[Federal Register Volume 59, Number 157 (Tuesday, August 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19981]


[[Page Unknown]]

[Federal Register: August 16, 1994]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Community Planning and 
Development
[Docket No. N-94-3801; FR 3750-N-01]

 

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

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, HUD.

SUMMARY: This NOFA announces the availability of funds for grants under 
Section 108(q) of the Housing and Community Development Act of 1974, as 
amended. HUD reserves the right to award grants under this NOFA up to 
the maximum amount authorized by law. As of the date of this NOFA and 
subject to funding availability, HUD intends to award at least $19 
million in EDI funds.
    Communities which may obtain Section 108 loan guarantee commitments 
to carry out qualifying projects also may be eligible under this NOFA 
to receive EDI grants to enhance the security of the guaranteed loan or 
to improve the feasibility of proposed projects through techniques such 
as interest rate subsides, loan loss reserves, etc. The NOFA sets out 
program guidelines which will govern the application, application 
review, and award process for EDI grants.

DATES: Applications are due in HUD Headquarters at the address stated 
below under Addresses, by September 16, 1994, 4:30 pm Eastern Daylight 
time. HUD will not accept applications that are submitted to HUD via 
facsimile (FAX) transmission.

ADDRESSES: Completed applications should be submitted to the Office of 
Community Planning and Development, Department of Housing and Urban 
Development, 451 Seventh Street SW., room 7180, Washington, DC 20410.
    Interested persons are invited to submit comments on the program 
guidelines for the Economic Development Initiative. Comments should be 
submitted to the Office of the General Counsel, Rules Docket Clerk, 
Room 10276, Department of Housing and Urban Development, 451 Seventh 
Street SW., Washington, DC 20410. Communications should refer to the 
above docket number and title. A copy of each communication submitted 
will be available for public inspection during regular business hours.

FOR FURTHER INFORMATION CONTACT: Paul Webster, Director, Financial 
Management Division, Office of Block Grant Assistance, Department of 
Housing and Urban Development, room 7178, Washington, DC 20410. 
Telephone (202) 708-1871. The TDD number is (202) 708-2565. (These are 
not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

    The information collection requirements contained in this NOFA have 
been submitted to the Office of Management and Budget (OMB) for review 
under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520). The 
Department has requested that OMB complete its review within 10 days 
from the date of this publication. No person may be subjected to a 
penalty for failure to comply with these information collection 
requirements until they have been approved and assigned an OMB control 
number. The OMB control number, when assigned, will be announced by 
separate notice in the Federal Register.

I. Purpose and Substantive Description

    (A) Authority. Title I, Housing and Community Development Act of 
1974, as amended, (42 U.S.C. 5301-5320) (the ``Act''); 24 CFR part 570.
    (B) Definitions.
    CDBG funds means, in addition to those funds specified at 
Sec. 570.3(e), grant funds received pursuant to Section 108(q).
    Economic Development Initiative (EDI) means the provision of 
economic development grant assistance under Section 108(q) of the Act, 
as authorized by Section 232 of the Multifamily Housing Property 
Disposition Reform Act of 1994 (P.L. 103-233) (the ``1994 Act'').
    Economic development project means an activity or activities 
(including mixed use projects with housing components) that are 
eligible under the Act and under 24 CFR Sec. 570.703, and that increase 
economic opportunity for persons of low- and moderate-income or that 
stimulate or retain businesses or jobs or that otherwise lead to 
economic revitalization.
    Unless otherwise defined herein, terms defined in 24 CFR part 570 
and used in this NOFA shall have the respective meanings given thereto 
in that part.
    (C) Background.
    EDI is intended to complement and enhance the Section 108 Loan 
Guarantee program (see 24 CFR Secs. 570.700-710 for regulations 
governing the Section 108 program). This provision of the Community 
Development Block Grant (CDBG) program provides communities with a 
source of financing for economic development, housing rehabilitation, 
and large scale physical development projects. HUD is authorized 
pursuant to Section 108 to guarantee notes issued by CDBG entitlement 
communities and nonentitlement units of general local government 
eligible to receive funds under the State CDBG program. Regulations 
governing the Section 108 program are found at 24 CFR part 570, subpart 
M.
    Additionally, assistance provided under this NOFA is subject to the 
requirements of section 3 of the Housing and Urban Development Act of 
1968, and the implementing regulations in 24 CFR part 135, as amended 
by an interim rule published on June 30, 1994 (59 FR 33866). Section 3 
requires that to the greatest extent feasible, and consistent with 
Federal, State, and local laws and regulations, job training, 
employment and other contracting opportunities generated from certain 
HUD financial assistance be directed to low- and very-low income 
persons. The eligible activities for which funding is provided under 
this NOFA are consistent with the objectives of section 3. Public 
entities awarded funds under this NOFA and that intend to use the funds 
for housing rehabilitation, housing construction, or other public 
construction should consult the regulations published on June 30, 1994, 
to determine applicable requirements.
    The Section 108 program is authorized at $2.054 billion in loan 
guarantee authority in Fiscal Year 1994. Under this program communities 
and (States, if applicable) pledge future years' CDBG allocations as 
security for loans guaranteed by HUD. The full faith and credit of the 
United States is pledged to the payment of all guarantees made under 
Section 108. The Section 108 program, however, does not require CDBG 
funds to be escrowed for loan repayment, which means that the community 
can continue to spend its existing allocation for other CDBG purposes, 
unless needed for loan repayment. Further, EDI minimizes the potential 
loss of future CDBG allocations by lowering the cost of borrowing under 
Section 108, reducing the risk that the pledged annual CDBG allocation 
would be required to fund repayment shortfall, and enhancing the 
ability of communities to leverage federal resources and private funds.
    An EDI grant can reduce the risk to future CDBG funds:
    (1) By strengthening the economic feasibility of the projects 
financed with Section 108 funds (and thereby increasing the probability 
that the project will generate enough cash to repay the guaranteed 
loan),
    (2) By directly enhancing the security of the guaranteed loan, or
    (3) Through a combination of these risk mitigation techniques.

