[Federal Register Volume 59, Number 178 (Thursday, September 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22798]


[[Page Unknown]]

[Federal Register: September 15, 1994]


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Part IV





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary for Community Planning and 
Development



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24 CFR Part 570




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

Office of the Assistant Secretary for Community Planning and 
Development

24 CFR Part 570

[Docket No. R-94-1591; FR-2879-P-02]
RIN 2506-AB11

 
Community Development Block Grants: Small Cities Program and 
Related Amendments

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise HUD regulations in 24 CFR part 
570, subpart F, which govern the administration of the Community 
Development Block Grant (CDBG) Small Cities Program. The purpose of 
subpart F is to set forth the procedures by which CDBG funds are 
provided to non-entitled units of general local government in those 
States which have not elected to assume administration of the CDBG 
formula allocations for use in non-entitled units of general local 
government within such States. The proposed rule would amend subpart F 
to incorporate the statutory changes made to the Small Cities Program 
since the subpart F regulations were issued in 1982, and to streamline 
the operation and administration of the program. In addition, the 
proposed rule makes additional changes to subpart F, and various 
changes to subparts I and M which are necessary to permit use of the 
section 108 loan guarantee authority by non-entitled units of general 
local government in States which have not elected to assume 
administration of the CDBG formula allocations for nonentitlement areas 
of such States.

DATES: Comments Due Date: October 17, 1994.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Rules Docket Clerk, Office of the General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
7th Street, SW., Washington, DC 20410-0500. Comments should refer to 
the above docket number and title. A copy of each comment submitted 
will be available for public inspection during regular business hours 
at the above address. Facsimile (FAX) comments are not acceptable.

FOR FURTHER INFORMATION CONTACT: Stephen M. Rhodeside, State and Small 
Cities Division, Office of Community Planning and Development, 
Department of Housing and Urban Development, Room 7184, 451 Seventh 
Street, SW., Washington, DC 20410. Telephone (202) 708-1322 (voice) or 
(202) 708-2565 (TDD). (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

    This proposed rule does not propose to add information collection 
requirements to the regulations in 24 CFR part 570, subparts F, I, or 
M.

II. Background

    Title I of the Housing and Community Development Act of 1974 (Title 
I) establishes the Community Development Block Grant (CDBG) Program. 
Seventy percent of the annual appropriation for the CDBG Program is 
awarded as formula-based grants to entitlement jurisdictions with the 
remaining thirty percent available for non-entitled units of general 
local government, based upon formula allocations by State. CDBG funds 
for non-entitled jurisdictions are made available through one of two 
methods: the State CDBG Program or the HUD-administered Small Cities 
Program (Small Cities Program). These programs both serve smaller 
communities, including those located in rural areas.
    The regulations governing the CDBG Program are set forth in 24 CFR 
part 570. The regulations governing the Small Cities Program are set 
forth in 24 CFR part 570, subpart F (Secs. 570.420-570.438).
    The purpose of subpart F is to set forth the procedures by which 
CDBG funds are provided to non-entitled units of general local 
government in those States which have not elected to assume 
administration of the CDBG Program for non-entitled units of general 
local government within their jurisdiction.
    Prior to the enactment of the Omnibus Budget Reconciliation Act 
(OBRA) of 1981 (Pub. L. 97-35, approved August 13, 1981), HUD 
administered the CDBG Small Cities Program in all States. However, OBRA 
contained a provision which afforded States the opportunity to assume 
administrative responsibility for the Small Cities Program, thereby 
creating the State CDBG Program (i.e., State administration of CDBG 
nonentitlement funds). Thirty-eight (38) States elected to administer 
the non-entitled CDBG Program in Fiscal Year 1982 with an additional 
nine making the election beginning with Fiscal Year 1983. Currently, 
forty-nine (49) ``States'' (as defined in Sec. 570.3, which includes 
Puerto Rico) administer the CDBG Program for non-entitled units of 
general local government.
    If a State that currently administers the CDBG Program declines to 
continue its administration, under existing law CDBG funds would not be 
available to non-entitled units of general local government in that 
State during the Fiscal Year for which the State did not administer the 
program. Any CDBG funds not allocated in a Fiscal Year for this reason 
would be reallocated among all States in the succeeding Fiscal Year. 
Only two States, Hawaii and New York, have not exercised their option 
to assume administration of the CDBG Program for non-entitled units of 
general local government. Accordingly, for some time, the regulations 
in subpart F have been applicable only to Hawaii and New York.
    The existing subpart F regulations were promulgated in 1982 and 
remain essentially unchanged from the original language despite 
substantial statutory amendments to Title I, and several changes to the 
nature of the Small Cities Program subsequent to 1982.
    This proposed rule would amend subpart F to specifically address 
HUD's administration of the Small Cities Program in the States of 
Hawaii and New York. Additionally, the proposed rule would incorporate 
the amendment made by section 902 of the National Affordable Housing 
Act (Pub. L. 101-625, approved November 28, 1990) (NAHA) which requires 
an overall low- and moderate-income benefit of not less than 70 percent 
in the use of grant funds. HUD emphasizes that this requirement applies 
to each grant made through the Small Cities Program. Individual 
activities are still required to provide at least 51 percent low- and 
moderate-income benefit in order to meet the national objective 
standard of benefit for low- and moderate-income persons.
    HUD is considering aggregating the 70 percent requirement for 
grants in the New York Small Cities Program to include grants received 
over a one, two, or three year period as well as section 108 loan 
guarantees received during the period chosen by the grantee. The 
Department is also considering aggregating guaranteed loan funds in 
Hawaii with Small Cities Funds received over a one, two or three year 
period. The Department specifically requests comments on this proposal, 
including specifics on how it would work.
    The majority of the other statutory changes since 1982 which affect 
the CDBG Program, including the Small Cities Program, are proposed to 
be incorporated in subpart F by reference to other subparts within part 
570, which already have implemented these statutory changes. These 
statutory changes are not specifically addressed in the proposed rule 
and, as a result, will not be discussed in this preamble.
    The most significant change that is proposed to be made to subpart 
F by this rule is the elimination of the sections setting forth the 
selection system for Single Purpose and Comprehensive Small Cities 
Grants. As a result of this change, the grant process for New York 
State will be more flexible for the small communities of New York 
State, and the Small Cities Program will be able to more readily 
respond to changing priorities. The specific requirements for the 
process of awarding grants to particular grantees will be contained in 
a Notice of Funding Availability (NOFA) which will be promulgated for 
each Fiscal Year's funding. The NOFA will contain the specific 
guidelines for all competition(s) that HUD will hold during a fiscal 
year. If it is decided to hold a competition among the three eligible 
entities in Hawaii, a separate NOFA may be issued for the Hawaii 
competition.
    In addition, two non-competitive uses of funds are proposed by the 
regulation; the use of funds to eliminate imminent threats to health 
and safety, and the use of funds to make payments on Section 108 loan 
guarantees to non-entitlement units of general local government in New 
York or Hawaii. These are more fully described below. Other non-
competitive uses of funds may be added by a NOFA.
    HUD specifically invites comments from the public on these changes. 
The new program flexibility will allow HUD to consider taking such 
actions as having one or several Economic Development set asides with 
an emphasis on providing funding for high impact Economic Development 
activities that are oriented to helping the very low income families 
(families whose income does not exceed 50 percent of median income). 
This could possibly include microenterprises. A microenterprise is 
defined by section 807(c)(2) of the Housing and Community Development 
Act of 1992 as a ``commercial enterprise that has five or fewer 
employees, one or more of whom owns the enterprise.''
    Other possibilities include providing funding to support 
communities that have been designated as being part of an Empowerment 
Zone or Enterprise Community, and providing support to communities that 
have suffered base closures. HUD is considering having more than one 
competition in each fiscal year.
    The Department is also considering developing a selection system 
for grants to fund projects with multiyear comprehensive strategies and 
funding for projects to be done in stages. The Department is trying to 
structure this in a manner that will be consistent with the 
requirements of the Anti-Deficiency Act (31 U.S.C. 1241(a)(1)). If 
actions such as these are to be taken, they will be described in the 
NOFA.
    The provisions governing the program in the State of Hawaii have 
been changed. Unless the NOFA provides otherwise, the three eligible 
entities in Hawaii will be treated in these regulations as much like 
entitlement grantees as is possible under the statute. This includes 
using the Grantee Performance Report for all grants received after FY 
1994, and the elimination of the closeout requirement for all grants 
received after FY 1994. Starting in FY 1995, the 20 percent planning 
and administrative cost limitation will be based on 20 percent of the 
grant amount plus the program income received from post FY 1994 grants 
during the program year. Starting in FY 1996, the 15 percent public 
service limitation will be based on 15 percent of the grant amount plus 
15 percent of the program income received in the previous program year. 
This is a change from the existing policy which tracks administrative 
costs and public service expenditures on a grant by grant basis. 
Starting in FY 1996 the counties in Hawaii will be covered by the 
requirements of Sec. 570.902(a) which requires grantees to have less 
than 1.5 times their grant outstanding 60 days prior to the beginning 
of their next program year. If a grantee does not meet this threshold, 
it will be up to the Honolulu Office to make a finding and negotiate a 
resolution with the Hawaii grantees which could include adjusting the 
size of the grant.
    Section 570.432 of the proposed rule permits the Secretary to make 
grants to pay the amounts due on Section 108 obligations, if necessary 
to prevent default. This proposed change would support the proposed 
change to the regulations in 24 CFR part 570, subpart M, which would 
expand the Section 108 program to non-entitled units of general local 
government in New York and Hawaii.
    Making grants under Sec. 570.432 would be the first priority use of 
funds during any fiscal year, and would be demand-based rather than 
competitive. The Department expects that most loan guarantees for non-
entitled units of local government in New York and Hawaii will be for 
economic development activities which will generate program income 
sufficient to repay the section 108-guaranteed loan. However, if a 
default were about to occur because the economic development activity 
did not generate the anticipated program income, or in those limited 
instances in which the applicant's repayment plan anticipates the use 
of CDBG grant funds to make repayments, the noncompetitive authority in 
Sec. 570.432 is necessary to permit HUD to make a grant to the unit of 
local government to cover the payment due, since non-entitled units of 
local government do not receive a continuing stream of grants that are 
available to make payments on section 108 loan guarantees as 
entitlement CDBG recipients do. The related changes to subpart M and 
subpart I are discussed in Section V of this preamble.
    Section 570.424 would replace current Sec. 570.432 to provide 
grants for imminent threats. Under the proposed section, fifteen 
percent of the funds allocated to New York State would be reserved to 
alleviate imminent threats to public health and safety unless a lower 
amount was specified in a NOFA. These funds would be made available on 
a non-competitive basis to alleviate imminent threats to public health 
and safety that require an immediate resolution. HUD shall verify the 
urgency and immediacy of the threat with an authority other than the 
grantee.
    Section 570.426 would be added to the regulations to address the 
subject of program income. This section would state that if a unit of 
local government has no open CDBG grants at the time of project 
closeout, program income of the unit of general local government or its 
subrecipients which amounts to less than $25,000 per year will not be 
considered program income.
    For clarity during review of this rule by the public, the rule sets 
out all the regulations in subpart F, including those that are not 
proposed to be revised by this rule. The following highlights the most 
significant of the changes that are proposed to be made to subpart F by 
this rule.

