[Federal Register Volume 61, Number 188 (Thursday, September 26, 1996)]
[Proposed Rules]
[Pages 50654-50659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24662]



[[Page 50653]]


_______________________________________________________________________

Part VII





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 570



Community Development Block Grant Program; Proposed Rule

  Federal Register / Vol. 61, No. 188 / Thursday, September 26, 1996 / 
Proposed Rules  

[[Page 50654]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 570

[Docket No. FR-3298-P-02]
RIN 2506-AB43


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

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

ACTION: Proposed rule and notice of proposed information collection 
requirements.

-----------------------------------------------------------------------

SUMMARY: In this rule, HUD is proposing changes to the Community 
Development Block Grant (CDBG) regulations, including procedures for 
voluntary and involuntary corrective actions for noncompliance with 
CDBG program requirements, dispute resolution, and hearings. HUD is 
also proposing changes in the application procedures under the Section 
108 Loan Guarantee Program, in order to include references to the 
consolidated submission process.

DATES: Comment due date: November 25, 1996.

ADDRESSES: HUD invites interested persons to submit comments regarding 
this rule to the Office of the General Counsel, Rules Docket Clerk, 
Room 10276, Department of Housing and Urban Development, 451 Seventh 
Street, S.W., Washington, DC 20410. Communications should refer to the 
above docket number and title. A copy of each communication submitted 
will be available for public inspection and copying during regular 
business hours (7:30 a.m.-5:30 p.m. eastern time) at the above address. 
HUD will not accept comments sent by facsimile (FAX).
    HUD also invites interested persons to submit comments on the 
proposed information collection requirements in this proposed rule. 
Comments should refer to the above docket number and title, and should 
be sent to Sheila E. Jones, Reports Liaison Officer, Room 7230, 
Department of Housing and Urban Development, 451 Seventh Street, SW, 
Washington, DC 20410. Comments should also be sent to the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Attention: Desk Officer for HUD, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Jan C. Opper, Senior Program Officer, 
Office of Block Grant Assistance, Room 7286, Department of Housing and 
Urban Development, 451 Seventh Street, S.W., Washington, DC 20410, 
telephone number (202) 708-3587. Persons with hearing or speech 
impairments may access this number via TTY by calling the Federal 
Information Relay Service at (800) 877-8339. FAX inquiries (but not 
comments on the rule) may be sent to Mr. Opper at (202) 401-2044. 
(Except for the ``800'' number, these telephone numbers are not toll-
free.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

    The information collection requirements in Sec. 570.704 of this 
proposed rule have been submitted to the Office of Management and 
Budget (OMB) for review under section 3507(d) of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)) and 5 CFR 1320.11. An agency 
may not conduct or sponsor, and a person is not required to respond to, 
a collection of information unless the collection displays a valid 
control number.
    As required under 5 CFR 1320.8(d)(1), HUD and OMB are seeking 
comments from members of the public and affected agencies concerning 
the proposed collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond; including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses. Interested persons are 
invited to submit comments according to the instructions in the 
``Dates'' and ``Addresses'' sections in the preamble of this proposed 
rule.
    This proposed rule also lists the following information:
    Title of Proposal: Consolidated Plan for Community Investment.
    OMB Control Number: 2506-0117.
    Description of the Need for the Information and Proposed Use: In 
this proposed rule, HUD proposes to require entities to use the 
procedures in the Consolidated Plan when applying for Section 108 Loan 
Guarantee assistance. The application information is required in order 
for HUD to determine the eligibility of the activities proposed to be 
financed with Section 108 loan guarantee assistance and to ensure that 
the loan guarantee does not pose a financial risk to the Federal 
Government.
    Form Numbers: HUD-40090-A REV. and HUD-40091-A REV.
    Members of Affected Public: States, units of general local 
government, consortia, and other ``consolidated'' jurisdictions.
    Estimation of the Total Number of Hours Needed To Prepare the 
Information Collection Including Number of Respondents, Frequency of 
Response, and Hours of Response: Requiring entities to use the 
Consolidated Plan when applying for Section 108 Loan Guarantee 
assistance should eliminate some duplicative information collection 
requirements, and it may result in an overall decrease in burden hours. 
The numbers below represent HUD's estimate of the additional hours it 
will take Section 108 applicants to prepare the required information 
under the Consolidated Plan; they do not reflect the hours saved by 
eliminating duplicative requirements.

