State CDBG Program Guide To National Objectives And Eligible Activities For Programs Chapter 2 AJ SD945E Huddoc?id=DOC 16361

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State Community Development Block Grant Program Categories of Eligible Activities  2-1

CHAPTER 2

CATEGORIES OF

ELIGIBLE ACTIVITIES

Introduction

The State CDBG program regulations (24 CFR 570.482) are minimal

compared to the more explicit CDBG Entitlement regulations (24 CFR

570.200 – .207). Since the eligible activities provisions of the HCDA

govern both the State and Entitlement programs, HUD has presented

much of the information in this chapter from the point of view of the

Entitlement regulations. (Note that there are significant differences

between the State and Entitlement programs in the areas of Planning and

Capacity Building, Program Administration Costs, assistance to

Nonprofit Development Organizations, and Technical Assistance.)

Therefore, the eligibility information presented in this Guide should be

considered as interpretive guidance. State officials may, within

reasonable limits, employ their own guidelines for interpreting the

HCDA. States may even apply more restrictive eligibility requirements

than the HCDA, providing that state restrictions are not inconsistent with

or contradictory to the HCDA. For example, the HCDA prohibits a state

from declaring certain statutorily eligible activities as ineligible for

funding in that state’s program, but allows a state to establish relative

funding priorities among types of eligible activities.

Generally, if an activity is not specified in the HCDA it is not considered

eligible under the State CDBG program. However, if Entitlement

regulations have made an interpretation that an activity is actually

eligible under the HCDA, that interpretation of eligibility may then be

applied to the State CDBG program.

Purpose

This chapter describes the many categories of activities that may be

assisted using CDBG funds. It also discusses a number of activities that

may not be assisted with CDBG funds. Guidance is provided on

documenting compliance and making the best choice for selecting the

category in which to carry out an activity when more than one may

apply.

2-2  Categories of Eligible Activities State Community Development Block Grant Program

This chapter describes separately each category of basic eligibility under

the program, in the order of their appearance in Section 105(a) of the

HCDA:

CATEGORIES OF ELIGIBLE ACTIVITIES PAGE

Acquisition of Real Property ...............................................................2-4

Public Facilities and Improvements and Privately-Owned Utilities .2-11

Code Enforcement .............................................................................2-23

Clearance, Rehabilitation, Reconstruction, and Construction of

Buildings (Including Housing) ..................................................2-27

Architectural Barrier Removal ..........................................................2-45

Loss of Rental Income .......................................................................2-48

Disposition of Real Property .............................................................2-49

Public Services...................................................................................2-51

Payment of the Non-Federal Share....................................................2-57

Relocation ..........................................................................................2-58

Planning and Capacity Building ........................................................2-60

Program Administration Costs ..........................................................2-64

Activities Carried Out through Nonprofit Development

Organizations .............................................................................2-68

Economic Development Assistance to For-Profit Business ..............2-79

Additional Applicable Requirements – Activities Funded Under

Section 105(a)(14), (15) and (17) ...............................................2-89

Technical Assistance .........................................................................2-93

Housing Services ...............................................................................2-96

Assistance to Institutions of Higher Education .................................2-97

Microenterprise Assistance................................................................2-98

In-Rem Housing...............................................................................2-102

Homeownership Assistance..............................................................2-103

This chapter also discusses activities that are specifically ineligible and

covers ways of documenting compliance with the activity selected and

how grant recipients can make the best choices, given the available

options.

The purpose of this chapter is to help ensure that grant recipients will:

(1) use CDBG funds only for activities that fall under categories of basic

eligibility authorized by the HCDA; (2) properly classify the activity;

and (3) provide adequate documentation for each activity as required by

the selected category. The importance of using CDBG funds only for

eligible activities is self-evident. The proper classification of each

assisted activity by one of these categories of eligibility is also important

because the HCDA and regulations place very different requirements on

the various eligibility categories. For example, there is a statutory and

regulatory limitation on the amount of CDBG funds that may be used for

activities assisted under the category of Public Services. Some services

State Community Development Block Grant Program Categories of Eligible Activities  2-3

that are assisted under the program may also be eligible under a category

other than Public Services and, if properly classified by the grant

recipient under another category, would not be subject to the 15 percent

public service cap.

The HCDA also places special requirements on certain categories of

eligible activities, such as Code Enforcement and Special Economic

Development Activities. An improperly classified activity may be

unnecessarily subject to additional program requirements. Conversely,

an activity may be carried out in a manner that does not meet the

requirements of the selected category but might be eligible under the

requirements of another category not selected by the grant recipient.

It should be noted that two categories of eligibility which appear in the

HCDA are not applicable to states:

 Section 105(a)(10) completion of federal Urban Renewal

projects: There are no Urban Renewal projects in

nonentitlement areas, which are still open and uncompleted.

