Office of the Assistant Secretary for Community Planning and Development; Community Development Block Grant Program; Dispute Resolution and Enforcement Actions, Loan Guarantee Application Requirements; Proposed Rule and Notice of Proposed Information Collection Requirements

Part VII

Department of Housing and Urban Development

_______________________________________________________________________

24 CFR Part 570

Community Development Block Grant Program; Proposed Rule

Proposed Rules

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 570

[Docket No. FR-3298-P-02]

RIN 2506-AB43

Office of the Assistant Secretary for Community Planning and

Development; Community Development Block Grant Program; Dispute

Resolution and Enforcement Actions, Loan Guarantee Application

Requirements; Proposed Rule and Notice of Proposed Information

Collection Requirements

AGENCY: Office of the Assistant Secretary for Community Planning and

Development, HUD.

ACTION: Proposed rule and notice of proposed information collection

requirements.

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SUMMARY: In this rule, HUD is proposing changes to the Community

Development Block Grant (CDBG) regulations, including procedures for

voluntary and involuntary corrective actions for noncompliance with

CDBG program requirements, dispute resolution, and hearings. HUD is

also proposing changes in the application procedures under the Section

108 Loan Guarantee Program, in order to include references to the

consolidated submission process.

DATES: Comment due date: November 25, 1996.

ADDRESSES: HUD invites interested persons to submit comments regarding

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

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

Street, S.W., Washington, DC 20410. Communications should refer to the

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

will be available for public inspection and copying during regular

business hours (7:30 a.m.-5:30 p.m. eastern time) at the above address.

HUD will not accept comments sent by facsimile (FAX).

HUD also invites interested persons to submit comments on the

proposed information collection requirements in this proposed rule

he

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

will be available for public inspection and copying during regular

business hours (7:30 a.m.-5:30 p.m. eastern time) at the above address.

HUD will not accept comments sent by facsimile (FAX).

HUD also invites interested persons to submit comments on the

proposed information collection requirements in this proposed rule.

Comments should refer to the above docket number and title, and should

be sent to Sheila E. Jones, Reports Liaison Officer, Room 7230,

Department of Housing and Urban Development, 451 Seventh Street, SW,

Washington, DC 20410. Comments should also be sent to the Office of

Information and Regulatory Affairs, Office of Management and Budget,

Attention: Desk Officer for HUD, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Jan C. Opper, Senior Program Officer,

Office of Block Grant Assistance, Room 7286, Department of Housing and

Urban Development, 451 Seventh Street, S.W., Washington, DC 20410,

telephone number (202) 708-3587. Persons with hearing or speech

impairments may access this number via TTY by calling the Federal

Information Relay Service at (800) 877-8339. FAX inquiries (but not

comments on the rule) may be sent to Mr. Opper at (202) 401-2044.

(Except for the ``800'' number, these telephone numbers are not toll-

free.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

The information collection requirements in Sec. 570.704 of this

proposed rule have been submitted to the Office of Management and

Budget (OMB) for review under section 3507(d) of the Paperwork

Reduction Act of 1995 (44 U.S.C. 3507(d)) and 5 CFR 1320.11. An agency

may not conduct or sponsor, and a person is not required to respond to,

a collection of information unless the collection displays a valid

control number.

As required under 5 CFR 1320.8(d)(1), HUD and OMB are seeking

comments from members of the public and affected agencies concerning

the proposed collection of information to:

tion Act of 1995 (44 U.S.C. 3507(d)) and 5 CFR 1320.11. An agency

may not conduct or sponsor, and a person is not required to respond to,

a collection of information unless the collection displays a valid

control number.

As required under 5 CFR 1320.8(d)(1), HUD and OMB are seeking

comments from members of the public and affected agencies concerning

the proposed collection of information to:

(1) Evaluate whether the proposed collection of information is

necessary for the proper performance of the functions of the agency,

including whether the information will have practical utility;

(2) Evaluate the accuracy of the agency's estimate of the burden of

the proposed collection of information;

(3) Enhance the quality, utility, and clarity of the information to

be collected; and

(4) Minimize the burden of the collection of information on those

who are to respond; including through the use of appropriate automated

collection techniques or other forms of information technology, e.g.,

permitting electronic submission of responses. Interested persons are

invited to submit comments according to the instructions in the

``Dates'' and ``Addresses'' sections in the preamble of this proposed

rule.

