Section 6: Making Strategic Investment Decisions

Making Strategic Investment Decisions

This section provides jurisdictions with an overview of the factors they should consider when combining HOME and CDBG funding in a project or program. As outlined in Section 1 of this guidebook, there are strategic options for investing HOME and CDBG funds. Part 1 of this section assists jurisdictions in making these strategic choices for programs and projects. Part 2 of this section highlights key implementation issues for effectively using these funds, such as forming partnerships, application procedures, and measuring performance.

Strategic Decisions

As demonstrated in the previous sections, there are a wide range of activities that can be undertaken with HOME and CDBG funds. Yet, many jurisdictions are not as strategic as they can be about how they invest these important and limited resources.

Some jurisdictions may use CDBG and HOME to fund all of their housing activities without discriminating based upon the best use of the money. So, for example, a jurisdiction may administer one homeowner rehabilitation program that is co-funded by CDBG and HOME. When an application is received, it may be funded by a combination of both sources or by one or the other depending upon which has the most funds available. While this approach can certainly be eligible, it may not be the most effective use of the resources.

There are two levels to thinking about using HOME and CDBG effectively—by program or by project. In some instances it makes sense to allocate CDBG and HOME resources by program. For example, HOME might solely be used for homebuyer assistance and CDBG might be used for homeowner rehabilitation. In other instances, it makes sense to evaluate project by project and determine how and where to use the funds. For example, a jurisdiction might evaluate a particular rental project and determine that HOME should be used to pay for the construction and CDBG for the land acquisition.

Jurisdictions typically set out their plans and priorities for investing HOME and CDBG dollars in their Consolidated Plans and Annual Action Plans. These plans involve collecting data, making program decisions, writing a document, and then sharing the written plan with the public for comment. Only after this process has been completed and HUD has approved the plans, can jurisdictions draw down HOME or CDBG funds for eligible programs and projects. Further, jurisdictions cannot fund programs or activities that are not outlined in the Consolidated Plan and Action Plan without amending the Action Plan.

So, in order to write an effective and useful Consolidated Plan and Annual Action Plan, and in order to make strategic use of HOME and CDBG funds, jurisdictions need to undertake an in-depth and timely analysis of their community development needs and desired program types.

Exhibit 6-1 highlights the key steps in making strategic HOME and CDBG investments for projects and programs. The text then tracks this chart and lays out a series of topics that are designed to assist jurisdictions to make effective HOME and CDBG funding decisions.

Communities can apply these steps in their decision-making process:

Step 1: Evaluate community needs and preferences

The first step in determining how and when to use CDBG and HOME funds is to evaluate the affordable housing and community development needs of the community. Often this analysis is conducted as a part of developing the five-year Consolidated Plan. It is important to conduct a thorough analysis of housing needs and preferences before making decisions about CDBG and HOME funding because it enables jurisdictions to invest these funds in programs and locations that will address critical community issues.

The types of information to be collected might include, but are not necessarily limited to:

  • Housing demand. This enables the jurisdiction to determine the types of programs that residents want and need.
  • Housing supply. This information covers the number and type of housing units currently available in the community. Usually jurisdictions break down the description of supply into its subsets, including owner units and types of rental units (multifamily, elderly, special needs, homeless facilities, etc.) In addition, this data often includes information about the vacancy rate for various types of units.
  • Housing cost. Information on housing cost describes how much families must pay for housing in the jurisdiction. It is often expressed as both a net number (rents or sale prices) and as a percentage of income.
  • Housing quality. This information enables the jurisdiction to determine the number and type of substandard units in its community. Often, the jurisdiction maps this information so that it can visualize where dilapidated housing is a major issue.
  • Specific neighborhood issues. The jurisdiction’s needs assessment should also include a consideration of the particular needs and concerns of specific neighborhoods. For example, the jurisdiction might have one particular neighborhood where there is an over concentration of low- and moderate-income households and where it wants to introduce mixed-income projects.
  • Income levels. This information enables the community to understand its overall poverty level and the distribution of that income. In some jurisdictions, there are a large number of very low-income people and some very wealthy people with few in the middle. In these jurisdictions, deeper subsidies might be needed to help the very low-income families. In other jurisdictions, most of the population is clustered around the median income. These jurisdictions might decide to offer more shallow subsidies to more families.
  • Local economic issues. Jurisdictions often collect data on economic issues such as employment rates, job creation, business start-ups or tax revenues as a way of measuring the economic health of their community. This information may affect decisions about CDBG and HOME because it might help to indicate what portion of these funds should be used toward neighborhood revitalization or job creation activities (CDBG).