----------------------------------------------------------------------------------------------------------------
                                     Number of       Number of     Total annual      Hours per                  
     Submission requirements        respondents      responses       response        response          Total    
----------------------------------------------------------------------------------------------------------------
Consolidated Plan (Section 108                                                                                  
 Loan Guarantee Application)....             150               1             150             125          18,750
----------------------------------------------------------------------------------------------------------------


[[Page 50655]]

    Status of the Proposed Information Collection: Revision of a 
currently approved collection is pending.

II. Background

    The Community Development Block Grant (CDBG) program is a key 
component of HUD's legislative reinvention proposal, the American 
Community Partnerships Act. This proposed rule provides redesigned 
dispute resolution and sanctions procedures for enforcing the CDBG 
program requirements. It also conforms the regulations for the Section 
108 Loan Guarantee program with the consolidated plan requirements, 
using the consolidated plan citizen participation and amendment 
process.

Proposed Revisions Regarding Dispute Resolution and Corrective 
Actions

    On November 12, 1993 (58 FR 60088), HUD proposed certain changes to 
the procedures for resolving issues of grantee noncompliance with CDBG 
program requirements. The preamble to the November 12, 1993 rule 
provided background information about HUD's authority to address 
performance deficiencies. As a result of HUD's review of comments 
received on that proposed rule, HUD has determined that it will not 
adopt the changes proposed in the November 12, 1993 rule. Instead, this 
proposed rule reflects some additions to, and revisions and 
rearrangements of, the provisions of subpart O of part 570 regarding 
performance reviews. This section of the preamble includes a discussion 
of the provisions that were proposed in the November 12, 1993 rule, the 
comments received in response to that rule, and the revised proposals 
in today's rule.

A. Making of Grants

    HUD proposes to amend Sec. 570.304(a) to conform with the proposed 
changes to part 570, subpart O, as described below.

B. Authorities for Enforcing Compliance

    The November 12, 1993 proposed rule would have included a new 
section Sec. 570.907 to clarify the statutory authorities for HUD to 
enforce recipient compliance with applicable laws and regulations. HUD 
received no comments on this provision, and HUD has maintained the 
provision in today's proposed rule.

C. Voluntary Corrective and Remedial Actions

    The November 12, 1993 proposed rule clarified in Sec. 570.910 that 
there are actions that HUD may advise the grantee to take voluntarily 
to correct or remedy its alleged failure to comply with applicable 
program requirements. HUD's objectives in seeking voluntary actions are 
to prevent the continuation of the deficiency, to mitigate its adverse 
effects, and to avoid its recurrence. If HUD determines that the 
deficiency was beyond the reasonable control of the recipient, HUD may 
decide that no corrective action is needed.
    A grantee that commented on the November 12, 1993 proposed rule 
suggested that HUD should consult with grantees concerning the 
appropriateness of any mitigation effort, and that grantees should have 
the option of reprogramming funds rather than reimbursing their line of 
credit. HUD agrees that the grantee should generally be given an 
opportunity to participate in the identification of corrective and 
remedial actions, and HUD has traditionally followed this practice. 
Today's proposed rule would clarify this.
    The comment regarding reprogramming is unclear, but presumably the 
commenter is asking that HUD allow grantees to offset disallowed costs 
by receiving credit for activities undertaken with local funds. HUD 
does not believe that this is an appropriate remedy. Almost any grantee 
would be able to show some activities it has carried out with local 
funds that could have been funded with CDBG funds. The effect of 
allowing credit for such expenditures to offset noncomplying CDBG 
expenditures is that it reduces the incentive for a grantee to follow 
applicable rules in the use of CDBG funds. It should be noted that 
HUD's request for reimbursement of the line of credit with non-Federal 
funds is advisory and usually precedes HUD's initiation of an 
enforcement action.
    Today's proposed rule would revise the section title and provisions 
of Sec. 570.910 to remove actions that would not be voluntary. HUD 
would usually provide the grantee the opportunity to take one or more 
of these actions voluntarily prior to initiating enforcement actions or 
nondiscrimination compliance measures.