This proposed rule also lists the following information:

Title of Proposal: Consolidated Plan for Community Investment.

OMB Control Number: 2506-0117.

Description of the Need for the Information and Proposed Use: In

this proposed rule, HUD proposes to require entities to use the

procedures in the Consolidated Plan when applying for Section 108 Loan

Guarantee assistance. The application information is required in order

for HUD to determine the eligibility of the activities proposed to be

financed with Section 108 loan guarantee assistance and to ensure that

the loan guarantee does not pose a financial risk to the Federal

Government.

Form Numbers: HUD-40090-A REV. and HUD-40091-A REV

e Consolidated Plan when applying for Section 108 Loan

Guarantee assistance. The application information is required in order

for HUD to determine the eligibility of the activities proposed to be

financed with Section 108 loan guarantee assistance and to ensure that

the loan guarantee does not pose a financial risk to the Federal

Government.

Form Numbers: HUD-40090-A REV. and HUD-40091-A REV.

Members of Affected Public: States, units of general local

government, consortia, and other ``consolidated'' jurisdictions.

Estimation of the Total Number of Hours Needed To Prepare the

Information Collection Including Number of Respondents, Frequency of

Response, and Hours of Response: Requiring entities to use the

Consolidated Plan when applying for Section 108 Loan Guarantee

assistance should eliminate some duplicative information collection

requirements, and it may result in an overall decrease in burden hours.

The numbers below represent HUD's estimate of the additional hours it

will take Section 108 applicants to prepare the required information

under the Consolidated Plan; they do not reflect the hours saved by

eliminating duplicative requirements.

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Number of Number of Total annual Hours per

Submission requirements respondents responses response response Total

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Consolidated Plan (Section 108

Loan Guarantee Application).... 150 1 150 125 18,750

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Status of the Proposed Information Collection: Revision of a

currently approved collection is pending.

II. Background

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Consolidated Plan (Section 108

Loan Guarantee Application).... 150 1 150 125 18,750

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Status of the Proposed Information Collection: Revision of a

currently approved collection is pending.

II. Background

The Community Development Block Grant (CDBG) program is a key

component of HUD's legislative reinvention proposal, the American

Community Partnerships Act. This proposed rule provides redesigned

dispute resolution and sanctions procedures for enforcing the CDBG

program requirements. It also conforms the regulations for the Section

108 Loan Guarantee program with the consolidated plan requirements,

using the consolidated plan citizen participation and amendment

process.

Proposed Revisions Regarding Dispute Resolution and Corrective

Actions

On November 12, 1993 (58 FR 60088), HUD proposed certain changes to

the procedures for resolving issues of grantee noncompliance with CDBG

program requirements. The preamble to the November 12, 1993 rule

provided background information about HUD's authority to address

performance deficiencies. As a result of HUD's review of comments

received on that proposed rule, HUD has determined that it will not

adopt the changes proposed in the November 12, 1993 rule. Instead, this

proposed rule reflects some additions to, and revisions and

rearrangements of, the provisions of subpart O of part 570 regarding

performance reviews. This section of the preamble includes a discussion

of the provisions that were proposed in the November 12, 1993 rule, the

comments received in response to that rule, and the revised proposals

in today's rule.

A. Making of Grants

HUD proposes to amend Sec. 570.304(a) to conform with the proposed

changes to part 570, subpart O, as described below.

B. Authorities for Enforcing Compliance

ws. This section of the preamble includes a discussion

of the provisions that were proposed in the November 12, 1993 rule, the

comments received in response to that rule, and the revised proposals

in today's rule.

A. Making of Grants

HUD proposes to amend Sec. 570.304(a) to conform with the proposed

changes to part 570, subpart O, as described below.

B. Authorities for Enforcing Compliance

The November 12, 1993 proposed rule would have included a new

section Sec. 570.907 to clarify the statutory authorities for HUD to

enforce recipient compliance with applicable laws and regulations. HUD

received no comments on this provision, and HUD has maintained the

provision in today's proposed rule.

