[Federal Register Volume 65, Number 225 (Tuesday, November 21, 2000)]
[Rules and Regulations]
[Pages 70214-70215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29675]



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Part IV





Department of Housing and Urban Development





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24 CFR Part 570



CDBG Program Regulations on Pre-Award Costs and New Housing 
Construction; Final Rule

  Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 570

[Docket No. FR-4559-F-01]
RIN 2506-AC06


CDBG Program Regulations on Pre-Award Costs and New Housing 
Construction

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

ACTION: Final rule.

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SUMMARY: This rule changes the Community Development Block Grant (CDBG) 
program to permit a new CDBG grantee without a consolidated plan to be 
reimbursed for costs for activities related to the development and 
preparation of its first consolidated plan, and to permit homeownership 
activities, to the extent authorized by statute, to be funded in 
connection with new construction.

EFFECTIVE DATE: December 21, 2000.

FOR FURTHER INFORMATION CONTACT: Sue Miller, Entitlement Communities 
Division, Department of Housing and Urban Development, 451 Seventh 
Street, SW, Washington, DC 20410. Telephone: (202) 708-1577. (This is 
not a toll-free number). Hearing-impaired or speech-impaired 
individuals may access the voice telephone number listed above by 
calling the Federal information relay service during working hours at 
1-800-877-8339.

SUPPLEMENTARY INFORMATION: This rule makes three changes to the 
regulations for the Community Development Block Grant (CDBG) program. 
It permits a new CDBG grantee without a consolidated plan to incur 
costs for activities related to the development and preparation of its 
first consolidated plan, and to be reimbursed from CDBG funds for those 
costs. The rule allows homeownership activities, to the extent 
authorized by statute, to be funded in connection with new 
construction. Finally, the rule makes a related technical correction by 
removing the specific statutory reference for homeownership activities.

Costs for First Consolidated Plan

    A CDBG grantee is allowed reimbursement from grant funds for costs 
incurred prior to the effective date of the grant agreement when 
certain requirements stated in the regulations are met. One of those 
requirements is that the activity must be included in a consolidated 
plan action plan, or an amended consolidated plan action plan, prior to 
the costs being incurred. As a result, a new CDBG grantee that does not 
yet have a consolidated plan cannot obtain reimbursement for costs 
related to the development and preparation of its first consolidated 
plan without obtaining a regulatory waiver. This outcome is an 
unintended consequence of a previous rule regarding CDBG pre-award 
costs (60 FR 56892, November 9, 1995). Grantees ordinarily are able to 
fund their development and preparation costs for a future year's 
consolidated plan by including that activity in the current year's 
consolidated plan, but the 1995 change did not take into account the 
special needs of new grantees. Failure to permit a new grantee to fund 
these costs from CDBG funds could negatively impact the implementation 
of its CDBG program and its ability to effectively carry out activities 
that will benefit low- and moderate-income residents. Although HUD 
could continue to address this problem through waivers, that is an 
inefficient approach and one that leaves a new grantee uncertain of 
funding until a waiver is granted. HUD and new grantees will benefit 
from a regulations change to permit routine reimbursement for a new 
grantee for its pre-award costs for development and preparation of its 
first consolidated plan, and there will be no adverse effect from this 
change.

Homeownership Activities for New Construction

    In general, CDBG assistance is not available for new construction 
activities. However, a statutory provision (discussed below) does allow 
certain forms of direct homeownership assistance to low- and moderate-
income households. To date, HUD has applied a conservative 
interpretation to this statutory provision that did not permit the use 
of CDBG funds for homeownership assistance that directly assisted the 
construction of new housing. We have reconsidered this interpretation, 
in part because homeownership assistance (originally approved as an 
eligible activity only for certain years) is now permanently 
authorized, and because of the important role that CDBG assistance can 
play in the development of new affordable housing with increased 
opportunities for homeownership for low- and moderate-income persons. 
HUD has concluded that neither the statutory text nor the legislative 
history behind the provisions for CDBG homeownership assistance require 
that the availability of homeownership assistance be affected by 
whether or not the home was previously constructed. Therefore, the 
regulations will now reflect this revised interpretation.