D. Resolving Disputes Over Noncompliance

    Separate from today's rule, HUD has proposed a streamlined and 
consolidated set of hearing procedures for formal administrative 
hearings. HUD published these procedures in a proposed rule on April 
23, 1996 (61 FR 18026). These procedures would appear as a separate 
subpart of 24 CFR part 26. Today's proposed rule would adopt these 
procedures for offering and conducting formal administrative hearings 
prior to HUD taking enforcement actions.
    The November 12, 1993 proposed rule would have differentiated 
between substantial and nonsubstantial noncompliance with program 
requirements, establishing for such noncompliance either a formal 
administrative hearing process or an informal hearing process, 
respectively. The November 12, 1993 proposed rule would have 
established the informal hearing officer's decision as a nonreviewable 
agency decision.
    HUD received four comments (from a HUD field program manager, two 
grantees, and a commenter representing three public interest groups and 
a grantee) concerning the threshold in the November 12, 1993 proposed 
rule for distinguishing between substantial and nonsubstantial 
noncompliance. One commenter questioned HUD's authority to take 
enforcement actions unless noncompliance was substantial. A commenter 
questioned the dollar threshold for determining substantial 
noncompliance, believing it to be arbitrary, and suggested a sliding 
scale of thresholds depending upon grant size. Another commenter 
suggested that HUD should use nonmonetary factors as well. One 
commenter argued that certain violations should not entitle a grantee 
to a formal hearing. Finally, HUD received three comments (from two 
grantees and a commenter representing three public interest groups and 
a grantee) regarding the final nature of the informal hearing decision 
under the November 12, 1993 proposed rule.
    In today's proposed rule, HUD does not distinguish between 
substantial and nonsubstantial noncompliance, and HUD has eliminated 
the informal hearing process provided for in the November 12, 1993, 
proposed rule. While today's proposed rule does contain an opportunity 
for an informal consultation, it would precede an opportunity for a 
final hearing, and it would constitute a reviewable agency decision.
    Two commenters (a grantee and an administrative law judge) 
suggested lengthening the response periods for a grantee to request a 
hearing. Likewise, two commenters (an administrative law judge and a 
representative of three public interest groups and a grantee) offered 
numerous technical comments concerning the formal hearing procedures. 
However, HUD is now proposing to adopt a set of uniform hearing 
procedures, which HUD published in a proposed rule on April 23, 1996 
(61 FR 18026), rather than

[[Page 50656]]

including duplicative hearing procedures in the CDBG regulations. 
Therefore, HUD invites the public to comment on HUD's use of those 
procedures in the CDBG program.
    In summary, today's proposed rule would contain no differentiation 
in the level or gravity of noncompliance, but it would provide that HUD 
would offer the opportunity for an informal consultation concerning the 
noncompliance alleged by HUD and the enforcement action HUD plans to 
take, or that HUD would offer an alternative means of dispute 
resolution. If the grantee disputes that it has failed to comply, 
today's rule would provide a formal hearing process to resolve such 
dispute. Decisions from this formal hearing process, and any 
enforcement action HUD would take in the event of noncompliance, would 
be reviewable by the Secretary.
    If, after requesting additional assurances with regard to 
certifications, a recipient fails to respond, declines to comply with 
HUD's request, or the Secretary finds the recipient's response to be 
unsatisfactory, today's proposed rule would provide, in 
Sec. 570.911(c), that HUD may withhold the award of the recipient's 
grant until such time as assurances satisfactory to the Secretary are 
provided.

