[Federal Register Volume 64, Number 248 (Tuesday, December 28, 1999)]
[Notices]
[Pages 72852-72866]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33673]



[[Page 72851]]

_______________________________________________________________________

Part XI





Department of Housing and Urban Development





_______________________________________________________________________



1999 HUD Disaster Recovery Initiative; Notice

  Federal Register / Vol. 64, No. 248 / Tuesday, December 28, 1999 / 
Notices  

[[Page 72852]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4482-N-01]


1999 HUD Disaster Recovery Initiative

AGENCY: Office of Community Planning and Development, HUD.

ACTION: Notice.

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SUMMARY: This notice provides requirements to govern the use of $20 
million in Community Development Block Grant (CDBG) funds for 
additional unmet disaster recovery needs.

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, S.W., Washington, DC 20410, 
telephone number (202) 708-3587. Persons with hearing or speech 
impairments may access this number via TTY by calling the Federal 
Information Relay Service at (800) 877-8339. FAX inquiries 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 (DRI) for funds appropriated under the 
Omnibus Consolidated and Emergency Supplemental Appropriations Act, 
1999 (Pub. L. 105-277, 112 Stat. 2681, approved October 21, 1998).
    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 support other Federal agencies in assisting 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 
natural disasters receiving Presidential declarations.
    4. DRI 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 (Corps of Engineers).

B. Authority

    The Omnibus Consolidated and Emergency Supplemental Appropriations 
Act, 1999 (Public Law 105-277, 112 Stat. 2681, approved October 21, 
1998).

C. Benefiting Persons of Low and Moderate Income

    1. DRI funds are provided by a supplemental appropriation under the 
Community Development Block Grant program authority of title I of the 
Housing and Community Development Act of 1974, (42 U.S.C. 5301 et 
seq.). Use of those funds is governed by that Act and regulations at 24 
CFR part 570, except as modified by this notice and a separate notice 
of waivers and modifications appearing elsewhere in today's Federal 
Register. The primary objective of that program is the development 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. States and State grant recipients 
should give maximum feasible priority to funding activities that 
benefit persons of low and moderate income.
    2. A State must use more than 50 percent of its DRI funds for 
activities that benefit primarily persons of low and moderate income. 
The Secretary may waive this requirement only on a case-by-case basis 
and only upon making a finding of a compelling need to do so. HUD will 
consider such a waiver only after it receives a request from a State 
that includes a justification that establishes a compelling need for 
the waiver. The compelling need must reflect a public purpose directly 
related to disaster recovery, and the justification must include a 
determination by the State, with supporting documentation, that there 
is no practicable alternative course of action to otherwise targeting 
funds to activities which principally benefit persons of low and 
moderate income. As required by statute, HUD will provide an 
explanation of the finding of compelling need to the Congressional 
Committees on Appropriations.

D. Definitions

    Regulatory references are in title 24 of the Code of Federal 
Regulations (CFR), and will be cited by section (Sec. ), unless 
otherwise cited.
    1999 Supplemental Appropriations Act means the Omnibus Consolidated 
and Emergency Supplemental Appropriations Act, 1999 (Public Law 105-
277, 112 Stat. 2681, approved October 21, 1998).
    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 non-legislative functions or services provided by government at 
decentralized locations.
    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.
    Director means the Director of the Federal Emergency Management 
Agency.
    Disaster means a major disaster declared by the President under 
title IV of the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, as amended (42 U.S.C. 5121 et seq.) in Federal fiscal 
year 1998 or 1999.
    Family means all persons living in the same household who are 
related by birth, marriage or adoption.
    FEMA means the Federal Emergency Management Agency.
    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

[[Page 72853]]

or unrelated persons who share living arrangements.
    HUD means the U.S. Department of Housing and Urban Development.
    Income. For the purpose of State grant recipients determining 
whether a family or household is of low and moderate income, such 
recipients may select any of the three definitions listed below for 
each activity. However, integrally related activities of the same type 
and qualifying under the same paragraph of Sec. 570.483(b) shall use 
the same definition of income. The option to choose a definition does 
not apply to activities that qualify under Sec. 570.483(b)(1) (Area 
benefit activities), except when the recipient carries out a survey 
under Sec. 570.483(b)(1)(I). Activities qualifying under 
Sec. 570.483(b)(1), at the discretion of the State, must use the area 
income data supplied by HUD or survey data which is methodologically 
sound.
    a. The three definitions are as follows:
    i. ``Annual income'' as defined for the Public Housing and Section 
8 programs at Sec. 5.609 (except that if the DRI 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 DRI 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) before its repeal.
    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 persons 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, and the Commonwealth of 
Puerto Rico, or an instrumentality thereof approved by the Governor. 
Additionally, except as pertains to environmental review 
responsibilities under Part 58, for these 1999 Supplemental 
Appropriations Act funds only, the term ``State'' also includes an 
Indian tribe.
    State grant recipient means a unit of general local government that 
receives a DRI grant through a State. Additionally, for these 1999 
Supplemental Appropriations Act funds only, the term ``State grant 
recipient'' also includes Indian tribes.
    Unit of general local government means any city, county, town, 
township, parish, village or other general purpose political 
subdivision of a State; a combination of such political subdivisions 
recognized by the Secretary; and the District of Columbia.
    Unmet need means projects identified by the Director as those which 
have not or will not be addressed by other Federal disaster assistance 
programs, and need that is not addressed by activities reimbursable by 
or for which funds are made available by the Federal Emergency 
Management Agency, the Small Business Administration, or the Army Corps 
of Engineers.

