CDBG Administrative Requirements and Caps

CDBG Administrative Requirements and Caps

Administrative Cap

Under the Entitlement Program, up to 20 percent of each year’s CDBG grant plus program income can be obligated for planning and administrative costs. Program administration costs are costs related to the overall planning and execution of CDBG-assisted community development activities. Planning and administration costs subject to the cap do not include staff and overhead costs directly related to carrying out eligible activities since these costs are eligible as part of those activities.

The administrative cap is applied differently in the State CDBG Program. Under this program, a state may use $100,000 plus up to 3 percent of its grant and program income for the state’s administrative and technical assistance costs. All costs within the 3 percent that are used for administration must be matched by the state. Note that the CDBG statute was changed on January 23, 2004 to combine the state administrative, planning, and technical assistance caps and allow states to expend up to 3 percent for these costs. States are encouraged to review Section 106(d) of the Housing and Community Development Act of 1974 (42 U.S.C. 5306(d)) as amended for more information on this change.

The state may also allow units of local government to charge administrative and planning costs. Local activity delivery costs can, at the State’s option, be classified as administrative or project delivery costs. The sum of the state’s administrative expenses and the unit of local government administrative expenses may not exceed 20 percent of the state’s grant and program income.

Note that while the Entitlement Program bases its administrative and planning cap on obligations, the State Program bases its cap on expenditures of CDBG funds. Also note that timeframe for the cap is calculated differently for the State CDBG Program than for the Entitlement Program. While the Entitlement Program considers obligations during the 12-month program year, the State CDBG Program considers expenditures as a percentage of each annual grant allocation.

Low- and Moderate-Income Benefit Expenditures

Low- and moderate-income persons are those with incomes below 80 percent of the median income for the entire metropolitan area. Entitlement grantees may use one of the following three definitions of income; state grantees may choose to follow one of these definitions or they can choose their own income definition. HUD will give maximum feasible deference to the state’s choice.

  • Part 5 annual (gross) income;
  • IRS adjusted gross income; or
  • Census long form annual income.

As noted above, the primary objective of the CDBG Program is the development of viable communities principally for low- and moderate-income persons. To meet the primary objective, the CDBG regulations require that grantees expend not less than 70 percent of CDBG funds for activities that benefit low- and moderate-income persons. In addition:

  • Planning and administrative costs are excluded from the low- and moderate-income benefit calculation.
  • Activities meeting this requirement are those that qualify under one of the four low- and moderate-income Benefit National Objective categories:
    • Area basis;
    • Limited clientele;
    • Housing activities; or
    • Job creation and retention

Program Income

Program income is the gross income received by the grantee and its subrecipients directly generated from the use of CDBG funds. In general, program income must be used prior to drawing down additional funds from the line of credit. One exception to this rule is funds in a revolving loan fund. Program income includes:

  • Proceeds from the sale or lease of property purchased or improved with CDBG funds;
  • The percentage calculation is based on aggregate CDBG expenditures over a period specified by the grantee (up to three years) in a certification to HUD.
  • Proceeds from the sale or lease of equipment purchased with CDBG funds;
  • Gross income from the use or rental of real or personal property acquired, constructed, or improved by the grantee (or a subrecipient), less costs incidental to the generation of income;
  • Payments of principal and interest on loans made using CDBG funds;

Public Services Cap

The CDBG statute and regulations limit the amount of funding that can be used for public service activities. The limit is based on obligations for public services for a given program year and cannot exceed:

  • 15 percent of that program year’s entitlement grant; plus
  • 15 percent of the preceding year’s program income.

Under the State CDBG Program, the public services cap is calculated differently. States may not expend more than 15 percent of a given fiscal year’s annual allocation plus 15 percent of the program income distributed by the state. Note that the 15 percent cap applies to the state, not to the individual local governments receiving State CDBG funds. A state could make a grant to a town solely for public service activities.

Public services carried out by subrecipients or units of general local government are subject to the grantee’s 15 percent cap. However, some public services may qualify in another CDBG eligible activities category. For example, job training for a specific position within a company where jobs are being created may be counted as economic development, rather than public service.

  • Proceeds from the sale of loans or obligations secured by loans made with CDBG funds;
  • Interest earned on program income pending its disposition (Note, interest earned on revolving loan funds must be remitted to the U.S. Treasury at least annually); and
  • Funds collected through special assessments on properties not owned and occupied by low- and moderate-income households in order to recover the CDBG portion of a public improvement.

