Housing and Urban Development: Use and Oversight of the Economic
Development Loan Fund (Letter Report, 08/20/97, GAO/RCED-97-195).
Pursuant to a congressional request, GAO examined how changes to the
Department of Housing and Urban Development's (HUD) Economic Development
Loan Fund has affected the program, focusing on: (1) the extent to which
communities are using the loan fund; (2) factors affecting communities'
willingness to use the fund; (3) the types of projects being financed
with loan proceeds; and (4) HUD's procedures for overseeing the program.
GAO noted that: (1) from the loan program's inception through fiscal
year (FY) 1996, HUD made 930 loan commitments totaling $4.4 billion; (2)
about 38 percent of the Community Development Block Grant (CDBG)
entitlement communities have received one or more loan commitments; 16
states, on behalf of their nonentitlement communities, have also
received loans; (3) although communities' and states' use of the loan
program has fluctuated--generally, 50 or fewer loans were approved each
year--program activity increased sharply in FY 1994 through 1996, when
the Department approved about 400 loans and nearly 60 percent of the
dollars loaned since the program's inception; (4) according to HUD and
associations representing community development officials, the key
factor responsible for communities' and states' increased willingness to
use the loan program has been the availability of Economic Development
Initiative (EDI) grants to loan recipients; (5) in 1994, when the
Department provided $19 million in grants, loan activity doubled--88
loans compared with 43 the previous year; in 1995, when the Department
awarded $350 million in grants, the number of loans jumped to 218;
however, in 1996, when no EDI grants were awarded, the number of loans
dropped to 89; (6) the officials attributed any unwillingness to use the
loan program to communities' concerns over collateral requirements and
their reluctance to pledge future CDBGs as collateral for loans; (7)
communities and states reported to HUD that they have used about 73
percent of their loans to finance economic development activities; (8)
other eligible CDBG activities for which loans were reported to be used
included acquisition of real property, housing rehabilitation, and
public property rehabilitation; (9) the Department requires an annual
review of grantees to determine, among other things, whether the
activities funded by CDBGs are being carried out in a timely manner and
in accordance with Department-approved plans; and (10) however,
according to officials in 5 of the 30 field offices responsible for the
loans in GAO's sample, they did not routinely include the loans in their
annual reviews because they: (a) did not believe they had guidance on
how to monitor the program; (b) did not believe they had a
responsibility to monitor the loans; (c) had other priorities; or (d)
lacked loan-specific information.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-97-195
TITLE: Housing and Urban Development: Use and Oversight of the
Economic Development Loan Fund
DATE: 08/20/97
SUBJECT: Community development programs
Government guaranteed loans
Economic development
Federal aid for housing
Intergovernmental relations
Block grants
Grant monitoring
IDENTIFIER: Community Development Block Grant
Economic Development Loan Fund
HUD Section 108 Loan Program
Economic Development Initiative Grant
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Cover
================================================================ COVER
Report to the Chairman, Subcommittee on Housing and Community
Opportunity, Committee on Banking and Financial Services, House of
Representatives
August 1997
HOUSING AND URBAN DEVELOPMENT -
USE AND OVERSIGHT OF THE ECONOMIC
DEVELOPMENT LOAN FUND
GAO/RCED-97-195
HUD's Economic Development Loan Fund
(385660)
Abbreviations
=============================================================== ABBREV
CDBG - Community Development Block Grant
EDI - Economic Development Initiative
FMD - Financial Management Division
HUD - Department of Housing and Urban Development
OMB - Office of Mangement and Budget
Letter
=============================================================== LETTER
B-276545
August 20, 1997
The Honorable Rick Lazio
Chairman, Subcommittee on Housing
and Community Opportunity
Committee on Banking and Financial Services
House of Representatives
Dear Mr. Chairman:
The Department of Housing and Urban Development's (HUD) Economic
Development Loan Fund, formerly known as the Section 108 Loan
Guarantee Program, was established by the Congress in 1974 as a
component of the Community Development Block Grant (CDBG) Program.
Under the loan fund, communities may borrow up to 5 times their
current year's CDBG allotment using their current and future CDBG
grants as the principal collateral. Initially, only CDBG entitlement
communities--large metropolitan areas and urban counties that receive
CDBG grants directly--were eligible for the loan fund; in 1990,
nonentitlement communities--small cities and rural areas that receive
CDBG grants through their states--became eligible for the fund.
Loan proceeds may be used, for the most part, for the same activities
as CDBG grants; but because the loan amount can be substantially
larger than the annual CDBG grant, communities may use the loan
proceeds to finance much larger community development efforts. HUD
approves loan commitments but does not directly fund the loan
program. Rather, the loans are financed through periodic public
offerings of pooled loans on the private sector-capital market and
are guaranteed by the full faith and credit of the U.S. government.
To encourage communities to make greater use of the loan program, the
Congress substantially increased the amount of funds available for
the program in 1993. In 1994, it established Economic Development
Initiative (EDI) grants, which communities may use to help fund
projects or to pay for some of the costs associated with borrowing
under the loan program.
Concerned about how these changes had affected the loan program, you
asked us to examine (1) the extent to which communities are using the
loan fund, (2) factors affecting communities' willingness to use the
fund, (3) the types of projects being financed with loan proceeds,
and (4) HUD's procedures for overseeing the program. This report is
based on HUD's data over the life of the program and a representative
sample of 100 loans made in fiscal years 1990 through 1996 that had
funding advances. The loan sample was designed to allow us to
estimate the types of activities that have been financed by
communities and states for those years.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
From the loan program's inception through fiscal year 1996, the
Department of Housing and Urban Development made 930 loan commitments
totaling $4.4 billion. About 38 percent of the Community Development
Block Grant entitlement communities have received one or more loan
commitments; 16 states, on behalf of their nonentitlement
communities, have also received loans. Although communities' and
states' use of the loan program has fluctuated-- generally, 50 or
fewer loans were approved each year--program activity increased
sharply in fiscal years 1994 through 1996, when the Department
approved about 400 loans and nearly 60 percent of the dollars loaned
since the program's inception. The program experienced its greatest
activity in fiscal year 1995, with 218 loans totaling $1.8 billion.
However, the level of loan commitments has often been well below the
level approved by the Congress. For example, although the Department
approved $2.6 billion in loans in fiscal years 1994 through 1996, the
appropriated level would have supported about $5.6 billion in loans.
According to the Department of Housing and Urban Development and
associations representing community development officials, the key
factor responsible for communities' and states' increased willingness
to use the loan program has been the availability of Economic
Development Initiative grants to loan recipients. Program activity
appears to support this view. In 1994, when the Department provided
$19 million in grants, loan activity doubled--88 loans compared with
43 the previous year; in 1995, when the Department awarded $350
million in grants, the number of loans jumped to 218; however, in
1996, when no Economic Development Initiative grants were awarded,
the number of loans dropped to 89. The officials attributed any
unwillingness to use the loan program to communities' concerns over
collateral requirements and their reluctance to pledge future
Community Development Block Grants as collateral for loans. The
Department does not know the extent to which communities have used
Community Development Block Grant funds for loan payments when other
intended payment sources did not materialize because it does not
track this information.
Communities and states reported to the Department of Housing and
Urban Development that they have used about 73 percent of their loans
to finance economic development activities. Other eligible Community
Development Block Grant activities for which loans were reported to
be used included acquisition of real property, housing
rehabilitation, and public property rehabilitation. Within the
category of economic development, communities and states reported
that loans were used for activities such as constructing shopping
centers, creating revolving loan funds, and rehabilitating hotels and
restaurants. Overall, communities reported that about 88 percent of
the loans were to benefit people from households earning less than 80
percent of a local area's median income. The Department requires an
annual review of grantees to determine, among other things, whether
the activities funded by Community Development Block Grants are being
carried out in a timely manner and in accordance with
Department-approved plans. However, according to officials in 5 of
the 30 field offices responsible for the loans in our sample, they
did not routinely include the loans in their annual reviews because
they (1) did not believe they had guidance on how to monitor the
program, (2) did not believe they had a responsibility to monitor the
loans, (3) had other priorities, or (4) lacked loan-specific
information. These five offices oversee about 26 percent of all
loans. In addition, in 7 of the 30 field offices in our sample,
Department personnel responsible for reviewing block grants told us
that they did not have enough information on loans to carry out their
loan monitoring responsibilities.
BACKGROUND
------------------------------------------------------------ Letter :2
The loan program provides communities and states with a way of
leveraging their CDBG awards to obtain additional resources for
financing larger community revitalization projects without waiting
for the actual CDBG award. The loans can have repayment terms of up
to 20 years.