E. Allocation and Expenditure of Funds

    1. $250 million has been appropriated for the 1999 HUD Disaster 
Recovery Initiative under division B, title IV, Chapter 7 of the 1999 
Supplemental Appropriations Act. Title IV of the 1999 Emergency 
Supplemental Appropriations Act (Pub. L. 106-31, 113 Stat. 57, approved 
May 21, 1999) rescinded $230 million of these funds. The $20 million 
balance of these funds has been made available for obligation by HUD 
until October 1, 2002. States are responsible to HUD for the timely 
expenditure of funds in accordance with any expenditure deadlines HUD 
may include as grant agreement conditions.
    2. The 1999 Supplemental Appropriations Act requires that HUD 
allocate funds to States, based on unmet needs identified by the 
director of FEMA as those which have not or will not be addressed by 
other Federal disaster assistance programs. HUD has used the following 
procedures in allocating the funds.
    a. In calculating allocations, HUD will use data identified by FEMA 
from State, and Federal sources as unmet needs (or surrogates for unmet 
needs) in four areas: housing, business recovery, mitigation, and 
public works and facilities.
    b. The allocation calculations will include appropriate weights and 
adjustment factors. The weightings of the unmet needs categories are at 
following ratios: housing, 40 percent; business recovery, 20 percent; 
mitigation, 20 percent; and public works and facilities, 20 percent.
    c. HUD has set minimum grant amounts for the allocation of funds at 
the lesser of $1.5 million or the amount of unmet need identified by 
FEMA from State sources, except such minimum

[[Page 72854]]

shall not apply to funds allocated under paragraph e.
    d. HUD may calculate the allocation of funds to States in one or 
more groupings of, or individual, disaster declarations, as it deems 
appropriate.
    e. HUD may allocate up to $20 million in accordance with paragraph 
2 of the notice published March 10, 1999, at 64 FR 11943, which amends 
paragraph I.E.2.e. of the notice published October 22, 1998 (63 FR 
56764), to state, ``If a State certifies that it has determined that 
the unmet needs data previously submitted to FEMA are inaccurate or 
significantly incomplete, within 45 days of publication of this notice, 
the Governor may request HUD, in consultation with FEMA, to accept, 
review, and identify as unmet needs, a revised State submission of such 
needs. Those needs must be related to a disaster declared during fiscal 
year 1998 or declared prior to the date of this notice during fiscal 
year 1999. Such request must be accompanied by the revised unmet needs 
data in the same format as previously prescribed by FEMA and by a 
justification for reconsideration.''
    3. The appropriation accounting provisions in 31 U.S.C. 1551-1557, 
added by section 1405 of the National Defense Authorization Act for 
Fiscal Year 1991 (Public Law 101-510), limit the availability of 
certain appropriations for expenditure. With respect to the funds 
appropriated for the 1999 HUD Disaster Recovery Initiative, this 
statute requires the withdrawal from the States' lines of credit any 
DRI funds appropriated under the 1999 Supplemental Appropriations Act 
that the States have not expended before October 1, 2007. This 
limitation may not be waived. HUD may place shorter deadlines on the 
expenditure of those funds via grant agreement conditions.
    4. The 1999 Supplemental Appropriations Act requires that each 
State administer the DRI funds ``in conjunction with its Federal 
Emergency Management Agency program or its community development block 
grants program or by the entity designated by its Chief Executive 
Officer to administer the HOME Investment Partnerships program.'' 
Whichever agency the governor designates to administer the DRI funds 
must have the capacity to comply with all applicable requirements of 
this notice in a timely manner. Whichever State agency administers the 
DRI funds should coordinate with the agency or agencies that administer 
the other two programs named above.