HUD envisions that the following project structures could be typical.
    Provision of financing to for-profit businesses at a below market 
rate--While the rates on loans guaranteed under Section 108 are only 
slightly above the rates on comparable U.S. Treasury obligations, they 
may nonetheless be higher than can be afforded by many businesses. The 
EDI grant can be used to make Section 108 financing affordable, as 
illustrated in the following example:
    A public entity wishes to make financing available for businesses 
located in a distressed neighborhood. The public entity applies for 
Section 108/EDI assistance to carry out a $5.75 million economic 
development (ED) program. The ED loans will be funded from a financing 
package that includes a $5,000,000 Section 108 loan and a $750,000 EDI 
grant. If the rate on the Section 108 loan is 7.25 percent and the term 
is 15 years, the rate on the ED loans can be reduced to 5.1 percent (a 
level which is approximately 30% lower than the Section 108 rate). 
Thus, the EDI grant serves to ``buy down'' the interest rate on the ED 
loans, thus reducing the income the business needs to generate to 
provide program income to the public entity to repay the Section 108 
loan. (Note that the extent to which rates on ED loans can be reduced 
depends on the maturity of the Section 108 loan and the amount of the 
EDI grant.)
    Direct enhancement of the security of the Section 108 loan--The EDI 
grant can be used to cover the cost of providing enhanced security. An 
example of how the EDI grant can be used for this purpose is by using 
the grant funds to cover the cost of a standby letter of credit, issued 
in favor of HUD. This letter of credit will be available to fund 
amounts due on the Section 108 loan if other sources fail to 
materialize and will, thus, serve to protect the public entity's future 
CDBG funds.
    Funding reserves--The cash flow generated by an economic 
development project may be expected to be relatively thin in the early 
stages of the project. The EDI grant can make it possible for debt 
service or operating reserves to be established in a way that does not 
jeopardize the economic feasibility of the project.
    An example is a supermarket or neighborhood shopping area that is 
designed to provide basic services to and jobs in a distressed 
neighborhood. The public entity must be prepared for a period after 
completion during which space in that shopping center is not fully 
leased. It may therefore require the developer to establish with a 
trustee a reserve account (or accounts) that would be available to 
cover operating expenses and/or debt service during the lease-up 
period. While such reserves are commonplace, their cost may be so high 
as to make an already risky neighborhood shopping center project 
economically infeasible. The increased cost resulting from establishing 
such reserves may be defrayed by the EDI grant. As with the letter of 
credit example above, the reserves protect the CDBG program against the 
risk that CDBG funds will have to be used to cover shortfalls in the 
intended source for repayment of the Section 108 loan.
    Over-collateralizing the Section 108 loan--The use of EDI grant 
funds may be structured in appropriate cases so as to improve the 
chances that cash flow will be sufficient to cover debt service on the 
Section 108 loan and directly enhance the guaranteed loan. One 
technique for accomplishing this approach is over-collateralization of 
the Section 108 loan.
    An example is the project which involves the joint use of a Section 
108 loan and EDI grant to fund a loan pool project. For instance, a 
community might borrow $5 million under Section 108 and obtain an EDI 
grant of $500,000. It can then make $5.5 million in loans to various 
businesses at a rate equal to or greater than the rate on the Section 
108 loan. The total loan pool of $5.5 million would be pledged to the 
repayment of the $5 million Section 108 loan. Since the program income 
from the $5.5 million will be greater than the debt service on the 
Section 108 loan, the community can accumulate a loss reserve that will 
further mitigate the risk to future CDBG funds. This kind of loan pool 
project has the added benefit of reducing the risk to future CDBG funds 
through diversification of the community's loan portfolio.

