions such as

inflation, the Small Cities NOFA, rather than the rule, will address

the issue of grant limits.

One commenter requested that the Department establish a set amount

of funding for each funding round. Although the Department agrees with

this comment, the NOFA rather than the rule is a better vehicle to

address this issue.

One commenter said that if it was necessary to expand the

competition beyond housing, public facilities, and economic

development, the final rule should so state this. Since it is

impossible to foresee the types of competition that might benefit small

jurisdictions in the State of New York in the future, the rule provides

in Sec. 570.421(a)(1) that there will be competitive applications.

Three commenters commented on the application page limits. Again,

this is an issue that will be addressed in the NOFA to retain

flexibility to adjust page limit requirements. The Department

acknowledges that reducing the size of grant applications will reduce

paperwork which is a goal shared by the majority of participants at the

meetings held in the State of New York to discuss the proposed

regulation.

A few commenters requested that the Small Cities NOFA remain as

constant as possible from year to year. The Department intends to do

this to the extent possible.

One commenter asked that the Department provide technical

assistance after the issuance of the NOFA. Although this matter is not

one that should be addressed in the final rule, the Department intends

to provide the maximum amount of technical assistance that is permitted

under section 103 of the Department of Housing and Urban Development

Reform Act.

Another commenter requested that the Department provide an even

playing field for small communities. In the history of the program,

small communities have been successful in obtaining grants, and the

Department sees no need to change the final rule in this regard.

Involvement in the Rulemaking Process

Another commenter requested that people with rural backgrounds be

involved in the rulemaking process. This was accomplished by two highly

publicized meetings with that were held in Auburn and Goshen, New York

as well as having the Assistant Secretary for Community Planning and

Development write to each eligible unit of general local government

individually, asking for their comments in helping to shape the final

rule and NOFA.

Administration of Small Cities Program by the State of New York

Two commenters stated that the Small Cities Program should not be

given to New York State to administer. Section 106 (d)(2) of Title I,

gives States the right to elect to administer the State CDBG Program.

The Department cannot administratively amend this provision.

Single Audit and Davis-Bacon Requirements

Commenters asked that the Single Audit and Davis-Bacon Acts be made

inapplicable to the Small Cities Program. To adopt this comment would

require a statutory change.

Rehabilitation

Three commenters asked that the non-targeted rehabilitation program

be continued. Although this issue is too specific to be addressed by

the regulations, there is nothing in the Small Cities regulations that

would preclude a grantee from initiating a non-targeted rehabilitation

program. A request was made by one commenter to fund more HUD staff

travel. Although the Department is sensitive to the need of HUD Field

staff to travel to small cities in New York, the travel budget is

determined by annual appropriations and is not an appropriate issue to

be addressed by the final regulation.

One commenter stated that funds should be allowed to be used to

rehabilitate pre-1976 mobile homes. While the Department is unclear as

to the commenters' reference to pre-1976 mobile homes, manufactured

housing can be rehabilitated in accordance with Sec. 570.202(a)(4),

since the State of New York recognizes manufactured housing as real

property.

One commenter stated that senior citizens on fixed income should be

able to get rehabilitation grants. The major purpose of the CDBG

program is to benefit low- and moderate-income persons. Senior citizens

who are of low- and moderate-income are eligible to receive housing

rehabilitation grants. Senior citizens who have higher incomes cannot

receive grants unless the activity is to aid in the prevention or

elimination of slums or blight. Title I does not give higher income

senior citizens preference over low- and moderate-income non senior

citizens.

Household Incomes

One commenter asked that households with incomes between 80-100

percent of median be eligible to receive rehabilitation assistance in

non-targeted areas. The Department notes that this can be done under

Sec. 570.208(b)(2) as long as the rehabilitation is limited to the

extent necessary to eliminate specific conditions detrimental to public

health and safety.

Multiyear Plans

One commenter said that community facilities should not be funded

on a multiyear basis, but should be funded through a large grant of up

to $900,000. The Department decided not to restrict community

facilities from being part of multiyear plan projects. However, to the

extent a project consisting, for example, of one large building cannot

logically be subdivided into segments that are viable as separate

grants, the project would have to be funded from a single year's grant

funds under Sec. 570.421(a)(1). Larger public facilities projects,

however, can now be funded with Section 108 loan guarantee assistance

under Sec. 570.703(l).