C. Voluntary Corrective and Remedial Actions

The November 12, 1993 proposed rule clarified in Sec. 570.910 that

there are actions that HUD may advise the grantee to take voluntarily

to correct or remedy its alleged failure to comply with applicable

program requirements. HUD's objectives in seeking voluntary actions are

to prevent the continuation of the deficiency, to mitigate its adverse

effects, and to avoid its recurrence. If HUD determines that the

deficiency was beyond the reasonable control of the recipient, HUD may

decide that no corrective action is needed.

A grantee that commented on the November 12, 1993 proposed rule

suggested that HUD should consult with grantees concerning the

appropriateness of any mitigation effort, and that grantees should have

the option of reprogramming funds rather than reimbursing their line of

credit. HUD agrees that the grantee should generally be given an

opportunity to participate in the identification of corrective and

remedial actions, and HUD has traditionally followed this practice.

Today's proposed rule would clarify this.

The comment regarding reprogramming is unclear, but presumably the

commenter is asking that HUD allow grantees to offset disallowed costs

by receiving credit for activities undertaken with local funds

ally be given an

opportunity to participate in the identification of corrective and

remedial actions, and HUD has traditionally followed this practice.

Today's proposed rule would clarify this.

The comment regarding reprogramming is unclear, but presumably the

commenter is asking that HUD allow grantees to offset disallowed costs

by receiving credit for activities undertaken with local funds. HUD

does not believe that this is an appropriate remedy. Almost any grantee

would be able to show some activities it has carried out with local

funds that could have been funded with CDBG funds. The effect of

allowing credit for such expenditures to offset noncomplying CDBG

expenditures is that it reduces the incentive for a grantee to follow

applicable rules in the use of CDBG funds. It should be noted that

HUD's request for reimbursement of the line of credit with non-Federal

funds is advisory and usually precedes HUD's initiation of an

enforcement action.

Today's proposed rule would revise the section title and provisions

of Sec. 570.910 to remove actions that would not be voluntary. HUD

would usually provide the grantee the opportunity to take one or more

of these actions voluntarily prior to initiating enforcement actions or

nondiscrimination compliance measures.

D. Resolving Disputes Over Noncompliance

Separate from today's rule, HUD has proposed a streamlined and

consolidated set of hearing procedures for formal administrative

hearings. HUD published these procedures in a proposed rule on April

23, 1996 (61 FR 18026). These procedures would appear as a separate

subpart of 24 CFR part 26. Today's proposed rule would adopt these

procedures for offering and conducting formal administrative hearings

prior to HUD taking enforcement actions

streamlined and

consolidated set of hearing procedures for formal administrative

hearings. HUD published these procedures in a proposed rule on April

23, 1996 (61 FR 18026). These procedures would appear as a separate

subpart of 24 CFR part 26. Today's proposed rule would adopt these

procedures for offering and conducting formal administrative hearings

prior to HUD taking enforcement actions.

The November 12, 1993 proposed rule would have differentiated

between substantial and nonsubstantial noncompliance with program

requirements, establishing for such noncompliance either a formal

administrative hearing process or an informal hearing process,

respectively. The November 12, 1993 proposed rule would have

established the informal hearing officer's decision as a nonreviewable

agency decision.

HUD received four comments (from a HUD field program manager, two

grantees, and a commenter representing three public interest groups and

a grantee) concerning the threshold in the November 12, 1993 proposed

rule for distinguishing between substantial and nonsubstantial

noncompliance. One commenter questioned HUD's authority to take

enforcement actions unless noncompliance was substantial. A commenter

questioned the dollar threshold for determining substantial

noncompliance, believing it to be arbitrary, and suggested a sliding

scale of thresholds depending upon grant size. Another commenter

suggested that HUD should use nonmonetary factors as well. One

commenter argued that certain violations should not entitle a grantee

to a formal hearing. Finally, HUD received three comments (from two

grantees and a commenter representing three public interest groups and

a grantee) regarding the final nature of the informal hearing decision

under the November 12, 1993 proposed rule.

In today's proposed rule, HUD does not distinguish between

substantial and nonsubstantial noncompliance, and HUD has eliminated

the informal hearing process provided for in the November 12, 1993,

proposed rule

the enforcement action HUD plans to

take, or that HUD would offer an alternative means of dispute

resolution. If the grantee disputes that it has failed to comply,

today's rule would provide a formal hearing process to resolve such

dispute. Decisions from this formal hearing process, and any

enforcement action HUD would take in the event of noncompliance, would

be reviewable by the Secretary.