E. Enforcement Actions

    The November 12, 1993 proposed rule would not have revised 
Sec. 570.911. However, today's proposed rule would consolidate in 
Sec. 570.911 the enforcement actions that HUD will initiate when it has 
made a finding of noncompliance and believes that the grantee has not 
taken or is unlikely to take appropriate corrective and remedial 
actions. HUD's objectives in initiating enforcement actions are to 
bring about compliance and mitigation of adverse effects to the extent 
practical.
    One commenter, representing three public interest groups and a 
grantee, argued against HUD suspending future use of CDBG funds to 
mitigate adverse effects or consequences prior to an enforcement 
proceeding. This action is currently authorized in Sec. 570.913(a). 
Today's proposed rule would provide, in Sec. 570.913(a)(2), that after 
HUD has provided a grantee due notice of its opportunity for a hearing, 
but prior to the hearing, HUD may petition the Administrative Law Judge 
to order a suspension, if the Secretary determines such action to be in 
the best interests of the program.

Proposed Revisions for the Section 108 Loan Guarantee Program

    When HUD published the regulations entitled ``Consolidated 
Submission for Community Planning and Development Programs'' in 24 CFR 
part 91 on January 5, 1995 (60 FR 1878), HUD updated most of the 
corresponding references to consolidated submissions in the CDBG 
regulations (24 CFR part 570). However, in that final rule HUD made 
only minimal references to consolidated plan submissions in subpart M 
of part 570 regarding loan guarantees. Since more substantive revisions 
would represent a change in the loan guarantee application process that 
might affect a substantial amount of financing, HUD is publishing the 
change today as a proposed rule. Specifically, this proposed rule 
addresses the need to include loan guarantee-financed activities in a 
grantee's consolidated action plan or amendment, and it proposes a 
change in the citizen participation requirements.

III. Other Matters

E.O. 12866 Statement

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review, issued by the 
President on September 30, 1993. Any changes made in this rule 
subsequent to its submission to OMB are identified in the docket file, 
which is available for public inspection as provided under the section 
of this preamble entitled ``Addresses.''

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this proposed rule, and in so 
doing certifies that this proposed rule will not have a significant 
economic impact on a substantial number of small entities. The economic 
impact of this proposed rule will be minimal, and the rule would affect 
small and large entities equally.

Environmental Impact

    Under HUD regulations (24 CFR 50.20(k)), this proposed rule is 
exempt from the requirements of the National Environmental Policy Act 
of 1969, as set forth in 24 CFR part 50. The proposed rule relates to 
internal administrative procedures, the content of which does not 
involve development decisions or affect the physical condition of 
project areas or building sites, but only relates to the performance of 
accounting, auditing, and fiscal functions.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that this rule 
will not have substantial direct effects on States or their political 
subdivisions, or the relationship between the Federal Government and 
the States, or on the distribution of power and responsibilities among 
the various levels of Government. No programmatic or policy changes 
will result from this document's promulgation that would affect the 
relationship between the Federal Government and State and local 
governments.

Executive Order 12606, The Family

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12606, The Family, has determined that this rule 
will not have potential for significant impact on family formation, 
maintenance, or general well-being, and thus is not subject to review 
under the Order. No significant change in existing HUD policies or 
programs, as those policies relate to the family, will result from 
promulgation of this proposed rule.

List of Subjects in 24 CFR Part 570

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

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

    1. In Sec. 570.304, paragraph (a) is amended by adding a sentence 
at the end, to read as follows:


Sec. 570.304  Making of grants.

    (a) * * * Failing this voluntary compliance action, the Secretary 
may institute an enforcement action as provided under 
Secs. 570.910(b)(3) and 570.911(c).
* * * * *
    2. Section 570.704 is amended by revising paragraphs (a) and (b) to 
read as follows:

[[Page 50657]]

Sec. 570.704  Application requirements.