III. Summary of Significant Changes Proposed to Subpart F

Section 570.420  General

    Paragraphs (c) Eligible applicants, (d) Types of grants, (e) 
Distribution of funds between Comprehensive Grants and Single Purpose 
Grants, (f) Size of grants, (g) Restrictions on applying for grants, 
(h) Method of selecting grantees, (i) Data used for the needs factors., 
and (j) Previous audit findings and outstanding monetary obligations 
are proposed to be removed from Sec. 570.420.

Section 570.421  New York Small Cities Program Design

    A new Sec. 570.421 would replace existing Sec. 570.421 (existing 
Sec. 570.421 would become Sec. 570.422, as discussed below). Section 
570.421 would be titled ``New York Small Cities Program Design.'' 
Paragraph (a) would set forth who has responsibility for administration 
of the program. Paragraph (b) would provide that a NOFA, which will be 
issued at least once per Federal Fiscal Year, will indicate the 
selection criteria, rating factors for competitive grants, amount of 
funds available, grants limits, and application requirements. Paragraph 
(c) would define eligible applicants. Paragraph (d) would allow 100 
percent public service grants to be made as long as the 15 percent 
statewide cap is not exceeded.

Section 570.422  Applications from Joint Applicants

    New section Sec. 570.422 (currently a reserved section) would 
contain the provisions currently in existing section Sec. 570.421, as 
noted above, with the exception that existing paragraph (b) of 
Sec. 570.421, which addresses data requirements, would be removed. Data 
requirements will be addressed in the NOFA to be issued each Fiscal 
Year.

Section 570.423  Application for the HUD-administered New York Small 
Cities Grants

    New Sec. 570.423 would replace existing Sec. 570.423 
(``Comprehensive Grant Program, General Requirements'') and would 
address the application requirements for the New York Small Cities 
Program, and indicate that threshold requirements will be stated in the 
NOFA that governs the distribution of funds.

Section 570.424  Grants for Imminent Threats to Public Health and 
Safety

    New Sec. 570.424 would replace existing Sec. 570.424 (``Selection 
System for Comprehensive Grants''), and would address grants for 
imminent threats to public health and safety as discussed in Section II 
of this preamble.

Section 570.425  HUD Review and Actions on Applications for New York 
State Applicants

    New Sec. 570.425 (currently a reserved section) would incorporate 
the requirements of existing Sec. 570.433 (``HUD Review and Actions on 
Final Applications for Single Purpose and Comprehensive Applicants''), 
with the exception that paragraphs (b)(2) Fundable applications, and 
(b)(4) Non-fundable applications of existing Sec. 570.433 would be 
removed. Additionally, the enumerated criteria for conditional grants 
in paragraph (b)(3) of existing Sec. 570.433 also would be removed.

Section 570.426  Program Income

    New Sec. 570.426 would replace existing Sec. 570.426 (``Application 
for Comprehensive Grants'') and address program income, as discussed in 
Section II of this preamble.

Section 570.427  Program Amendments

    New Sec. 570.427 would replace existing Sec. 570.427 (Single 
Purpose Grant Program General Requirements) and incorporate the 
requirements of existing Sec. 570.434 which addresses program 
amendments. Section 570.427 (a)(3) would address amendments for grants 
received on a non-competitive basis.

Section 570.428  Reallocated Funds

    New Sec. 570.428 would replace existing Sec. 570.428 (Selection 
System for Single Purpose Grants) and would incorporate the 
requirements of existingSec. 570.438 which addresses reallocated funds.

Section 570.429  Hawaii General and Grant Requirements

    New Sec. 570.429 (currently a reserved section) would address the 
general and grant requirements applicable to the State of Hawaii Small 
Cities Program as discussed in Section II of the preamble.

Section 570.430  Hawaii Program Operation Requirements

    New Sec. 570.430 would replace existing Sec. 570.430 (Application 
for Single Purpose Grants) and address program operation requirements 
for the State of Hawaii as discussed in Section II of the preamble.

Section 570.431  Citizen Participation

    Existing Sec. 570.431 which pertains to citizen participation would 
be revised to incorporate statutory changes made to the citizen 
participation requirements by the Housing and Community Development Act 
of 1988.

Section 570.432  Repayment of Section 108 Loans

    New Sec. 570.432 would replace existing Sec. 570.432 (Single 
Purpose Grants for Imminent Threat to Public Health or Safety), and 
would address the repayment of Section 108 loans as discussed in 
Sections II and V of the preamble.

IV. Conforming Amendments Proposed by this Rule

    In addition to the changes to be made to 24 CFR part 570, subpart 
F, this proposed rule would make a conforming amendment to 24 CFR 
570.507(a)(2)(ii)(A). Section 570.507(a)(2)(ii)(A) sets forth the 
submission dates for the performance and evaluation report for the 
Small Cities Program. Currently grantees are required to submit reports 
12 months after grant award and annually thereafter. This requirement 
means that reports are submitted over a wide time frame, and that one 
community could be required to submit its reports for multiple projects 
at different times. Standardizing the reporting date will ease the 
burden on grantees by allowing them to do all of their reports at the 
same time. Standardized submission dates will help the field office 
complete its annual performance review at one time for all of a 
grantee's projects.

