[Federal Register Volume 74, Number 139 (Wednesday, July 22, 2009)]
[Rules and Regulations]
[Pages 36384-36390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17326]



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Part IV





Department of Housing and Urban Development





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24 CFR Part 57



Section 108 Community Development Loan Guarantee Program: Participation 
of States as Borrowers Pursuant to Section 222 of the Omnibus 
Appropriations Act, 2009; Interim Rule

  Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 570

[Docket No. 5326-I-01]


Section 108 Community Development Loan Guarantee Program: 
Participation of States as Borrowers Pursuant to Section 222 of the 
Omnibus Appropriations Act, 2009

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

ACTION: Interim rule.

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SUMMARY: This interim rule implements section 222 in Division I of the 
Omnibus Appropriations Act, 2009, Public Law 111-8 (2009 Appropriations 
Act). Section 222 authorizes HUD, to the extent of Fiscal Year (FY) 
2009 loan guarantee authority, to provide community development loan 
guarantees, under section 108 of the Housing and Community Development 
Act of 1974 (HCD Act), to states borrowing on behalf of local 
governments in nonentitlement areas (governments that do not receive 
annual Community Development Block Grants (CDBG) from HUD). Section 108 
authorizes HUD to guarantee notes issued by such nonentitlement local 
governments or their designated public agencies supported by the 
respective state's pledge of its CDBG funds. Prior to the enactment of 
section 222, HUD lacked authority to guarantee notes issued by states 
on their behalf. State officials interested in applying for a loan 
guarantee commitment pursuant to this new authority should take note 
that HUD's authority to issue such commitments will expire on September 
30, 2010 (and could be fully utilized by other borrowers before that 
date), unless the provision continues to be included in future 
appropriations acts. The interim rule, however, contains language that 
will make the provisions implementing this new authority continue to 
apply, in the event that provisions equivalent to section 222 are 
included in future appropriations acts. Because the provisions of 
section 222 expand, rather than replace, existing Section 108 
authority, HUD will also continue to accept nonentitlement local 
government issuers' state-supported applications for loan guarantee 
commitments.

DATES: Effective Date: August 21, 2009.
    Comment Due Date: September 21, 2009.

ADDRESSES: Interested persons are invited to submit comments to be 
considered in formulating the final rule to the Regulations Division, 
Office of General Counsel, Department of Housing and Urban Development 
451 7th Street, SW., Room 10276, Washington, DC 20410-0500. 
Communications must refer to the above docket number and title. There 
are two methods for submitting public comments. All submissions must 
refer to the above docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street, SW., Room 10276, 
Washington, DC 20410-0001.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov Web site can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule. No Facsimile Comments. Facsimile (FAX) comments are not 
acceptable.

    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at (202) 708-3055 (this 
is not a toll-free number). Individuals with speech or hearing 
impairments may access this number via TTY by calling the Federal 
Information Relay Service at (800) 877-8339. Copies of all comments 
submitted are available for inspection and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Paul Webster, Director, Financial 
Management Division, Office of Community Planning and Development, 
Department of Housing and Urban Development, 451 7th Street, SW., Room 
7186, Washington, DC 20410; telephone number 202-708-1871 (this is not 
a toll-free number). Individuals with speech or hearing impairments may 
access this number through TTY by calling the toll-free Federal 
Information Relay Service at 800-877-8339. FAX inquiries (but not 
comments on this interim rule) may be sent to Mr. Webster at 202-708-
1798 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION:

I. Background

    The Section 108 Community Development Loan Guarantee program 
provides local governments with access to long-term (up to 20-year) 
fixed-rate loans at relatively low interest rates to finance certain 
categories of eligible CDBG projects. Under section 108(a) of the HCD 
Act (section 108(a)), HUD enters into commitments to guarantee, and 
subsequently guarantees, promissory notes issued by units of general 
local government (or their designated public agencies). Under section 
108(r) of the HCD Act, HUD, acting on behalf of these borrowers, 
arranges for the issuance of a series of trust certificates based on a 
large pool of such notes and engages underwriters (investment banking 
firms) to market and sell interests in the trust certificates to 
investors in a periodic, generally annual, public offering.
    HUD guarantees the timely payment of the principal of and interest 
on the trust certificates and, under the provisions of section 108, the 
full faith and credit of the United States is pledged to honor the 
guarantee. Because of the federal guarantee, interest payable on the 
trust certificates and the underlying notes can be set at relatively 
low fixed rates; investors are willing to purchase interests in the 
certificates at such interest rates because of the security provided by 
the guarantee. Proceeds of the sale, minus certain underwriting and 
trust administration fees and costs, are advanced to the local 
government borrowers, who pay interest on a given year's principal 
installment at the fixed interest rate borne by the trust certificate 
of corresponding maturity.
    To accommodate local government borrowers that need financing for 
projects in the months between the periodic public offering of fixed-
rate trust certificates, HUD also guarantees promissory notes under 
section 108(a) that initially bear interest at rates that adjust 
monthly in relation to a reference short-term interest rate. Such local