    (a) Presubmission and citizen participation requirements. Before 
submission to HUD of an application for loan guarantee assistance, the 
public entity must:
    (1) Develop a proposed application that includes the following 
items:
    (i) The community development objectives identified under the 
provisions of Secs. 91.215 (b) or (e)(1) or 91.315 (b) or (e) of this 
title that the public entity proposes to pursue with the guaranteed 
loan funds;
    (ii) The activity or activities the public entity proposes to carry 
out with the guaranteed loan funds specified in accordance with the 
criteria at Sec. 91.220(g)(1)(iv) of this title and Sec. 570.301(a). 
For each proposed discrete project or activity, this information should 
include, but is not limited to:
    (A) The specific provision of Sec. 570.703 under which the activity 
or activities are eligible, and the national objective(s) under 
Sec. 570.208 to be met;
    (B) The amount of guaranteed loan funds to be used;
    (C) Whether each activity is expected to generate program income, 
an estimate of the amount per year, and any other proposed source of 
repayment of the guaranteed loan;
    (D) How citizens may obtain more information;
    (E) The location of the activity or activities;
    (iii) A description of the pledge of grants required under 
Sec. 570.705(b)(2). In the case of applications by State-assisted 
public entities, the description shall note that pledges of grants will 
be made by the State and by the public entity.
    (2) With respect to the proposed uses of guaranteed loan funds for 
each activity, fulfill the applicable requirements of the citizen 
participation plan developed in accordance with Secs. 91.105 or 91.115 
of this title, as applicable.
    (3)(i) If an application for loan guarantee assistance is to be 
submitted simultaneously with a public entity's submission for an 
entitlement grant or a grant under subpart F of this part, the public 
entity shall include and identify the activity or activities to be 
assisted with loan guarantee funds in its action plan prepared pursuant 
to Sec. 91.220 of this title.
    (ii) If an application for loan guarantee assistance is not to be 
submitted simultaneously with a public entity's submission for an 
entitlement grant or a grant under subpart F of this part, and such 
action plan does not cover all of the activities proposed in the loan 
guarantee application, the application shall be considered a 
substantial amendment to the action plan, and the public entity shall 
follow the amendment procedures identified in its HUD-approved 
consolidated plan pursuant to Sec. 91.105(c) of this title, as 
applicable.
    (iii) If an application for loan guarantee assistance is to be 
submitted by a State-assisted public entity, it must either:
    (A) Submit a certification from the State that the State's action 
plan prepared pursuant to Sec. 91.315 of this title and approved by HUD 
includes all of the information about the public entity's proposed 
activities required by this section; or
    (B) In coordination with the State, submit a proposed substantial 
amendment to the State's consolidated plan for HUD approval together 
with the Section 108 application.
    (iv) Under either paragraph (a)(3)(i), (a)(3)(ii), or (a)(3)(iii) 
of this section, the activity description in either the action plan or 
any substantial amendment thereto shall include at least the same 
elements as required under paragraph (a)(1) of this section.
    (b) Submission requirements. An applicant may submit an application 
for loan guarantee assistance under Sec. 570.702 at any time. The 
applicant must submit to the appropriate HUD office the application 
(and consolidated plan or substantial amendment thereto, as 
applicable), as well as the following:
    (1) A description of how each of the activities to be carried out 
with the guaranteed loan funds is eligible under Sec. 570.703, how it 
meets one of the criteria in Sec. 570.208, and (if applicable) how it 
complies with the public benefit standards in Sec. 570.209.
    (2) A schedule for repayment of the loan that identifies the 
sources of repayment, together with a statement identifying the entity 
that will act as borrower and issue the debt obligations.
    (3) A certification providing assurance that the public entity 
possesses the legal authority to make the pledge of grants required 
under Sec. 570.705(b)(2).
    (4) A certification providing assurance that the public entity has 
made efforts to obtain financing for activities described in the 
application without the use of the loan guarantee, that the public 
entity will maintain documentation of such efforts for the term of the 
loan guarantee, and that the public entity cannot complete such 
financing consistent with the timely execution of the program plans 
without such guarantee.
    (5) The drug-free workplace certification required under 24 CFR 
part 24.
    (6) The certification regarding debarment and suspension required 
under 24 CFR part 24.
    (7) The anti-lobbying statement required under 24 CFR part 87 
(Appendix A).
    (8) Certifications by the public entity that:
    (i) It possesses the legal authority to submit the application for 
assistance under this subpart and to use the guaranteed loan funds in 
accordance with the requirements of this subpart.
    (ii) Its governing body has duly adopted or passed as an official 
act a resolution, motion, or similar official action:
    (A) Authorizing the person identified as the official 
representative of the public entity to submit the application and 
amendments thereto and all understandings and assurances contained 
therein, and directing and authorizing the person identified as the 
official representative of the public entity to act in connection with 
the application to provide such additional information as may be 
required; and
    (B) Authorizing such official representative to execute such 
documents as may be required in order to implement the application and 
issue debt obligations pursuant thereto (provided that the 
authorization required by this paragraph (b)(8)(ii)(B) of this section 
may be given by the local governing body after submission of the 
application but prior to execution of the contract required by 
Sec. 570.705(b));
    (iii) Before submission of its application to HUD, the public 
entity has met the citizen information and participation requirements 
of Sec. 570.704 (a)(1) and (a)(2) in preparing its application.
    (iv) [Reserved].
    (v) The public entity will affirmatively further fair housing, and 
the guaranteed loan funds will be administered in compliance with:
    (A) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et 
seq.); and
    (B) The Fair Housing Act (42 U.S.C. 3601-3619).
    (vi)(A) (Only for entitlement public entities): In the aggregate, 
at least 70 percent of all CDBG funds, as defined at Sec. 570.3, to be 
expended during the one, two, or three consecutive years specified by 
the public entity for its CDBG program will be for activities that 
benefit low and moderate income persons, as described in 
Sec. 570.208(a).
    (B) (Only for nonentitlement public entities eligible under subpart 
F of this part): It will comply with primary and national objectives 
requirements, as applicable under subpart F of this part.

