[Federal Register Volume 76, Number 221 (Wednesday, November 16, 2011)]
[Notices]
[Pages 71060-71066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-29634]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5582-N-01]


Clarification of Duplication of Benefits Requirements Under the 
Stafford Act for Community Development Block Grant (CDBG) Disaster 
Recovery Grantees

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

ACTION: Notice.

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SUMMARY: This Notice clarifies the duplication of benefits requirements 
under the Stafford Act for all active Community Development Block Grant 
(CDBG) disaster recovery grants, and all future CDBG disaster recovery 
grants.

DATES: Effective Date: November 21, 2011.

FOR FURTHER INFORMATION CONTACT: Scott Davis, Director, Disaster 
Recovery and Special Issues Division, Office of Block Grant Assistance, 
Department of Housing and Urban Development, 451 7th Street SW., Room 
7286, Washington, DC 20410, telephone number (202) 708-3587. Persons 
with hearing or speech impairments may access this number via TTY by 
calling the Federal Relay Service at (800) 877-8339. Facsimile 
inquiries may be sent to Mr. Davis at (202) 401-2044. (Except for the 
``800'' number, these telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Applicability
II. Background
III. Applicable Law
    A. Stafford Act
    B. OMB Circular A-87
IV. Framework for Determining CDBG Disaster Recovery Assistance
    A. Assessment of Need Prior to Assistance
    B. Total Assistance
    C. Non-Duplicative Assistance Excluded From Final Benefit 
Calculation
    1. Funds for a Different Purpose
    2. Funds for Same Purpose, Different Eligible Use
    3. Funds Not Available to the Applicant
    4. Private Loans
    5. Other Assets or Lines of Credit
    D. Calculate CDBG Disaster Recovery Award
    E. Unmet Need
V. Examples Using Framework
VI. Use of CDBG Funds
    A. Use of Funds for Explicit and Eligible Purposes
    B. Treatment of Small Business Administration Loans
VII. Collecting a Duplication

I. Applicability

    The guidance presented in this Notice is applicable to all active 
HUD CDBG disaster recovery grants, and will be incorporated by 
reference into Federal Register notices governing all future CDBG 
disaster recovery grants. Table 1, below, illustrates the active grants 
next to the pertinent appropriation law. The following guidance is 
applicable to all new programs initiated and submitted to HUD in an 
Action Plan Amendment subsequent to the date of this Notice.

              Table 1--Active CDBG Disaster Recovery Grants
------------------------------------------------------------------------
       Appropriation law           Date enacted           Grantee
------------------------------------------------------------------------
Public Law 107-73.............  November 26, 2001  State of New York.
Public Law 107-117............  January 10, 2002.  State of New York.
Public Law 107-206............  August 2, 2002...  State of New York.
Public Law 108-324............  October 13, 2004.  States of Alabama,
                                                    California, Florida,
                                                    Maryland, North
                                                    Carolina, Ohio,
                                                    Pennsylvania, Puerto
                                                    Rico, Virginia and
                                                    West Virginia.
Public Law 109-148............  December 30, 2005  States of Alabama,
                                                    Florida, Louisiana,
                                                    Mississippi, and
                                                    Texas.
Public Law 109-234............  June 15, 2006....  States of Alabama,
                                                    Florida, Louisiana,
                                                    Mississippi, and
                                                    Texas.
Public Law 110-116............  November 13, 2007  State of Louisiana.
Public Law 110-252............  June 30, 2008....  States of Arkansas,
                                                    Colorado, Illinois,
                                                    Indiana, Iowa,
                                                    Maine, Minnesota,
                                                    Mississippi,
                                                    Missouri, Montana,
                                                    Nebraska, Oklahoma,
                                                    South Dakota, West
                                                    Virginia, and
                                                    Wisconsin.
Public Law 110-329............  September 30,      States of Arkansas,
                                 2008.              California, Florida,
                                                    Georgia, Illinois,
                                                    Indiana, Iowa,
                                                    Kentucky, Louisiana,
                                                    Mississippi,
                                                    Missouri, Puerto
                                                    Rico, Tennessee,
                                                    Texas, and
                                                    Wisconsin.
Public Law 111-212............  July 29, 2010....  States of Kentucky,
                                                    Rhode Island, and
                                                    Tennessee; City of
                                                    Cranston, City of
                                                    Warwick, City of
                                                    Memphis, Nashville-
                                                    Davidson County, and
                                                    Shelby County.
------------------------------------------------------------------------

    This guidance applies to all CDBG disaster recovery expenditures, 
programs, and activities, regardless of whether a grantee or subgrantee 
administers a program. Although this Notice frequently references the 
term grantee, the actions described are not limited solely to grantees. 
Rather, it is ultimately the grantee's responsibility to ensure no 
recipient of funds under its CDBG disaster recovery award has received 
a duplicate benefit.
    This Notice does not apply to any funds received annually under the 
State CDBG program, or the CDBG Entitlement program, unless those funds 
have specifically been awarded by the grantee for disaster recovery 
purposes. All uses of the term ``CDBG'' in this Notice refer to CDBG 
disaster recovery allocations.

