[Federal Register Volume 69, Number 131 (Friday, July 9, 2004)]
[Proposed Rules]
[Pages 41434-41441]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15634]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 69, No. 131 / Friday, July 9, 2004 / Proposed 
Rules  

[[Page 41434]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 570

[Docket No. FR-4699-P-01]
RIN 2506-AC12
HUD-2004-0002


Community Development Block Grant Program Revision of CDBG 
Eligibility and National Objective Regulations

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

ACTION: Proposed rule.

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

SUMMARY: This proposed rule would revise the Community Development 
Block Grant (CDBG) program regulations to clarify the eligibility of 
brownfields cleanup, development, or redevelopment within existing 
program eligibility categories. In part, these changes respond to a 
1999 statutory direction with respect to brownfields-related eligible 
activities. In addition, this proposed rule would make changes to CDBG 
national objectives that relate to brownfields and clarify regulatory 
language.
    The proposed rule would expand the ``slums or blight'' national 
objective criteria to include known and suspected environmental 
contamination, as well as economic disinvestments, as blighting 
influences. The proposed rule would require grantees to establish 
definitions of blighting influences and to retain records. In addition, 
an area slums or blight designation would be required to be 
redetermined every five years for continued qualification. The proposed 
rule would include the abatement of asbestos hazards and lead-based 
paint hazard evaluation and reduction as eligible rehabilitation 
activities. The proposed rule would eliminate duplicative text 
concerning the treatment of lead-based paint hazards. Finally, the 
proposed rule would require that acquisition or relocation must be a 
precursor to other activities which eliminate specific conditions of 
blight or physical decay when addressing slums or blight on a spot 
basis.

DATES: Comments Due Date: September 7, 2004.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC 20410-0500. Communications should refer to the 
above docket number and title. Facsimile (fax) comments are not 
acceptable. A copy of each communication submitted will be available 
for public inspection and copying between 8 a.m. and 5 p.m. weekdays at 
the above address.
    Interested persons are also invited to submit comments 
electronically through http://www.epa.gov/feddocket. Follow the link to 
``View Open HUD Dockets.'' Commenters should follow the electronic 
submission instructions given on that site. A copy of public comments 
submitted, and, if applicable, other supporting documents, will be 
available for viewing at that site.

FOR FURTHER INFORMATION CONTACT: Steve Johnson, Director, State and 
Small Cities Division, Office of Block Grant Assistance, Office of 
Community Planning and Development, Room 7184, Department of Housing 
and Urban Development, 451 Seventh Street, SW., Washington, DC 20410-
7000; telephone (202) 708-1322 (this is not a toll-free number). 
Hearing-or speech-impaired individuals may access the telephone number 
listed in this section via TTY by calling the toll-free Federal 
Information Relay Service at (800) 877-8339. Copies of studies 
mentioned in this rule are available for a fee from HUD User at (800) 
245-2691 (a toll-free number).

SUPPLEMENTARY INFORMATION:

I. Background

    While the cleanup and redevelopment of brownfields can be 
accomplished using any number of categories of eligible activities, 
qualifying such an activity under the existing criteria concerning the 
slums or blight national objective has often been confusing and 
problematic. On May 31, 1994 (59 FR 28176), HUD issued a proposed CDBG 
Economic Development rule and invited public comment on the concept of 
broadening the slums or blight national objective criteria to 
incorporate environmental contamination and economic disinvestment as 
blighting conditions. Commenters generally supported this concept, but 
few provided specific recommendations or quantifiable responses to the 
questions raised in the preamble dealing with the definition of 
``contamination.'' When the final CDBG Economic Development rule was 
published on January 5, 1995 (60 FR 1922), the Department decided to 
wait until a later date to publish new proposed rules that specifically 
addressed changes to the slums or blight criteria.
    In 1996, HUD consulted with a task force of local officials 
organized by the U.S. Conference of Mayors to seek new approaches to 
adding environmental contamination as a blighting influence. The 
Department also consulted with other federal agencies, including the 
Environmental Protection Agency (EPA), on the possibility of increasing 
CDBG grantees' flexibility to undertake environmental remediation.
    In 1997, HUD contracted with Research Triangle, Inc., to survey 
CDBG grantees and report on their familiarity with brownfields issues 
and their use of CDBG funds to remediate or redevelop brownfields 
sites. In 1998, HUD contracted with the National Association of Local 
Government Environmental Professionals (NALGEP) to evaluate the impact 
of current CDBG regulations on brownfields redevelopment and to present 
recommendations based on their local government perspective on revising 
the CDBG program to better deal with brownfields projects. The 
conclusions of these reports, described in section II of this 
SUPPLEMENTARY INFORMATION section, have been particularly useful to HUD 
in identifying and developing policy alternatives.
    In the Departments of Veterans Affairs and Housing and Urban 
Development and Independent Agencies Appropriations Act, 1999 (Pub. L. 
105-276, approved October 21, 1998) (FY1999 Appropriations Act), 
Congress outlined the eligibility of environmental cleanup and economic 
development activities under the CDBG program. Section 205 of the 
FY1999 Appropriations Act stated:

    For fiscal years 1998, 1999, and all fiscal years thereafter, 
States and entitlement communities may use funds allocated under

[[Page 41435]]

the community development block grants program under title I of the 
Housing and Community Development Act of 1974 for environmental 
cleanup and economic development activities related to Brownfields 
projects in conjunction with the appropriate environmental 
regulatory agencies, as if such activities were eligible under 
section 105(a) of such Act.