One commenter said that the first year of the multiyear plan should

be fifteen months, and another commenter indicated that there should be

a site visit 9-10 months into the multiyear plan. These comments are

operational in nature and not appropriate to be addressed by the final

rule.

Priority for EZs/ECs

One commenter stated that Empowerment Zones (EZ) and Enterprise

Communities (EC) should not receive a priority in the final regulation.

The Department agrees that the final regulation is an inappropriate

place to show support for the EZ/EC program and can more appropriately

lend its support in the NOFA.

Public Hearings

A commenter stated that public hearings should be able to be

combined with hearings for other purposes. The Department agrees, and

notes that this is the Department's policy, and therefore, need not be

stated specifically in the final rule.

Abbreviated Consolidated Plan

Several commenters requested that the abbreviated Consolidated Plan

requirements be made as simple as possible. It is the Department's

intention to do this, but the NOFA is a more appropriate vehicle for

doing this since the abbreviated Consolidated Plan may need to be

changed based on ongoing experience in program administration. At this

time the abbreviated Consolidated Plan is not yet required. (The FY

1995 NOFA requires an abbreviated CHAS if the application contains

housing activities.) After the Consolidated Plan final rule is

published, succeeding NOFAs will explain the requirements. The final

rule for the Consolidated Plan will make conforming changes to this

regulation. The final rule will not apply to applications under the FY

1995 NOFA for the State of New York.

B. Specific Comments on Rule Sections

Section 570.420 General

Five commenters call for the abbreviated CHAS requirement to be

eliminated. Section 570.420(d) requires that there be a certification

in the Small Cities application that housing activities proposed to be

funded by the Small Cities Program must be consistent with the

applicant's abbreviated CHAS. This is required by 24 CFR part 91 and

Section 105(b) of the National Affordable Housing Act.

One commenter wanted to lower the requirement that 70 percent of

the grant funds must be used to benefit low-and moderate-income persons

to 51 percent. The Department believes that the commenter

misunderstands the requirement. Under Sec. 570.208(a)(1), if at least

51 percent of the residents of an area are low- and moderate-income

persons, an activity that benefits that area is considered to benefit

low- and moderate-income persons. Section 570.200(a)(3)(v) provides

that area benefit activities are to count as benefitting low- and

moderate-income persons 100 percent. Accordingly, if a water project is

funded for $300,000, which benefits an area that is 57 percent low-and

moderate-income, the entire $300,000 is considered to be benefitting

low- and moderate-income persons.

Three commenters said that the regulations should clearly state

that Sec. 570.200(a)(3)(iii) applies, and that grantees should not

include Section 108 loan repayments in the calculations for meeting the

objective that not less than 70 percent of the total of grant funds

from each grant and Section 108 loan guarantee funds received under 24

CFR part 570, subpart M, within a fiscal year, must be expended for

activities that benefit low-and moderate-income persons. The Department

agrees and paragraph (e)(2) was revised to incorporate this change.

Eight commenters protested the elimination of the rating and

ranking scoring factors from the regulations. As a result of these

comments, Sec. 570.421(a) has been added to the final rule to describe

the selection system.

There were multiple comments recommending that the Department

establish an Economic Development set-aside with an open window, so

that economic development applications could be submitted at any time

during the year. Commenters also suggested that Section 108 loan

guarantees be used to fund economic development projects to the

greatest extent possible. These comments are addressed in

Sec. 570.421(a)(5), which provides that the Department will use the

Section 108 loan guarantee program to the greatest extent possible to

fund Economic Development projects, and that the Department will fund

Economic Development applications as they are determined to be fundable

in a specific amount by HUD. All Economic Development projects that are

funded with Small Cities funds must have a substantial impact on the

needs identified by the applicants.

One commenter stated that only housing and public facilities

applications should be funded during the competitive funding cycles.

Under the new Sec. 570.421(a) (``Selection system''), both competitive

applications and the first year of multiyear plans will be funded on a

competitive basis with the NOFA indicating how that competition will be

held. Since ``Economic Development'' and ``Imminent Threat'' projects

funded on a non-competitive basis, the competition will essentially

include housing, public facilities, and comprehensive applications.