[[Page 50658]]

    (vii) It will comply with the requirements governing displacement, 
relocation, real property acquisition, and the replacement of low and 
moderate income housing described in Sec. 570.606.
    (viii) It will comply with the requirements of Sec. 570.200(c)(2) 
with regard to the use of special assessments to recover the capital 
costs of activities assisted with guaranteed loan funds.
    (ix) Where applicable, the public entity may also include the 
following additional certification: It lacks sufficient resources from 
funds provided under this subpart or program income to allow it to 
comply with the provisions of Sec. 570.200(c)(2), and it must therefore 
assess properties owned and occupied by moderate income persons, to 
recover the guaranteed loan funded portion of the capital cost without 
paying such assessments in their behalf from guaranteed loan funds.
    (x) It will comply with the other provisions of the Act and with 
other applicable laws.
    (9) In the case of an application submitted by a State-assisted 
public entity, certifications by the State that:
    (i) It agrees to make the pledge of grants required under 
Sec. 570.705(b)(2).
    (ii) It possesses the legal authority to make such pledge.
    (iii) At least 70 percent of the aggregate use of CDBG grant funds 
received by the State, guaranteed loan funds, and program income during 
the one, two, or three consecutive years specified by the State for its 
CDBG program will be for activities that benefit low and moderate 
income persons.
    (iv) It agrees to assume the responsibilities described in 
Sec. 570.710.
* * * * *
    3. In subpart O, a new Sec. 570.907 is added, to read as follows:


Sec. 570.907  Authorities for enforcing compliance.

    The Secretary may make appropriate adjustments in the amount of 
annual grants, or terminate, reduce, or limit the availability of 
payments to the recipient, if a recipient has failed to comply with 
applicable requirements of the program, as authorized and provided in 
sections 104(e) and 111 of the Act (42 U.S.C. 5304(e) and 5311).
    4. Section 570.910 is revised to read as follows:


Sec. 570.910  Corrective and remedial actions.