F. Non-Federal Public Matching Funds Requirement

    1. The 1999 Supplemental Appropriations Act requires that ``each 
State shall provide not less than 25 percent in non-Federal public 
matching funds or its equivalent value (other than administrative 
costs)'' for any 1999 HUD Disaster Recovery Initiative grant funds 
which it receives.
    2. Match contributions must be made to DRI-funded recovery projects 
related to covered disasters.
    3. Match may be provided by any public entity from non-Federal cash 
(e.g., general or dedicated revenues), real estate, or other similar 
assets owned or controlled by the public entity or the value of public 
improvements and public facilities activities, or force account 
undertaken.
    4. Match funds must be reasonably valued. For example, base the 
value of cash grants on the dollar value of the grant; value below 
market interest rate loans on the present discounted cash value of the 
amount of subsidy; value taxes forgiven for future years based on the 
present discounted cash value of the revenue foregone; and value a 
donation of real estate titled to the State or State grant recipient 
based on a professional appraisal.
    5. The State must make match contributions before all DRI funds are 
expended. Match contributions must total not less than 25 percent of 
the disaster grant funds drawn from the State's line of credit, 
excluding funds drawn for administrative and planning costs.
    6. States may not count administrative costs toward the required 
non-Federal public matching funds or equivalent value.
    7. Contributions that have been or will be counted as satisfying a 
matching requirement of another Federal grant or award, including any 
other DRI grant or Community Development Block Grant, may not count as 
satisfying the matching contribution requirement for the HUD Disaster 
Recovery Initiative.
    8. Match contributions must be contributed permanently to a 
disaster-related activity. To receive match credit for the full amount 
of a loan made with non-Federal public funds to a DRI funded activity, 
all repayment, interest, or other return on the loan must be treated as 
CDBG program income.
    9. The following are examples that do not count toward meeting a 
grantee's matching contribution requirement:
    a. Contributions made with or derived from Federal resources or 
funds, regardless of when the Federal resources or funds were received 
or expended. Use of CDBG funds (defined at Sec. 570.3) under section 
105(a)(9) of the Act for payment of the non-Federal share required in 
connection with a Federal grant-in-aid program is permissible;
    b. Contributions made with or derived from private resources or 
funds, regardless of when the private resources or funds were received 
or expended;
    c. The interest rate subsidy attributable to the Federal tax 
exemption on financing or the value attributable to Federal tax 
credits;
    10. Contributions are credited at the time the contribution is made 
and reported to HUD quarterly, as follows:
    a. Credit a cash contribution when the funds are expended for a 
disaster-related activity or at the time the State awards DRI funds if 
the activity was completed before the award of DRI funds;
    b. Credit the subsidy value of a below-market interest rate loan at 
the time of the loan closing;
    c. Credit the value of State or local taxes, fees, or other charges 
that are normally and customarily imposed but waived, foregone, or 
deferred at the time the State or State grant recipient or other public 
entity officially waives, forgoes, or defers the taxes, fees, or other 
charges;
    d. Credit the value of donated land or other real property at the 
time ownership of the property is transferred to the public entity 
carrying out the DRI-assisted or disaster-related activity;
    e. Credit the direct cost of relocation payments and services at 
the time that the payments and services are provided.
    11. For DRI-assisted projects involving more than one State, the 
State that makes the match contribution may decide to retain the match 
credit or permit the other State to claim the credit.

G. Submission Requirements

    1. Prerequisites to a State's receipt of a DRI grant include a 
citizen participation plan; publication of its proposed Action Plan; 
notice and comment; and submission of an Action Plan for Disaster 
Recovery.
    2. Each State 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 State'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 DRI funds;
    d. The State's method of distribution;
    e. Units of general local government receiving State distributions;

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    f. The proposed uses for the DRI funds for each unit of general 
local government and Indian tribe receiving State distributions;
    g. An explanation of why other federal disaster assistance programs 
do not cover the costs of unmet needs identify to FEMA;
    h. An explanation of how the disaster impacted the proposed 
projects; and
    i. The specific sources from which the match requirement will be 
achieved.
    2A. Indian tribes, only, may omit from their Action Plans items 
2(d) and 2(e) above.
    3. A State must only distribute DRI funds to units of general local 
government, including cities (both CDBG metropolitan cities and non-
metropolitan cities) and counties (including CDBG urban counties), and 
to Indian tribes that have the capability to carry out disaster 
recovery activities. Indian tribes may carry out activities directly 
and must meet the requirements of this notice placed on State grant 
recipients, except as exempted.
    4. Each State must describe monitoring standards and procedures 
pursuant to Sec. 91.330 and include certifications pursuant to:
    a. Section 91.325(a)(1), affirmatively furthering fair housing;
    b. Section 91.325(a)(3), drug-free workplace;
    c. Section 91.325(a)(4), anti-lobbying;
    d. Section 91.325(a)(5), authority of the State to carry out the 
program;
    e. Section 91.325(a)(7), acquisition and relocation, except as 
waived;
    f. Section I.G.5. of this notice, citizen participation;
    g. Section 91.325(b)(2), consultation with local governments;
    h. Section 91.325(b)(5), compliance with anti-discrimination laws;
    i. Section 91.325(b)(6), excessive force;
    j. Section 91.325(b)(7), compliance with applicable laws.
    4A. Instead of following paragraph G.4., above, each Indian tribe 
must describe monitoring standards and procedures and certify that:
    a. It will comply with the requirements of Title II of Public Law 
90-284 (25 U.S.C. 1301) (the Indian Civil Rights Act) and any 
applicable anti-discrimination laws;
    b. It will provide the drug-free workplace required by 24 CFR part 
24, subpart F;
    c. It will comply with restrictions on lobbying required by 24 CFR 
part 87, together with disclosure forms, if required by that part;
    d. It will comply with all applicable laws;
    e. It possesses the legal authority to apply for the DRI grant and 
execute the proposed program;
    f. Except as waived, it will comply with the acquisition and 
relocation requirements of the Uniform Relocation Assistance and Real 
Property Acquisition Policies Act of 1970, as amended, implementing 
regulations at 49 CFR part 24;
    g. Prior to submission of its application to HUD, it has met the 
citizen participation requirements of Section I.G.5. of this notice;
    h. The Action Plan for Disaster Recovery has been developed so that 
more than 50 percent of the funds received under this grant will be 
used for activities that benefit low- and moderate-income persons (as 
the term ``activities benefiting low- and moderate-income persons'' is 
used at Sec. 570.483(b)).
    5. 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 State and State grant recipients 
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 DRI 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 and units of general local 
government an opportunity to examine its content and to submit comments 
on the proposed disaster recovery plan and on the community development 
performance of the grantee; and
    iii. Provide citizens and 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 State shall 
consider any such comments and views and may, if it deems appropriate, 
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 HUD together with the certifications required 
under section I.G.4. or 4A., above. Any Action Plan for Disaster 
Recovery may be modified or amended from time to time by the State in 
accordance with the same procedures required in this paragraph for the 
preparation and submission of such Action Plan for Disaster Recovery.
    b. A DRI grant may be made only if the State certifies that it is 
following, and that it will require its State grant recipients to 
follow, a detailed citizen participation plan that:
    i. Provides for and encourages citizen participation, with 
particular emphasis on areas in which DRI 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 DRI 
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 State for the development and execution of its DRI 
Action Plan.

