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Using CDBG and HOME Funds for Disaster Recovery

Highlights

In general, to assist in disaster recovery with CDBG or HOME funds, grantees may:

 - reprogram previously awarded grants to redirect their focus to disaster recovery activities,

and HUD may:

 - expedite grant awards for grantees with program year start dates coming up in the near future;
 - permit grantees with program year start dates later in the year to change to an earlier date;
 - waive regulatory and statutory program requirements (except for certain provisions) to increase the flexibility of the use of funds for disaster recovery.

Provide Regulatory and Statutory Relief in the Use of CDBG and HOME

HUD can waive regulatory and statutory program requirements to increase the flexibility of CDBG and HOME for disaster recovery.

In addition to the Secretary's authority to waive regulatory requirements, section 122 of the Housing and Community Act of 1974, as amended [42 U.S.C. 5321], authorizes the Secretary to suspend statutory requirements for use of CDBG funds in disaster areas as follows:

"For funds designated under this title by a recipient to address the damage in an area for which the President has declared a disaster under title IV of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, the Secretary may suspend all requirements for purposes of assistance under section 106 for that area, except for those related to public notice of funding availability, nondiscrimination, fair housing, labor standards, environmental standards, and requirements that activities benefit persons of low- and moderate-income."

HUD has determined that grantees may designate funds from existing or future grants to address damage in a Presidentially-declared disaster area and request the Secretary to suspend provisions of law or regulation for the purpose of making such funds available for disaster recovery activities. Such disaster suspension requests should be submitted to HUD field offices which will expedite the forwarding of such requests, together with field office reviews and recommendations, to headquarters.

Some CDBG regulatory provisions for which suspension requests might be expected include:

 - extension of the deadline for submitting the annual performance report (CAPER) when the disaster delays its completion;
 - change in the period, or extension of length of time (up to 3 years), within which to meet the 70 percent spending requirement (70 percent of expenditures must benefit low- and moderate-income persons); and
 - removal of other limitations that are not required by statute.

Some CDBG statutory provisions for which suspension requests might be expected include:

 - removal of restrictions on the repair or reconstruction of buildings used for the general conduct of government;
 - removal of prohibitions on new housing construction; and
 - modification of the limitation on the amount of CDBG funds used for public services.

When suspensions are granted, the activities being carried out with the designated funds would operate under different requirements than the regular CDBG program. Therefore, the grantee will be required to annotate its Grantee Performance Report in such a way that activities for which suspensions have been granted are distinguishable from regular program activities.

The Department of Housing and Urban Development (HUD) may suspend a number of HOME statutory and regulatory requirements to facilitate the use of HOME funds for disaster recovery. Section 290 of the HOME Investment Partnerships Act [42 U.S.C. 12840] provides such authorization as follows:

"For funds designated under this title by a recipient to address the damage in an area for which the President has declared a disaster under title IV of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, the Secretary may suspend all statutory requirements for purposes of assistance under this title for that area, except for those areas related to public notice of funding availability, nondiscrimination, fair housing, labor standards, environmental standards, and low-income housing affordability."

Thus, for HOME funds designated to address damage in a disaster area, the following are examples of HOME statutory and regulatory provisions that may be suspended under authority of Section 290 and 24 CFR 92.4:

 - requirement for written tenant selection criteria;
 - requirement for tenant participation plan, and fair lease and grievance procedures in CHDO set-aside projects;
 - maximum per-unit subsidy limits for disaster-damaged properties; and
 - requirement that assisted units meet housing quality standards for properties damaged by the disaster.

In addition, Section 220(d)(5) of the HOME Investment Partnerships Act, as amended [42 U.S.C. 12750], as implemented by 24 CFR 92.222(b) of the HOME regulations, permits HUD to reduce the match liability for participating jurisdictions (local and state) by up to 100 percent with respect to funds expended in the declared disaster area during the fiscal year in which the disaster declaration was made and for the following fiscal year.

Some requirements that normally apply to the CDBG and HOME programs are automatically excluded in an emergency situation. For example, 24 CFR 85.36 provides that the competition usually required for contracting is not needed in certain emergency situations.

Similarly, environmental amendments and release of funds are not required prior to undertaking emergency activities for temporary improvements that do not alter environmental conditions and are limited to protection, repair or restoration activities necessary only to arrest the effects of the disaster. (See 24 CFR 58.34(a)(10).) In cases in which a request for release of funds is required, if funds are needed on an emergency basis and when adherence to separate comment periods would prevent the provision of assistance, the combined Notice of Finding of No Significant Impact (FONSI) and the Notice of Intent to Request Release of Funds may be disseminated and/or published simultaneously with the submission of the Request for Release of Funds as provided for in § 58.33.