[[Page 36385]]

governments then typically opt to have their notes pooled with other 
issuers' notes in the next public offering of fixed-rate trust 
certificates, at which time, under the terms of the notes, the interest 
rates on principal installments of particular maturities convert to the 
fixed rates borne by the trust certificates of corresponding 
maturities.
    Contemporaneous with HUD's guarantee, local government borrowers 
enter into contracts with HUD in which they agree to use funds for 
eligible activities, to make the payments required under their notes, 
and to reimburse HUD for any payments made on their behalf. These 
obligations are secured by pledges of annual CDBG allocations--the 
local government's own allocation in the case of CDBG entitlement 
communities and, in the case of local governments in nonentitlement 
areas, the state's allocation. HUD is also authorized to require (and 
as a matter of policy does require) other security, such as interests 
in real property and pledges of local revenues, in addition to pledged 
CDBG funds. While HUD's guarantees to investors are backed by the full 
faith and credit of the United States, the local government borrower's 
obligations to HUD are payable only from pledged CDBG funds and any 
additional security furnished, and are not general obligations of the 
borrower secured by its full faith and credit (except to the extent 
that the borrower chooses to furnish such a pledge as additional 
security).
    Historically, section 108(a) guarantee authority has been limited 
to the guarantee of notes or other obligations issued by eligible 
public entities, defined in section 108(o) of the HCD Act as ``any unit 
of general local government, including units of general local 
government in nonentitlement areas,'' or by public agencies designated 
by such eligible public entities. States have participated in the 
program by supporting nonentitlement local governments' applications to 
HUD for loan guarantee assistance and by pledging the State's CDBG 
allocations to secure the local government issuers' obligations. 
However, states have not been able to participate in the program as 
issuers (borrowers). This stands in contrast with the states' CDBG 
program under section 106 of the HCD Act (subpart I of part 570), under 
which HUD makes annual formula grants to the states, which in turn 
distribute funds to local governments in nonentitlement areas to carry 
out eligible activities.

II. The 2009 Appropriations Act and Section 222

    Pursuant to section 108 of the HCD Act and the Federal Credit 
Reform Act of 1990, as amended, in order to authorize HUD to make 
commitments to guarantee, and guarantee pursuant to those commitments, 
subject to the loan limitation for section 108 during a given period of 
time, Congress appropriates funds, which are referred to as ``credit 
subsidy,'' to HUD for section 108 loan guarantees in an amount 
sufficient to cover the estimated long-term cost to the federal 
government, excluding administrative costs.
    The 2009 Appropriations Act appropriates credit subsidy funds of $6 
million to HUD for the section 108 loan guarantee program. These funds 
are available for obligation for loan guarantee commitments until 
September 30, 2010, subject to a loan limitation of $275 million (or 
such lower amount as may be required by the section 108 credit subsidy 
rate). If the entire FY 2009 section 108 credit subsidy appropriation 
is obligated in FY 2009, the principal amount of commitments issued 
cannot exceed $265,487,000.
    One of the administrative provisions of the 2009 Appropriations 
Act, section 222(a), provides that these credit subsidy funds ``may be 
used to guarantee, or make commitments to guarantee, notes, or other 
obligations issued by any state on behalf of non entitlement 
communities in the state in accordance with the requirements of section 
108 of the Housing and Community Development Act of 1974: Provided, 
That, any State receiving such a guarantee or commitment shall 
distribute all funds subject to such guarantee to the units of general 
local government in nonentitlement areas that received the 
commitment.''