One commenter suggested that the division between comprehensive

projects and single purpose projects be retained with an eye towards

evening the chances of obtaining funding from both types of projects.

Another commenter requested that funding be continued for comprehensive

grants. The nomenclature of single purpose and comprehensive projects

has been removed from the final rule, but the Department may elect to

retain and define such categories in a NOFA. Under the final rule,

there will be competitions for competitive applications and multiyear

plans with the funding divided between the categories fine-tuned by a

NOFA that will be issued each year. The former single purpose projects

will be eligible for funding as competitive applications. The former

comprehensive projects may be funded as either competitive applications

or as multiyear grants.

One commenter requested that the Department allow counties to apply

on behalf of municipalities. This suggestion was incorporated into the

final rule at 24 CFR 570.421(c)(3). Another commenter suggested that

the Department encourage county-wide applications. County-wide

applications are eligible for funding and will receive the same

consideration as all other applications for Small Cities funding.

Six commenters requested that the Department allow multiyear

funding for comprehensive grants. This comment was adopted in

Sec. 570.421(a)(2) of the final rule, which will allow the Department

to fund multiyear plans. After the first year of a multiyear plan is

funded, the Department may fund future years on a non-competitive basis

subject to acceptable performance, submission of an acceptable

application and certifications, and the provision of adequate

appropriations.

One commenter stated that multiyear grantees should not receive

other grants during the time period that the multiyear grant was

ongoing. The Department decided that this issue is more appropriately

addressed in the NOFA rather than the rule.

Another commenter suggested that consideration be given to female

and disabled heads of household in giving fair housing points and

contracts given to female-owned businesses should be taken into account

in reporting minority business enterprise achievements. In order to

retain flexibility to address changing priorities, the Department

decided that the makeup of the fair housing and equal opportunity

points will be disseminated in the NOFA rather than the regulations.

Section 570.424 Grants for Imminent Threats to Public Health and

Safety

Three commenters wanted the imminent threat set-aside retained in

the final rule, and one commenter wanted it deleted. The Department

decided to retain the imminent threat set-aside to give the Department

the flexibility to respond immediately to threats to health and safety

such as flood damage from hurricanes.

Section 570.425

HUD Review and Actions on Applications for New York State Applicants

One commenter said that if there was more than one funding round in

a fiscal year, an unsuccessful application should be able to be

resubmitted in the next round. The Department agrees and paragraph (c)

was added to Sec. 570.425 which authorizes HUD to provide in a NOFA

that unsuccessful applications will be automatically held over for the

succeeding rounds of competition if the applicant so requests in

writing. The applicant will have the option of amending or withdrawing

its application. For FY 1995, applications not funded in FY 1994 will

automatically be reconsidered under the FY 1995 NOFA unless the

applicant notifies HUD otherwise.

Another commenter indicated that HUD should ensure that

applications are funded for the least amount of funds necessary to

implement the proposed activities. As a result of this comment,

paragraph (b)(4) was added to Sec. 570.425 of the final rule. This

paragraph gives the Department the right to take into account the size

of the applicant, the level of demand, the scale of the activity

proposed relative to need and operational capacity, the number of

persons to be served, the amount of funds required to achieve project

objectives and the administrative capacity of the applicant to complete

the activities in a timely manner in determining the appropriate grant

amount to award.

To respond to a commenter's request to even the playing field for

smaller communities, the Department has revised Sec. 570.425(a)(3) in

the final rule to allow units of general local government to incur

costs for certain CDBG grant activities before the establishment of a

formal grant relationship and charge the pre-agreement costs to the

grant, should it be funded. This includes the cost of application

preparation, but does not create an obligation on part of the

Department to fund the application.

Section 570.426 Program Income

One commenter wrote favorably of Sec. 570.426(c) which provides

that if a unit of general local government has no open CDBG grant at

the time of closeout, program income of less than $25,000 per year

after closeout will not be considered program income, and will not be

subject to the requirements of this part. This provision has been

retained in the final regulation.