II. Background

    Grantees have requested clarification from HUD regarding the 
duplication of benefits. This Notice provides information to ensure all 
active CDBG disaster recovery grantees are in compliance with the 
Robert T. Stafford

[[Page 71061]]

Disaster Relief and Emergency Assistance Act, (42 U.S.C. 5121-5207), as 
amended, (Stafford Act), and all future CDBG disaster recovery grantees 
address duplication of benefits issues consistently. This Notice was 
also developed in consultation with the Small Business Administration 
(SBA) and the Federal Emergency Management Agency (FEMA).
    Most of the CDBG disaster recovery supplemental appropriation laws 
to date have explicitly required the Secretary of Housing and Urban 
Development to establish procedures to prevent recipients from 
receiving any duplication of benefits. In addition, most supplemental 
appropriation laws also require the Secretary to report quarterly to 
the Committees on Appropriations with regard to all steps taken to 
prevent fraud, abuse of funds, and duplication of benefits. Even in the 
absence of these specific requirements, Stafford Act prohibition on 
duplication of benefits in section 312 (42 U.S.C. 5155) is applicable 
to all CDBG disaster recovery grants.
    HUD has instituted specific reporting, written procedures, 
monitoring, and internal audit requirements for each grantee to ensure 
compliance with program rules for CDBG disaster recovery awards, 
including rules related to prevention of fraud, abuse, and duplication 
of benefits. However, HUD has neither designed nor mandated a specific 
process or method by which grantees must evaluate duplication of 
benefits; grantees have been encouraged to develop policies and 
procedures appropriate to their individualized programs. The Department 
has consistently monitored CDBG disaster recovery grantees to ensure 
that they are meeting the above requirements and that their policies 
and procedures are adequately preventing duplication of benefits.

III. Applicable Law

    Two authorities form the foundation of duplication of benefit 
inquiries--the Stafford Act and applicable ``necessary and reasonable 
cost principles in 24 CFR part 570 and in OMB Cost Circulars (codified 
in title 2 of the Code of Federal Regulations). Supplemental 
appropriations statutes often reinforce and supplement these 
authorities.
    A. The Stafford Act. The Stafford Act directs administrators of 
Federal assistance to ensure that no ``person, business concern or 
other entity'' will receive duplicative assistance and imposes 
liability ``to the extent such assistance duplicates benefits available 
to the person for the same purpose from another source.'' 42 U.S.C. 
5155(a) and (c). Because assistance to each person varies widely based 
on individual insurance coverage and eligibility for Federal funding, 
grantees cannot comply with the Stafford Act without completing a 
duplication of benefits analysis specific to each applicant. The 
Stafford Act provides the framework for the Federal government's role 
in preparing for and recovering from a disaster. Its duplication of 
benefits requirements apply to all Federal agencies administering a 
disaster recovery program providing financial assistance, including 
CDBG disaster recovery grants. Under the Act's framework, Congress 
instituted a goal to achieve greater coordination and responsiveness of 
disaster preparedness and relief programs. 42 U.S.C. 5121.
    It also sought to guard against fraud and ineligible uses of 
taxpayers' funds. The President makes major disaster declarations only 
when ``response is beyond the capabilities of the State and the 
affected local governments and that Federal assistance is necessary.'' 
(42 U.S.C. 5170). Similarly, the prohibition on duplication of benefits 
ensures that Federal assistance serves only ``to supplement insurance 
and other forms of disaster assistance.'' To accomplish these goals, 
the Stafford Act implies a hierarchy of funding (see section VII of 
this notice: Collecting a Duplication), and prohibits Federal agencies 
from providing recovery assistance to the extent another source has 
covered the same portion of that recovery need.
    Specifically, section 312 of the Stafford Act prohibits any person, 
business concern, or other entity from receiving ``any part of such 
loss as to which he has received financial assistance under any other 
program or from insurance or any other source.'' 42 U.S.C. 5155(a). A 
duplication occurs when a beneficiary receives assistance from multiple 
sources for a cumulative amount that exceeds the total need for a 
particular recovery purpose. The amount of the duplication is the 
amount of assistance provided in excess of need.
    The Stafford Act requires a fact-specific inquiry into assistance 
received by each person, household, or entity. A grantee may not make a 
blanket determination that a duplication of benefits does not exist for 
all beneficiaries or recipients under a disaster recovery program. As a 
result, all disaster recovery funds must be governed by policies and 
procedures to prevent duplication of benefits.
    In disaster recovery, it is common for multiple sources of funds to 
be used to address a single need. Grantees are advised to coordinate 
program designs and choices with related funding sources. Together, 
grantees and funders can determine the best approaches to minimize or 
eliminate duplication, increase leverage, and maximize community and 
individual outcomes. Furthermore, the Stafford Act provides that 
receipt of partial benefits for a major disaster or emergency shall not 
preclude provision of additional Federal assistance for any part of a 
loss or need for which benefits have not been provided. 42 U.S.C. 
5155(b). Thus, to comply with the Stafford Act, grantees should ensure 
that each program provides assistance to a person or entity only to the 
extent that the person or entity has a disaster recovery need that has 
not been fully met. Any recipient receiving a duplicate benefit may be 
liable to the Federal government. 42 U.S.C. 5155(c).
    B. Necessary and Reasonable Cost Principles. Cost principles 
applicable to all CDBG disaster recovery grantees require that costs 
are necessary and reasonable. These Federal cost principles are 
described in OMB Circulars and codified in title 2 of the Code of 
Federal Regulations. HUD grantees and subrecipients must generally 
adhere to the cost principles applicable to the specific type of entity 
(2 CFR part 225 (OMB Circular A-87), Cost Principles for State, Local, 
and Indian Tribal Governments, 2 CFR part 230 (OMB Circular 122), Cost 
Principles for Non-profit Organizations, 2 CFR part 220 (OMB Circular 
A-21), Cost Principles for Educational Institutions, or 45 CFR part 74, 
Principles for Determining Costs Applicable to Research and Development 
Under Grants and Contracts with Hospitals, as applicable). State 
grantees are subject to 24 CFR 570.489(d), which requires that states 
shall have fiscal and administrative requirements which ensure that 
funds received are only spent ``for reasonable and necessary costs of 
operating programs.''
    Federal necessary and reasonable cost principles apply to:
     State grantees (and their state recipients) through 24 CFR 
570.489(d);
     Subrecipients of state grantees according to CDBG disaster 
recovery Notices, which typically require subrecipient agreements to 
comply with 24 CFR 570.503; and
     Local government grantees receiving CDBG disaster recovery 
grants directly from HUD (and their subrecipients) through 24 CFR 
570.610.
    Section 570.489(d) of Title 24 Code of Federal Regulations and the 
Federal cost principles applicable to all types of entities include 
reasonability requirements that prohibit costs that have already been 
or will be paid from