If, after requesting additional assurances with regard to

certifications, a recipient fails to respond, declines to comply with

HUD's request, or the Secretary finds the recipient's response to be

unsatisfactory, today's proposed rule would provide, in

Sec. 570.911(c), that HUD may withhold the award of the recipient's

grant until such time as assurances satisfactory to the Secretary are

provided.

E. Enforcement Actions

The November 12, 1993 proposed rule would not have revised

Sec. 570.911. However, today's proposed rule would consolidate in

Sec. 570.911 the enforcement actions that HUD will initiate when it has

made a finding of noncompliance and believes that the grantee has not

taken or is unlikely to take appropriate corrective and remedial

actions. HUD's objectives in initiating enforcement actions are to

bring about compliance and mitigation of adverse effects to the extent

practical.

One commenter, representing three public interest groups and a

grantee, argued against HUD suspending future use of CDBG funds to

mitigate adverse effects or consequences prior to an enforcement

proceeding. This action is currently authorized in Sec. 570.913(a).

Today's proposed rule would provide, in Sec. 570.913(a)(2), that after

HUD has provided a grantee due notice of its opportunity for a hearing,

but prior to the hearing, HUD may petition the Administrative Law Judge

to order a suspension, if the Secretary determines such action to be in

the best interests of the program.

Proposed Revisions for the Section 108 Loan Guarantee Program

70.913(a).

Today's proposed rule would provide, in Sec. 570.913(a)(2), that after

HUD has provided a grantee due notice of its opportunity for a hearing,

but prior to the hearing, HUD may petition the Administrative Law Judge

to order a suspension, if the Secretary determines such action to be in

the best interests of the program.

Proposed Revisions for the Section 108 Loan Guarantee Program

When HUD published the regulations entitled ``Consolidated

Submission for Community Planning and Development Programs'' in 24 CFR

part 91 on January 5, 1995 (60 FR 1878), HUD updated most of the

corresponding references to consolidated submissions in the CDBG

regulations (24 CFR part 570). However, in that final rule HUD made

only minimal references to consolidated plan submissions in subpart M

of part 570 regarding loan guarantees. Since more substantive revisions

would represent a change in the loan guarantee application process that

might affect a substantial amount of financing, HUD is publishing the

change today as a proposed rule. Specifically, this proposed rule

addresses the need to include loan guarantee-financed activities in a

grantee's consolidated action plan or amendment, and it proposes a

change in the citizen participation requirements.

III. Other Matters

E.O. 12866 Statement

The Office of Management and Budget (OMB) reviewed this rule under

Executive Order 12866, Regulatory Planning and Review, issued by the

President on September 30, 1993. Any changes made in this rule

subsequent to its submission to OMB are identified in the docket file,

which is available for public inspection as provided under the section

of this preamble entitled ``Addresses.''

Regulatory Flexibility Act

Management and Budget (OMB) reviewed this rule under

Executive Order 12866, Regulatory Planning and Review, issued by the

President on September 30, 1993. Any changes made in this rule

subsequent to its submission to OMB are identified in the docket file,

which is available for public inspection as provided under the section

of this preamble entitled ``Addresses.''

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed and approved this proposed rule, and in so

doing certifies that this proposed rule will not have a significant

economic impact on a substantial number of small entities. The economic

impact of this proposed rule will be minimal, and the rule would affect

small and large entities equally.

Environmental Impact

Under HUD regulations (24 CFR 50.20(k)), this proposed rule is

exempt from the requirements of the National Environmental Policy Act

of 1969, as set forth in 24 CFR part 50. The proposed rule relates to

internal administrative procedures, the content of which does not

involve development decisions or affect the physical condition of

project areas or building sites, but only relates to the performance of

accounting, auditing, and fiscal functions.

Executive Order 12612, Federalism

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

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

will not have substantial direct effects on States or their political

subdivisions, or the relationship between the Federal Government and

the States, or on the distribution of power and responsibilities among

the various levels of Government. No programmatic or policy changes

will result from this document's promulgation that would affect the

relationship between the Federal Government and State and local

governments.