    (a) General. If HUD finds a deficiency in a recipient's performance 
due to failure to comply with applicable program requirements, as 
referenced under Sec. 570.901, or failure to meet performance criteria 
under Secs. 570.902 through 570.906, the Secretary may seek corrective 
and remedial action by the recipient prior to initiating actions 
authorized by Secs. 570.911, 570.912, or 570.913.
    (b) Actions to secure voluntary compliance. In order to secure 
voluntary compliance, HUD may take the following actions:
    (1) Letter to recipient. HUD may issue a letter advising the 
recipient of HUD's finding of the deficiency, advising the recipient to 
notify HUD whether there are any ongoing or planned activities that are 
or will be affected by the deficiency, and putting the recipient on 
notice that additional action may be taken if the deficiency is not 
corrected in the time frame specified by HUD or is repeated. If HUD has 
determined that the deficiency is affecting one or more ongoing 
activities, it may advise the recipient to suspend disbursement of 
funds for the affected activities until corrective actions have been 
taken.
    (2) Corrective action. HUD may advise the recipient to take 
corrective action prior to undertaking any activities that would be so 
affected in order to prevent a recurrence of the deficiency. HUD may 
specify the corrective action or offer the recipient the opportunity, 
within a time frame specified by HUD, to identify actions it believes 
will correct the deficiency. HUD may also advise the recipient that the 
deficiency calls into question a certification necessary to receive 
future funds, in which case HUD will identify any specific additional 
actions necessary to make the certification satisfactory.
    (3) Request for additional assurances. If the Secretary finds a 
certification to be unsatisfactory under the authority of 
Sec. 570.304(a), HUD may request that the recipient provide such 
additional assurances as the Secretary deems warranted or necessary to 
find the certification satisfactory.
    (4) Reimburse line of credit. HUD may advise the recipient, within 
a time frame specified by HUD, to reimburse its line of credit with 
non-Federal funds for any portion of the amounts improperly expended 
and to reprogram the use of those funds in accordance with applicable 
requirements. HUD may advise that some or all of the reimbursed funds 
be reprogrammed to be used to redress particular adverse effects.
    (5) Review of activities and systems. HUD may advise the recipient 
to review its planned and ongoing activities together with its 
administrative and management systems within such time limit as HUD may 
specify for this purpose in order to:
    (i) Identify the causes for delays,
    (ii) Change the systems and activities,
    (iii) Reprogram funds to other activities, as applicable and 
necessary to bring its expenditures into compliance, and
    (iv) Develop a detailed schedule with interim milestones for use in 
tracking the recipient's management of its expenditures.
    (c) Changing the method of payment. In addition to the actions 
described in paragraph (b) of this section, if HUD has determined that 
the recipient is not taking appropriate action to prevent a financial 
management deficiency from affecting ongoing or future performance, HUD 
may change the method of payment to the recipient for some or all of 
the activities from a line of credit basis to a pre-Federal payment 
approval basis, until the deficiency is cured.
    5. Section 570.911 is revised to read as follows:


Sec. 570.911  Resolving disputes/administrative hearings.

    If HUD has made a finding of noncompliance pursuant to subpart O of 
this part, and if HUD believes that additional action is necessary to 
bring about appropriate corrective and remedial actions in a timely 
manner (including any actions sought by HUD under Sec. 570.910 that are 
not forthcoming), HUD will initiate one or more of the following 
enforcement actions:
    (a) Opportunity for informal consultation. HUD will initiate the 
enforcement actions under Sec. 570.913 (except as specified under 
Sec. 570.913(d)) only after HUD has provided the recipient the 
opportunity for an informal consultation, in order to discuss the 
alleged noncompliance and the enforcement actions HUD proposes to take. 
If the recipient elects to participate in an informal consultation, HUD 
will defer an enforcement action under Sec. 570.913 (except as 
specified under Sec. 570.913(d)) pending completion of the 
consultation. HUD may also offer another ``alternative means of dispute 
resolution,'' as defined at 5 U.S.C. 581(3), and if the recipient 
elects to participate in such procedure, HUD will defer an enforcement 
action under Sec. 570.913 (except as specified under Sec. 570.913(d)) 
pending completion of the procedure.
    (b) Opportunity for administrative hearing. After considering any 
information the recipient may provide through the process of 
consultation or other alternative means of dispute resolution, if HUD 
maintains that the alleged deficiency constitutes a failure to comply 
with one or more program