Once the community’s needs have been identified, the stakeholders of the neighborhood can engage in a process to begin to articulate a vision and preferences for the neighborhood. Key stakeholders that should be included in this planning process include residents, business leaders and owners, institutions located in the neighborhood, and nonprofit organizations that are based or provide services in the neighborhood. Formal public meetings or hearings, opportunity to comment on plans and proposed projects, and partnerships that

actively involve stakeholders throughout the planning process are all useful methods for generating public input. The ultimate goal is to generate sufficient information and understanding of need and community desires to guide decisions about appropriate development and housing activities.

Step 2: Determine program types based upon needs and preferences

After determining the needs of the community, the jurisdiction then needs to decide which types of programs it will fund. In some communities, the types of community development programs are driven by the available funding. In other words, since HOME offers four eligible activities, the jurisdiction does four housing activities. If the jurisdiction wins lead paint abatement money or homeless program funds, it does those types of programs.

While this approach is certainly understandable, it is not generally strategic. Instead, it is recommended that the jurisdiction determine its community development needs and preferences (per the previous steps in the analysis) and then design programs that address the community’s needs. Although both CDBG and HOME have substantial compliance requirements, each also offers significant flexibility in the ways that they can be used.

A wide range of programs can be possible tools in addressing the jurisdiction’s community development needs. Options might include any combination of the following programs:

  • Rental housing. These programs are designed to build, acquire, and rehabilitate rental housing units.
  • TBRA. These programs assist individual families to pay their rent, security and/or utility deposit.
  • Homebuyer. These programs are designed to help individual families to purchase homes.
  • Homeowner rehabilitation. These programs assist existing homeowners to renovate their homes.
  • Neighborhood revitalization. These programs focus on revitalizing a specific geographic area. They are often multi-faceted including housing, commercial development, and social service programs.
  • Economic development. These programs are generally designed to address either employment or commercial revitalization issues.
  • Public services. These programs offer services to low- and moderate-income people that are designed to improve health, education, job readiness, safety or other important issues.
  • Public facilities. These are infrastructure programs that are designed to address concerns like water lines, sewer lines, streets, or community centers.

Step 3: State intended program outcomes

As a part of determining which types of programs should be offered, jurisdictions need to consider the intended outcomes of those programs. For example, two jurisdictions could each run a rental housing rehabilitation program but each might have very different intended outcomes. Jurisdiction A might be primarily concerned with the cost of standard, affordable housing and thus, its goal is to create long-term affordable rental units. Jurisdiction B might be more concerned with the blighted appearance of multifamily housing in a particular neighborhood and so its goal is to improve housing quality overall.

Both of these are perfectly acceptable outcomes of a rental rehabilitation program but each might be designed very differently. In Jurisdiction A, the community might design a program that focused on creating the maximum number of affordable rental units throughout the community. In Jurisdiction B, the community might design a program that targets rehabilitation funds to particular neighborhoods and addresses the most dilapidated units first.

It is therefore important to consider not only the type of desired program but also the jurisdiction’s intended outcomes for that program. In its Consolidated Plan or program design documents, the jurisdiction should set out what it intends each program to accomplish. In addition to providing citizens with information about program purposes, this will assist the jurisdiction to make strategic investment decisions.

There are numerous outcomes that can come from community development programs, such as:

  • Sustained affordability for low-income families;
  • Housing development to create a supply of new units;
  • Job creation or retention; or
  • Sustainability or health of community-based nonprofits.
  • Reduction of dilapidated units;
  • Serving maximum number of low- and moderate-income people;
  • Offering deep subsidies to address the needs of very low-income families;
  • Physical improvement of neighborhoods;

Step 4: Evaluate the strengths of HOME and CDBG v. intended outcomes

Once the program types and outcomes are determined, the jurisdiction can then evaluate which funding resources are most appropriate. For jurisdictions that are both CDBG entitlements and HOME PJs, this can be a matter of comparing each of the funding sources to the intended program outcomes determined in the step above.

For states, in many cases, CDBG is managed by a different state agency than HOME. CDBG is generally managed by state departments of community development or commerce. HOME is sometimes managed by state housing finance agencies. In these instances, the two state departments should collaborate and determine how the resources can best be used given needs and priorities across the state.