[[Page 71062]]

another source. For example, principles and standards established by 2 
CFR part 225 (OMB Circular A-87), Cost Principles for State, Local, and 
Indian Tribal Governments, state that a cost assigned to a grant must 
be ``necessary and reasonable for proper and efficient performance and 
administration of Federal awards.'' 2 CFR part 225, Appendix A 
(C)(1)(a). A cost is reasonable if, in its nature and amount, it does 
not exceed that which would be incurred by a prudent person under the 
circumstances prevailing at the time the decision was made. Other 
factors related to the reasonableness of the cost are described in the 
basic guidelines in 2 CFR part 225, Appendix A (C)(2). This requirement 
applies to a grantee's costs in administering its disaster recovery 
program, as well as the ultimate uses of the funds by the grantee.
    Grantees must also make decisions about which types and amounts of 
cost items are necessary and reasonable given the applicable Federal 
laws, terms, and conditions of the Federal award, or other governing 
regulations. In the context of the Stafford Act duplication of benefits 
provision, the grantee must conduct an individualized review of each 
beneficiary and the purpose for which CDBG disaster recovery funds are 
provided. Specifically, the grantee must determine whether a cost is 
necessary and reasonable; if a cost has already been or will be paid 
from another source, it is presumed to violate the necessary and 
reasonable standard.