In the loan program, as in the CDBG program, communities and states
must use their loan proceeds only for activities that meet one or
more of three national objectives: (1) benefit low- and
moderate-income people--that is, households earning less than 80
percent of the local area's median income; (2) aid in the prevention
and elimination of slums or blight; or (3) meet other urgent
community development needs. In addition, the loan proceeds must be
used to help finance one or more of the activities cited in section
108 of the 1974 act. These activities include, among others, the
acquisition of real property; the rehabilitation of real property,
either publicly owned or acquired; housing rehabilitation and
preservation; and economic development.
Although current and future CDBG grants are the principal collateral
for loans, since 1995, communities have had to provide additional
collateral. To meet this requirement, HUD has generally approved
loans only for those activities expected to generate a cash flow that
would allow the community to repay the guaranteed loan. A 1994
amendment to the program expanded the list of eligible activities to
include the acquisition and restoration of public facilities, which
would generally not produce a cash flow to repay the debt. In
addition to revenue generated from the project, communities and
states may designate tax revenues or other revenue sources as the
additional collateral. The Treasury has never had to use public
funds to fulfill the federal guarantee, according to HUD's 1996
Consolidated Annual Report to Congress.
Eligible applicants include the CDBG grantees: (1) entitlement
communities--generally cities designated as central cities of
metropolitan statistical areas, other cities with populations of at
least 50,000, and qualified urban counties--that are directly
responsible for administering their grants and (2) nonentitlement
communities--smaller communities, including many rural communities
whose CDBG programs are administered by the state.\1
Nonentitlement communities became eligible for the loan program
through the Cranston-Gonzalez National Affordable Housing Act of
1990.
Both HUD headquarters and field offices play a role in managing the
loan program. Generally, headquarters provides final approval;
negotiates loan terms with applicants; and, through HUD's fiscal
agent, arranges for the sale of the loans. The fiscal agent acts as
a trustee under contract to HUD and, among other duties, collects
loan payments from the communities and notifies HUD to take funds
from communities' CDBG allotment when payments are not received.
Field offices assist communities and states in preparing
applications, make recommendations to headquarters to approve or deny
loans, and monitor funded activities.
HUD has financial monitoring procedures to safeguard against
communities' or states' defaulting on their loans. HUD's fiscal
agent must receive the loan payment 5 days before it is due.
Payments are due either semiannually or quarterly. If the payment is
not received, the fiscal agent notifies the HUD headquarters program
office, which contacts the cognizant community or state. If the
fiscal agent does not receive payment within 72 hours of the
payment's due date, HUD will make the loan payment using funds from
the community's or state's CDBG allocation. When payments are made
late, HUD will credit the community's or state's CDBG allocation.
--------------------
\1 HUD administers the nonentitlement programs in New York State and
Hawaii and refers to these programs as its Small Cities Program. For
the purposes of this report, nonentitlement communities include
state-administered programs and the HUD-administered Small Cities
Program.
LOAN PROGRAM RECENTLY
EXPERIENCED SIGNIFICANT GROWTH
------------------------------------------------------------ Letter :3
Between fiscal years 1994 and 1996, communities and states used the
loan program in far greater numbers than ever before. Over this
period, HUD approved nearly 60 percent of all the funds loaned, for a
total of $2.63 billion. From the program's inception through
September 1996, HUD made 930 commitments to guarantee loans totaling
$4.4 billion.\2
Figure 1 shows the number of approved loan commitments from
1978--when the first loan application was approved--through September
1996.
Figure 1: Number of Approved
Loan Commitments, Fiscal Years
1978-96
(See figure in printed
edition.)
Source: GAO's analysis of HUD's data.
Entitlement communities used the program significantly more than
nonentitlement communities. About 38 percent of entitlement
communities have received 884 loan guarantees totaling $4.2 billion.
Nonentitlement communities in 16 states have received 46 loan
guarantees totaling $235 million. Even though the program has
recently experienced significant growth, the level of loan
commitments has always been below the level approved by the Congress.
For example, in fiscal year 1995--the program's most active year--HUD
approved $1.8 billion in commitments, while the Congress had
appropriated $2.1 billion in commitments for that fiscal year.
Figure 2 shows the level of commitments approved by the Congress and
actual loan commitment levels through September 1996.
Figure 2: Actual Loan Dollars
and Amount Approved by the
Congress, Fiscal Years 1978-96
(See figure in printed
edition.)
Source: GAO's analysis of HUD's data.
--------------------
\2 In 1996 dollars, HUD's commitments totaled $5.2 billion from the
program's inception through September 1996. When adjusted for
inflation, commitments from 1994 through 1996 represent 52 percent of
all commitments.
EDI GRANTS SPURRED PROGRAM
GROWTH, BUT CONCERNS ABOUT
COLLATERAL REMAIN
------------------------------------------------------------ Letter :4
According to HUD and associations representing community development
officials, EDI grants encouraged communities to make greater use of
the loan program. HUD provided $369 million in EDI grants from
fiscal year 1994 through September 1996. However, according to these
officials, the program continues to be underutilized because (1) many
communities and states are reluctant to pledge their future CDBG
funds as collateral for the loans, as the 1974 act, as amended,
requires, and (2) collateral requirements imposed in 1995 and new
procedural guidelines are likely to make communities even more
reluctant to use the program.
EDI GRANTS ENCOURAGED
INCREASED LOAN PROGRAM USE
---------------------------------------------------------- Letter :4.1
Recent growth in the use of the loan program was primarily stimulated
by the introduction of EDI grants in fiscal year 1994, according to
HUD and associations representing community development officials.
HUD provided EDI grants for 123 out of the 395 loan commitments made
between fiscal years 1994 and 1995. These EDI grants totaled $369
million. (App.1 provides detailed information on EDI grants approved
during fiscal years 1994 through 1995.)
The EDI grants enhance the program's use because the communities and
states can use the grant funds in a number of ways to cover the costs
of administering the program, such as creating a loss reserve and
writing down loan rates to businesses financing projects within the
program. By helping to finance some of the projects' costs, the
grant money also strengthens the economic feasibility of the assisted
projects.
According to one CDBG entitlement community, the ability to receive
an EDI grant along with a loan commitment from the loan fund was the
key factor making it possible for the community to take out the loan.
If not for the EDI grant, this community would have sought funds from
alternative lending sources or issued bonds itself.
Communities may use their EDI grants in different ways. For example,
in 1994, Los Angeles was awarded a $300 million loan commitment--the
largest single loan amount granted under this program--to establish
and assist in funding a community development bank. The bank's
mission is to stimulate economic development that will create and/or
retain jobs for Los Angeles' low- and moderate-income families. In
addition to the loan commitment, the city was awarded a $100 million
EDI grant, bringing the bank's total reserves to $400 million. The
bank will provide loans, loan guarantees, venture capital
investments, grants, and technical assistance to area businesses. In
another instance, Kingston, New York, was awarded a $3.7 million loan
to establish two revolving loan funds, one to rehabilitate housing
and one to assist small businesses that are locating or expanding at
a former IBM facility. In addition to the loan commitment, the city
was awarded a $555,000 EDI grant to establish a revolving loan fund
offering below-market interest rates for small businesses and a loan
loss reserve.
COLLATERAL REQUIREMENTS MAY
DISCOURAGE USE OF THE LOAN
PROGRAM
---------------------------------------------------------- Letter :4.2
Even though communities and states generally view the loan program
favorably, they have concerns about the current collateral
requirements and the proposed guidance to communities on the
collateral to be used when providing third-party loans. As the law
requires, communities and states must pledge current and future CDBG
grants as the principal collateral for their loan. According to
officials from five of six associations that represent community
development officials, the collateral requirements are a concern for
their members. For example, one association representative told us
that while many of the association's members who used the program
viewed it positively, the overall membership was slow to use the
program because of the requirement to pledge future CDBG grants.
Beginning in February 1995, HUD required all communities and states
to pledge collateral beyond their CDBG grant. Previously, only
communities and states that had loan repayment terms for 10 years or
longer and, in some cases, loans with shorter repayment periods (such
as those with "balloon" payments), had to pledge additional
collateral. HUD's new requirement was in response to the Credit
Reform Act of 1990 and resulting directives from the Office of
Management and Budget (OMB). The 1990 act required agencies to
calculate subsidy costs for loan guarantee programs. This cost is
the amount of appropriation an agency must have in order to cover
anticipated losses in the program. In calculating this cost, OMB
told HUD that it cannot use future CDBG grants as the only source of
collateral for the loan. If additional collateral were not required,
the subsidy cost on the loan program would be prohibitively high.
According to HUD's requirements, for loans that financed some type of
tangible item, such as a building or equipment, the items themselves
can serve as additional collateral. For public infrastructure
activities, additional collateral will generally come from income
related to CDBG activities, such as interest from repayments of
housing rehabilitation loans. As a final option, communities can
pledge revenues from future tax collections.
