[Federal Register Volume 72, Number 159 (Friday, August 17, 2007)]
[Rules and Regulations]
[Pages 46368-46371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-16197]



[[Page 46367]]

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Part IV





Department of Housing and Urban Development





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24 CFR Part 570



 Community Development Block Grant Program; Small Cities Program; Final 
Rule

  Federal Register / Vol. 72, No. 159 / Friday, August 17, 2007 / Rules 
and Regulations  

[[Page 46368]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 570

[Docket No. FR-5013-F-02]
RIN 2506-AC19


Community Development Block Grant Program; Small Cities Program

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

ACTION: Final rule.

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SUMMARY: This final rule amends HUD's regulations governing the 
Community Development Block Grant (CDBG) program for non-entitlement 
areas in the state of Hawaii, which were formerly part of the Small 
Cities Program. Pursuant to statutory authority, the State of Hawaii 
government has elected not to administer CDBG funds granted to units of 
general local government located in non-entitlement areas within the 
state. The statute provides that if Hawaii elects not to assume 
responsibility for this program, then the Secretary of HUD will make 
the CDBG grants to the units of general local government located in 
Hawaii's non-entitlement areas, employing the same distribution formula 
as was used under prior regulations. This final rule modifies HUD's 
regulations to clarify how the CDBG program will be implemented in the 
non-entitlement areas of Hawaii in light of the state's decision. HUD 
has also taken the opportunity afforded by this rule to update and 
streamline the regulations, particularly with regard to the HUD-
administered Small Cities program in New York, which awarded its last 
competitive grant in Fiscal Year (FY) 1999. This final rule follows 
publication of the January 3, 2007, proposed rule and takes into 
consideration the public comments HUD received. After careful 
consideration of the issue raised by the comments, HUD has decided to 
adopt the proposed rule without change.

DATES: Effective Date: September 17, 2007.

FOR FURTHER INFORMATION CONTACT: Stephen Rhodeside, Deputy Director, 
State and Small Cities Division, Office of Block Grant Assistance, 
Office of Community Planning and Development, Department of Housing and 
Urban Development, 451 Seventh Street, SW., Room 7184, Washington, DC 
20410-7000; telephone number (202) 708-1322 (this is not a toll-free 
number). Individuals with speech or hearing impairments may access this 
telephone number via TTY by calling the toll-free Federal Information 
Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    The CDBG program is authorized under the Housing and Community 
Development Act of 1974 (42 U.S.C. 5301 et seq.) (HCD Act). Under the 
CDBG program, HUD allocates funds by formula among eligible state and 
local governments for activities that principally benefit low- and 
moderate-income persons, aid in the elimination of slums or blighting 
conditions, or meet other community development needs having a 
particular urgency.
    In 1981, Section 106 of Title I of the HCD Act (Section 106) was 
amended (Pub. L. 97-35, approved August 13, 1981) to permit states to 
elect to assume administrative responsibility for the CDBG program for 
non-entitlement areas within their jurisdiction. In the event that a 
state government does not elect to do so, section 106 provides that HUD 
will administer the CDBG program for non-entitlement areas within the 
state. For those states that have not elected to assume this 
administrative responsibility, HUD administers the program under 
regulations in 24 CFR part 570, subpart F, entitled the ``Small Cities 
Program.'' HUD currently administers grants to non-entitlement areas in 
Hawaii. The Department also administers uncompleted Small Cities grants 
in New York that were contracted before the New York State government 
took over the program in FY 2000. The active New York Small Cities 
grants are being funded with program income.
    Section 218 of the Consolidated Appropriations Act, 2004, (Pub. L. 
108-199, approved January 23, 2004) required that, by July 31, 2004, 
the State of Hawaii government had to decide whether it would elect to 
distribute CDBG funds to units of general local government located in 
its non-entitlement areas. On August 5, 2004, the Governor of Hawaii 
notified HUD that the state had elected not to do so, and the Secretary 
of HUD permanently assumed administrative responsibility for making 
grants to the units of general local government in Hawaii's non-
entitlement areas (Hawaii, Kauai, and Maui counties). Section 218 of 
the Consolidated Appropriations Act, 2004, requires the Secretary of 
HUD to allocate the CDBG funds based upon the same distribution formula 
that had been used to compute grant funds for the non-entitlement 
counties in Hawaii. This formula takes population, poverty, and housing 
overcrowding into consideration.