IV. Framework for Determining CDBG Disaster Recovery Assistance

    The paragraphs in this section of this Notice illustrate the 
primary considerations that must be taken into account when analyzing 
need and duplication of benefits under CDBG disaster recovery. While 
the Department is providing a suggested framework, grantees have the 
discretion to develop other methods or procedures to evaluate and 
address the calculation of need and assessment of duplication of 
benefits. Grantees are required to establish a duplication of benefits 
policy that explains and describes all methods and procedures to 
prevent the duplication of benefits. 42 U.S.C. 5155(a).
    Although the potential for duplication of benefits arises most 
frequently under homeowner rehabilitation programs, it is not limited 
solely to that program type. Therefore, this Notice seeks to provide 
general, cross-cutting guidance that can apply to any program.
    A grantee that creates several disaster recovery programs should 
consider whether one program will duplicate assistance provided by 
another program, even when the secondary program is funded entirely 
with non-Federal funds.
    A. Assessment of need prior to assistance. A grantee should first 
determine the applicant's total post-disaster need in the absence of 
any duplicative benefits or program caps. Following the identification 
of total need, duplicative assistance can later be subtracted and 
program caps applied to arrive at a final award. A rebuilding project's 
cost estimate is often able to serve as the best demonstration of need.
    Some recovery programs not involved with physical rebuilding, such 
as economic development to provide an affected business with working 
capital, may not necessarily base awards on construction cost 
estimates. In such scenarios, the potential award may be determined by 
the program and be guided by standard underwriting principles; however, 
it must still be determined to be cost reasonable.
    B. Total assistance available to the person or entity. Assistance 
includes all benefits available to the person, including cash and other 
resources such as insurance proceeds, grants, and SBA loans (private 
loans not guaranteed by SBA are excepted--see paragraph C). Grantees 
should identify all assistance received by each person, business 
concern, or other entity, via insurance, FEMA, SBA, other local, state, 
or Federal programs, and private or nonprofit charity organizations. 
See, FEMA Disaster Assistance Policy 9525.3, Duplication of Benefits--
Non-Government Funds.
    Grantees should also identify reasonably anticipated assistance, 
such as future insurance claims or approved SBA loan proceeds. 
Reasonably anticipated funds include assistance that has been awarded, 
but has not yet been received. For example, assume a business was 
approved to receive an SBA loan for $30,000, but had only received 
$20,000 when it applied for CDBG disaster recovery assistance for the 
same purpose. The grantee should identify the full amount of assistance 
for which the applicant was approved ($30,000).
    Funds are not reasonably anticipated when the source and/or amount 
is indefinite, or the applicant is unaware that he/she may be eligible 
to receive additional funds at a later date. To address any potential 
duplication, beneficiaries must enter a signed agreement to repay any 
assistance later received for the same purpose as the CDBG disaster 
recovery funds. The grantee must identify a method to monitor 
compliance with the agreement for a reasonable period, and should 
articulate this method in its written administrative procedures. Please 
note that if additional need is established, subsequent funds would not 
be considered a duplication. See paragraph E, Unmet Need, for more 
information on this issue.
    C. Non-duplicative assistance excluded from final benefit 
calculation. Once the grantee has determined the potential award and 
the total assistance received or to be received, it can exclude for 
duplication of benefit purposes, assistance that was: (1) Provided for 
a different purpose; (2) used for a different, eligible purpose; (3) 
not available to the applicant; (4) a private loan not guaranteed by 
SBA; or (5) any other asset or line of credit available to the 
applicant. Below, each of these categories is explained in greater 
detail.
    1. Funds for a different purpose. Any funds provided for a 
different purpose, or a general, non-specific purpose (e.g., ``disaster 
relief/recovery''), may be excluded from the final award calculation if 
they were not used by the applicant for the same purpose.
    Funds provided to a homeowner typically fall under one of the 
following categories: Replacement housing, rehabilitation assistance, 
or interim (i.e., temporary) housing. Funds provided for replacement 
housing are generally easy to identify--they assist an individual or 
household to secure a replacement home in the event their disaster-
affected home cannot be rehabilitated. This includes, but is not 
limited to, downpayment assistance, interim mortgage assistance, and 
acquisition of the damaged property. While these types of funds may be 
delivered through separate programs, they all have a uniform purpose--
to equip an individual or household with the funds necessary to gain 
replacement housing.
    Rehabilitation includes repair and reconstruction. If a homeowner 
receives rehabilitation funds from CDBG disaster recovery, all other 
assistance provided to address that home's rehabilitation must be 
included. If award amounts are related to a property's value or 
estimated cost of repair/reconstruction, then HUD will consider them to 
be for the purpose of rehabilitation or replacement housing.
    Funds provided for interim housing, which would be provided if a 
household is temporarily unable to reside in its permanent residence, 
are considered to have a different purpose than rehabilitation or 
replacement housing. For example, if FEMA funds were eligibly used for 
interim housing, and CDBG funds were provided for home rehabilitation, 
there is no

[[Page 71063]]