    In addition, in 1997, HUD's Office of the Inspector General (OIG) 
issued a report on the use of the national objective criteria for 
eliminating slums or blight on a spot basis in a specific project. This 
report recommended that HUD consider revising the criteria to eliminate 
ambiguity and the possibility for misuse of the spot slums or blight 
criteria.
    With this information, HUD revisited the conceptual approach 
proposed in the 1994 rule, and now publishes this new proposed rule to 
allow for additional comment.

II. Changes Proposed by This Rule

Eligible Activities, Generally

    HUD has determined that section 205 of the FY1999 Appropriations 
Act does not add any new eligibility categories to Title I of the 
Housing and Community Development Act of 1974 (HCDA). The intent of the 
language is to clarify that costs of environmental remediation, 
development, or redevelopment of environmentally contaminated sites are 
indeed eligible costs within the existing categories of eligible 
activities. Therefore, this proposed rule does not create any new 
eligibility categories, but would expand the scope of the current 
description of existing eligible activities in 24 CFR part 570, subpart 
C, entitled, ``Eligible Activities,'' subpart I, entitled ``State 
Community Development Block Grant Program,'' and subpart M, entitled 
``Loan Guarantees,'' to include environmental remediation, development, 
or redevelopment of contaminated sites. Other conforming changes are 
proposed in association with the slums or blight national objective 
criteria.
    It should be noted throughout this rule, that the terms ``CDBG 
funding'' and ``CDBG programs'' refer to, in addition to the 
Entitlement and State programs, those programs covered by 24 CFR 570.1 
(e.g., the Section 108 Loan Guarantee program, the Economic Development 
Initiative, the Brownfields Economic Development Initiative, the HUD-
administered Small Cities and Insular CDBG programs).

CDBG Entitlement Program Eligible Activities

    Under this proposed rule, assessment and remediation of sites with 
known or suspected environmental contamination would be listed as 
eligible activities under Sec.  570.201(d), which addresses clearance. 
Development or redevelopment of properties with known or suspected 
contamination would be specifically identified as eligible under Sec.  
570.203, special economic development activities, and Sec.  570.204, 
special activities by community-based development organizations. The 
proposed rule would allow for some site assessment costs to be eligible 
as planning costs, while others may be actual project delivery costs. 
For example, preliminary studies to determine whether a site is 
contaminated, the cause of the contamination, and the extent of the 
contamination, would generally be planning costs. Studies to determine 
what type or level of remediation must be undertaken to develop a 
specific property for a specific use would qualify under other 
eligibility categories as project implementation costs. HUD further 
proposes to revise Sec.  570.202(a)(3), to make clear that for a 
private, for-profit business, abatement of asbestos hazards and lead-
based paint hazard evaluation and reduction are eligible. This is 
proposed because elimination of these conditions results in a health 
and safety benefit to the public. Abatement of these conditions through 
demolition is also eligible, provided that there is compliance with 
environmental requirements. HUD also proposes to revise Sec.  
570.202(b)(2), to include ``improvements'' to the list of items 
eligible for rehabilitation and preservation activities. 
``Improvements'' would be added to maintain greater consistency with 
the introductory language of Sec.  570.202.

State CDBG Program Eligible Activities

    The State CDBG program regulations do not contain a list of 
eligible activities. Section 570.482 would be revised to clarify that 
project-specific assessment or remediation of contaminated properties 
with known or suspected environmental contamination may be considered 
as eligible under section 105(a)(14), (15), or (17) of the HCDA, as 
amended. To incorporate this additional language, some minor 
renumbering of the existing language at Sec.  570.482 would occur. 
Other sections of the CDBG Entitlement eligible activity regulations 
that are being revised do not have a counterpart section in the State 
CDBG program regulations. States have latitude to interpret the 
eligibility provisions of the HCDA, and of course, may use the CDBG 
Entitlement program eligibility regulations as interpretive guidance.

Section 108 Loan Guarantee Program Eligible Activities

    Section 570.703, which governs eligible activities in the Section 
108 Loan Guarantee program, the Economic Development Initiative, and 
the Brownfields Economic Development Initiative, would be revised to 
add project-specific assessment and remediation of known or suspected 
environmental contamination to paragraph (e), which addresses 
clearance, paragraph (f), which addresses site preparation; and 
paragraph (l), which addresses public facilities. Each of these 
eligible activity provisions contains limitations concerning the 
situations in which they may be used; therefore, incorporating project-
specific assessment and remediation into all three paragraphs would 
increase grantees' flexibility. Language would be added to paragraphs 
(e) and (f) of Sec.  570.703 to clarify that eligible remediation could 
include certain environmental assessment costs (as activity delivery 
costs) that would not be considered as planning costs. Planning costs 
eligible under Sec.  570.205 are not statutorily eligible under the 
Section 108 Loan Guarantee program. Historic preservation would be 
added to paragraph (l), public facilities, of Sec.  570.703. Historic 
preservation is currently permitted by policy as an eligible form of 
rehabilitation or reconstruction of a public facility financed under 
the Section 108 Loan Guarantee Program. The addition of historic 
preservation to the regulations is intended to give public notice of 
this policy.