H. Determining Eligibility of Activities

    An activity may be assisted in whole or in part with DRI funds only 
if all of the following requirements are met:
    1. Neither the State nor its State grant recipients may use DRI 
funds for activities reimbursable or for which funds are made available 
by FEMA, SBA, or the Corps of Engineers.
    2. Any project underway prior to a Presidentially declared disaster 
may not receive DRI funds unless the disaster directly impacted the 
project.
    3. Compliance with national objectives. States receiving 
allocations 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:
    a. Will benefit to low- and moderate-income families;
    b. Will aid in the prevention or elimination of slums or blight; or
    c. May also include activities that the State and its State grant 
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.
    d. Consistent with the foregoing, each State and State grant 
recipient must ensure, and maintain evidence, that each of its 
activities assisted with DRI funds meets one of the three above

[[Page 72856]]

national objectives as contained in its certification. Criteria for 
determining whether an activity addresses one or more of these 
objectives are contained at Sec. 570.483.
    4. Compliance with the primary objective. In using HUD Disaster 
Recovery Initiative funds under the authority of the Act, the State 
must meet the primary objective of the development 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. To meet the primary objective, more 
than 50 percent of the funds in each grant must be used for activities 
that principally benefit persons of low and moderate income as 
determined by the criteria under Sec. 570.483(b), unless waived under 
section I.C.2. When calculating the percentage of funds expended for 
such activities:
    a. Costs of administration and planning eligible under section 
I.H.6. of this notice will be assumed to benefit low- and moderate-
income persons in the same proportion as the remainder of the DRI funds 
and, accordingly, shall be excluded from the calculation;
    b. Funds expended for the acquisition, new construction, 
reconstruction, or rehabilitation of property for housing that 
qualifies under Sec. 570.483(b)(3) must be counted for this purpose but 
shall be limited to an amount determined by multiplying the total cost 
(including DRI grant and non-DRI 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.
    c. Funds expended for any other activities qualifying under 
Sec. 570.483(b) must be counted for this purpose in their entirety.
    5. 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.
    6. Eligible activities. DRI funds may be used for activities 
carried out by a State grant recipient that are relevant to disaster 
recovery, as described in this Notice. States and State grant 
recipients must use funds appropriated under the 1999 Supplemental 
Appropriations Act only for disaster relief, long-term recovery, and 
mitigation activities related to a covered disaster in communities 
affected by a Presidentially declared disaster that is designated 
during Federal fiscal year 1998 or 1999. Such communities must be in 
areas included in such declarations. These funds will supplement, not 
replace, FEMA and other Federal funds. To the extent the use of funds 
does not violate the restriction at section I.H., eligible activities 
include:
    a. Acquisition of real property (including the buying out of flood-
prone properties 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 to the extent that 
these activities are not eligible under FEMA's Public Assistance 
program;
    d. Rehabilitation or reconstruction of residential and non-
residential buildings and improvements;
    e. Acquisition, construction, reconstruction, or installation of 
public works, facilities and improvements, such as water and sewer 
facilities, streets, neighborhood centers, and the conversion of school 
buildings for eligible purposes, to the extent that these activities 
are not eligible under FEMA's Public Assistance program;
    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, if such services are new or an 
increased level of services, limiting costs to no more than 15 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 recovery activities that benefit the public 
by:
    i. Creating or retaining jobs for low- and moderate-income persons;
    ii. Preventing or eliminating slums and blight;
    iii. Meeting urgent needs;
    iv. Creating or retaining community-owned businesses;
    v. Assisting businesses that provide goods or services needed by, 
and affordable to, low- and moderate-income residents; or
    vi. Providing related technical assistance;
    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. Any other activity authorized under section 105(a) of the 
Housing and Community Development Act of 1974, as amended, not waived 
by this notice or subsequently, provided that it relates to recovery 
from a covered Presidentially declared disaster. The Department may 
grant waivers permitting States and State grant recipients to undertake 
additional activities with DRI funds if they are consistent with the 
requirements of division B, title IV, chapter 7 of Public Law 105-277 
after a full consideration of a waiver request.
    7. 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 DRI 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 DRI 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.
    8. 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

