[Federal Register Volume 62, Number 173 (Monday, September 8, 1997)]
[Rules and Regulations]
[Pages 47344-47358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23752]



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Part VIII





Department of Housing and Urban Development





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24 CFR Chapter V



HUD Disaster Recovery Initiative; Final Rule

  Federal Register / Vol. 62, No. 173 / Monday, September 8, 1997 / 
Rules and Regulations  

[[Page 47344]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Chapter V

[Docket No. FR-4254-N-01]


HUD Disaster Recovery Initiative

AGENCY: Office of Community Planning and Development, HUD.

ACTION: Notice of disaster recovery funds availability and waivers.

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SUMMARY: The 1997 Emergency Supplemental Appropriations Act for 
Recovery from Natural Disasters, with respect to the HUD Disaster 
Recovery Initiative grant funds, requires the publication of a Notice 
governing the use of such funds in conjunction with any program 
administered by the Federal Emergency Management Agency (FEMA) for 
buyouts of structures in disaster areas. This Notice addresses that 
requirement and provides other guidance on the use of those funds.

EFFECTIVE DATE: June 12, 1997.

FOR FURTHER INFORMATION CONTACT: Jan C. Opper, Senior Program Officer, 
Office of Block Grant Assistance, Department of Housing and Urban 
Development, Room 7286, 451 Seventh Street, SW., 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 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. Empowering Communities for Recovery

A. Purpose

    1. This Notice describes policies and procedures applicable to the 
HUD Disaster Recovery Initiative.
    2. When a community is hit hard by a natural disaster, there is 
often a long, difficult process of recovery. Most impacted areas never 
fully recover because of limited resources. HUD is uniquely positioned 
to assist States and communities with disaster recovery, because of its 
mission and experience as the Federal Government's agency for 
addressing a broad spectrum of needs related to community viability 
(e.g., housing, economic and community development).
    3. HUD's Disaster Recovery Initiative helps communities impacted by 
disasters receiving Presidential declarations. When other agencies 
cannot assist, HUD steps in with gap funding for recovery activities--
providing the glue that holds together the sometimes disconnected 
pieces of disaster recovery. Because Federal government resources will 
never be sufficient to cover costs of total recovery, HUD's program 
requires a partnership of Federal, State and local governments, the 
business community and citizens.
    4. HUD Disaster Recovery funds are intended to support the 
activities of other Federal agencies and cannot be used for activities 
reimbursable or for which funds are made available by the Federal 
Emergency Management Agency (FEMA), the Small Business Administration 
(SBA), or the U.S. Army Corps of Engineers (USACE).

B. Benefiting Persons of Low and Moderate Income

    1. An objective of the program is the redevelopment of viable urban 
communities, by providing decent housing and a suitable living 
environment and expanding economic opportunities, especially for 
persons of low and moderate income.
    2. A grantee must use at least 50 percent of its HUD Disaster 
Recovery funds for activities that benefit persons of low and moderate 
income. The Secretary may waive this requirement only on a case-by-case 
basis. HUD will consider such a waiver after receiving a request from a 
grantee that includes a justification that establishes good cause for 
the waiver and reflects a public purpose.

C. Definitions

    Regulatory references are in title 24 of the Code of Federal 
Regulations (CFR), unless otherwise cited.
    Act means Title I of the Housing and Community Development Act of 
1974, as amended (42 U.S.C. 5301 et seq.).
    Buildings for the general conduct of government means city halls, 
county administrative buildings, State capitol or office buildings or 
other facilities in which the legislative, judicial or general 
administrative affairs of the government are conducted. Such term does 
not include such facilities as neighborhood service centers or special 
purpose buildings located in low and moderate income areas that house 
various nonlegislative functions or services provided by government at 
decentralized locations.
    Chief Executive Officer of a State or unit of general local 
government means the elected official or the legally designated 
official, who has the primary responsibility for the conduct of that 
entity's governmental affairs. Examples of the ``chief executive 
officer'' of a unit of general local government are: the elected mayor 
of a municipality; the elected county executive of a county; the 
chairperson of a county commission or board in a county that has no 
elected county executive; and the official designated pursuant to law 
by the governing body of a unit of general local government.
    City means the following:
    a. Any unit of general local government that is classified as a 
municipality by the United States Bureau of the Census, or
    b. Any other unit of general local government that is a town or 
township and that, in the determination of the Secretary:
    i. Possesses powers and performs functions comparable to those 
associated with municipalities;
    ii. Is closely settled; and
    iii. Contains within its boundaries no incorporated places as 
defined by the United States Bureau of the Census that have not entered 
into cooperation agreements with the town or township for a period 
covering at least 3 years to undertake or assist in the undertaking of 
essential community development and housing assistance activities. The 
determination of eligibility of a town or township to qualify as a city 
will be based on information available from the United States Bureau of 
the Census and information provided by the town or township and its 
included units of general local government.
    Grantee means:
    a. A City that receives no less than $200,000 under the disaster 
formula allocation, has the capacity to carry out this program, and 
remaining disaster recovery needs; or that is in a State in which HUD 
administers its community development program.
    b. A County that receives no less than $200,000 under the disaster 
formula allocation, has the capacity to carry out this program, and 
remaining disaster recovery needs; or that is in a State in which HUD 
administers its community development program. The county may designate 
a local government or governments to carry out the program on its 
behalf.
    c. A State government that receives a HUD Disaster Recovery grant 
allocation that includes funds calculated for places that would have 
received an allocation below the minimum grant size.
    Household means all the persons who occupy a housing unit. The 
occupants may be a single family, one person living alone, two or more 
families living together, or any other group of related or unrelated 
persons who share living arrangements.

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    HUD means the Department of Housing and Urban Development.
    Income. For the purpose of city and county grantees determining 
whether a family or household is low- and moderate-income, grantees may 
select any of the three definitions listed below for each activity, 
except that integrally related activities of the same type and 
qualifying under the same paragraph of Sec. 570.208(a) shall use the 
same definition of income. The option to choose a definition does not 
apply to activities that qualify under Sec. 570.208(a)(1) (Area benefit 
activities), except when the recipient carries out a survey under 
Sec. 570.208(a)(1)(vi). Activities qualifying under Sec. 570.208(a)(1) 
generally must use the area income data supplied to recipients by HUD.
    a. The three definitions are as follows:
    i. Annual income as defined under the Section 8 Housing Assistance 
Payments program at Sec. 813.106 (except that if the HUD Disaster 
Recovery Initiative assistance being provided is homeowner 
rehabilitation, the value of the homeowner's primary residence may be 
excluded from any calculation of Net Family Assets); or
    ii. Annual Income as reported under the Census long-form for the 
most recent available decennial Census. This definition includes:
    (1) Wages, salaries, tips, commissions, etc.;
    (2) Self-employment income from own non-farm business, including 
proprietorships and partnerships;
    (3) Farm self-employment income;
    (4) Interest, dividends, net rental income, or income from estates 
or trusts;
    (5) Social Security or railroad retirement;
    (6) Supplemental Security Income, Aid to Families with Dependent 
Children, or other public assistance or public welfare programs;
    (7) Retirement, survivor, or disability pensions; and
    (8) Any other sources of income received regularly, including 
Veterans' (VA) payments, unemployment compensation, and alimony; or
    iii. Adjusted gross income as defined for purposes of reporting 
under Internal Revenue Service (IRS) Form 1040 for individual Federal 
annual income tax purposes.
    b. Estimate the annual income of a family or household by 
projecting the prevailing rate of income of each person at the time 
assistance is provided for the individual, family, or household (as 
applicable). Estimated annual income shall include income from all 
family or household members, as applicable. Income or asset enhancement 
derived from the HUD Disaster Recovery grant-assisted activity shall 
not be considered in calculating estimated annual income.
    Indian tribe means any Indian tribe, band, group, and nation, 
including Alaska Indians, Aleuts, and Eskimos and any Alaska Native 
Village, of the United States that is considered an eligible recipient 
under the Indian Self-Determination and Education Assistance Act (Pub. 
L. 93-638) or under the State and Local Fiscal Assistance Act of 1972 
(Pub. L. 92-512).
    Low- and moderate-income household means a household having an 
income equal to or less than the Section 8 low-income limit established 
by HUD.
    Low- and moderate-income person means a member of a family having 
an income equal to or less than the Section 8 low-income limit 
established by HUD. Unrelated individuals will be considered as one-
person families for this purpose.
    Low-income household means a household having an income equal to or 
less than the Section 8 very low-income limit established by HUD.
    Low-income person means a member of a family that has an income 
equal to or less than the Section 8 very low-income limit established 
by HUD. Unrelated individuals shall be considered as one-person 
families for this purpose.
    Moderate-income household means a household having an income equal 
to or less than the Section 8 low-income limit and greater than the 
Section 8 very low-income limit, established by HUD.
    Moderate-income person means a member of a family that has an 
income equal to or less than the Section 8 low-income limit and greater 
than the Section 8 very low-income limit, established by HUD. Unrelated 
individuals shall be considered as one-person families for this 
purpose.
    Secretary means the Secretary of Housing and Urban Development.
    Small business means a business that meets the criteria set forth 
in section 3(a) of the Small Business Act (15 U.S.C. 631, 636, 637).
    State means any State of the United States, or an instrumentality 
thereof approved by the Governor; and the Commonwealth of Puerto Rico.
    Unit of general local government means any city, county, town, 
township, parish, village or other general purpose political 
subdivision of a State; Guam, the Northern Mariana Islands, the Virgin 
Islands, and American Samoa or a general purpose political subdivision 
thereof; a combination of such political subdivisions recognized by the 
Secretary; and the District of Columbia.

D. Allocation of Funds

    1. $500 million has been appropriated for the HUD Disaster Recovery 
Initiative under Title II, Chapter 10 of the 1997 Emergency 
Supplemental Appropriations Act for Recovery from Natural Disasters 
(Pub. L. 105-18; approved June 12, 1997) (the 1997 Supplemental 
Appropriations Act).
    2. HUD will generally allocate funds to grantees based on a formula 
that reflects disaster recovery needs that are not met by other Federal 
programs provided that the grantee has the capacity to carry out this 
program, and on remaining needs.