Public Benefit Standards

    Economic development projects funded under Sec. Sec.  570.203 and 
570.204 of the CDBG entitlement regulations, and sections 105(a)(14), 
(15), and (17) of the HCDA, are subject to the public benefit standards 
regulations found in Sec.  570.209 (for the entitlement CDBG program) 
and Sec.  570.482 (for the State CDBG program). Note that environmental 
assessment or remediation work carried out under other eligibility 
categories of the HCDA or the regulations are not subject to the public 
benefit standards.
    Because treatment and redevelopment of brownfields is one of the 
administration's major community development initiatives, HUD proposes 
to add development or redevelopment of environmentally contaminated 
sites to the list of ``important national interest'' economic 
development activities that a grantee may exclude from the aggregate 
public benefit test. To be excluded from the aggregate

[[Page 41436]]

public benefit standards, such an activity must directly involve the 
economic development of property known to be environmentally 
contaminated. CDBG-funded activities must either directly pay for the 
development or redevelopment activities or be an integral precursor 
activity to development paid for from other sources.

National Objective Standards for Addressing Slums or Blight on an Area 
Basis

    The existing regulations contain four criteria for activities 
addressing slums or blight on an area basis:
    1. The area must meet a state or local definition of a slum, 
blighted, deteriorated, or deteriorating area.
    2. The area must contain a substantial number of deteriorated or 
deteriorating buildings or the public improvements must be in a general 
state of deterioration.
    3. The assisted activity must address one or more of the conditions 
that contributed to the deterioration of the area.
    4. The recipient must keep records sufficient to document its 
findings that a project meets the national objective of prevention or 
elimination of slums or blight.
    HUD proposes to significantly expand the second of these criteria. 
In addition to deteriorated or deteriorating buildings, HUD proposes to 
expand this criterion to include physical deterioration of improvements 
on private property. HUD also proposes to include several other factors 
that recognize economic disinvestment and environmental contamination 
as blighting influences. These are:
    1. Abandonment of properties;
    2. Chronic high turnover rates or chronic high vacancy rates in 
occupancy of commercial or industrial buildings;
    3. Significant declines in property values or abnormally low 
property values relative to other areas in the community; and
    4. Known or suspected environmental contamination of properties.
    Grantees would be able to ``mix and match'' these factors. Some 
individual properties in an area might qualify because of abandonment, 
others might qualify because of environmental contamination, still 
others because of building conditions. The expansion of the 
deteriorating or deteriorated buildings criterion to include physical 
deterioration of improvements on private property recognizes that 
certain improvements that are not maintained can have blighting 
influences. Some examples of this include: Retaining walls that are in 
a state of disrepair; abandoned industrial equipment on land; or a 
deteriorated pedestrian bridge. HUD would expect a significant level of 
deterioration to be present in order to meet this criterion. Situations 
involving minor deterioration such as cracked sidewalks, chipped paint, 
or other insignificant items would not meet this criterion.
    The rule would refer more generally to ``properties'' rather than 
just buildings, as vacant properties may exhibit some of the other 
proposed blighting influences. Note, however, that two of the criteria 
specifically relate to conditions of buildings themselves. This 
proposed rule would retain the existing provision allowing an area to 
qualify as blighted based on the deterioration of public improvements. 
This is an alternative, stand-alone criterion that cannot be ``mixed 
and matched'' with the other criteria. This latter criterion would be 
clarified to specify that the deteriorated state of public improvements 
must exist throughout the designated area, not just on a few blocks or 
in one corner of an area.
    Grantees would be required to establish definitions and retain 
records to substantiate how the area met the slums or blighted area 
criteria. Specifically, grantees would be required to define 
deteriorating or deteriorated buildings or improvements, abandonment of 
properties, chronic high turnover rates, chronic high vacancy rates, 
significant declines in property values, abnormally low property 
values, and environmental contamination. Grantees would also be 
required to redetermine the slums or blighted area designation every 
five years and retain documentation to support continued qualification. 
Grantees would not be required to develop a definition for the existing 
regulatory standard concerning public improvements in a general state 
of deterioration, but the recordkeeping requirements would remain in 
place.

Review of Public Comments and Applicability to This Proposed Rule

    In responding to HUD's 1994 proposed rule, several commenters, 
remarking that vacant properties are an economic disinvestment issue, 
asked HUD to clarify how many buildings it considers to be a 
``significant number'' of vacant buildings. Current HUD regulations 
indicate that a ``substantial number'' of buildings must be 
deteriorated or deteriorating in a designated area in order to qualify 
as a slum or blighted area. HUD's policy determinations currently 
define a ``substantial number'' to mean at least 25 percent of the 
buildings in the area, unless State law specifies some other minimum. 
These policy determinations are contained on page 3-35 of the Guide to 
National Objectives and Eligible Activities for Entitlement Communities 
and on page 3-41 of the Guide to National Objectives and Eligible 
Activities for the State CDBG Program. Since this rule would recognize 
a wider range of blighting influences, HUD also proposes to require 
that a higher percentage, 33 percent, of properties in an area meet one 
or more of these conditions.
    Several commenters on the 1994 proposed rule also asked HUD to 
clarify what it considers to be an ``unusually high'' turnover rate. To 
maintain grantee flexibility, HUD does not propose to quantify what 
constitutes chronic ``high'' turnover or ``high'' vacancy rates or 
``significant declines'' in property values. Lease turnover rates and 
property values change over time and vary greatly around the country 
and even within a city.
    Other comments responding to the 1994 proposed rule urged HUD to 
simply accept local certifications or determinations that an area is 
blighted, eliminating any additional test concerning property 
conditions, or to allow vacant or undeveloped land as evidence of 
blight. The preamble to CDBG entitlement regulations issued in 
September 1983 noted that the criteria in State laws are often broadly 
or vaguely defined and that areas could meet many State definitions 
despite the lack of ``objectively determinable signs of blight'' (which 
are required by the HCDA). The Federal statute sets a higher standard 
than is either intended or required under some State laws, which have 
broader purposes. Some States' laws, for example, include such 
conditions as ``inappropriately zoned land'' or ``underdeveloped'' 
land.
    Although the Department proposes to allow recipients to establish 
the definitions of blighting influences, as described previously, HUD 
does not accept inappropriate zoning or the presence of vacant or 
undeveloped land as prima facie evidence of blighted conditions and 
holds to the higher standard set by the HCDA. Similarly, HUD does not 
accept the lack of certain public facilities in an area as equating to 
public facilities being in a general state of deterioration. Finally, 
with regard to environmental contamination, HUD strongly believes that 
certain widespread, generalized types of pollution, such as air 
pollution or non-point pollution of surface waters in the