[[Page 72857]]

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 DRI 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 DRI 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-DRI grant portion may be 
made provided that DRI funds are used to pay the special assessment in 
behalf of all properties owned and occupied by low-and moderate-income 
persons. However, DRI funds need not be used to pay the special 
assessments in behalf of properties owned and occupied by moderate-
income persons if the State or State grant recipient certifies that it 
does not have sufficient DRI funds to pay the assessments in behalf of 
all of the low-and moderate-income persons who are owner-occupants. 
Funds collected through such special assessments are not program 
income.
    c. Public improvements not initially assisted with DRI funds. The 
payment of special assessments with DRI funds constitutes HUD Disaster 
Recovery assistance to the public improvement. Therefore, DRI 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 paragraph I.H.3.a., b. or c.; and
    iii. The requirements of paragraph I.H.8.b.ii. are met.
    9. Limitation on planning and administrative costs.
    a. No more than 20 percent of the sum of any grant to a State, plus 
program income, shall be expended for planning and program 
administrative costs under section I.H.6.k.
    b. State administrative costs. The State is responsible for the 
administration of its HUD Disaster Recovery Initiative. The amount of 
DRI 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. This paragraph 9.b. does 
not apply to Indian tribes.
    10. Reimbursement for pre-award costs. The effective date of the 
grant agreement is the date HUD obligates the appropriated funds by 
executing the grant agreement.
    a. Prior to the effective date of the grant agreement, a State 
grant recipient may incur costs beginning on or after the incident date 
of the Presidentially declared disaster, and then charge those costs to 
DRI grant funds, provided that:
    i. The State permits such use;
    ii. Such funds do not reimburse costs paid with other Federal grant 
funds; and
    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 including the prohibition contained 
in Sec. 58.22(a) on commitment of HUD assistance and non-HUD funds 
prior to HUD approval of the Request for Release of Funds and the 
certification of the responsible entity for activities that require an 
environmental review.
    11. Activities outside the jurisdiction of the unit of general 
local government. DRI funds may assist an activity located outside the 
jurisdiction of the unit of general local government that receives the 
DRI funds as a State grant recipient, provided the unit of general 
local government determines that the activity is meeting its disaster 
recovery needs.

I. 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 recovery 
purposes under paragraph H.6.j. 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. The guidelines and standards may be found at Sec. 570.482(e) and 
(f). 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.

J. 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 State or unit 
of general local government are not eligible for assistance.
    2. The following activities may not be assisted with DRI funds 
unless authorized under provisions of section 105(a)(15) of the Act.
    a. Purchase of equipment. The purchase of equipment with DRI 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 DRI 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. DRI 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 State grant recipient or its 
subrecipients in the administration of activities assisted with DRI 
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 DRI 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.

[[Page 72858]]

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 DRI 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 DRI 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.
    3. Use of DRI funds as a non-Federal cost-share for Corps of 
Engineers projects. The use of more than $250,000 in DRI funds as a 
non-Federal cost-share for any project funded by the Secretary of the 
Army through the Corps of Engineers is ineligible.
    4. Prohibition on use of DRI funds for employment relocation 
activities. No DRI funds may be used to assist directly in the 
relocation of any industrial or commercial plant, facility, or 
operation, from one area to another, if the relocation is likely to 
result in a significant loss of employment in the labor market area 
from which the relocation occurs.

K. Treatment of Program Income

    Any program income generated by HUD Disaster Recovery Initiative 
becomes program income to the State's CDBG program, not to its DRI 
grant. Such program income shall be returned to the State as program 
income for the year in which the State redistributes those funds. 
Therefore, any program income generated by DRI funds is to be included 
in cost cap calculations and program requirements for use of the CDBG 
funds. For States not participating in the CDBG program, program income 
received by the State after closeout of its grant is not subject to any 
Federal requirement.

L. Acquisition (Buyouts) of Flood-Damaged Properties

    1. Payment of pre-flood values for buyouts. HUD Disaster Recovery 
Initiative State grant recipients 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 DRI 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 an amount equal to 
the housing replacement cost minus:
    i. 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. 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 flood plain. Purchase of such properties with 
DRI funding is permitted if the properties are incidental to the 
project as a whole.
    4. Ownership and maintenance of acquired property.
    Any property acquired with DRI 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 or covenant 
running with the land must require that the property be dedicated and 
maintained for compatible uses in perpetuity.
    5. Future Federal assistance to owners remaining in flood plain.
    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 DRI 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.

