Financing and Requirements for Neighborhood Revitalization

Financing and Requirements for Neighborhood Revitalization

This section highlights the issues, rules, and considerations that arise when managing a neighborhood revitalization initiative. It describes the partners that will help make a revitalization program successful, identifies the financing considerations and opportunities that are present when using HOME and CDBG funds, and reviews the eligible costs applicable to these activities.

Partners

Successfully turning around a declining neighborhood will require more than an investment in the development in the neighborhood—it will require a change in how people perceive the neighborhood. Buyers, renters, new businesses, and customers will not be attracted to the neighborhood if they do not feel safe, if the community school is failing, and if public services are inadequate. Changing the perception of the neighborhood requires real change in the neighborhood, and widespread publicity about that change. In addition to the housing development partners identified in prior sections, the following partnerships will be important:

Business leaders. Businesses in the neighborhood, as well as in the surrounding community, will want to support the revitalization effort because its success will bring them new customers. Jurisdictions can call on business leaders to hire neighborhood residents, lend support to promote the commercial district, sponsor community and promotional events, and help attract new businesses to the neighborhood’s commercial district.

Community institutions, such as universities and colleges, hospitals, faith-based institutions. These institutions are not able to relocate easily, and often have a real stake in the success of the neighborhood. They can provide outreach to their constituents to promote changes in the neighborhood and market availability of housing and other opportunities generated as part of the revitalization plan.

Community residents, including civic associations, homeowner associations, and tenant associations. Resident participation in the community will be critical to its success. Involving new and existing residents, and creating opportunities for them to get to know one another and work together for the future of the neighborhood, can sometimes make the difference between sustaining revitalization efforts over the long-term, and seeing new redevelopment targeted by graffiti and other crime. Community residents should be involved early in the planning process and should continue to be involved in the actual implementation and evaluation of the revitalization effort.

Other state and local government agencies. Housing agencies will need to reach out to other agencies and work with them to improve the provision of other public services in the neighborhood. Two key areas are law enforcement and school districts, since crime and poor quality schools will deter most new buyers and businesses from investing in the neighborhood.

The media. Real work to redevelop the neighborhood’s housing stock, revitalize its commercial district, make its streets safer, and improve the quality of its schools will be for naught if the surrounding community is unaware of the real and positive changes occurring. Involving the media is key to publicizing the successes of the revitalization effort, in order to attract newcomers.

Note, some of the important partnerships in a neighborhood revitalization initiative are not formal ones, driven by program requirements. Nonetheless, these relationships should not be overlooked, as they can greatly enhance the revitalization effort.

Approaches to Financing

Two additional considerations should be made when determining the most strategic approach to using HOME and CDBG in combination to finance neighborhood revitalization. The Section 108 Loan Guarantee program provides CDBG grantees an opportunity to finance large-scale physical development projects over the course of more than one year. The availability of regulatory flexibility in neighborhoods that qualify as Neighborhood Revitalization Strategy Areas generates an opportunity for grantees to attract some households whose income exceeds the median area income to the neighborhood, among other things. Nothwithstanding the opportunities presented by these resources, for many communities and projects, the logical financial strategy, when approaching a neighborhood revitalization initiative, will be to invest HOME funds in the affordable housing component of the initiative and CDBG funds in the non-housing component. This section will review the eligible non-housing costs under CDBG.

Section 108 Loan Guarantees. Loan guarantees made through the Section 108 Program allow grantees to use their CDBG funds to undertake large projects that are often the cornerstone of revitalization efforts. Grantees can apply for loans up to five times the community’s current CDBG allocation to finance large-scale projects, typically economic development projects. The loans are financed through underwritten public offerings. HUD requires grantees to provide local collateral in addition to CDBG funds to secure the loan. The size of the Section 108 loan sends a signal to private economic interests that the project in question is worthy of investment, and as such serves as an important leveraging tool. The loan repayment period is up to 20 years.

In addition to (or in conjunction with) economic development, Section 108 loan funds can be used to finance:

  • Acquisition of real property;
  • Rehabilitation of publicly-owned real property (except for structures that are primarily for the general conduct of government);
  • Housing rehabilitation that is CDBG-eligible;
  • Construction, reconstruction, or installation of public facilities;
  • Related relocation, clearance, and site improvements;
  • Payment of interest on the guaranteed loan and issuance costs of public offerings;
  • Debt service reserves; and
  • Public works and site improvements in Colonias.

It is important for grantees to consider when Section 108 funds, rather than annual CDBG allocations, will be most appropriate to address economic development needs. In general, Section 108 funds are best used for large-scale development projects when other funding sources are not available, and when the project has a reasonably assured return on investment. Examples of large-scale economic development projects can include:

  • Neighborhood shopping centers;
  • Grocery stores;
  • Development of a mixed-use retail and housing complexes;
  • Industrial expansion; and
  • Infrastructure development and improvement.