Note that program income does not include income earned on grant advances from the U.S. Treasury, except interest on lump sum draw downs. The following types of income earned on grant advances must be remitted to the U.S. Treasury: interest earned from the investment of the initial proceeds of a grant advance; interest earned on activities determined to be ineligible; and interest earned on the investment of amounts reimbursed to the CDBG program account prior to the use of the reimbursed funds for eligible purposes. Also, for the purposes of calculating the program income for the recipient as a whole, payments made by subrecipients of principal and/or interest on CDBG-funded loans received from grantees shall be excluded if such payments are made using program income received by the subrecipient. The amount of program income derived from this calculation shall be used for reporting purposes and in determining the limitations on CDBG planning/administration and public service activities.

Program income also does not include:

  • Any income received in a single program year by the grantee and its subrecipients, that does not exceed $25,000. For the state CDBG program this is based upon whether no more than $25,000 is retained by a unit of general local government and its subrecipients;
  • Income generated by certain Section 108 activities (refer to 24 CFR 570.500(a)(4)(ii) or 570.489(e)(2(iii));
  • Proceeds from subrecipient fundraising activities;
  • Funds collected through special assessments to recover non-CDBG outlays of capital improvements; and
  • Proceeds from the disposition of real property that was acquired or improved by a subrecipient with CDBG funds and disposed five years or more after the expiration or closeout of the grantee’s agreement with the subrecipient. In the subrecipient agreement, the grantee may choose a longer timeframe during which any CDBG related proceeds to the subrecipient would remain program income. (Certain conditions apply. See 24 CFR 570.503(b)(8) for more information on entitlement programs. See 24 CFR 570.489 for more information on program income for State CDBG Programs.) Unless a grantee closes out its participation in the CDBG program, proceeds to a grantee from the disposition of real property are considered program income in perpetuity. (See 24 CFR 570.505 and 570.489(e)(3)(i) for additional information.) Note that the State CDBG requirements are comparable to the entitlement requirements except that there is no explicit requirement for a subrecipient agreement.

Timely Use of Funds

It has become increasingly important for grantees to spend CDBG funds in a timely manner. Timely use of funds, in times of tight budgets, demonstrates that CDBG funds are being used to address unmet community development needs. Under the provisions of 24 CFR 570.902(a) of the CDBG regulations, an entitlement grantee is considered to be timely, if 60 days prior to the end of the grantee's program year, the balance in its U.S. Treasury Department line-of-credit does not exceed 1.5 times the annual grant for its current program year. An entitlement grantee that is “newly untimely” (i.e., met the 1.5 standard at its last 60-day test) has 12 months to become timely. If that grantee is not timely at its next 60-day test, there are two possible exceptions:

  • It is currently spending at a 12-month rate that, if continued, would bring it into compliance by the following 60-day test, or
  • HUD determines that the untimeliness resulted from factors beyond the grantee’s reasonable control.

If a grantee does not meet the first possible exception, it will have the opportunity, at an informal consultation, to provide information as to why its lack of timeliness is for reasons beyond its reasonable control. After that consultation, HUD will consider the information provided by the grantee and, if a determination is made that, in fact, conditions were not beyond the grantee’s reasonable control, the grantee will be subject to a reduction of the total amount by which it exceeded the 1.5 threshold.

States’ timeliness is currently based on its timely distribution of funds to units of general local government. In accordance with 24 CFR 570.494(b)(1), a state is considered timely if it obligates and announces all of its grant within 15 months of the state’s execution of its grant agreement.

Pre-Award Costs

Under certain conditions, CDBG grantees and their subrecipients may incur costs prior to the effective date of their CDBG grant agreement with HUD. The effective date of the grant agreement is the program year start date, or the date that HUD receives the Consolidated Plan, whichever is later. Costs may be incurred as of the date that the final Consolidated Plan is made public.

Grantees can incur any eligible cost provided it meets certain conditions:

  • The activity for which the costs are being incurred is included in a consolidated plan action plan or an amended consolidated plan action plan prior to the costs being incurred;
  • Citizens are advised of the extent to which these pre-award costs will affect future grants;
  • The costs and activities funded are in compliance with the CDBG regulations and the environmental review requirements;
  • The State CDBG Program places no restrictions on pre-award costs. States can authorize pre-award costs for their state grant recipients.
  • The activity for which payment is being made complies with the statutory and regulatory provisions in effect at the time the costs are paid for with CDBG funds;
  • CDBG payment will be made during a time no longer than the next two program years following the effective date of the grant agreement or amendment in which the activity is first included, unless otherwise excepted by the HUD Field Office; and
  • The total amount of pre-award costs to be paid during any program year is no more than 25 percent of grant amount for that year or $300,000, whichever is greater, unless otherwise excepted by the HUD Field Office.