III. This Interim Rule

    HUD interprets section 222, in conjunction with section 108(a), as 
authorizing HUD to make a commitment to guarantee, and to subsequently 
guarantee, a note or other obligation issued by a state to the same 
extent (subject to the special provisions of section 222, discussed 
below) as a note or other obligation issued by an eligible public 
entity, if the commitment and guarantee are made pursuant to the loan 
guarantee authority provided in the 2009 Appropriations Act.
    Certain provisions in section 108 of the HCD Act refer to 
guarantees made, or obligations guaranteed or eligible for guarantee, 
``under'' or ``pursuant to'' section 108. HUD also interprets these 
statutory provisions, when read in conjunction with section 222, as 
extending to guarantees that are made, and obligations that are 
guaranteed or eligible for guarantee, pursuant to the additional 
authority provided in section 222. These include, but are not limited 
to, the following key statutory provisions:
    1. Section 108(f), which provides that the full faith and credit of 
the United States is pledged to the payment of ``all guarantees made 
under this section'' and provides, ``Any such guarantee made by the 
Secretary shall be conclusive evidence of the eligibility of the 
obligations for such guarantee with respect to principal and interest, 
and the validity of any such guarantee so made shall be incontestable 
in the hands of a holder of the guaranteed obligations.''
    2. Section 108(r), which (as more particularly described in this 
preamble) authorizes HUD to guarantee the principal of and interest on 
trust certificates based on and backed by a trust or pool composed of 
``notes or other obligations guaranteed or eligible for guarantee * * * 
under this section.''
    This interim rule makes certain necessary revisions to HUD's 
section 108 regulations in 24 CFR part 570, subpart M, to: (1) Reflect 
HUD's interpretations of section 222 and section 108; (2) to implement 
several other statutory provisions that by their terms apply to 
guarantees ``under'' or ``pursuant to'' section 108; and (3) extend, 
generally, to the guarantees authorized by section 222 all of the 
statutory requirements of section 108, as required by section 222. One 
of the principal revisions to the regulations in 24 CFR part 570, 
subpart M, is to the definition of ``debt obligation.''
    Existing Sec.  570.702 defines the term ``debt obligation'' to 
mean: (1) A promissory note or other obligation issued by an eligible 
public entity (local government) or its designated public agency and 
guaranteed by HUD under subpart M, or (2) a trust certificate or other 
obligation offered by HUD or by a trust or other offeror approved for 
purposes of subpart M by HUD, which is guaranteed by HUD under subpart 
M and is based on and backed by a trust or pool composed of notes or 
other obligations issued by public entities or their designated public 
agencies and guaranteed or eligible for guarantee by HUD under subpart 
M. Existing subpart M does not restate the note guarantee authority and 
trust certificate guarantee authority provided in section 108(a) and 
section 108(r); therefore, there is no specific provision of the 
current regulation that limits the scope of HUD's statutory guarantee 
authority to ``debt obligations'' as so defined.

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However, there are other statutory provisions that are restated in the 
regulations, using the defined term ``debt obligation.'' So that these 
provisions do not exclude the guarantees authorized by section 222, the 
interim rule amends the definition of the term ``debt obligation.''
    Specifically, the interim rule amends the definition of ``debt 
obligation'' to make clear that, in addition to the obligations that 
the term currently covers, debt obligation also encompasses a 
promissory note or other obligation issued by a state and guaranteed by 
HUD under subpart M. Additionally, ``debt obligation'' encompasses a 
trust certificate or other obligation offered by HUD or by a trust or 
other offeror approved for purposes of subpart M by HUD, and which is 
guaranteed by HUD under subpart M and based on and backed by a trust or 
pool composed of notes or other obligations issued by states and 
guaranteed or eligible for guarantee by HUD under subpart M (either 
alone, or in combination with notes or other obligations issued by 
eligible public entities or their designated public agencies and 
guaranteed or eligible for guarantee by HUD under subpart M).
    In addition to this revision of the definition of ``debt 
obligation,'' the interim rule adds a reference to ``state'' to several 
provisions of subpart M in which reference is currently made only to 
``public entity'' (local government), where this is necessary to ensure 
that statutorily based provisions of the regulations cover the 
guarantees authorized by section 222. (See revisions to Sec. Sec.  
570.704, 570.705, 570.709, and 570.711.)

IV. Specific Provisions of This Interim Rule

    This section highlights some of the more noteworthy provisions of 
the interim rule. As described in section V of this preamble, HUD has 
determined that good cause exists to publish this rule for effect 
without prior solicitation of public comment. The Department, however, 
recognizes the value and importance of public input in the rulemaking 
process and is providing a 60-day public comment period. HUD welcomes 
comment on all aspects of the interim rule, but specifically solicits 
views on whether the regulatory changes will likely increase the 
participation by states in the section 108 program, given their new 
authority to participate in the program as issuers of obligations. All 
comments received on the interim rule will be considered in the 
development of the final rule.