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

    Because there are numerous small clarifying changes to subpart M in 
the proposed rule, it is also being repeated in its entirety for the 
convenience of the reader. Only the substantive changes are described 
in this Section V of the preamble.
    The most important change proposed to subpart M would allow non-
entitled jurisdictions in New York and Hawaii (3 counties) to 
participate in the section 108 program for the first time. With the 
increasing emphasis on the use of section 108 loan guarantees in 
general and for economic development activities in particular, the 
Department believes it would be unfair to continue to deny the use of 
section 108 to non-entitled communities in New York and Hawaii. This 
decision necessitates a series of related changes in subpart F, subpart 
I and subpart M of the CDBG regulations in 24 CFR 570.
    In subpart M, a new section 570.702(c) is added to expressly make 
nonentitlement ``public entities'' (the term used in subpart M to refer 
to units of general local government) eligible to apply for assistance 
under subpart F (Small Cities Program, now covering only New York and 
Hawaii) also eligible to apply for section 108 assistance under subpart 
M. To simplify reference in the rest of subpart M to nonentitlement 
public entities in the States' Program, a new definition of ``State-
assisted public entity'' is added in Sec. 570.702(c). Generally, 
nonentitlement public entities in New York and Hawaii are referred to 
in proposed subpart M as ``nonentitlement public entities eligible 
under subpart F.'' Most related changes in subpart M amount to nothing 
more than use of these new terms and will not be further discussed 
here.
    The other principal change in subpart M which affects 
nonentitlement public entities in New York and Hawaii is the limitation 
on loan guarantee amounts in Sec. 570.705(a)(2)(iii). The limit for 
nonentitlement public entities in Hawaii is five times the most recent 
grant made to the public entity, similar to that for entitlement public 
entities. For non-entitlement public entities in New York the limit on 
loan guarantee amounts is five times the larger of (i) the most recent 
grant made to the public entity, (ii) the average of the most recent 
three grants made to the public entity, or (iii) the average of all the 
grants made in New York State in the previous fiscal year.
    It should be noted that two other changes are being made that 
affect State-assisted public entities. In Sec. 570.704(b)(3), all 
public entities will now be required to certify that they possess the 
legal authority necessary to pledge their CDBG grants as required by 
Sec. 570.705(b)(2). Since all public entities are statutorily required 
to make this pledge as a condition of receiving a section 108 loan 
guarantee, there is little reason to limit this certification to 
entitlement recipients only. Also, in Sec. 570.710 misleading language 
requiring the State to administer ``guaranteed loan funds in the same 
manner as it administers'' CDBG grants is being deleted, since the 
State is not initially required to receive guaranteed loan proceeds at 
all, and may or may not have a direct role in supervising the carrying 
out of the guaranteed loan activity. The extent of the State's role in 
handling the guaranteed loan proceeds is a matter for negotiation 
between the State and the public entity involved in a particular 
guarantee, although the State can deny the public entity the necessary 
pledge of its grants in support of the guarantee if it is not satisfied 
with the arrangements for handling the proceeds and carrying out the 
activity.
    The related change in subpart F, adding a new section Sec. 570.432 
to permit HUD to make grants in accordance with section 106(d)(3)(B) of 
Title I to nonentitlement units of general local government where 
necessary to make payments on section 108 guaranteed loans, has already 
been alluded to in Sections II and III of this preamble.
    Finally, the last change to part 570 necessary to make section 108 
loan guarantees available in New York and Hawaii is to provide that 
should such States later elect to administer the CDBG formula 
allocations for use in nonentitlement areas of such States, they must 
agree (pledge) to use such allocations to make any necessary payments 
on loan guarantees previously approved in such States. Since HUD will 
no longer be administering the CDBG allocations for non-entitlement 
areas of such a State if the State elects to do so itself, HUD will no 
longer have the ability to assure that CDBG grant funds are available 
to make the necessary payments, and the applicable State must do so. 
The regulatory change necessary to accomplish this is in new 
Sec. 570.497 of subpart I, as set forth in the text of the proposed 
rule below.
    In addition, the proposed rule would clarify subpart M by expressly 
including two new eligibility provisions added by the 1994 Act. Section 
231 of the 1994 Act expanded the activities eligible for loan guarantee 
assistance under section 108 to make acquisition, construction, 
reconstruction, rehabilitation and installation of public facilities 
eligible for all applicants, and in the case of activities benefitting 
colonias, such activities with respect to public works and site or 
other improvements were made eligible. Although HUD views these 
statutory eligibility amendments as self-executing and is implementing 
them in advance of publication of this rule, conforming changes are 
included in Secs. 570.703(l) and (m) of the proposed rule. As an 
editorial change, Sec. 570.703(h)(3) has been deleted and 
Sec. 570.703(f)(2) modified to retain eligibility of site preparation, 
as further described therein, which is undertaken for an economic 
development purpose.
    Section 233 of the 1994 Act also permitted HUD to guarantee trust 
certificates or other obligations backed by section 108-guaranteed 
obligations, a technical change which should simplify the section 108 
public offering process and slightly lower interest rates. While the 
new authority in section 233 will be implemented internally by HUD, by 
changes in the section 108 loan documents and other revisions to the 
public offering process without the need for new regulations, the 
proposed rule contains a new, expanded definition of ``debt 
obligation'' and other limited revisions which will clarify the 
regulations and incorporate new statutory language in Secs. 570.705(h) 
and 570.706.

Additional Note Concerning Review of Proposed Rule

    In the proposed rule that follows, the term ``Act'' in the rule 
refers to Title I of the Housing and Community Development Act of 1974. 
The term ``Act'' is defined in 24 CFR 570.3, and is not redefined in 
subparts F or M.

VI. Justification for Reduced Comment Period

    It is the Department's general policy to provide a 60-day public 
comment period on proposed rules. For this proposed rule, however, the 
Department is providing a 30-day period. The purpose of the reduced 
public comment period is to expedite the publication of updated and 
streamlined regulations for the Small Cities Program.
    Non-entitled units of general local government in the States of New 
York and Hawaii are well familiar with the unwieldy notice of funding 
availability (NOFA) that is issued each year for the Small Cities 
Program. Each fiscal year's NOFA for the Small Cities Program becomes 
lengthier and lengthier because the NOFA, for all intents and purposes, 
serves as the revised rule. As stated earlier in this preamble, the 
regulations for the Small Cities Program have not been revised since 
1982 even though several statutory changes and administrative changes 
have been made to the program since that date. Thus, each fiscal year's 
NOFA must incorporate all the statutory and administrative changes to 
the program that the existing regulations fail to include. Accordingly, 
by having updated and streamlined Small Cities Program regulations 
issued as quickly as possible, the Department anticipates that one 
significant benefit to non-entitled units of general local government 
in the States of New York and Hawaii is that the FY 95 funding round 
for the Small Cities Program will produce a considerably less 
cumbersome NOFA process.
    Additionally, because each fiscal year's NOFA has incorporated the 
statutory and administrative changes to the Small Cities Program, many 
of the revisions proposed to be made by this rule are well familiar to 
the non-entitled units of general local government in the States of New 
York and Hawaii, and thus, extensive review is not necessary. However, 
to ensure that these affected entities have sufficient opportunity to 
review the proposed rule, the Department's New York, Buffalo and 
Honolulu Offices will have copies of the proposed rule available on the 
date of publication and ready to be distributed to these entities.
    The Department believes that it is in the interest of the non-
entitled units of general local government in the States of New York 
and Hawaii to have revised final regulations in place as quickly as 
possible.

VII. Other Matters

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969. The Finding of No Significant Impact is available for 
public inspection during regular business hours in the Office of the 
Rules Docket Clerk, Office of the General Counsel, Department of 
Housing and Urban Development, Room 10276, 451 Seventh Street SW., 
Washington, DC 20410.

Impact on Small Entities

    The Secretary, in accordance with 5 U.S.C. 605(b) (the Regulatory 
Flexibility Act), has reviewed this proposed rule before publication, 
and by approving it certifies that this proposed rule would not have a 
significant economic impact on a substantial number of small entities. 
The rule proposes to modify, simplify and update the administration and 
procedural requirements of the CDBG Small Cities Program to conform 
with legislation applicable to this program. Accordingly, the proposed 
rule is anticipated to have some beneficial impact on small entities. 
However, the number of small entities that may be affected by this rule 
would not be substantial and the economic impact would not be 
significant.

Federalism Impact

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that this proposed 
rule does not have Federalism implications and therefore is not subject 
to review under the Order. No programmatic or policy changes would 
result from this rule's promulgation which would have a substantial 
direct effect on the States, or on the relationship between the Federal 
government and the States, or on the distribution of power and 
responsibility among the various levels of government.

Family Impact

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this proposed rule does 
not have the potential for significant impact on family formation, 
maintenance and general well-being, and thus is not subject to review 
under the Order. No significant changes in existing HUD policies or 
programs will result from promulgation of this rule.

Regulatory Agenda

    This proposed rule was listed as sequence number 1635 in the 
Department's Semiannual Agenda of Regulations published on April 25, 
1994 (59 FR 20424, 20458) pursuant to Executive Order 12866 and the 
Regulatory Flexibility Act.

Catalogue of Federal Domestic Assistance

    The Catalogue of Federal Domestic Assistance program number is 
14.219, Community Development Block Grants--Small Cities Program.