II. The January 3, 2007, Proposed Rule

    On January 3, 2007 (72 FR 62), HUD published for public comment a 
proposed rule that would revise HUD's regulations at 24 CFR part 570. 
The proposed changes would clarify how HUD will administer the CDBG 
program in the non-entitlement areas of Hawaii. HUD had previously 
amended the Hawaii Small Cities regulations by a final rule published 
on December 27, 1994 (59 FR 66594), to treat the three non-entitlement 
counties of Hawaii similarly to entitlement grantees, to the greatest 
extent allowable under statute. As a result, the clarifying changes in 
the January 3, 2007, proposed rule were relatively minor in scope. The 
January 2007 rule also proposed to provide that the provisions in 
regulations that are applicable to entitlement grants would apply to 
non-entitlement grants to counties in Hawaii, with two exceptions. The 
two exceptions are: (1) The manner in which allocations to counties are 
calculated and (2) the source of the CDBG funding. The proposed rule 
provided that these exceptions would be codified in 24 CFR 570.429. The 
rule also proposed to remove from 24 CFR 570.420, which provides 
general requirements for HUD's administration of non-entitlement 
grants, all references to the Small Cities Program in Hawaii. It also 
proposed minor conforming changes to headings and terms throughout 24 
CFR part 570, to prevent confusion among CDBG entitlement and non-
entitlement programs.
    HUD also proposed to update and streamline the subpart F 
regulations for the HUD-administered Small Cities program in New York, 
which HUD operated prior to the state's takeover of the program in FY 
2000. The final competitive grants made under this program by HUD were 
awarded in FY 1999, and almost all New York Small Cities projects 
expended their funds by the close of FY 2006. The subpart F regulations 
contain certain outdated provisions regarding the New York Small Cities 
program that are no longer necessary and, therefore, would be removed 
by the proposed rule. For example, Sec.  570.420(c) currently 
references statutory public notification requirements that HUD must 
follow when it makes competitive awards of grants. HUD is removing 
paragraph (c) because HUD no longer awards the New York Small Cities 
funds. Other provisions that continue to apply to ongoing grants are 
retained in subpart F.
    The regulatory changes are described in greater detail in the 
preamble to the January 3, 2007, proposed rule.

[[Page 46369]]

III. This Final Rule

    This final rule follows publication of the January 3, 2007, 
proposed rule and takes into consideration the public comments HUD 
received.
    The public comment period on the proposed rule closed March 5, 
2007. HUD received two comments, which were submitted by the Hawaii 
County and Kauai County governments. Both comments supported the 
proposed rule. One of the comments recommended that HUD eliminate the 
second, program income-based test at 24 CFR 570.902(a)(2) for 
determining whether a grantee is carrying out its CDBG activities in a 
timely manner. Under the test, which HUD proposed to apply to non-
entitlement CDBG grantees in Hawaii, HUD may determine that a grantee 
is not carrying out its activities in a timely manner if, 60 days prior 
to the end of a program year, the sum of program income the grantee has 
on hand and the funds remaining in its CDBG line of credit exceeds 1.5 
times the grant amount for its current program year. The commenter 
argued that, especially for grantees receiving relatively small annual 
program grants, it is important to be able to generate and maintain 
revolving loan funds to support homebuyer loan and other lending 
programs. HUD has decided not to revise the proposed rule in response 
to the comment. The entitlement rule currently considers program 
income, including income from revolving loan funds, in determining 
whether a grantee is implementing its activities in a timely manner. 
There is a provision at Sec.  570.902(a)(2)(ii) that allows HUD to 
determine a grantee to be timely if the lack of timely expenditure is 
due to factors beyond the grantee's reasonable control. This provision 
would accommodate a situation in which a small grantee received a large 
amount of unexpected program income. It is worth noting that HUD 
expects grantees to properly plan for receipt of program income. 
Implementing Sec.  570.902(a)(2)(ii) for non-entitlement counties in 
Hawaii will also meet the statutory intent of Section 218 of the 
Consolidated Appropriations Act, 2004, which aims to treat the non-
entitlement counties in Hawaii in the manner of entitlement grantees, 
as much as possible.
    A technical amendment has been made to Sec.  570.420(e) to 
reference Sec.  570.442 in the section. This section refers to 
reallocation of Insular area funds and was added to the regulations by 
a final rule that was published on March 15, 2007.