E. Submission Requirements

    1. Prerequisites to a grantee's receipt of a HUD Disaster Recovery 
grant include a citizen participation plan; publication of Plan 
proposals by grantees; notice and comment; and submission of an Action 
Plan for Disaster Recovery.
    2. Each city or county grantee must submit to HUD, for approval, an 
Action Plan for Disaster Recovery that describes:
    a. The recovery needs resulting from the covered disaster;
    b. The grantee's overall plan for recovery;
    c. Expected Federal, non-Federal public, and private resources, and 
their relationship, if any, to activities to be funded with HUD 
Disaster Recovery funds;
    d. The projected uses for the HUD Disaster Recovery funds; and
    e. In the case of a new HUD grantee, it should describe how 
expenditure of its funds fits within a current local or State recovery 
plan.
    3. The city or county grantee must describe monitoring standards 
and procedures pursuant to Sec. 91.230 and include certifications 
pursuant to:
    a. Sec. 91.225(a)(1), affirmatively furthering fair housing;
    b. Sec. 91.225(a)(3), drug-free workplace;
    c. Sec. 91.225(a)(4), anti-lobbying;
    d. Sec. 91.225(a)(7), acquisition and relocation, except as waived;
    e. Sec. 91.225(b)(1), citizen participation, except as waived;
    f. Sec. 91.225(b)(5), excessive force;
    g. Sec. 91.225(b)(6), compliance with anti-discrimination laws;
    h. Sec. 91.225(b)(7), compliance with lead-based paint procedures; 
and
    i. Sec. 91.225(b)(8), compliance with applicable laws.
    4. Each State grantee must submit to HUD, for approval, an Action 
Plan for Disaster Recovery that describes:
    a. The recovery needs resulting from the covered disaster;

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    b. The grantee's overall plan for recovery;
    c. Expected Federal, non-Federal public, and private resources, and 
their relationship, if any, to activities to be funded with HUD 
Disaster Recovery funds; and
    d. The State's method of distribution.
    5. A State grantee may distribute HUD Disaster Recovery funds to 
units of general local government, including city and county grantees 
that otherwise receive HUD Disaster Recovery funds, and to Indian 
tribes.
    6. The State grantee must describe monitoring standards and 
procedures pursuant to Sec. 91.330 and include certifications pursuant 
to:
    a. Sec. 91.325(a)(1), affirmatively furthering fair housing;
    b. Sec. 91.325(a)(3), drug-free workplace;
    c. Sec. 91.325(a)(4), anti-lobbying;
    d. Sec. 91.325(a)(5), authority of the State to carry out the 
program;
    e. Sec. 91.325(a)(7), acquisition and relocation, except as waived;
    f. Sec. 91.325(b)(1), citizen participation, except as waived;
    g. Sec. 91.325(b)(2), consultation with local governments;
    h. Sec. 91.325(b)(5), compliance with antidiscrimination laws;
    i. Sec. 91.325(b)(6), excessive force;
    j. Sec. 91.325(b)(7), compliance with applicable laws.
    7. Citizen participation
    a. In order to permit public examination and appraisal of the 
Action Plan for Disaster Recovery, to enhance the public accountability 
of grantees, and to facilitate coordination of activities with 
different levels of government, the grantee (or unit of general local 
government receiving a grant from a State) shall in a timely manner--
    i. Furnish citizens or, as appropriate, units of general local 
government information concerning the amount of funds available for 
proposed HUD Disaster Recovery grant activities and the range of 
activities that may be undertaken, including the estimated amount 
proposed to be used for activities that will benefit persons of low and 
moderate income;
    ii. Publish a proposed Action Plan for Disaster Recovery in such 
manner to afford affected citizens or, as appropriate, units of general 
local government an opportunity to examine its content and to submit 
comments on the proposed disaster recovery performance and on the 
community development performance of the grantee; and
    iii. Provide citizens or, as appropriate, units of general local 
government with reasonable notice of, and opportunity to comment on, 
any substantial change proposed to be made in the use of funds received 
under this grant from one eligible activity to another or in the method 
of distribution of such funds.
    In preparing the Action Plan for Disaster Recovery, the grantee 
shall consider any such comments and views and may, if deemed 
appropriate by the grantee, modify the proposed Action Plan for 
Disaster Recovery. The Action Plan for Disaster Recovery shall be made 
available to the public, and a copy shall be furnished to the Secretary 
together with the certifications required under sections 3. and 5. 
above. Any Action Plan for Disaster Recovery may be modified or amended 
from time to time by the grantee in accordance with the same procedures 
required in this paragraph for the preparation and submission of such 
Action Plan for Disaster Recovery.
    b. A HUD Disaster Recovery grant may be made only if the grantee 
certifies that it is following a detailed citizen participation plan 
that:
    i. Provides for and encourages citizen participation, with 
particular emphasis on areas in which HUD Disaster Recovery funds are 
proposed to be used;
    ii. Provides citizens with information and records relating to the 
grantee's proposed use of funds, and relating to the actual use of HUD 
Disaster Recovery funds; and
    iii. Identifies how the needs of non-English speaking residents 
will be met in the case of public hearings where a significant number 
of non-English speaking residents can be reasonably expected to 
participate.
    This paragraph may not be construed to restrict the responsibility 
or authority of the grantee for the development and execution of its 
HUD Disaster Recovery Initiative.

F. Eligible Activities

    1. Grantees may not use HUD Disaster Recovery funds for activities 
reimbursable or for which funds are made available by the Federal 
Emergency Management Agency (FEMA), the Small Business Administration 
(SBA), or the U.S. Army Corps of Engineers (USACE).
    2. Disaster Recovery funds may be used for activities that are 
relevant to disaster recovery, as described in this Notice. Grantees 
must use funds appropriated under Title II, Chapter 10 of the 1997 
Emergency Supplemental Appropriations Act for Recovery from Natural 
Disasters (Pub. L. 105-18) for buyouts, relocation, long-term recovery, 
and mitigation related to a covered disaster. These funds will 
supplement, not replace, Federal Emergency Management Agency (FEMA) and 
other Federal funds. Those activities include:
    a. Acquisition of real property (including the buying out of 
properties in a flood plain and the acquisition of relocation 
property);
    b. Relocation payments and assistance for displaced persons, 
businesses, organizations, and farm operations;
    c. Debris removal, clearance, and demolition;
    d. Rehabilitation or reconstruction of residential and non-
residential structures;
    e. Acquisition, construction, reconstruction, or installation of 
public facilities and improvements, such as water and sewer facilities, 
streets, neighborhood centers, and the conversion of school buildings 
for eligible purposes;
    f. Code enforcement in deteriorated or deteriorating areas, e.g., 
disaster areas;
    g. Assistance to facilitate homeownership among low and moderate 
income persons, e.g., downpayment assistance, interest rate subsidies, 
loan guarantees;
    h. Provision of public services, limiting costs to no more than 25 
percent of the grant amount;
    i. Activities relating to energy conservation and renewable energy 
resources, incorporated into recovery;
    j. Provision of assistance to profit-motivated businesses to carry 
out economic development or recovery activities that benefit the public 
through job creation/retention; and
    k. Planning and administration costs up to 20 percent of the grant 
(e.g., planning, urban environmental design and policy-planning-
management-capacity building activities and payment of reasonable 
program administration costs for: general management, oversight and 
coordination; public information; fair housing activities; indirect 
costs charged to the HUD Disaster Recovery Initiative under a cost 
allocation plan prepared in accordance with OMB Circulars A-21, A-87, 
or A-122 as applicable; and submission of applications for Federal 
programs; as well as,
    l. Acquisition, construction, or reconstruction of buildings for 
the general conduct of government damaged or destroyed as a direct 
result of a Presidentially declared disaster; and
    m. Construction of new replacement housing by units of general 
local government damaged or destroyed as a direct result of a 
Presidentially declared disaster.
    3. Determination of eligibility. An activity may be assisted in 
whole or in part with HUD Disaster Recovery funds

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only if all of the following requirements are met:
    a. Compliance with section F. Each activity must meet the 
eligibility requirements of section F of this notice.
    b. Compliance with national objectives. Grant recipients under the 
HUD Disaster Recovery Initiative must certify that their projected use 
of funds has been developed so as to give maximum feasible priority to 
activities that will carry out one of the national objectives of 
benefit to low- and moderate-income families or aid in the prevention 
or elimination of slums or blight; the projected use of funds may also 
include activities that the recipient certifies are 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. Consistent with the foregoing, each 
recipient must ensure, and maintain evidence, that each of its 
activities assisted with HUD Disaster Recovery funds meets one of the 
three national objectives as contained in its certification. Criteria 
for determining whether an activity addresses one or more of these 
objectives are contained at Sec. 570.208.
    c. Compliance with the primary objective. The primary objective of 
the HUD Disaster Recovery Initiative is the redevelopment of viable 
urban communities, by providing decent housing and a suitable living 
environment and expanding economic opportunities, especially for 
persons of low and moderate income. In determining the percentage of 
funds expended for such activities:
    i. Costs of administration and planning eligible under section F.1. 
of this notice will be assumed to benefit low- and moderate-income 
persons in the same proportion as the remainder of the HUD Disaster 
Recovery funds and, accordingly, shall be excluded from the 
calculation;
    ii. Funds expended for the acquisition, new construction or 
rehabilitation of property for housing that qualifies under 
Sec. 570.208(a)(3) must be counted for this purpose but shall be 
limited to an amount determined by multiplying the total cost 
(including HUD Disaster Recovery grant and non-HUD Disaster Recovery 
grant costs) of the acquisition, construction or rehabilitation by the 
percent of units in such housing to be occupied by low- and moderate-
income persons.
    iii. Funds expended for any other activities qualifying under 
Sec. 570.208(a) must be counted for this purpose in their entirety.
    d. Compliance with environmental review procedures. The 
environmental review procedures set forth at 24 CFR part 58 must be 
completed for each activity (or project as defined in 24 CFR part 58), 
as applicable.
    4. Special policies governing facilities. The following special 
policies apply to:
    a. Facilities containing both eligible and ineligible uses. A 
public facility otherwise eligible for assistance under the HUD 
Disaster Recovery Initiative may be provided with HUD Disaster Recovery 
funds even if it is part of a multiple use building containing 
ineligible uses, if:
    i. The facility that is otherwise eligible and proposed for 
assistance will occupy a designated and discrete area within the larger 
facility; and
    ii. The recipient can determine the costs attributable to the 
facility proposed for assistance as separate and distinct from the 
overall costs of the multiple-use building and/or facility.
    Allowable costs are limited to those attributable to the eligible 
portion of the building or facility.
    b. Fees for use of facilities. Reasonable fees may be charged for 
the use of the facilities assisted with HUD Disaster Recovery funds, 
but charges such as excessive membership fees, which will have the 
effect of precluding low- and moderate-income persons from using the 
facilities, are not permitted.
    5. Special assessments under the HUD Disaster Recovery Initiative. 
The following policies relate to special assessments under the HUD 
Disaster Recovery Initiative:
    a. Definition of special assessment. The term ``special 
assessment'' means the recovery of the capital costs of a public 
improvement, such as streets, water or sewer lines, curbs, and gutters, 
through a fee or charge levied or filed as a lien against a parcel of 
real estate as a direct result of benefit derived from the installation 
of a public improvement, or a one-time charge made as a condition of 
access to a public improvement. This term does not relate to taxes, or 
the establishment of the value of real estate for the purpose of 
levying real estate, property, or ad valorem taxes, and does not 
include periodic charges based on the use of a public improvement, such 
as water or sewer user charges, even if such charges include the 
recovery of all or some portion of the capital costs of the public 
improvement.
    b. Special assessments to recover capital costs. Where HUD Disaster 
Recovery funds are used to pay all or part of the cost of a public 
improvement, special assessments may be imposed as follows:
    i. Special assessments to recover the HUD Disaster Recovery funds 
may be made only against properties owned and occupied by persons not 
of low and moderate income. Such assessments constitute program income.
    ii. Special assessments to recover the non-HUD Disaster Recovery 
grant portion may be made provided that HUD Disaster Recovery funds are 
used to pay the special assessment in behalf of all properties owned 
and occupied by low and moderate income persons; except that HUD 
Disaster Recovery funds need not be used to pay the special assessments 
in behalf of properties owned and occupied by moderate-income persons 
if the grant recipient certifies that it does not have sufficient HUD 
Disaster Recovery funds to pay the assessments in behalf of all of the 
low- and moderate-income owner-occupant persons. Funds collected 
through such special assessments are not program income.
    c. Public improvements not initially assisted with HUD Disaster 
Recovery funds. The payment of special assessments with HUD Disaster 
Recovery funds constitutes HUD Disaster Recovery assistance to the 
public improvement. Therefore, HUD Disaster Recovery funds may be used 
to pay special assessments provided:
    i. The installation of the public improvements was carried out in 
compliance with requirements applicable to activities assisted under 
this initiative, including environmental, citizen participation, and 
Davis-Bacon requirements;
    ii. The installation of the public improvement meets a criterion 
for national objectives in Sec. 570.208 (a)(1), (b), or (c); and
    iii. The requirements of Sec. 570.200(c)(2)(ii) are met.
    6. Limitation on planning and administrative costs.
    a. No more than 20 percent of the sum of any grant, plus program 
income, shall be expended for planning and program administrative 
costs, paragraph F.1.k. HUD will consider requests for waiver and 
modification of this limitation under extraordinary disaster recovery 
circumstances on a case-by-case basis.
    b. State administrative costs. The State is responsible for the 
administration of its HUD Disaster Recovery Initiative. The amount of 
HUD Disaster Recovery funds used to pay administrative costs incurred 
by the State in carrying out its responsibilities under this program 
shall not exceed 2 percent of the aggregate of the State's grant.