Eligible Issuers

    HUD interprets ``state'' in Section 222 to mean any state, as 
defined in the HCD Act that has elected to administer the CDBG program 
for its nonentitlement areas. The definition includes all of the 
states, or any instrumentality of a state approved by its Governor, 
except for the state of Hawaii. The state of Hawaii is excluded from 
the definition because it has elected not to receive an annual grant 
from HUD to administer a CDBG program for its nonentitlement areas, 
and, therefore, is unable to make the pledge of CDBG funds required 
under section 108. (The units of general local government in Hawaii's 
nonentitlement areas, which currently are Hawaii, Kauai, and Maui 
counties, receive annual CDBG grants directly from HUD and are eligible 
to apply for section 108 loan guarantee assistance on their own 
behalf.) The definition also includes the Commonwealth of Puerto Rico. 
(See existing Sec.  570.3 and the language in new Sec.  570.711(a) 
limiting eligible applicants to states that administer the CDBG 
program.)

Distribution to Local Governments

    Section 222 provides authority to guarantee and make commitments to 
guarantee notes or other obligations issued by a state ``on behalf of 
non-entitlement communities in the State,'' and it requires that ``any 
State receiving such a guarantee or commitment shall distribute all 
funds subject to such guarantee to the units of general local 
government in nonentitlement areas that received the commitment.'' HUD 
is implementing these provisions of section 222 by means of two 
interrelated requirements that are added to the section 108 regulations 
in a new Sec.  570.711.
    First, a state applying for a loan guarantee commitment will be 
required to identify, in its application, the local governments that 
will be eligible to be assisted by the state with proceeds of loans 
guaranteed pursuant to the commitment. Should HUD approve the 
application and issue a commitment to the state, the local governments 
so identified will be deemed to be the local governments that 
``received the commitment'' (and obligations guaranteed pursuant to the 
commitment will be deemed to be issued ``on behalf of'' those local 
governments) for purposes of section 222. States may elect to identify 
these local governments in either one of two ways: by naming one or 
more specific nonentitlement local governments eligible to be assisted 
(which may be desired when a state is applying for a loan guarantee to 
fund a particular, known local project or projects) or by indicating 
that all or a specified subset of the nonentitlement public entities in 
the state are eligible to be assisted and describing how applications 
will be selected for assistance. (See Sec.  570.711(a)(1).)
    Second, the state will be permitted to use guaranteed loan funds 
only to make grants and loans to the local governments identified in 
its application for activities eligible under Sec.  570.703 of the 
existing section 108 regulations. Proceeds may be used directly by the 
state for payment of interest on the guaranteed obligation as described 
in Sec.  570.703(c); for payment of issuance, underwriting, servicing, 
trust administration, and other costs as described in Sec.  570.703(g); 
and for debt service reserves as described in Sec.  570.703(k), because 
these uses are for the purpose of financing the local governments' 
activities. (See Sec.  570.711(b).) These limitations on permissible 
uses of funds will be incorporated as a condition of the state's loan 
guarantee commitment pursuant to Sec.  570.704(c)(4) of the existing 
regulations, and as a term of the loan guarantee assistance contract 
entered into pursuant to Sec.  570.705(b).

Application Process

    As noted above, the interim rule requires a state to identify the 
local governments eligible to be assisted through its loan guarantee 
application, either by naming particular eligible local governments or 
by indicating that all or a specified subset of the state's 
nonentitlement local governments are eligible and describing the 
state's application selection process. The interim rule requires states 
to make this required identification of eligible local governments by 
the exclusive means of including this information as a part of the CDBG 
method of distribution described in the action plan submitted by the 
state pursuant to 24 CFR part 91. In its action plan, the state will 
also be required to note the approximate amount of outstanding section 
108 guaranteed obligations issued by the state and by its 
nonentitlement local governments, to identify the maximum amount of 
guaranteed loan funds for which the state will apply during the period 
covered by the action plan, and to describe the required pledge of the 
state's CDBG funds. If the state's CDBG action plan, as most recently 
submitted or amended when the state initially applies for a commitment, 
does not include this information, the state will be required to amend 
its action plan in accordance with 24 CFR part 91 to include such 
information prior to