List of Subjects in 24 CFR Part 570

    Administrative practice and procedure, American Samoa, Community 
development block grants, Grant programs--education, Grant programs--
housing and community development, Grant programs--education, Guam, 
Indians, Lead poisoning, Loan programs--housing and community 
development, Low and moderate income housing, New communities, Northern 
Mariana Islands, Pacific Islands Trust Territory, Pockets of poverty, 
Puerto Rico, Reporting and recordkeeping requirements, Small cities, 
Student aid, Virgin Islands.
    Accordingly, 24 CFR part 570 would be amended as follows:

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

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

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

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

Subpart F--Small Cities Program

Sec.
570.420  General.
570.421  New York Small Cities Program Design.
570.422  Applications from joint applicants.
570.423  Application for the HUD-administered New York Small Cities 
Grants.
570.424  Grants for imminent threats to public health and safety.
570.425  HUD review and actions on applications for New York State 
applicants.
570.426  Program income.
570.427  Program amendments.
570.428  Reallocated funds.
570.429  Hawaii general and grant requirements.
570.430  Hawaii program operation requirements.
570.431  Citizen participation.
570.432  Repayment of section 108 loans.

Subpart F--Small Cities Program


Sec. 570.420  General.

    (a) HUD administration of nonentitlement CDBG funds. Title I of the 
Housing and Community Development Act of 1974 permits each State to 
elect to administer all aspects of the Community Development Block 
Grant (CDBG) Program annual fund allocation for the nonentitlement 
areas within its jurisdiction. This subpart sets forth policies and 
procedures applicable to grants for nonentitlement areas in States that 
elect not to administer the CDBG Program. States that elected to 
administer the program after the close of fiscal year 1984 cannot 
return administration of the program to HUD. A decision by a State to 
discontinue administration of the program would result in the loss of 
CDBG funds for nonentitled areas in that State and the reallocation of 
those funds to all States in the succeeding fiscal year.
    (b) Scope and applicability. (1) This subpart describes the 
policies and procedures of the Small Cities Program which apply to 
nonentitlement areas in States where HUD administers the CDBG Program. 
HUD currently administers the Small Cities Program in only two States--
New York and Hawaii. This subpart addresses the requirements for New 
York, and Sec. 570.429-30 identifies special procedures applicable to 
Hawaii.
    (2) The allocation of formula CDBG funds for use in non-entitled 
areas of Hawaii and New York is as provided in subpart A of this part. 
The policies and procedures set forth in the following identified 
subparts of this part 570 apply to the HUD-administered Small Cities 
Program, except as modified or limited under the provisions thereof or 
this subpart:
    (i) Subpart A--General Provisions;
    (ii) Subpart C--Eligible Activities;
    (iii) Subpart J--Grant Administration;
    (iv) Subpart K--Other Program Requirements; and
    (v) Subpart O--Performance Reviews.
    (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 the Department. All competitive 
grants in the HUD-administered Small Cities Program in New York are 
affected by this legislation, and the requirements identified at 24 CFR 
part 12 apply to them. Imminent threat grants under Sec. 570.424 and 
section 108 repayment grants under Sec. 570.432 are not affected by 
section 102 as they are not competitive grants.
    (2) Unless a NOFA provides for competition, the Hawaii HUD-
administered Small Cities Program is not subject to section 102, since 
the funds are not distributed in a competitive manner.
    (d) Comprehensive Housing Affordability Strategy. Applications for 
the HUD-administered Small Cities Program which contain housing 
activities must include a certification that the proposed housing 
activities are consistent with the applicant's Comprehensive Housing 
Affordability Strategy as described at 24 CFR part 91.
    (e) National and primary objectives. (1) Each activity funded 
through the Small Cities Program must meet one of the following 
national objectives as defined under the criteria in Sec. 570.208. Each 
activity must either:
    (i) Benefit low- and moderate-income families;
    (ii) Aid in the prevention or elimination of slums or blight; or
    (iii) Be an activity which the grantee certifies is designed to 
meet other community development needs having a particular urgency 
because existing conditions pose a serious and immediate threat to the 
health or welfare of the community where other financial resources are 
not available to meet such needs.
    (2) In addition to the objectives described in paragraph (e)(1) of 
this section, with respect to each grant made through the Small Cities 
Program, not less than 70 percent of the grant funds must be expended 
for activities which benefit low- and moderate-income persons under the 
criteria of Sec. 570.208(a). In determining the percentage of funds 
expended for such activity, the provisions of Sec. 570.200(a)(3)(i), 
(iv) and (v) shall apply.

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


Sec. 570.421  New York Small Cities Program Design.

    (a) Program administration. Administrative responsibility for the 
HUD-administered Small Cities Program in New York is divided between 
HUD's New York City and Buffalo Offices. For purposes of this subpart, 
the term ``HUD Office'' refers to both the New York City and Buffalo 
Offices.
    (b) Notice of funding availability. The Department will issue one 
or more Notice(s) of Funding Availability (NOFA) each fiscal year which 
will indicate the amount of funds available and set forth the grant 
limits, type of grants available and the application requirements. The 
NOFA will set forth the selection criteria for all grants, as well as 
the rating factors that will be used for those grants which are 
competitive.
    (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, and Indian tribes eligible for assistance 
under section 106 of the Act. An application may be submitted 
individually or jointly by eligible applicants.
    (2) Counties, cities, towns, and villages may apply and receive 
funding for separate projects to be done in the same jurisdiction. Only 
one grant will be made under each funding round for the same type of 
project to be located within the jurisdiction of a unit of general 
local government. (e.g. both the county and village cannot receive 
funding for a sewer system to be located in the same village, but the 
county can receive funding for a sewer system that is located in the 
same village as a rehabilitation project that the village receives 
funding for.) The NOFA will contain additional information on applicant 
eligibility.
    (d) Public service activities cap. Public service activities may be 
funded up to a maximum of fifteen (15) percent of a State's 
nonentitlement allocation for any fiscal year. HUD may award a grant to 
a unit of general local government for public service activities with 
up to 100 percent of the funds intended for public service activities. 
HUD will apply the 15 percent statewide cap to public service 
activities by funding public service activities in the highest rated 
applications in each NOFA until the cap is reached.
    (e) Activities outside an applicant's boundaries. An applicant may 
conduct eligible CDBG activities outside its boundaries. These 
activities must be demonstrated to be appropriate to meeting the 
applicant's needs and objectives, and must be consistent with State and 
local law. This provision includes using funds provided under this 
subpart in a metropolitan city or an urban county.


Sec. 570.422  Applications from joint applicants.

    Units of general local government may submit a joint application 
which addresses common problems faced by the jurisdictions, to the 
extent permitted by the NOFA. A joint application must be pursuant to a 
written cooperation agreement submitted with the application. The 
cooperation agreement must authorize one of the participating units of 
government to act as the lead applicant which will submit the 
application to HUD, and must delineate the responsibilities of each 
participating unit of government with respect to the Small Cities 
Program. The lead applicant is responsible for ensuring compliance with 
all laws, regulations, and Executive Orders applicable to the CDBG 
Program. HUD will deal exclusively with the lead applicant with respect 
to issues of program administration and performance, including remedial 
actions.


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

    (a) Proposed application. The applicant shall prepare and publish a 
proposed application, and comply with citizen participation 
requirements as described in Sec. 570.431.
    (b) Final application. The applicant shall submit to HUD a final 
application containing its community development objectives and 
activities. This final application shall be submitted, in a form 
prescribed by HUD, to the appropriate HUD Office.
    (c) Certifications. (1) The certifications shall be submitted in a 
form prescribed by HUD. If the application contains any housing 
activities, the applicant shall certify that the proposed housing 
activities are consistent with its Comprehensive Housing Affordability 
Strategy as described at 24 CFR part 91.
    (2) In the absence of evidence (which may, but need not, be derived 
from performance reviews or other sources) which tends to challenge in 
a substantial manner the certifications made by the applicant, the 
certifications will be accepted by HUD. However, if HUD does have 
available independent evidence, HUD may require the submission of 
additional information or assurances before determining whether an 
applicant's certifications are satisfactory.
    (d) Thresholds. The HUD Office may use any information available to 
it to make the threshold judgments required by the applicable NOFA, 
including information related to the applicant's performance with 
respect to any previous assistance under this subpart. The annual 
performance and evaluation report required under Sec. 570.507(a)(2)(ii) 
is the primary source of this information. The HUD Office may request 
additional information in cases where it is essential to make the 
required performance judgments.