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    7. Reimbursement for pre-award costs. The effective date of the 
grant agreement is the program year start date.
    a. Prior to the effective date of the grant agreement, a recipient 
may incur costs beginning on or after the incident date of the 
Presidentially declared disaster, and then after the effective date of 
the grant agreement pay for those costs using its HUD Disaster Recovery 
funds, provided that for city and county grantees:
    i. The activity for which the costs are being incurred is included 
in its Action Plan for Disaster Recovery prior to the costs being paid;
    ii. Citizens are advised of the extent to which these pre-award 
costs will affect the HUD Disaster Recovery funds;
    iii. The costs and activities funded are in compliance with the 
requirements of this initiative and with the Environmental Review 
Procedures stated in 24 CFR part 58;
    iv. HUD Disaster Recovery grant payments for pre-award costs will 
be made during a time no longer than the next 24 months following the 
effective date of the grant agreement or amendment in which the 
activity is first included; and
    v. The total amount of pre-award costs to be paid during any 
program year pursuant to this provision is no more than the greater of 
25 percent of the amount of the grant made for that year or $300,000.
    b. Upon the written request of the recipient, HUD may authorize 
payment of pre-award costs for activities that do not meet the criteria 
at paragraphs 7.a.iv or 7.a.v. of this section, if HUD determines, in 
writing, that there is good cause for granting an exception upon 
consideration of the following factors, as applicable:
    i. Whether granting the authority would result in a significant 
contribution to the goals and purposes of the HUD Disaster Recovery 
Initiative;
    ii. Whether failure to grant the authority would result in undue 
hardship to the recipient or beneficiaries of the activity;
    iii. Whether granting the authority would not result in a violation 
of a statutory provision;
    iv. Whether circumstances are clearly beyond the recipient's 
control; or
    v. Any other relevant considerations.
    8. Activities outside the jurisdiction of the unit of general local 
government. HUD Disaster Recovery funds may assist an activity located 
outside the jurisdiction of the unit of general local government that 
receives the HUD Disaster Recovery funds, provided the unit of general 
local government determines that the activity is meeting its disaster 
recovery needs and reasonable benefits accrue to residents of the 
jurisdiction.

G. Guidelines for Evaluating and Selecting Economic Development 
Projects

    HUD provides guidelines to assist the recipient to evaluate and 
select activities to be carried out for economic development purposes. 
These guidelines are composed of two components: guidelines for 
evaluating project costs and financial requirements; and standards for 
evaluating public benefit. The standards for evaluating public benefit 
are mandatory, but the guidelines for evaluating projects costs and 
financial requirements are not. They may be found at Sec. 570.482 (e) 
and (f) for States and at Sec. 570.209 for cities and counties. HUD may 
consider the waiver of such standards on a case-by-case basis upon 
submission of a written justification as to why the recipient cannot 
meet the requirement and a proposed alternative that assures at least a 
minimum level of public benefit.

H. Ineligible Activities

    1. General government expenses. Except as otherwise specifically 
authorized in this Notice, or under OMB Circular A-87, expenses 
required to carry out the regular responsibilities of the unit of 
general local government are not eligible for assistance.
    2. The following activities may not be assisted with HUD Disaster 
Recovery funds unless authorized under provisions of section 105(a)(15) 
of the Act.
    a. Purchase of equipment. The purchase of equipment with HUD 
Disaster Recovery funds is generally ineligible.
    i. Construction equipment. The purchase of construction equipment 
is ineligible, but compensation for the use of such equipment through 
leasing, depreciation, or use allowances pursuant to OMB Circulars A-
21, A-87 or A-122 as applicable for an otherwise eligible activity is 
an eligible use of HUD Disaster Recovery funds. However, the purchase 
of construction equipment for use as part of a solid waste disposal 
facility is eligible.
    ii. Fire protection equipment. Fire protection equipment is 
considered for this purpose to be an integral part of a public facility 
and thus, purchase of such equipment would be eligible.
    iii. Furnishings and personal property. The purchase of equipment, 
fixtures, motor vehicles, furnishings, or other personal property not 
an integral structural fixture is generally ineligible. HUD Disaster 
Recovery funds may be used, however, to purchase or to pay depreciation 
or use allowances (in accordance with OMB Circulars A-21, A-87 or A-
122, as applicable) for such items when necessary for use by a 
recipient or its subrecipients in the administration of activities 
assisted with HUD Disaster Recovery funds, or when eligible as fire 
fighting equipment, or when such items constitute all or part of a 
public service.
    b. Operating and maintenance expenses. The general rule is that any 
expense associated with repairing, operating or maintaining public 
facilities, improvements and services is ineligible. Specific 
exceptions to this general rule are operating and maintenance expenses 
associated with public service activities, interim assistance, and 
office space for program staff employed in carrying out the HUD 
Disaster Recovery Initiative. For example, the use of HUD Disaster 
Recovery funds to pay the allocable costs of operating and maintaining 
a facility used in providing a public service would be eligible, even 
if no other costs of providing such a service are assisted with such 
funds. Examples of ineligible operating and maintenance expenses are:
    i. Maintenance and repair of publicly owned streets, parks, 
playgrounds, water and sewer facilities, neighborhood facilities, 
senior centers, centers for persons with disabilities, parking and 
other public facilities and improvements. Examples of maintenance and 
repair activities for which HUD Disaster Recovery funds may not be used 
include the filling of pot holes in streets, repairing of cracks in 
sidewalks, the mowing of recreational areas, and the replacement of 
expended street light bulbs; and
    ii. Payment of salaries for staff, utility costs and similar 
expenses necessary for the operation of public works and facilities.
    c. Income payments. The general rule is that HUD Disaster Recovery 
funds may not be used for income payments. For purposes of the HUD 
Disaster Recovery Initiative, ``income payments'' means a series of 
subsistence-type grant payments made to an individual or family for 
items such as food, clothing, housing (rent or mortgage), or utilities, 
but excludes emergency grant payments made over a period of up to three 
consecutive months to the provider of such items or services on behalf 
of an individual or family. HUD may consider a waiver request for 
exceptional circumstances on a case-by-case basis.

[[Page 47349]]

I. Criteria for National Objectives

    The criteria at Sec. 570.483 and Sec. 570.208 shall be used for 
States and for cities and counties, respectively, to determine whether 
a HUD Disaster Recovery Initiative-assisted activity complies with one 
or more of the national objectives.

J. Treatment of Program Income

    For cities and counties, program income generated by HUD Disaster 
Recovery Initiative becomes program income to the grantee's CDBG 
program, not to its HUD Disaster Recovery grant. (For new grantees, not 
participating in the CDBG program, program income is governed by the 
provisions of Sec. 570.426). Therefore, any program income generated by 
HUD Disaster Recovery funds is to be included in cost cap calculations 
and program requirements for use of the CDBG funds. However, for 
States, the program income shall be returned to the State as program 
income for the year in which the State redistributes those funds.

K. Acquisition (Buyouts) of Flood-Damaged Properties

    1. Payment of Pre-flood Values for Buyouts. HUD Disaster Recovery 
Initiative grantees have the discretion to pay pre-flood or post-flood 
values for the acquisition of properties located in a flood way or 
flood plain. In using HUD Disaster Recovery funds for such 
acquisitions, the grantee must uniformly apply whichever valuation 
method it chooses.
    2. Duplication of Benefits and Optional Relocation Payments with 
Buyouts. a. Optional relocation assistance should only be provided to 
the extent necessary for displaced persons to relocate in a 
``comparable replacement dwelling,'' as defined in 42 U.S.C. 4601(10) 
and 49 CFR 24.2(d), except as provided by HUD with prior approval on a 
case by case basis when sufficient cause exists due to extraordinary 
erosive economic impact of relocation, and shall not exceed the 
difference between the housing replacement cost and the sum of:
    i. The net proceeds from any flood insurance payment (proceeds net 
of the cost of documented repairs of flood damage),
    ii. Personal tax savings that result from an owner's tax deduction 
of capital loss on displacement property,
    iii. FEMA Hazard Mitigation Grant Program acquisition proceeds, and
    iv. SBA disaster loan assistance.
    3. Buyout of Undamaged Properties. a. Many buyout projects contain 
some properties that were undamaged by the floods. Local administrators 
sometimes seek to offer buyouts to owners of undamaged properties to 
maximize clearance of the floodplain. Purchase of such properties with 
HUD Disaster Recovery funding is permitted if the properties are 
incidental to the project as a whole.
    4. Ownership and Maintenance of Acquired Property. a. Any property 
acquired with HUD Disaster Recovery funds being used to match FEMA 
Section 404 Hazard Mitigation Grant Program funds is subject to section 
404(b)(2) of the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, as amended, which requires that such property will be 
dedicated and maintained in perpetuity for a use that is compatible 
with open space, recreational, or wetlands management practices. In 
addition, with minor exceptions, no new structure may be erected on the 
property and no subsequent application for Federal disaster assistance 
may be made for any purpose. The acquiring entity may want to lease 
such property to adjacent property owners or other parties for 
compatible uses in return for a maintenance agreement. Although Federal 
policy encourages leasing rather than selling such property, the 
property may be sold. In all cases, a deed restriction must require 
that the property be dedicated and maintained for compatible uses in 
perpetuity.
    5. Future Federal Assistance to Owners Remaining in Floodplain.
    a. Section 582 of the National Flood Insurance Reform Act of 1994 
(in Title V of Pub. L. 103-325) (42 U.S.C. 5154a) prohibits flood 
disaster assistance in certain circumstances. In general, it provides 
that no Federal disaster relief assistance made available in a flood 
disaster area may be used to make a payment (including any loan 
assistance payment) to a person for repair, replacement, or restoration 
for damage to any personal, residential, or commercial property, if 
that person at any time has received flood disaster assistance that was 
conditional on the person first having obtained flood insurance under 
applicable Federal law and the person has subsequently failed to obtain 
and maintain flood insurance as required under applicable Federal law 
on such property. (Section 582 is self-implementing without 
regulations.) This means that a grantee may not provide disaster 
assistance for the above-mentioned repair, replacement, or restoration 
to a person that has failed to meet this requirement.
    b. Section 582 also implies a responsibility for a grantee that 
receives HUD Disaster Recovery funds or that, under section 122 of the 
Act, designates annually appropriated CDBG funds for disaster recovery. 
That responsibility is to inform property owners receiving disaster 
assistance that triggers the flood insurance purchase requirement that 
they have a statutory responsibility to notify any transferee of the 
requirement to obtain and maintain flood insurance, and that the 
transferring owner may be liable if he or she fails to do so. These 
requirements are described below.
    c. Duty To Notify. In the event of the transfer of any property 
described in paragraph e, the transferor shall, not later than the date 
on which such transfer occurs, notify the transferee in writing of the 
requirements to:
    i. Obtain flood insurance in accordance with applicable Federal law 
with respect to such property, if the property is not so insured as of 
the date on which the property is transferred; and
    ii. Maintain flood insurance in accordance with applicable Federal 
law with respect to such property.
    Such written notification shall be contained in documents 
evidencing the transfer of ownership of the property.
    d. Failure To Notify. If a transferor fails to make notification 
and, subsequent to the transfer of the property:
    i. The transferee fails to obtain or maintain flood insurance, in 
accordance with applicable Federal law, with respect to the property;
    ii. The property is damaged by a flood disaster; and
    iii. Federal disaster relief assistance is provided for the repair, 
replacement, or restoration of the property as a result of such damage,

 the transferor must reimburse the Federal Government in an amount 
equal to the amount of the Federal disaster relief assistance provided 
with respect to the property.
    e. The notification requirements apply to personal, commercial, or 
residential property for which Federal disaster relief assistance made 
available in a flood disaster area has been provided, prior to the date 
on which the property is transferred, for repair, replacement, or 
restoration of the property, if such assistance was conditioned upon 
obtaining flood insurance in accordance with applicable Federal law 
with respect to such property.
    f. The term ``Federal disaster relief assistance'' applies to HUD 
or other Federal assistance for disaster relief in ``flood disaster 
areas.'' This prohibition applies only to when the new disaster relief 
assistance was given for a loss caused by flooding. It does not apply 
to disaster assistance caused by other sources (i.e., earthquakes, 
fire, wind,

[[Page 47350]]

etc.). The term ``flood disaster area'' is defined in section 582(d)(2) 
to mean an area receiving a Presidential declaration of a major 
disaster or emergency as a result of flood conditions.