The grantee will be required to annotate and describe the activity in such a way in its consolidated plan action plan or amended action plan, as appropriate, that the activity is clearly distinguishable as a designated disaster recovery activity. The grantee should be reminded of the consolidated plan amendment requirements at 24 CFR 91.505.

State and local governments should be cautious of potential duplication of benefits and the penalties resulting therefrom (e.g., double funding from two or more government agencies of the same costs, or duplication of payments for losses paid by private insurance, etc).

Background: Eligible Use of CDBG Funds for Disaster Relief

Because the Federal government provides disaster relief, primarily through FEMA and SBA, to meet emergency, short-term recovery needs, the most appropriate use of CDBG funds is generally for longer term needs such as economic redevelopment of affected areas.

However, communities may elect to use their CDBG funds for emergency, short-term assistance if such activities are not funded by FEMA or SBA. (In many cases emergency needs will be funded by FEMA and advance payments from FEMA may be available.) Such CDBG activities typically include the following, if they are not fully covered by FEMA:

 - clearance of debris;
 - provision of extra security patrols;
 - demolition, clearance and/or reconstruction of damaged property posing an immediate threat to public safety;
 - emergency reconstruction of essential water, sewer, electrical and telephone facilities;
 - providing a variety of relief services to individuals and businesses; and
 - matching FEMA or other aid programs.

All CDBG assisted activities, including those used for emergencies, must meet one of three CDBG national objectives. Therefore, not all of the community's needs may be suitable to be met through use of CDBG funds. States and entitlement communities must spend at least 70% of their funds for activities that benefit low- and moderate-income persons. HUD may be able to extend the length of time that the recipient has to meet this requirement if needed to accommodate emergency activities that would not principally benefit such persons (see above regulatory waivers).

Each state establishes its own method to distribute funds as part of its annual application, normally submitted in March each year. Some states provide a set-aside for use in responding to emergency needs in their communities. Other states provide for flexibility of reordering funding categories in the event of a disaster occurring within the state. Those that do not may amend their programs at any time to change funding priorities for any funds that have not already been committed. Citizen participation procedures must be followed and waiver requests for such requirements are not encouraged. However, a state may put its process on a fast track commensurate with the need to provide disaster relief.

Nonentitlement local governments which already have received a grant from the state may ask the state to permit an amendment if the locality determines that the disaster has created higher priority needs. Each state has the authority to respond to such a request and each state has different applicable policies. If a state should establish a set-aside for disaster recovery, localities must of course develop applications and apply. This process also involves citizen participation but it may be accelerated consistent with the need to address an emergency situation.

Section 108 Loan Guarantees

Most entitlement and smaller communities could apply for a loan guarantee (under the Section 108 program described below) at any time, provided that HUD has not exceeded its commitment authority to make such guarantees for the year, the use the community would want to make of the funds is eligible for such assistance, and the community (or where applicable the state) has not already reached its maximum guarantee level under that program.

The Section 108 Loan Guarantee program is another source of assistance for redevelopment of affected areas. Under this program, entitlement communities can receive (in the aggregate) loan guarantees equal to 5 times their CDBG entitlement amount. Communities in nonentitlement areas can receive loan guarantees (in the aggregate) equal to 5 times the state's grant under the CDBG program. (However, the state must be willing to pledge its CDBG funds as security for loan guarantees provided to nonentitlement communities.) The maximum loan repayment period is 20 years. Grantees that have received guarantees in the past for activities that have yet not materialized may also request that HUD approve the use of those funds for other activities.

The Section 108 loan guarantees can be used to finance acquisition of real property (including related public improvements, clearance, and relocation), rehabilitation of publicly owned real property (including infrastructure such as streets), housing rehabilitation, public facilities, and economic development activities. In general, the guaranteed loan funds must be used in accordance with all of the other requirements that apply to CDBG funds received directly from HUD, including the 70 percent spending requirement discussed above. (This means that the spending of the loan proceeds must be considered together with the spending of grant funds and program income to ensure that at least 70 percent has been spent on activities that principally benefit low- and moderate-income persons within the period certified by the grantee.) Presently, the Department has no authority to waive statutory requirements for the Section 108 Loan Guarantee program.

Contact for Further Information

Your HUD State or Area Office of Community Planning and Development or call (202) 708-3587 x4538.