In addition to concerns about collateral, association officials
questioned the proposed more stringent guidelines on third-party
loans, such as loans that communities make to businesses. HUD plans
to issue draft guidance for review and comment on the procedures that
communities and states may follow in granting loans from the loan
program to third parties. The proposed guidelines would seek to
minimize third-party default rates by using commercial lending
practices as the benchmark for the communities' own loan activities.
HUD's program manager recognized that the new guidance may make
communities more reluctant to use the program and acknowledged that
HUD will have to find ways to help communities adapt to the new
guidelines. HUD stated that it is proposing this guidance in
response to the 1990 credit reform act, and we identified five
instances in which third parties had defaulted on the loans they had
received from the community that had secured the loan with its CDBG
allotment. Nevertheless, several associations questioned this
guidance because it moves the loan program toward more stringent
commercial lending practices. They believed the use of more
conservative lending practices as a benchmark for any public benefit
program is unrealistic and inappropriate because such projects by
their nature are riskier and would be unable to qualify in a
conservative lending environment.
In a letter commenting on a draft of this report, HUD stressed that
the underwriting guidelines will not be issued as regulations and
their use will not be mandatory. HUD noted that the guidelines are
not intended to be used in connection with improvements to public
facilities and other activities that do not generate revenue, and
that communities will still be able to use CDBG funds to repay loans
used to finance activities that do not generate revenue. HUD also
noted, however, that communities will have to furnish alternative
security to protect the federal financial interest in the event that
future appropriations are not made for the CDBG program.
According to one CDBG participant, that state chose not to
participate in the loan program for its nonentitlement communities
because pledging the state's future CDBG funds would put other
nonentitlement communities at risk of losing their CDBG funds if the
community receiving the funds were to default. This official added
that while the benefits of leveraging future CDBG grants are
tempting, the risk posed by the loan on future CDBG awards is too
great because of the impact on countless low- and moderate-income
persons around the state who depend on CDBG-funded activities.
HUD DOES NOT TRACK
COMMUNITIES' USE OF CDBG
FUNDS TO MAKE LOAN PAYMENTS
---------------------------------------------------------- Letter :4.3
According to the director of HUD's loan program, communities intend,
in most instances, to repay loans with revenues generated by the
funded project or from another revenue source identified by the
community or state in its loan application. The director emphasized
that identifying a viable source of revenue other than the CDBG for
loan payments was a critical consideration in HUD's review of a loan
application. However, HUD was not able to provide information on
communities' actual use of CDBG funds to cover shortfalls when the
intended revenue sources for loan payments do not materialize because
it has not been tracking these payments. The director agreed that
this is important information that HUD should be tracking to improve
its oversight of the program.
COMMUNITIES USED LOANS
PRIMARILY FOR ECONOMIC
DEVELOPMENT ACTIVITIES
------------------------------------------------------------ Letter :5
On the basis of our sample of 100 loans approved in fiscal years 1990
through 1996 that had funding advances, we estimated the types of
activities reported as funded by the program for these years. Our
analysis relied on the information that the communities and states
reported to HUD. (App. II provides detailed information on loans
approved in fiscal years 1990 through 1996 that had funding advances,
and app. III provides detailed information, estimates, and sampling
errors for the data presented in this report.)
By an overwhelming margin, both entitlement and nonentitlement
borrowers reported that they used their loan funds to finance
economic development activities. However, nonentitlement communities
were more likely than entitlement communities to report that they
used their funds for economic development. Table 1 shows our
estimates of the types of activities funded overall and by
entitlement and nonentitlement communities.
Table 1
Proportion of Loans Used to Fund
Eligible Activities, as Reported by
Entitlement and Nonentitlement
Communities
Entitlemen
t Nonentitleme
Overall communitie nt
(percent s communities
Eligible activities ) (percent) (percent)
---------------------------------- -------- ---------- ------------
Economic development 73.2 72.1 87
Acquisition of real property\a 12.3 11.9 17.4
Housing rehabilitation\b 10.4 10.8 4.3
Public real property\ 8.5 9.2 0
rehabilitation\c
Relocation costs\ 5.2 5.2 4.3
----------------------------------------------------------------------
Note: Because all nonentitlement communities were included in our
sample, the percentages for these communities are actual and not
estimates. The economic development activity is the only category in
which we found a statistical difference between entitlement and
nonentitlement communities. Percentages do not add up to 100
because, in reporting to HUD, communities and states could indicate
more than one eligible activity.
\a Projects such as the purchase of a commercial office property or
property to house a local shopping center.
\b Projects such as the rehabilitation of a school to convert the
facility to housing units for the elderly.
\c Projects such as engineering and design work associated with the
development and construction of three public schools.
Source: GAO's analysis of HUD's data.
Loans for economic development were made for activities such as
constructing shopping centers, creating revolving loan funds,\3 and
rehabilitating hotels and restaurants. On the basis of the
information provided to HUD by communities and states, we estimate
that at least $1.3 billion was used to finance an economic
development activity. This estimate is conservative and includes
only instances in which the community reported funds being used for
only one purpose. As noted earlier, in reporting to HUD, communities
and states could indicate more than one eligible activity for the
loan commitment.
Figure 3 shows our estimates of the type of economic development
activities funded. As the figure shows, 46 percent of the loans went
to support for-profit, start-up businesses or to retain for-profit
businesses.
Figure 3: Estimates of the
Types of Economic Development
Activity Funded
(See figure in printed
edition.)
Establishing revolving loan funds is one method that communities use
to make even greater use of CDBG funds by providing funding for
businesses that might otherwise not qualify for commercial lending
opportunities. While we estimate that only 6 percent of the loans
were used to establish or enhance such funds, about half of the
entitlement communities with the largest loans reported using loan
commitments to finance a revolving loan fund. Only one
nonentitlement community reported using loan proceeds for this
purpose.
These revolving loan funds are used to finance a variety of
businesses. For example, Philadelphia, Pennsylvania, reported using
$20 million in loan proceeds to establish a revolving loan fund for
small and mid-sized inner-city businesses. The program's goal is to
foster the retention and expansion of inner-city businesses.
Eligible businesses will receive long-term, fixed-rate loans that
conventional banks have been unwilling to provide. Businesses that
have received assistance from the fund include an insurance company,
a wholesale food distributor, a smelting and refining company, an
apparel warehouser and distributor, and a card and gift warehouser
and distributor.
On the basis of the information in the loan files, we also estimate
that communities and states used about 88 percent of their loans to
finance activities that benefited low- and moderate-income people
from households earning less than 80 percent of the local area's
median income. For example, Greene County, Alabama, reported to HUD
that it planned to use $9 million in loan proceeds to finance the
construction of a 85,000-square-foot facility to house a tire and
wheel assembly plant. The county estimates that the plant will
create at least 180 new jobs, 51 percent of which will be for low-
and moderate- income persons. Cheboygan, Michigan, reported using $3
million in loan proceeds to help a start-up, for-profit business
purchase a vacant paper plant and industrial equipment. The plant
will benefit the community by creating 100 jobs for low- to
moderate-income persons, according to a state community development
official.
About 23 percent of the loans funded activities that supported the
national objective of aiding in the elimination of slums and blight.
However, none of the loans funded activities that supported the
national objective of addressing an urgent community development
need. Percentages do not add up to 100 because, in reporting to HUD,
communities and states could indicate more than one national
objective.
--------------------
\3 Revolving loan funds provide an on-going stream of funding to
small businesses by providing loans below the market rate.
SOME FIELD OFFICES ARE NOT
INCLUDING THE LOAN PROGRAM IN
CDBG MONITORING
------------------------------------------------------------ Letter :6
According to its regulations, the Department must conduct an annual
performance review of CDBG communities and states to determine
whether CDBG-funded activities are being carried out (1) in a timely
manner, (2) in accordance with approved plans, and (3) in compliance
with primary and national objectives.\4
Because the loan program is a component of the CDBG program, loan
commitments should be included in annual reviews of CDBG recipients.
However, in 5 of the 30 field offices we contacted, these loan
commitments were not reviewed. These five offices accounted for
about 26 percent of all loan commitments. The five offices that did
not include loan fund activities said that they did not do so because
they (1) did not believe they had guidance on how to monitor the
program, (2) did not believe they had a responsibility to monitor the
loans, (3) had other priorities, or (4) lacked loan-specific
information. Another two field offices did not monitor these loans
because one had recently opened and one had its records destroyed.
The remaining 23 field offices included the loan fund activities in
their review.
Even when the field offices include loan activities in the annual
CDBG review, their task is made more difficult by poor communication
between HUD headquarters and its field offices. According to
officials in 7 of the 30 field offices we contacted, HUD
representatives did not have enough information on loans to fully
carry out their monitoring responsibilities. According to the HUD
headquarters program director, field offices may not routinely
receive copies of all loan documentation, but he was surprised to
learn that some offices may not be receiving documentation containing
sufficient information for monitoring purposes.