IV. Findings and Certifications

Information Collection Requirements

    The information collection requirements contained in this final 
rule have been approved by the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and 
assigned OMB Control Number 2506-0020. The amendments made by this rule 
do not revise the information collection requirements for the CDBG 
Small Cities Program. 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 
currently valid OMB control number.

Unfunded Mandates Reform Act

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

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications and either imposes 
substantial direct compliance costs on state and local governments and 
is not required by statute, or preempts state law, unless the relevant 
requirements of section 6 of the executive order are met. 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.

Impact on Small Entities

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
This rule only codifies, in HUD's regulations, procedures that will 
enable the Department to treat the three non-entitled Hawaii counties 
as entitlement grantees. Since the non-entitled counties previously 
were funded annually by formula and were treated as entitlement 
grantees as much as statutorily possible, the rule does not 
significantly differ from the current status in terms of the impact on 
the number of entities, the amount of funding, or the governing 
requirements applicable. Accordingly, the undersigned certifies that 
this rule will not have a significant economic impact on a substantial 
number of small entities.

Environmental Impact

    A Finding of No Significant Impact (FONSI) with respect to the 
environment was made at the proposed rule stage 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. 4332(2)(C)). That 
FONSI remains applicable to this final rule, and is available for 
public inspection between the hours of 8 a.m. and 5 p.m. weekdays in 
the Regulations Division, Office of General Counsel, Department of 
Housing and Urban Development, 451 Seventh Street, SW., Room 10276, 
Washington, DC 20410-0500. Due to security measures at the HUD 
Headquarters building, an advance appointment to review the finding 
must be scheduled by calling the Regulations Division at (202) 708-3055 
(this is not a toll-free number). Hearing- and speech-impaired persons 
may access the telephone number listed above via TTY by calling the 
Federal Information Relay Service at (800) 877-8339.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number for the CDBG 
Small Cities program is 14.219, and the number for the CDBG Entitlement 
program 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.

0
Accordingly, for the reasons described in the preamble, HUD amends 24 
CFR part 570 as follows:

[[Page 46370]]

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

0
1. The authority citation for part 570 continues to read as follows:

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


0
2. Revise Sec.  570.200(a)(3) introductory text to read as follows:


Sec.  570.200  General policies.

    (a) * * *
    (3) Compliance with the primary objective. The primary objective of 
the Act is described in section 101(c) of the Act. Consistent with this 
objective, entitlement recipients, non-entitlement CDBG grantees in 
Hawaii, and recipients of insular area funds under section 106 of the 
Act must ensure that, over a period of time specified in their 
certification not to exceed three years, not less than 70 percent of 
the aggregate of CDBG fund expenditures shall be for activities meeting 
the criteria under Sec.  570.208(a) or under Sec.  570.208(d)(5) or (6) 
for benefiting low- and moderate-income persons. For grants under 
section 107 of the Act, insular area recipients must meet this 
requirement for each separate grant. See Sec.  570.420(d)(3) for 
additional discussion of the primary objective requirement for insular 
areas funded under section 106 of the Act. The requirements for the 
HUD-administered Small Cities program in New York are at Sec.  
570.420(d)(2). In determining the percentage of funds expended for such 
activities:
* * * * *

0
3. Revise Sec.  570.208(a)(1)(ii) introductory text to read as follows:


Sec.  570.208  Criteria for national objectives.