For the jurisdiction that is a CDBG grantee but not a HOME PJ, or who is member of a HOME consortium but who does not receive CDBG, the jurisdiction needs to evaluate its available resources and determine whether it will apply to the state for funds that it does not currently receive on its own. For example, a small entitlement community might determine that it has needs for both an economic development program and a homebuyer program. It might elect to use its local CDBG funds for economic development and apply to its state for HOME funds for housing assistance.

In evaluating whether to use HOME or CDBG to fund chosen programs, jurisdictions should evaluate the intended outcomes of those programs and determine whether this is a strength of CDBG or HOME or both. Some general strengths of CDBG and HOME include:

  • HOME can provide deep subsidies for very low-income families. Because HOME rental assistance is particularly targeted at people who are at 60 percent of median and below, it can be a good resource for addressing their needs. The maximum HOME funding limits (set by the 221(d)(3) program) are generally high for most jurisdictions and usually allow for deep subsidies if that is what is required in order to house very low-income persons. CDBG can also be used to provide deep subsidies to help very low-income people but often has so many competing demands on the dollars that it is not usually used in this fashion.
  • HOME creates long-term affordability. HOME requires long-term affordability restrictions that can help to keep housing available to low-income persons for an extended period of time. In communities where the housing market is tight and where the supply of affordable housing is limited, this can be a real benefit. Jurisdictions can elect to place long-term affordability restrictions on their CDBG dollars but this is not usually done.
  • HOME can be used to address the needs of individual renter families. HOME can be used to create a very flexible TBRA program. A TBRA program can be tailored to meet the individual needs of families and can address particular issues such as utility deposits, security deposits, or special needs populations.
  • HOME fosters the health of nonprofit housing providers. Because of its CHDO set-aside requirement, HOME has become a major resource in strengthening nonprofit organizations. CHDOs and other nonprofit developers can earn a developer fee as a part of their projects. In addition, HOME provides resources such as technical assistance and CHDO operating subsidies that further assist these organizations. Lastly, CHDO proceeds can be a major resource in funding the sustainability of nonprofits. CDBG also allows jurisdictions to fund nonprofits but it does not have a regulatory requirement to do so and it does not have some of the HOME tools to advance nonprofit capacity, such as CHDO technical assistance.
  • CDBG can be effective in addressing blight. Because CDBG allows a limited portion of its funds to be used to address dilapidated areas or structures without regard to family income, CDBG can be a strong tool in urban renewal-style activities. While HOME can certainly be used to address the needs of substandard properties, this assistance must be tied to housing for low-income people. Thus, CDBG is a good tool for rehabilitating or clearing dilapidated properties.
  • CDBG can provide shallow subsidies for many people. Unlike HOME, CDBG does not have a requirement for a minimum level of investment or a particular property standard. Thus, it can be a very good tool for specialized rehabilitation programs or programs where only minor rehabilitation is needed. In addition, because CDBG does not have these standards, it can be spread more broadly than HOME often can—by spending less and helping more people.
  • CDBG can help create jobs. CDBG contains several eligible activities that are explicitly designed to help communities create jobs and economic opportunities for low- and moderate-income persons. These activities include assistance to for-profit businesses and assistance to microenterprises. It can also be used for job training and business counseling. HOME cannot be used for economic development activities.
  • CDBG can be used for a wide range of social services and community facilities. Unlike HOME, CDBG has eligibility categories related to providing social services, such as health care, day care, substance abuse services, education, or safety services. CDBG can be used to assist the rehabilitation and development of these facilities, as well as the services themselves. These services can be combined with housing programs to offer a more complete package of assistance to low-income persons and communities. HOME can be used for some housing-related services if these services are tied to the provision of an affordable housing unit.
  • CDBG can address comprehensive neighborhood needs. Under the CDBG Program, grantees can adopt a comprehensive revitalization strategy area (state programs) or a neighborhood revitalization strategy area (entitlements). Under these initiatives, the grantee gets regulatory flexibility by agreeing to invest in specific low- and moderate-income neighborhoods. This can help to foster the redevelopment of these neighborhoods.

Step 5: Assess CDBG and HOME constraints

After evaluating the CDBG and HOME program strengths, it is important to look at their regulatory and statutory constraints. In some instances, the type of activity that a jurisdiction wishes to undertake may be ineligible under one or the other program. In other instances, the activity is eligible but it has certain requirements that make it infeasible or not cost effective for the jurisdiction to operate.