--------------------
\4 An annual review may consist of the field office's conducting (1)
an on-site review during which a team of specialists reviews various
aspects of a community's or state's activities to determine
compliance with CDBG program requirements or (2) an in-house
assessment during which HUD identifies areas in which communities are
doing well and those in which they need improvement.
CONCLUSIONS
------------------------------------------------------------ Letter :7
Communities and states have made greater use of the loan program
since the EDI grants were instituted. Nonetheless, the total amount
of money loaned has remained less than the amount that congressional
appropriations would support. This may be due in part to
communities' and states' reluctance to risk having to use future CDBG
funds to repay loans. However, because HUD does not track the use of
CDBG funds for loan payments, it does not know the extent to which
CDBG funds have been used in this manner.
Furthermore, some HUD field offices have not been routinely including
loan commitments in their oversight of CDBG communities and states.
Seven different field offices were not getting information from
headquarters on final loan terms, which affected their ability to
monitor loan activities; and five field offices were not including
loans in their monitoring of CDBG communities. With the increased
growth in the loan program, the need to ensure that funds are being
spent as reported is of even greater importance.
RECOMMENDATIONS
------------------------------------------------------------ Letter :8
To determine the extent to which communities and states are using
CDBG allotments to repay loans, the Secretary of Housing and Urban
Development should implement procedures for tracking loan payments
made from communities' or states' CDBG allocations.
To ensure that HUD's field offices have accurate and timely
information for monitoring loan fund activities and that loan fund
activities are routinely reviewed, the Secretary of Housing and Urban
Development should
-- develop procedures to ensure that the information necessary to
monitor program performance and compliance with program
requirements is promptly provided to the cognizant field offices
and
-- direct field offices to include a review of loan fund activities
when they review CDBG communities and states.
AGENCY COMMENTS
------------------------------------------------------------ Letter :9
We provided a draft of this report to HUD for its review and comment.
We obtained comments in a meeting with the Deputy Assistant Secretary
for Grant Programs and other HUD officials and subsequently received
written comments. In our meeting, the Deputy Assistant Secretary
stated that HUD generally agreed with the information in our report
and with our recommendations. He stressed HUD's commitment to making
sure that it effectively oversees the loan program. The Deputy
Assistant Secretary and the other officials provided suggestions for
clarifying the report, which we incorporated as appropriate.
In its letter, HUD noted that it views the growth in the loan program
as positive and encourages communities to use the program to create
jobs and revitalize distressed neighborhoods. At the same time, HUD
stated, it is mindful of its stewardship responsibilities and
therefore considers our report as constructive and generally agrees
with our recommendations. HUD raised several points about collateral
requirements that, while consistent with our report, provided details
of HUD's intent. HUD emphasized that the underwriting guidelines
will not be issued as regulations and their use is not mandatory;
rather, HUD views them as a tool for communities to underwrite
revenue-generating projects financed with the loan fund. These
guidelines will assist communities in protecting their CDBG programs
and in providing adequate security for the loan guarantees. HUD also
noted that the guidelines were not intended to be used for loans used
to finance public facilities or other activities that do not generate
income. Although HUD points out that the guidelines will not be
mandatory, it was clear during our work that associations
representing communities perceive the guidelines as requirements.
Accordingly, we believe that the program may benefit from HUD's
opening and maintaining a dialogue with communities as it develops
these guidelines to ensure that they are understood and not viewed as
an obstacle to using the program.
In connection with our recommendations, HUD agreed to implement
procedures to require reporting of unplanned use of CDBG funds to
make loan payments. However, our first recommendation goes beyond a
reporting requirement. We believe that routine tracking of these
data will provide HUD and communities with useful information on,
among other things, the likelihood that communities may need to use
future CDBG funds to repay loans when other intended revenue sources
fail to materialize. In connection with our second recommendation,
HUD noted that the distribution of oversight information needed by
the field offices must be comprehensive and that while HUD has
improved in this area in recent years, the current system is
inadequate for accomplishing that result. HUD plans to implement our
recommendation to correct this problem through a design change to its
integrated disbursement and information system --a computer-based
information system. HUD noted that it will consult with its field
offices to ensure that they are receiving the information needed for
monitoring. HUD also agreed to develop procedures to ensure that
loan information is provided promptly to field offices and to direct
field offices to include loan activities in their monitoring of CDBG
recipients, as we recommend. HUD's written comments and our response
appear in appendix VI.
---------------------------------------------------------- Letter :9.1
We performed our review from November 1996 through July 1997 in
accordance with generally accepted government auditing standards. As
arranged with your office, unless you announce its contents earlier,
we plan no further distribution of this report until 7 days after the
date of this letter. At that time, we will send copies to
appropriate congressional committees, the Secretary of Housing and
Urban Development, and the Director of the Office of Management and
Budget. We will also make copies available to others upon request.
Please call me on (202) 512-7631 if you or your staff have any
questions. Major contributors to this report are listed in appendix
VII.
Sincerely yours,
Judy A. England-Joseph
Director, Housing and Community
Development Issues
EDI GRANTS AND ECONOMIC
DEVELOPMENT LOAN FUND LOANS,
FISCAL YEARS 1994 AND 1995
=========================================================== Appendix I
This appendix presents information on Economic Development Initiative
(EDI) grants and corresponding loans from the Economic Development
Loan Fund for fiscal years 1994 and 1995.
Table I.1
Economic Development Initiative Grants
and Economic Development Loan Fund
Loans, Fiscal Year 1994
Community Grant amount Loan amount
------------------------------------ ------------ ------------------
Selma, Alabama $330,000 $2,200,000
San Francisco, California 600,000 6,000,000
San Diego, California 720,000 7,200,000
Compton, California 500,000 5,000,000
Los Angeles County, California 1,000,000 10,000,000
Inglewood, California 500,000 5,000,000