(D) Timing of Grant Awards

    EDI applications will be evaluated concurrently with requests for 
Section 108 guarantee commitments or for the approval of amendments to 
previously approved Section 108 applications that will be enhanced by 
the EDI assistance. (See II.B. of this NOFA.)

(E) Limitations on Grant Amounts

    HUD expects to approve EDI grant amounts with respect to any 
application generally in the range of 7 to 15 percent of the related 
Section 108 guaranteed loan. In certain instances HUD may award more 
than 15 percent of the related Section 108 loan. Applicants, however, 
cannot request grants exceeding 15 percent. In the case of requested 
amendments, the EDI assistance will be determined on the increased 
amount of Section 108 loan guarantee assistance. HUD reserves the right 
to determine a maximum amount of any EDI award per project and to 
modify requests, accordingly.

(F) Eligibility to Apply for Grant Assistance

    Any public entity eligible to apply for loan guarantee assistance 
pursuant to Sec. 570.702 may apply for grant assistance under Section 
108(q). Eligible applicants are entitlement units of general local 
government and nonentitlement units of general local government 
eligible to receive loan guarantees under Sec. 570.702.

(G) Eligible Activities

    EDI grant funds may be used for:
    (1) Activities listed at Sec. 570.703, provided such activities are 
carried out as part of an economic development project.
    (2) Payment of costs of private financial guaranty insurance 
policies, letters of credit, or other credit enhancements for the notes 
or other obligations guaranteed by HUD pursuant to Section 108, 
provided such notes or obligations are used to finance an economic 
development project. Such enhancements shall be specified in the 
contract required by Sec. 570.705(b)(1), and shall be satisfactory in 
form and substance to HUD for security purposes.

II. The Application Process

    Public entities seeking EDI assistance must make a specific request 
for that assistance, in accordance with this NOFA. The EDI application 
shall be accompanied by a request for a Section 108 loan guarantee 
commitment, as further described in Section II.B. of this NOFA below. 
Application guidelines for the Section 108 program are found at 
Sec. 570.704.

(A) Timing of Submission

    Applications for EDI assistance shall be received at HUD 
Headquarters at the address listed above at ``Addresses'' by September 
16, 1994 by 4:30 p.m. Eastern Daylight time. HUD will not accept 
applications which are submitted to HUD via facsimile (FAX) 
transmission.

(B) Submission Requirements

    The EDI application shall be accompanied by a request for loan 
guarantee assistance under Section 108. The request for Section 108 
loan guarantee can be either:
    (1) A formal application for Section 108 loan guarantee, including 
the documents listed at Sec. 570.704(b);
    (2) A description, not to exceed three (3) pages, of a Section 108 
loan guarantee application to be submitted within one month of a notice 
of EDI selection (EDI awards will be conditioned on approval of actual 
Section 108 loan commitments). This description must be sufficient to 
support the basic eligibility of the proposed project or activities for 
Section 108 assistance;
    (3) A copy of a Section 108 loan guarantee application which was 
approved after the date of this NOFA; or
    (4) A request for a Section 108 loan guarantee amendment (analogous 
to subparagraph (1) or (2) above) which proposes to increase the amount 
of a previously approved application. However, a Section 108 loan 
guarantee application approved before the date of this NOFA is not 
eligible for EDI awards.
    In addition, the public entity shall submit for EDI grant 
assistance the following:
    (i) SF 424, Application for Federal Assistance.
    (ii) The certification regarding lobbying required under 24 CFR 
part 87 (Appendix A).
    (iii) A narrative statement describing the activities that will be 
carried out with the EDI grant funds and explaining how the use of EDI 
grant funds meets the criteria in paragraph II.(C) below. The narrative 
statement shall not exceed one 8.5'' by 11'' page for the description 
of the activities to be carried out with the EDI grant funds and one 
page for each of the listed selection criteria.