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


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

    (a) Criteria. The following criteria apply for an imminent threat 
to public health or safety:
    (1) The Director of Community Planning and Development of the HUD 
office may, at any time, invite an application for funds available 
under this subpart in response to a request for assistance to alleviate 
an imminent threat to public health or safety that requires immediate 
resolution. HUD shall verify the urgency and the immediacy of the 
threat with an appropriate authority other than the applicant prior to 
acceptance of the application, and the Director of Community Planning 
and Development of the HUD office shall review the claim to determine 
if, in fact, an imminent threat to public health or safety does exist. 
For example, an applicant with documented cases of disease resulting 
from a contaminated drinking water supply has an imminent threat to 
public health, while an applicant ordered to improve the quality of its 
drinking water supply over the next two years does not have an imminent 
threat within the definition of this paragraph (a). These funds are to 
be used to deal with those threats which represent a unique and unusual 
circumstance, not for the type of threat that occurs with frequency in 
a number of communities within the State of New York.
    (2) The applicant does not have sufficient local resources, and 
other Federal or State resources are unavailable to alleviate the 
imminent threat.
    (3) All imminent threat projects must meet the requirement of 
Sec. 570.420(e).
    (b) HUD action. (1) Fifteen percent of the funds allocated to New 
York State in the Small Cities Program will be reserved to alleviate 
imminent threats to the public health or safety unless a lesser amount 
is specified in a NOFA. Applications shall be submitted in accordance 
with Sec. 570.423.
    (2) Applications which meet the requirements of this section may be 
approved by the Director of Community Planning and Development of the 
HUD Office without competition.
    (3) The only funds reserved for imminent threats to the public 
health or safety are those specified by this section as modified by the 
NOFA. After the funds have been depleted, HUD shall not consider 
further requests for grants relating to imminent threats during that 
fiscal year.
    (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) Costs incurred by the applicant. (i) HUD will not reimburse or 
recognize any costs incurred before submission of the final 
application.
    (ii) HUD will not normally reimburse or recognize costs incurred 
before HUD approval of the final application. However, under unusual 
circumstances, the Director of Community Planning and Development of 
the HUD office may consider and approve written requests to recognize 
and reimburse costs otherwise incurred in accordance with this part, 
after the submission of the application, where failure to do so would 
impose undue or unreasonable hardship on the applicant. The described 
authorization will be made only where the conditions for the release of 
funds under the provisions for environmental review have been met to 
HUD's satisfaction, in accordance with 24 CFR part 58, and with the 
understanding that HUD has no obligation to approve the application.
    (b) HUD action on final application. (1) Review and notification. 
Following the review of the applications, HUD will promptly notify each 
applicant of the action taken with regard to its application. 
Documentation which supports HUD's decisions on applications will be 
available to the public.
    (2) Conditional approval. HUD may make a conditional approval, in 
which case the grant will be approved but the obligation and 
utilization of funds will be restricted. The reasons for the 
conditional approval and the actions necessary to remove the condition 
will be specified. Failure to satisfy the condition may result in a 
termination of the grant.


Sec. 570.426  Program income.

    (a) The provisions of Sec. 570.504(b) apply to all program income 
generated by a specific grant and received prior to grant closeout.
    (b) If the unit of general local government has another ongoing 
CDBG grant at the time of closeout, the program income will be 
considered to be program income of the ongoing grant. The grantee can 
choose which grant to credit the program income to if it has multiple 
open CDBG grants.
    (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.


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 of this 
subpart, shall apply to the HUD-administered Small Cities Program in 
the State of Hawaii.
    (c) Grant amounts. (1) Unless a NOFA for a specific fiscal year 
provides for a different method of distribution for eligible Hawaii 
units of general local government, which could include competition, or 
a set aside, grants will be distributed as follows: For each eligible 
unit of general local government, a formula grant amount will be 
determined which bears the same ratio to the total amount available for 
the nonentitlement area of the State as the weighted average of the 
ratios between:
    (i) The population of that eligible unit of general local 
government and the population of all eligible units of general local 
government in the nonentitlement areas of the State;
    (ii) The extent of poverty in that eligible unit of general local 
government and the extent of poverty in all the eligible units of 
general local government in the nonentitled areas of the State; and
    (iii) The extent of housing overcrowding in that eligible unit of 
general local government and the extent of housing overcrowding in all 
the eligible units of general local government in the nonentitled areas 
of the State.
    (2) In determining the average of the ratios under this paragraph 
(c), the ratio involving the extent of poverty shall be counted twice 
and each of the other ratios shall be counted once. 
(0.25+0.50+0.25=1.00).
    (d) Adjustments to grants. Grant amounts under this section may be 
adjusted where an applicant's performance is judged inadequate, 
considering:
    (1) Capacity to utilize the grant amount effectively and 
efficiently;
    (2) Compliance with the requirements of Sec. 570.902(a) for timely 
expenditure of funds beginning with grants made in FY 1996. In making 
this calculation, all outstanding grants will be considered. For the FY 
1995 grant the requirement is substantial compliance with the 
applicant's schedule or schedules submitted in each previously funded 
application;
    (3) Compliance with other program requirements based on monitoring 
visits and audits.
    (e) Reallocation. (1) Any amounts that become available as a result 
of adjustments under paragraph (d) of this section, or any reductions 
under subpart O of this part, shall be reallocated in the same fiscal 
year to any remaining eligible applicants on a pro rata basis.
    (2) Any formula grant amounts reserved for an applicant that 
chooses not to submit an application shall be reallocated to any 
remaining eligible applicants on a pro rata basis.
    (3) No amounts shall be reallocated under paragraph (e) of this 
section in any fiscal year to any applicant whose grant amount was 
adjusted under paragraph (d) of this section or reduced under subpart O 
of this part.
    (4) This section may be superseded by requirements promulgated in a 
NOFA.
    (f) Applications. (1) Presubmission. The applicant will follow the 
requirements of Sec. 570.301(a) and (c), as well as the requirements of 
this section, unless these requirements are superseded by instructions 
in a published NOFA.
    (2) Submission. (i) HUD will require all applicants to submit an 
application for the amount established under paragraphs (c) through (e) 
of this section by a date established by HUD, and to follow the 
requirements of Sec. 570.302(a)(1) and (2) unless these requirements 
are superseded by instructions in a published NOFA.
    (ii) Certifications. The certifications shall be submitted in a 
form prescribed by HUD. If the application contains any housing 
activities, the applicant shall certify that the proposed housing 
activities are consistent with its Comprehensive Housing Affordability 
Strategy as described at 24 CFR part 91.
    (g) Application Approval. HUD will approve the application and 
certifications unless it is determined that one or more of the 
following requirements have not been met, or unless this process is 
superseded by instructions in a published NOFA.
    (1) Completeness. The submission shall include all of the 
components required in paragraph (f) of this section.
    (2) Timeliness. The submission must be received within the time 
period established in paragraph (f) of this section.
    (3) Certifications. The certifications made by the grantee will be 
satisfactory to the Secretary if made in conformance with the 
requirements of paragraph (f) of this section, unless the Secretary has 
determined pursuant to subpart O of this part that the grantee has not 
complied with the requirements of this part or has failed to carry out 
its Comprehensive Housing Affordability Strategy in a timely manner, or 
determined that there is evidence, not directly involving the grantee's 
past performance under this program, which tends to challenge in a 
substantial manner the grantee's certification of future performance. 
If the Secretary makes any such determination, however, further 
assurances may be required to be submitted by the grantee as the 
Secretary may deem warranted or necessary to find the grantee's 
certification satisfactory.
    (h) Grant agreement. The grant will be made by means of a grant 
agreement executed by both HUD and the grantee.
    (i) Conditional grant. The Secretary may make a conditional grant 
in which case the obligation and use of grant funds for activities may 
be restricted. Conditional grants may be made where there is 
substantial evidence that there has been, or there will be, a failure 
to meet the performance requirements or criteria described in subpart O 
of this part. In such case, the conditional grant will be made by means 
of a grant agreement, executed by HUD, which includes the terms of the 
condition specifying the reason for the conditional grant, the actions 
necessary to remove the condition and the deadline for taking those 
actions. The grantee shall execute and return such an agreement to HUD 
within 60 days of the date of its transmittal. Failure of the grantee 
to execute and return the grant agreement within 60 days may be deemed 
by HUD to constitute rejection of the grant by the grantee and shall be 
cause for HUD to determine that the funds provided in the grant 
agreement are available for reallocation in accordance with section 
106(c) of the Act. Failure to satisfy the condition may result in a 
reduction in the grant amount pursuant to Sec. 570.911. (Approved by 
the Office of Management and Budget under control number 2506-0060)


Sec. 570.430  Hawaii program operation requirements.