San Bernadino, California 344,000 2,295,000
Lakewood, Colorado 45,000 450,000
Washington, D.C. 1,000,000 11,500,000
Miami Beach, Florida 1,000,000 12,670,000
Miami, Florida 300,000 2,000,000
Atlanta, Georgia 185,017 1,850,170
Atlanta, Georgia 617,000 6,170,000
Athens/Clarke County, Georgia 500,000 5,000,000
Atlanta, Georgia 197,983 1,979,830
Chicago, Illinois 1,000,000 10,000,000
Gary, Indiana 380,000 2,550,000
Indianapolis, Indiana 450,000 3,000,000
Louisville, Kentucky 700,000 7,000,000
Boston, Massachusetts 300,000 2,000,000
Lowell, Massachusetts 500,000 5,000,000
Worcester, Massachusetts 500,000 5,000,000
Prince George's County, Maryland 600,000 6,000,00
Jackson, Michigan 315,000 2,110,000
Detroit, Michigan 243,000 1,626,521
Detroit, Michigan 90,000 600,000
Wilmington, North Carolina 150,000 1,000,000
Newark, New Jersey 129,000 1,290,000
Atlantic City, New Jersey 300,000 3,000,000
Syracuse, New York 129,000 1,290,000
Buffalo, New York 500,000 5,000,000
Babylon, New York 90,000 600,000
Buffalo, New York 129,000 1,290,000
Utica, New York 600,000 6,000,000
Rochester, New York 700,000 7,000,000
Cleveland, Ohio 306,000 2,044,250
Toledo, Ohio 129,000 1,290,000
Dayton, Ohio 129,000 1,290,000
Cleveland, Ohio 86,000 573,750
Philadelphia, Pennsylvania 1,000,000 10,000,000
Providence, Rhode Island 500,000 5,000,000
Columbia, South Carolina 227,000 1,515,000
Harris County, Texas 129,000 1,290,000
Fort Worth, Texas 660,000 6,600,000
Tacoma, Washington 165,000 1,135,000
======================================================================
Total fiscal year 1994 $18,975,000 $181,409,521
----------------------------------------------------------------------
Table I.2
EDI Grants and Economic Development Loan
Fund Loans, Fiscal Year 1995
Community Grant amount Loan amount
------------------------------------ ------------ ------------------
Selma, Alabama $450,000 $450,000
South Gate, California 475,000 2,370,000
Alhambra, California 675,000 2,025,000
San Francisco, California 1,000,000 10,000,000
San Jose, California 475,000 2,710,000
San Bernadino County, California 475,000 1,360,000
Oakland, California 22,000,000 27,000,000
Fresno, California 1,000,000 1,630,000
Riverside, California 950,000 4,130,000
Sacramento, California 1,500,000 8,000,000
Pico Rivera, California 750,000 1,850,000
Los Angeles County, California 25,000,000 25,000,000
Los Angeles, California 100,000,000 300,000,000
San Diego, California 1,000,000 1,000,000
Denver, Colorado 1,000,000 3,330,000
Bridgeport, Connecticut 475,000 1,580,000
New Haven, Connecticut 1,000,000 2,000,000
Fort Myers, Florida 500,000 500,000
Miami, Florida 670,000 2,700,000
Gary, Indiana 1,000,000 4,680,000
Kansas City, Kansas 7,800,000 7,800,000
Louisville, Kentucky 4,000,000 4,000,000
Boston, Massachusetts 22,000,000 22,000,000
Fall River, Massachusetts 1,155,000 1,210,000
Lynn, Massachusetts 899,000 1,200,000
Lawrence, Massachusetts 1,000,000 6,670,000
Boston, Massachusetts 1,000,000 2,000,000
Lewiston, Maine 500,000 5,000,000
Detroit, Michigan 250,000 2,390,000
Detroit, Michigan 70,000 400,000
Detroit, Michigan 90,000 450,000
Saint Paul, Minnesota 1,000,000 4,000,000
Kansas City, Missouri 14,200,000 14,200,000
St. Louis, Missouri 1,000,000 1,000,000
Moss Point, Mississippi 475,000 1,900,000
Hudson County, New Jersey 1,000,000 8,300,000
Syracuse, New York 475,000 475,000
Buffalo, New York 1,000,000 3,400,000
Rochester, New York 475,000 1,900,000
Yonkers, New York 40,000 180,000
Elmira, New York 385,000 2,420,000
New York, New York 4,600,000 13,800,000
Kingston, New York 555,000 3,700,000
Yonkers, New York 41,000 170,000
Yonkers, New York 94,000 380,000
Warren, Ohio 170,000 1,000,000
Trumbull County, Ohio 340,000 2,000,000
Columbiana County, Ohio 102,000 600,000
Columbus, Ohio 1,000,000 9,000,000
Youngstown, Ohio 340,000 2,000,000
Akron, Ohio 300,000 1,700,000
Cleveland, Ohio 87,000,000 87,000,000
Cuyahoga County, Ohio 1,000,000 6,670,000
East Liverpool, Ohio 21,000 120,000
Youngstown, Ohio 435,000 3,300,000
Mahoning County, Ohio 170,000 1,000,000
Oklahoma City, Oklahoma 1,000,000 3,330,000
Tulsa, Oklahoma 1,000,000 2,800,000
Philadelphia, Pennsylvania 1,000,000 6,000,000
Pittsburgh, Pennsylvania 1,000,000 4,010,000
McKeesport, Pennsylvania 1,000,000 2,000,000
Harrisburg, Pennsylvania 1,000,000 2,430,000
Columbia, South Carolina 200,000 200,000
Houston, Texas 22,000,000 175,000,000
Abilene, Texas 1,000,000 2,800,000
Hidalgo County, Texas 250,000 1,000,000
Austin, Texas 475,000 475,000
Fillmore, Utah 200,000 650,000
Fairfax County, Virginia 150,000 1,000,000
Kitsap County, Washington 348,000 1,500,000
Tacoma, Washington 475,000 2,380,000
Kitsap County, Washington 475,000 920,000
Seattle, Washington 350,000 2,400,000
Spokane, Washington 1,000,000 6,610,000
Milwaukee, Wisconsin 1,000,000 1,700,000
Huntington, West Virginia 350,000 3,500,000
Cheyenne, Wyoming 105,000 695,000
Laramie, Wyoming 300,000 1,500,000
======================================================================
Total fiscal year-1995 $350,055,000 $848,550,000
----------------------------------------------------------------------
LOAN FUND COMMITMENTS, FISCAL
YEARS 1990-96
========================================================== Appendix II
Fiscal
State Community Project description Amount year Status
------ -------------- ----------------------------- ------------ ------ ------------
Ala. Gadsden $1,000,000 90
Ala. Mobile 1,000,000 94
Ala. Florence 800,000 95
Ala. Birmingham 3,300,000 95
Ala. Bessemer Construction of a business 1,000,000 92 Underway
incubator facility
Ala. Selma Renovation of a hospital into 2,200,000 95 Underway
a medical clinic
Ala. Mobile Acqusition/Rehabilitation of 2,000,000 91 Completed
a hotel
Ala. Greene County Financial assistance for 9,000,000 95 Underway
business start up costs;
construct plant
Ariz. Little Rock 1,800,000 91
Ariz. Yuma 1,500,000 94
Ariz. Pima County 1,200,000 90
Calif. Riverside 4,130,000 95
Calif. Oakland 2,500,000 94
Calif. Norwalk 2,500,000 95
Calif. Los Angeles 1,060,000 90
County
Calif. Lancaster 4,000,000 95
Calif. Westminster 2,900,000 95
Calif. Sacramento 805,000 93
Calif. Livermore 185,000 94
Calif. Sacramento 8,000,000 95
Calif. Sacramento 2,020,000 93
County
Calif. Sacramento 1,000,000 94
County
Calif. Vacaville 555,000 92
Calif. Sacramento 400,000 94
Calif. San Bernardino 500,000 94
Calif. Sacramento 1,500,000 90
County
Calif. San Diego 4,400,000 94
Calif. Pasadena 3,725,000 93
Calif. Sacramento 1,250,000 90
Calif. San Diego 1,760,000 95
Calif. San Diego 990,000 94
Calif. San Bernardino 7,350,000 95
Calif. Sacramento Establishment of a loan fund 1,000,000 93 Underway
Calif. Los Angeles Fund the Los Angeles 300,000,000 95 Underway
Community Development Bank
Calif. San Diego Construction of a shopping 7,200,000 95 Underway
center
Calif. Chula Vista 750,000 91
Calif. Bakersfield Purchase of furniture and 2,500,000 94 Completed
fixtures for a convention
center hotel
Calif. Los Angeles Housing rehabilitation, 60,000,000 93 Underway
revolving loan fund
Calif. Oakland Renovation of the Martin 10,945,000 95 Underway
Luther King, Jr. Plaza
Calif. Oakland Finance Enterprise Community 27,000,000 95 Underway
economic development
activities
Calif. Santa Ana Acquisition of land for 20,000,000 93 Completed
street widening
Calif. Sacramento Low interest loans for 360,000 90 Completed
County rehabilitation
Calif. San Francisco Capitalization of an existing 50,000,000 95 Underway
revolving loan