[[Page 41437]]

public domain, should not be considered to be blighting influences and 
would object to local definitions that contained these factors.

National Objective Standards for Addressing Slums or Blight on a Spot 
Basis

    The existing national objective criterion under the CDBG 
regulations for addressing slums or blight on a spot basis allows a 
limited number of activities to be undertaken to address spot 
conditions of blight or decay outside of a designated blighted area. 
This proposed rule would add remediation of environmental contamination 
and rehabilitation of improvements to the list of activities that may 
be undertaken using the spot slums or blight criterion. Under this 
criterion, rehabilitation is limited to eliminating specific conditions 
detrimental to public health and safety. Given the health risks 
associated with environmental contaminants (including lead-based paint 
and asbestos), rehabilitation activities involving the evaluation and 
reduction of lead-based paint hazards or abatement of asbestos can 
qualify under this criterion as eliminating conditions detrimental to 
public health and safety.
    An additional change unrelated to environmental contamination is 
proposed for the spot slums or blight national objective criterion. 
HUD's OIG has expressed concern about the current list of activities 
that may be undertaken to address the spot slums or blight national 
objective criterion. Activities such as acquisition or relocation may 
be undertaken with CDBG or section 108 Loan Guarantee funds pursuant to 
this criterion, but if no other rehabilitation or redevelopment 
activity occurs, OIG questioned how the acquisition or relocation by 
itself eliminates conditions of decay or blight.
    In this proposed rule, acquisition and relocation would continue to 
be eligible spot slums or blight-addressing activities, but only when 
they are a precursor to other activities that directly eliminate the 
conditions of blight or physical decay. The other development 
activities that actually address the blighting conditions would not 
have to be funded with funds from the CDBG program, Section 108 Loan 
Guarantee program, Economic Development Initiative, or Brownfields 
Economic Development Initiative. However, ``stand-alone'' acquisition 
of a property or relocation of occupants, with no further action to 
rehabilitate, redevelop, or demolish the building, would no longer 
qualify as meeting the spot slums or blight national objective. HUD 
believes this restriction would affect only a few potential projects. 
HUD particularly requests comments regarding specific situations 
(including those to address health and safety) where such stand-alone 
activities should be authorized as an activity that addresses slums or 
blight on a spot basis where the activity is not a precursor to an 
actual remedial activity.

Defining Environmental Contamination Pursuant to Changes to National 
Objectives and Eligibility Criteria

    In developing this proposed rule, HUD grappled with several issues: 
Should HUD define the types of environmental contamination that may be 
considered blighting influences? Should the rule specify some level of 
contamination that should be present? Should HUD refer to other Federal 
or State programs' statutory or regulatory definitions of levels and 
types of environmental contamination or of the term ``brownfields''? 
Are state definitions and priority listings of contaminated sites 
(where they exist) sufficiently comparable to Federal provisions to 
provide reasonable evidence of blighting conditions? HUD's studies and 
consultations discussed in the Background section of this proposed rule 
pointed out several difficulties in trying to address these issues, 
which include the following:
    1. HUD has neither the statutory responsibility nor the technical 
expertise to define levels or types of environmental contamination.
    2. Referring to other State or Federal laws or regulations, such as 
the Comprehensive Environmental Response, Compensation, and Liability 
Act of 1980 (CERCLA) (Superfund Act) (42 U.S.C. 9601) would cause 
problems. In addition, as to CERCLA, HUD has discussed that statute's 
recently added definition of brownfields with EPA and has learned that 
some parts of the definition apply only to certain EPA programs, or 
other limited circumstances, and do not make sense in the context of 
administering CDBG assistance. To incorporate by reference a list of 
highly technical regulations or statutes governing other programs could 
be confusing to grantees.
    3. Other Federal laws have different statutory purposes and 
limitations and may exclude certain categories of contaminants.
    4. There are great variations among State laws and State-
established remediation programs, where they exist at all. What might 
be allowable in one State might not be covered in another state.
    5. Some other Federal programs (notably Superfund) are designed to 
deal only with the most severe cases of contamination. The CDBG program 
is not intended to compete with programs such as Superfund in 
addressing severe contamination cases. The CDBG program is likely to be 
most effective in addressing situations involving lower levels of 
contamination, or sites not eligible for treatment under programs like 
Superfund.
    6. Some remediation-related activities may be eligible for funding 
under other Federal programs, but not qualify for CDBG program funding. 
For example, Superfund money may be used to relocate occupants away 
from contaminated sites or to fence off a site. The slums or blight 
national objective requires that activities qualifying under these 
criteria address the conditions that led to the designation as 
blighted. HUD does not consider using CDBG funds simply to fence off a 
contaminated site to have addressed the blighting condition because the 
contamination remains and is still a blighting influence, even though 
residents are prevented from coming into direct contact with the 
contamination.
    Under this proposed rule, grantees are responsible for determining 
what constitutes a contaminated property within their program and for 
establishing definitions for their program. As discussed previously, 
HUD would object to including certain generalized types of 
contamination in these definitions.