    (a) Limitation on planning and administrative costs. For grants 
made prior to FY 1995, no more than 20 percent of the sum of the grant 
plus program income received during the grant period shall be expended 
for planning and program administrative costs. For grants received in 
FY 1995 and thereafter, a grantee will be considered to be in 
conformance with the requirements of Sec. 570.200(g) if expenditures 
for planning and administration during the most recently completed 
program year do not exceed 20 percent of the sum of the grant made for 
that program year and the program income received from post FY 1994 
grants during that program year.
    (b) Performance and evaluation reports. Grantees will follow the 
requirements of Sec. 570.507(a) for entitlement grant recipients for 
all grants received in FY 1995 and thereafter. Grantees will continue 
following the requirements of Sec. 570.507(a) for HUD-administered 
small cities grants for grants received prior to FY 1995 until those 
grants are closed out.
    (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 
years in which to meet the requirement that not less than 70 percent of 
the aggregate of CDBG fund expenditures be for activities benefitting 
low-and moderate-income persons. Grants made prior to FY 1995 will be 
considered individually for meeting the primary objective, and 
expenditures for pre FY 1995 grants made during and after FY 1995 will 
not be considered in determining whether the primary objective has been 
met for post 1994 grants. If the State of Hawaii decides to administer 
the Community Development Block Grant Program for non-entitled units of 
general local government in Hawaii, the State will be bound by the time 
period for meeting the primary objective that was chosen by each non-
entitled grantee within the State until those time periods have 
expired.
    (f) Amendments. (1) The grantee shall amend its application 
whenever it decides not to carry out an activity described in its 
application, to carry out an activity not previously described, or to 
substantially change the purpose, scope, location, or beneficiaries of 
an activity. Prior to the submission of its FY 1995 application, each 
grantee shall develop and make public its criteria for what constitutes 
a substantial change for this purpose.
    (2) Prior to amending its application, a grantee shall follow the 
citizen participation requirements of Sec. 570.431 except that HUD is 
not required to approve the amendment.


Sec. 570.431  Citizen participation.

    (a) General. An applicant that is located in a nonentitlement area 
of a State that has not elected to distribute funds shall comply with 
the citizen participation requirements described in this section, 
including requirements for the preparation of the proposed application 
and the final application. The requirements for citizen participation 
do not restrict the responsibility or authority of the applicant for 
the development and execution of its community development program.
    (b) Citizen participation plan. The applicant must develop and 
follow a detailed citizen participation plan and must make the plan 
public. The plan must be completed and available before the application 
for assistance is submitted to HUD, and the applicant must certify that 
it is following the plan. The plan must set forth the applicant's 
policies and procedures for:
    (1) Giving citizens timely notice of local meetings and reasonable 
and timely access to local meetings, information, and records relating 
to the grantee's proposed and actual use of CDBG funds including, but 
not limited to:
    (i) The amount of CDBG funds expected to be made available for the 
coming year, including the grant and anticipated program income;
    (ii) The range of activities that may be undertaken with those 
funds;
    (iii) The estimated amount of those funds proposed to be used for 
activities that will benefit low and moderate income persons;
    (iv) The proposed CDBG activities likely to result in displacement 
and the applicant's plans, consistent with the policies developed under 
Sec. 570.606(b), for minimizing displacement of persons as a result of 
its proposed activities; and
    (v) The types and levels of assistance the applicant plans to make 
available (or to require others to make available) to persons displaced 
by CDBG-funded activities, even if the applicant expects no 
displacement to occur;
    (2) Providing technical assistance to groups representative of 
persons of low and moderate income that request assistance in 
developing proposals. The level and type of assistance to be provided 
is at the discretion of the applicant. The assistance need not include 
the provision of funds to the groups;
    (3) Holding a minimum of two public hearings, for the purpose of 
obtaining citizen's views and formulating or responding to proposals 
and questions. Each public hearing must be conducted at a different 
stage of the CDBG program. Together, the hearings must address 
community development and housing needs, development of proposed 
activities and review of program performance. There must be reasonable 
notice of the hearings and the hearings must be held at times and 
accessible locations convenient to potential or actual beneficiaries, 
with reasonable accommodations including material in accessible formats 
for persons with disabilities. The applicant must specify in its plan 
how it will meet the requirement for hearings at times and locations 
convenient to potential or actual beneficiaries;
    (4) Meeting the needs of non-English speaking residents in the case 
of public hearings where a significant number of non-English speaking 
residents can reasonably be expected to participate;
    (5) Responding to citizen complaints and grievances, including the 
procedures that citizens must follow when submitting complaints and 
grievances. The applicant's policies and procedures must provide for 
timely written answers to written complaints and grievances within 15 
working days of the receipt of the complaint, where practicable; and
    (6) Encouraging citizen participation, particularly by low- and 
moderate-income persons who reside in slum or blighted areas, and in 
other areas in which CDBG funds are proposed to be used.
    (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.
    (d) Preparation of a final application. An applicant must prepare a 
final application. In the preparation of the final application, the 
applicant shall consider comments and views received related to the 
proposed application and may, if appropriate, modify the final 
application. The final application shall be made available to the 
public and shall include the community development objectives and use 
of funds, and the community development activities.
    (e) Amendments. To assure citizen participation on amendments to 
final applications that require HUD approval under Sec. 570.427, the 
grantee shall:
    (1) Furnish citizens information concerning the amendment;
    (2) Hold one or more public hearings to obtain the views of 
citizens on the proposed amendment;
    (3) Develop and publish the proposed amendment in such a manner as 
to afford affected citizens an opportunity to examine the contents, and 
to submit comments on the proposed amendment;
    (4) Consider any comments and views expressed by citizens on the 
proposed amendment and, if the grantee finds it appropriate, modify the 
final amendment accordingly; and
    (5) Make the final amendment to the community development program 
available to the public before its submission to HUD.


Sec. 570.432  Repayment of section 108 loans.

    Notwithstanding any other provision of this subpart, a unit of 
general local government in a nonentitlement area where the State has 
not elected to administer the CDBG program shall be eligible for Small 
Cities Grant assistance hereunder for the sole purpose of paying any 
amounts due on debt obligations issued by such unit of general local 
government (or its designated public agency) and guaranteed by the 
Secretary pursuant to section 108 of the Act (see subpart M of this 
part). The award of grant assistance for such purpose shall be 
consistent with section 106(d)(3)(B) of the Act, in such amount, and 
subject to such conditions as the Secretary may determine. Since 
guaranteed loan funds (as defined in Sec. 570.701) are required to be 
used in accordance with national and primary objective requirements, 
and other applicable requirements of this part, any grant made to make 
payments on the debt obligations evidencing the guaranteed loan shall 
be presumed to meet such requirements, unless HUD determines that the 
guaranteed loan funds were not used in accordance with such 
requirements. Any such determination by HUD shall not prevent the 
making of the grant in amount of the payment due, but it may be grounds 
for HUD to take appropriate action under subpart O based on the 
original noncompliance.
    3. In 24 CFR part 570, subpart I, a new Sec. 570.497 would be added 
to read as follows:


Sec. 570.497  Condition of State election to administer State CDBG 
Program.

    Pursuant to section 106(d)(2)(A)(i) of the Act, a State has the 
right to elect, in such manner and at such time as the Secretary may 
prescribe, to administer funds allocated under subpart A of this part 
for use in nonentitlement areas of the State. After [insert effective 
date of final rule], any State which elects to administer the 
allocation of CDBG funds for use in nonentitlement areas of the State 
in any year must, in addition to all other requirements of this 
subpart, submit a pledge by the State in accordance with section 
108(d)(2) of the Act, and in a form acceptable to HUD, of any future 
CDBG grants it may receive under subpart A and this subpart. Such 
pledge shall be for the purpose of assuring repayment of any debt 
obligations (as defined in Sec. 570.701 of this part), in accordance 
with their terms, that HUD may have guaranteed in the respective State 
on behalf of any nonentitlement public entity (as defined in 
Sec. 570.701) or its designated public agency prior to the State's 
election.
    4. In Sec. 570.507, paragraph (a)(2)(ii)(A) would be revised to 
read as follows:


Sec. 570.507  Reports.