Calif. Alhambra 3,000,000 95
Calif. Carlsbad 1,200,000 94
Calif. Santa Ana 13,900,000 95
Calif. Huntington 2,970,000 95
Park
Calif. San Mateo 2,000,000 95
County
Calif. Woodland 800,000 95
Calif. Fresno 3,150,000 95
Calif. Downey 1,700,000 91
Colo. Denver Establishment of three 15,000,000 93 Completed
interim financing programs
Colo. Lakewood 2,805,000 94
Colo. Lakewood Construction of public 2,050,000 95 Underway
facilities; infrastructure
improvements
Colo. Denver 1,300,000 93
Colo. Denver 7,000,000 94
Conn. Bridgeport 5,000,000 95
Conn. New Haven 5,000,000 91
D.C. Washington 5,000,000 92
Fla. Fort Myers Construction of a shopping 500,000 95 Underway
center
Fla. Miami 2,500,000 93
Fla. Fort Myers Acquisition/Redevelopment of 750,000 93 Completed
land for low-income housing
Fla. Jacksonville\a Acquisition/Renovation of a 2,850,000 90 Underway
waterfront resturant
Fla. West Palm Rehabilitation of two 1,095,000 94 Don't know
Beach privately owned rental
housing complexes
Fla. Jacksonville 3,845,000 95
Fla. Pompano Beach 2,000,000 91
Fla. Jacksonville 10,000,000 94
Fla. Miami 8,000,000 90
Fla. Boca Raton 700,000 94
Ga. Savannah Rehabilitation of 74 unit 1,855,000 92 Completed
low-and moderate-income
rental housing
Ga Atlanta 6,170,000 95
Ga Atlanta 6,825,000 95
Ga Atlanta 4,980,000 93
Ga Macon 500,000 95
Ga Macon 2,500,000 93
Ia Des Moines 1,000,000 94
Ia Des Moines 1,000,000 95
Ia Des Moines 407,000 90
Ia Sioux City 600,000 92
Ia Dubuque 1,000,000 91
Ia Dubuque Acquisition of land; 1,200,000 90 Completed
construction of a hotel
Ill. Chicago Finance seven economic and 50,000,000 95 Underway
community development
programs
Ill. Rockford 250,000 94
Ill. Schaumburg 550,000 93
Ill. Moline Acquisition of land to 3,000,000 92 Underway
redevelop harbor area
Ind. South Bend 450,000 92
Ind. Hammond 1,050,000 93
Ind. South Bend 1,050,000 94
Ind. East Chicago 3,500,000 95
Ind. Gary 7,440,000 94
Ind. South Bend 750,000 90
Ind. Gary Construction of a building 3,470,000 95 Completed
leased to US Postal Service
Ind. Indianapolis 3,200,000 95
Kans. Kansas City 7,800,000 95
Kans. Baxter Springs Construct manufacturing 7,000,000 94 Completed
facility; purchase equipment
La. Kenner 700,000 92
La. Jefferson 6,800,000 90
Parish
La. New Orleans Conversion of a building into 5,600,000 91 Underway
hotel suites
La. Jefferson Acquisition of equipment; 2,625,000 94 Underway
Parish\a refinance loan; working
capital for for-profit
business
Mass. Malden Finance handicapped 500,000 95 Completed
accessibility improvements
Mass. Boston Establishment of the 22,000,000 95 Underway
Enterprise Community Economic
Development Loan program
Mass. Lawrence 700,000 93
Mass. Lynn 7,890,000 92
Mass. Lowell 10,000,000 94
Mass. Springfield Construction of a medical 900,000 94 Completed
center
Mass. Boston Construction of hotel and 40,000,000 94 Underway
parking garage
Mass. Lynn Acquisition/Site preparation 3,400,000 95 Completed
work for schools and
firehouses
Mass. Westfield Working capital for local 2,200,000 94 Underway
manufacturer
Mass. Malden Acquisition/Relocation/ 1,800,000 92 Underway
Demolition of commercial
buildings
Mass. Salem 600,000 95
Mass. Springfield 350,000 94
Mass. Lynn 3,000,000 95
Mass. Cambridge 1,000,000 94
Mass. Gloucester 1,750,000 94
Mass. Medford 3,500,000 94
Mass. Cambridge 5,000,000 93
Mass. Malden 3,000,000 95
Mass. Springfield 2,000,000 95
Mass. Malden 475,000 90
Md. Baltimore 4,700,000 93
Md. Cumberland 550,000 94
Md. Baltimore 14,000,000 95
Md. Annapolis 210,000 94
Md. Prince Acquisition/Renovation of a 6,000,000 95 Underway
George's shopping center
County
Md. Prince 1,600,000 93
George's
County
Md. Baltimore 6,750,000 91
Me. Lewiston 500,000 95
Mich. Cheboygan Assistance to for-profit 3,000,000 93 Completed
business for purchase of a
vacant paper plant and
machinery
Mich. Royal Oak 2,400,000 92
Mich. Saginaw Rehabilitation of a parking 1,715,000 93 Completed
garage
Mich. Bay City Renovation of commercial 350,000 90 Completed
property into printing,
graphics arts and sales
facility
Mich. Muskegon Purchase private property ; 650,000 92 Completed
removal/installation of
public facilities and
improvements
Mich. Royal Oak 3,097,000 90
Mich. Detroit 2,000,000 90
Mich. Norton Shores 250,000 94
Mich. Detroit 3,060,000 95
Mich. Waterford 255,000 93
Mich. St. Clair 1,250,000 91
Shores
Mich. Detroit 2,000,000 92
Mich. Detroit Construction of 23,000 sq 1,150,000 95 Completed
foot addition to Riverbend
Shopping Center
Mo. Kansas City 1,600,000 95
Mo. Kansas City 1,500,000 95
Mo. Kansas City 1,500,000 94
Mo. Kansas City 500,000 94
Mo. Kansas City 5,000,000 94
Mo. Kansas City 2,000,000 92
Mo. Kansas City 3,250,000 92
Mo. Kansas City 3,000,000 90
Mo. Kansas City Construction/Rehabilitation 250,000 94 Completed
of a building used by public
service organization
Mo. St. Joseph\a Renovation of building and 1,260,000 93 Underway
provide business expansion
opportunities
Mo. St. Louis Housing and neighborhood 15,000,000 90 Completed
development; land
acquisition; economic
development activities
Mo. Kansas City Acquisition/Relocation/ 4,500,000 92 Completed
Demolition of blighted and
substandard properties
Miss. Greenville Construction of water and 2,445,000 93 Underway
sewer facilities; acquisition
of real property; relocation
costs
Mont. Billings 400,000 90
N.C. Greensboro 1,640,000 94
N.C. Gastonia 3,305,000 94
N.C. Charlotte Rehabilitation of a historic 1,645,000 95 Completed
mill into low-income housing
units
Nebr. Lincoln 675,000 91
Nebr. Lincoln 315,000 94
N.H. Portsmouth Acquisition/Rehabilitation of 820,000 94 Completed
the Mariner's Village housing
complex
N.J. Jersey City 8,000,000 95
N.J. Elizabeth 5,000,000 91
N.J. Trenton 6,000,000 92
N.J. Hudson County 5,000,000 92
N.J. Camden 475,000 92
N.J. Camden 3,000,000 90
N.J. West Windsor Provide working capital, 870,000 96 Underway
Township acquire office property and
machinery
N.J. Camden Construction of an industrial 180,000 92 Underway
building and provide
permanent financing
N.J. Egg Harbor Finance for-profit business' 3,550,000 93 Underway
City acquisition of fixed assets
and provide working capital
N.J. Pohatcong Acquisition/Rehabilitation of 4,495,000 93 Underway
Township a facility into a hotel
N.J. Buena Vista Assistance to for-profit 1,400,000 93 Terminated
Township\b business; working capital and
expansion
N.J. Wanaque Acquisition of land and 2,310,000 95 Underway
construction of a supermarket
N.Y. Rochester 500,000 94
N.Y. Utica 9,000,000 92
N.Y. Rochester 2,000,000 94
N.Y. Union 2,000,000 95
N.Y. Middletown 70,000 95
N.Y. Buffalo 5,000,000 95
N.Y. Rochester 10,000,000 94
N.Y. Nassau County 6,025,000 92
N.Y. Binghamton 4,205,000 92
N.Y. Buffalo 1,000,000 93
N.Y. Buffalo 5,000,000 92
N.Y. Newburgh 1,500,000 92
N.Y. Syracuse 14,395,000 92
N.Y. Suffolk County 1,500,000 95
N.Y. Rochester 4,000,000 91
N.Y. Buffalo 8,000,000 90
N.Y. Rochester Establishment of revolving 5,000,000 92 Don't know
loan fund for commercial and
industrial projects
N.Y. Buffalo Refinance an existing Section 2,200,000 94 Completed
108 loan and make
improvements to hotel.
N.Y. Yonkers Provide working capital for 18,000,000 95 Underway
credit worthy businesses,
finance site improvement
N.Y. Kingston Assistance in capitalization 3,700,000 95 Underway
of a revolving loan fund
N.Y. Babylon Acquisition/Rehabilitation of 1,600,000 94 Underway
shopping centers
N.Y. Monroe County Expansion of an ice arena and 6,345,000 94 Don't Know
various other projects.