L. Other Program Requirements

    1. General. This section L. enumerates laws that the Secretary will 
treat as applicable to the HUD Disaster Recovery Initiative grants to 
cities and counties, including statutes expressly made applicable by 
the Act and certain other statutes and Executive Orders for which the 
Secretary has enforcement responsibility. The absence of mention herein 
of any other statute for which the Secretary does not have direct 
enforcement responsibility is not intended to be taken as an indication 
that, in the Secretary's opinion, such statute or Executive Order is 
not applicable to activities assisted under the Act. States are 
governed by applicable laws.
    2. Labor standards.
    In part because Davis-Bacon requirements are not applicable to 
Federal Emergency Management Agency (FEMA) disaster grants, it is 
necessary to clarify the applicability of Davis-Bacon requirements in 
relationship to the use of HUD Disaster Recovery funds in disaster 
recovery efforts. This section of this Notice addresses Davis-Bacon 
applicability to use of HUD Disaster Recovery funds to reimburse 
property owners for construction work either completed or in process at 
the time use of those funds is contemplated.
    In accordance with Section 110(a) of the Act, construction work 
financed in whole or in part with HUD Disaster Recovery funds is 
subject to Federal labor standards provisions including the payment of 
Davis-Bacon Act prevailing wage rates. Additionally, such work is 
subject to the requirements of the Copeland Act governing the 
certification and submission of weekly payroll reports and prohibiting 
kick-backs and other impermissible deductions from wages, and the 
overtime requirements of the Contract Work Hours and Safety Standards 
Act. The requirements found in Department of Labor (DOL) regulations 
for Davis-Bacon administration and enforcement (29 CFR parts 1, 3, 5, 
6, and 7) also apply.
    a. Applicability. HUD Disaster Recovery activities are subject to 
program policies and parameters for Federal labor standards 
applicability at Sec. 570.603. The labor provisions apply to 
rehabilitation of residential property only if such property contains 8 
or more units.
    b. Volunteers. Section 110(b) of the Act provides for the use of 
volunteer labor on construction work subject to Federal labor 
standards. Volunteers may be utilized to the extent permitted under the 
regulations in 24 CFR part 70.
    c. Work in progress. In accordance with 29 CFR 1.6(g), if HUD 
Disaster Recovery funds are approved after start of construction (e.g., 
rehabilitation), Davis-Bacon requirements apply to the construction 
work. In such cases, the appropriate Davis-Bacon wage decision and 
contract standards must be incorporated into the contract 
specifications retroactively to the date of award or start of 
construction, whichever was first. However, HUD may request and the DOL 
may approve a wage determination effective on the date the Disaster 
Recovery funding is approved (i.e., not retroactively to the start of 
construction), provided that HUD considers and DOL agrees that it is 
necessary and proper in the public interest to prevent injustice or 
undue hardship, and provided further that there is no evidence of 
intent to apply for Federal funding or assistance prior to contract 
award or start of construction, as appropriate.
    d. Reimbursement for completed construction work. When HUD Disaster 
Recovery funds are proposed to reimburse property owners for 
construction work performed and fully completed as disaster damage 
rehabilitation, Federal labor standards provisions (i.e., Davis-Bacon 
wage rates and related requirements) are not applicable to the 
completed work provided that:
    i. Neither the owner nor the city or county grantee, or for States, 
the unit of general local government, contemplated use of or 
reimbursement by HUD Disaster Recovery funds for the rehabilitation(s) 
before or during the time construction work was underway; and
    ii. No other Federal funding requiring the payment of Davis-Bacon 
wage rates was used to carry out the work.
    In these cases, the use of HUD Disaster Recovery funds to reimburse 
owners for completed rehabilitation does not constitute financing of 
construction work within the meaning of the labor standards provisions 
of Section 110 of the Act.
    e. Davis-Bacon Streamlining. The HUD Office of Labor Relations has 
instituted a number of streamlining measures that significantly reduce 
the paperwork/recordkeeping burdens commonly attributed to Davis-Bacon 
projects. In addition, Labor Relations headquarters and field staff are 
committed to providing expedited processing on all matters related to 
HUD Disaster Recovery activities.
    Note that most forms of HUD Disaster Recovery assistance to 
homeowners would not trigger Davis-Bacon requirements. Grantees should 
contact Richard S. Allan, Assistant to the Secretary for Labor 
Relations (Acting), or Jade M. Banks at (202)708-0370 for assistance in 
determining whether and to what extent Davis-Bacon requirements apply 
to specific activities undertaken with HUD Disaster Recovery funds. 
Information about Federal labor standards provisions and HUD programs 
is also available on the HUD Homepage at: http://www.hud.gov/olr/
olr__int2.html.
    3. National Flood Insurance Program. a. Cities and counties may not 
use HUD Disaster Recovery Initiative funding in flood hazard areas for 
acquisition or construction projects in communities that have been 
identified by FEMA as nonparticipating, noncompliant communities under 
the National Flood Insurance Program. Specific guidance can be found in 
the references in paragraph 3.b. for cities and counties. Though State-
administered formula programs are statutorily exempt from flood 
insurance purchase requirements, HUD strongly encourages States to 
adopt a similar policy if they have the authority to do so. Listings of 
participating, nonparticipating, and suspended communities are in the 
FEMA Federal Insurance Administration's ``National Flood Insurance 
Program Community Status Book,'' available on the World Wide Web at 
http://www.fema.gov/home/fema/csb.htm for viewing or downloading. 
FEMA's revised publication, ``Mandatory Purchase of Flood Insurance 
Guidelines,'' reflecting new provisions of the National Flood Insurance 
Reform Act of 1994 is also available on the World Wide Web at http://
www/fema.gov/nfip/mpurfi.htm.
    b. Section 202(a) of the Flood Disaster Protection Act of 1973 (42 
U.S.C. 4106) provides that no Federal officer or agency shall approve 
any financial assistance for acquisition or construction purposes (as 
defined under section 3(a) of said Act (42 U.S.C. 4003(a)), one year 
after a community has been formally notified of its identification as a 
community containing an area of special flood hazard, for use in any 
area that has been identified by the Director of the Federal Emergency 
Management Agency as an area having special flood hazards unless the 
community in which such area is situated is then participating in the 
National Flood Insurance Program. Notwithstanding the date of HUD 
approval of a city's or county's Action Plan for Disaster Recovery 
funds shall

[[Page 47351]]

not be expended for acquisition or construction purposes in an area 
that has been identified by the Federal Emergency Management Agency 
(FEMA) as having special flood hazards unless the community in which 
the area is situated is participating in the National Flood Insurance 
Program in accordance with 44 CFR parts 59-79, or less than a year has 
passed since FEMA notification to the community regarding such hazards; 
and, where the community is participating, flood insurance is obtained 
in accordance with section 102(a) of the Flood Disaster Protection Act 
of 1973 (42 U.S.C. 4012(a).)

M. Waiver of Statutory and Regulatory Requirements That Would Otherwise 
Apply to the HUD Disaster Recovery Initiative

    1. Title II, Chapter 10 of the 1997 Supplemental Appropriations Act 
provides that in administering these amounts, the Secretary may waive, 
or specify alternative requirements for, any provision of any statute 
or regulation that the Secretary administers in connection with the 
obligation by the Secretary or the use by the recipient of these funds, 
except for statutory requirements related to civil rights, fair housing 
and nondiscrimination, the environment, and labor standards, upon a 
finding that such waiver is required to facilitate the use of such 
funds, and would not be inconsistent with the overall purpose of the 
statute. As noted, the Secretary may not waive statutory requirements 
related to civil rights, fair housing and nondiscrimination, the 
environment, or labor standards. The procedures set forth in this 
notice reflect the waiver of the statutory and regulatory requirements 
that the Secretary considered necessary for the implementation of the 
HUD Disaster Recovery Initiative, and that are authorized to be waived 
under Title II, Chapter 10 of the 1997 Supplemental Appropriations Act. 
The statutory and regulatory requirements that have been waived pertain 
to requirements governing consolidated planning submissions, CDBG 
program requirements, acquisition and relocation requirements, and 
other program related requirements. Appendix A to this notice lists the 
specific statutory and regulatory requirements that have been waived 
and sets forth the reasons for the waivers. With respect to the waivers 
of these statutory and regulatory requirements, no further action need 
be taken by the grantees.
    2. HUD may issue additional waivers (beyond those already waived by 
the Secretary in the implementation of this initiative) deemed 
appropriate under this authority. HUD will consider additional waivers 
on a case-by-case basis, as requested by grantees. Such waivers will 
receive expedited review.
    3. Grantees should give priority to projects that benefit low-and 
moderate-income individuals to the maximum extent possible.

II. Ensuring the Public Trust

A. Program Administrative, Recordkeeping and Reporting Requirements

    The program administrative requirements at Secs. 570.489-570.492 
for States and at Secs. 570.500-570.513 for cities and counties, which 
are not otherwise waived, shall apply, except that, with respect to 
reporting:
    1. States must submit a Performance Evaluation Report (PER) 
pursuant to 24 CFR 91.520, separately for the HUD Disaster Recovery 
Initiative, similar in all other respects to that which is required for 
the CDBG program regulated at 24 CFR part 570. The first PER for the 
HUD Disaster Recovery Initiative will be due ninety (90) days after the 
12-month period following the effective date of the grant and each 12-
month period thereafter until all funds are spent. The PER must include 
a special narrative that discusses how the State assured that 
activities met the requirements of this Notice with respect to the 
buyout of structures in a disaster area.
    2. Cities and counties must submit a Performance Report for the HUD 
Disaster Recovery Initiative in accordance with 24 CFR 91.520. The 
Performance Report will be due ninety (90) days after each 12-month 
period following the effective date of the grant each year until all 
funds are spent. The final Performance Report will be due ninety (90) 
days after all funds are spent. It also must include a special 
narrative that discusses how the city or county assured that activities 
met the requirements of this Notice with respect to the buyout of 
structures in a disaster area.
    3. In addition, Congress has required that quarterly reports be 
submitted on all disbursements and use of funds for or associated with 
buyouts. Therefore, each grantee must submit a quarterly report, as HUD 
will prescribe, no later than 30 days following each calendar quarter, 
beginning after the first full calendar quarter after grant award. That 
report will include information on the project name, activity, 
location, national objective, funds budgeted and expended, non-HUD 
Disaster Recovery Initiative Federal source and funds, numbers of 
properties and housing units, and numbers of low- and moderate-income 
households. HUD will seek approval from OMB for any new information 
collection requirements in accordance with the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3520).