[[Page 36387]]

applying for the commitment. (See Sec.  570.711(a)(1).)
    Other required elements of the State's application submission will 
not be required to be included in the state's CDBG action plan; namely, 
a proposed schedule for repayment of the loan that identifies the 
sources of repayment and a description of the activities to be funded 
and how such activities are eligible and meet national objective 
criteria. The rule gives states the option of either including a 
detailed description of activities for HUD review and approval at the 
time of its application for a commitment (which may be desired when a 
state is applying for a loan guarantee to fund a particular, known 
local project or projects), or instead submitting a description of the 
type or types of local government projects for which awards of grants 
or loans will be made, indicating how these types of projects will be 
eligible and how they are intended to meet national objective criteria. 
In the latter case, the state will be required to obtain HUD review and 
approval of a detailed activity-description before disbursing 
guaranteed loan funds to a local government for the proposed activity. 
This will accommodate states that may wish to apply for and receive a 
loan guarantee commitment (and, if desired and if permitted by HUD, 
receive a guarantee and escrow guaranteed loan funds) prior to 
selecting particular local governments' projects for assistance, while 
enabling the Department to carry out its responsibility to ensure that 
activities funded under section 108 are eligible and meet national 
objective criteria. (See Sec.  570.711(a)(2)-(3).)
    Consistent with part 58 environmental review procedures applicable 
to State-assisted units of general local government under the current 
regulations, units of general local government will be required to 
submit requests for release of funds and related certifications to the 
appropriate HUD Field Office (rather than to the state), as described 
in Sec.  570.704(d) of the existing regulations. (See Sec.  
570.711(e).) HUD recognizes that some states may wish to require that 
units of general local government submit such requests and 
certifications to the state for initial review prior to submission to 
the appropriate HUD Field Office. The regulations in 24 CFR part 58 and 
24 CFR part 570 do not prohibit states from imposing such a 
requirement.
    Apart from these provisions regarding HUD review of activity 
eligibility and national objective and environmental review procedures, 
local governments to be assisted by a state will be subject to the 
requirements of the state CDBG program (see 24 CFR subpart I), 
including the citizen participation requirements in Sec.  570.486(a) 
for local governments' applications to the state for assistance, and 
the requirements in Sec.  570.606 related to displacement, relocation, 
acquisition, and replacement of low- and moderate-income housing. (See 
Sec. Sec.  570.707(b), 570.710, and 570.711(d) and (e).)

Certification With Respect to Other Financing Efforts and Need for 
Guarantee

    Section 108(a) provides, in relevant part, that ``A guarantee under 
this section [Section 108] may be used to assist a grantee in obtaining 
financing only if the grantee has made efforts to obtain such financing 
without the use of such guarantee and cannot complete such financing 
consistent with the timely execution of the program plans without such 
guarantee.'' Consistent with this provision, HUD currently assures that 
this requirement is satisfied by requiring each local government to 
submit an appropriate certification when it applies for a commitment of 
loan guarantee assistance, as provided in Sec.  570.704(b)(4) of the 
existing regulations. Because the intent of this provision of section 
108 is to assure that assistance is genuinely needed in order to be 
able to carry out the eligible activity, and because the local 
government that is planning the eligible activity is in the best 
position to seek other financing for the activity and assess whether 
such financing can timely be obtained, for section 222 guarantees HUD 
is interpreting ``grantee'' in this provision to mean the assisted 
local government, not the state issuer. This interpretation is 
consistent with current practice: nonentitlement local governments will 
only be required to make the same certification that they are currently 
required to make when they apply to HUD for loan guarantee assistance. 
This interim rule does not introduce an additional certification by the 
state. Because states will have the option of issuing guaranteed 
obligations and escrowing proceeds before local governments and 
projects are selected for assistance, the interim rule gives states the 
option of obtaining the required certification from each assisted local 
government after HUD's guarantee, but before approving the local 
government's application for assistance. (See Sec.  570.711(c).)

70/30 Allocation Provisions

    Section 108(a) also provides, in relevant part, ``Of the amount 
approved in any appropriation Act for guarantees under this section 
[Section 108] in any fiscal year, the Secretary shall allocate 70 
percent for guarantees for metropolitan cities, [and] urban counties * 
* * and 30 percent for guarantees for units of general local government 
in nonentitlement areas. The Secretary may waive the percentage 
requirements of the preceding sentence in any fiscal year only to the 
extent that there is an absence of qualified applicants or proposed 
activities from metropolitan cities, [and] urban counties * * * or 
units of general local government in nonentitlement areas.'' It is 
HUD's view that states' applications for guarantees and guarantees made 
pursuant to section 222, because they finance activities carried out by 
the States' nonentitlement communities, constitute applications 
``from,'' and guarantees ``for,'' ``units of general local government 
in nonentitlement areas'' within the meaning of these provisions. 
Accordingly, states applying for loan guarantees on behalf of their 
nonentitlement communities will share the 30 percent allocation (to the 
extent it is not waived in a given year) with nonentitlement 
communities applying directly to HUD for loan guarantee assistance. 
(See revisions to Sec.  570.709.)