N.Y. Binghamton Refinance an existing Section 800,000 94 Completed
108 loan to retain 119 jobs
N.Y. Buffalo Purchase 5 new fire trucks 2,235,000 95 Underway
N.Y. Buffalo Refinance loan, renovate 3,000,000 94 Don't know
property, re-open restaurant
N.Y. Buffalo Rehabilitation of a vacant 1,290,000 95 Has not
store and establish a started
revolving loan fund
O.H. Youngstown 1,250,000 90
O.H. Youngstown 1,275,000 90
O.H. Euclid 1,250,000 93
O.H. Columbus Rehabilitation of 400 room 8,360,000 95 Underway
ocupancy units in YMCA
O.H. Cleveland Establishment of two loan 87,000,000 95 Don't know
programs for economic
development activities
O.H. Warren 650,000 90
O.H. Youngstown 810,000 92
O.H. Cleveland 2,100,000 95
O.H. Youngstown 850,000 94
O.H. Cleveland 700,000 92
Heights
O.H. Cincinnati 9,400,000 90
O.H. Youngstown 650,000 94
O.H. Canton 5,000,000 94
O.H. Youngstown 2,500,000 93
O.H. Akron 1,700,000 95
O.H. Lake County 3,000,000 93
O.H. Lorain 170,000 92
O.H. Toledo 550,000 96
O.H. Lorain 350,000 91
O.H. Youngstown 2,300,000 96
O.H. Youngstown 300,000 95
O.H. Toledo 650,000 95
O.H. Lorain 2,200,000 92
O.H. Youngstown Construction of a 4,000,000 93 Completed
manufacturing facility,
equipment acquisition
O.H. Cleveland Renovation of 3 vacant 2,100,000 95 Completed
buildings in the city's
historic warehouse district
O.H. Barberton Renovation of theater, 2,225,000 93 Completed
restaurant, and amusement
center
Okla. Shawnee 450,000 95
Okla. Oklahoma City Establishment of a loan fund 20,000,000 93 Has not
for business creation and started
expansion
Pa. Allentown 1,900,000 91
Pa. Berks County 2,000,000 94
Pa. Bethlehem 1,364,000 91
Pa. Easton 1,000,000 94
Pa. Erie 2,000,000 93
Pa. Harrisburg 1,680,000 90
Pa Johnstown 5,500,000 94
Pa. Montgomery 500,000 90
County
Pa. Philadelphia 8,915,000 94
Pa. Philadelphia 800,000 92
Pa. Norristown 550,000 90
Pa. Philadelphia 3,000,000 94
Pa. Lancaster 1,500,000 94
Pa. Scranton 1,000,000 92
Pa. Reading 580,000 92
Pa. Philadelphia Establishment of loan pool 20,000,000 95 Underway
(all
projects)
Pa. Cambria County Acquisition/Modernization of 3,000,000 94 Completed
former steel facility
Pa. Philadelphia Expansion/Enhancement of an 30,000,000 95 Has not
existing Section 108 loan started
program
Pa. Philadelphia Renovation of building into a 16,000,000 95 Underway
351 room hotel
Pa. Allentown Acquisition/Clearance of 4,000,000 95 Underway
obsolete structures for
installation of public
facilities
Pa. Scranton Assistance to for-profit 9,957,000 91 Don't know
business in the development
of a downtown mall
P.R. Caguas Final improvements on Civic 2,800,000 91 Completed
Center Complex
P.R. Cayey 4,800,000 95
P.R. Vieques Construction of a sports 5,000,000 94 Underway
complex
P.R. Ponce Acquisition of building and 20,600,000 95 Underway
land, district redevelopment,
and construction
P.R. Cayey 5,000,000 95
P.R. Vega Baja 6,455,000 95
P.R. Vega Baja 4,500,000 94
P.R. Carolina 8,000,000 93
P.R. Toa Baja 7,600,000 92
P.R. Toa Baja 9,550,000 95
P.R. Fajardo 2,500,000 95
P.R. Fajardo 3,700,000 91
P.R. Trujillo Alto 1,600,000 90
P.R. Aguadilla 3,200,000 90
P.R. Arecibo 9,575,000 94
P.R. Guaynabo Rehabilitation of a public 9,870,000 95 Underway
facility and make various
site improvements
P.R. Dorado Rehabilitation of public 4,105,000 95 Underway
facilities for arts theater;
acquisition/rehabilitiation
of commercial property
P.R. Barceloneta Site improvements on land 2,800,000 95 Completed
R.I. Providence 9,000,000 92
R.I. Providence Partially finance the 2,000,000 94 Don't know
rehabilitation of the
Performing Arts Center
R.I. Newport Acquisition/Rehabilitation of 1,350,000 94 Completed
a closed and vacant school
R.I. Providence 2,000,000 93
R.I. Cranston 285,000 93
R.I. Providence 1,500,000 94
S.C. Greenville 750,000 95
S.C. Lexington Partially fund the start up 12,000,000 94 Underway
County of a regional airline carrier
S.C. Columbia 1,515,000 94
S.C. Charleston 4,250,000 94
S.C. Berkeley Acquisition of a closed 12,000,000 95 Foreclosure
County\c industrial facility
S.C. Columbia Assistance in the acquisition 1,515,000 95 Underway
of a 25 acre site for
redevelopment
Tenn. Nashville 2,500,000 90
Tenn. Memphis 3,350,000 94
Tex. Abilene 190,000 90
Tex. Fort Bend 1,030,000 95
Tex. Bryan 500,000 94
Tex. Port Arthur 565,000 94
Tex. Hidalgo County 335,000 90
Tex. Tyler 400,000 90
Tex. Abilene 1,865,000 92
Tex. Harris County 1,290,000 95
Tex. San Benito\d Business expansion 820,000 90 Terminated
Tex. Dallas Rehabilitation/Conversion of 25,000,000 94 Some
building into multi-family underway;
rental units some haven't
started
U.T. Fillmore City Construction of a facility, 650,000 95 Underway
acquisition of machinery;
training
U.T. Salt Lake 5,000,000 93
County
Va. Fairfax County 5,691,000 90
Va. Fairfax County 2,120,000 91
Va. Fairfax County 4,755,000 92
Va. Fairfax County 500,000 94
Va. Fairfax County 500,000 95
Va. Fairfax County 80,000 95
Va. Roanoke 3,470,000 91
Va. Roanoke 2,530,000 92
Va. Richmond Acquisition/Rehabilitation of 15,000,000 92 Underway
real property, clearance and
relocation
Va. Virginia Beach Housing rehabilitation in 2,000,000 93 Underway
three targeted neighborhoods
Wash. Seattle Assistance in 2,400,000 95 Completed
financing,expanding and
stabalizing a shopping center
Wash. Spokane 5,555,000 91
Wash. Tacoma 1,135,000 95
Wash. Bellingham Gap financing for private 1,755,000 90 Completed
businesses to revitalize
central business district
Wash. Hoquiam Working capital to acquire 3,300,000 94 Completed
and reopen a paper mill
Wash. Tacoma Acquisition of first mortgage 5,180,000 93 Completed
on downtown hotel
Wash. Ocean Shores Finance construction and 3,600,000 94 Completed
permanent financing of a full
service hotel
Wash. Leavenworth Finance land, equipment, and 2,220,000 95 Completed
other costs to develop
amusement center
Wash. Seattle Acquisition of a building to 24,200,000 94 Completed
eliminate slum and blight on
a spot basis
Wis. Wausau 2,000,000 95
Wyo. Cheyenne 800,000 95
Wyo. Laramie Assistance in financing a 1,500,000 95 Completed
distribution and
manufacturing facility
=========================================================================================
TOTAL $1,738,916,0
00
-----------------------------------------------------------------------------------------
Note: Project descriptions are included for the 100 loans in our
sample.
\a Loan to a for-profit business is in default. The community is
repaying the loan.
\b Loan to a for-profit business is in default. The state is
repaying the loan
\c State is foreclosing on for-profit business. The state is
repaying the loan.
\d HUD terminated the project due to the community's mismanagement of
loan funds. The community is repaying the loan.
ESTIMATES AND RELATED SAMPLING
ERRORS FOR PROJECTED DATA
========================================================= Appendix III
Confidence interval
----------------------------------
Description Estimate Sampling error From To
----------------- ---------------- ---------------- ---------------- ----------------
What type of activity was financed with the loan? (%)
-----------------------------------------------------------------------------------------
Economic 73.2 9.0 64.2 82.2
development
activities
Acquisition of 12.3 6.1 6.2 18.4
real property
Housing 10.4 6.1 4.3 16.5
rehabilitation
Public property 8.5 5.7 2.8 14.2
rehabilitation
What type of activity was financed with the loan by entitlement communities? (%)
-----------------------------------------------------------------------------------------
Economic 72.1 9.4 62.7 81.5
development
activities
Acquisition of 11.9 6.5 5.4 18.4
real property
Housing 10.8 6.5 4.3 17.3
rehabilitation
Public property 9.2 5.9 3.3 15.1
rehabilitation
Relocation costs 5.2 4.7 0.5 9.9
What type of activity was financed with the loan by non-entitlement communities? (%)
-----------------------------------------------------------------------------------------
Economic 87.0 Not applicable
development
activities
Acquisition of 17.4 Not applicable
real property
Housing 4.3 Not applicable
rehabilitation
Public property 0 Not applicable
rehabilitation
Relocation costs 4.3 Not applicable
What percentage of loans fulfilled the national objectives?
-----------------------------------------------------------------------------------------
National 88.4 6.7 81.7 95.1
objective to
benefit low-and
moderate-income
people
National 23.2 8.4 14.8 31.6
objective to
reduce slums and
blight
What amount of loan proceeds were used to finance economic development activities?
-----------------------------------------------------------------------------------------
At least this $1,303,483,421 $2,738,961 $1,300,744,460 $1,306,222,382
amount of loan
proceeds to
finance economic
development
activities
What number of loans were used to finance economic development activities?
-----------------------------------------------------------------------------------------
At least this 210 20 190 230
number of loans
to finance
economic
development
activities
What percentage of loans financed specific types of economic development activities?
-----------------------------------------------------------------------------------------
Financing 36.6 11.4 25.2 48.0
acquisition,
construction, or
renovation of
commercial
properties
Financing 9.6 6.9 2.7 16.5
acquisition,
construction, or
renovation of
public property
Financing 46.4 11.6 34.8 58.0
business start
up or retention
of for-profit
business/
revolving loan
funds
What number of loans financed specific types of economic development activities?
-----------------------------------------------------------------------------------------
Financing 84 28 56 112
acquisition,
construction, or
renovation of
commercial
properties
Financing 22 14 8 36
acquisition,
construction, or
renovation of
public property
Financing 106 29 77 135
business start
up or retention
of for-profit
business/
revolving loan
funds
What percentage of loans financed revolving loan funds?