* * * * *
    (a) * * *
    (1) * * *
    (ii) For metropolitan cities and urban counties, an activity that 
would otherwise qualify under Sec.  570.208(a)(1)(i), except that the 
area served contains less than 51 percent low- and moderate-income 
residents, will also be considered to meet the objective of benefiting 
low- and moderate-income persons where the proportion of such persons 
in the area is within the highest quartile of all areas in the 
recipient's jurisdiction in terms of the degree of concentration of 
such persons. This exception is inapplicable to non-entitlement CDBG 
grants in Hawaii. In applying this exception, HUD will determine the 
lowest proportion a recipient may use to qualify an area for this 
purpose, as follows:
* * * * *

0
4. Sec.  570.209(b)(2)(i) is revised to read as follows:


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

* * * * *
    (b) * * *
    (2) Applying the aggregate standards. (i) A metropolitan city, an 
urban county, a non-entitlement CDBG grantee in Hawaii, or an Insular 
Area shall apply the aggregate standards under paragraph (b)(1) of this 
section to all applicable activities for which CDBG funds are first 
obligated within each single CDBG program year, without regard to the 
source year of the funds used for the activities. For Insular Areas, 
the preceding sentence applies to grants received in program years 
after Fiscal Year 2004. A grantee under the HUD-administered Small 
Cities Program, or Insular Areas CDBG grants prior to Fiscal Year 2005, 
shall apply the aggregate standards under paragraph (b)(1) of this 
section to all funds obligated for applicable activities from a given 
grant; program income obligated for applicable activities will, for 
these purposes, be aggregated with the most recent open grant. For any 
time period in which a community has no open HUD-administered or 
Insular Areas grants, the aggregate standards shall be applied to all 
applicable activities for which program income is obligated during that 
period.
* * * * *

0
5. Revise Sec.  570.300 to read as follows:


Sec.  570.300  General.

    This subpart describes the policies and procedures governing the 
making of community development block grants to entitlement communities 
and to non-entitlement counties in the State of Hawaii. The policies 
and procedures set forth in subparts A, C, J, K, and O of this part 
also apply to entitlement grantees and to non-entitlement grantees in 
the State of Hawaii. Sections 570.307 and 570.308 of this subpart do 
not apply to the Hawaii non-entitlement grantees.

0
6. Revise the heading of Subpart F to read as follows:

Subpart F--Small Cities, Non-Entitlement CDBG Grants in Hawaii and 
Insular Areas Programs

0
7. In Sec.  570.420:
0
a. Revise paragraphs (a)(1) and (b)(1);
0
b. Remove Sec.  570.420(c);
0
c. Redesignate paragraphs (d), (e), and (f) as paragraphs Sec. Sec.  
570.420 (c), (d), and (e), respectively; and
0
d. Revise the newly designated paragraph (e) to read as follows:


Sec.  570.420  General.

    (a) Administration of Non-entitlement CDBG funds in New York by HUD 
or Insular Areas--(1) Small cities. The Act permits each state to elect 
to administer all aspects of the CDBG program annual fund allocation 
for the non-entitlement areas within its jurisdiction. All states 
except Hawaii have elected to administer the CDBG program for non-
entitlement areas within their jurisdiction. This section is applicable 
only to active HUD-administered small cities grants in New York. The 
requirements for the non-entitlement CDBG grants in Hawaii are set 
forth in Sec.  570.429 of this subpart. States that elected to 
administer the program after the close of Fiscal Year 1984 cannot 
return administration of the program to HUD. A decision by a state to 
discontinue administration of the program would result in the loss of 
CDBG funds for non-entitlement areas in that state and the reallocation 
of those funds to all states in the succeeding fiscal year.
* * * * *
    (b) Scope and applicability. (1) This subpart describes the 
policies and procedures of the Small Cities program that apply to non-
entitlement areas in states where HUD administers the CDBG program. HUD 
currently administers the Small Cities program in only two states--New 
York (for grants prior to FY 2000) and Hawaii (for non-entitlement CDBG 
grants in Hawaii). The Small Cities portion of this subpart addresses 
the requirements for New York Small Cities grants in Sec. Sec.  
570.421, 570.426, 570.427, and 570.431. Section 570.429 identifies 
special procedures applicable to Hawaii.
* * * * *
    (e) Allocation of funds--The allocation of appropriated funds for 
insular areas under section 106 of the Act shall be governed by the 
policies and procedures described in section 106(a)(2) of the Act and 
Sec. Sec.  570.440, 570.441, and 570.442 of this subpart. The annual 
appropriations described in this section shall be distributed to 
insular areas on the basis of the ratio of the population of each 
insular area to the population of all insular areas.

0
8. Revise Sec.  570.427(a) to read as follows:


Sec.  570.427  Program amendments.

