[Federal Register Volume 59, Number 247 (Tuesday, December 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31663]


[[Page Unknown]]

[Federal Register: December 27, 1994]


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Part II





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; Final Rule
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-F-03]
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: Final rule.

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

EFFECTIVE DATE: January 26, 1995.

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

SUPPLEMENTARY INFORMATION:

I. Background--September 15, 1994 Proposed Rule

    On September 15, 1994 (59 FR 47500), HUD published a proposed rule 
that would amend HUD's regulations in 24 CFR part 570, subpart F, which 
govern the administration of the Community Development Block Grant 
(CDBG) Small Cities Program. The proposed rule provided for a 30-day 
public comment period. By the end of the comment period on October 17, 
1994, 21 comments had been received. The 21 commenters consisted of 11 
units of general local government (7 New York, 3 Hawaii, 1 Arizona), 5 
consultants, and 5 public and private non-profits. These commenters 
made approximately 75 different comments about the September 15, 1994 
proposed rule; many of these comments were made by more than one 
commenter. Section II of this preamble describes the changes made to 
the proposed rule at the final rule stage, and Section III of the 
preamble sets forth the issues and questions raised by the public 
commenters, and HUD's responses to these issues and questions.

II. Principal Differences Between Proposed Rule and Final Rule

    This final rule is substantially the same as the September 15, 1994 
proposed rule. The principal differences are as follows:

1. Multiyear Plans

    The final rule provides that HUD may issue notices of funding 
availability that provide for a competition for applications that have 
multiyear plans (see Sec. 570.421(a)(2)).

2. Economic Development Grants

    The final rule also provides that HUD intends to use the section 
108 loan guarantee program to the maximum extent feasible to fund 
economic development projects in the nonentitlement areas of New York 
State (see Sec. 570.421(a)(5)).

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

    The final rule provides criteria under which counties may apply on 
behalf of units of general local government located within their 
jurisdiction when the unit of general local government has authorized 
the county to apply.

4. Pre-Agreement Costs

    The final rule provides that HUD authorizes a unit of general local 
government to incur costs during the same or the prior Federal Fiscal 
Year for preparation of a CDBG grant application, planning costs 
eligible under Sec. 570.205, environmental assessments, and project 
engineering and design costs for eligible activities under 
Sec. 570.201-204 before the establishment of a formal grant 
relationship between the applicant and HUD. Such costs for the funded 
activities may be charged to the grant should it be funded, provided 
that the activities are undertaken in accordance with the requirements 
of subpart F (see Sec. 570.425(a)(3)). This includes compliance with 
selection of contractors under 24 CFR 85.36 if, for example, a 
contractor prepares the application or plans and specifications.

5. HUD Action on Final Application

    The final rule adds two new paragraphs to Sec. 570.425(b). 
Paragraph (b)(3) provides that HUD will not make a Small Cities grant 
when it is determined that the grant will only have a minimal or 
insignificant impact on the grantee. Paragraph (b)(4) provides that in 
determining appropriate grant amounts to be awarded, HUD may take into 
account the size of the applicant, the level of demand, the scale of 
the activity proposed relative to need and operational capacity, among 
others. (See Sec. 570.425(b) (3) and (4).)

6. Streamlined Application Requirements for Previous Applicants

    The final rule adds a new paragraph (c) to Sec. 570.425 to provide 
for streamlined application requirements for previous applicants. (See 
Sec. 570.425(c).)

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

    The final rule adds a new paragraph to Sec. 570.431(c) to explain 
what is meant by publication of the proposed application. (See 
Sec. 570.431(c)(4).)

8. Hawaii Grantee Amendments

    The final rule clarifies the procedures that Hawaii grantees must 
follow in making amendments to final applications. (See 
Sec. 570.431(f).)

9. Report Submission Date.

    The final rule extends the deadline for New York Grantees to submit 
their performance and evaluation report on the small cities grant to 
October 31 (see Sec. 570.507(a)(2)(ii)(A)) and sets forth the date 
Hawaii grantees must submit their performance and evaluation report 
(see Sec. 570.507(a)(2)(ii)(B).)

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

    This section sets forth the issues and comments made by the public 
commenters on the September 15, 1994 proposed rule, and HUD's responses 
to these issues and questions.

A. General Comments

Comments Concerning NOFA for Small Cities Program
    There were several comments that the application time period to 
respond to the Small Cities NOFA should be more than 60 days. The final 
rule will not establish the application time period for the Small 
Cities NOFA. The request for a longer application time period was taken 
into consideration in development of the Federal Fiscal Year (FY) 1995 
NOFA.
    Ten commenters commented on the number of funding competitions that 
should be held for the Small Cities Program during each fiscal year. 
Since the optimum number of competitive rounds will vary according to 
circumstances, the Small Cities NOFA will state the number of 
competitions that will be held in the time period that is covered by 
the NOFA.
    Four commenters stated that the issue date for the NOFA and the due 
date of competitive applications should be established by regulation. 
To retain maximum flexibility to address changing conditions, the 
Department has decided that these dates should not be established by 
regulation.
    Five commenters submitted comments on the maximum grant limits. In 
order to retain flexibility due to changing conditions such as 
inflation, the Small Cities NOFA, rather than the rule, will address 
the issue of grant limits.
    One commenter requested that the Department establish a set amount 
of funding for each funding round. Although the Department agrees with 
this comment, the NOFA rather than the rule is a better vehicle to 
address this issue.
    One commenter said that if it was necessary to expand the 
competition beyond housing, public facilities, and economic 
development, the final rule should so state this. Since it is 
impossible to foresee the types of competition that might benefit small 
jurisdictions in the State of New York in the future, the rule provides 
in Sec. 570.421(a)(1) that there will be competitive applications.
    Three commenters commented on the application page limits. Again, 
this is an issue that will be addressed in the NOFA to retain 
flexibility to adjust page limit requirements. The Department 
acknowledges that reducing the size of grant applications will reduce 
paperwork which is a goal shared by the majority of participants at the 
meetings held in the State of New York to discuss the proposed 
regulation.
    A few commenters requested that the Small Cities NOFA remain as 
constant as possible from year to year. The Department intends to do 
this to the extent possible.
    One commenter asked that the Department provide technical 
assistance after the issuance of the NOFA. Although this matter is not 
one that should be addressed in the final rule, the Department intends 
to provide the maximum amount of technical assistance that is permitted 
under section 103 of the Department of Housing and Urban Development 
Reform Act.
    Another commenter requested that the Department provide an even 
playing field for small communities. In the history of the program, 
small communities have been successful in obtaining grants, and the 
Department sees no need to change the final rule in this regard.
Involvement in the Rulemaking Process
    Another commenter requested that people with rural backgrounds be 
involved in the rulemaking process. This was accomplished by two highly 
publicized meetings with that were held in Auburn and Goshen, New York 
as well as having the Assistant Secretary for Community Planning and 
Development write to each eligible unit of general local government 
individually, asking for their comments in helping to shape the final 
rule and NOFA.
Administration of Small Cities Program by the State of New York
    Two commenters stated that the Small Cities Program should not be 
given to New York State to administer. Section 106 (d)(2) of Title I, 
gives States the right to elect to administer the State CDBG Program. 
The Department cannot administratively amend this provision.
Single Audit and Davis-Bacon Requirements
    Commenters asked that the Single Audit and Davis-Bacon Acts be made 
inapplicable to the Small Cities Program. To adopt this comment would 
require a statutory change.
Rehabilitation
    Three commenters asked that the non-targeted rehabilitation program 
be continued. Although this issue is too specific to be addressed by 
the regulations, there is nothing in the Small Cities regulations that 
would preclude a grantee from initiating a non-targeted rehabilitation 
program. A request was made by one commenter to fund more HUD staff 
travel. Although the Department is sensitive to the need of HUD Field 
staff to travel to small cities in New York, the travel budget is 
determined by annual appropriations and is not an appropriate issue to 
be addressed by the final regulation.
    One commenter stated that funds should be allowed to be used to 
rehabilitate pre-1976 mobile homes. While the Department is unclear as 
to the commenters' reference to pre-1976 mobile homes, manufactured 
housing can be rehabilitated in accordance with Sec. 570.202(a)(4), 
since the State of New York recognizes manufactured housing as real 
property.
    One commenter stated that senior citizens on fixed income should be 
able to get rehabilitation grants. The major purpose of the CDBG 
program is to benefit low- and moderate-income persons. Senior citizens 
who are of low- and moderate-income are eligible to receive housing 
rehabilitation grants. Senior citizens who have higher incomes cannot 
receive grants unless the activity is to aid in the prevention or 
elimination of slums or blight. Title I does not give higher income 
senior citizens preference over low- and moderate-income non senior 
citizens.
Household Incomes
    One commenter asked that households with incomes between 80-100 
percent of median be eligible to receive rehabilitation assistance in 
non-targeted areas. The Department notes that this can be done under 
Sec. 570.208(b)(2) as long as the rehabilitation is limited to the 
extent necessary to eliminate specific conditions detrimental to public 
health and safety.
Multiyear Plans
    One commenter said that community facilities should not be funded 
on a multiyear basis, but should be funded through a large grant of up 
to $900,000. The Department decided not to restrict community 
facilities from being part of multiyear plan projects. However, to the 
extent a project consisting, for example, of one large building cannot 
logically be subdivided into segments that are viable as separate 
grants, the project would have to be funded from a single year's grant 
funds under Sec. 570.421(a)(1). Larger public facilities projects, 
however, can now be funded with Section 108 loan guarantee assistance 
under Sec. 570.703(l).
    One commenter said that the first year of the multiyear plan should 
be fifteen months, and another commenter indicated that there should be 
a site visit 9-10 months into the multiyear plan. These comments are 
operational in nature and not appropriate to be addressed by the final 
rule.
Priority for EZs/ECs
    One commenter stated that Empowerment Zones (EZ) and Enterprise 
Communities (EC) should not receive a priority in the final regulation. 
The Department agrees that the final regulation is an inappropriate 
place to show support for the EZ/EC program and can more appropriately 
lend its support in the NOFA.
Public Hearings
    A commenter stated that public hearings should be able to be 
combined with hearings for other purposes. The Department agrees, and 
notes that this is the Department's policy, and therefore, need not be 
stated specifically in the final rule.
Abbreviated Consolidated Plan
    Several commenters requested that the abbreviated Consolidated Plan 
requirements be made as simple as possible. It is the Department's 
intention to do this, but the NOFA is a more appropriate vehicle for 
doing this since the abbreviated Consolidated Plan may need to be 
changed based on ongoing experience in program administration. At this 
time the abbreviated Consolidated Plan is not yet required. (The FY 
1995 NOFA requires an abbreviated CHAS if the application contains 
housing activities.) After the Consolidated Plan final rule is 
published, succeeding NOFAs will explain the requirements. The final 
rule for the Consolidated Plan will make conforming changes to this 
regulation. The final rule will not apply to applications under the FY 
1995 NOFA for the State of New York.