Revision to Statutory Reference

    In connection with the change discussed above, we are revising the 
current statutory reference for homeownership assistance that appears 
in Sec. 570.201(n). It cites ``section 105(a)(25)'' of the Housing and 
Community Development Act of 1974. However, due to intervening 
statutory changes, a different provision regarding lead-based paint 
hazard evaluation and reduction is now designated as section 105(a)(25) 
and the correct citation for the homeownership assistance provision is 
not completely certain. For example, the United States Code Annotated 
designates the provision as 42 U.S.C. 5305(a)(24) [corresponding to a 
section 105(a)(24) of the 1974 Act], but the current ``Basic Laws on 
Housing and Community Development'' printed as Committee Print 106-1 
for use of the House of Representatives' Committee on Banking and 
Financial Services expressly states that there is no section 
105(a)(24). Despite the uncertainty regarding correct citation, there 
is no dispute over the fact that the homeownership assistance provision 
is now permanently authorized as eligible activity for the CDBG 
program. This rule thus revises the citation in Sec. 570.201(n) from 
the current specific reference to section 105(a)(25) to a more general 
reference to section 105(a).

Other Matters

Justification for Final Rulemaking

    It is the general practice of the Department to provide a 60-day 
public comment period on all rules in accordance with 24 CFR part 10. 
However, a public comment procedure may be omitted under Sec. 10.1 if 
the Department determines that is impracticable, unnecessary, or 
contrary to the public interest. It may also be omitted for 
interpretive rules. The Department has decided that public comment is 
both unnecessary and contrary to the public interest regarding both the 
change on pre-award costs for consolidated plan preparation and 
development by first-time grantees, and eligibility for homeownership 
assistance in connection with new construction. Delay is issuance of a 
final rule could adversely affect first-time grantees and interfere 
with the achievement of the purposes of the program, with no 
corresponding public benefit because the changes are simple ones 
without a substantive adverse effect on anyone. In addition, the change 
regarding homeownership assistance qualifies as an interpretive rule 
reflecting a revision in our interpretation of statutory limits. Public 
comment regarding the third

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change (deletion of an incorrect statutory reference) is clearly not 
needed due to complete lack of substantive effect.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
for this rule has been made in accordance with HUD regulations at 24 
CFR part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969. The Finding of No Significant Impact 
is available for public inspection between 7:30 a.m. and 5:30 p.m. 
weekdays in the Office of the Rules Docket Clerk, Office of the General 
Counsel, Department of Housing and Urban Development, Room 10276, 451 
Seventh Street, SW., Washington, DC 20410-0500.

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532) 
establishes requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and 
the private sector. This rule does not impose a Federal mandate that 
will result in the expenditure by State, local, or tribal governments, 
in the aggregate, or by the private sector, or $100 million or more in 
any one year.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule would not have a significant 
economic impact on a substantial number of small entities. There are no 
anti-competitive discriminatory aspects of the rule with regard to 
small entities, and there are not any unusual procedures that would 
need to be complied with by small entities.

Executive Order 13132, Federalism

    This rule does not have Federalism implications and does not impose 
substantial direct compliance costs on State and local governments or 
preempt State law within the meaning of the Executive Order.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program number is 
14.218.

List of Subjects in 24 CFR Part 570

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

    Accordingly, the Department hereby amends 24 CFR part 570 as 
follows:

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

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

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

    2. Section 570.200 is amended by revising paragraph (h)(1)(i) to 
read as follows:


Sec. 570.200  General policies.

* * * * *
    (h) * * *
    (1) * * *
    (i) The activity for which the costs are being incurred is 
included, prior to the costs being incurred, in a consolidated plan 
action plan, an amended consolidated plan action plan, or an 
application under subpart M of this part, except that a new entitlement 
grantee preparing to receive its first allocation of CDBG funds may 
incur costs necessary to develop its consolidated plan and undertake 
other administrative actions necessary to receive its first grant, 
prior to the costs being included in its consolidated plan;
* * * * *
    2. Section 570.201 is amended by revising paragraph (n) to read as 
follows:


Sec. 570.201  Basic eligible activities.

* * * * *
    (n) Homeownership assistance. CDBG funds may be used to provide 
direct homeownership assistance to low- or moderate-income households 
in accordance with section 105(a) of the Act.
* * * * *
    3. Section 570.207 is amended by revising paragraph (b)(3)(ii) to 
read as follows:


Sec. 570.207  Ineligible activities.

* * * * *
    (b) * * *
    (3) * * *
    (ii) As authorized under Sec. 570.201(m) or (n);
* * * * *

    Dated: August 24, 2000.
Cardell Cooper,
Assistant Secretary for Community Planning and Development.
[FR Doc. 00-29675 Filed 11-20-00; 8:45 am]
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