[[Page 72859]]

    Such written notification shall be contained in documents 
evidencing the transfer of ownership of the property.
    d. Failure to notify. 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, 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.
    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 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, etc.). The term ``flood disaster area'' is defined in 
section 582(d)(2) to include an area receiving a Presidential 
declaration of a major disaster or emergency as a result of flood 
conditions.

M. Other Program Requirements

    1. General. This section I.M. enumerates laws that HUD will treat 
as applicable to the HUD Disaster Recovery Initiative grants to States 
and State grant recipients, including statutes expressly made 
applicable by the Act and certain other statutes and Executive Orders 
for which HUD has enforcement responsibility. The absence of mention 
herein of any other statute for which HUD does not have direct 
enforcement responsibility is not intended to be taken as an indication 
that, in HUD's opinion, such statute or Executive Order is not 
applicable to activities assisted with DRI funds. States are governed 
by applicable laws.
    2. Labor standards. In part because Davis-Bacon requirements are 
not applicable to FEMA disaster grants, it is necessary to clarify the 
applicability of Davis-Bacon requirements in relationship to the use of 
DRI funds in disaster recovery efforts. This section of this Notice 
addresses Davis-Bacon applicability to use of DRI 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 the 
authority under section 107(e)(2) of the Act, HUD has waived the labor 
standards requirements of Indian tribes under DRI.
    In accordance with Section 110(a) of the Act, construction work 
financed in whole or in part with DRI funds is subject to Federal labor 
standards provisions including the payment of Davis-Bacon 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. DRI 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 DRI 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 to the start of construction, if there is no contract 
award. However, HUD may request, and the DOL may approve, a wage 
determination effective on the date the DRI 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 DRI 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 unit of general local government 
contemplated use of or reimbursement by DRI 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 DRI 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 
DRI activities.
    Note that most forms of DRI 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 DRI 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. State DRI grants are subject 
to sections 102(a) and 202(a) of the Flood Disaster Protection Act of 
1973, respectively for the requirements for assisted property owners to 
purchase flood insurance and the effect of nonparticipation of the 
community in the flood insurance program. These requirements cannot be 
waived.
    a. State grant recipients 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,

[[Page 72860]]

noncompliant communities under the National Flood Insurance Program. 
Specific guidance can be found in the references in section I.M.3.b. 
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(a)) 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 or more 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 FEMA 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 State's Action Plan for Disaster Recovery, funds shall 
not be expended for acquisition or construction purposes in an area 
that has been identified by 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. 4012a(a).)

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

    1. Division B, title IV, chapter 7 of the 1999 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. Also, as 
provided in implementing language in section I.C.2. in this notice, the 
statute requires that more than 50 percent of the funds must benefit 
primarily persons of low and moderate income unless HUD makes a 
finding, based on a State's request, that there is a compelling need to 
waive such requirement. 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 division B, title IV, chapter 7 of the 1999 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 appears elsewhere 
by notice in today's Federal Register. HUD has published a notice 
listing the specific statutory and regulatory requirements that have 
been waived and setting 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. States and State grant recipients should give priority to 
projects that benefit low-and moderate-income individuals to the 
maximum extent practicable.

II. Ensuring the Public Trust

A. Program Administrative, Recordkeeping and Reporting Requirements

    The program administrative requirements at Secs. 570.489-570.492, 
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. HUD will compile this 
PER for the HUD Disaster Recovery Initiative from the quarterly reports 
submitted under paragraph 2 below, except that, with the final 
quarterly report submitted prior to grant closeout, States must also 
include with the PER 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. Congress has required that quarterly reports be submitted 
regarding the actual projects, localities and needs for which funds 
have been provided. HUD must also receive reporting information for 
program management purposes. Therefore, each State must submit a 
quarterly report, as HUD prescribes, no later than 30 days following 
each calendar quarter, beginning after the first full calendar quarter 
after grant award and continuing until all funds have been expended and 
that expenditure reported. Each quarterly 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. Quarterly 
reports must be submitted using HUD's web-based Disaster Recovery 
Initiative Grant Reporting system. Annually (i.e., with every fourth 
submission), the report shall include a financial reconciliation of 
funds budgeted and expended, and calculation of the overall percent of 
benefit to low- and moderate-income persons. HUD has sought approval 
from OMB for new information collection requirements in accordance with 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). OMB approval 
is under OMB control number 2506-0165, which expires on May 31, 2001. 
In accordance with the Paperwork Reduction Act, HUD may not conduct or 
sponsor and a person is not required to respond to, a collection of 
information unless the collection displays a valid control number.