Known Versus Suspected Contamination

    The NALGEP study recommended that the provisions of this rule not 
be limited to sites where environmental contamination is already known 
to exist. HUD accepts this recommendation. Fear of the unknown can be a 
powerful force for disinvestment, and a powerful disincentive to 
development. If a site is suspected of being contaminated, it can be a 
blighting influence whether or not it has been factually proven to be 
contaminated. HUD uses the term ``known or suspected contamination'' in 
this rule to convey this concept. However, the Department expects that 
a grantee will have some legitimate reason for suspecting that a site 
is contaminated, based on known prior uses, preliminary site studies, 
or proximity to sites already known to be contaminated with mobile 
contaminants.
    Site assessment costs for a site where contamination is suspected 
may qualify under the proposed slums or blight

[[Page 41438]]

national objective criteria. Where preliminary assessments determine 
that a site is indeed contaminated, additional activities funded under 
CDBG, Section 108 Loan Guarantee program, the Brownfields Economic 
Development Initiative, and the Economic Development Initiative to 
remediate the contamination may qualify under the slums or blight 
criteria, either by themselves or in conjunction with further 
development or redevelopment activities. On the other hand, if 
preliminary assessments conclude that the site is in fact not 
contaminated, a grantee would not be able to qualify further 
development activities under the slums or blight criteria solely on the 
basis that suspected contamination is a blighting influence. Once a 
site is determined to be uncontaminated, it would be inappropriate to 
continue to claim that the unfounded perception of contamination is a 
blighting influence. Further development or redevelopment activity may, 
however, qualify under another national objective.

Compliance With Other Environmental Requirements Pursuant to Changes to 
National Objectives and Eligibility Criteria

    HUD closely examined the language in the FY 1999 Appropriations Act 
concerning the eligibility of brownfields projects ``in conjunction 
with the appropriate environmental regulatory agencies.'' HUD does not 
believe Congress intended this to mean that a grantee must undertake 
special, separate consultations with other environmental regulatory 
agencies prior to using CDBG funds for such a project. Further, HUD 
does not believe this means that such activities would be eligible for 
CDBG funding only if other Federal funding sources are financially 
participating in the activity. Rather, this language serves as a 
reminder that cleanup, development, or redevelopment of environmentally 
contaminated sites using CDBG funds must be undertaken in compliance 
with applicable environmental laws, regulations, procedures, and 
standards concerning the treatment of contaminated properties. The CDBG 
grantee may well need to consult with applicable Federal, State, or 
local regulatory agencies with respect to environmental compliance. The 
HCDA, the CDBG regulations, and other HUD regulations concerning 
environmental protection already require grantees to comply with and 
certify compliance with all applicable environmental laws. Therefore, 
HUD has determined that no additional regulatory language is needed 
specifically to require grantees to comply with all applicable 
environmental laws.

Request for Specific Public Comments on Additional Reporting in IDIS

    In addition to soliciting public comments generally, the Department 
is seeking specific comments about a potential change in the Integrated 
Disbursement and Information System (IDIS) that would assist in 
assessing the extent to which communities use CDBG funding for 
brownfields related activities. IDIS is the draw down and reporting 
system for four HUD formula grant programs: CDBG, HOME, Emergency 
Shelter Grants Program (ESG), and Housing Opportunities for Persons 
with AIDS (HOPWA). The system allows grantees to request their grant 
funding from HUD and report on what is accomplished with these funds.
    HUD is exploring the possibility of adding a data field into IDIS 
to assess more effectively the amount of CDBG funds that grantees use 
for brownfields. This would allow the Department to aggregate 
accomplishments and better analyze this program's efforts in responding 
to grantees' brownfields needs.