(C) Selection Criteria

    All applications will be considered for selection based on the 
following criteria that demonstrate the quality of the proposed 
project, and the applicant's creativity, capacity and commitment to 
maximize the use of the EDI funds, in accordance with the purposes of 
the Act.
    (1) Distress--(up to 20 points). The level of distress in the 
immediate community to be served and/or the jurisdiction applying for 
assistance. This may include factors indicative of distress such as 
poverty, income, unemployment, drug use, homelessness and other 
indicators of distress.
    (2) Extent of need for assistance--(up to 15 points). This may 
include factors such as:
    (i) Projects costs and financial requirements.
    (ii) The amount of any debt service or operating reserve accounts 
to be established in connection with the economic development project.
    (iii) The reasonableness of the costs of any credit enhancement 
paid with EDI grant funds.
    (iv) The amount of program income (if any) to be received each year 
during the repayment period for the guaranteed loan.
    (v) Interest rates on those loans to third parties (other than 
subrecipients) (either as an absolute rate or as a plus/minus spread to 
the Section 108 rate).
    (vi) Underwriting guidelines used (or expected to be used) in 
determining project feasibility
    (vii) Other relevant information
    (3) The extent to which the proposed activities effectively support 
important National interests--(up to 15 points). These activities 
include:
    (i) The provision of jobs for low- and moderate-income individuals 
with special consideration for participants in any of the following 
programs: Jobs Training Partnership Act (JTPA), Jobs Opportunities for 
Basic Skills (JOBS), or Aid to Families with Dependent Children (AFDC);
    (ii) The provision of jobs for participants in Unemployment 
Insurance programs;
    (iii) The provision of jobs for residents of Public and Indian 
Housing or other assisted housing units;
    (iv) The provision of jobs for homeless persons;
    (v) The provision of jobs that provide clear opportunities for 
promotion for low- and moderate-income individuals, such as through the 
provision of training;
    (vi) The establishment, stabilization, or expansion of 
microenterprises that employ low- and moderate-income individuals;
    (vii) The stabilization or revitalization of a neighborhood that is 
predominantly low and moderate income;
    (viii) The provision of assistance to a community development 
financial institution whose service area is predominantly low and 
moderate income;
    (ix) The provision of assistance to a neighborhood-based nonprofit 
organization serving a neighborhood that is predominantly low and 
moderate income;
    (x) The provision of employment opportunities that are an integral 
component of a community's strategy to promote spatial deconcentration 
of low- and moderate-income and minority families;
    (xi) The provision of assistance to business(es) that operate(s) 
within a census tract (or block numbering area) that has at least 20 
percent of its residents who are in poverty; or
    (xii) Other innovative approaches that provide substantial benefit 
to low-and moderate-income persons.
    (4) Quality of the plan--(up to 45 points). HUD will consider the 
quality of the plan, including but not limited to the extent to which 
the applicant's proposed plan for the EDI grant/Section 108 loan 
guarantee will address its described need in the applicant's immediate 
community and/or its jurisdiction, and the extent to which the plan is 
logically, feasibly, and substantially likely to achieve its stated 
purpose.
    (5) The capacity or potential of the public entity to successfully 
carry out the plan--(up to 15 points). This may include factors such as 
the public entity's performance in the administration of its CDBG 
program; its previous experience, if any, in administering a section 
108 loan guarantee; its performance and capacity in carrying out 
economic development projects; its ability to conduct prudent 
underwriting; and its capacity to manage and service loans made with 
the guaranteed loan funds or EDI grant funds.
    (6) The extent to which the proposed plan follows a comprehensive 
and coordinated approach in addressing the community and economic 
development needs of the public entity and furthers neighborhood 
revitalization--(up to 20 points).
    (7) Innovation and creativity--(up to 20 points). The extent to 
which the applicant incorporated innovation and/or creativity in the 
design and proposed implementation of the proposed activities carried 
out with Section 108/EDI funds.
    HUD, in its discretion, may choose to award EDI assistance to a 
lower rated approvable application over a higher rated application in 
order to increase the level of geographic diversity of grants approved 
under this part.
    Timing of grant awards--In most cases, EDI grants will be obligated 
contemporaneously with HUD approval of the related Section 108 loan 
guarantee commitment. However, the EDI grant may be awarded prior to 
HUD approval of the Section 108 commitment if HUD determines that such 
award will further the purposes of the Act. EDI funds shall not be 
disbursed to the public entity before the issuance of the related 
Section 108 guaranteed obligations.