B. Cost Principles

    1. Direct and Indirect Cost principles. Costs incurred, whether 
charged on a direct or an indirect basis, must be in conformance with 
OMB Circulars A-87, ``Cost Principles for State, Local and Indian 
Tribal Governments''; A-122, ``Cost Principles for Non-profit 
Organizations''; or A-21, ``Cost Principles for Educational 
Institutions,'' as applicable. 1 All items of cost listed in 
Attachment B of these Circulars that require prior Federal agency 
approval are allowable without prior approval of HUD to the extent they 
comply with the general policies and principles stated in Attachment A 
of such circulars and are otherwise eligible under the HUD Disaster 
Recovery Initiative, except for the following:
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    \1\ These circulars are available from the American Communities 
Center by calling the following toll-free numbers: (800) 998-9999 or 
(800) 483-2209 (TTY).
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    i. Depreciation methods for fixed assets shall not be changed 
without HUD's specific approval or, if charged through a cost 
allocation plan, the Federal cognizant agency.
    ii. Fines and penalties (including punitive damages) are 
unallowable costs to the HUD Disaster Recovery Initiative.
    iii. Pre-award costs for city and county grantees are limited to 
those authorized under Sec. 570.200(h).
    2. Uniform administrative requirements and cost principles. The 
city or county grantee, its agencies or instrumentalities, and 
subrecipients shall comply with the policies, guidelines, and 
requirements of 24 CFR part 85 and OMB Circulars A-87, A-110 
(implemented at 24 CFR part 84), A-122, A-133 (implemented at 24 CFR 
part 45), as applicable, as they relate to the acceptance and use of 
Federal funds, HUD Disaster Recovery grants. The applicable sections of 
24 CFR parts 84 and 85 are set forth at Sec. 570.502. States shall 
comply with the applicable requirements of Sec. 570.489 that are not 
otherwise waived.
    3. Consultant activities. Consulting services are eligible for 
assistance for professional assistance in program planning, development 
of community development objectives, and other general professional 
guidance relating to program execution. The use of

[[Page 47352]]

consultants is governed by the following:
    a. Employer-employee type of relationship. No person providing 
consultant services in an employer-employee type of relationship shall 
receive more than a reasonable rate of compensation for personal 
services paid with HUD Disaster Recovery funds. In no event, however, 
shall such compensation exceed the equivalent of the daily rate paid 
for Level IV of the Executive Schedule. Such services shall be 
evidenced by written agreements between the parties that detail the 
responsibilities, standards, and compensation.
    b. Independent contractor relationship. Consultant services 
provided under an independent contractor relationship are governed by 
the procurement requirements in 24 CFR 85.36 and are not subject to the 
Level IV limitation.

C. Public Law 88-352 and Public Law 90-284; Affirmatively Furthering 
Fair Housing; Executive Order 11063

    1. The following requirements apply to HUD Disaster Recovery 
Initiative:
    a. Public Law 88-352, which is title VI of the Civil Rights Act of 
1964 (42 U.S.C. 2000d et seq.), and implementing regulations in 24 CFR 
part 1.
    b. Public Law 90-284, which is the Fair Housing Act (42 U.S.C. 
3601-3620). In accordance with the Fair Housing Act, the Secretary 
requires that grantees administer all programs and activities related 
to housing and community development in a manner to affirmatively 
further the policies of the Fair Housing Act. Furthermore, for each 
grantee receiving a HUD Disaster Recovery grant, the certification that 
the grantee will affirmatively further fair housing shall specifically 
require the grantee to assume the responsibility of fair housing 
planning by conducting an analysis to identify impediments to fair 
housing choice within its jurisdiction, taking appropriate actions to 
overcome the effects of any impediments identified through that 
analysis, and maintaining records reflecting the analysis and actions 
in this regard.
    2. Executive Order 11063, as amended by Executive Order 12259 (3 
CFR, 1959-1963 Comp., p. 652; 3 CFR, 1980 Comp., p. 307)(Equal 
Opportunity in Housing), and implementing regulations in 24 CFR part 
107, also apply.

D. Section 109 of the Act

    1. No person in the United States shall on the ground of race, 
color, religion, national origin or sex, be excluded from participation 
in, be denied the benefits of, or be subjected to discrimination under, 
any program or activity funded in whole or in part with HUD Disaster 
Recovery funds made available pursuant to the Act. For purposes of this 
requirement, ``program or activity'' is defined as any function 
conducted by an identifiable administrative unit of the recipient, or 
by any unit of government, subrecipient, or private contractor 
receiving HUD Disaster Recovery grant funds or loans from the 
recipient. ``Funded in whole or in part with HUD community development 
funds'' means that HUD Disaster Recovery funds have been transferred by 
the recipient or a subrecipient to an identifiable administrative unit 
and disbursed in a program or activity. The term ``recipient'' means 
recipient as defined in Sec. 1.2(f).
    2. Specific discriminatory actions prohibited and corrective 
actions. a. A recipient may not, under any program or activity, 
directly or through contractual or other arrangements, on the ground of 
race, color, religion, national origin, or sex:
    i. Deny any individual any facilities, services, financial aid or 
other benefits provided under the program or activity.
    ii. Provide any facilities, services, financial aid or other 
benefits that are different, or are provided in a different form, from 
that provided to others under the program or activity.
    iii. Subject an individual to segregated or separate treatment in 
any facility in, or in any matter of process related to receipt of any 
service or benefit under the program or activity.
    iv. Restrict an individual in any way in access to, or in the 
enjoyment of, any advantage or privilege enjoyed by others in 
connection with facilities, services, financial aid or other benefits 
under the program or activity.
    v. Treat an individual differently from others in determining 
whether the individual satisfies any admission, enrollment, 
eligibility, membership, or other requirement or condition that the 
individual must meet in order to be provided any facilities, services 
or other benefit provided under the program or activity.
    vi. Deny an individual an opportunity to participate in a program 
or activity as an employee.
    b. A recipient may not use criteria or methods of administration 
that have the effect of subjecting persons to discrimination on the 
basis of race, color, religion, national origin, or sex, or have the 
effect of defeating or substantially impairing accomplishment of the 
objectives of the program or activity with respect to persons of a 
particular race, color, religion, national origin, or sex.
    c. A recipient, in determining the site or location of housing or 
facilities provided in whole or in part with funds, may not make 
selections of such site or location that have the effect of excluding 
persons from, denying them the benefits of, or subjecting them to 
discrimination on the ground of race, color, religion, national origin, 
or sex; or that have the purpose or effect of defeating or 
substantially impairing the accomplishment of the objectives of the 
Act.
    d. i. In administering a program or activity funded in whole or in 
part with HUD Disaster Recovery funds regarding which the recipient has 
previously discriminated against persons on the ground of race, color, 
religion, national origin or sex, or if there is sufficient evidence to 
conclude that such discrimination existed, the recipient must take 
remedial affirmative action to overcome the effects of prior 
discrimination. The word ``previously'' does not exclude current 
discriminatory practices.
    ii. In the absence of discrimination, a recipient, in administering 
a program or activity funded in whole or in part with HUD Disaster 
Recovery funds, may take any nondiscriminatory affirmative action 
necessary to ensure that the program or activity is open to all without 
regard to race, color, religion, national origin or sex.
    iii. After a finding of noncompliance or after a recipient has a 
firm basis to conclude that discrimination has occurred, a recipient 
shall not be prohibited from taking any eligible action to ameliorate 
an imbalance in services or facilities provided to any geographic area 
or specific group of persons within its jurisdiction, where the purpose 
of such action is to remedy prior discriminatory practice or usage.
    e. Notwithstanding anything to the contrary, nothing contained 
herein shall be construed to prohibit any recipient from maintaining or 
constructing separate living facilities or rest room facilities for the 
different sexes. Furthermore, selectivity on the basis of sex is not 
prohibited when institutional or custodial services can properly be 
performed only by a member of the same sex as the recipients of the 
services.
    3. Any prohibition against discrimination on the basis of age under 
the Age Discrimination Act of 1975 (42 U.S.C. 6101 et seq.) or with 
respect to an otherwise qualified handicapped person as provided in 
section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) shall 
also apply to any program or

[[Page 47353]]

activity funded in whole or in part with HUD Disaster Recovery funds. 
HUD regulations implementing the Age Discrimination Act are contained 
in 24 CFR part 146 and the regulations implementing section 504 are 
contained in 24 CFR part 8.

E. Environmental Review Requirements

    1. Prior to the commitment of any HUD Disaster Recovery funds, 
grantees must comply with the regulations in 24 CFR part 58. These 
regulations require: the analysis of potential environmental impacts; 
consultation with interested parties; and public notification of the 
results of the analysis and intent to request release of funds from 
HUD. Also, they require that the State or local government assume 
compliance with these rules by execution of the grant agreement with 
HUD, and a State or local government certification that it will comply 
with all the applicable Federal environmental rules.
    2. Disaster Recovery Assistance in a Flood Plain. a. Grantees must 
follow the eight-step decision-making process required by Executive 
Order 11988, Flood Plain Management, codified for HUD programs at 
Sec. 55.20. The Order covers the proposed acquisition, construction, 
improvement, disposition, financing, and use of property in a flood 
plain. Other related Federal environmental laws and authorities noted 
at Sec. 58.5 may also apply.
    b. The Office of Management and Budget (OMB) and the Council on 
Environmental Quality (CEQ) jointly issued a memorandum on February 18, 
1997 entitled ``Floodplain Management and Procedures For Evaluation and 
Review of Levee and Associated Restoration Projects,'' which emphasizes 
the need to consider nonstructural alternatives, e.g., ``buyouts,'' in 
flood disaster recovery activities and the need for coordination among 
all levels of government.
    3. Environmental assessments and reviews may be tiered to eliminate 
duplication and to save time and resources. For other Federal programs, 
environmental assessments and reviews are not carried out by grantees 
as they are for the HUD Disaster Recovery Initiative, but are usually 
undertaken by Federal staff or contractors. Therefore, grantees must 
coordinate with other Federal agencies, e.g., FEMA, to tier 
environmental assessments and reviews for activities funded by programs 
of both Federal agencies.
    4. Joint Environmental Assessments between HUD and Other Federal 
Agencies. a. In addition to the provisions of Sec. 58.33, the following 
special procedures may be employed when a project related to recovery 
from a covered disaster is jointly funded by HUD and other Federal 
agencies.
    b. A State or local government administering Federal environmental 
requirements for the HUD Disaster Recovery Initiative may enter into 
cooperating agreements with other Federal agencies to prepare an 
environmental assessment for a HUD Disaster Recovery Initiative-funded 
project. The cooperating agreement will identify the project, all 
Federal agencies party to the agreement (including State and local 
governments acting for HUD under the provisions of 24 CFR part 58), 
which agency will be the lead agency and prepare the environment 
assessment, and the scope of the assessment, including the size and 
area of potential impact. The lead agency will prepare the assessment, 
using its own CEQ-approved procedures, and conduct all required 
reviews, consultations and public notifications under applicable 
related laws and authorities.
    c. The provisions of 24 CFR part 58 would apply if a State or local 
government administering a HUD-funded program that is subject to part 
58 (e.g., the HUD Disaster Recovery Initiative) is the lead agency.
    d. If the State or local government that assumes the HUD 
environmental review responsibilities is not the lead agency, then that 
government must review the completed environmental assessment that was 
prepared by a lead agency under the cooperating agreement. If the 
review of the document determines that the information is not accurate 
or complete or does not meet the requirements of 24 CFR part 58, a 
State or local government administering the provisions of 24 CFR part 
58 must reject the assessment and prepare its own independent 
assessment as required in 24 CFR part 58. A State or local government 
acting as a cooperating agency remains responsible for review under 
authorities that may be unique to HUD-assisted projects under part 58, 
i.e., HUD environmental standards in 24 CFR part 51 and HUD policy 
regarding toxic or hazardous materials. However, if a lead agency's 
assessment meets the requirements of part 58, except for a lack of 
coverage of these particular areas, the cooperating agency need not 
reject the assessment. In these cases, the cooperating agency may add 
its own review of these areas and its own findings regarding the 
overall environmental impact of the project.
    e. If an assessment showing no significant environmental impact is 
adopted by a State or local government administering the provisions of 
24 CFR part 58, it must formally record its adoption pursuant to 
Sec. 58.38, prepare a statement that the proposed HUD funding of the 
proposed project produces no significant environmental impact (FONSI), 
and follow the provisions for release of funds as stated in subpart H 
of 24 CFR part 58, including notice to the public and the statutory 
waiting period.