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

[[Page 72861]]

Indian Tribal Governments;'' A-122, ``Cost Principles for Non-profit 
Organizations;'' or A-21, ``Cost Principles for Educational 
Institutions,'' as applicable. 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:
    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 State grant recipients are limited to 
those authorized under Sec. 570.489(b).
    2. Uniform administrative requirements and cost principles. The 
State and State grant recipients, their agencies or instrumentalities, 
and subrecipients shall comply with the policies, guidelines, and 
requirements of OMB Circulars A-87 and A-133 (implemented at 24 CFR 
part 45), as applicable. States shall also comply with the applicable 
requirements of Sec. 570.489 that are not otherwise waived or modified 
by this notice.
    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 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 DRI 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 Sec. 570.489(g) 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 DRI 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 the State, 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 and assuring 
that State grant recipients comply with their certifications to 
affirmatively further fair housing.
    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.
    3. Paragraphs C.1. and C.2., above, do not apply to Indian tribes, 
which are instead governed by the requirements of the Indian Civil 
Rights Act (25 U.S.C. 1301-1303, Title II of the Civil Rights Act of 
1968).

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 DRI funds made 
available pursuant to the Act. ``Funded in whole or in part with HUD 
community development funds'' means that DRI funds have been 
transferred by the State grant recipient or a subrecipient to an 
identifiable administrative unit and disbursed in a program or 
activity.
    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 DRI 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''

[[Page 72862]]

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 DRI 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 activity funded in whole or in part with 
DRI 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.
    4. Paragraphs D.1. and D.2., above, do not apply to Indian tribes, 
which are governed by the Indian Civil Rights Act.

E. Environmental Review Requirements

    1. Prior to the commitment of any DRI 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. State grant 
recipients must assume the responsibility for environmental reviews 
under the Disaster Recovery Initiative. States administering DRI funds 
must assume the responsibilities set forth in Sec. 58.18 for overseeing 
the State grant recipients' compliance with environmental review 
requirements, including receiving requests for release of funds (RROF) 
and environmental certifications form State grant recipients and 
objections from government agencies and the public in accordance with 
subpart H of 24 CFR part 58. Indian tribes must forward to the 
responsible HUD field office the environmental certification, the RROF 
and any objections received, and must recommend to HUD whether to 
approve or disapprove the certification and RROF.
    2. Disaster recovery assistance in a floodplain.
    a. The State grant recipient must follow the eight-step decision-
making process required by Executive Order 11988, Floodplain 
Management, as codified for HUD programs at Sec. 55.20. The Order 
covers the proposed acquisition, construction, improvement, 
disposition, financing, and use of property in a floodplain. 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 the State 
grant recipients as they are for the HUD Disaster Recovery Initiative, 
but are usually undertaken by Federal staff or contractors. Therefore, 
the State grant recipients 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 HUD and other Federal agencies 
jointly fund a project related to recovery from a covered disaster.
    b. A State grant recipient 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 the State grant 
recipient 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 grant 
recipient 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 grant recipient 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 grant 
recipient 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 grant recipient 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 grant recipient 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

[[Page 72863]]

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, and 
Executive Order 11988 on Floodplain Management, a State shall assure 
that it has 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 State grant recipient 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 the 
State grant recipient determines that the displacement 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 State grant recipient 
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 State grant recipient 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 
DRI funds for buyouts, a State may permit a State grant recipient to 
provide relocation payments and other relocation assistance to persons 
displaced by activities that are not subject to paragraphs 2. The State 
may also permit the State grant recipient to provide relocation 
assistance to persons receiving assistance under paragraph 2. of this 
section at levels in excess of those required by this paragraph. Unless 
such assistance is provided under State or local law, the State grant 
recipient shall provide such assistance only upon the basis of a 
written determination that the assistance is appropriate. The State 
grant recipient must adopt a written policy available to the public 
that describes the relocation assistance that the State grant recipient 
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 
State grant recipient 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 that government. 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, where grant, loan or guarantee funds are provided by a State, 
may file a written request for further review of the State grant 
recipient's decision to the State.
    6. Responsibility of the State.
    a. The State is responsible for ensuring compliance with these 
requirements, notwithstanding any third party's contractual obligation 
to the State grant recipient to comply with the provisions of this 
section. For purposes of State DRI funds, the State shall require State 
grant 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 State and State grant recipient 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.

[[Page 72864]]

    3. Contracting with small and minority firms, women's business 
enterprises and labor surplus area firms.
    a. The State and State grant recipient 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.

H. Lead-Based Paint

    States shall comply with the provisions of Sec. 570.487(c).

I. 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 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, DRI 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 DRI funds.
    a. DRI 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 DRI funds at no more 
than fair market value for a non-religious use.
    b. DRI 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 DRI 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, DRI 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 State grant 
recipient or subrecipient from which the DRI 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

[[Page 72865]]

carried out on property owned by the primarily religious entity, DRI 
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 DRI grant 
expenditure for the public services.