B. Specific Comments on Rule Sections

Section 570.420  General
    Five commenters call for the abbreviated CHAS requirement to be 
eliminated. Section 570.420(d) requires that there be a certification 
in the Small Cities application that housing activities proposed to be 
funded by the Small Cities Program must be consistent with the 
applicant's abbreviated CHAS. This is required by 24 CFR part 91 and 
Section 105(b) of the National Affordable Housing Act.
    One commenter wanted to lower the requirement that 70 percent of 
the grant funds must be used to benefit low-and moderate-income persons 
to 51 percent. The Department believes that the commenter 
misunderstands the requirement. Under Sec. 570.208(a)(1), if at least 
51 percent of the residents of an area are low- and moderate-income 
persons, an activity that benefits that area is considered to benefit 
low- and moderate-income persons. Section 570.200(a)(3)(v) provides 
that area benefit activities are to count as benefitting low- and 
moderate-income persons 100 percent. Accordingly, if a water project is 
funded for $300,000, which benefits an area that is 57 percent low-and 
moderate-income, the entire $300,000 is considered to be benefitting 
low- and moderate-income persons.
    Three commenters said that the regulations should clearly state 
that Sec. 570.200(a)(3)(iii) applies, and that grantees should not 
include Section 108 loan repayments in the calculations for meeting the 
objective that not less than 70 percent of the total of grant funds 
from each grant and Section 108 loan guarantee funds received under 24 
CFR part 570, subpart M, within a fiscal year, must be expended for 
activities that benefit low-and moderate-income persons. The Department 
agrees and paragraph (e)(2) was revised to incorporate this change.
    Eight commenters protested the elimination of the rating and 
ranking scoring factors from the regulations. As a result of these 
comments, Sec. 570.421(a) has been added to the final rule to describe 
the selection system.
    There were multiple comments recommending that the Department 
establish an Economic Development set-aside with an open window, so 
that economic development applications could be submitted at any time 
during the year. Commenters also suggested that Section 108 loan 
guarantees be used to fund economic development projects to the 
greatest extent possible. These comments are addressed in 
Sec. 570.421(a)(5), which provides that the Department will use the 
Section 108 loan guarantee program to the greatest extent possible to 
fund Economic Development projects, and that the Department will fund 
Economic Development applications as they are determined to be fundable 
in a specific amount by HUD. All Economic Development projects that are 
funded with Small Cities funds must have a substantial impact on the 
needs identified by the applicants.
    One commenter stated that only housing and public facilities 
applications should be funded during the competitive funding cycles. 
Under the new Sec. 570.421(a) (``Selection system''), both competitive 
applications and the first year of multiyear plans will be funded on a 
competitive basis with the NOFA indicating how that competition will be 
held. Since ``Economic Development'' and ``Imminent Threat'' projects 
funded on a non-competitive basis, the competition will essentially 
include housing, public facilities, and comprehensive applications.
    One commenter suggested that the division between comprehensive 
projects and single purpose projects be retained with an eye towards 
evening the chances of obtaining funding from both types of projects. 
Another commenter requested that funding be continued for comprehensive 
grants. The nomenclature of single purpose and comprehensive projects 
has been removed from the final rule, but the Department may elect to 
retain and define such categories in a NOFA. Under the final rule, 
there will be competitions for competitive applications and multiyear 
plans with the funding divided between the categories fine-tuned by a 
NOFA that will be issued each year. The former single purpose projects 
will be eligible for funding as competitive applications. The former 
comprehensive projects may be funded as either competitive applications 
or as multiyear grants.
    One commenter requested that the Department allow counties to apply 
on behalf of municipalities. This suggestion was incorporated into the 
final rule at 24 CFR 570.421(c)(3). Another commenter suggested that 
the Department encourage county-wide applications. County-wide 
applications are eligible for funding and will receive the same 
consideration as all other applications for Small Cities funding.
    Six commenters requested that the Department allow multiyear 
funding for comprehensive grants. This comment was adopted in 
Sec. 570.421(a)(2) of the final rule, which will allow the Department 
to fund multiyear plans. After the first year of a multiyear plan is 
funded, the Department may fund future years on a non-competitive basis 
subject to acceptable performance, submission of an acceptable 
application and certifications, and the provision of adequate 
appropriations.
    One commenter stated that multiyear grantees should not receive 
other grants during the time period that the multiyear grant was 
ongoing. The Department decided that this issue is more appropriately 
addressed in the NOFA rather than the rule.
    Another commenter suggested that consideration be given to female 
and disabled heads of household in giving fair housing points and 
contracts given to female-owned businesses should be taken into account 
in reporting minority business enterprise achievements. In order to 
retain flexibility to address changing priorities, the Department 
decided that the makeup of the fair housing and equal opportunity 
points will be disseminated in the NOFA rather than the regulations.
Section 570.424  Grants for Imminent Threats to Public Health and 
Safety
    Three commenters wanted the imminent threat set-aside retained in 
the final rule, and one commenter wanted it deleted. The Department 
decided to retain the imminent threat set-aside to give the Department 
the flexibility to respond immediately to threats to health and safety 
such as flood damage from hurricanes.
Section 570.425
HUD Review and Actions on Applications for New York State Applicants
    One commenter said that if there was more than one funding round in 
a fiscal year, an unsuccessful application should be able to be 
resubmitted in the next round. The Department agrees and paragraph (c) 
was added to Sec. 570.425 which authorizes HUD to provide in a NOFA 
that unsuccessful applications will be automatically held over for the 
succeeding rounds of competition if the applicant so requests in 
writing. The applicant will have the option of amending or withdrawing 
its application. For FY 1995, applications not funded in FY 1994 will 
automatically be reconsidered under the FY 1995 NOFA unless the 
applicant notifies HUD otherwise.
    Another commenter indicated that HUD should ensure that 
applications are funded for the least amount of funds necessary to 
implement the proposed activities. As a result of this comment, 
paragraph (b)(4) was added to Sec. 570.425 of the final rule. This 
paragraph gives the Department the right to take into account the size 
of the applicant, the level of demand, the scale of the activity 
proposed relative to need and operational capacity, the number of 
persons to be served, the amount of funds required to achieve project 
objectives and the administrative capacity of the applicant to complete 
the activities in a timely manner in determining the appropriate grant 
amount to award.
    To respond to a commenter's request to even the playing field for 
smaller communities, the Department has revised Sec. 570.425(a)(3) in 
the final rule to allow units of general local government to incur 
costs for certain CDBG grant activities before the establishment of a 
formal grant relationship and charge the pre-agreement costs to the 
grant, should it be funded. This includes the cost of application 
preparation, but does not create an obligation on part of the 
Department to fund the application.
Section 570.426  Program Income
    One commenter wrote favorably of Sec. 570.426(c) which provides 
that if a unit of general local government has no open CDBG grant at 
the time of closeout, program income of less than $25,000 per year 
after closeout will not be considered program income, and will not be 
subject to the requirements of this part. This provision has been 
retained in the final regulation.
Section 570.429  Hawaii General and Grant Requirements
    Three counties in the State of Hawaii commented that they did not 
want the method of distribution of Hawaii Small Cities funds to be 
changed by the issuance of a NOFA because that would impinge upon the 
ability of the Hawaii grantees to plan for future use of Small Cities 
funds. The Department agrees with this comment, and all references to a 
NOFA for the Hawaii Small Cities program were removed from 
Sec. 570.429.
    Two commenters from the State of Hawaii thought that paragraph 
(d)(1) of Sec. 570.429 should be revised to better define ``capacity to 
utilize the grant amount effectively and efficiently''. This term was 
used in the previous regulation at Sec. 570.435(c)(1)(ii)(A), and does 
not need to be redefined.
    Two commenters from the State of Hawaii requested that Hawaii 
grantees follow the application submission requirements in 24 CFR part 
570, subpart D. Another commenter said that applications should be 
accepted and not approved. Section 570.429 has been revised to treat 
the Hawaii grantees as much like entitlement grantees as possible. 
Since the program is still discretionary under section 106(d) of Title 
I, the Department decided that applications should be required to be 
submitted and approved. Paragraph (g) of Sec. 570.429 indicates that 
the Department will approve the application unless it is shown that 
``one or more of the following requirements (relating to completeness, 
timeliness, certifications, and compliance with this part) have not 
been met''. This provision gives assurance to Hawaii grantees that 
applications that are complete, timely, contain the proper 
certifications, and which are otherwise in compliance with this part 
will be approved.
    Another commenter from the State of Hawaii asked that paragraph 
(d)(2) of Sec. 570.429 regarding timely expenditures only consider 
grants from FY 1995 onward. Since it is the policy of the Department to 
encourage timely expenditures, the Department decided that all 
outstanding grants should be used in calculating timely expenditures 
under Sec. 570.902(a). The Department notes that Kauai's disaster grant 
will not be considered in the calculations.
    The final rule on the Consolidated Plan, which will be published 
shortly, will change the application, citizen participation, approval 
and reporting requirements for the Hawaii grantees. These changes will 
be incorporated into subpart F at the time the final consolidated plan 
regulation is promulgated. In view of the probable timing of submission 
of applications by Hawaii grantees, it is anticipated that these rule 
changes will apply to FY 1995 applications by Hawaii grantees.
Section 570.430  Hawaii Program Operation Requirements
    One commenter stated that paragraph (a) of Sec. 570.430 should be 
clarified to indicate that grants received in FY 1995 and thereafter 
are grants made from FY 1995 allocations and thereafter, and that 
grants made prior to FY 1995 are grants from allocations prior to FY 
1995. This revision has been made in the final rule.
Section 570.431  Citizen Participation
    Four comments from the State of Hawaii concerned citizen 
participation requirements. One commenter requested that paragraph (e) 
of Sec. 570.431 be revised to indicate that the citizen participation 
requirements apply to the State of Hawaii, and two commenters requested 
that the entitlement citizen participation process be followed, and one 
commenter requested that the entitlement amendment process be followed 
by Hawaii grantees. The Department has decided to add a new paragraph 
(f) to Sec. 570.431 to clarify the requirements that Hawaii Small 
Cities grantees must follow. The citizen participation requirements are 
being included in the Small Cities final rule for clarity. It is noted 
that the citizen participation requirements for Hawaii grantees will be 
revised shortly, when the final rule on consolidated planning 
requirements is published.
Section 570.432  Repayment of Section 108 Loans
    Six commenters stated that Section 108 funds should not be used for 
the New York Small Cities Program because repayment will come from the 
total allocation of discretionary Small Cities funding for the State of 
New York. One commenter said that Section 108 funds must be backed by 
the community's own resources. In making non-entitled units of general 
local government in the State of New York eligible for the Section 108 
program, the Department intends to provide small communities with the 
opportunity to fund large economic development projects--projects that 
they would not ordinarily be able to fund. Since it is envisioned that 
a significant portion of economic development funding will come from 
the Section 108 loan guarantee fund rather than the HUD-administered 
Small Cities Program, there will be more Small Cities funds available 
to fund non-economic development projects, even if a small portion of 
funds are used under Sec. 570.432 to repay amounts due on Section 108 
loan obligations. All Section 108 loan obligations will be underwritten 
to ensure that only high quality projects are funded. In addition, the 
Department is considering instituting loan insurance pools to further 
ensure that the cost to the Small Cities Program will be minimized.
Section 570.507  Reports
    The Department agrees with the three commenters that indicated 
fifteen working days is insufficient time for New York grantees to 
submit a performance assessment report and has extended the period to 
31 calendar days in the final rule. (See Sec. 570.507(a)(2)(ii)(A).)
    Three commenters from the State of Hawaii requested that HUD 
consider a uniform period of activity for their Small Cities 
performance and evaluation report. The Department agrees and 
Sec. 570.507(a)(2)(ii)(B) provides for this.
Subpart M--Section 570.702 Eligible Applicants
    Two commenters requested that the Department make available the 
Section 108 Loan Guarantee Program to non-entitled units of local 
governments in the HUD-administered Small Cities Program. The 
Department agrees that the non-entitled communities in the States of 
New York and Hawaii should have available the use of Section 108 and 
Sec. 570.702(c) provides for this.