III. This Proposed Rule in Summary

    This proposed rule would revise the CDBG program eligibility 
regulations in subparts C, I, and M, of 24 CFR part 570. These sections 
address the Entitlement program, the HUD-Administered Small Cities and 
Insular CDBG programs; the State CDBG program; the Section 108 Loan 
Guarantee program, the Brownfields Economic Development Initiative 
program, and the Economic Development Initiative program.
    Specifically, the proposed rule would, among other things, add 
project-specific assessment and remediation of known or suspected 
environmentally contaminated sites to the list of eligible activities 
under Sec.  570.201(d), which addresses clearance; would add evaluation 
and reduction of lead-based paint hazards and evaluation and abatement 
of asbestos and other contaminants to the list of eligible 
rehabilitation activities under Sec.  570.202; would remove Sec.  
570.202(f) from the regulatory text as it is duplicative of Sec.  
570.202(b)(7)(iv); and would add project-specific assessment and 
remediation of known or suspected environmentally contaminated sites as 
eligible under Sec.  570.203 and Sec.  570.204. In addition, the 
national objective criteria at Sec.  570.208 (b)(1)(ii) would be 
expanded to include as blighting influences the physical deterioration 
of improvements, known or suspected environmental contamination, and 
other economic disinvestments. Grantees would be required to establish 
certain definitions and maintain records. In addition, the proposed 
rule would require that the overall slums or blighted designation be 
redetermined every five years for continued qualification. Areas 
designated less than five years prior to the effective date of the 
final rule would be required to be redetermined on the five-year 
anniversary of the original designation using the criteria in effect at 
that time of the redetermination. Any area designated more than five 
years before must be redetermined before any additional funds are 
budgeted for new or existing activities.
    The activities to address slums or blight on a spot basis would be 
revised to indicate that acquisition or relocation must be a precursor 
to other activities that directly eliminate specific conditions of 
blight or physical decay.
    HUD proposes that the treatment, development, or redevelopment of 
brownfields, one of the administration's major community development 
initiatives, be placed on the list of ``important national interest'' 
activities found in Sec.  570.209(b)(2)(v) and Sec.  570.482(f)(3)(v), 
thereby allowing grantees to exclude these activities from the 
aggregate public benefit test.
    Sections 570.482-483 would be revised to reflect changes in the 
State program pursuant to the expansion of the national objective 
criteria and to require grantees to establish certain definitions and 
maintain records. In addition, the proposed rule would require that the 
overall slums or blighted designation be redetermined every five years 
for continued qualification.
    Areas designated less than five years prior to the effective date 
of the final rule would be required to be redetermined on the five-year 
anniversary of the original designation using the criteria in effect at 
the time of the redetermination. Any area designated more than five 
years prior to the effective date must be redetermined before any 
additional funds are budgeted for new or existing activities.
    As with the Entitlement program, the State regulations would be 
revised to indicate that acquisition or relocation must be a precursor 
to other activities that directly eliminate specific conditions of 
blight or physical decay when addressing slums or blight on a spot 
basis. Finally, Sec.  570.703, which addresses eligible activities 
under the Section 108 Loan Guarantee program and the related EDI and 
BEDI programs, has been revised to add historic

[[Page 41439]]

preservation, project-specific assessment, and remediation of known or 
suspected environmentally contaminated sites to the list of eligible 
activities.

IV. Findings and Certifications

Public Reporting Burden

    The information collection requirements contained in this proposed 
rule have been approved by the Office of Management and Budget (OMB) in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520) and assigned OMB control numbers 2506-0077 and 2506-0085. An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless the collection displays 
a currently valid OMB control number.
    Although the information collections under this proposal have been 
approved by OMB, HUD invites interested parties to submit comments on 
the information collection requirements in this proposed rule.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
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 (42 U.S.C. 4223). The Finding of No Significant Impact is 
available for public inspection weekdays between the hours of 8 a.m. 
and 5 p.m. in the Office of the Rules Docket Clerk, Office of General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410-0500.

Impact on Small Entities

    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 does 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 need to be 
complied with by small entities. Although HUD has determined that this 
proposed rule does not have a significant economic impact on a 
substantial number of small entities, HUD invites comments regarding 
any less burdensome alternatives to this rule that will meet HUD's 
objectives as described in the SUPPLEMENTARY INFORMATION.

Executive Order 13132, Federalism

    Executive Order 13132, entitled ``Federalism,'' prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on State and local 
governments and is not required by statute, or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This proposed 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.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and on the private sector. This proposed rule does not 
impose a Federal mandate on any State, local, or tribal government, or 
on the private sector, within the meaning of the Unfunded Mandates 
Reform Act of 1995.

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, entitled ``Regulatory Planning and Review.'' OMB 
determined that this rule is a ``significant regulatory action'' as 
defined in section 3(f) of the order (although not an economically 
significant regulatory action under the order). Any changes made to the 
rule as a result of that review are identified in the docket file, 
which is available for public inspection in the office of the 
Department's Rules Docket Clerk, Office of General Counsel, Room 10276, 
451 Seventh Street, SW., Washington, DC 20410-0500.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance (CFDA) program numbers 
applicable to the various components of the CDBG program are: 14.218, 
Entitlement program; 14.219, HUD-Administered Small Cities program; 
14.225, Insular Areas program; 14.228, State program; 14.248, Section 
108 Loan Guarantee program; and 14.246, Community Development Block 
Grants Economic Development Initiative.

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, Loan programs-housing 
and community development, Low and moderate income housing, Northern 
Mariana Islands, Pacific Islands Trust Territory, Puerto Rico, 
Reporting and recordkeeping requirements, Student aid, Virgin Islands.
    Accordingly, for the reasons stated in the preamble, HUD proposes 
to amend 24 CFR part 570 to read as follows:

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

    1. The authority citation for 24 CFR part 570 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d) and 5302-5320.

    2. Section 570.201 is amended by revising paragraph (d) to read as 
follows:


Sec.  570.201  Basic eligible activities.

* * * * *
    (d) Clearance and remediation activities. Clearance, demolition, 
and removal of buildings and improvements, including movement of 
structures to other sites and remediation of known or suspected 
environmental contamination. Demolition of HUD-assisted or HUD-owned 
housing units may be undertaken only with the prior approval of HUD. 
Remediation may include project-specific environmental assessment costs 
not otherwise eligible under Sec.  570.205.
* * * * *
    3. Section 570.202 is amended by:
    a. Revising paragraph (a)(3) to read as set forth below;
    b. Revising paragraph (b)(2) to read as set forth below;
    c. Revising paragraph (b)(7)(iv) to read as set forth below; and
    d. Removing paragraph (f).