Some of the regulatory constraints to consider when evaluating the use of HOME and CDBG funds include:

  • Number and types of available partners. HOME requires that 15 percent of its funds be used to support development activities undertaken by CHDOs. In some communities, there is a lack of qualified, experienced CHDOs or there are only CHDOs with specific types of expertise. So, in deciding how to fund programs, the jurisdiction may elect to fund programs where there are available CHDOs with HOME funds and then use CDBG funds for other activities. For example, assume that Jurisdiction XYZ has only two strong CHDOs and both are experts in homeownership. The jurisdiction might elect to use its HOME funds for homeownership because it needs to spend 15 percent of its money through these CHDOs. The jurisdiction might then elect to use the balance of its HOME funds and some of its CDBG funds for rental or homeowner rehabilitation programs.
  • Eligible activities. As discussed in the activity sections, both HOME and CDBG have constraints about the types of programs that can be funded. HOME can only be used for affordable housing. CDBG can be used for housing but it can also be used for other activities such as economic development, public services, or infrastructure. So, if a community determines that it needs both a business assistance program and a rental housing development program, it might elect to fund the business program through CDBG and the rental housing program through HOME.
  • Approaches to development. It is also important to consider the ways that CDBG and HOME can be used to develop housing. As noted in previous sections, HOME can be used for new construction, rehabilitation, and acquisition of housing for low-
  • income families. CDBG cannot be used for new construction, except in very limited circumstances. So, if a jurisdiction determines that it needs new homebuyer units but that it only needs to rehabilitate its existing rental units, it might elect to spend HOME for new homeownership programs and CDBG for rental rehabilitation.

  • Low-income targeting. HOME requires that all households occupying HOME units be low-income. However, it allows for targeting of units within multifamily rental projects so that only a small portion of the units may be HOME-funded. CDBG allows for a different type of flexibility in low-income targeting. Some projects might qualify under the slum/blight national objective and thus there is no low-income targeting. However, if the jurisdiction wishes to use the low- and moderate-income benefit national objective, then every household in a single structure and one of the two households in a duplex must be low- or moderate-income. In all other structures (three or more units) at least 51 percent of the units must be occupied by low- or moderate-income households, with one exception for projects that assist new construction of non-elderly rental units. CDBG does not allow for unit-by-unit targeting of multifamily properties. When CDBG is invested and the low- and moderate-income national objective is used, 51 percent of the households must be low- or moderate-income. So, if a jurisdiction is doing multifamily housing and it wants to focus on mixed-income developments where only a small portion of units are assisted, HOME may be the better resource. CDBG funds could then be used for other activities.
  • Ongoing compliance. Both HOME and CDBG require that jurisdictions keep records documenting eligible activities. However, as noted above for HOME, the jurisdiction must continue to document eligibility during the affordability period. For rental properties, this means documenting tenant incomes, rents, and unit quality over time. CDBG does not have any ongoing requirement for documenting compliance. So, jurisdictions need to evaluate their staffing resources and capacity to ensure ongoing compliance. If the jurisdiction does not have sufficient resources to oversee these long-term tasks, it may wish to use CDBG to develop rental properties and use HOME for activities such as homeowner rehabilitation (which has no affordability period) or homebuyer assistance (which typically has shorter affordability periods and no ongoing inspections).
  • Administrative burden. As noted in previous sections, HOME and CDBG generally handle project-related delivery costs differently. Under CDBG, grantees may charge the agency’s direct costs of delivering an eligible activity to that activity itself. Under HOME, the agency’s direct delivery costs can only be charged to projects when those costs can be applied to specific projects and activities, and the jurisdiction maintains documentation to demonstrate that they are direct costs. Further, HOME general administration is limited to 10 percent whereas CDBG allows 20 percent. So, if a jurisdiction does not have systems that readily allow it to track staff time and expenses to specific projects, it may want to consider doing more time-intensive projects with CDBG funds. For example, for many programs, homeowner rehabilitation requires a significant amount of staff time. Agency staff market the program, analyze homeowner applications, review work item specifications, and may be involved in inspections. If the homeowner program is of a large volume, this can require extensive staff time. If the jurisdiction’s cost and time tracking systems do not track to each of these properties, it may wish to use CDBG funds to pay for the homeowner rehabilitation. CDBG could pay for the program delivery costs directly (not under its administrative cap). HOME could then be used for other types of housing programs where the direct project costs are less. Alternatively, the direct costs of the rehabilitation program could be funded with HOME funds, and certain project delivery costs could be paid with CDBG as a HOME-related housing service.
  • Match. The HOME Program requires that PJs provide match in an amount equal to no less than 25 percent of the total HOME funds drawn down for project costs. Match is a permanent contribution to affordable housing. CDBG has no such match requirement. When jurisdictions are evaluating their funding options, they need to consider the match obligations that they will be incurring and determine whether projects in this type of program are likely to generate match. For example, homeowner rehabilitation programs do not usually generate a great deal of match unless the owner has invested funds in the rehabilitation. So, jurisdictions need to carefully consider how they invest their HOME funds in order to ensure that sufficient match credits are earned.
  • Timeliness. Both CDBG and HOME have requirements related to timeliness. Under HOME, the PJ must commit funds within two years and spend funds within five years. Under the entitlement CDBG program, the grantee must have no more than 1.5 times its annual allocation in its line of credit 60 days before the end of its program year. Jurisdictions should consider how to use CDBG and HOME so that these timeliness criteria are met. Over time, jurisdictions should periodically check their status on timeliness and change program design in order to address these issues, as needed. For example, assume that a jurisdiction is successfully committing its HOME funds within two years but it is nearing the end of its program year and it has 1.9 times its grant sitting in its CDBG line of credit. The jurisdiction might then decide to fund the next several rental activities with CDBG, assuming that the Consolidated Plan and Annual Action Plan allowed for these types of investments.