III. Other Matters

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made in accordance with HUD regulations at 24 CFR part 50, which 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969, at the time of the development of the proposed rule. Because no 
substantial programmatic changes have been made, that finding remains 
applicable to this final rule. The Finding of No Significant Impact is 
available for public inspection during regular business hours in the 
Office of the Rules Docket Clerk, Office of the General Counsel, 
Department of Housing and Urban Development, Room 10276, 451 Seventh 
Street, SW., Washington, DC 20410.

Impact on Small Entities

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

Federalism Impact

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

Family Impact

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

Regulatory Agenda

    This final rule was listed as sequence number 1834 in the 
Department's Semiannual Agenda of Regulations published on November 14, 
1994 (59 FR 57632, 57662) pursuant to Executive Order 12866 and the 
Regulatory Flexibility Act.

Catalogue of Federal Domestic Assistance

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

List of Subjects in 24 CFR Part 570

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

    Accordingly, 24 CFR part 570 is amended as follows:

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

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

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

    2. Subpart F is revised to read as follows:

Subpart F--Small Cities Program

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

Subpart F--Small Cities Program


Sec. 570.420  General.

    (a) HUD administration of nonentitlement CDBG funds. Title I of the 
Housing and Community Development Act of 1974 permits each State to 
elect to administer all aspects of the Community Development Block 
Grant (CDBG) Program annual fund allocation for the nonentitlement 
areas within its jurisdiction. This subpart sets forth policies and 
procedures applicable to grants for nonentitlement areas in States that 
have not elected to administer the CDBG Program. States that elected to 
administer the program after the close of fiscal year 1984 cannot 
return administration of the program to HUD. A decision by a State to 
discontinue administration of the program would result in the loss of 
CDBG funds for nonentitled areas in that State and the reallocation of 
those funds to all States in the succeeding fiscal year.
    (b) Scope and applicability. (1) This subpart describes the 
policies and procedures of the Small Cities Program which apply to 
nonentitlement areas in States where HUD administers the CDBG Program. 
HUD currently administers the Small Cities Program in only two States--
New York and Hawaii. This subpart principally addresses the 
requirements for New York, and Sec. 570.429-30 identifies special 
procedures applicable to Hawaii.
    (2) The allocation of formula CDBG funds for use in nonentitled 
areas of Hawaii and New York is as provided in subpart A of this part. 
The policies and procedures set forth in the following identified 
subparts of this part 570 apply to the HUD-administered Small Cities 
Program, except as modified or limited under the provisions thereof or 
this subpart:
    (i) Subpart A--General Provisions;
    (ii) Subpart C--Eligible Activities;
    (iii) Subpart J--Grant Administration;
    (iv) Subpart K--Other Program Requirements; and
    (v) Subpart O--Performance Reviews.
    (c) Public notification requirements. (1) Section 102 of the 
Department of Housing and Urban Development Reform Act of 1989 (42 
U.S.C. 3545) contains a number of provisions that are designed to 
ensure greater accountability and integrity in the provision of certain 
types of assistance administered by HUD. All competitive grants in the 
HUD-administered Small Cities Program in New York are affected by this 
legislation, and the requirements identified at 24 CFR part 12 apply to 
them. Imminent threat grants under Sec. 570.424 and section 108 
repayment grants under Sec. 570.432 are not affected by section 102 as 
they are not competitive grants.
    (2) The Hawaii HUD-administered Small Cities Program is not subject 
to section 102, since the funds are not distributed in a competitive 
manner.
    (d) Abbreviated CHAS. Applications for the HUD-administered Small 
Cities Program which contain housing activities must include a 
certification that the proposed housing activities are consistent with 
the applicant's Comprehensive Housing Affordability Strategy as 
described at 24 CFR part 91.
    (e) National and primary objectives. (1) Each activity funded 
through the Small Cities Program must meet one of the following 
national objectives as defined under the criteria in Sec. 570.208. Each 
activity must:
    (i) Benefit low- and moderate-income families;
    (ii) Aid in the prevention or elimination of slums or blight; or
    (iii) Be an activity which the grantee certifies is designed to 
meet other community development needs having a particular urgency 
because existing conditions pose a serious and immediate threat to the 
health or welfare of the community where other financial resources are 
not available to meet such needs.
    (2) In addition to the objectives described in paragraph (e)(1) of 
this section, with respect to grants made through the Small Cities 
Program, not less than 70 percent of the total of grant funds from each 
grant and Section 108 loan guarantee funds received under subpart M of 
this part within a fiscal year must be expended for activities which 
benefit low- and moderate-income persons under the criteria of 
Sec. 570.208(a). In the case of multiyear plans, in New York State, not 
less than 70 percent of the total funding for grants approved pursuant 
to a multiyear plan for a time period of up to 3 years must be expended 
for activities which benefit low- and moderate-income persons. Thus, 70 
percent of the grant for year 1 of a multiyear plan must meet the 70 
percent requirement, 70 percent of the combined grants from years 1 and 
2 must meet the requirement, and 70 percent of the combined grants from 
years 1, 2 and 3 must meet the requirement. In determining the 
percentage of funds expended for such activity, the provisions of 
Sec. 570.200(a)(3)(i), (iii), (iv) and (v) shall apply.

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


Sec. 570.421  New York Small Cities Program Design.