Executive Order 12606, The Family

itical

subdivisions, or the relationship between the Federal Government and

the States, or on the distribution of power and responsibilities among

the various levels of Government. No programmatic or policy changes

will result from this document's promulgation that would affect the

relationship between the Federal Government and State and local

governments.

Executive Order 12606, The Family

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

of Executive Order 12606, The Family, has determined that this rule

will not have potential for significant impact on family formation,

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

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

programs, as those policies relate to the family, will result from

promulgation of this proposed rule.

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, 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 proposed to be amended as follows:

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

1. In Sec. 570.304, paragraph (a) is amended by adding a sentence

at the end, to read as follows:

Sec. 570.304 Making of grants.

(a) * * * Failing this voluntary compliance action, the Secretary

may institute an enforcement action as provided under

Secs. 570.910(b)(3) and 570.911(c).

* * * * *

2. Section 570.704 is amended by revising paragraphs (a) and (b) to

read as follows:

Sec. 570.704 Application requirements.

ph (a) is amended by adding a sentence

at the end, to read as follows:

Sec. 570.304 Making of grants.

(a) * * * Failing this voluntary compliance action, the Secretary

may institute an enforcement action as provided under

Secs. 570.910(b)(3) and 570.911(c).

* * * * *

2. Section 570.704 is amended by revising paragraphs (a) and (b) to

read as follows:

Sec. 570.704 Application requirements.

(a) Presubmission and citizen participation requirements. Before

submission to HUD of an application for loan guarantee assistance, the

public entity must:

(1) Develop a proposed application that includes the following

items:

(i) The community development objectives identified under the

provisions of Secs. 91.215 (b) or (e)(1) or 91.315 (b) or (e) of this

title that the public entity proposes to pursue with the guaranteed

loan funds;

(ii) The activity or activities the public entity proposes to carry

out with the guaranteed loan funds specified in accordance with the

criteria at Sec. 91.220(g)(1)(iv) of this title and Sec. 570.301(a).

For each proposed discrete project or activity, this information should

include, but is not limited to:

(A) The specific provision of Sec. 570.703 under which the activity

or activities are eligible, and the national objective(s) under

Sec. 570.208 to be met;

(B) The amount of guaranteed loan funds to be used;

(C) Whether each activity is expected to generate program income,

an estimate of the amount per year, and any other proposed source of

repayment of the guaranteed loan;

(D) How citizens may obtain more information;

(E) The location of the activity or activities;

(iii) 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.

er proposed source of

repayment of the guaranteed loan;

(D) How citizens may obtain more information;

(E) The location of the activity or activities;

(iii) 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.

(2) With respect to the proposed uses of guaranteed loan funds for

each activity, fulfill the applicable requirements of the citizen

participation plan developed in accordance with Secs. 91.105 or 91.115

of this title, as applicable.

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

submitted simultaneously with a public entity's submission for an

entitlement grant or a grant under subpart F of this part, the public

entity shall include and identify the activity or activities to be

assisted with loan guarantee funds in its action plan prepared pursuant

to Sec. 91.220 of this title.

(ii) If an application for loan guarantee assistance is not to be

submitted simultaneously with a public entity's submission for an

entitlement grant or a grant under subpart F of this part, and such

action plan does not cover all of the activities proposed in the loan

guarantee application, the application shall be considered a

substantial amendment to the action plan, and the public entity shall

follow the amendment procedures identified in its HUD-approved

consolidated plan pursuant to Sec. 91.105(c) of this title, as

applicable.

grant or a grant under subpart F of this part, and such

action plan does not cover all of the activities proposed in the loan

guarantee application, the application shall be considered a

substantial amendment to the action plan, and the public entity shall

follow the amendment procedures identified in its HUD-approved

consolidated plan pursuant to Sec. 91.105(c) of this title, as

applicable.

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

submitted by a State-assisted public entity, it must either:

(A) Submit a certification from the State that the State's action

plan prepared pursuant to Sec. 91.315 of this title and approved by HUD

includes all of the information about the public entity's proposed

activities required by this section; or

(B) In coordination with the State, submit a proposed substantial

amendment to the State's consolidated plan for HUD approval together

with the Section 108 application.