    (a) HUD approval of certain program amendments. Grantees shall 
request prior HUD approval for all program amendments involving new 
activities or alteration of existing activities that will significantly 
change the scope, location, or objectives of the approved activities

[[Page 46371]]

or beneficiaries. Approval is subject to the amended activities meeting 
the requirements of this part and being able to be completed promptly.
* * * * *

0
9. In Sec.  570.429:
0
a. Revise paragraphs (a) and (b);
0
b. Remove paragraphs (d), (f), (g), (h), and (i);
0
c. Redesignate paragraph (e) as a new paragraph (d); and
0
d. Revise newly designated paragraph (d) to read as follows:


Sec.  570.429  Hawaii general and grant requirements.

    (a) General. This section applies to non-entitlement CDBG grants in 
Hawaii. The non-entitlement counties in the State of Hawaii will be 
treated as entitlement grantees except for the calculation of 
allocations, and the source of their funding, which will be from 
section 106(d) of the Act.
    (b) Scope and applicability. Except as modified or limited under 
the provisions thereof or this subpart, the policies and procedures 
outlined in subparts A, C, D, J, K, and O of this part apply to non-
entitlement CDBG grants in Hawaii.
* * * * *
    (d) Reallocation. (1) Any amounts that become available as a result 
of any reductions under subpart O of this part shall be reallocated in 
the same or future fiscal year to any remaining eligible applicants on 
a pro rata basis.
    (2) Any formula grant amounts reserved for an applicant that 
chooses not to submit an application shall be reallocated to any 
remaining eligible applicants on a pro rata basis.
    (3) No amounts shall be reallocated under paragraph (d) of this 
section in any fiscal year to any applicant whose grant amount was 
reduced under subpart O of this part.

0
10. Remove Sec. Sec.  570.430 and 570.432.

0
11. In Sec.  570.901, revise paragraphs (d) and (e) to read as follows:


Sec.  570.901  Review for compliance with the primary and national 
objectives and other program requirements.

* * * * *
    (d) For entitlement grants and non-entitlement CDBG grants in 
Hawaii, the submission requirements of 24 CFR part 91 and the 
displacement policy requirements at Sec.  570.606;
    (e) For HUD-administered Small Cities grants in New York, the 
citizen participation requirements at Sec.  570.431, the amendment 
requirements at Sec.  570.427, and the displacement policy requirements 
of Sec.  570.606;
* * * * *

0
12. In Sec.  570.902:
0
a. Revise the heading of paragraph (a);
0
b. Revise the introductory paragraph of paragraph (a)(1); and
0
c. Revise paragraph (b) to read as follows:


Sec.  570.902  Review to determine if CDBG-funded activities are being 
carried out in a timely manner.

* * * * *
    (a) Entitlement recipients and Non-entitlement CDBG grantees in 
Hawaii. (1) Before the funding of the next annual grant and absent 
contrary evidence satisfactory to HUD, HUD will consider an entitlement 
recipient or a non-entitlement CDBG grantee in Hawaii to be failing to 
carry out its CDBG activities in a timely manner if:
* * * * *
    (b) HUD-administered Small Cities program in New York. The 
Department will, absent substantial evidence to the contrary, deem a 
HUD-administered Small Cities recipient in New York to be carrying out 
its CDBG-funded activities in a timely manner if the schedule for 
carrying out its activities, as contained in the approved application 
(including any subsequent amendment(s)), is being substantially met.
* * * * *

0
13. Revise Sec.  570.911(b) to read as follows:


Sec.  570.911  Reduction, withdrawal, or adjustment of a grant or other 
appropriate action.

* * * * *
    (b) Entitlement grants, Non-entitlement CDBG grants in Hawaii, and 
Insular Areas grants. Consistent with the procedures described in Sec.  
570.900(b), the Secretary may make a reduction in the entitlement, non-
entitlement CDBG grants in Hawaii, or Insular Areas grant amount either 
for the succeeding program year or, if the grant had been conditioned, 
up to the amount that had been conditioned. The amount of the reduction 
shall be based on the severity of the deficiency and may be for the 
entire grant amount.
* * * * *

    Dated: August 8, 2007.
Nelson R. Breg[oacute]n,
General Deputy Assistant Secretary for Community Planning and 
Development.
[FR Doc. E7-16197 Filed 8-16-07; 8:45 am]
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