    (a) Selection system. (1) Competitive applications. Each 
competitive application will be rated and scored against the following 
factors:
    (i) Need-absolute number of persons in poverty as further explained 
in the NOFA;
    (ii) Need-percent of persons in poverty as further explained in the 
NOFA;
    (iii) Program Impact, and
    (iv) Fair Housing and Equal Opportunity which may include 
assessment of the applicant's Section 3 plan and implementation 
efforts. The NOFA described in paragraph (b) of this section will 
contain a more detailed description of these factors, and the relative 
weight that each factor will be given.
    (2) In addition HUD reserves the right to establish minimal 
thresholds for selection factors and otherwise select grants in 
accordance with Sec. 570.425 and the applicable NOFA.
    (3) Multiyear Plans. The notice of funding availability may provide 
for a competition for applications that have multiyear plans. The plans 
will be rated and scored against factors in paragraph (a)(1) (i) 
through (iv) of this section. The action plan for each year of the 
multiyear plan must be a viable project on its own. If the multiyear 
plan is selected on a competitive basis, the first year will be funded 
and HUD may fund future years on a non-competitive basis subject to 
acceptable performance, submission of an acceptable application and 
certifications, and the provision of adequate appropriations for the 
HUD-administered Small Cities Program.
    (4) Imminent threats to public health and safety. The criteria for 
these grants are described in Sec. 570.424.
    (5) Repayment of section 108 loans. The criteria for these grants 
are described in Sec. 570.432.
    (6) Economic development grants. HUD intends to use the Section 108 
loan guarantee program to the maximum extent feasible to fund economic 
development projects in the nonentitlement areas of New York. In the 
event that there are not enough Section 108 loan guarantee funds 
available to fund viable economic development projects, or if a project 
needs a grant in addition to a loan guarantee to make it viable, or if 
the project does not meet the requirements of the Section 108 program 
but is eligible for a grant under this subpart, HUD will fund Economic 
Development applications as they are determined to be fundable in a 
specific amount by HUD up to the sum set aside for economic development 
projects in the notice of funding availability. HUD also has the option 
in a NOFA of funding economic development activities on a competitive 
basis, as a competitive application as described in paragraph (a)(1) of 
this section. In order for an applicant to receive Small Cities grant 
funds, the field office must determine that the economic development 
project will have a substantial impact on the needs identified by the 
applicant.
    (b) Notice of funding availability. HUD will issue one or more 
Notice(s) of Funding Availability (NOFA) each fiscal year which will 
indicate the amount of funds available, the annual grant limits per 
grantee, type of grants available, the application requirements, and 
the rating factors that will be used for those grants which are 
competitive. A NOFA may set forth, subject to the requirements of this 
subpart, additional selection criteria for all grants.
    (c) Eligible applicants. (1) Eligible applicants in New York are 
units of general local government, excluding: Metropolitan cities, 
urban counties, units of general local government which are 
participating in urban counties or metropolitan cities, even if only 
part of the participating unit of government is located in the urban 
county or metropolitan city. Indian tribes are also ineligible for 
assistance under this subpart. An application may be submitted 
individually or jointly by eligible applicants.
     (2) Counties, cities, towns, and villages may apply and receive 
funding for separate projects to be done in the same jurisdiction. Only 
one grant will be made under each funding round for the same type of 
project to be located within the jurisdiction of a unit of general 
local government (e.g. both the county and village cannot receive 
funding for a sewer system to be located in the same village, but the 
county can receive funding for a sewer system that is located in the 
same village as a rehabilitation project for which the village receives 
funding). The NOFA will contain additional information on applicant 
eligibility.
    (3) Counties may apply on behalf of units of general local 
government located within their jurisdiction when the unit of general 
local government has authorized the county to apply. At the time that 
the county submits its application for funding, it must submit a 
resolution by the governing body of the unit of local government that 
authorizes the county to submit an application on behalf of the unit of 
general local government. The county will be considered the grantee and 
will be responsible for executing all grant documents. The county is 
responsible for ensuring compliance with all laws, regulations, and 
Executive Orders applicable to the CDBG Program. HUD will deal 
exclusively with the county with respect to issues of program 
administration and performance, including remedial actions. The unit of 
general local government will be considered the grantee for the purpose 
of determining grant limits. The unit of general local government's 
statistics will be used for purposes of the selection factors referred 
to in Sec. 570.421(a).
    (d) Public service activities cap. Public service activities may be 
funded up to a maximum of fifteen (15) percent of a State's 
nonentitlement allocation for any fiscal year. HUD may award a grant to 
a unit of general local government for public service activities with 
up to 100 percent of the funds intended for public service activities. 
HUD will apply the 15 percent statewide cap to public service 
activities by funding public service activities in the highest rated 
applications in each NOFA until the cap is reached.
    (e) Activities outside an applicant's boundaries. An applicant may 
conduct eligible CDBG activities outside its boundaries. These 
activities must be demonstrated to be appropriate to meeting the 
applicant's needs and objectives, and must be consistent with State and 
local law. This provision includes using funds provided under this 
subpart in a metropolitan city or an urban county.


Sec. 570.422  Applications from joint applicants.

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


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

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

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


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

    (a) Criteria. The following criteria apply for an imminent threat 
to public health or safety:
    (1) The Director of Community Planning and Development of the HUD 
office may, at any time, invite an application for funds available 
under this subpart in response to a request for assistance to alleviate 
an imminent threat to public health or safety that requires immediate 
resolution. HUD shall verify the urgency and the immediacy of the 
threat with an appropriate authority other than the applicant prior to 
acceptance of the application, and the Director of Community Planning 
and Development of the HUD Office shall review the claim to determine 
if, in fact, an imminent threat to public health or safety does exist. 
For example, an applicant with documented cases of disease resulting 
from a contaminated drinking water supply has an imminent threat to 
public health, while an applicant ordered to improve the quality of its 
drinking water supply over the next two years does not have an imminent 
threat within the definition of paragraph (a) of this section. These 
funds are to be used to deal with those threats which represent a 
unique and unusual circumstance, not for the type of threat that occurs 
with frequency in a number of communities within the State of New York.
    (2) The applicant does not have sufficient local resources, and 
other Federal or State resources are unavailable to alleviate the 
imminent threat.
    (3) All imminent threat projects must meet the requirement of 
Sec. 570.420(e).
    (b) HUD action. (1) Fifteen percent of the funds allocated to New 
York State in the Small Cities Program may be reserved to alleviate 
imminent threats to the public health or safety unless a lesser amount 
is specified in a NOFA. Applications shall be submitted in accordance 
with Sec. 570.423.
    (2) Applications which meet the requirements of this section may be 
approved by the Director of Community Planning and Development of the 
HUD Office without competition.
    (3) The only funds reserved for imminent threats to the public 
health or safety are those specified by this section as modified by the 
NOFA. After the funds have been depleted, HUD shall not consider 
further requests for grants relating to imminent threats during that 
fiscal year.
    (c) Letter to proceed. Notwithstanding Sec. 570.425(a)(3), after a 
determination has been made that an imminent threat exists, HUD may 
issue the applicant a letter to proceed to incur costs to alleviate the 
imminent threat. Reimbursement of such costs is dependent upon HUD 
approval of the final application.
    (d) Environmental review. Pursuant to 24 CFR 58.34(a)(8), grants 
for imminent threat to public health or safety are excluded from some 
or all of the environmental review requirements of 24 CFR part 58, to 
the extent provided therein.


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

    (a) Final application submission. (1) Submission deadline. HUD will 
establish a time period during which final applications must be 
submitted to the appropriate office. The dates for this period will be 
published in a notice in the Federal Register.
    (2) Incomplete applications. Applications must contain the 
information required by HUD. Information relative to the application 
will not be accepted or considered if received after the submission 
deadline, unless the information is specifically requested in writing 
by HUD.
    (3) Pre-agreement costs. HUD authorizes a unit of general local 
government to incur costs during a Federal fiscal year in which a grant 
is made or the prior fiscal year for preparation of a CDBG grant 
application, planning costs eligible under Sec. 570.205, environmental 
assessments, and project engineering and design costs for eligible 
activities under Sec. 570.201 through 570.204 before the establishment 
of a formal grant relationship between the applicant and HUD. Costs of 
such activities for the funded application may be charged to the grant 
should it be funded, provided that the activities are undertaken in 
accordance with the requirements of this subpart, and 24 CFR part 58. 
It is understood that the incurring of costs described in this 
paragraph creates no obligation on HUD to approve the application.
    (b) HUD action on final application. (1) Review and notification. 
Following the review of the applications, HUD will promptly notify each 
applicant of the action taken with regard to its application. 
Documentation which supports HUD's decisions on applications will be 
available to the public.
    (2) Conditional approval. HUD may make a conditional approval, in 
which case the grant will be approved but the obligation and 
utilization of funds will be restricted. The reasons for the 
conditional approval and the actions necessary to remove the condition 
will be specified. Failure to satisfy the condition may result in a 
termination of the grant.
    (3) HUD will not make a Small Cities grant when it is determined 
that the grant will only have a minimal or insignificant impact on the 
grantee.
    (4) Individual grant amounts. In determining appropriate grant 
amounts to be awarded, HUD may take into account the size of the 
applicant, the level of demand, the scale of the activity proposed 
relative to need and operational capacity, the number of persons to be 
served, the amount of funds required to achieve project objectives and 
the administrative capacity of the applicant to complete the activities 
in a timely manner.
    (c) Streamlined application requirement for previous applicants. 
HUD may provide pursuant to a NOFA that if an applicant notifies HUD in 
writing within the application period specified in a NOFA that it 
wishes to be so considered, HUD will consider unfunded applications 
from the prior round or competition that meet the threshold 
requirements of the NOFA. For FY 1995 only, unfunded applications from 
the FY 1994 competition will be automatically reactivated for 
consideration unless the applicant notifies the Department in writing 
by the date specified in the FY 1995 NOFA that it does not wish to have 
the FY 1994 application considered in the FY 1995 competition. The 
applicant will have the option of withdrawing its application, or 
amending or supplementing the application for succeeding rounds of 
competition. If there is no significant change in the application 
involving new activities or alteration of proposed activities that will 
significantly change the scope, location or objectives of the proposed 
activities or beneficiaries, there will be no further citizen 
participation requirement to keep the application active for succeeding 
rounds of competition.


Sec. 570.426   Program income.