(iv) Under either paragraph (a)(3)(i), (a)(3)(ii), or (a)(3)(iii)

of this section, the activity description in either the action plan or

any substantial amendment thereto shall include at least the same

elements as required under paragraph (a)(1) of this section.

(b) Submission requirements. An applicant may submit an application

for loan guarantee assistance under Sec. 570.702 at any time. The

applicant must submit to the appropriate HUD office the application

(and consolidated plan or substantial amendment thereto, as

applicable), as well as the following:

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

with the guaranteed loan funds is eligible under Sec. 570.703, how it

meets one of the criteria in Sec. 570.208, and (if applicable) how it

complies with the public benefit standards in Sec. 570.209.

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

sources of repayment, together with a statement identifying the entity

that will act as borrower and issue the debt obligations.

out

with the guaranteed loan funds is eligible under Sec. 570.703, how it

meets one of the criteria in Sec. 570.208, and (if applicable) how it

complies with the public benefit standards in Sec. 570.209.

(2) A schedule for repayment of the loan that 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, that the public

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

loan guarantee, and that 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.

(6) The certification regarding debarment and suspension required

under 24 CFR part 24.

(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.

The certification regarding debarment and suspension required

under 24 CFR part 24.

(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)(8)(ii)(B) of this section

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 met the citizen information and participation requirements

of Sec. 570.704 (a)(1) and (a)(2) in preparing its application.

(iv) [Reserved].

raph (b)(8)(ii)(B) of this section

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 met the citizen information and participation requirements

of Sec. 570.704 (a)(1) and (a)(2) in preparing its application.

(iv) [Reserved].

(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) (Only for entitlement public entities): 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 that

benefit low and moderate income persons, as described in

Sec. 570.208(a).

(B) (Only for nonentitlement public entities eligible under subpart

F of this part): 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. 570.606.

(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.

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. 570.606.

(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.

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.

* * * * *

3. In subpart O, a new Sec. 570.907 is added, to read as follows:

Sec. 570.907 Authorities for enforcing compliance.

The Secretary may make appropriate adjustments in the amount of

annual grants, or terminate, reduce, or limit the availability of

payments to the recipient, if a recipient has failed to comply with

applicable requirements of the program, as authorized and provided in

sections 104(e) and 111 of the Act (42 U.S.C. 5304(e) and 5311).

4. Section 570.910 is revised to read as follows:

Sec. 570.910 Corrective and remedial actions.

(a) General. If HUD finds a deficiency in a recipient's performance

due to failure to comply with applicable program requirements, as

referenced under Sec. 570.901, or failure to meet performance criteria

under Secs. 570.902 through 570.906, the Secretary may seek corrective

and remedial action by the recipient prior to initiating actions

authorized by Secs. 570.911, 570.912, or 570.913.

s.

(a) General. If HUD finds a deficiency in a recipient's performance

due to failure to comply with applicable program requirements, as

referenced under Sec. 570.901, or failure to meet performance criteria

under Secs. 570.902 through 570.906, the Secretary may seek corrective

and remedial action by the recipient prior to initiating actions

authorized by Secs. 570.911, 570.912, or 570.913.

(b) Actions to secure voluntary compliance. In order to secure

voluntary compliance, HUD may take the following actions:

(1) Letter to recipient. HUD may issue a letter advising the

recipient of HUD's finding of the deficiency, advising the recipient to

notify HUD whether there are any ongoing or planned activities that are

or will be affected by the deficiency, and putting the recipient on

notice that additional action may be taken if the deficiency is not

corrected in the time frame specified by HUD or is repeated. If HUD has

determined that the deficiency is affecting one or more ongoing

activities, it may advise the recipient to suspend disbursement of

funds for the affected activities until corrective actions have been

taken.

(2) Corrective action. HUD may advise the recipient to take

corrective action prior to undertaking any activities that would be so

affected in order to prevent a recurrence of the deficiency. HUD may

specify the corrective action or offer the recipient the opportunity,

within a time frame specified by HUD, to identify actions it believes

will correct the deficiency. HUD may also advise the recipient that the

deficiency calls into question a certification necessary to receive

future funds, in which case HUD will identify any specific additional

actions necessary to make the certification satisfactory.

corrective action or offer the recipient the opportunity,

within a time frame specified by HUD, to identify actions it believes

will correct the deficiency. HUD may also advise the recipient that the

deficiency calls into question a certification necessary to receive

future funds, in which case HUD will identify any specific additional

actions necessary to make the certification satisfactory.