-----------------------------------------------------------------------------------------
Financing 6.2 3.7 2.5 9.9
revolving loan
funds-all loans
Financing 45.0 Not applicable
revolving loan
funds-top 20
entitlement
communities
Financing 4.3 Not applicable
revolving loan
funds-non-
entitlement
communities
What number of loans financed revolving loan funds?
-----------------------------------------------------------------------------------------
Financing 19 12 7 31
revolving loan
funds-all loans
Financing 9 Not applicable
revolving loan
funds-top 20
entitlement
communities
Financing 1 Not applicable
revolving loan
funds-non-
entitlement
communities
What percentage of loans received reviews?
-----------------------------------------------------------------------------------------
Receiving 24.2 8.8 15.4 33.0
technical
assistance
Receiving an on- 29.4 8.6 20.8 38.0
site inspection
Receiving an 54.9 9.6 45.3 64.5
annual in-house
assessment
Receiving another 7.9 5.4 2.5 13.3
type of review
For the field offices that do not routinely include a review of Economic Development Loan
Fund loans, what is the percentage
-----------------------------------------------------------------------------------------
Loan 26.5 8.8 17.7 35.3
responsibility
for the 5 field
offices not
routinely
including a
review of the
loan in their
regular CDBG
monitoring
Loan 39.6 9.8 29.8 49.4
responsibility
for the 7 field
offices who did
not routinely
have the final
loan terms
For the field offices that do not routinely include a review of Economic Development Loan
Fund loans, what is the amount of l
-----------------------------------------------------------------------------------------
Amount of funds $292,746,316 $735,649 $292,010,767 $293,481,965
for the 5 field
offices not
routinely
including a
review of the
loan in their
regular CDBG
monitoring
Amount of funds $792,141,053 $1,128,487 $791,012,566 $793,269,540
for the 7 field
offices that did
not routinely
have the final
loan terms
-----------------------------------------------------------------------------------------
OBJECTIVES, SCOPE, AND METHODOLOGY
========================================================== Appendix IV
As requested, we reviewed (1) the extent to which communities and
states are using the loan fund; (2) factors affecting communities'
and states' willingness to use the program; (3) the types of projects
being financed with loan proceeds; and (4) the Department of Housing
and Urban Development 's (HUD) procedures for overseeing the program.
To obtain information on the loan fund, we reviewed the program's
history, regulations, policies, and procedures. We also reviewed
HUD's annual reports to the Congress for community development
programs for 1994 and 1996.\5 We interviewed the Director, Office of
Block Grant Assistance; the Director, Financial Management Division
(FMD) (the loan fund program office); FMD representatives; HUD
Community Planning and Development officials in HUD field offices in
Atlanta, Georgia; Columbia, South Carolina; and Portland, Oregon. We
also interviewed community development officials for the states of
Georgia and South Carolina, and the cities of Atlanta, Georgia, and
Columbia, South Carolina. We reviewed Inspector General reports
issued as of January 7, 1997.
To determine the extent to which communities and states use the
program, we obtained and analyzed FMD's database of HUD's loan fund.
We identified the manner in which the data were collected and
summarized. We reviewed annual reports to the Congress for community
development programs for 1994 and 1996. We interviewed the Director,
Financial Management Division, and Community Planning and Development
officials at HUD's field offices in Atlanta, Georgia, and Columbia,
South Carolina.
To identify the factors affecting communities' willingness to use the
program, we interviewed officials of associations that represent
communities eligible for the program, including the Council of State
Community Development Agencies, the National Congress for Community
Economic Development, the National Council for Urban Economic
Development, the U.S. Conference of Mayors, the National Community
Development Association, and the National Association of State
Development Agencies. We discussed this issue with the Director of
HUD's Financial Management Division; and HUD Community Planning and
Development officials at two HUD field offices. In addition, we
interviewed state community development officials in Georgia and
South Carolina, and city development officials in Atlanta and
Columbia. We also reviewed documentation obtained during these
interviews.
To identify the types of projects financed with loan proceeds, we
obtained and analyzed FMD's database of HUD's loan fund. We
developed two data collection instruments to obtain additional
information about loan commitments. With the first, we recorded data
from loan files on the activities communities and states financed
with loan proceeds. With the second, we conducted a telephone survey
with HUD community planning and development officials at HUD field
offices responsible for monitoring loan commitments in our sample.
HUD program officials reviewed and commented on the telephone data
collection instrument, and we incorporated their suggested changes.
(App. V shows the locations of HUD field offices contacted.) In
developing these instruments, we interviewed program officials,
reviewed Economic Development Loan Fund legislation and regulations,
and examined selected loan fund files.
We used these data collection instruments to collect information
about a sample of loan commitments. We selected a stratified random
sample of 100 loan commitments approved (out of 313 loan commitments)
in fiscal years 1990 through 1996 that had funding advances. We
included all loan commitments of $15 million and above (20 loans)
given to entitlement communities and states, all loan commitments to
nonentitlement communities (23 loans), and a random sample of the
remaining loan commitments to entitlement communities and states (57
of 270 loans). We appropriately weighted the information to take
into consideration the stratification used to select loan
commitments.
Since we used a sample (called a probability sample) of loan
commitments to develop our estimates, each estimate has a measurable
precision, or sampling error, that may be expressed as a plus/minus
figure. A sampling error indicates how closely we can reproduce from
a sample the results that we would obtain if we were to take a
complete count of the universe using the same measurement methods.
By adding the sampling error to and subtracting it from the estimate,
we can develop upper and lower bounds for each estimate. This range
is called a confidence interval. Sampling errors and confidence
intervals are stated at a certain confidence level--in this case, 95
percent. For example, a confidence interval at the 95-percent
confidence level means that in 95 out of 100 instances, the sampling
procedure we used would produce a confidence interval containing the
universe value we are estimating.
To determine HUD's monitoring of the program, we conducted a
telephone survey of HUD community planning and development officials
in HUD field offices responsible for monitoring loan fund commitments
in our sample. This resulted in our interviewing HUD officials in 30
of 44 field offices. We also obtained and reviewed HUD reports of
the most recent monitoring activities performed on the CDBG
communities or states that held the respective loan commitments.
Using the information collected about the sample of 100 loans, we are
able to provides estimates for the 313 loan commitments approved in
fiscal years 1990 and 1996 which had funding advances. Appendix IV
provides the sampling errors of estimates, referred to in this
report, that were made from the above mentioned data collection
instruments. In contrast, information obtained from the 30 of 44
field offices is not projectable to the program, as a whole.
However, we were able to describe these offices in terms of the
number of loan commitments for which they were responsible.
--------------------
\5 The fiscal year 1996 contains program results for 1995 and 1996.
HUD FIELD OFFICES SURVEYED
=========================================================== Appendix V
(See figure in printed
edition.)
(See figure in printed edition.)Appendix VI
COMMENTS FROM THE DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
=========================================================== Appendix V
(See figure in printed edition.)
(See figure in printed edition.)
GAO's Comments
1. We revised the title of the report after we sent it to HUD for
comment.
2. We added a discussion of HUD's view of the underwriting
guidelines to the text and at the end of the report. As we point
out, although HUD may not regard the collateral guidelines as
mandatory, the associations we spoke with perceived that they will be
required. We believe the program may benefit if HUD would open and
maintain a dialogue with communities as it develops these guidelines
to ensure that they are understood and not viewed as an obstacle to
using the program.
3. HUD's comment addressed the first part of our second
recommendation. HUD noted that the distribution of oversight
information needed by the field offices must be comprehensive and
that, while HUD has improved in this area in recent years, the
current system--as our report points out-- is inadequate to
accomplish that result. HUD plans to implement our recommendation
through a design change to its integrated disbursement and
information system--a computer-based information system. As we
discussed, HUD noted that it will consult with its field offices to
ensure that the field offices are receiving the information needed
for monitoring.
4. HUD's comment addressed the first and second part of our second
recommendation. As we discussed, HUD agreed to develop procedures to
ensure that the necessary monitoring information is provided promptly
to field offices and to direct field offices to include loan
activities in their monitoring of CDBG recipients as we recommend.
We discuss this at the end of our report.
5. HUD's comment addressed our first recommendation. HUD agreed to
implement procedures to require reporting of unplanned use of CDBG
funds to make loan payments. However, our recommendation goes beyond
a reporting requirement. As we discussed, we believe that routine
tracking of these data will provide HUD and communities with useful
information on, among other things, the likelihood that communities
may need to use future CDBG funds to repay loans when other intended
revenue sources fail to materialize.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix VII
Erin Lansburgh
Signora J. May
Johnnie E. Barnes
Sherrill C. Dunbar
Alice G. Feldesman
John T. McGrail
*** End of document. ***