    (a) The provisions of Sec. 570.504(b) apply to all program income 
generated by a specific grant and received prior to grant closeout.
    (b) If the unit of general local government has another ongoing 
CDBG grant at the time of closeout, the program income will be 
considered to be program income of the ongoing grant. The grantee can 
choose which grant to credit the program income to if it has multiple 
open CDBG grants.
    (c) If the unit of general local government has no open ongoing 
CDBG grant at the time of closeout, program income of the unit of 
general local government or its subrecipients which amounts to less 
than $25,000 per year will not be considered to be program income. When 
more than $25,000 of program income is generated from one or more 
closed out grants in a year after closeout, the entire amount of the 
program income is subject to the requirements of this part. This will 
be a subject of the closeout agreement described in Sec. 570.509(c).


Sec. 570.427   Program amendments.

    (a) HUD approval of certain program amendments. Grantees shall 
request prior HUD approval for all program amendments involving new 
activities or alteration of existing activities that will significantly 
change the scope, location, or objectives of the approved activities or 
beneficiaries. Approval is subject to the following:
    (1) Programs or projects that include new or significantly altered 
activities are rated in accordance with the criteria for selection 
applicable at the time the original preapplication or application 
(whichever is applicable) was rated. The rating of the program or 
projects proposed which include the new or altered activities proposed 
by the amendment must be equal to or greater than the lowest rating 
received by a funded project or program during that cycle of ratings.
    (2) Consideration shall be given to whether any new activity 
proposed can be completed promptly.
    (3) If the grant was received on a non-competitive basis, the 
proposed amended project must be able to be completed promptly, and 
must meet all of the threshold requirements that were required for the 
original project. If the proposal is to amend the project to a type of 
project that was rated competitively in the Fiscal Year that the non-
competitive project was funded, the new or altered activities proposed 
by the amendment must receive a rating equal to or greater than the 
lowest rating received by a funded project or program during that cycle 
of ratings.
    (b) Documentation of program amendments. Any program amendments 
that do not require HUD approval must be fully documented in the 
grantee's records.
    (c) Citizen participation requirements. Whenever an amendment 
requires HUD approval, the requirements for citizen participation in 
Sec. 570.431 must be met.


Sec. 570.428   Reallocated funds.

    (a) General. This section governs reallocated funds originally 
allocated for use under 24 CFR part 570, subpart F (Small Cities 
Program).
    (b) Assignment of funds to be reallocated. Reallocated funds may 
be:
    (1) Used at any time necessary for a section 108 repayment grant 
under Sec. 570.432;
    (2) Added to the next Small Cities Program competition;
    (3) Used to fund any application not selected for funding in the 
most recent Small Cities competition, because of a procedural error 
made by HUD; or
    (4) Used to fund the most highly ranked unfunded application or 
applications from the most recent Small Cities Program competition.
    (c) Timing. Funds which become available shall be used as soon as 
practicable.


Sec. 570.429   Hawaii general and grant requirements.

    (a) General. This section shall apply to the HUD-administered Small 
Cities Program in the State of Hawaii.
    (b) Scope and applicability. Except as otherwise provided in this 
section, the policies and procedures outlined in subparts A, C, J, K, O 
of this part, and in Secs. 570.420 and 570.430 through 570.432, shall 
apply to the HUD-administered Small Cities Program in the State of 
Hawaii.
    (c) Grant amounts. (1) For each eligible unit of general local 
government, a formula grant amount will be determined which bears the 
same ratio to the total amount available for the nonentitlement area of 
the State as the weighted average of the ratios between:
    (i) The population of that eligible unit of general local 
government and the population of all eligible units of general local 
government in the nonentitlement areas of the State;
    (ii) The extent of poverty in that eligible unit of general local 
government and the extent of poverty in all the eligible units of 
general local government in the nonentitled areas of the State; and
    (iii) The extent of housing overcrowding in that eligible unit of 
general local government and the extent of housing overcrowding in all 
the eligible units of general local government in the nonentitled areas 
of the State.
    (2) In determining the average of the ratios under this paragraph 
(c), the ratio involving the extent of poverty shall be counted twice 
and each of the other ratios shall be counted once. (0.25 + 0.50 + 0.25 
= 1.00).
    (d) Adjustments to grants. Grant amounts under this section may be 
adjusted where an applicant's performance is judged inadequate, 
considering:
    (1) Capacity to utilize the grant amount effectively and 
efficiently;
    (2) Compliance with the requirements of Sec. 570.902(a) for timely 
expenditure of funds beginning with grants made in FY 1996. In making 
this calculation, all outstanding grants will be considered. For the FY 
1995 grant the requirement is substantial compliance with the 
applicant's schedule or schedules submitted in each previously funded 
application;
    (3) Compliance with other program requirements based on monitoring 
visits and audits.
    (e) Reallocation. (1) Any amounts that become available as a result 
of adjustments under paragraph (d) of this section, or any reductions 
under subpart O of this part, shall be reallocated in the same fiscal 
year to any remaining eligible applicants on a pro rata basis.
    (2) Any formula grant amounts reserved for an applicant that 
chooses not to submit an application shall be reallocated to any 
remaining eligible applicants on a pro rata basis.
    (3) No amounts shall be reallocated under paragraph (e) of this 
section in any fiscal year to any applicant whose grant amount was 
adjusted under paragraph (d) of this section or reduced under subpart O 
of this part.
    (f) Applications. (1) Presubmission. The applicant will follow the 
requirements of Sec. 570.301(a) and (c), as well as the requirements of 
this section.
    (2) Submission. (i) HUD will require all applicants to submit an 
application for the amount established under paragraphs (c) through (e) 
of this section by a date established by HUD, and to follow the 
requirements of Sec. 570.302(a)(1) and (2).
    (ii) Certifications. Certifications shall be submitted in a form 
prescribed by HUD. If the application contains any housing activities, 
the applicant shall certify that the proposed housing activities are 
consistent with its Comprehensive Housing Affordability Strategy as 
described at 24 CFR part 91.
    (g) Application Approval. HUD will approve the application and 
certifications unless it is determined that one or more of the 
following requirements have not been met.
    (1) Completeness. The submission shall include all of the 
components required in paragraph (f) of this section.
    (2) Timeliness. The submission must be received within the time 
period established in paragraph (f) of this section.
    (3) Certifications. The certifications made by the grantee will be 
satisfactory to the Secretary if made in conformance with the 
requirements of paragraph (f) of this section, unless the Secretary has 
determined pursuant to subpart O of this part that the grantee has not 
complied with the requirements of this part or has failed to carry out 
its Comprehensive Housing Affordability Strategy in a timely manner, or 
determined that there is evidence, not directly involving the grantee's 
past performance under this program, which tends to challenge in a 
substantial manner the grantee's certification of future performance. 
If the Secretary makes any such determination, however, further 
assurances may be required to be submitted by the grantee as the 
Secretary may deem warranted or necessary to find the grantee's 
certification satisfactory.
    (h) Grant agreement. The grant will be made by means of a grant 
agreement executed by both HUD and the grantee.
    (i) Conditional grant. The Secretary may make a conditional grant 
in which case the obligation and use of grant funds for activities may 
be restricted. Conditional grants may be made where there is 
substantial evidence that there has been, or there will be, a failure 
to meet the performance requirements or criteria described in subpart O 
of this part. In such case, the conditional grant will be made by means 
of a grant agreement, executed by HUD, which includes the terms of the 
condition specifying the reason for the conditional grant, the actions 
necessary to remove the condition and the deadline for taking those 
actions. The grantee shall execute and return such an agreement to HUD 
within 60 days of the date of its transmittal. Failure of the grantee 
to execute and return the grant agreement within 60 days may be deemed 
by HUD to constitute rejection of the grant by the grantee and shall be 
cause for HUD to determine that the funds provided in the grant 
agreement are available for reallocation in accordance with section 
106(c) of the Act. Failure to satisfy the condition may result in a 
reduction in the grant amount pursuant to Sec. 570.911.

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


Sec. 570.430   Hawaii program operation requirements.

    (a) Limitation on planning and administrative costs. For grants 
made with allocations prior to FY 1995, no more than 20 percent of the 
sum of the grant plus program income received during the grant period 
shall be expended for planning and program administrative costs. For 
grants received from allocations in FY 1995 and thereafter, a grantee 
will be considered to be in conformance with the requirements of 
Sec. 570.200(g) if expenditures for planning and administration during 
the most recently completed program year do not exceed 20 percent of 
the sum of the grant made for that program year and the program income 
received from post FY 1994 grants during that program year.
    (b) Performance and evaluation reports. Grantees will follow the 
requirements of Sec. 570.507(a) for entitlement grant recipients for 
all grants received in FY 1995 and thereafter. Grantees will continue 
following the requirements of Sec. 570.507(a) for HUD-administered 
small cities grants for grants received prior to FY 1995 until those 
grants are closed out.
    (c) Grant closeouts. Grants received prior to FY 1995 shall be 
closed out in accordance with the procedures in Sec. 570.509. Grants 
received in FY 1995 and thereafter shall not be closed out 
individually. A grantee's entire program shall be closed upon program 
completion if a grantee ceases its participation in the Small Cities 
Program.
    (d) Public Services. Starting with the FY 1996 grant, grantees may 
follow the provisions of Sec. 570.201(e)(1) that refer to entitlement 
grantees, allowing grantees to use 15 percent of the program income 
received in the previous program year in addition to 15 percent of the 
grant amount for public services.
    (e) Compliance with the primary objective. Starting with the FY 
1995 grant, grantees may select a time period of one, two or three 
program years in which to meet the requirement that not less than 70 
percent of the aggregate of CDBG fund expenditures be for activities 
benefitting low- and moderate-income persons. Grants made from 
allocations prior to FY 1995 will be considered individually for 
meeting the primary objective, and expenditures for grants from pre FY 
1995 allocations made during and after FY 1995 will not be considered 
in determining whether the primary objective has been met for post 1994 
allocations. If the State of Hawaii decides to administer the Community 
Development Block Grant Program for non-entitled units of general local 
government in Hawaii, the State will be bound by the time period for 
meeting the primary objective that was chosen by each non-entitled 
grantee within the State until those time periods have expired.
    (f) Amendments. (1) The grantee shall amend its application 
whenever it decides not to carry out an activity described in its 
application, to carry out an activity not previously described, or to 
substantially change the purpose, scope, location, or beneficiaries of 
an activity. Prior to the submission of its FY 1995 application, each 
grantee shall develop and make public its criteria for what constitutes 
a substantial change for this purpose.
    (2) Prior to amending its application, a grantee shall follow the 
citizen participation requirements of Sec. 570.431 except that HUD is 
not required to approve the amendment.