Section 570.429 Hawaii General and Grant Requirements

Three counties in the State of Hawaii commented that they did not

want the method of distribution of Hawaii Small Cities funds to be

changed by the issuance of a NOFA because that would impinge upon the

ability of the Hawaii grantees to plan for future use of Small Cities

funds. The Department agrees with this comment, and all references to a

NOFA for the Hawaii Small Cities program were removed from

Sec. 570.429.

Two commenters from the State of Hawaii thought that paragraph

(d)(1) of Sec. 570.429 should be revised to better define ``capacity to

utilize the grant amount effectively and efficiently''. This term was

used in the previous regulation at Sec. 570.435(c)(1)(ii)(A), and does

not need to be redefined.

Two commenters from the State of Hawaii requested that Hawaii

grantees follow the application submission requirements in 24 CFR part

570, subpart D. Another commenter said that applications should be

accepted and not approved. Section 570.429 has been revised to treat

the Hawaii grantees as much like entitlement grantees as possible.

Since the program is still discretionary under section 106(d) of Title

I, the Department decided that applications should be required to be

submitted and approved. Paragraph (g) of Sec. 570.429 indicates that

the Department will approve the application unless it is shown that

``one or more of the following requirements (relating to completeness,

timeliness, certifications, and compliance with this part) have not

been met''. This provision gives assurance to Hawaii grantees that

applications that are complete, timely, contain the proper

certifications, and which are otherwise in compliance with this part

will be approved.

Another commenter from the State of Hawaii asked that paragraph

(d)(2) of Sec. 570.429 regarding timely expenditures only consider

grants from FY 1995 onward. Since it is the policy of the Department to

encourage timely expenditures, the Department decided that all

outstanding grants should be used in calculating timely expenditures

under Sec. 570.902(a). The Department notes that Kauai's disaster grant

will not be considered in the calculations.

The final rule on the Consolidated Plan, which will be published

shortly, will change the application, citizen participation, approval

and reporting requirements for the Hawaii grantees. These changes will

be incorporated into subpart F at the time the final consolidated plan

regulation is promulgated. In view of the probable timing of submission

of applications by Hawaii grantees, it is anticipated that these rule

changes will apply to FY 1995 applications by Hawaii grantees.

Section 570.430 Hawaii Program Operation Requirements

One commenter stated that paragraph (a) of Sec. 570.430 should be

clarified to indicate that grants received in FY 1995 and thereafter

are grants made from FY 1995 allocations and thereafter, and that

grants made prior to FY 1995 are grants from allocations prior to FY

1995. This revision has been made in the final rule.

Section 570.431 Citizen Participation

Four comments from the State of Hawaii concerned citizen

participation requirements. One commenter requested that paragraph (e)

of Sec. 570.431 be revised to indicate that the citizen participation

requirements apply to the State of Hawaii, and two commenters requested

that the entitlement citizen participation process be followed, and one

commenter requested that the entitlement amendment process be followed

by Hawaii grantees. The Department has decided to add a new paragraph

(f) to Sec. 570.431 to clarify the requirements that Hawaii Small

Cities grantees must follow. The citizen participation requirements are

being included in the Small Cities final rule for clarity. It is noted

that the citizen participation requirements for Hawaii grantees will be

revised shortly, when the final rule on consolidated planning

requirements is published.

Section 570.432 Repayment of Section 108 Loans

Six commenters stated that Section 108 funds should not be used for

the New York Small Cities Program because repayment will come from the

total allocation of discretionary Small Cities funding for the State of

New York. One commenter said that Section 108 funds must be backed by

the community's own resources. In making non-entitled units of general

local government in the State of New York eligible for the Section 108

program, the Department intends to provide small communities with the

opportunity to fund large economic development projects--projects that

they would not ordinarily be able to fund. Since it is envisioned that

a significant portion of economic development funding will come from

the Section 108 loan guarantee fund rather than the HUD-administered

Small Cities Program, there will be more Small Cities funds available

to fund non-economic development projects, even if a small portion of

funds are used under Sec. 570.432 to repay amounts due on Section 108

loan obligations. All Section 108 loan obligations will be underwritten

to ensure that only high quality projects are funded. In addition, the

Department is considering instituting loan insurance pools to further

ensure that the cost to the Small Cities Program will be minimized.