Part 3: General Program Comparison—HOME versus CDBG

Table 1-2 provides a general comparison between the HOME and CDBG programs so that grantees are able to identify the similarities and differences between the two programs. Note that this chart provides a summary of the requirements and jurisdictions should refer to the detailed sections of the guide and to the program regulations and statutes for more information.

 

Table 1-2: A Comparison of HOME and CDBG

 

HOME

CDBG

 

Organizational Issues

 

Recipient

PJs (States, counties, localities, consortia).

Grantees (States, metropolitan cities, urban counties).

Key Partners

CHDOs, nonprofit and for-profit housing developers, private lenders.

CBDOs, nonprofit and public organizations, nonprofit and for-profit housing developers, nonprofit organizations serving the development needs of non-entitlement areas, private lenders. (24 CFR 570.204, 570.300, 570.420, 570.480, 570.500(c), 570.700)

Projects Under State Programs

States can directly undertake projects or they can work through local governments or nonprofits. States can fund projects anywhere in the state, including in PJs.

States must fund projects via units of general local government. States cannot make grants to local governments that are Entitlements.

Nonprofit Set-Aside

PJs must spend at least 15% of their annual allocations on development projects undertaken by CHDOs.

None.

 

HOME

CDBG

Special Nonprofits

Community Housing Development Organizations (CHDOs): nonprofit development organizations with a board that is at least 1/3 representative of low-income residents.

Community Based Development Organizations (CBDOs) and nonprofit organizations serving the development needs of non-entitlement areas. These organizations undertake community economic development, neighborhood revitalization, and/or energy conservation. Under the Entitlement Program, the CBDO board is at least 51% representative of low-income residents.

Subrecipients

Any nonprofit or outside public entity that administers all or part of a HOME activity on the PJ’s behalf.

A public or private nonprofit agency, authority, or organization, not including CBDOs.

A for-profit entity carrying out microenterprise activities under 24 CFR 570.201(o).

 

Funding Issues

 

Timelines

2-year commitment, 5-year expenditure deadlines. (24 CFR 92.500(d))

Entitlement grantee must have no more than 1.5 times the amount of the current year’s formula grant 60 days prior to end of program year. (24 CFR 570.902(a)). States should obligate and announce all grant funds within 15 months of the execution of grant agreement

Match

HOME PJs must contribute at least 25¢ for every $1 of HOME funds expended during the federal fiscal year. (24 CFR 92.218-92.222)

Not required, unless imposed by grantee. (Note: some state impose a match.) States are required to match their administrative costs, capped at 3% (plus $100,000, which is not required to be matched.)

 

Eligible Activities

 

Eligible Activities

HOME funds can only be used to support affordable housing activities and projects. (24 CFR 92.1 and 92.2)

CDBG funds can be used to support affordable housing activities, along with other community and economic development activities and public services. (24 CFR 570.201-.206, statutory sections 105(a)(1)–(a)(25))

Housing-Related Eligible and Ineligible Activities

Acquisition, rehabilitation and new construction of rental and homeownership housing, direct homebuyer assistance (loans, grants, downpayment and closing costs assistance), tenant-based rental assistance.

No non-housing related activities. No assistance to public housing.

Acquisition, rehabilitation of rental and homeownership housing, direct homebuyer assistance, new construction of rental or homeownership housing when carried out by a CBDO pursuant to 24 CFR 570.204 or 105(a)(15) of the statute. Can assist public or private buildings.

         

Table 1-2: A Comparison of HOME and CDBG

 

HOME

CDBG

Refunding of Assisted Projects

No assistance to projects already funded with HOME during the affordability period after the first year.

Can provide assistance to project already assisted with CDBG, as long as new activity is CDBG-eligible.

Tenant-Based Rental Assistance

Eligible. TBRA rent subsidy formula caps tenant contribution to 30% of household’s monthly adjusted income. (24 CFR 92.209(h)).

Direct rental assistance to families is prohibited, except under limited circumstances. (24 CFR 570.207(b)(4)).

Administrative Costs

Eligible under 24 CFR 92.207. Capped at 10% of annual allocation plus program income received.