Continuation of Authority in Future Legislation

    The interim rule contains language that would continue the 
applicability of the requirements and procedures described above in the 
event that provisions equivalent to section 222 are included in future 
appropriations acts. (See the introductory sentence of Sec.  570.711.)

V. Justification for Interim Rulemaking

    HUD generally publishes regulatory changes for public comment 
before issuing them for effect, in accordance with its own regulations 
on rulemaking in 24 CFR part 10. Part 10, however, does provide in 
Sec.  10.1 for exceptions from that general rule where the Department 
finds good cause to omit advance notice and public participation. The 
good cause requirement is satisfied when the prior public procedure is 
``impracticable, unnecessary, or contrary to the public interest.'' The 
Department finds that a delay in the effectiveness of this interim 
rule, in order to solicit prior public comment, would be contrary to 
the public interest and statutory direction.
    Section 222 of the 2009 Appropriations Act directed HUD to 
promulgate regulations implementing the administration of funds, as 
specified in section 222 within 60 days of enactment of that 2009 
Appropriations Act (May 11, 2009). Accordingly, it was

[[Page 36388]]

the intent and direction of Congress that the section 108 guarantees or 
commitments authorized by the 2009 Appropriations Act be promptly made 
available to states. Although HUD was unable to meet the statutory 
deadline, it has strived to issue the regulations as close as possible 
to May 11, 2009. To delay the effectiveness of this rule would delay 
the benefits that Congress sought be immediately available to states, 
and consequently to the public they serve.
    The interim rule does not make significant changes to the section 
108 program regulations. The interim rule primarily makes technical 
changes to the regulations to implement the authority, provided to HUD 
by section 222 of the 2009 Appropriations Act, to guarantee obligations 
issued by states on behalf of their nonentitlement communities. To the 
greatest extent possible, the interim rule maintains the long-standing 
requirements for section 108 loan guarantees, which are familiar to 
states and localities.
    Given the limited scope, and technical nature, of the interim 
regulatory amendments, a delay for the prior solicitation of comments 
might unnecessarily delay the benefits of the new financing mechanism 
authorized by the 2009 Appropriations Act. HUD also notes that its 
authority to make loan guarantee commitments to states will expire on 
September 30, 2010, and it is therefore important to implement this new 
financing expeditiously, as directed by Congress in an effort to assure 
that FY 2009 section 108 loan guarantee authority will be fully 
committed before HUD's authority expires on September 30, 2010.
    Although HUD has determined that good cause exists to publish this 
rule for effect without prior solicitation of public comment, the 
Department recognizes the value and importance of public input in the 
rulemaking process. Accordingly, HUD is issuing these regulatory 
amendments on an interim basis and providing for a 60-day public 
comment period. All comments will be considered in the development of 
the final rule.

VI. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this interim 
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 control numbers 2506-0161, 2506-0117, and 2506-0085. In 
accordance with the Paperwork Reduction Act, 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.

Environmental Review

    A Finding of No Significant Impact (FONSI) 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. 4332(2)(C)). The Finding of 
No Significant Impact 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 
7th Street, SW., Room 10276, Washington, DC 20410. Due to security 
measures at the HUD Headquarters building, please schedule an 
appointment to review the FONSI by calling the Regulations Division at 
202-708-3055 (this is not a toll-free number). Individuals with speech 
or hearing impairments may access this number via TTY by calling the 
Federal Information Relay Service at 800-877-8339.

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 nor 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) (UMRA) 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 any federal mandates on any state, local, or tribal 
governments, or on the private sector, within the meaning of UMRA.

Regulatory Flexibility Act

    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 would implement new statutory authority to provide an 
additional, alternative route for states and their nonentitlement local 
governments to obtain financing for eligible community development 
projects. Specifically, the interim rule authorizes HUD to provide 
community development loan guarantees to states borrowing on behalf of 
local governments in nonentitlement areas. Therefore, the primary focus 
of the interim regulatory amendments is on the states, which are 
relatively large jurisdictions. Further, and as detailed in the 
preamble above, the interim rule, to the greatest extent possible, 
tracks the language of the authorizing statute. Accordingly, the 
interim regulatory text reflects statutorily mandated requirements that 
HUD does not have the discretion to modify. Where HUD has been granted 
the discretion to elaborate on the statutory requirements, it has built 
upon the existing requirements for section 108 loan guarantees, which 
are familiar to States and localities. Moreover, these amendments are 
technical, and procedural, relating to the distribution of funds to 
local governments and the procedures to be followed by states in 
applying for the loan guarantees authorized by the provision. 
Therefore, it is HUD's determination that these revisions impose no 
significant economic impact on a substantial number of small entities. 
The undersigned certifies that this rule will not have a significant 
impact on a substantial number of small entities.
    Notwithstanding HUD's determination that this rule will not have a 
significant effect on a substantial number of small entities, HUD 
specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance (CFDA) program number 
for the state CDBG program is 14.228, and the CDFA program number for 
the section 108 loan guarantee program is 14.248.