Section 570.507 Reports

The Department agrees with the three commenters that indicated

fifteen working days is insufficient time for New York grantees to

submit a performance assessment report and has extended the period to

31 calendar days in the final rule. (See Sec. 570.507(a)(2)(ii)(A).)

Three commenters from the State of Hawaii requested that HUD

consider a uniform period of activity for their Small Cities

performance and evaluation report. The Department agrees and

Sec. 570.507(a)(2)(ii)(B) provides for this.

Subpart M--Section 570.702 Eligible Applicants

Two commenters requested that the Department make available the

Section 108 Loan Guarantee Program to non-entitled units of local

governments in the HUD-administered Small Cities Program. The

Department agrees that the non-entitled communities in the States of

New York and Hawaii should have available the use of Section 108 and

Sec. 570.702(c) provides for this.

III. Other Matters

Environmental Impact

A Finding of No Significant Impact with respect to the environment

was 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, at the time of the development of the proposed rule. Because no

substantial programmatic changes have been made, that finding remains

applicable to this final rule. 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 final rule before publication, and

by approving it certifies that this final rule will 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 final

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

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

will not be substantial and the economic impact will 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 final

rule does not have Federalism implications and therefore is not subject

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

result from this rule's promulgation which will 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 final 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 final rule was listed as sequence number 1834 in the

Department's Semiannual Agenda of Regulations published on November 14,

1994 (59 FR 57632, 57662) 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 is amended as follows:

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

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

follows:

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

2. Subpart F is 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

have not elected 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 principally 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 nonentitled

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.

(c) Public notification requirements. (1) Section 102 of the

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 HUD. 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) The Hawaii HUD-administered Small Cities Program is not subject

to section 102, since the funds are not distributed in a competitive

manner.

(d) Abbreviated CHAS. 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:

(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 grants made through the Small Cities

Program, not less than 70 percent of the total of grant funds from each

grant and Section 108 loan guarantee funds received under subpart M of

this part within a fiscal year must be expended for activities which

benefit low- and moderate-income persons under the criteria of

Sec. 570.208(a). In the case of multiyear plans, in New York State, not

less than 70 percent of the total funding for grants approved pursuant

to a multiyear plan for a time period of up to 3 years must be expended

for activities which benefit low- and moderate-income persons. Thus, 70

percent of the grant for year 1 of a multiyear plan must meet the 70

percent requirement, 70 percent of the combined grants from years 1 and

2 must meet the requirement, and 70 percent of the combined grants from

years 1, 2 and 3 must meet the requirement. In determining the

percentage of funds expended for such activity, the provisions of

Sec. 570.200(a)(3)(i), (iii), (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) Selection system. (1) Competitive applications. Each

competitive application will be rated and scored against the following

factors:

(i) Need-absolute number of persons in poverty as further explained

in the NOFA;

(ii) Need-percent of persons in poverty as further explained in the

NOFA;

(iii) Program Impact, and

(iv) Fair Housing and Equal Opportunity which may include

assessment of the applicant's Section 3 plan and implementation

efforts. The NOFA described in paragraph (b) of this section will

contain a more detailed description of these factors, and the relative

weight that each factor will be given.

(2) In addition HUD reserves the right to establish minimal

thresholds for selection factors and otherwise select grants in

accordance with Sec. 570.425 and the applicable NOFA.

(3) Multiyear Plans. The notice of funding availability may provide

for a competition for applications that have multiyear plans. The plans

will be rated and scored against factors in paragraph (a)(1) (i)

through (iv) of this section. The action plan for each year of the

multiyear plan must be a viable project on its own. If the multiyear

plan is selected on a competitive basis, the first year will be funded

and HUD may fund future years on a non-competitive basis subject to

acceptable performance, submission of an acceptable application and

certifications, and the provision of adequate appropriations for the

HUD-administered Small Cities Program.

(4) Imminent threats to public health and safety. The criteria for

these grants are described in Sec. 570.424.

(5) Repayment of section 108 loans. The criteria for these grants

are described in Sec. 570.432.