Sometimes the funding source constraints are not regulatory but rather are financial. Some jurisdictions are CDBG entitlements but not HOME PJs. In this instance, the grantee will need to decide whether or not it is cost effective for them to spend resources to apply to the state for HOME funding, especially if HOME funds are in high demand. Other jurisdictions may be both HOME and CDBG recipients but the amount that they receive under one program or other will help to dictate how those funds are most effectively spent.

Step 6: Determine whether program should be co-funded with HOME and CDBG

Once the jurisdiction has evaluated its needs and goals and the relative strengths and constraints of HOME and CDBG, it is time to determine which community development program should be funded with which funding source. In some cases, the jurisdiction will determine that an entire program should be funded by just one source. For example, the jurisdiction might fund all homeowner rehabilitation with CDBG.

In other cases, the jurisdiction will determine that both funding sources can play an effective role in addressing various elements of a particular program type. For example, a jurisdiction might decide that both CDBG and HOME have a role to play in developing rental housing or providing homeownership assistance.

In determining whether programs should be co-funded by CDBG and HOME, the jurisdiction should evaluate whether each funding source—given its constraints— has an important role to play in that type of program. If HOME or CDBG have a clear advantage in funding a particular type of program, then that should help to dictate the source of program funds. If neither funding source has a clear advantage, the jurisdiction might elect to co-fund the program with both CDBG and HOME and then make specific funding decisions based on individual project circumstances.

Step 7: If co-funded program, evaluate each project to determine appropriate uses of funds

If the jurisdiction has elected to fund some or all of its community development programs with both CDBG and HOME, it will need to make project-by-project decisions on investments. As each project is proposed, the jurisdiction should analyze that project using the following questions:

  • What is eligible under each program? This question will help the jurisdiction to determine which components of the project to cover with HOME and which to cover with CDBG.
  • What total and type of resources are available? This will assist the jurisdiction to determine the relative amounts that can be invested from each funding source.
  • What are the opportunity costs of funding with each resource? “Opportunity cost” is a term borrowed from economics that means the other opportunities that cannot be undertaken because finite resources will be invested in this particular effort. Jurisdictions should ask themselves this question in order to make sure that today’s project will not interfere with tomorrow’s initiative. For example, if a jurisdiction invests all of its CDBG funds in a rental housing project, it will not have funds for the economic development project it also wishes to undertake.
  • Are there regulatory benefits of combining programs in this project? This question will assist the grantee to determine whether there is any benefit to combining the funding sources in this project. For example, HOME cannot be used for off-site infrastructure and CDBG cannot generally be used for new construction. But they can be used together to develop a new housing subdivision.
  • What are the regulatory detriments of combining programs in this project? This question helps the jurisdiction to determine whether there are any negative impacts on the project because HOME and CDBG are combined. For example, if a jurisdiction wants to do mixed-income, rental rehabilitation, it needs to consider that unless it can qualify the property under the slum/blight national objective, using CDBG for the financing means that 51 percent of the occupants must be low- or moderate-income.
  • What is the impact on project feasibility? Sometimes projects need different types of financing in order to be viable. However, because some financing comes with certain strings attached, it can have an effect on project feasibility. For example, if HOME is invested in all units in a project, those units would need to rent for the HOME rents. These lower rents might mean less income to the project and, in turn, this might mean that the project is not financially feasible.
  • What is the impact on project administration? As noted above, HOME requires long-term affordability restrictions. This means that the jurisdiction must monitor the project over this period. So, jurisdictions should evaluate whether they are prepared and able to monitor the project given its size and complexity. For example, the PJ may not have the resources to monitor a 300-unit affordable housing project.
  • Does the project meet the tests for subsidy layering? Lastly, the jurisdiction needs to determine whether the investment of HOME is needed given project finances. Although CDBG does not have a subsidy layering requirement, it is prudent to undertake a similar analysis.