duplication regarding those funds because the funds were provided for 
different purposes. However, any FEMA funds eligibly used for housing 
replacement or rehabilitation must be considered for that purpose.
    Economic development programs may address many unique purposes. 
Thus, for a more effective administration of these programs, each 
should be carefully designed from the beginning with clear, identified 
purposes of the funds.
    Finally, when providing funds for the repair, replacement, 
rehabilitation, or new construction of public facilities or 
improvements, a grantee must address whether other sources of funds are 
available for that same purpose and for that specific project because 
funds used directly by grantees and other government entities for 
public facilities or other purposes are also subject to the duplication 
of benefits prohibitions under the Stafford Act.
    2. Funds for same purpose, different eligible use. Funds used for a 
different eligible purpose may be excluded from the final award 
calculation. In some instances, funds provided for the same general 
purpose as the CDBG disaster recovery funds will have been used by the 
applicant for a different specific eligible purpose. In these 
circumstances, if the applicant can document that the funds received 
were used for a different, eligible purpose, then the funds are not 
duplicative. Each grantee can work with HUD to determine what 
documentation is appropriate. In general, acceptable documentation may 
include, but is not limited to, receipts as well as sworn statements 
and certifications that can be verified or substantiated. FEMA requires 
individuals to keep receipts or bills for three years to demonstrate 
how all FEMA-funded assistance was used in meeting an eligible, 
disaster related need. It is advisable for grantees to remind 
applicants of this requirement when submitting an application for CDBG 
assistance that supplements FEMA assistance already received.
    Whether the funds are used for an eligible purpose is dependent 
upon the program that provided the funds. For example, assume a grantee 
is administering a homeowner rehabilitation program and an applicant to 
the program previously received housing assistance from FEMA. If the 
applicant can document that the FEMA funds were used for eligible 
interim housing costs (such as rent, in accordance with FEMA program 
eligibility), and not housing replacement or rehabilitation (which may 
also be an eligible use of the funds), then his or her CDBG award for 
permanent housing should not be reduced by the amount of FEMA 
assistance used for interim housing. Because FEMA may allow its 
recovery funds to be used for multiple purposes, CDBG disaster recovery 
funds may not duplicate the ultimate use of the FEMA funds.
    Because grantees may not be familiar with other Federal programs 
and allowable uses of funds, should this issue arise, grantees are 
encouraged to immediately contact their assigned HUD Community Planning 
and Development (CPD) Representative for further guidance.
    This issue may also emerge when a grantee provides multiple 
homeowner rehabilitation or replacement housing programs, or multiple 
economic development programs. Thus, grantees are encouraged to clearly 
define the purpose and intended use of funds under each program.
    3. Funds not available to the applicant. Funds that are not 
available to an applicant may also be excluded from the final award 
calculation. A benefit is available if a person or entity: (1) Would 
receive it by acting in a commercially reasonable manner, or (2) has 
received it, and has legal control over it. Commercially reasonable 
efforts refer to efforts that use a standard of reasonableness defined 
by what a similar person would do as judged by the standards of the 
applicable community. Commercially reasonable efforts should be 
consistent with good faith business judgments. For example, it may be 
commercially reasonable for a person to elect to receive a lump sum 
insurance settlement based on estimated cost of repairs to avoid 
transaction costs associated with the alternative of receiving 
reimbursement based on actual replacement cost; any additional benefits 
that theoretically might have been received under another settlement 
option do not reduce eligibility for assistance.
    Funds are not available to the person or entity if the person does 
not have legal control of the funds when they are received and are used 
for a non-duplicative purpose. For example, if a homeowner's mortgage 
requires any insurance proceeds to be applied to reduce the lien 
balance, then the bank/mortgage holder (not the homeowner) has legal 
control over those funds. Therefore, the homeowner is legally obligated 
to use insurance proceeds for that purpose and does not have a choice 
in using them for any other purpose, such as to rehabilitate the house. 
Under these circumstances, insurance proceeds do not reduce assistance 
eligibility. Alternatively, if a disaster-affected homeowner chooses to 
apply insurance proceeds to reduce an existing mortgage, or requests 
that the lender demand payment, insurance proceeds reduce the amount of 
disaster assistance eligibility. In addition, if a mortgage requires 
insurance proceeds to be used for rehabilitation of the property, those 
proceeds must be considered as assistance for that purpose.
    A homeowner does not need to possess cash assistance to be 
considered as being in legal control over receiving benefits for a 
particular purpose. For example, it is common for homeowners to choose 
to apply to local- or state-administered housing repair or 
reconstruction programs where the program administrator acts directly 
to complete the repairs for the homeowner. In this case, the person 
asks/applies for $10,000 worth of repairs (for example) and the benefit 
they receive is $10,000 in repair work to the home. The person does not 
need to have personally possessed the $10,000 in order to be in legal 
control over receiving that benefit for that specific purpose.
    4. Private loans. Similarly, for duplication of benefits purposes, 
private loans may be excluded from the final award calculation. Unlike 
SBA loans (or any other subsidized loan or Federal loan guarantee 
program that provides assistance after a major disaster or emergency), 
private loans not guaranteed by SBA need not be considered duplicative 
assistance. Congress provided for SBA loans (both direct and 
guaranteed) as part of the overall statutory scheme for disaster 
recovery. As such, SBA loans are made pursuant to a government program. 
Since private loans are not provided under a government program, they 
do not need to be considered as potentially duplicative assistance. 
However, when making final award determinations, necessary and 
reasonable cost principles such as OMB Circular A-87 (2 CFR part 225) 
apply. While private loans need not be considered for duplication of 
benefit purposes, a grantee is not prohibited from considering loans 
for other purposes, such as underwriting. For purposes of this Notice, 
private loans are non-Federal loans (neither direct nor guaranteed) 
that are made in a commercial lending transaction for fair market rates 
with a willing borrower and willing lender, under standard commercial 
lending terms in which the borrower must repay the full amount of the 
loan (plus interest, if applicable). This includes private loans for 
construction and bridge financing, but not forgivable loans. This 
policy applies regardless of whether the borrower is a business or an 
individual.