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

[[Page 36389]]

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.


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

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

0
1. The authority citation for 24 part 570 continues to read as follows:

    Authority: 42 U.S.C. 5300-5320.


0
2. In Sec.  570.481, revise paragraph (a)(2) to read as follows:


Sec.  570.481  Definitions.

    (a) * * *
    (2) CDBG funds means Community Development Block Grant funds, in 
the form of grants under this subpart and program income, and loans 
guaranteed under section 108 of the Act.

0
3. In Sec.  570.701, revise the definitions of ``borrower'', ``debt 
obligation'', ``guaranteed loan funds'', and ``state-assisted public 
entity'' to read as follows:


Sec.  570.701  Definitions.

    Borrower means the public entity or its designated public agency or 
the State that issues debt obligations under this subpart.
    Debt obligation means a promissory note or other obligation issued 
by a public entity or its designated public agency or by a State and 
guaranteed by HUD under this subpart, or a trust certificate or other 
obligation offered by HUD or by a trust or other offeror approved for 
purposes of this subpart by HUD, which is guaranteed by HUD under this 
subpart and is based on and backed by a trust or pool composed of notes 
or other obligations issued by public entities or their designated 
public agencies or by States and guaranteed or eligible for guarantee 
by HUD under this subpart.
* * * * *
    Guaranteed loan funds means the proceeds payable to the borrower 
from the issuance of debt obligations under this subpart and includes 
funds received by a nonentitlement public entity from a State under 
Sec.  570.711.
* * * * *
    State-assisted public entity means a unit of general local 
government in a nonentitlement area which is assisted by a State as 
required in Sec.  570.704(b)(9) and Sec.  570.705(b)(2) or pursuant to 
Sec.  570.711.

0
4. In Sec.  570.704, revise paragraph (c)(3)(i)(D), the first sentence 
of paragraph (c)(4), and the first sentence of paragraph (c)(5) to read 
as follows:


Sec.  570.704  Application requirements.

* * * * *
    (c) * * *
    (3) * * *
    (i) * * *
    (D) The public entity's or State's ability to furnish adequate 
security pursuant to Sec.  570.705(b), and
* * * * *
    (4) HUD will notify the public entity or State in writing that the 
loan guarantee request has either been approved, reduced, or 
disapproved. If the request is reduced or disapproved, the public 
entity or State shall be informed of the specific reasons for reduction 
or disapproval. * * *
    (5) Amendments. If the public entity or State wishes to carry out 
or assist in an activity not previously described in its application or 
to substantially change the purpose, scope, location, or beneficiaries 
of an activity, the amendment must be approved by HUD. * * *
* * * * *

0
5. In Sec.  570.705, revise paragraphs (a)(2)(ii) and (g) to read as 
follows:


Sec.  570.705  Loan requirements.

    (a) * * *
    (2) * * *
    (ii) States and State-assisted public entities. No commitment to 
guarantee shall be made if the total unpaid balance of debt obligations 
guaranteed under this subpart (excluding any amount defeased under the 
contract entered into under Sec.  570.705(b)(1)) on behalf of the State 
and all State-assisted public entities in the State would thereby 
exceed an amount equal to five times the amount of the most recent 
grant received by such State under subpart I.
* * * * *
    (g) Issuance, underwriting, servicing, and other costs. Each public 
entity or its designated public agency and each State issuing debt 
obligations under this subpart must pay the issuance, underwriting, 
servicing, trust administration, and other costs associated with the 
private sector financing of the debt obligations. Such costs are 
payable out of the guaranteed loan funds and shall be secured under 
paragraph (b) of this section.
* * * * *

0
6. Revise Sec.  570.709 to read as follows:


Sec.  570.709  Allocation of loan guarantee assistance.

    Of the amount approved in any appropriation act for guarantees 
under this subpart in any fiscal year, 70 percent shall be allocated 
for entitlement public entities and 30 percent shall be allocated for 
States and nonentitlement public entities. HUD need not comply with 
these percentage requirements in any fiscal year to the extent that 
there is an absence of applications approvable under this subpart from 
entitlement public entities or from States and nonentitlement public 
entities.