Administering Programs

Once jurisdictions have decided to use HOME and/or CDBG funds to finance a project or program, there are some implementation variables to consider, including:

  • Administering programs;
  • Choosing projects and partners;
  • Setting up adequate financial systems;
  • Developing efficient reporting and record keeping systems; and
  • Reviewing performance and compliance.

Administering Programs

Determining whether staff are available to help plan and implement projects is critical to ensuring that programs are effective and reach their intended goals. Neither the HOME Program nor CDBG dictate the approach that jurisdictions must use to implement their programs. Instead, jurisdictions must make choices about who will administer and implement their HOME and CDBG programs. Programs may be administered by:

  • Jurisdiction staff;
  • Subrecipients;
  • Contractors;
  • Community Housing Development Organizations (CHDOs), under the HOME Program. Note, when administering a program, a CHDO is acting as a subrecipient and this not a set-aside activity; and/or
  • Community Based Development Organizations (CBDOs), under the CDBG Program. Note, a CBDO is not a subrecipient by definition, but may be designated as a subrecipient by the grantee.

Some jurisdictions administer their programs with few staff and a large number of subrecipients while others use jurisdiction staff primarily, and few subrecipient organizations. Factors which tend to affect the degree to which jurisdiction staff are relied upon more heavily for project functions include:

  • Types of projects undertaken;
  • Local politics;
  • Capacity of in-house staff; and
  • Capacity and availability of subrecipient organizations.

Determining the appropriate staffing for HOME and CDBG programs may require:

  • Conducting a skills inventory of staff members;
  • Developing a list of required skills;
  • Assessing where gaps exist between current staff skills and required skills; and
  • Undertaking the appropriate training, capacity building, and staff expansion necessary to administer the projects.

Based on the jurisdiction’s analysis of staffing capacities and upon project needs, the jurisdiction must determine whether and/or to what extent it will work with subrecipients, contractors, CHDOs, or CBDOs.

Choosing Projects and Partners

There are a variety of approaches that jurisdictions may use to select HOME and CDBG projects and partners. Note, however, that contractors must be selected in accordance with the procurement requirements of 24 CFR Part 85 (or 24 CFR Part 84 for subrecipients).

There are four basic models upon which the project or partner selection process can be based; however, different variations of these approaches may be necessary or appropriate to meet community needs. These models are discussed below.

Formal Application Process. The formal application process requires the submission of a formal application or proposal, and is typically undertaken once a year in conjunction with the jurisdiction’s planning and budgeting process. Under the formal application process, applications are evaluated based on explicit selection criteria. This process works best in communities with:

  • Numerous or complex activities;
  • Numerous potential applicants with varying degrees of experience;
  • Size of the community/jurisdiction and of the grant   
  • Limited funding and increasing competition; or amounts;
  • Politics or other community issues requiring standardized, consistent treatment of all requests for funding.

Limited Application Process. The limited application process is similar to the formal application process, but the application is not as detailed and jurisdictions provide more follow-up and hands-on involvement in the process.

  • Jurisdictions may review the applications and narrow the number of applications under consideration before requesting additional detailed information from the applicants.
  • This approach may be useful for jurisdictions interested in encouraging the participation of potential applicants who may not be familiar with the project or the application process, or when the jurisdiction’s program is not complex.

Solicitation of Applications from Qualified Organizations. Jurisdictions may identify potential qualified applicants through an informal process or

through a general request for qualifications (RFQ). From the identified group, jurisdictions identify organizations to carry out specific activities and approach the organization about their interest in doing so.

“Open Door” or Unsolicited Application Process. The “open door” process encourages or allows consideration of requests from applicants at any time during the year, and may or may not include an actual application. If jurisdictions decide to use the “open door” approach as its only means of accepting applications, they must ensure that all applications are treated consistently and that the same types of information are received and reviewed by jurisdictions.