[[Page 71064]]

    5. Other assets or lines of credit. Other assets or lines of credit 
available to a homeowner or a business owner need not be included in 
the award calculation. This includes, but is not limited to: Checking 
or savings accounts, stocks, bonds, mutual funds, pension or retirement 
benefits, credit cards, mortgages or lines of credit, and life 
insurance. Please note that these items may be held in the name of an 
individual, or in the name of a business.
    D. Calculate CDBG disaster recovery award. The calculation may look 
as follows: (1) Identify total post-disaster need prior to any 
assistance; (2) Identify potentially duplicative assistance; (3) 
Subtract all assistance found to be duplicative, resulting in the 
maximum potential award amount, or unmet need.
    E. Unmet need. Long-term recovery is a process, however, disaster 
recovery needs are calculated at points in time. As a result, a 
subsequent change in circumstances can affect need. If, after needs are 
initially calculated and/or a CDBG award has been made, an applicant 
for CDBG disaster recovery assistance can demonstrate a change in 
circumstances, such as vandalism, contractor fraud, an increase in the 
cost of materials and/or labor, a change in local zoning law or 
building code, or subsequent damage to a home or business that was 
partially repaired, the grantee may subsequently reevaluate the 
calculation of the award by taking into account the increased need. 
However, any reevaluation must be done before the initial need for 
which the assistance was granted has been fully met (e.g., before the 
damaged house is fully repaired). In effect, once the house is fully 
repaired, the need resulting from the disaster impact will have been 
fully met; but actual costs to the point of completion are eligible.
    Oftentimes, unmet need does not become apparent until after CDBG 
disaster recovery assistance has been provided. For example, a 
subsequent storm or disaster may affect the unrepaired house or 
business of an individual or entity that was previously assisted by 
CDBG disaster recovery for a prior disaster. Therefore, to the extent 
that an original disaster recovery need (e.g., rehabilitation of a 
home) was not fully met, but was exacerbated by other factors beyond 
the government's and individual's control (e.g., lack of contractor 
availability or vandalism), additional CDBG disaster recovery 
assistance can be provided to meet the outstanding need. Grantees have 
discretion to determine the best way to determine and verify additional 
or unmet need. Physical inspection and professional appraisals are 
highly recommended. If a subsequent appraisal demonstrates that the 
CDBG award is in excess of need, the grantee should evaluate whether a 
duplication of benefits has occurred or whether the applicant's award 
should be reduced based upon program eligibility criteria.

V. Example Frameworks for Calculating Disaster Recovery Awards

    The tables below illustrate how a grantee may wish to address the 
process of making disaster recovery awards.

    Table 2--Basic Framework for Calculating Disaster Recovery Awards
------------------------------------------------------------------------
 
------------------------------------------------------------------------
1. Identify Applicant's Total Need Prior to Any                 $100,000
 Assistance.............................................
------------------------------------------------------------------------
2. Identify All Potentially Duplicative Assistance......          35,000
------------------------------------------------------------------------
3. Deduct Assistance Determined to be Duplicative.......          30,000
------------------------------------------------------------------------
4. Maximum Eligible Award (Item 1 less Item 3)..........          70,000
------------------------------------------------------------------------
5. Program Cap (if applicable)..........................          50,000
------------------------------------------------------------------------
6. Final Award (lesser of Items 4 and 5)................          50,000
------------------------------------------------------------------------

    Table 2 illustrates a basic way to calculate an award for CDBG 
disaster recovery--taking into account any duplication of benefit and 
reducing the award since the total unmet need is greater than the 
program cap set by the grantee. Table 3, below, uses this basic 
framework to calculate a CDBG disaster recovery homeowner 
rehabilitation award:

           Table 3--Basic Framework--Homeowner Rehabilitation
------------------------------------------------------------------------
 