Community Development Financial Institutions and Neighborhood Revitalization Strategy Areas/Community Revitalization Strategy Areas. CDBG allows for regulatory flexibility regarding income targeting in order to allow grantees more expansive use of program funds in order to support neighborhood revitalization strategies. This flexibility is extended to both activities funded through both Community Development Financial Institutions (CDFIs) and Neighborhood Revitalization Strategy Areas (NRSAs) or Community Revitalization Strategy Areas (CRSAs) for States.

A CDFI is a community lender that is primarily dedicated to the promotion of community development, and that serves a specific investment area or targeted population. As lenders, CDFIs provide development services and equity investments or loans, and they maintain accountability to residents within the specified investment area. CDFIs were created under the Community Development Banking and Financial Institutions Act of 1994, and cannot be public agencies or institutions. Some typical CFDIs are community development banks, community development loan funds, microenterprise loan funds, or venture capital organizations.

A CDBG grantee can create a NRSA for the purpose of developing specific neighborhood revitalization strategies to target program resources if the area meets the demographic criteria to be so identified. Regulations authorizing the development of NRSAs and CRSAs were published by HUD on January 5, 1995, and require grantees to submit NRSAs or CRSAs as either part of an original Consolidated Plan submission or as an amendment to a previously approved Consolidated Plan (see 24 CFR 91.505).

The regulatory flexibility that has been extended to activities funded through either a CFDIxi or an NRSA/CRSA include:

  • Area Benefit. Any job creation or job retention activities undertaken pursuant to an NRSA or CRSA strategy may meet the low- and moderate-income area benefit national objective requirements at 24 CFR 570.208(a)(1). This flexibility frees employers receiving CDBG assistance from tracking the income of employees or of those interviewed for a position. This administrative relief can facilitate the involvement of businesses in the job growth/job retention program.
  • Housing. Housing activities for which CDBG funds are obligated during a program year may be considered a single structure for the purpose of applying the low- and moderate-income housing benefit criteria at 24 CFR 570.208(a)(3). If a grantee elects to use this option, it must document that at least 51 percent of all housing units are occupied by low- and moderate-income households.
  • Economic Development. Economic development activities may be exempt from aggregate public benefit standards at 24 CFR 570.209(b), increasing flexibility for program design. However, such projects are still subject to the individual/project public benefit standards under the same section of the CDBG rule.
  • Public Services Cap. CDBG grantees are required to limit the expenditure of program funds on public services to 15 percent of their annual allocations, plus the prior year’s program income; however, activities funded pursuant to a HUD-approved NRSA/CRSA and carried out by a Community Based Development Organization (CBDO) within the NRSA or CRSA neighborhood are exempt from this cap. This exemption allows grantees to provide higher levels of public services to dilapidated low-and moderate-income neighborhoods, including job training and job creation.

The regulatory flexibility extended to CFDI and NRSA/CRSA activities reflects HUD’s goal of assisting communities in their efforts to involve a wide range of community partners in addressing community revitalization needs and issues across the country. Working in partnership with a local CFDI or targeting assistance to a NRSA/CRSA can provide a grantee greater flexibility to address neighborhood housing and public service needs.

  • Clearance, demolition, and removal of buildings and improvements, including the movement of a structure to another site;
  • Provision of public services (not to exceed the 15 percent cap);
  • Interim assistance to arrest the further physical deterioration of an area where further, permanent improvements will be made as soon as possible (e.g., sidewalk repair, refurbishment of public parks, special trash and debris removal services);
  • Necessary costs to complete existing Federal Urban Renewal projects;
  • Temporary and permanent relocation assistance to families, businesses, individuals, nonprofits, and farm operations, as required under 24 CFR 570.606(b) or(c), or determined by the grantee to be appropriate under 24 CFR 570.606(d);
  • Payments to cover the loss of rental income suffered by housing owners whose property is held for temporary periods for households displaced and relocated as a result of program activities;
  • Acquisition, construction, reconstruction, rehabilitation, or installation of distribution lines and facilities of a privately-owned utility;
  • Special economic development;

Eligible Costs

Since HOME funds can be used only for affordable housing, CDBG is an ideal source for paying the non-housing components of a neighborhood revitalization initiative.xii Provided the activity meets a national objective, CDBG funds can be used for activities that support the broad range of community development and neighborhood revitalization activities that have been explored in this section, including:

  • Acquisition of real property by the grantee or a nonprofit;
  • Property disposition through sale, lease, or donation of any real property acquired with program funds;
  • Acquisition, construction, reconstruction, rehabilitation, or installation of public facilities and improvements, with the exception of buildings used for the general conduct of government, as specified at 24 CFR 570.207(a);
  • Microenterprise assistance;
  • Provision of technical assistance to public or nonprofit entities to build the capacity of such entities to carry out neighborhood revitalization and economic development activities, so long as the activities proposed by such entities are eligible under the CDBG rule and can reasonably be expected to meet one of the national objectives; and
  • Provision of assistance to institutions of higher learning if and when the grantee has determined that the institution in question has the capacity to carry out one or more eligible CDBG activities. (Note, public services carried out by institutions of higher education are subject to the public service cap.)

A description of all eligible administrative costs under both the HOME (24 CFR 92.207) and CDBG (24 CFR 570.206) programs is available in Section 1.



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