    (a) * * *
    (2) * * *
    (ii) * * *
    (A) The first report on a small cities grant should be submitted no 
later than fifteen working days after September 30 for all grants 
executed prior to April 1 of the same calendar year. The first report 
should cover the period from the execution of the grant until September 
30. Reports on grants made after March 31 of a calendar year will be 
due fifteen working days after September 30 of the following calendar 
year and the reports will cover the period of time from the execution 
of the grant until September 30 of the calendar year following grant 
execution. After the initial submission, the performance and evaluation 
report will be submitted annually on the fifteenth working day after 
September 30 until completion of the activities funded under the grant; 
and
* * * * *
    5. In 24 part 570, subpart M, consisting of Secs. 570.700 through 
570.710, would be revised in its entirety, to read as follows:

Subpart M--Loan Guarantees

Sec.
570.700  Purpose.
570.701  Definitions.
570.702  Eligible applicants.
570.703  Eligible activities.
570.704  Application requirements.
570.705  Loan requirements.
570.706  Federal guarantee; subrogation.
570.707  Applicability of rules and regulations.
570.708  Sanctions.
570.709  Allocation of loan guarantee assistance.
570.710  State responsibilities.


Sec. 570.700  Purpose.

    This subpart contains requirements governing the guarantee under 
section 108 of the Act of debt obligations as defined in Sec. 570.701.


Sec. 570.701  Definitions.

    Borrower means the public entity or its designated public agency 
that issues debt obligations under this subpart.
    Debt obligation means a promissory note or other obligation issued 
by a public entity or its designated public agency and guaranteed by 
HUD under this subpart, or a trust certificate or other obligation 
offered by HUD or any other offeror approved for purpose of this 
subpart by HUD which is guaranteed by HUD under this subpart and is 
based on and backed by a trust or pool composed of notes or other 
obligations issued by public entities or their designated public 
agencies and guaranteed or eligible for guarantee by HUD under this 
subpart.
    Designated public agency means a public agency designated by a 
public entity to issue debt obligations as borrower under this subpart.
    Entitlement public entity means a metropolitan city or an urban 
county receiving a grant under subpart D of this part.
    Guaranteed loan funds means the proceeds payable to the borrower 
from the issuance of debt obligations under this subpart.
    Nonentitlement public entity means any unit of general local 
government in a nonentitlement area.
    Public entity means any unit of general local government, including 
units of general local government in a nonentitlement area.
    State-assisted public entity means a unit of general local 
government in a nonentitlement area which is assisted by a State as 
required in Sec. 570.704(b)(9) and Sec. 570.705(b)(2).


Sec. 570.702  Eligible applicants.

    The following public entities may apply for loan guarantee 
assistance under this subpart.
    (a) Entitlement public entities.
    (b) Nonentitlement public entities that are assisted in the 
submission of applications by States that administer the CDBG program 
(under subpart I of this part). Such assistance shall consist, at a 
minimum, of the certifications required under Sec. 570.704(b)(9) (and 
actions pursuant thereto).
    (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 Secs. 570.488 (b) or (c) or 
570.606 (b) or (c); or
    (2) Determined by the public entity to be appropriate under the 
provisions of Secs. 570.488(d) or 570.606(d).
    (e) Clearance, demolition and removal, including movement of 
structures to other sites, of buildings and improvements on real 
property acquired or rehabilitated pursuant to paragraphs (a) and (b) 
of this section.
    (f) Site preparation, including construction, reconstruction, or 
installation of public and other site improvements, utilities, or 
facilities (other than buildings), which is:
    (1) Related to the redevelopment or use of the real property 
acquired or rehabilitated pursuant to paragraphs (a) and (b) of this 
section, or
    (2) For an economic development purpose.
    (g) Payment of issuance, underwriting, servicing, and other costs 
associated with private sector financing of debt obligations under this 
subpart.
    (h) Housing rehabilitation eligible under Sec. 570.202.
    (i) The following economic development activities:
    (1) Activities eligible under Sec. 570.203; and
    (2) Community economic development projects eligible under 
Sec. 570.204.
    (j) Construction of housing by nonprofit organizations for 
homeownership under section 17(d) of the United States Housing Act of 
1937 (Housing Development Grants Program, 24 CFR part 850) or title VI 
of the Housing and Community Development Act of 1987 (Nehemiah Housing 
Opportunity Grants Program, 24 CFR part 280).
    (k) A debt service reserve to be used in accordance with 
requirements specified in the contract entered into pursuant to 
Sec. 570.705(b)(1).
    (l) Acquisition, construction, reconstruction, rehabilitation, or 
installation of public facilities (except for buildings for the general 
conduct of government).
    (m) In the case of applications by public entities which are, or 
which contain, ``colonias'' as defined in section 916 of the Cranston-
Gonzalez National Affordable Housing Act (42 U.S.C. 5306 note), as 
amended by section 810 of the Housing and Community Development Act of 
1992), acquisition, construction, reconstruction, rehabilitation or 
installation of public works and site or other improvements which serve 
the colonia.


Sec. 570.704  Application requirements.

    (a) Presubmission and citizen participation requirements.
    (1) Before submission of an application for loan guarantee 
assistance to HUD, the public entity must:
    (i) Develop a proposed application that includes the following 
items:
    (A) The community development objectives the public entity proposes 
to pursue with the guaranteed loan funds.
    (B) The activities the public entity proposes to carry out with the 
guaranteed loan funds. Each activity must be described in sufficient 
detail, including the specific provision of Sec. 570.703 under which it 
is eligible and the national objective to be met, amount of guaranteed 
loan funds expected to be used, and location, to allow citizens to 
determine the degree to which they will be affected. The proposed 
application must indicate which activities are expected to generate 
program income. The application must also describe where citizens may 
obtain additional information about proposed activities.
    (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 (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 action authorizing the person 
identified as the official representative of the public entity to 
submit the application and amendments thereto and all understandings 
and assurances contained therein, and directing and authorizing the 
person identified as the official representative of the public entity 
to act in connection with the application to provide such additional 
information as may be required.
    (iii) Before submission of its application to HUD, the public 
entity has:
    (A) Furnished citizens with information required by 
Sec. 570.704(a)(2)(i);
    (B) Held at least one public hearing to obtain the views of 
citizens on community development and housing needs; and
    (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. 3601-20).
    (vi) (A) (For entitlement public entities only.) In the aggregate, 
at least 70 percent of all CDBG funds, as defined at Sec. 570.3, to be 
expended during the one, two, or three consecutive years specified by 
the public entity for its CDBG program will be for activities which 
benefit low and moderate income persons, as described in criteria at 
Sec. 570.208(a).
    (B) (For nonentitlement public entities eligible under subpart F of 
this part only) It will comply with national objectives requirements, 
as applicable under subpart F of this part.
    (vii) It will comply with the requirements governing displacement, 
relocation, real property acquisition, and the replacement of low and 
moderate income housing described in Sec. 570.488 or Sec. 570.606.
    (viii) It will comply with the requirements of Sec. 570.200(c)(2) 
with regard to the use of special assessments to recover the capital 
costs of activities assisted with guaranteed loan funds.
    (ix) (Where applicable, the public entity may also include the 
following additional certification.) It lacks sufficient resources from 
funds provided under this subpart or program income to allow it to 
comply with the provisions of Sec. 570.200(c)(2), and it must therefore 
assess properties owned and occupied by moderate income persons, to 
recover the guaranteed loan funded portion of the capital cost without 
paying such assessments in their behalf from guaranteed loan funds.
    (x) It will comply with the other provisions of the Act and with 
other applicable laws.
    (9) In the case of an application submitted by a State-assisted 
public entity, certifications by the State that:
    (i) It agrees to make the pledge of grants required under 
Sec. 570.705(b)(2).
    (ii) It possesses the legal authority to make such pledge.
    (iii) At least 70 percent of the aggregate use of CDBG grant funds 
received by the State, guaranteed loan funds, and program income during 
the one, two, or three consecutive years specified by the State for its 
CDBG program will be for activities that benefit low and moderate 
income persons.
    (iv) It agrees to assume the responsibilities described in 
Sec. 570.710.
    (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 the requirements authorized by 
Sec. 570.705 (b), (d), (g) and (h) for securing and issuing debt 
obligations, the conditions for release of funds described in paragraph 
(d) of this section, and such other conditions as HUD may specify in 
the commitment documents in a particular case.
    (5) Amendments. If the public entity wishes to carry out an 
activity not previously described in its application or to 
substantially change the purpose, scope, location, or beneficiaries of 
an activity, the amendment must be approved by HUD. Amendments by 
State-assisted public entities must also be approved by the State. The 
public entity shall follow the citizen participation requirements for 
amendments in Sec. 570.704(a)(2).
    (d) Environmental review. The public entity shall comply with HUD 
environmental review procedures (24 CFR part 58) for the release of 
funds for each project carried out with loan guarantee assistance. 
These procedures set forth the regulations, policies, responsibilities 
and procedures governing the carrying out of environmental review 
responsibilities of public entities. All public entities, including 
nonentitlement public entities, shall submit the request for release of 
funds and related certification for each project to be assisted with 
guaranteed loan funds to the appropriate HUD Field Office.
    (e) Displacement, relocation, acquisition, and replacement of 
housing. The public entity (or the designated public agency) shall 
comply with the displacement, relocation, acquisition and replacement 
of low/moderate-income housing requirements in Secs. 570.488 or 570.606 
in connection with any activity financed in whole or in part with 
guaranteed loan funds.