------------------------------------------------------------------------
1. Identify Applicant's Total Need Prior to Any                  $60,000
 Assistance (e.g., rehabilitation cost estimate)........
------------------------------------------------------------------------
2. Identify All Potentially Duplicative Assistance:
    a. FEMA Housing Grant (assumes interim housing is
     eligible use)......................................
        Interim Housing (e.g., rent)....................           5,000
        Permanent Housing (e.g., repair/rehabilitation).          15,000
    b. SBA Loan.........................................          20,000
    c. Insurance (Structure, not Contents)..............          15,000
                                                         ---------------
                                                                  55,000
------------------------------------------------------------------------
3. Deduct Assistance Determined to be Duplicative:
    a. FEMA Housing Grant (assumes interim housing is
     eligible use)......................................
        Permanent Housing (e.g., repair/rehabilitation).          15,000
    b. SBA Loan.........................................          20,000
    c. Insurance (Structure, not Contents)..............          15,000
                                                         ---------------
                                                                  50,000
------------------------------------------------------------------------
4. Maximum Eligible Award (Item 1 less Item 3)..........          10,000
------------------------------------------------------------------------

[[Page 71065]]

 
5. Program Cap (if applicable)..........................          50,000
------------------------------------------------------------------------
6. Final Award (lesser of Items 4 and 5)................          10,000
------------------------------------------------------------------------

    A similar method may be used for most programs, so long as Item 1 
is reflective of the program, as for example, illustrated in table 4:

                Table 4--Basic Framework--Infrastructure
------------------------------------------------------------------------
 
------------------------------------------------------------------------
1. Identify Applicant's Total Need Prior to Any                 $100,000
 Assistance (e.g., reconstruction cost estimate)........
------------------------------------------------------------------------
2. Identify All Potentially Duplicative Assistance:
    a. Insurance........................................          50,000
    b. FEMA Public Assistance Funds for Permanent Work..          25,000
                                                         ---------------
                                                                  75,000
------------------------------------------------------------------------
3. Deduct Assistance Determined to be Duplicative.......          75,000
------------------------------------------------------------------------
4. Maximum Eligible Award (Item 1 less Item 3)..........          25,000
------------------------------------------------------------------------
5. Program Cap (if applicable)..........................          50,000
------------------------------------------------------------------------
6. Final Award (lesser of Items 4 and 5)................          25,000
------------------------------------------------------------------------

    While tables 2, 3, and 4 illustrate basic ways to calculate a CDBG 
disaster recovery award taking into account any duplication of benefit, 
table 5 below considers a scenario in which a CDBG award has already 
been made, however, additional unmet needs were identified subsequent 
to the award.

  Table 5--Post-Award Identification of Additional Unmet Need Homeowner
                             Rehabilitation
------------------------------------------------------------------------
 
------------------------------------------------------------------------
1. Identify Applicant's Total Need Prior to Any                  $60,000
 Assistance (e.g., rehabilitation cost estimate)........
------------------------------------------------------------------------
2. Identify All Potentially Duplicative Assistance:
    a. FEMA Housing Grant (assumes interim housing is
     eligible use)......................................
        Interim Housing (e.g., rent)....................           5,000
        Permanent Housing (e.g., repair/rehabilitation).          15,000
    b. SBA Loan.........................................          20,000
    c. Insurance (Structure, not Contents)..............          15,000
                                                         ---------------
                                                                  55,000
------------------------------------------------------------------------
3. Deduct Assistance Determined to be Duplicative:
    a. FEMA Housing Grant (assumes interim housing is
     eligible use)......................................
        Permanent Housing (e.g., repair/rehabilitation).          15,000
    b. SBA Loan.........................................          20,000
    c. Insurance (Structure, not Contents)..............          15,000
                                                         ---------------
                                                                  50,000
------------------------------------------------------------------------
4. Initial Award (Item 1 less Item 3)...................          10,000
------------------------------------------------------------------------
5. Program Cap (if applicable)..........................          50,000
------------------------------------------------------------------------
6. Initial Final Award (lesser of Items 4 and 5)........          10,000
------------------------------------------------------------------------
7. Demonstrated Additional Unmet Need (e.g., one year
 later):
    a. Actual cost ultimately greater than initially               5,000
     estimated cost.....................................
------------------------------------------------------------------------
8. Amount Eligible for Additional Award.................           5,000
------------------------------------------------------------------------
9. Program Cap (if applicable)..........................          50,000
------------------------------------------------------------------------
10. Additional Award (Item 8 if lesser of Items 6 + 8              5,000
 and Item 9)............................................
------------------------------------------------------------------------

    Please note that in the above example, some type of documentation 
must substantiate the amount determined by Item 5. That is, the project 
files should explain why the original CDBG award was insufficient, and/
or why additional funds are necessary to complete the activity. In the 
above example, the cost of materials may have increased or a

[[Page 71066]]

fraudulent contractor may have performed defective construction. In 
either case, the grantee has the discretion to determine what 
documentation is sufficient to demonstrate these events. Ultimately, 
required documentation depends on each particular fact pattern.