0
7. In Sec.  570.710, revise the third sentence to read as follows:


Sec.  570.710  State responsibilities.

    * * * Upon approval by HUD of an application from a State or a 
State-assisted public entity, the State will be principally 
responsible, subject to HUD oversight under subpart I of this part, for 
ensuring compliance with all applicable requirements governing the use 
of the guaranteed loan funds. * * *

0
8. Add a new Sec.  570.711 to read as follows:


Sec.  570.711  State borrowers; additional requirements and application 
procedures.

    This section contains additional requirements and alternative 
application procedures for guarantees of debt obligations under section 
108 of the Act pursuant to the additional authority provided in 
paragraph (a) of section 222 of the Transportation, Housing and Urban 
Development, and Related Agencies Appropriations Act, 2009, Public Law 
111-8; 123 Stat. 524 at 976 (Division I of the Omnibus Appropriations 
Act, 2009) (``section 222'' and the ``2009 Appropriations Act''). If 
any other federal law or laws are enacted after March 11, 2009, the 
effect of which with respect to loan guarantee authority provided in an 
appropriations act is equivalent to the effect of section 222 with 
respect to the loan guarantee authority provided in the 2009 
Appropriations Act, the additional requirements and alternative 
application procedures in this section shall also apply to guarantees 
of debt obligations under section 108 of the act, pursuant to the 
additional authority provided in such other federal law or laws.
    (a) Applications by States. Notwithstanding Sec.  570.702 and Sec.  
570.704, states that administer the CDBG program (under subpart I of 
this part) may apply for loan guarantee assistance under this subpart, 
and such application shall consist of the following:

[[Page 36390]]

    (1) A copy of the State's CDBG method of distribution in the action 
plan most recently submitted or amended pursuant to 24 CFR part 91. In 
addition to the requirements of 24 CFR part 91, such method of 
distribution must note the approximate amount of section 108 guaranteed 
obligations issued by the State and all nonentitlement public entities 
that are outstanding at the time of such submission or amendment, 
identify the maximum amount of guaranteed loan funds for which the 
State will apply during the period covered by the action plan, describe 
the pledge of grants required under Sec.  570.705(b)(2), and identify 
the nonentitlement public entities in the State that may be assisted 
with such guaranteed loan funds (to satisfy this requirement, the 
method of distribution may identify one or more specific nonentitlement 
public entities that may be assisted, or may indicate that all or a 
specified subset of the nonentitlement public entities in the State may 
be assisted and describe how applications will be selected for 
assistance).
    (2) Either:
    (i) A description of each activity to be carried out with the 
guaranteed loan funds, including the specific provision of Sec.  
570.703 under which the activity is eligible and how the activity meets 
one of the criteria in Sec.  570.208; or
    (ii) An indication of the type or types of activities to be 
assisted, the provisions of Sec.  570.703 under which such activities 
are eligible, and the criteria in Sec.  570.208 intended to be met, in 
which case HUD shall require that the description referred to in 
paragraph (a)(2)(i) of this section be submitted to and approved by HUD 
before the State disburses guaranteed loan funds to a public entity for 
the activity.
    (3) A schedule for repayment of the loan which identifies the 
sources of repayment.
    (b) Distribution to Local Governments. Proceeds payable to a State 
from the issuance of debt obligations under this subpart may be used 
only for:
    (1) Loans and grants to the nonentitlement public entities 
identified in the State's approved application for activities eligible 
under Sec.  570.703; and
    (2) The uses specified in paragraphs (c), (g), and (k) of Sec.  
570.703.
    (c) Certification of need. Prior to approving a nonentitlement 
public entity's application for assistance, the State shall obtain a 
certification from such public entity conforming to Sec.  
570.704(b)(4).
    (d) Local government citizen participation requirements. The 
presubmission and citizen participation requirements in Sec.  
570.704(a) and the third sentence of Sec.  570.704(c)(5) shall not 
apply with respect to nonentitlement public entities' applications to a 
State for assistance under this section. Nonentitlement public entities 
shall comply with the provisions of Sec.  570.486(a) with respect to 
such applications and such assistance.
    (e) Environmental review; displacement, relocation, acquisition, 
and replacement of housing. Nonentitlement public entities assisted by 
a State under this section shall comply with Sec.  570.704(d) and (e).

    Dated: June 23, 2009.
Nelson R. Breg[oacute]n,
General Deputy Assistant Secretary for Community Planning and 
Development.
[FR Doc. E9-17326 Filed 7-21-09; 8:45 am]
BILLING CODE 4210-67-P