Sec. 570.705  Loan requirements.

    (a) Limitations on commitments. (1) If loan guarantee commitments 
have been issued in any fiscal year in an aggregate amount equal to 50 
percent of the amount approved in an appropriation act for that fiscal 
year, HUD may limit the amount of commitments any one public entity may 
receive during such fiscal year as follows (except that HUD will not 
decrease commitments already issued):
    (i) The amount any one entitlement public entity may receive may be 
limited to $35,000,000.
    (ii) The amount any one nonentitlement public entity may receive 
may be limited to $7,000,000.
    (iii) The amount any one public entity may receive may be limited 
to such amount as is necessary to allow HUD to give priority to 
applications containing activities to be carried out in areas 
designated as empowerment zones/enterprise communities by the Federal 
Government or by any State.
    (2) In addition to the limitations specified in paragraph (a)(1) of 
this section, the following limitations shall apply.
    (i) Entitlement public entities. No commitment to guarantee shall 
be made if the total unpaid balance of debt obligations guaranteed 
under this subpart (excluding any amount defeased under the contract 
entered into under Sec. 570.705(b)(1)) on behalf of the public entity 
would thereby exceed an amount equal to five times the amount of the 
most recent grant made pursuant to Sec. 570.304 to the public entity.
    (ii) State-assisted public entities. No commitment to guarantee 
shall be made if the total unpaid balance of debt obligations 
guaranteed under this subpart (excluding any amount defeased under the 
contract entered into under Sec. 570.705(b)(1)) on behalf of the public 
entity and all other State-assisted public entities in the State would 
thereby exceed an amount equal to five times the amount of the most 
recent grant received by such State under subpart I.
    (iii) Nonentitlement public entities eligible under subpart F of 
this part. No commitment to guarantee shall be made with respect to a 
nonentitlement public entity in the State of Hawaii if the total unpaid 
balance of debt obligations guaranteed under this subpart (excluding 
any amount defeased under the contract entered into under 
Sec. 570.705(b)(1)) on behalf of the public entity would thereby exceed 
an amount equal to five times the amount of the most recent grant made 
pursuant to Sec. 570.429 to the public entity. No commitment to 
guarantee shall be made with respect to a nonentitlement public entity 
in the State of New York if the total unpaid balance of debt 
obligations guaranteed under this subpart (excluding any amount 
defeased under the contract entered into under Sec. 570.705(b)(1)) on 
behalf of the public entity would thereby exceed the greater of five 
times:
    (A) The most recent grant approved for the public entity pursuant 
to subpart F of this part,
    (B) The average of the most recent three grants approved for the 
public entity pursuant subpart F of this part, excluding any grant in 
the same fiscal year as the commitment, or
    (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/or designated public agency, as 
applicable) shall:
    (1) Enter into a contract for loan guarantee assistance with HUD, 
in a form acceptable to HUD, including provisions for repayment of debt 
obligations guaranteed hereunder;
    (2) Pledge all grants made or for which the public entity or State 
may become eligible under this part; and
    (3) Furnish, at the discretion of HUD, such other security as may 
be deemed appropriate by HUD in making such guarantees. Other security 
shall be required for all loans with repayment periods of ten years or 
longer. Such other security shall be specified in the contract entered 
into pursuant to Sec. 570.705(b)(1). Examples of other security HUD may 
require are:
    (i) Program income as defined in Sec. 570.500(a);
    (ii) Liens on real and personal property;
    (iii) Debt service reserves; and
    (iv) Increments in local tax receipts generated by activities 
carried out with the guaranteed loan funds.
    (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)(1) of this section.
    (d) Debt obligations. Debt obligations guaranteed under this 
subpart shall be in the form and denominations prescribed by HUD. Such 
debt obligations may be issued and sold only under such terms and 
conditions as may be prescribed by HUD. HUD may prescribe the terms and 
conditions of debt obligations, or of their issuance and sale, by 
regulation or by contractual arrangements authorized by section 
108(r)(4) of the Act and paragraph (h) of this section. Unless 
specifically provided otherwise in the contract for loan guarantee 
assistance required under paragraph (b) of this section, debt 
obligations shall not constitute general obligations of any public 
entity or State secured by its full faith and credit.
    (e) Taxable obligations. Interest earned on debt obligations under 
this subpart shall be subject to Federal taxation as provided in 
section 108(j) of the Act.
    (f) Loan repayment period. The term of debt obligations under this 
subpart shall not exceed twenty years.
    (g) Issuance, underwriting, servicing, and other costs. Each public 
entity or its designated public agency issuing debt obligations under 
this subpart must pay the issuance, underwriting, servicing, and other 
costs associated with the private sector financing of the debt 
obligations. Such costs are payable out of the guaranteed loan funds.
    (h) Contracting with respect to issuance and sale of debt 
obligations; effect of other laws. No State or local law, and no 
Federal law, shall preclude or limit HUD's exercise of:
    (1) The power to contract with respect to public offerings and 
other sales of debt obligations under this subpart upon such terms and 
conditions as HUD deems appropriate;
    (2) The right to enforce any such contract by any means deemed 
appropriate by HUD;
    (3) Any ownership rights of HUD, as applicable, in debt obligations 
under this subpart.


Sec. 570.706  Federal guarantee; subrogation.

    The full faith and credit of the United States is pledged to the 
payment of all guarantees made under this subpart. Any such guarantee 
made by HUD shall be conclusive evidence of the eligibility of the debt 
obligations for such guarantee with respect to principal and interest, 
and the validity of such guarantee so made shall be incontestable in 
the hands of a holder of the guaranteed debt obligations. If HUD pays a 
claim under a guarantee made under section 108 of the Act, HUD shall be 
fully subrogated for all the rights of the holder of the guaranteed 
debt obligation with respect to such obligation.


Sec. 570.707  Applicability of rules and regulations.

    (a) Entitlement public entities. The provisions of subparts A, C, 
J, K and O of this part applicable to entitlement grants shall apply 
equally to guaranteed loan funds and other CDBG funds, except to the 
extent they are specifically modified or augmented by the provisions of 
this subpart.
    (b) State-assisted public entities. The provisions of subpart I of 
this part, and the requirements the State imposes on units of general 
local government receiving Community Development Block Grants or 
program income to the extent applicable, shall apply equally to 
guaranteed loan funds and Community Development Block Grants (including 
program income derived therefrom) administered by the State under the 
CDBG program, except to the extent they are specifically modified or 
augmented by the provisions of this subpart.
    (c) Nonentitlement public entities eligible under subpart F. 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 Secs. 570.495 or 
570.496. In addition, upon a finding by HUD that the State or public 
entity has failed to comply substantially with any provision of the Act 
with respect to the pledged CDBG nonentitlement funds, the guaranteed 
loan funds, or program income, HUD may take action against the pledged 
funds as provided in Sec. 570.496 and/or may take action as provided in 
the contract.


Sec. 570.709  Allocation of loan guarantee assistance.

    Of the amount approved in any appropriation act for guarantees 
under this subpart in any fiscal year, 70 percent shall be allocated 
for entitlement public entities and 30 percent shall be allocated for 
nonentitlement public entities. HUD need not comply with these 
percentage requirements in any fiscal year to the extent that there is 
an absence of applications approvable under this subpart from 
entitlement or nonentitlement public entities.


Sec. 570.710  State responsibilities.

    The State is responsible for choosing public entities that it will 
assist under this subpart. States are free to develop procedures and 
requirements for determining which activities will be assisted, subject 
to the requirements of this subpart. Upon approval by HUD of an 
application from a State-assisted public entity, the State will be 
principally responsible, subject to HUD oversight under subpart I of 
this part, for ensuring that the public entity complies with all 
applicable requirements governing the use of the guaranteed loan funds. 
Notwithstanding the State's responsibilities described above, HUD may 
take any action necessary for ensuring compliance with requirements 
affecting the security interests of HUD with respect to the guaranteed 
loan.

    Dated: September 12, 1994.
Andrew Cuomo,
Assistant Secretary for Community Planning and Development.
[FR Doc. 94-22798 Filed 9-14-94; 8:45 am]
BILLING CODE 4210-29-P