F. Displacement, Relocation, Acquisition, and Replacement of Housing

    1. General policy for minimizing displacement. Consistent with the 
other goals and objectives of the HUD Disaster Recovery Initiative, 
grantees (or States or State recipients, as applicable) shall assure 
that they have taken all reasonable steps to minimize the displacement 
of persons (families, individuals, businesses, nonprofit organizations, 
and farms) as a result of activities assisted under this program.
    2. Relocation assistance for displaced persons at URA levels. a. A 
displaced person shall be provided with relocation assistance at the 
levels described in, and in accordance with the requirements of, 49 CFR 
part 24, which contains the government-wide regulations implementing 
the Uniform Relocation Assistance and Real Property Acquisition 
Policies Act of 1970 (URA) (42 U.S.C. 4601-4655).
    b. Displaced person. i. For purposes of paragraph 2. of this 
section, the term ``displaced person'' means any person (family, 
individual, business, nonprofit organization, or farm) that moves from 
real property, or moves his or her personal property from real 
property, permanently and involuntarily, as a direct result of 
rehabilitation, demolition, or acquisition for an activity assisted 
under this initiative. A permanent, involuntary move for an assisted 
activity includes a permanent move from real property that is made:
    (1) After notice by the grantee (or the State recipient, if 
applicable) to move permanently from the property, if the move occurs 
after the initial official submission to HUD (or the State, as 
applicable) for grant, loan, or loan guarantee funds under this 
initiative that are later provided or granted.
    (2) After notice by the property owner to move permanently from the 
property, if the move occurs after the date of the submission of a 
request for financial assistance by the property owner (or person in 
control of the site) that is later approved for the requested activity.
    (3) Before the date described in paragraph 2.b.i.(1) or (2), if 
either HUD or the grantee (or State, as applicable) determines that the 
displacement

[[Page 47354]]

directly resulted from acquisition, rehabilitation, or demolition for 
the requested activity.
    (4) If the person is the tenant-occupant of a dwelling unit and any 
one of the following two situations occurs:
    (a) The tenant is required to relocate temporarily for the activity 
but the tenant is not offered payment for all reasonable out-of-pocket 
expenses incurred in connection with the temporary relocation, 
including the cost of moving to and from the temporary location and any 
increased housing costs, or other conditions of the temporary 
relocation are not reasonable; and the tenant does not return to the 
building/complex; or
    (b) The tenant is required to move to another unit in the building/
complex, but is not offered reimbursement for all reasonable out-of-
pocket expenses incurred in connection with the move.
    ii. Notwithstanding the provisions of paragraph 2.b.i., the term 
``displaced person'' does not include:
    (1) A person who is evicted for cause based upon serious or 
repeated violations of material terms of the lease or occupancy 
agreement. To exclude a person on this basis, the grantee (or State or 
State recipient, as applicable) must determine that the eviction was 
not undertaken for the purpose of evading the obligation to provide 
relocation assistance under this section;
    (2) A person who moves into the property after the date of the 
notice described in paragraph 2.b.i. (1) or (2) of this section, but 
who received a written notice of the expected displacement before 
occupancy.
    (3) A person who is not displaced as described in 49 CFR 
24.2(g)(2).
    (4) A person who the grantee (or State, as applicable) determines 
is not displaced as a direct result of the acquisition, rehabilitation, 
or demolition for an assisted activity. To exclude a person on this 
basis, HUD must concur in that determination.
    iii. A grantee (or State or State recipient, as applicable) may, at 
any time, request HUD to determine whether a person is a displaced 
person under this section.
    3. Optional relocation assistance. In connection with the use of 
HUD Disaster Recovery funds for buyouts, a grantee may provide (or the 
State may permit the State recipient to provide, as applicable) 
relocation payments and other relocation assistance to persons 
displaced by activities that are not subject to paragraphs 2. or 3. The 
grantee may also provide (or the State may also permit the State 
recipient to provide, as applicable) relocation assistance to persons 
receiving assistance under paragraphs 2. or 3. of this section at 
levels in excess of those required by these paragraphs. Unless such 
assistance is provided under State or local law, the grantee (or State 
recipient, as applicable) shall provide such assistance only upon the 
basis of a written determination that the assistance is appropriate. 
The grantee (or State recipient, as applicable) must adopt a written 
policy available to the public that describes the relocation assistance 
that the grantee (or State recipient, as applicable) has elected to 
provide and that provides for equal relocation assistance within each 
class of displaced persons.
    4. Acquisition of real property. The acquisition of real property 
for an assisted activity is subject to 49 CFR part 24, subpart B.
    5. Appeals. If a person disagrees with the determination of the 
grantee (or the State recipient, as applicable) concerning the person's 
eligibility for, or the amount of, a relocation payment under this 
section, the person may file a written appeal of that determination 
with the grantee (or the State recipient, as applicable). The appeal 
procedures to be followed are described in 49 CFR 24.10. In addition, a 
low- or moderate-income household that has been displaced from a 
dwelling may file a written request for review of the grantee's 
decision to the HUD Field Office. For purposes of State HUD Disaster 
Recovery funds, a low- or moderate-income household may file a written 
request for review of the State recipient's decision with the State.
    6. Responsibility of grantee or State. a. The grantee (or State, if 
applicable) is responsible for ensuring compliance with these 
requirements, notwithstanding any third party's contractual obligation 
to the grantee to comply with the provisions of this section. For 
purposes of State HUD Disaster Recovery funds, the State shall require 
State recipients to certify that they will comply with the requirements 
of this section.
    b. The cost of assistance required under this section may be paid 
from local public funds, funds provided under this initiative, or funds 
available from other sources.
    c. The grantee (or State and State recipient, as applicable) must 
maintain records in sufficient detail to demonstrate compliance with 
the provisions of this section.

G. Employment and Contracting Opportunities

    1. Grantees shall comply with Executive Order 11246, as amended by 
Executive Orders 11375, 11478, 12086, and 12107 (3 CFR, 1964-1965 
Comp., p. 339; 3 CFR, 1966-1970 Comp., p. 684; 3 CFR, 1966-1970 Comp., 
p. 803; 3 CFR, 1978 Comp., p. 230; and 3 CFR, 1978 Comp., p. 264) 
(Equal Employment Opportunity) and the implementing regulations at 41 
CFR chapter 60; and
    2. Though requirements of Section 3 of the Housing and Urban 
Development Act of 1968 (12 U.S.C. 1701u) and implementing regulations 
at 24 CFR part 135, are waived, HUD encourages each grantee to give 
priority to the hiring of local low and moderate income persons and 
contractors in carrying out its disaster recovery activities.
    3. Contracting with small and minority firms, women's business 
enterprises and labor surplus area firms. a. The grantee and subgrantee 
must take all necessary affirmative steps to assure that minority 
firms, women's business enterprises, and labor surplus area firms are 
used when possible.
    b. Affirmative steps include:
    i. Placing qualified small and minority businesses and women's 
business enterprises on solicitation lists;
    ii. Assuring that small and minority businesses and women's 
business enterprises are solicited whenever they are potential sources;
    iii. Dividing total requirements, when economically feasible, into 
smaller tasks or quantities to permit maximum participation by small 
and minority businesses, and women's business enterprises;
    iv. Establishing delivery schedules, where the requirement permits, 
which encourage participation by small and minority businesses, and 
women's business enterprises;
    v. Using the services and assistance of SBA and the Minority 
Business Development Agency of the U.S. Department of Commerce; and
    vi. Requiring the prime contractor, if subcontracts are to be let, 
to take the affirmative steps listed in subparagraphs (1) through (5) 
above.

Lead-Based Paint

    1. Requirements for city and county grantees. City and county 
grantees shall comply with the requirements of Sec. 570.608.
    2. Requirements for State grantees. States shall comply with the 
provisions of Sec. 570.487(c).

Architectural Barriers Act and the Americans With Disabilities Act

    1. The Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157) 
requires certain Federal and Federally funded buildings and other 
facilities to be designed, constructed, or altered in accordance with 
standards that insure

[[Page 47355]]

accessibility to, and use by, physically handicapped people. A building 
or facility designed, constructed, or altered with funds allocated or 
reallocated under this initiative after December 11, 1995, and that 
meets the definition of ``residential structure'' as defined in 24 CFR 
40.2 or the definition of ``building'' as defined in 41 CFR 101-
19.602(a) is subject to the requirements of the Architectural Barriers 
Act of 1968 (42 U.S.C. 4151-4157) and shall comply with the Uniform 
Federal Accessibility Standards (Appendix A to 24 CFR part 40 for 
residential structures, and Appendix A to 41 CFR part 101-19, subpart 
101-19.6, for general type buildings).
    2. The Americans with Disabilities Act (42 U.S.C. 12131; 47 U.S.C. 
155, 201, 218 and 225) (ADA) provides comprehensive civil rights to 
individuals with disabilities in the areas of employment, public 
accommodations, State and local government services, and 
telecommunications. It further provides that discrimination includes a 
failure to design and construct facilities for first occupancy no later 
than January 26, 1993 that are readily accessible to and usable by 
individuals with disabilities. Further, the ADA requires the removal of 
architectural barriers and communication barriers that are structural 
in nature in existing facilities, where such removal is readily 
achievable--that is, easily accomplishable and able to be carried out 
without much difficulty or expense.

J. Constitutional Prohibition

    1. In accordance with First Amendment church/state principles, as a 
general rule, HUD Disaster Recovery Grant assistance may not be used 
for religious activities or provided to primarily religious entities 
for any activities, including secular activities.
    2. The following restrictions and limitations therefore apply to 
the use of HUD Disaster Recovery funds.
    a. HUD Disaster Recovery funds may not be used for the acquisition 
of property or the construction or rehabilitation (including historic 
preservation and removal of architectural barriers) of structures to be 
used for religious purposes or purposes that will otherwise promote 
religious interests. This limitation includes the acquisition of 
property for ownership by primarily religious entities and the 
construction or rehabilitation (including historic preservation and 
removal of architectural barriers) of structures owned by such entities 
(except as permitted under paragraph 2.b. of this section with respect 
to rehabilitation and under paragraph 2.d. of this section with respect 
to repairs undertaken in connection with public services) regardless of 
the use to be made of the property or structure. Property owned by 
primarily religious entities may be acquired with HUD Disaster Recovery 
funds at no more than fair market value for a non-religious use.
    b. HUD Disaster Recovery funds may be used to rehabilitate 
buildings owned by primarily religious entities to be used for a wholly 
secular purpose under the following conditions:
    i. The building (or portion thereof) that is to be improved with 
the HUD Disaster Recovery Initiative assistance has been leased to an 
existing or newly established wholly secular entity (which may be an 
entity established by the religious entity);
    ii. The HUD Disaster Recovery Initiative assistance is provided to 
the lessee (and not the lessor) to make the improvements;
    iii. The leased premises will be used exclusively for secular 
purposes available to persons regardless of religion;
    iv. The lease payments do not exceed the fair market rent of the 
premises as they were before the improvements are made;
    v. The portion of the cost of any improvements that also serve a 
non-leased part of the building will be allocated to and paid for by 
the lessor;
    vi. The lessor enters into a binding agreement that unless the 
lessee, or a qualified successor lessee, retains the use of the leased 
premises for a wholly secular purpose for at least the useful life of 
the improvements, the lessor will pay to the lessee an amount equal to 
the residual value of the improvements;
    vii. The lessee must remit the amount received from the lessor 
under paragraph b.vi. of this section to the recipient or subrecipient 
from which the HUD Disaster Recovery funds were derived.
    viii. The lessee can also enter into a management contract 
authorizing the lessor religious entity to use the building for its 
intended secular purpose, e.g., homeless shelter, provision of public 
services. In such case, the religious entity must agree in the 
management contract to carry out the secular purpose in a manner free 
from religious influences in accordance with the principles set forth 
in paragraph c.
    c. As a general rule, HUD Disaster Recovery funds may be used for 
eligible public services to be provided through a primarily religious 
entity, where the religious entity enters into an agreement with the 
recipient or subrecipient from which the HUD Disaster Recovery funds 
are derived that, in connection with the provision of such services:
    i. It will not discriminate against any employee or applicant for 
employment on the basis of religion and will not limit employment or 
give preference in employment to persons on the basis of religion;
    ii. It will not discriminate against any person applying for such 
public services on the basis of religion and will not limit such 
services or give preference to persons on the basis of religion;
    iii. It will provide no religious instruction or counseling, 
conduct no religious worship or services, engage in no religious 
proselytizing, and exert no other religious influence in the provision 
of such public services;
    iv. Where the public services provided under paragraph 2.c. are 
carried out on property owned by the primarily religious entity, HUD 
Disaster Recovery funds may also be used for minor repairs to such 
property that are directly related to carrying out the public services 
where the cost constitutes in dollar terms only an incidental portion 
of the HUD Disaster Recovery grant expenditure for the public services.