Sec. 570.431  Citizen participation.

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


Sec. 570.432  Repayment of section 108 loans.

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


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

    Pursuant to section 106(d)(2)(A)(i) of the Act, a State has the 
right to elect, in such manner and at such time as the Secretary may 
prescribe, to administer funds allocated under subpart A of this part 
for use in nonentitlement areas of the State. After January 26, 1995, 
any State which elects to administer the allocation of CDBG funds for 
use in nonentitlement areas of the State in any year must, in addition 
to all other requirements of this subpart, submit a pledge by the State 
in accordance with section 108(d)(2) of the Act, and in a form 
acceptable to HUD, of any future CDBG grants it may receive under 
subpart A and this subpart. Such pledge shall be for the purpose of 
assuring repayment of any debt obligations (as defined in 
Sec. 570.701), in accordance with their terms, that HUD may have 
guaranteed in the respective State on behalf of any nonentitlement 
public entity (as defined in Sec. 570.701) or its designated public 
agency prior to the State's election.
    4. In Sec. 570.507, paragraph (a)(2)(ii)(A) is revised to read as 
follows:


Sec. 570.507  Reports.

    (a) *  *  *
    (2) *  *  *
    (ii) *  *  *
    (A) The first report on a small cities grant for a New York grantee 
should be submitted no later than October 31 for all grants executed 
prior to April 1 of the same calendar year. The first report should 
cover the period from the execution of the grant until September 30. 
Reports on grants made after March 31 of a calendar year will be due 
October 31 of the following calendar year and the reports will cover 
the period of time from the execution of the grant until September 30 
of the calendar year following grant execution. After the initial 
submission, the performance and evaluation report will be submitted 
annually on October 31 until completion of the activities funded under 
the grant;
    (B) Hawaii grantees will submit their small cities performance and 
evaluation report for each pre-FY 1995 grant no later than 90 days 
after the completion of their most recent program year. After the 
initial submission, the performance and evaluation report will be 
submitted annually until completion of the activities funded under the 
grant; and
    (C) No later than 90 days after the criteria for grant closeout, as 
described in Sec. 570.509(a), have been met.
* * * * *
    5. In 24 part 570, subpart M, consisting of Secs. 570.700 through 
570.710 is revised to read as follows:

Subpart M--Loan Guarantees

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

Subpart M--Loan Guarantees


Sec. 570.700  Purpose.

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


Sec. 570.701  Definitions.

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


Sec. 570.702  Eligible applicants.

    The following public entities may apply for loan guarantee 
assistance under this subpart.
    (a) Entitlement public entities.
    (b) Nonentitlement public entities that are assisted in the 
submission of applications by States that administer the CDBG program 
(under subpart I of this part). Such assistance shall consist, at a 
minimum, of the certifications required under Sec. 570.704(b)(9) (and 
actions pursuant thereto).
    (c) Nonentitlement public entities eligible to apply for grant 
assistance under subpart F of this part.


Sec. 570.703  Eligible activities.

    Guaranteed loan funds may be used for the following activities, 
provided such activities meet the requirements of Sec. 570.200. 
However, guaranteed loan funds may not be used to reimburse the CDBG 
program account or line of credit for costs incurred by the public 
entity or designated public agency and paid with CDBG grant funds or 
program income.
    (a) Acquisition of improved or unimproved real property in fee or 
by long-term lease, including acquisition for economic development 
purposes.
    (b) Rehabilitation of real property owned or acquired by the public 
entity or its designated public agency.
    (c) Payment of interest on obligations guaranteed under this 
subpart.
    (d) Relocation payments and other relocation assistance for 
individuals, families, businesses, nonprofit organizations, and farm 
operations who must relocate permanently or temporarily as a result of 
an activity financed with guaranteed loan funds, where the assistance 
is:
    (1) Required under the provisions of Sec. 570.488 (b) or (c) or 
Sec. 570.606 (b) or (c); or
    (2) Determined by the public entity to be appropriate under the 
provisions of Sec. 570.488(d) or Sec. 570.606(d).
    (e) Clearance, demolition and removal, including movement of 
structures to other sites, of buildings and improvements on real 
property acquired or rehabilitated pursuant to paragraphs (a) and (b) 
of this section.
    (f) Site preparation, including construction, reconstruction, or 
installation of public and other site improvements, utilities, or 
facilities (other than buildings), which is:
    (1) Related to the redevelopment or use of the real property 
acquired or rehabilitated pursuant to paragraphs (a) and (b) of this 
section, or
    (2) For an economic development purpose.
    (g) Payment of issuance, underwriting, servicing, trust 
administration and other costs associated with private sector financing 
of debt obligations under this subpart.
    (h) Housing rehabilitation eligible under Sec. 570.202.
    (i) The following economic development activities:
    (1) Activities eligible under Sec. 570.203; and
    (2) Community economic development projects eligible under 
Sec. 570.204.
    (j) Construction of housing by nonprofit organizations for 
homeownership under section 17(d) of the United States Housing Act of 
1937 (Housing Development Grants Program, 24 CFR part 850) or title VI 
of the Housing and Community Development Act of 1987 (Nehemiah Housing 
Opportunity Grants Program, 24 CFR part 280).
    (k) A debt service reserve to be used in accordance with 
requirements specified in the contract entered into pursuant to 
Sec. 570.705(b)(1).
    (l) Acquisition, construction, reconstruction, rehabilitation, or 
installation of public facilities (except for buildings for the general 
conduct of government), public streets, sidewalks, and other site 
improvements and public utilities.
    (m) In the case of applications by public entities which are, or 
which contain, ``colonias'' as defined in section 916 of the Cranston-
Gonzalez National Affordable Housing Act (42 U.S.C. 5306 note), as 
amended by section 810 of the Housing and Community Development Act of 
1992, acquisition, construction, reconstruction, rehabilitation or 
installation of public works and site or other improvements which serve 
the colonia.


Sec. 570.704  Application requirements.