Sec.  570.202  Eligible rehabilitation and preservation activities.

    (a) * * *
    (3) Publicly or privately owned commercial or industrial buildings, 
except that the rehabilitation of such buildings owned by a private 
for-profit business is limited to improvement to the exterior of the 
building, abatement of asbestos hazards, lead-based paint hazard 
evaluation and reduction, and the correction of code violations;
* * * * *
    (b) * * *
    (2) Labor, materials, and other costs of rehabilitation of 
properties, including repair directed toward an accumulation of 
deferred maintenance, replacement of principal fixtures and components 
of existing structures, installation of

[[Page 41440]]

security devices, including smoke detectors and dead bolt locks, and 
renovation through alterations, additions to, or enhancement of 
existing structures and improvements, abatement of asbestos hazards 
(and other contaminants) in buildings and improvements which may be 
undertaken singly, or in combination;
* * * * *
    (7) * * *
    (iv) Procedures concerning lead-based paint hazard evaluation and 
reduction, pursuant to Sec.  570.608.
* * * * *
    4. Section 570.203 is amended by revising the introductory 
paragraph to read as follows:


Sec.  570.203  Special economic development activities.

    A recipient may use CDBG funds for special economic development 
activities in addition to other activities authorized in this subpart 
which may be carried out as part of an economic development project. 
Guidelines for selecting activities to assist under this section are 
provided at Sec.  570.209. The recipient must ensure that the 
appropriate level of public benefit will be derived pursuant to those 
guidelines before obligating funds under this authority. Special 
activities authorized under this section do not include assistance for 
the construction of new housing. Activities eligible under this section 
may include costs associated with project-specific assessment or 
remediation of known or suspected environmental contamination. Special 
economic development activities include:
* * * * *
    5. Section 570.204 is amended by adding a new sentence following 
the semicolon at the end of paragraph (a)(2).


Sec.  570.204  Special activities by Community-Based Development 
Organizations (CDBOs).

    (a) * * *
    (2) * * * activities under this paragraph may include costs 
associated with project-specific assessment or remediation of known or 
suspected environmental contamination;
* * * * *
    6. Section 570.205 is amended by revising the first sentence of 
paragraph (a)(4)(iv) and adding a new paragraph (a)(4)(viii) to read as 
follows:


Sec.  570.205  Eligible planning, urban environmental design and 
policy-planning-management capacity building activities.

    (a) * * *
    (4) * * *
    (iv) The reasonable costs of general environmental, urban 
environmental design and historic preservation studies; and general 
environmental assessment- and remediation-oriented planning related to 
properties with known or suspected environmental contamination. * * *
* * * * *
    (viii) Developing an inventory of properties with known or 
suspected environmental contamination.
* * * * *
    7. Section 570.208 is amended by revising paragraphs (b)(1)(ii), 
(b)(1)(iii), and (b)(2) to read as follows:


Sec.  570.208  Criteria for national objectives.

* * * * *
    (b) * * *
    (1) * * *
    (ii) The area also meets the conditions in either paragraph 
(b)(1)(ii)(A) or (B) of this section:
    (A) At least 33 percent of properties throughout the area 
experience one or more of the following conditions:
    (1) Physical deterioration of buildings or improvements;
    (2) Abandonment of properties;
    (3) Chronic high occupancy turnover rates or chronic high vacancy 
rates in commercial or industrial buildings;
    (4) Significant declines in property values or abnormally low 
property values relative to other areas in the community; or
    (5) Known or suspected environmental contamination.
    (B) The public improvements throughout the area are in a general 
state of deterioration.
    (iii) Documentation is to be maintained by the recipient on the 
boundaries of the area and the conditions and standards used that 
qualified the area at the time of its designation. The recipient shall 
establish definitions of the conditions listed at paragraph 
(b)(1)(ii)(A) of this section, and maintain records to substantiate how 
the area met the slums or blighted criteria. The designation of an area 
as slum or blighted under this section is required to be redetermined 
every five years for continued qualification. Documentation must be 
retained pursuant to the recordkeeping requirements contained at Sec.  
570.506 (b)(8)(ii).
* * * * *
    (2) Activities to address slums or blight on a spot basis. The 
following activities may be undertaken on a spot basis to eliminate 
specific conditions of blight, physical decay, or environmental 
contamination which are not located in a slum or blighted area: 
acquisition; clearance; relocation; historic preservation; remediation 
of environmentally contaminated properties; or rehabilitation of 
buildings or improvements. However, rehabilitation must be limited to 
eliminating those conditions that are detrimental to public health and 
safety. If acquisition or relocation is undertaken, it must be a 
precursor to other activities (funded with CDBG or other resources) 
that directly eliminate the specific conditions of blight or physical 
decay.
* * * * *
    8. Section 570.209 is amended by adding paragraph (b)(2)(v)(N) to 
read as follows:


Sec.  570.209  Guidelines for evaluating and selecting economic 
development projects.