Eligible under 24 CFR 570.205 and 206. Capped at 20%. A state may use $100,000 plus up to 50% the costs it incurs for program administration, up to a maximum of 3 percent of its CDBG allocation. The State may expend up to 3% of its CDBG allocation on technical assistance activities. However, the total the State spends on both administrative and technical assistance expenses may not exceed 3% of the State's allocation. (see 570.489(a) and Section 106(d) of the statute.)

 

Low-Income Targeting

 

Income Definition

Can choose from among three definitions of income: Part 5; IRS; Census long form.

Can choose from among three definitions of income: Part 5; IRS; Census long form. State CDBG grantees can choose one of these three or their own definition.

Income Targeting— Households Served

HOME funds exclusively serve low-income households (<80% area median income). (24 CFR 92.216 and 217)

The primary objective of CDBG is to principally assist low- and moderate-income persons (<80% area median income).

All activities must meet one of three national objectives: low/moderate income benefit; elimination of slum and blight; or urgent need.

Aggregate benefits across all activities for 1-3 year period: at least 70% of funds must assist low- and moderate-income persons. 24 CFR 570.200(a)(3) and 570.484(a))

         

Table 1-2: A Comparison of HOME and CDBG

 

HOME

CDBG

Income Targeting --Rental Units

HOME allows assistance to be targeted toward particular units. Thus the HOME units could be a small percentage of the entire units within a project.

Rental projects assisted with HOME have deeper income targeting requirements with specific requirements related to renting units to very low-income households and to ensuring that initially 90% of the households assisted with rental or TBRA funds are at 60% of median and below. (24 CFR 92.216).

Unless the project meets the slum/blight national objective criteria, the low and moderate-income housing national objective will be used. For multifamily housing, 51% of the units must be occupied by low- or moderate-income households. For one-unit structures, each household must be low- or moderate-income. For two unit structures, one of the two households must be low- or moderate-income. (24 CFR 570.208(a)(3) and 570.483(b)(3)).

CDBG assistance applies to an entire multifamily project regardless of the amount of CDBG assistance. So, 51% of all units within the project must be occupied by low- and moderate-income households unless the project meets a specific exception related to certain activities designed to reduce the cost of new construction. (24 CFR 570.208(a)(3) and 570.483(b)(3)). In general, CDBG does not allow for proportional funding where the number of units is based upon the amount of CDBG funds (unless the 51% target is reached or the above-noted exception is triggered).

 

Affordability

 

Affordability Period

Applies to homebuyer and rental projects. 5–20 years depending on activity type and funding amount. (24 CFR 92.252, 92.254)

Not required. However, some projects are required to meet change of use restrictions. See 24 CFR 570.505 and 24 CFR 570.489.

Rents

High and Low HOME Rents are specified for HOME rental projects. (24 CFR 92.252(a) and (b))

If using low- and moderate-income national objective, no direct requirement for specific rent schedule, other than at least 51% of units in multifamily project are affordable to low- and moderate-income tenants. (24 CFR 570.208(a)(3) and 570.483(b)(3)). Rents must be affordable, as determined by the jurisdiction.

         

Table 1-2: A Comparison of HOME and CDBG

 

HOME

CDBG

 

Unit Requirements

 

Unit Quality

HOME property standards:

Local rehabilitation standards (for rehabilitation), and

State/local codes or standards, or if none exists, one of three national model codes, and

Model Energy Code (for new construction). (24 CFR 92.251)

No specific property standards required.

Minimum Investment

Minimum HOME investment is an average of $1,000 per unit for project.

No minimum required.

Subsidy Limit

Capped at the 221(d)(3) limits. Costs must be reasonable.

Costs must be reasonable. No maximum subsidy.

Maximum Property Value

Applies to homebuyer homes and is typically based on 203(b) limits.

No maximum property value.

 

Ongoing Compliance

 

Ongoing Monitoring

Must monitoring compliance with program rules and terms of written agreement. Must also monitor rental properties during the affordability period. Must ensure that homebuyer properties meet resale or recapture provisions.

Must document compliance with national objective and terms of written agreement. Otherwise, no ongoing monitoring. However, some projects are required to meet change of use restrictions. See 24 CFR 570.505 and 24 CFR 570.489.

Re-examinations of Income

Incomes need to be re-examined for HOME-assisted units annually, and re-verified with source documentation every five years—all new tenants in HOME units must be low-income (80 percent or lower of the area median income).

Not required under CDBG. Income is documented at the time of initial occupancy.

Unit Inspections

Rental units must be inspected during the affordability period; inspection schedule is based on size of the project. TBRA units must be inspected annually.

None required.

         


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