(6) Economic development grants. HUD intends to use the Section 108

loan guarantee program to the maximum extent feasible to fund economic

development projects in the nonentitlement areas of New York. In the

event that there are not enough Section 108 loan guarantee funds

available to fund viable economic development projects, or if a project

needs a grant in addition to a loan guarantee to make it viable, or if

the project does not meet the requirements of the Section 108 program

but is eligible for a grant under this subpart, HUD will fund Economic

Development applications as they are determined to be fundable in a

specific amount by HUD up to the sum set aside for economic development

projects in the notice of funding availability. HUD also has the option

in a NOFA of funding economic development activities on a competitive

basis, as a competitive application as described in paragraph (a)(1) of

this section. In order for an applicant to receive Small Cities grant

funds, the field office must determine that the economic development

project will have a substantial impact on the needs identified by the

applicant.

(b) Notice of funding availability. HUD will issue one or more

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

indicate the amount of funds available, the annual grant limits per

grantee, type of grants available, the application requirements, and

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

competitive. A NOFA may set forth, subject to the requirements of this

subpart, additional selection criteria for all grants.

(c) Eligible applicants. (1) Eligible applicants in New York are

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. Indian tribes are also ineligible for

assistance under this subpart. 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 for which the village receives

funding). The NOFA will contain additional information on applicant

eligibility.

(3) Counties may apply on behalf of units of general local

government located within their jurisdiction when the unit of general

local government has authorized the county to apply. At the time that

the county submits its application for funding, it must submit a

resolution by the governing body of the unit of local government that

authorizes the county to submit an application on behalf of the unit of

general local government. The county will be considered the grantee and

will be responsible for executing all grant documents. The county is

responsible for ensuring compliance with all laws, regulations, and

Executive Orders applicable to the CDBG Program. HUD will deal

exclusively with the county with respect to issues of program

administration and performance, including remedial actions. The unit of

general local government will be considered the grantee for the purpose

of determining grant limits. The unit of general local government's

statistics will be used for purposes of the selection factors referred

to in Sec. 570.421(a).

(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 executing the

application, certifications, and grant agreement, and 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. In the event of poor performance, HUD

reserves the right to deny and/or restrict future funding to all units

of general local government which are parties to the cooperation

agreement.

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.

(c) Certifications. (1) 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 Abbreviated 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 such 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) 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 paragraph (a) of this section. 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 may 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.

(c) Letter to proceed. Notwithstanding Sec. 570.425(a)(3), after a

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) Pre-agreement costs. HUD authorizes a unit of general local

government to incur costs during a Federal fiscal year in which a grant

is made or the prior fiscal year for preparation of a CDBG grant

application, planning costs eligible under Sec. 570.205, environmental

assessments, and project engineering and design costs for eligible

activities under Sec. 570.201 through 570.204 before the establishment

of a formal grant relationship between the applicant and HUD. Costs of

such activities for the funded application may be charged to the grant

should it be funded, provided that the activities are undertaken in

accordance with the requirements of this subpart, and 24 CFR part 58.

It is understood that the incurring of costs described in this

paragraph creates no obligation on HUD 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.

(3) HUD will not make a Small Cities grant when it is determined

that the grant will only have a minimal or insignificant impact on the

grantee.

(4) Individual grant amounts. In determining appropriate grant

amounts to be awarded, HUD may take into account the size of the

applicant, the level of demand, the scale of the activity proposed

relative to need and operational capacity, the number of persons to be

served, the amount of funds required to achieve project objectives and

the administrative capacity of the applicant to complete the activities

in a timely manner.

(c) Streamlined application requirement for previous applicants.

HUD may provide pursuant to a NOFA that if an applicant notifies HUD in

writing within the application period specified in a NOFA that it

wishes to be so considered, HUD will consider unfunded applications

from the prior round or competition that meet the threshold

requirements of the NOFA. For FY 1995 only, unfunded applications from

the FY 1994 competition will be automatically reactivated for

consideration unless the applicant notifies the Department in writing

by the date specified in the FY 1995 NOFA that it does not wish to have

the FY 1994 application considered in the FY 1995 competition. The

applicant will have the option of withdrawing its application, or

amending or supplementing the application for succeeding rounds of

competition. If there is no significant change in the application

involving new activities or alteration of proposed activities that will

significantly change the scope, location or objectives of the proposed

activities or beneficiaries, there will be no further citizen

participation requirement to keep the application active for succeeding

rounds of competition.

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.