Table 6-1 summarizes the major advantages and disadvantages of the four methods for choosing partners for HOME and CDBG projects.

Table 6-1: Choosing HOME and CDBG Projects

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Type of Process

Advantages

Disadvantages

Formal Process

(Such as a Notice of Funds Availability or a Request for Proposals)

  • Requires applicants to provide all the information needed regarding the organization’s capacity and experience
  • Helps to ensure consistency throughout the evaluation process
  • Tends to favor more experienced applicants
  • Requires substantial jurisdiction staff time to ensure consistency throughout the process
  • Limits new applicants to one chance per year

Limited Application Process

(Such as an Assisted Request for Proposals)

  • Process is more open
  • May attract new applicants and new ideas to the project
  • Shifts the responsibility for determining capacity and experience to the jurisdiction
  • May require more jurisdiction staff time
  • May not ensure the consistency and fairness that is more evident in the formal process

Solicitation of Applications (Such as a Request for Qualifications)

  • Proactive and more focused on qualified organizations
  • May result in less jurisdiction staff time to administer
  • Much more “closed door”
  • Can result in criticism of the jurisdiction selection process
  • Lesser known, but possibly equally capable organizations may be overlooked

“Open Door” Process

  • May allow opportunities for jurisdictions to more quickly respond to community needs
  • Process is unplanned
  • May require crucial staff time and effort to respond because applications may come in at any time
  • May allow the commitment of funds to projects before qualified applications are received
  • Tends to result in budget changes and project amendments throughout the year

Setting Up Adequate Financial Systems

As jurisdictions begin to think about designing financial systems for their HOME and CDBG programs, there are some key principles of financial management that should be considered. These key principles of financial management are:

  • Protecting funds, property and other assets against loss or misuse;
  • Recording receipt and use of funds to be able to account for where all funds came from and how all funds were used;
  • Recording assets and liabilities to be able to account for what is owned and what is owed;
  • Retaining source documentation to support receipt and use of funds;
  • Ensuring that fund expenditures are consistent with the budget, as it may have been amended, and are not in violation of any of the restrictions or prohibitions that apply to the Federal assistance;
  • Managing cash effectively to avoid unnecessary borrowing costs and to take proper advantage of opportunities to earn interest;
  • Ensuring that costs are reasonable and properly allocated;
  • Reporting complete and current financial results to permit an accurate assessment of financial results; and
  • Using audits to strengthen financial management systems.

In order to comply with these requirements, seven elements must be present in a jurisdiction’s or subrecipient’s financial management system:

  • Accurate, current, and complete disclosure of the financial results of each Federally-sponsored program, including sources and application of funds.
  • Comparisons of outlays with budgeted amounts for each award.
  • Sound internal controls over purchases, cash disbursements, and cash receipts, including segregation of duties and proper authorization and approvals of transactions.
  • Periodic internal and external audits or evaluations.
  • Record retention policies.
  • Documentation of accounting policies, particularly those pertaining to cost charging, timesheet preparation, and procurement.
  • An accounting system that meets the following requirements:
    • Segregation of unallowable costs from allowable costs;
    • Segregation of direct from indirect costs;
    • Proper assignment and allocation of costs to functional classifications;
    • Matching of income and applicable credits with associated expenditures;
    • Timely reconciliation of accounts and subsidiary ledgers;
    • Time-charging systems that allocate labor costs among program activities and comply with OMB Circular A-87 or A-122, as applicable;
    • Consistency in accounting treatment over time and from one function or award to another;
    • Timely and accurate financial reporting; and
    • Maintenance of proper supporting documentation for all transactions, estimates, and calculations.

    Reviewing Program Performance and Compliance

    Performance measurement is an organized process for gathering information to determine how well programs and projects are meeting needs, and then using that information to improve performance and better target resources.

    It is important for jurisdictions to periodically review their programs to ensure production and accountability, and to ensure compliance with HOME, CDBG, and other Federal requirements. In addition, reviewing program performance is not a one-time event; jurisdictions should conduct a thorough review of their programs at least annually to make sure the programs remain an effective source of services for low-income households.

    There are several reasons jurisdictions should consider using performance measurement as a tool to better manage their programs. These reasons include:

    • Much of the data needed to improve performance is already being collected by staff members or through computerized systems such as IDIS.
    • The jurisdiction’s capacity to utilize program funds more effectively will make it possible to stretch HOME and CDBG dollars to assist more low-income households.
    • Having good information and being able to demonstrate success allows jurisdictions to promote and defend their programs to elected officials and the public in general.
    • Reviewing program performance can allow for better informed long-range planning, and it may generate data that will simplify preparation of the Consolidated Plan and annual reports.
    • Reviewing program performance helps jurisdictions detect and address errors or problems, which can otherwise be both costly and frustrating.