(3) Request for additional assurances. If the Secretary finds a

certification to be unsatisfactory under the authority of

Sec. 570.304(a), HUD may request that the recipient provide such

additional assurances as the Secretary deems warranted or necessary to

find the certification satisfactory.

(4) Reimburse line of credit. HUD may advise the recipient, within

a time frame specified by HUD, to reimburse its line of credit with

non-Federal funds for any portion of the amounts improperly expended

and to reprogram the use of those funds in accordance with applicable

requirements. HUD may advise that some or all of the reimbursed funds

be reprogrammed to be used to redress particular adverse effects.

(5) Review of activities and systems. HUD may advise the recipient

to review its planned and ongoing activities together with its

administrative and management systems within such time limit as HUD may

specify for this purpose in order to:

(i) Identify the causes for delays,

(ii) Change the systems and activities,

(iii) Reprogram funds to other activities, as applicable and

necessary to bring its expenditures into compliance, and

(iv) Develop a detailed schedule with interim milestones for use in

tracking the recipient's management of its expenditures.

ms within such time limit as HUD may

specify for this purpose in order to:

(i) Identify the causes for delays,

(ii) Change the systems and activities,

(iii) Reprogram funds to other activities, as applicable and

necessary to bring its expenditures into compliance, and

(iv) Develop a detailed schedule with interim milestones for use in

tracking the recipient's management of its expenditures.

(c) Changing the method of payment. In addition to the actions

described in paragraph (b) of this section, if HUD has determined that

the recipient is not taking appropriate action to prevent a financial

management deficiency from affecting ongoing or future performance, HUD

may change the method of payment to the recipient for some or all of

the activities from a line of credit basis to a pre-Federal payment

approval basis, until the deficiency is cured.

5. Section 570.911 is revised to read as follows:

Sec. 570.911 Resolving disputes/administrative hearings.

If HUD has made a finding of noncompliance pursuant to subpart O of

this part, and if HUD believes that additional action is necessary to

bring about appropriate corrective and remedial actions in a timely

manner (including any actions sought by HUD under Sec. 570.910 that are

not forthcoming), HUD will initiate one or more of the following

enforcement actions:

(a) Opportunity for informal consultation. HUD will initiate the

enforcement actions under Sec. 570.913 (except as specified under

Sec. 570.913(d)) only after HUD has provided the recipient the

opportunity for an informal consultation, in order to discuss the

alleged noncompliance and the enforcement actions HUD proposes to take.

If the recipient elects to participate in an informal consultation, HUD

will defer an enforcement action under Sec. 570.913 (except as

specified under Sec. 570.913(d)) pending completion of the

consultation. HUD may also offer another ``alternative means of dispute

resolution,'' as defined at 5 U.S.C

order to discuss the

alleged noncompliance and the enforcement actions HUD proposes to take.

If the recipient elects to participate in an informal consultation, HUD

will defer an enforcement action under Sec. 570.913 (except as

specified under Sec. 570.913(d)) pending completion of the

consultation. HUD may also offer another ``alternative means of dispute

resolution,'' as defined at 5 U.S.C. 581(3), and if the recipient

elects to participate in such procedure, HUD will defer an enforcement

action under Sec. 570.913 (except as specified under Sec. 570.913(d))

pending completion of the procedure.

(b) Opportunity for administrative hearing. After considering any

information the recipient may provide through the process of

consultation or other alternative means of dispute resolution, if HUD

maintains that the alleged deficiency constitutes a failure to comply

with one or more program

requirements, but the recipient does not agree, HUD will offer the

recipient the opportunity for an administrative hearing to resolve the

dispute. HUD will not take an enforcement action under Sec. 570.913

until either the time has elapsed for the recipient to avail itself of

the opportunity for a hearing or the hearing results in a finding that

the recipient failed to comply with program requirements. For these

purposes, the hearing will be conducted in accordance with the

procedures outlined under 24 CFR part 26, subpart B.

dispute. HUD will not take an enforcement action under Sec. 570.913

until either the time has elapsed for the recipient to avail itself of

the opportunity for a hearing or the hearing results in a finding that

the recipient failed to comply with program requirements. For these

purposes, the hearing will be conducted in accordance with the

procedures outlined under 24 CFR part 26, subpart B.