    (a) Presubmission and citizen participation requirements.
    (1) Before submission of an application for loan guarantee 
assistance to HUD, the public entity must:
    (i) Develop a proposed application that includes the following 
items:
    (A) The community development objectives the public entity proposes 
to pursue with the guaranteed loan funds.
    (B) The activities the public entity proposes to carry out with the 
guaranteed loan funds. Each activity must be described in sufficient 
detail, including the specific provision of Sec. 570.703 under which it 
is eligible and the national objective to be met, amount of guaranteed 
loan funds expected to be used, and location, to allow citizens to 
determine the degree to which they will be affected. The proposed 
application must indicate which activities are expected to generate 
program income. The application must also describe where citizens may 
obtain additional information about proposed activities.
    (C) A description of the pledge of grants required under 
Sec. 570.705(b)(2). In the case of applications by State-assisted 
public entities, the description shall note that pledges of grants will 
be made by the State and by the public entity.
    (ii) Fulfill the applicable requirements in its citizen 
participation plan developed in accordance with Sec. 570.704(a)(2).
    (iii) Publish community-wide its proposed application so as to 
afford affected citizens an opportunity to examine the application's 
contents and to provide comments on the proposed application.
    (iv) Prepare its final application. Once the public entity has held 
the public hearing and published the proposed application as required 
by paragraphs (a)(1)(ii) and (iii) of this section, respectively, the 
public entity must consider any such comments and views received and, 
if the public entity deems appropriate, modify the proposed 
application. Upon completion, the public entity must make the final 
application available to the public. The final application must 
describe each activity in sufficient detail to permit a clear 
understanding of the nature of each activity, as well as identify the 
specific provision of Sec. 570.703 under which it is eligible, the 
national objective to be met, and the amount of guaranteed loan funds 
to be used. The final application must also indicate which activities 
are expected to generate program income.
    (v) If an application for loan guarantee assistance is to be 
submitted by an entitlement public entity simultaneously with the 
public entity's submission for its entitlement grant, the public entity 
shall include and identify in its proposed and final statements of 
community development objectives and projected use of funds prepared 
for its annual grant pursuant to Sec. 570.301 the activities to be 
undertaken with the guaranteed loan funds, the national objective to be 
met by each of these activities, the amount of any program income 
expected to be received during the program year, and the amount of 
guaranteed loan funds to be used; the public entity shall also include 
in these statements a description of the pledge of grants required 
under Sec. 570.705(b)(2). In such cases the proposed and final 
application requirements of paragraphs (a)(1) (i), (iii), and (iv) of 
this section will be deemed to have been met.
    (2) Citizen participation plan. The public entity must develop and 
follow a detailed citizen participation plan and make the plan public. 
The plan must be completed and available before the application is 
submitted to HUD. The plan may be the plan required for the CDBG 
program, modified to include guaranteed loan funds. The public entity 
is not required to hold a separate public hearing for its CDBG program 
and for the guaranteed loan funds to obtain citizens' views on 
community development and housing needs. The plan must set forth the 
public entity's policies and procedures for:
    (i) Giving citizens timely notice of local meetings and reasonable 
and timely access to local meetings, information, and records relating 
to the public entity's proposed and actual use of guaranteed loan 
funds, including, but not limited to:
    (A) The amount of guaranteed loan funds expected to be made 
available for the coming year, including program income anticipated to 
be generated by the activities carried out with guaranteed loan funds;
    (B) The range of activities that may be undertaken with guaranteed 
loan funds;
    (C) The estimated amount of guaranteed loan funds (including 
program income derived therefrom) proposed to be used for activities 
that will benefit low and moderate income persons;
    (D) The proposed activities likely to result in displacement and 
the public entity's plans, consistent with the policies developed under 
Sec. 570.606 or Sec. 570.488 for minimizing displacement of persons as 
a result of its proposed activities.
    (ii) Providing technical assistance to groups representative of 
persons of low and moderate income that request assistance in 
developing proposals. The level and type of assistance to be provided 
is at the discretion of the public entity. Such assistance need not 
include the provision of funds to such groups.
    (iii) Holding a minimum of two public hearings, each at a different 
stage of the public entity's program, for the purpose of obtaining the 
views of citizens and formulating or responding to proposals and 
questions. Together the hearings must address community development and 
housing needs, development of proposed activities and review of program 
performance. At least one of these hearings must be held before 
submission of the application to obtain the views of citizens on 
community development and housing needs. Reasonable notice of the 
hearing must be provided and the hearing must be held at times and 
locations convenient to potential or actual beneficiaries, with 
accommodation for the handicapped. The public entity must specify in 
its plan how it will meet the requirement for a hearing at times and 
locations convenient to potential or actual beneficiaries.
    (iv) Meeting the needs of non-English speaking residents in the 
case of public hearings where a significant number of non-English 
speaking residents can reasonably be expected to participate.
    (v) Providing affected citizens with reasonable advance notice of, 
and opportunity to comment on, proposed activities not previously 
included in an application and activities which are proposed to be 
deleted or substantially changed in terms of purpose, scope, location, 
or beneficiaries. The criteria the public entity will use to determine 
what constitutes a substantial change for this purpose must be 
described in the citizen participation plan.
    (vi) Responding to citizens' complaints and grievances, including 
the procedures that citizens must follow when submitting complaints and 
grievances. The public entity's policies and procedures must provide 
for timely written answers to written complaints and grievances within 
15 working days of the receipt of the complaint, where practicable.
    (vii) Encouraging citizen participation, particularly by low and 
moderate income persons who reside in slum or blighted areas, and other 
areas in which guaranteed loan funds are proposed to be used.
    (b) Submission requirements. An application for loan guarantee 
assistance may be submitted at any time. The application (or final 
statement) shall be submitted to the appropriate HUD Office and shall 
be accompanied by the following:
    (1) A description of how each of the activities to be carried out 
with the guaranteed loan funds meets one of the criteria in 
Sec. 570.208.
    (2) A schedule for repayment of the loan which identifies the 
sources of repayment, together with a statement identifying the entity 
that will act as borrower and issue the debt obligations.
    (3) A certification providing assurance that the public entity 
possesses the legal authority to make the pledge of grants required 
under Sec. 570.705(b)(2).
    (4) A certification providing assurance that the public entity has 
made efforts to obtain financing for activities described in the 
application without the use of the loan guarantee, the public entity 
will maintain documentation of such efforts for the term of the loan 
guarantee, and the public entity cannot complete such financing 
consistent with the timely execution of the program plans without such 
guarantee.
    (5) The drug-free workplace certification required under 24 CFR 
part 24 (Appendix C).
    (6) The certification regarding debarment and suspension required 
under 24 CFR part 24 (Appendix A).
    (7) The anti-lobbying statement required under 24 CFR part 87 
(Appendix A).
    (8) Certifications by the public entity that:
    (i) It possesses the legal authority to submit the application for 
assistance under this subpart and to use the guaranteed loan funds in 
accordance with the requirements of this subpart.
    (ii) Its governing body has duly adopted or passed as an official 
act a resolution, motion or similar official action:
    (A) authorizing the person identified as the official 
representative of the public entity to submit the application and 
amendments thereto and all understandings and assurances contained 
therein, and directing and authorizing the person identified as the 
official representative of the public entity to act in connection with 
the application to provide such additional information as may be 
required; and
    (B) authorizing such official representative to execute such 
documents as may be required in order to implement the application and 
issue debt obligations pursuant thereto (provided that the 
authorization required by this paragraph (B) may be given by the local 
governing body after submission of the application but prior to 
execution of the contract required by Sec. 570.705(b);
    (iii) Before submission of its application to HUD, the public 
entity has:
    (A) Furnished citizens with information required by 
Sec. 570.704(a)(2)(i);
    (B) Held at least one public hearing to obtain the views of 
citizens on community development and housing needs; and
    (C) Prepared its application in accordance with 
Sec. 570.704(a)(1)(iv) and made the application available to the 
public.
    (iv) It is following a detailed citizen participation plan which 
meets the requirements described in Sec. 570.704(a)(2).
    (v) The public entity will affirmatively further fair housing, and 
the guaranteed loan funds will be administered in compliance with:
    (A) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et 
seq.); and
    (B) The Fair Housing Act (42 U.S.C. 3601-3619).
    (vi) (A) (For entitlement public entities only.) In the aggregate, 
at least 70 percent of all CDBG funds, as defined at Sec. 570.3, to be 
expended during the one, two, or three consecutive years specified by 
the public entity for its CDBG program will be for activities which 
benefit low and moderate income persons, as described in criteria at 
Sec. 570.208(a).
    (B) (For nonentitlement public entities eligible under subpart F of 
this part only.) It will comply with primary and national objectives 
requirements, as applicable under subpart F of this part.
    (vii) It will comply with the requirements governing displacement, 
relocation, real property acquisition, and the replacement of low and 
moderate income housing described in Sec. 570.488 or Sec. 570.606.
    (viii) It will comply with the requirements of Sec. 570.200(c)(2) 
with regard to the use of special assessments to recover the capital 
costs of activities assisted with guaranteed loan funds.
    (ix) (Where applicable, the public entity may also include the 
following additional certification.) It lacks sufficient resources from 
funds provided under this subpart or program income to allow it to 
comply with the provisions of Sec. 570.200(c)(2), and it must therefore 
assess properties owned and occupied by moderate income persons, to 
recover the guaranteed loan funded portion of the capital cost without 
paying such assessments in their behalf from guaranteed loan funds.
    (x) It will comply with the other provisions of the Act and with 
other applicable laws.
    (9) In the case of an application submitted by a State-assisted 
public entity, certifications by the State that:
    (i) It agrees to make the pledge of grants required under 
Sec. 570.705(b)(2).
    (ii) It possesses the legal authority to make such pledge.
    (iii) At least 70 percent of the aggregate use of CDBG grant funds 
received by the State, guaranteed loan funds, and program income during 
the one, two, or three consecutive years specified by the State for its 
CDBG program will be for activities that benefit low and moderate 
income persons.
    (iv) It agrees to assume the responsibilities described in 
Sec. 570.710.
    (c) HUD review and approval of applications. (1) HUD will normally 
accept the certifications submitted with the application. HUD may, 
however, consider relevant information which challenges the 
certifications and require additional information or assurances from 
the public entity or State as warranted by such information.
    (2) The HUD Office shall review the application for compliance with 
requirements specified in this subpart and forward the application 
together with its recommendation for approval or disapproval of the 
requested loan guarantee to HUD Headquarters.
    (3) HUD may disapprove an application, or may approve loan 
guarantee assistance for an amount less than requested, for any of the 
following reasons:
    (i) HUD determines that the guarantee constitutes an unacceptable 
financial risk. Factors that will be considered in assessing financial 
risk shall include, but not be limited to, the following:
    (A) The length of the proposed repayment period;
    (B) The ratio of expected annual debt service requirements to 
expected annual grant amount;
    (C) The likelihood that the public entity or State will continue to 
receive grant assistance under this part during the proposed repayment 
period;
    (D) The public entity's ability to furnish adequate security 
pursuant to Sec. 570.705(b), and
    (E) The amount of program income the proposed activities are 
reasonably estimated to contribute toward repayment of the guaranteed 
loan.
    (ii) The requested loan amount exceeds any of the limitations 
specified under Sec. 570.705(a).
    (iii) Funds are not available in the amount requested.
    (iv) The performance of the public entity, its designated public 
agency or State under this part is unacceptable.
    (v) Activities to be undertaken with the guaranteed loan funds are 
not eligible under Sec. 570.703.
    (vi) Activities to be undertaken with the guaranteed loan funds do 
not meet the criteria in Sec. 570.208 for compliance with one of the 
national objectives of the Act.
    (4) HUD will notify the public entity in writing that the loan 
guarantee request has either been approved, reduced or disapproved. If 
the request is reduced or disapproved, the public entity shall be 
informed of the specific reasons for reduction or disapproval. If the 
request is approved, HUD shall issue an offer of commitment to 
guarantee debt obligations of the borrower identified in the 
application subject to compliance with this part, including the 
requirements under Sec. 570.705(b), (d), (g) and (h) for securing and 
issuing debt obligations, the conditions for release of funds described 
in paragraph (d) of this section, and such other conditions as HUD may 
specify in the commitment documents in a particular case.
    (5) Amendments. If the public entity wishes to carry out an 
activity not previously described in its application or to 
substantially change the purpose, scope, location, or beneficiaries of 
an activity, the amendment must be approved by HUD. Amendments by 
State-assisted public entities must also be approved by the State. The 
public entity shall follow the citizen participation requirements for 
amendments in Sec. 570.704(a)(2).
    (d) Environmental review. The public entity shall comply with HUD 
environmental review procedures (24 CFR part 58) for the release of 
funds for each project carried out with loan guarantee assistance. 
These procedures set forth the regulations, policies, responsibilities 
and procedures governing the carrying out of environmental review 
responsibilities of public entities. All public entities, including 
nonentitlement public entities, shall submit the request for release of 
funds and related certification for each project to be assisted with 
guaranteed loan funds to the appropriate HUD Field Office.
    (e) Displacement, relocation, acquisition, and replacement of 
housing. The public entity (or the designated public agency) shall 
comply with the displacement, relocation, acquisition and replacement 
of low/moderate-income housing requirements in Sec. 570.488 or 
Sec. 570.606 in connection with any activity financed in whole or in 
part with guaranteed loan funds.