    One way that jurisdictions can demonstrate program effectiveness is to establish a system to formally monitor their programs and track progress. There are two ways to conduct a program monitoring review— desk review and on-site review.

    Desk Reviews. Desk reviews are a key component of basic monitoring activities. They involve examining information and materials provided to jurisdictions by funding recipients, as a means to track performance and identify potential problem areas.

    Staff performing desk reviews should examine progress reports, compliance reports and financial information, to adequately assess performance and look for indicators of performance or compliance problems. If questions or concerns arise from the review, staff should gather additional information through telephone calls or additional documents and other written materials.

    On-Site Reviews. There are three steps that comprise the basic framework of conducting an on-site program monitoring review. Jurisdictions should use these steps as guidance when undertaking on-site reviews, including reviews of subrecipients.

    • Step 1: Prepare for the Monitoring Visit. Before the monitoring visit, jurisdictions should make sure staff is adequately trained for this task. Staff should be thoroughly familiar with the applicable program rules and the established monitoring protocol. In addition, staff should review the following types of in-house data prior to the visit:
      • Application for funding;
      • Written agreement;
      • Progress reports;
      • Draw-down requests;
      • IDIS reports;
      • Correspondence;
      • Previous monitoring reviews; and
      • Copies of audits.
    • Step 2: Conduct the Monitoring Visit. There are four basic elements to conducting an on-site monitoring visit:
      • Notification—jurisdictions should call funding recipients to explain the purpose of the visit and to agree upon dates for the visit. A formal notification letter should follow at least several weeks before the planned visit.
      • Entrance conference—jurisdictions should hold an entrance conference at the beginning of the site visit with the top official of the organization to make sure everyone has a clear understanding of the purpose, scope, and schedule for the visit.
      • Documentation, data gathering and analysis— jurisdictions should keep a clear record of information reviewed and conversations held with staff during the visit.
      • Exit conference—jurisdictions should meet again with the top official of the organization at the end of the visit to present any preliminary results and to secure any additional information to clarify or support the programs that were reviewed.
    • Step 3: Follow-Up. At the end of the process, jurisdictions should provide the funding recipient with formal written notification of the results of the monitoring review. This letter should both point out problem areas and recognize successes.

    Corrective Actions. Jurisdictions are responsible for taking appropriate actions when performance problems arise. Written agreements should be the primary mechanism for enforcement in situations of noncompliance.

    There are three increasingly serious stages of intervention. A jurisdiction’s response to monitoring findings will depend upon the seriousness of the performance problem.

    • Stage 1: Low-level Intervention. At this stage, jurisdictions should clearly identify problem areas and required corrective actions; plan a strategy with the funding recipient that includes any training or technical assistance that may help address identified problems; require more frequent or more thorough reporting; or conduct more frequent monitoring reviews.
    • Stage 2: Moderate-level Intervention. Jurisdictions may need to take increasingly tougher steps such as restrict payment requests; disallow certain expenses or require repayment of funding provided for certain expenses; or impose probationary status.
    • Stage 3: High-level Intervention. Jurisdictions must take the most serious actions to put an end to performance problems. Suggested steps during this stage include: temporarily suspend the organization from participation in either the HOME or CDBG program; do not renew the organization or activity for the next program year; terminate the organization or activity from the current program year; or initiate legal action.

    Incorporating Training and Technical Assistance. As stated earlier, reviewing program performance should not be a one-time event. To be an effective tool for avoiding problems and improving performance, monitoring should be an ongoing process of planning, implementation and follow-up.

    In order to avoid future problems with funding recipients, training and technical assistance should be an ongoing feature of jurisdiction programs. There are three basic approaches, that taken together, focus on enhancing performance and reducing common problems among funding recipients.

    • Orientation sessions, typically held at the beginning of a funding cycle, provide a forum for discussing basic requirements and procedures, and to discuss expectations about performance.
    • Training, typically aimed at larger audiences, focuses on specific issues and provides sufficient technical detail necessary for funding recipients to understand and implement program requirements. Training should be held throughout the year, and should enhance performance and long-term capacity of funding recipients.

    Technical assistance, typically provided in a one-on-one or small group setting on-site, is designed to correct a specific weakness or to improve the quality or performance of a specific program already underway.



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