K. Political Activities

    HUD Disaster Recovery funds may not be used to finance the use of 
facilities or equipment for political purposes or to engage in other 
partisan political activities, such as candidate forums, voter 
transportation, or voter registration. However, a facility originally 
assisted with HUD Disaster Recovery funds may be used on an incidental 
basis to hold political meetings, candidate forums, or voter 
registration campaigns, provided that all parties and organizations 
have access to the facility on an equal basis, and are assessed equal 
rent or use charges, if any.

L. Use of Debarred, Suspended, or Ineligible Contractors or 
Subrecipients

    The requirements set forth in 24 CFR part 24 apply to this program.

M. Conflict of Interest

    1. In the procurement of supplies, equipment, construction, and 
services by city and county grantees and by their subrecipients, the 
conflict of interest provisions in Secs. 85.36 and 84.42, respectively, 
shall apply. States and their recipients shall be governed by the 
provisions of Sec. 570.489(g).
    2. In all cases not governed by 24 CFR 85.36 and 84.42, the 
following provisions shall apply. Such cases include the acquisition 
and disposition

[[Page 47356]]

of real property and the provision of assistance by the recipient or by 
its subrecipients to individuals, businesses, and other private 
entities under eligible activities that authorize such assistance 
(e.g., rehabilitation, preservation, and other improvements of private 
properties or facilities pursuant to Sec. 570.202; or grants, loans, 
and other assistance to businesses, individuals, and other private 
entities pursuant to Secs. 570.203, 570.204, or 570.703(i)).
    3. Conflicts prohibited. The general rule is that no persons 
described in paragraph 4. who exercise or have exercised any functions 
or responsibilities with respect to HUD Disaster Recovery Initiative 
activities, or who are in a position to participate in a decisionmaking 
process or gain inside information with regard to such activities, may 
obtain a financial interest or benefit from a HUD Disaster Recovery 
grant, or have a financial interest in any contract, subcontract, or 
agreement with respect to a HUD Disaster Recovery grant, or with 
respect to the proceeds of the HUD Disaster Recovery Initiative-
assisted activity, either for themselves or those with whom they have 
business or immediate family ties, during their tenure or for one year 
thereafter.
    4. Persons covered. The conflict of interest provisions of 
paragraph 2. of this section apply to any person who is an employee, 
agent, consultant, officer, or elected official or appointed official 
of the recipient, or of any designated public agencies, or of 
subrecipients that are receiving HUD Disaster Recovery funds.
    5. Exceptions. Upon the written request of a city or county 
grantee, HUD may grant an exception to the provisions of paragraph 2. 
of this section on a case-by-case basis when it has satisfactorily met 
the threshold requirements of paragraph 5.a., taking into account the 
cumulative effects of paragraph 5.b. State grantees shall follow the 
provisions of Sec. 570.489(h) covering exceptions to the provisions of 
paragraph 2.
    a. Threshold requirements. HUD will consider an exception only 
after the recipient has provided the following documentation:
    i. A disclosure of the nature of the conflict, accompanied by an 
assurance that there has been public disclosure of the conflict and a 
description of how the public disclosure was made; and
    ii. An opinion of the recipient's attorney that the interest for 
which the exception is sought would not violate State or local law.
    b. Factors to be considered for exceptions. In determining whether 
to grant a requested exception after the recipient has satisfactorily 
met the requirements of paragraph 5.a., HUD shall conclude that such an 
exception will serve to further the purposes of the HUD Disaster 
Recovery Initiative and the effective and efficient administration of 
the recipient's program or project, taking into account the cumulative 
effect of the following factors, as applicable:
    i. Whether the exception would provide a significant cost benefit 
or an essential degree of expertise to the program or project that 
would otherwise not be available;
    ii. Whether an opportunity was provided for open competitive 
bidding or negotiation;
    iii. Whether the person affected is a member of a group or class of 
low-or moderate-income persons intended to be the beneficiaries of the 
assisted activity, and the exception will permit such person to receive 
generally the same interests or benefits as are being made available or 
provided to the group or class;
    iv. Whether the affected person has withdrawn from his or her 
functions or responsibilities, or the decisionmaking process with 
respect to the specific assisted activity in question;
    v. Whether the interest or benefit was present before the affected 
person was in a position as described in paragraph b. of this section;
    vi. Whether undue hardship will result either to the recipient or 
the person affected when weighed against the public interest served by 
avoiding the prohibited conflict; and
    vii. Any other relevant considerations.

N. Performance Reviews and Dispute Resolution and Enforcement Actions

    The provisions of 24 CFR subparts I and O apply to States and to 
cities and counties, respectively, regarding HUD's review of grantee 
performance, resolution of disputes regarding grantee performance, and 
adjudicative, remedial and enforcement actions that HUD may take to 
resolve noncompliance matters.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for the HUD 
Disaster Recovery Initiative are as follows: 14.218; 14.219; 14.228.

    Dated: September 3, 1997.
Jacquie M. Lawing,
General Deputy Assistant Secretary for Community Planning and 
Development.

Appendix A--Waiver of Requirements for Community Development Block 
Grant Funds Under the 1997 Emergency Supplemental Appropriations Act 
for Recovery From Natural Disasters (Public Law 105-18)

    Title II, Chapter 10 of the 1997 Emergency Supplemental 
Appropriations Act for Recovery from Natural Disasters (the Act), 
appropriates $500 million in Community Development Block Grant 
(CDBG) funds to use for buyouts, relocation, long-term recovery, and 
mitigation in communities affected by the flooding in the upper 
Midwest and other covered natural disasters.
    With respect to these supplemental funds, the Act authorizes the 
Secretary of HUD to ``waive, or specify alternative requirements 
for, any provision of any statute or regulation that the Secretary 
administers in connection with the obligation by the Secretary or 
the use by the recipient of these funds, except for statutory 
requirements related to civil rights, fair housing and 
nondiscrimination, the environment, and labor standards, upon a 
finding that such waiver is required to facilitate the use of such 
funds, and would not be inconsistent with the overall purpose of the 
statute.''
    In conjunction with this statutory provision and pursuant to 24 
CFR 5.110, the Department has determined that it has good cause to 
waive certain regulatory provisions governing the use of Disaster 
Recovery Initiative funds. Therefore, to facilitate the use of the 
Disaster Recovery Initiative funds appropriated under Chapter 10 of 
the Act, the following provisions have been waived for the reasons 
set forth below. These waivers apply to activities funded under the 
Act with Disaster Recovery Initiative funds.

Consolidated Submissions for Community Planning and Development 
Programs

Description of Requirements Waived

     Citizen participation requirements at 42 U.S.C. 
5304(a), 42 U.S.C. 5306(d)(5)(C), 24 CFR 91.105(c) and 91.115(c), to 
the extent that expedited amendment of the grantee's Consolidated 
Plan is necessary to ensure timely delivery of assistance, except 
that grantees must provide alternative procedures for public notice 
of funding availability, as approved by HUD.
    Justification: To provide the flexibility to expedite the 
availability of disaster recovery assistance, if necessary.
     The requirements at 42 U.S.C. 12705(a)(2), 42 U.S.C. 
5304(a)(1), 42 U.S.C. 5304(m), 24 CFR 91.220, 24 CFR 91.235, 24 CFR 
31.320 and 24 CFR 570.420(d).
    Justification: To provide the flexibility to expedite the 
availability of disaster recovery assistance, if necessary. These 
requirements concern the submission of an Annual Action Plan (for 
cities, counties and states receiving annual allocations of regular 
CDBG funding); 24 CFR 91.235 contains the requirements for 
Abbreviated Consolidated Plans (for non-entitled units of general 
local government not receiving CDBG funding through a state). 42

[[Page 47357]]

U.S.C. 5304(m) contains the requirement for submission of a 
Community Development Plan describing a grantee's priority non-
housing community development needs. Paragraph I. E. of the Federal 
Register Notice implementing the Disaster Recovery Initiative 
establishes streamlined, alternative planning and submission 
requirements for Disaster Recovery Initiative funding which meet the 
intent of the National Affordable Housing Act and the Housing and 
Community Development Act. All city, county and state grantees which 
receive formula allocations of CDBG funding have already met the 
statutory and regulatory requirements for the five-year strategic 
plan in the Consolidated Plan.
     Citizen participation requirements at 42 U.S.C. 
5304(a)(2) and (a)(3) (A) through (E), 24 CFR 91.100 through 91.115, 
24 CFR 570.405(h), 24 CFR 570.431 and 24 CFR 570.486(a).
    Justification: To provide the flexibility to expedite the 
availability of disaster recovery assistance, if necessary. 
Paragraph I. E. of the Federal Register Notice implementing the 
Disaster Recovery Initiative establishes streamlined, alternative 
citizen participation requirements for Disaster Recovery Initiative 
funding which meet the intent of the National Affordable Housing Act 
and the Housing and Community Development Act.