Sec. 570.705  Loan requirements.

    (a) Limitations on commitments. (1) If loan guarantee commitments 
have been issued in any fiscal year in an aggregate amount equal to 50 
percent of the amount approved in an appropriation act for that fiscal 
year, HUD may limit the amount of commitments any one public entity may 
receive during such fiscal year as follows (except that HUD will not 
decrease commitments already issued):
    (i) The amount any one entitlement public entity may receive may be 
limited to $35,000,000.
    (ii) The amount any one nonentitlement public entity may receive 
may be limited to $7,000,000.
    (iii) The amount any one public entity may receive may be limited 
to such amount as is necessary to allow HUD to give priority to 
applications containing activities to be carried out in areas 
designated as empowerment zones/enterprise communities by the Federal 
Government or by any State.
    (2) In addition to the limitations specified in paragraph (a)(1) of 
this section, the following limitations shall apply.
    (i) Entitlement public entities. No commitment to guarantee shall 
be made if the total unpaid balance of debt obligations guaranteed 
under this subpart (excluding any amount defeased under the contract 
entered into under Sec. 570.705(b)(1)) on behalf of the public entity 
would thereby exceed an amount equal to five times the amount of the 
most recent grant made pursuant to Sec. 570.304 to the public entity.
    (ii) State-assisted public entities. No commitment to guarantee 
shall be made if the total unpaid balance of debt obligations 
guaranteed under this subpart (excluding any amount defeased under the 
contract entered into under Sec. 570.705(b)(1)) on behalf of the public 
entity and all other State-assisted public entities in the State would 
thereby exceed an amount equal to five times the amount of the most 
recent grant received by such State under subpart I.
    (iii) Nonentitlement public entities eligible under subpart F of 
this part. No commitment to guarantee shall be made with respect to a 
nonentitlement public entity in the State of Hawaii if the total unpaid 
balance of debt obligations guaranteed under this subpart (excluding 
any amount defeased under the contract entered into under 
Sec. 570.705(b)(1)) on behalf of the public entity would thereby exceed 
an amount equal to five times the amount of the most recent grant made 
pursuant to Sec. 570.429 to the public entity. No commitment to 
guarantee shall be made with respect to a nonentitlement public entity 
in the State of New York if the total unpaid balance of debt 
obligations guaranteed under this subpart (excluding any amount 
defeased under the contract entered into under Sec. 570.705(b)(1)) on 
behalf of the public entity would thereby exceed the greater of five 
times:
    (A) The most recent grant approved for the public entity pursuant 
to subpart F of this part,
    (B) The average of the most recent three grants approved for the 
public entity pursuant to subpart F of this part, excluding any grant 
in the same fiscal year as the commitment, or
    (C) The average amount of grants made under subpart F of this part 
to units of general local government in New York State in the previous 
fiscal year.
    (b) Security requirements. To assure the repayment of debt 
obligations and the charges incurred under paragraph (g) of this 
section and as a condition for receiving loan guarantee assistance, the 
public entity (and State and designated public agency, as applicable) 
shall:
    (1) Enter into a contract for loan guarantee assistance with HUD, 
in a form acceptable to HUD, including provisions for repayment of debt 
obligations guaranteed hereunder;
    (2) Pledge all grants made or for which the public entity or State 
may become eligible under this part; and
    (3) Furnish, at the discretion of HUD, such other security as may 
be deemed appropriate by HUD in making such guarantees. Other security 
shall be required for all loans with repayment periods of ten years or 
longer. Such other security shall be specified in the contract entered 
into pursuant to Sec. 570.705(b)(1). Examples of other security HUD may 
require are:
    (i) Program income as defined in Sec. 570.500(a);
    (ii) Liens on real and personal property;
    (iii) Debt service reserves; and
    (iv) Increments in local tax receipts generated by activities 
carried out with the guaranteed loan funds.
    (c) Use of grants for loan repayment. Notwithstanding any other 
provision of this part:
    (1) Community Development Block Grants allocated pursuant to 
section 106 of the Act (including program income derived therefrom) may 
be used for:
    (i) Paying principal and interest due (including such issuance, 
servicing, underwriting, or other costs as may be incurred under 
paragraph (g) of this section) on the debt obligations guaranteed under 
this subpart;
    (ii) Defeasing such debt obligations; and
    (iii) Establishing debt service reserves as additional security 
pursuant to paragraph (b)(3) of this section.
    (2) HUD may apply grants pledged pursuant to paragraph (b)(2) of 
this section to any amounts due under the debt obligations, the payment 
of costs incurred under paragraph (g) of this section, or to the 
purchase or defeasance of such debt obligations, in accordance with the 
terms of the contract required by paragraph (b)(l) of this section.
    (d) Debt obligations. Debt obligations guaranteed under this 
subpart shall be in the form and denominations prescribed by HUD. Such 
debt obligations may be issued and sold only under such terms and 
conditions as may be prescribed by HUD. HUD may prescribe the terms and 
conditions of debt obligations, or of their issuance and sale, by 
regulation or by contractual arrangements authorized by section 
108(r)(4) of the Act and paragraph (h) of this section. Unless 
specifically provided otherwise in the contract for loan guarantee 
assistance required under paragraph (b) of this section, debt 
obligations shall not constitute general obligations of any public 
entity or State secured by its full faith and credit.
    (e) Taxable obligations. Interest earned on debt obligations under 
this subpart shall be subject to Federal taxation as provided in 
section 108(j) of the Act.
    (f) Loan repayment period. The term of debt obligations under this 
subpart shall not exceed twenty years.
    (g) Issuance, underwriting, servicing, and other costs. Each public 
entity or its designated public agency issuing debt obligations under 
this subpart must pay the issuance, underwriting, servicing, trust 
administration and other costs associated with the private sector 
financing of the debt obligations. Such costs are payable out of the 
guaranteed loan funds and shall be secured under paragraph (b) of this 
section.
    (h) Contracting with respect to issuance and sale of debt 
obligations; effect of other laws. No State or local law, and no 
Federal law, shall preclude or limit HUD's exercise of:
    (1) The power to contract with respect to public offerings and 
other sales of debt obligations under this subpart upon such terms and 
conditions as HUD deems appropriate;
    (2) The right to enforce any such contract by any means deemed 
appropriate by HUD;
    (3) Any ownership rights of HUD, as applicable, in debt obligations 
under this subpart.


Sec. 570.706  Federal guarantee; subrogation.

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


Sec. 570.707  Applicability of rules and regulations.

    (a) Entitlement public entities. The provisions of subparts A, C, 
J, K and O of this part applicable to entitlement grants shall apply 
equally to guaranteed loan funds and other CDBG funds, except to the 
extent they are specifically modified or augmented by the provisions of 
this subpart.
    (b) State-assisted public entities. The provisions of subpart I of 
this part, and the requirements the State imposes on units of general 
local government receiving Community Development Block Grants or 
program income to the extent applicable, shall apply equally to 
guaranteed loan funds and Community Development Block Grants (including 
program income derived therefrom) administered by the State under the 
CDBG program, except to the extent they are specifically modified or 
augmented by the provisions of this subpart.
    (c) Nonentitlement public entities eligible under subpart F of this 
part. The provisions of subpart F of this part shall apply equally to 
guaranteed loan funds and other CDBG funds, except to the extent they 
are specifically modified or augmented by the provisions of this 
subpart.


Sec. 570.708  Sanctions.

    (a) Non-State Assisted Public Entities. The performance review 
procedures described in subpart O of this part apply to all public 
entities receiving guaranteed loan funds other than State-assisted 
public entities. Performance deficiencies in the use of guaranteed loan 
funds made available to such public entities (or program income derived 
therefrom) or violations of the contract entered into pursuant to 
Sec. 570.705(b)(1) may result in the imposition of a sanction 
authorized pursuant to Sec. 570.900(b)(7) against pledged CDBG grants. 
In addition, upon a finding by HUD that the public entity has failed to 
comply substantially with any provision of the Act with respect to 
either the pledged grants or the guaranteed loan funds or program 
income, HUD may take action against the pledged grants as provided in 
Sec. 570.913 and/or may take action as provided in the contract for 
loan guarantee assistance.
    (b) State-assisted public entities. Performance deficiencies in the 
use of guaranteed loan funds (or program income derived therefrom) or 
violations of the contract entered into pursuant to Sec. 570.705(b)(1) 
may result in an action authorized pursuant to Sec. 570.495 or 
Sec. 570.496. In addition, upon a finding by HUD that the State or 
public entity has failed to comply substantially with any provision of 
the Act with respect to the pledged CDBG nonentitlement funds, the 
guaranteed loan funds, or program income, HUD may take action against 
the pledged funds as provided in Sec. 570.496 and/or may take action as 
provided in the contract.


Sec. 570.709  Allocation of loan guarantee assistance.

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


Sec. 570.710  State responsibilities.

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

    Dated: December 20, 1994.
Andrew Cuomo,
Assistant Secretary for Community Planning and Development.
[FR Doc. 94-31663 Filed 12-21-94; 10:20 am]
BILLING CODE 4210-29-P