(c) Certifications. After requesting additional assurances of

certifications under Sec. 570.910(b)(3), HUD shall conduct the dispute

resolution in accordance with the procedures under paragraph (b) of

this section, and may withhold the award of the recipient's CDBG grant

until such time as the recipient provides assurances satisfactory to

the Secretary, if either of the following occurs:

(1) The recipient fails to respond or declines to comply with HUD's

request, or

(2) The Secretary finds the recipient's response to be

unsatisfactory.

6. Section 570.913 is revised to read as follows:

Sec. 570.913 Enforcement actions.

If HUD has made a finding of noncompliance under subpart O of this

part, and if HUD believes that additional action is necessary to bring

about appropriate corrective and remedial actions by the recipient in a

timely manner (including any actions sought by HUD under Sec. 570.910

that are not forthcoming), HUD will initiate one or more of the

following enforcement actions after complete dispute resolution/

administrative hearing procedures under Sec. 570.911 (a) and (b), as

appropriate:

(a) Limit availability of funds. HUD may limit the availability of

CDBG funds to the recipient to programs, projects, or activities not

affected by the performance deficiency. This could include, for

example, requiring the recipient to limit the availability of CDBG

funds it has provided to one or more of its subrecipients.

e hearing procedures under Sec. 570.911 (a) and (b), as

appropriate:

(a) Limit availability of funds. HUD may limit the availability of

CDBG funds to the recipient to programs, projects, or activities not

affected by the performance deficiency. This could include, for

example, requiring the recipient to limit the availability of CDBG

funds it has provided to one or more of its subrecipients.

(b) Reduce payments. As appropriate, HUD may reduce payments to the

recipient under the CDBG program by the amount of funds that were not

expended in accordance with the requirements of the regulations or

applicable laws. This could include a reduction in the amount of a

future grant to which the recipient would otherwise be entitled or

eligible to receive.

(c) Terminate grant(s). As appropriate, HUD may terminate the

recipient's entire CDBG grant to prevent continuation or recurrence of

the deficiency.

(d) Suspend payments. The Secretary may petition the Administrative

Law Judge for authority to suspend payments at any time after the

issuance of a notice of opportunity for hearing pursuant to

Sec. 570.911(b), pending such hearing and a final decision, to the

extent the Secretary determines such action is necessary to preclude

the further disbursement of funds for activities affected by such

failure to comply.

(e) Limitation on enforcement actions. In no case shall funds

already expended on eligible activities be recaptured from an existing

grant or deducted from future grants under the actions described above.

7. Section 570.14 is added to read as follows:

Sec. 570.914 Referrals to the Attorney General and claims collection.

disbursement of funds for activities affected by such

failure to comply.

(e) Limitation on enforcement actions. In no case shall funds

already expended on eligible activities be recaptured from an existing

grant or deducted from future grants under the actions described above.

7. Section 570.14 is added to read as follows:

Sec. 570.914 Referrals to the Attorney General and claims collection.

(a) Referral action. In lieu of, or in addition to, any action

authorized in Sec. 570.913, the Secretary may:

(1) Refer the matter to the Attorney General of the United States

with a recommendation that an appropriate civil action be instituted;

and

(2) Upon such referral, the Attorney General may bring a civil

action in any United States district court with proper venue for such

relief as may be appropriate, including an action to recover the amount

of the assistance furnished under title I of the Act that was not

expended in accordance with the Act, or for mandatory or injunctive

relief.

(b) Claims collection. In any case in which claims are payable to

HUD or the U.S. Treasury, HUD will institute collection procedures

pursuant to subpart C of 24 CFR part 17.

Dated: June 26, 1996.

Andrew M. Cuomo,

Assistant Secretary for Community Planning and Development.

[FR Doc. 96-24662 Filed 9-25-96; 8:45 am]

BILLING CODE 4210-29-P