VI. Use of CDBG Funds

    A. Use of funds for explicit and eligible purposes. CDBG disaster 
recovery funds must be used for eligible purposes of the program or 
activity for which they have been provided. That is, CDBG funds 
provided for the sole purpose of repairing a home should be used 
strictly for the repair of that home. They should not be used for any 
other purpose. Similarly, funds provided to a business for equipment 
replacement, or structural repair, should be used only for those 
purposes. While some business assistance programs may provide for-
profit entities with working capital, this purpose should be clearly 
identified from the outset of the program so as not to duplicate other 
programs or working capital assistance.
    B. Treatment of SBA Loans. CDBG disaster recovery funds should not 
be used to pay down an SBA home or business loan. In cases where 
initial SBA loan amounts approved based on estimated costs are later 
determined to be inadequate relative to the actual costs to complete 
home repairs or reconstruction, the SBA will consider re-evaluating an 
applicant's maximum eligibility to explore if additional assistance may 
be provided. This also applies to recipients of SBA business loans 
(including loans for working capital). If need remains after all SBA 
eligibility has been exhausted, supplemental disaster recovery CDBG 
funds may be used to address that need.
    SBA loans are among the Federal government's primary and standard 
forms of disaster assistance. As disaster recovery CDBG funds are 
provided by Congress through supplemental appropriations only in 
extraordinary circumstances, these funds are intended to supplement 
rather than supplant SBA assistance. Grantees may, on rare occasion and 
in extraordinary circumstances, contend that the payment of SBA loans 
with disaster recovery CDBG for a beneficiary is justified in keeping 
with all associate laws and regulations. In such an instance, the 
grantee should contact its CPD representative for guidance.

VII. Collecting a Duplication

    If a potential duplication is discovered after CDBG disaster 
recovery assistance has been provided, the grantee may reassess need at 
that time. If additional need is not demonstrated, disaster recovery 
funds should be recaptured to the extent they are in excess of the need 
and duplicate other assistance received by the beneficiary for the same 
purpose. However, it may depend on what funds were provided last.
    Under the Stafford Act, a Federal agency that provides duplicative 
funds must collect those funds. FEMA regulations at 44 CFR 206.191 set 
forth a hierarchy of delivery that determines the order in which 
beneficiaries should receive Federal assistance. This hierarchy is 
based on which agency has the primary responsibility for providing 
assistance following a disaster, not which agency actually delivers the 
assistance first. As an example, in most situations, FEMA and SBA 
assistance is provided to individuals before supplemental disaster 
recovery CDBG assistance is able to be delivered. However, there may be 
cases in which, prior to receiving FEMA or SBA assistance, an applicant 
receives CDBG assistance for a purpose for which they are FEMA/SBA 
eligible. In this latter case, subject to the agreement that the 
grantee should have in place with the applicant, the applicant should 
reimburse the grantee in an amount equal to all duplicative FEMA or SBA 
funds subsequently received for purposes which CDBG funds were 
initially used.
    The regulations at 44 CFR 206.191(d) explain that a duplication of 
benefits occurs when an agency provides assistance which was the 
primary responsibility of another agency, and the agency with primary 
responsibility later provides assistance. When the delivery sequence 
has been disrupted, the disrupting agency is responsible for rectifying 
the duplication.
    Since CDBG disaster recovery provides long-term recovery assistance 
via supplemental congressional appropriations, and falls lower in the 
hierarchy of delivery than FEMA or SBA assistance, it is intended to 
supplement rather than supplant these sources of assistance. If CDBG 
disaster recovery funds or non-Federal funds were provided last and 
unknowingly create a duplication, the method of recapturing the CDBG 
funds, and the timeframe, are the responsibility of the grantee. HUD 
has no set guidelines or regulations for this process. However, the 
recapture method and timeframe should be consistent with OMB Circular 
A-87 (2 CFR part 225) or other applicable cost principles, any relevant 
guidance or handbook issued by the HUD Office of the Inspector General, 
and the Stafford Act, which requires that duplicative assistance shall 
be collected in accordance with chapter 37 of title 31, relating to 
debt collection. HUD's CPD representatives are available to provide 
guidance to grantees setting up or revising their duplication of 
benefits policies and procedures.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for the disaster 
recovery grants under this Notice are as follows: 14.218; 14.228.

Finding of No Significant Impact

    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). The FONSI is 
available for public inspection between 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 20410-0500. Due to security measures at the HUD 
Headquarters building, an advance appointment to review the docket file 
must be scheduled by calling the Regulations Division at (202) 708-3055 
(this is not a toll-free number). Hearing or speech-impaired 
individuals may access this number through TTY by calling the toll-free 
Federal Relay Service at (800) 877-8339.

    Dated: November 4, 2011.
Mercedes M. M[aacute]rquez,
Assistant Secretary for Community Planning and Development.
[FR Doc. 2011-29634 Filed 11-15-11; 8:45 am]
BILLING CODE 4210-67-P