K. Political Activities

    DRI 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 DRI 
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. Procurement

    When procuring property or services to be paid for in whole or in 
part with DRI funds, the State shall follow its procurement policies 
and procedures. The State shall establish requirements for procurement 
policies and procedures for State grant recipients, based on full and 
open competition. Methods of procurement (e.g., small purchase, sealed 
bids/formal advertising, competitive proposals, and noncompetitive 
proposals) and their applicability shall be specified by the State. 
Cost plus a percentage of cost and percentage of construction costs 
methods of contracting shall not be used. The policies and procedures 
shall also include standards of conduct governing employees engaged in 
the award or administration of contracts. (Other conflicts of interest 
are covered by section II.N. of this notice and Sec. 570.489(h).) The 
State shall ensure that all purchase orders and contracts include any 
clauses required by Federal statutes, executive orders and implementing 
regulations. The State may adopt procurement standards in Sec. 85.36, 
and may adopt procurement standards in Sec. 85.36 for its State grant 
recipients that are also CDBG entitlement communities regardless of 
whether the State adopts such standards for other State grant 
recipients. Indian tribes must follow the procurement standards in 
Sec. 85.36.

N. Conflict of Interest

    1. Applicability. In the procurement of supplies, equipment, 
construction, and services by the States, State grant recipients, and 
subrecipients, the conflict of interest provisions in section II.M. 
shall apply. In all cases not governed by section II.M., this section 
II.N. shall apply. Such cases include the acquisition and disposition 
of real property and the provision of assistance with DRI funds by the 
unit of general local government or its subrecipients, to individuals, 
businesses and other private entities.
    2. Conflicts prohibited. Except for eligible administrative or 
personnel costs, the general rule is that no persons described in 
paragraph 3. of this section who exercise or have exercised any 
functions or responsibilities with respect to HUD Disaster Recovery 
Initiative-assisted activities or who are in a position to participate 
in a decision-making process or gain inside information with regard to 
such activities, may obtain a financial interest or benefit from the 
activity, or have an interest or benefit from the activity, or have an 
interest in any contract, subcontract or agreement with respect 
thereto, or the proceeds thereunder, either for themselves or those 
with whom they have family or business ties, during their tenure or for 
one year thereafter.
    3. Persons covered. The conflict of interest provisions for 
paragraph 2. apply to any person who is an employee, agent, consultant, 
officer, or elected official or appointed official of the State, or of 
a State grant recipient, or of any designated public agencies, or 
subrecipients which are receiving DRI funds.
    4. Exceptions: Threshold requirements. Upon written request by the 
State, an exception to the provisions of paragraph 2. of this section 
involving an employee, agent, consultant, officer, or elected official 
or appointed official of the State may be granted by HUD on a case-by-
case basis. In all other cases, the State may grant such an exception 
upon written request of the State grant recipient provided the State 
shall fully document its determination in compliance with all 
requirements of paragraph 4.a., including the State's position with 
respect to each factor at paragraph 5., and such documentation shall be 
available for review by the public and by HUD. An exception may be 
granted after it is determined that such an exception will serve to 
further the purpose of the Act and the effective and efficient 
administration of the program or project of the State or State grant 
recipient, as appropriate. An exception may be considered only after 
the State or State grant recipient, as appropriate, has provided the 
following:
    a. 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
    b. An opinion of the attorney for the State or the State grant 
recipient, as appropriate, that the interest for which the exception is 
sought would not violate State or local law.
    5. Factors to be considered for exceptions. In determining whether 
to grant a requested exception after the requirements of paragraph 4. 
have been satisfactorily met, the cumulative effect of the following 
factors, where applicable, shall be considered:
    a. Whether the exception would provide a significant cost benefit 
or an essential degree of expertise to the program or project which 
would otherwise not be available;
    b. Whether an opportunity was provided for open competitive bidding 
or negotiation;
    c. 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;
    d. Whether the affected person has withdrawn from his or her 
functions or responsibilities, or the decision-making process with 
respect to the specific assisted activity in question;
    e. Whether the interest or benefit was present before the affected 
person was in a position as described in this paragraph 5.
    f. Whether undue hardship will result either to the State or the 
unit of general local government or the person affected when weighed 
against the public interest served by avoiding the prohibited conflict; 
and
    g. Any other relevant considerations.

O. Performance Reviews and Dispute Resolution and Enforcement Actions

    The provisions of 24 CFR subpart I apply to States, regarding HUD 
review of grantee performance, resolution of disputes regarding grantee 
performance, and adjudicative, remedial and enforcement actions that 
HUD may take to resolve noncompliance matters.

Finding of No Significant Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD

[[Page 72866]]

regulations at 24 CFR part 50, which implement section 102(2)(C) of the 
National Environmental Policy Act of 1969 (42 U.S.C. 4332). The Finding 
of No Significant Impact is available for public inspection between 
7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules Docket 
Clerk, Office of General Counsel, Department of Housing and Urban 
Development, Room 10276, 451 Seventh Street, S.W., Washington, DC 
20410.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for the 1999 HUD 
Disaster Recovery Initiative are as follows: 14.219; 14.228.

    Dated: December 21, 1999.
Joseph D'Agosta,
General Deputy Assistant Secretary for Community Planning and 
Development.
[FR Doc. 99-33673 Filed 12-27-99; 8:45 am]
BILLING CODE 4210-29-P