III. Technical Assistance

    To the extent permitted by law, HUD may advise applicants of 
technical deficiencies in the EDI applications and permit them to be 
corrected. Due to the requirements of the HUD Reform Act, HUD staff is 
limited in the assistance it is permitted to provide regarding 
applications for EDI grants. The assistance and advice that can be 
provide includes such activities as explaining and responding to 
questions about program regulations, identification of those parts of 
an application that need substantive improvement, the dates by which 
decisions will be made and procedures that are required to be performed 
to process an application. This term, however, does not include 
advising the applicant how to make those improvements.
    In addition, any information published in the Federal Register and 
in this NOFA and any information that has been made public through a 
means other than the Federal Register or NOFA, may be discussed.
    HUD staff will be available throughout the EDI application period 
to provide extensive advice and assistance, as is currently provided, 
to develop 108 loan applications since the 108 program is not subject 
to the HUD Reform Act. Staff providing such assistance may provide 
technical advice to the EDI selection panel but in no case will such 
staff participate in the panel's voting process for EDI awards under 
this NOFA.

IV. Other Matters

    Environmental Impact. A Finding of No Significant Impact with 
respect to the environment has been made in accordance with HUD 
regulations at 24 CFR part 50, implementing section 102(2)(C) of the 
National Environmental Policy Act of 1969 (42 U.S.C. 4332). The Finding 
of No Significant Impact is available for public inspection and copying 
between 7:30 a.m. and 5:30 p.m. weekdays at the Office of the Rules 
Docket Clerk, 451 Seventh Street, SW., Room 10276, Washington, DC 
20410.
    Federalism. The General Counsel, as the Designated Official under 
section 6(a) of Executive Order 12612, Federalism, has determined that 
this NOFA will not have substantial, direct effects on States, on their 
political subdivisions, or on their relationship with the Federal 
Government, or on the distribution of power and responsibilities 
between them and other levels of government. While the NOFA offers 
financial assistance to units of general local government, none of its 
provisions will have an effect on the relationship between the Federal 
Government and the States, or the States' political subdivisions.
    Family. The General Counsel, as the Designated Official for 
Executive Order 12606, The Family, has determined that the policies 
announced in this NOFA would not have the potential for significant 
impact on family formation, maintenance and general well-being within 
the meaning of the Order. No significant change in existing HUD 
policies and programs will result from issuance of this NOFA, as those 
policies and programs relate to family concerns.
    Prohibition Against Lobbying Activities. The use of funds awarded 
under this NOFA is subject to the disclosure requirements and 
prohibitions of section 319 of the Department of Interior and Related 
Agencies Appropriations Act for Fiscal Year 1990 (31 U.S.C. 1352) and 
the implementing regulations at 24 CFR part 87. These authorities 
prohibit recipients of Federal contracts, grants, or loans from using 
appropriated funds for lobbying the Executive or Legislative Branches 
of the Federal Government in connection with a specific contract, 
grant, or loan. The prohibition also covers the awarding of contracts, 
grants, cooperative agreements, or loans unless the recipient has made 
an acceptable certification regarding lobbying. Under 24 CFR part 87, 
applicants, recipients, and subrecipients of assistance exceeding 
$100,000 must certify that no Federal funds have been or will be spent 
on lobbying activities in connection with the assistance.
    Prohibition Against Lobbying of HUD Personnel. Section 13 of the 
Department of Housing and Urban Development Act (42 U.S.C. 3537b) 
contains two provisions dealing with efforts to influence HUD's 
decisions with respect to financial assistance. The first imposes 
disclosure requirements on those who are typically involved in these 
efforts--those who pay others to influence the award of assistance or 
the taking of a management action by the Department and those who are 
paid to provide the influence. The second restricts the payment of fees 
to those who are paid to influence the award of HUD assistance, if the 
fees are tied to the number of housing units received or are based on 
the amount of assistance received, or if they are contingent upon the 
receipt of assistance. HUD's regulation implementing section 13 is 
codified at 24 CFR part 86. If readers are involved in any efforts to 
influence the Department in these ways, they are urged to read the 
final rule, particularly the examples contained in Appendix A of the 
rule. Appendix A of this rule contains examples of activities covered 
by this rule.
    Any questions concerning the rule should be directed to the Office 
of Ethics, Room 2158, Department of Housing and Urban Development, 451 
Seventh Street SW., Washington DC 20410-3000. Telephone: (202) 708-3815 
(voice/TDD). (This is not a toll-free number.) Forms necessary for 
compliance with the rule may be obtained from the local HUD Office.

    Dated: August 10, 1994.
Andrew Cuomo,
Assistant Secretary for Community, Planning and Development.
[FR Doc. 94-19981 Filed 8-15-94; 8:45 am]
BILLING CODE 4210-29-P