* * * * *
    (b) * * *
    (2) * * *
    (v) * * *
    (N) Directly involves the economic development or redevelopment of 
environmentally contaminated properties.
* * * * *
    9. Section 570.482 is amended by:
    a. Revising paragraph (c) to read as set forth below:
    b. Removing and reserving paragraph (d);
    c. Adding paragraph (f)(3)(v)(N) to read as follows


Sec.  570.482  Eligible activities.

* * * * *
    (c) Special eligibility provisions. (1) Microenterprise development 
activities eligible under section 105(a)(23) of the Housing and 
Community Development Act of 1974, as amended, (42 U.S.C. 5301 et seq.) 
(the Act) may be carried out either through the recipient directly or 
through public and private organizations, agencies, and other 
subrecipients (including nonprofit and for-profit subrecipients).
    (2) Provision of public services. The following activities shall 
not be subject to the restrictions on public services under section 
105(a)(8) of the Act:
    (i) Support services provided under section 105(a)(23) of the Act, 
and paragraph (c) of this section;
    (ii) Services carried out under the provisions of section 
105(a)(15) of the Act, that are specifically designed to increase 
economic opportunities through job training and placement and other 
employment support services, including, but not limited to, peer 
support programs, counseling, child care, transportation, and other 
similar services; and
    (iii) Services of any type carried out under the provisions of 
section 105(a)(15) of the Act pursuant to a

[[Page 41441]]

strategy approved by a State under the provisions of Sec.  91.315(e)(2) 
of this title.
    (3) Environmental cleanup and economic development or redevelopment 
of contaminated properties. Remediation of known or suspected 
environmental contamination may be undertaken under the authority of 
section 205 of Public Law 105-276 and section 105(a)(4) of the Act. 
Economic development activities carried out under sections 105(a)(14), 
(a)(15) or (a)(17) of the Act may include costs associated with 
project-specific assessment or remediation of known or suspected 
environmental contamination.
* * * * *
    (f) * * *
    (3) * * *
    (v) * * *
    (N) Directly involves the economic development or redevelopment of 
environmentally contaminated properties.
* * * * *
    10. Section 570.483 is amended by revising paragraphs (c)(1)(ii), 
(c)(1)(iv), and (c)(2) to read as follows:


Sec.  570.483  Criteria for national objectives.

* * * * *
    (c) * * *
    (1) * * *
    (ii) The area also meets the conditions in either paragraph 
(c)(1)(ii)(A) or (c)(1)(ii)(B) of this section.
    (A) At least 33 percent of properties throughout the area 
experience one or more of the following conditions:
    (1) Physical deterioration of buildings or improvements;
    (2) Abandonment of properties;
    (3) Chronic high occupancy turnover rates or chronic high vacancy 
rates in commercial or industrial buildings;
    (4) Significant declines in property values or abnormally low 
property values relative to other areas in the community; or
    (5) Known or suspected environmental contamination.
    (B) The public improvements throughout the area are in a general 
state of deterioration. * * *
    (iv) The State keeps records sufficient to document its findings 
that a project meets the national objective of prevention or 
elimination of slums and blight. The State must establish definitions 
of the conditions listed at paragraph (c)(1)(ii)(A) of this section and 
maintain records to substantiate how the area met the slums or blighted 
criteria. The designation of an area as slum or blighted under this 
section is required to be redetermined every five years for continued 
qualification. Documentation must be retained pursuant to the 
recordkeeping requirements contained at Sec.  570.490.
    (2) Activities to address slums or blight on a spot basis. The 
following activities can be undertaken on a spot basis to eliminate 
specific conditions of blight, physical decay or environmental 
contamination which are not located in a slum or blighted area: 
Acquisition; clearance; relocation; historic preservation; remediation 
of environmentally contaminated properties; or rehabilitation of 
buildings or improvements. However, rehabilitation must be limited to 
eliminating those conditions which are detrimental to public health and 
safety. If acquisition or relocation is undertaken, it must be a 
precursor to other activities (funded with CDBG or other resources) 
that directly eliminate the specific conditions of blight or physical 
decay.
* * * * *
    11. Section 570.703 is amended by revising paragraph (e), the 
introductory sentence in paragraph (f), and paragraph (l) to read as 
follows:


Sec.  570.703  Eligible activities.

* * * * *
    (e) Clearance, demolition, and removal, including movement of 
structures to other sites, of buildings and improvements on real 
property acquired or rehabilitated pursuant to paragraphs (a) and (b) 
of this section; remediation of properties with known or suspected 
environmental contamination. Remediation may include project-specific 
environmental assessment costs not otherwise eligible under Sec.  
570.205.
    (f) Site preparation, including construction, reconstruction, 
installation of public and other site improvements, utilities or 
facilities (other than buildings), or remediation of properties 
(remediation can include project-specific environmental assessment 
costs not otherwise eligible under Sec.  570.205) with known or 
suspected environmental contamination, which is:
* * * * *
    (l) Acquisition, construction, reconstruction, rehabilitation or 
historic preservation, or installation of public facilities (except for 
buildings for the general conduct of government) to the extent eligible 
under Sec.  570.201(c), and including public streets, sidewalks, other 
site improvements and public utilities, and remediation of known or 
suspected environmental contamination in conjunction with these 
activities. Remediation may include project-specific environmental 
assessment costs not otherwise eligible under Sec.  570.205.
* * * * *

    Dated: June 9, 2004.
Roy A. Bernardi,
Assistant Secretary for Community Planning and Development.
[FR Doc. 04-15634 Filed 7-8-04; 8:45 am]
BILLING CODE 4210-29-P