Community Development Block Grant Program

Description of Requirements Waived

     The definition of a ``unit of general local 
government'' at 42 U.S.C. 5302(a)(1) and 24 CFR 570.3.
     Justification: The statutory and regulatory definitions of a 
unit of general local government have, over time, become outdated. 
The definition includes the Trust Territory of the Pacific Islands. 
Since this definition was first enacted, all jurisdictions within 
the Trust Territory of the Pacific have become independent nations. 
The definition of a unit of general local government included in the 
Federal Register Notice implementing the Disaster Recovery 
Initiative excludes the Trust Territory of the Pacific.
     Requirements at 42 U.S.C. 5301(c), 42 U.S.C. 
5304(b)(3)(A), 24 CFR 570.200(a)(3) (for cities and counties) and 24 
CFR 570.484 (for States) that 70 percent of funds, over a period not 
to exceed three years, are for activities that benefit low and 
moderate income persons.
     Justification: Because the damage to community 
development and housing is without regard to income, it is important 
to give grantees maximum flexibility to carrying activities within 
the confines of the CDBG program national objectives. Paragraph 
I.B.2 of the Federal Register Notice implementing the Disaster 
Recovery Initiative establishes alternative requirements for 
complying with the statutory mandate that each grantee's program 
principally (at least 50%) benefit low- and moderate-income persons.
     Requirements at 42 U.S.C. 5301(c), 42 U.S.C. 
5304(b)(3)(A), 24 CFR 570.200(a)(3) for the CDBG entitlement program 
and 570.484 for the State CDBG program that 70 percent of funds, 
over a period not to exceed three years, are for activities that 
benefit low and moderate income persons.
    Justification: Because the damage to community development and 
housing is without regard to income, it is important to give 
grantees maximum flexibility to carrying activities within the 
confines of the CDBG program national objectives.
     Requirements at 42 U.S.C. 5305(a), 24 CFR 570.200 
(a)(1) and (e) through (h), 24 CFR 570.201 through 570.207, and 24 
CFR 570.482 (a) through (d), concerning activities eligible for 
funding under the Disaster Recovery Initiative.
    Justification: To give maximum flexibility to grantees in 
addressing the wide variety of needs resulting from natural 
disasters, the Department has established alternative requirements 
for eligible activities at paragraph I.F.1 of the Federal Register 
Notice implementing the Disaster Recovery Initiative. These 
requirements will ensure compliance with the eligibility 
requirements of Title II, Chapter 10 of Public Law 105-18, and will 
ensure accountability in the use of funds.
     Prohibitions on new housing construction at 24 CFR 
570.207(b)(3) and modifying 42 U.S.C. 5305(a) to provide for the use 
of such designated funds for new housing construction.
    24 CFR 570.207(b)(3) prohibits use of funds for new housing 
construction except for assisted housing under section 17 of the 
United States Housing Act of 1937, housing constructed by a special 
subrecipient, pursuant to Sec. 570.204(a), and last resort housing 
under the Uniform Relocation Act pursuant to 49 CFR Part 24.
    Justification: If a large number of housing units are destroyed 
as a result of the disaster, the flexibility to permit grantees to 
directly provide new construction assistance would be essential in 
furthering the purposes of disaster recovery.
     Restrictions on the repair or reconstruction of 
buildings used for the general conduct of government at 42 U.S.C. 
5305 (a)(2) and (a)(14), and 24 CFR 570.207(a)(1).
    Justification: Required if there is significant damage to public 
buildings. Waiver of this provision would permit repair and 
reconstruction.
     The 50 percent of downpayment limitation on direct 
homeownership assistance for low or moderate income homebuyers at 42 
U.S.C. 5305(a)(24)(D).
    Justification: Required to provide additional assistance to low/
moderate income disaster victims in instances in which direct 
homeownership assistance with 50 percent of a downpayment is 
insufficient.
     The limitation on the amount of funds used for public 
services at 42 U.S.C. 5305(a)(8) and 24 CFR 570.201 (e)(1) or (2), 
as applicable to the affected grantee, to hereby modify those 
provisions to allow an increase of 10 percent above the previous 
limitation.
    Justification: Disaster response may require additional level of 
public services and public services not previously provided by 
grantees during emergency and recovery periods, e.g., day care, 
housing counseling, legal services, health services, safety 
services.
     Provisions of 42 U.S.C. Chapter 69--Community 
Development and 24 CFR part 570 that would prohibit States electing 
to receive CDBG funds from distributing such funds to units of 
general local government in entitlement communities and to Indian 
tribes, including 42 U.S.C. 5306(d) (1) and (2)(A) and 24 CFR 
570.480(a), to the extent that such provisions limit the 
distribution of funds to units of general local government located 
in nonentitlement areas and to Indian tribes.
    Justification: This provides the State the flexibility necessary 
to meet a wide range of recovery needs in any areas of the State, 
including those in entitlement communities and on Indian 
reservations, that have been affected by the disaster.
     Requirements that the State grantees must match the 
amount of CDBG funds used for the administration of the State's CDBG 
program at 42 U.S.C. 5306(d)(3)(A) and 24 CFR 570.489(a)(1) with 
respect to funds designated for disaster recovery under 42 U.S.C. 
5321.
    Justification: Waiving these provisions would prevent undue 
hardship on the State and further the purposes of disaster recovery.
     Requirements at 24 CFR 570.480(a), 570.481(a) and 
570.486(b).
    Justification: These provisions describe requirements which are 
specific to States' administration of CDBG funding for non-
entitlement areas. 24 CFR 570.480(a) indicates that other subparts 
of Part 570 are generally not applicable to the State CDBG program; 
24 CFR 570.481(a) indicates that HUD will defer to States' 
interpretations of the definitions of terms contained in 42 U.S.C. 
5300 et. seq.; 24 CFR 570.486(b) governs activities serving 
beneficiaries outside the jurisdiction of the unit of general local 
government. HUD is waiving a number of statutory definitions for 
purposes of the Disaster Recovery Initiative. HUD has determined 
that it is necessary to apply certain program requirements of the 
Disaster Recovery Initiative uniformly to city, county and State 
grantees. Where possible, the Federal Register Notice implementing 
the Disaster Recovery Initiative retains the administrative 
flexibility provided to States in the State CDBG program.
     Requirements of 42 U.S.C. 5306(d)(3)(A) and 24 CFR 
570.489(a) concerning the use of Disaster Recovery Initiative funds 
for State administrative costs, including matching funds 
requirements.
    Justification: Waiving these provisions would prevent undue 
hardship on States and would further the purposes of disaster 
recovery, by eliminating the requirement that Disaster Recovery 
Initiative funds spent on State administrative costs be matched with 
State funding. Paragraph I.F.6.b of the Federal Register Notice 
implementing the Disaster Recovery Initiative establishes 
alternative requirements for States' use of funds for costs incurred 
in administering this funding.
     The provisions at 42 U.S.C. 5304(j) and 24 CFR 
570.489(e), for the State CDBG program, that require States to allow 
units of local government to retain program income. All program 
income will be returned to the State and will become program income 
for

[[Page 47358]]

the year in which the State redistributes those funds.
    Justification: Waiver of this provision will also allow States 
to quickly utilize all program income for other eligible activities.
     Requirements of 42 U.S.C. 5306(d)(2)(C)(iii) concerning 
restrictions on a State's ability to limit activities eligible for 
funding.
    Justification: Waiving these requirements will increase State 
grantees' flexibility in prioritizing and responding to disaster 
recovery needs.

Acquisition and Relocation Requirements for CDBG Disaster Supplemental 
Funds

Description of Requirements Waived

     One-for-one replacement requirements at 42 U.S.C. 
5304(d)(2) and 24 CFR 570.606(c)(1), for low and moderate income 
dwelling units (1) damaged by the disaster, (2) for which CDBG funds 
are used for demolition, and (3) which are not suitable for 
rehabilitation.
    Requires that all occupied and vacant occupiable low/moderate 
income dwelling units that are demolished or converted to a use 
other than as low/moderate income dwelling units in connection with 
a CDBG activity must be replaced with low/moderate income dwelling 
units.
    Justification: Not waiving this provision would discourage 
grantees from demolition and clearance of dwelling units that would 
otherwise be appropriate for CDBG assistance. Such inaction would 
inhibit recovery efforts and add to health and safety problems.
     Relocation requirements at 42 U.S.C. 5304(d)(2)(iii) 
and (iv) and 24 CFR 570.606(c)(2), in order to permit a grantee to 
meet all or part of its obligation to provide relocation benefits to 
displaced persons under sections 204 and 205 of the Uniform 
Relocation Assistance and Real Property Acquisition Policies Act of 
1970, as amended (42 U.S.C. 4601 et. seq) (URA).
    The statutory requirements of the URA are also applicable to the 
administration of FEMA's assistance, and disparities in rental 
assistance payments for activities funds by HUD and that agency will 
thus be eliminated.
    Justification: FEMA is subject to the requirements of the URA. 
Pursuant to this authority, FEMA requires that rental assistance 
payments be calculated on the basis of the amount necessary to lease 
or rent comparable housing for a period of 42 months. HUD is also 
subject to these requirements, but is also covered by alternative 
relocation provisions authorized under 42 U.S.C. 5304(d)(2)(iii) and 
(iv) and implementing regulations at 24 CFR 570.606(c)(2). These 
alternative relocation benefits, available to low- and moderate-
income displacees opting to receive them in certain HUD programs, 
require the calculation of similar rental assistance payments on the 
basis of 60 months, rather than 42 months, thereby creating a 
disparity between the available benefits offered by HUD and FEMA, 
respectively. The waiver assures uniform and equitable treatment for 
all such tenants under the URA, as qualified by this waiver.
     Requirements at 49 CFR 24.2(d)(8)(ii), 24.402(b)(2) and 
24.404, to the extent that they require grantees to provide URA 
financial assistance sufficient to reduce the displaced person's 
post-displacement rent/utility cost to 30 percent of household 
income.
    Justification: The failure to suspend these requirements would 
impede disaster recovery. To the extent that a tenant has been 
paying rents in excess of 30 percent of household income without 
demonstrable hardship, rental assistance payments to reduce tenant 
costs to 30 percent would not be required.
     Requirements of Sections 204 and 205 of the URA, and 49 
CFR Part 24, to the extent necessary to permit a grantee to meet all 
or a portion of a grantee's replacement housing financial assistance 
obligation to a displaced renter who elects to relocate to rental 
housing through a tenant-based rental assistance (TBRA) housing 
program subsidy (e.g., Section 8 rental voucher or certificate) 
provided that the renter is also provided referrals to suitable, 
available rental replacement dwellings where the owner is willing to 
participate in the TBRA program, and the period of authorized 
assistance is at least 42 months.
    Justification: Failure to grant the waiver would impede disaster 
recovery whenever TBRA program subsidies are available but funds for 
cash relocation assistance are limited. The change conforms URA 
policy with Section 104(d) relocation assistance.
     Requirements of Section 202(b) of the URA and 49 CFR 
24.302, to the extent that they require a grantee to offer a person 
displaced from a dwelling unit the option to receive a ``moving 
expense and dislocation allowance'' based on the current schedule of 
allowances prepared by the Federal Highway Administration, provided 
that the grantee establishes and offers the person a moving expense 
and dislocation allowance under a schedule of allowances that are 
reasonable for the jurisdiction and take into account the number of 
rooms in the displacement dwelling, whether the person owns and must 
move the furniture, and, at a minimum, the kinds of expenses 
described in 49 CFR 24.303(a)(1).
    Justification: Failure to suspend this provision would impede 
disaster recovery by requiring grantees to offer allowances that do 
not reflect local labor and transportation costs. Persons displaced 
from a dwelling remain entitled to choose a payment for actual 
reasonable moving and related expenses if they find that approach 
preferable to the locally established moving expense and dislocation 
allowance.
     Requirements of Section 414 of the Stafford Disaster 
Relief and Emergency Assistance Act (42 U.S.C. 5181) so that Uniform 
Relocation Act provisions do not apply when a homeowner displaced by 
the disaster is assisted.
    Section 414 states: ``Notwithstanding any other provision of 
law, no person otherwise eligible for any kind of replacement 
housing payment under the Uniform Relocation Assistance and Real 
Property Acquisition Policies Act of 1970 (P.L. 91-646) shall be 
denied such eligibility as a result of his being unable, because of 
a major disaster as determined by the President, to meet the 
occupancy requirements set by such Act.''
    Justification: Failure to waive Section 414 would impede 
disaster recovery, discouraging grantees from the acquisition, 
demolition or rehabilitation of disaster-damaged housing because of 
excessive costs that would result from replacement housing payments 
made to former homeowners displaced by the disaster. Homeowners 
actually displaced by a HUD-assisted disaster recovery project will 
continue to receive URA assistance. Homeowners displaced by the 
disaster may apply for assistance under available disaster recovery 
programs.

Other Applicable Requirements

     Requirements of 12 U.S.C. 1701u, 24 CFR 570.607(b) and 
24 CFR part 135, concerning the requirements of Section 3 of the 
Housing and Urban Development Act of 1968.
    Justification: Waiving these requirements will increase 
grantees' flexibility in responding to disaster recovery needs and 
will increase the efficiency with which activities may be 
implemented to meet those needs. However, in the Federal Register 
Notice implementing the Disaster Recovery Initiative funding, HUD 
encourages grantees to give priority to the hiring of local low-and 
moderate-income persons and contractors in carrying out its 
activities.
     Requirements of 24 CFR 570.612 and 24 CFR part 52, 
concerning applicability of Executive Order 12372 regarding 
intergovernmental consultation and review of activities proposed for 
Federal funding.
    Justification: Waiving these requirements will increase 
grantees' flexibility in responding to disaster recovery needs and 
will increase the efficiency with which activities may be 
implemented to meet those needs.

[FR Doc. 97-23752 Filed 9-4-97; 11:50 am]
BILLING CODE 4210-29-P