(c) If the unit of general local government has no open ongoing

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. This will

be a subject of the closeout agreement described in Sec. 570.509(c).

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.

(c) Citizen participation requirements. Whenever an amendment

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.

(c) Timing. Funds which become available shall be used as soon as

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, shall

apply to the HUD-administered Small Cities Program in the State of

Hawaii.

(c) Grant amounts. (1) 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.

(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.

(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).

(ii) Certifications. 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.

(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 with allocations 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 from allocations 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.

(c) Grant closeouts. Grants received prior to FY 1995 shall be

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

program 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 from

allocations prior to FY 1995 will be considered individually for

meeting the primary objective, and expenditures for grants from pre FY

1995 allocations made during and after FY 1995 will not be considered

in determining whether the primary objective has been met for post 1994

allocations. 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.

(c) Publication of proposed application. The applicant shall

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.

(4) The requirement for publishing may be met by publishing a

summary of the proposed application in one or more newspapers of

general circulation, and by making copies of the proposed application

available at libraries, government offices, and public places. The

summary must describe the contents and purpose of the proposed

application, and must include a list of the locations where copies of

the entire proposed application may be examined.

(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

projected use of funds, and the community development activities.

(e) New York Grantee Amendments. To assure citizen participation on

program 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.

(f) Hawaii Grantee amendments. Hawaii grantees shall follow the

requirements of paragraph (e) of this section except that the amendment

does not need HUD approval, and does not have to be submitted 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 the 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 is 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 January 26, 1995,

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), 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) is revised to read as

follows:

Sec. 570.507 Reports.

(a) * * *

(2) * * *

(ii) * * *

(A) The first report on a small cities grant for a New York grantee

should be submitted no later than October 31 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

October 31 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 October 31 until completion of the activities funded under

the grant;

(B) Hawaii grantees will submit their small cities performance and

evaluation report for each pre-FY 1995 grant no later than 90 days

after the completion of their most recent program year. After the

initial submission, the performance and evaluation report will be

submitted annually until completion of the activities funded under the

grant; and

(C) No later than 90 days after the criteria for grant closeout, as

described in Sec. 570.509(a), have been met.

* * * * *

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

570.710 is revised 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.

Subpart M--Loan Guarantees

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 by a trust or other offeror approved for purposes 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).

(c) Nonentitlement public entities eligible to apply for grant

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.

(c) Payment of interest on obligations guaranteed under this

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 Sec. 570.488 (b) or (c) or

Sec. 570.606 (b) or (c); or

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

provisions of Sec. 570.488(d) or Sec. 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, trust

administration 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), public streets, sidewalks, and other site

improvements and public utilities.

(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.

(C) A description of the pledge of grants required under

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 (a)(1) (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;

(C) The estimated amount of guaranteed loan funds (including

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 official action:

(A) 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; and

(B) authorizing such official representative to execute such

documents as may be required in order to implement the application and

issue debt obligations pursuant thereto (provided that the

authorization required by this paragraph (B) may be given by the local

governing body after submission of the application but prior to

execution of the contract required by Sec. 570.705(b);

(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

(C) Prepared its application in accordance with

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. 3601-3619).

(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 primary and 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.

(c) HUD review and approval of applications. (1) HUD will normally

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;

(C) The likelihood that the public entity or State will continue to

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 this part, including the

requirements under 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 Sec. 570.488 or

Sec. 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 to subpart F of this part, excluding any grant

in the same fiscal year as the commitment, or

(C) The average amount of grants made under subpart F of this part

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 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.

(c) Use of grants for loan repayment. Notwithstanding any other

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)(l) 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, trust

administration and other costs associated with the private sector

financing of the debt obligations. Such costs are payable out of the

guaranteed loan funds and shall be secured under paragraph (b) of this

section.

(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.

(c) Nonentitlement public entities eligible under subpart F of this

part. The 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 Sec. 570.495 or

Sec. 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 in this section,

HUD may take any action necessary for ensuring compliance with

requirements affecting the security interests of HUD with respect to

the guaranteed loan.

Dated: December 20, 1994.

Andrew Cuomo,

Assistant Secretary for Community Planning and Development.

[FR Doc. 94-31663 Filed 12-21-94; 10:20 am]

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