[[Page 50659]]

requirements, but the recipient does not agree, HUD will offer the 
recipient the opportunity for an administrative hearing to resolve the 
dispute. HUD will not take an enforcement action under Sec. 570.913 
until either the time has elapsed for the recipient to avail itself of 
the opportunity for a hearing or the hearing results in a finding that 
the recipient failed to comply with program requirements. For these 
purposes, the hearing will be conducted in accordance with the 
procedures outlined under 24 CFR part 26, subpart B.
    (c) Certifications. After requesting additional assurances of 
certifications under Sec. 570.910(b)(3), HUD shall conduct the dispute 
resolution in accordance with the procedures under paragraph (b) of 
this section, and may withhold the award of the recipient's CDBG grant 
until such time as the recipient provides assurances satisfactory to 
the Secretary, if either of the following occurs:
    (1) The recipient fails to respond or declines to comply with HUD's 
request, or
    (2) The Secretary finds the recipient's response to be 
unsatisfactory.
    6. Section 570.913 is revised to read as follows:


Sec. 570.913  Enforcement actions.

    If HUD has made a finding of noncompliance under subpart O of this 
part, and if HUD believes that additional action is necessary to bring 
about appropriate corrective and remedial actions by the recipient in a 
timely manner (including any actions sought by HUD under Sec. 570.910 
that are not forthcoming), HUD will initiate one or more of the 
following enforcement actions after complete dispute resolution/
administrative hearing procedures under Sec. 570.911 (a) and (b), as 
appropriate:
    (a) Limit availability of funds. HUD may limit the availability of 
CDBG funds to the recipient to programs, projects, or activities not 
affected by the performance deficiency. This could include, for 
example, requiring the recipient to limit the availability of CDBG 
funds it has provided to one or more of its subrecipients.
    (b) Reduce payments. As appropriate, HUD may reduce payments to the 
recipient under the CDBG program by the amount of funds that were not 
expended in accordance with the requirements of the regulations or 
applicable laws. This could include a reduction in the amount of a 
future grant to which the recipient would otherwise be entitled or 
eligible to receive.
    (c) Terminate grant(s). As appropriate, HUD may terminate the 
recipient's entire CDBG grant to prevent continuation or recurrence of 
the deficiency.
    (d) Suspend payments. The Secretary may petition the Administrative 
Law Judge for authority to suspend payments at any time after the 
issuance of a notice of opportunity for hearing pursuant to 
Sec. 570.911(b), pending such hearing and a final decision, to the 
extent the Secretary determines such action is necessary to preclude 
the further disbursement of funds for activities affected by such 
failure to comply.
    (e) Limitation on enforcement actions. In no case shall funds 
already expended on eligible activities be recaptured from an existing 
grant or deducted from future grants under the actions described above.
    7. Section 570.14 is added to read as follows:


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

    (a) Referral action. In lieu of, or in addition to, any action 
authorized in Sec. 570.913, the Secretary may:
    (1) Refer the matter to the Attorney General of the United States 
with a recommendation that an appropriate civil action be instituted; 
and
    (2) Upon such referral, the Attorney General may bring a civil 
action in any United States district court with proper venue for such 
relief as may be appropriate, including an action to recover the amount 
of the assistance furnished under title I of the Act that was not 
expended in accordance with the Act, or for mandatory or injunctive 
relief.
    (b) Claims collection. In any case in which claims are payable to 
HUD or the U.S. Treasury, HUD will institute collection procedures 
pursuant to subpart C of 24 CFR part 17.

    Dated: June 26, 1996.
Andrew M. Cuomo,
Assistant Secretary for Community Planning and Development.
[FR Doc. 96-24662 Filed 9-25-96; 8:45 am]
BILLING CODE 4210-29-P