 Section 105(a)(18) rehabilitation or development of housing

under Section 17 of the U.S. Housing Act of 1937: Section 17

of the 1937 Act has since been repealed.

2-4  Categories of Eligible Activities State Community Development Block Grant Program

Acquisition of

Real Property

The HCDA

Section 105(a)(1)

(a) Activities assisted under this title may include only –

(1) the acquisition of real property (including air rights, water rights,

and other interests therein) which is

(A) blighted, deteriorated, deteriorating, undeveloped, or

inappropriately developed from the standpoint of sound community

development and growth;

(B) appropriate for rehabilitation or conservation activities;

(C) appropriate for the preservation or restoration of historic sites,

the beautification of urban land, the conservation of open spaces,

natural resources, and scenic areas, the provision of recreational

opportunities, or the guidance of urban development;

(D) to be used for the provision of public works, facilities, and

improvements eligible for assistance under this title; or

(E) to be used for other public purposes

Eligible

Activities

The HCDA authorizes the use of CDBG funds by a state grant recipient

to acquire real property in whole or in part by purchase, long-term lease,

donation, or otherwise. In order to be considered acquisition, a

permanent interest in the property must be obtained. Long-term leases

can be considered to constitute a permanent interest for this purpose. In

the Entitlement program, policy memos have established that a lease

period of 15 years or more gives sufficient control to the acquiring party

to constitute a permanent interest.

More specifically, CDBG funds may be used under this category by:

✔ The state grant recipient,

✔ Any other public agency,

✔ A public nonprofit entity, or

✔ A private nonprofit entity

State Community Development Block Grant Program Categories of Eligible Activities  2-5

to acquire real property for any public purpose. However, the

acquisition costs attributable to a building to be used for the general

conduct of government, and acquisition of property to be used for

political activities, are not eligible.

Example

Real property to be acquired could include:

✔ Land,

✔ Air rights,

✔ Easements,

✔ Water rights,

✔ Rights-of-way,

✔ Buildings and other real property improvements, or

✔ Other interests in the real property.

Costs that may be paid for with CDBG funds under this category

include the cost of surveys to identify the property to be acquired,

appraisals, the preparation of legal documents, recordation fees, and

other costs that are necessary to effect the acquisition.

Real property acquisition under this category does not include:

❖ The cost of moveable equipment, furnishings, or machinery if

this is the principal purpose of the activity, since such items are

not real property. They may, however, qualify under another

category, such as assistance to a for-profit business, when

needed for carrying out an economic development project, or

under Public Services. (See discussion of these categories later

in this chapter.)

❖ Acquisition of property that is then expected to be donated or

sold at less than the purchase price to the same entity from

which the property was purchased. This is not an eligible

activity since it is not considered to involve a legitimate change

of ownership. (However, if land is acquired and then given or

sold at less than the purchase price to a for-profit business as

part of an economic development project, this could be eligible

under HCDA Section 105(a)(17) as assistance to a for-profit

business.”

2-6  Categories of Eligible Activities State Community Development Block Grant Program

❖ Acquisition of newly-constructed housing or an interest in the

construction of new housing, unless such housing is already

constructed and for sale on the open market at the time that a

commitment is made to use CDBG funds for such a purchase.

The prohibition of this type of acquisition is based on the fact

that such acquisition would be considered to constitute assisting

new housing construction, which is generally ineligible for

CDBG assistance.

Note: Acquisition of real property that does not meet the

limitations for eligibility under this category may be eligible for

CDBG assistance under other categories of basic eligibility. For

example, CDBG funds may be provided to private individuals

and private for-profit entities to acquire real property in the

following situations:

❖ Under certain circumstances, CDBG funds may be provided to

private individuals and private for-profit entities to acquire

property to be rehabilitated, if the property is then rehabilitated

and used or sold for residential purposes.

❖ Private non-profit entities may use CDBG funds to acquire real

property for commercial or industrial uses, and private for-profit

entities may also do so when appropriate for an economic

development project.

Complying

With National

Objectives

Acquisition of

Real Property

Qualifying an acquisition activity under one of the CDBG national

objectives depends entirely on the use of the acquired real property

following its acquisition. A preliminary determination of compliance

may be based on the planned use. The final determination must be

based on the actual use of the property, excluding any short-term,

temporary use. Where the acquisition is for the purpose of clearance

that will eliminate specific conditions of blight or physical decay, the

clearance activity may be considered the actual use of the property.

However, any subsequent use or disposition of the cleared property

must be treated as a “change of use,” under 24 CFR 570.489(j), as

applicable. If property is to be acquired for a general purpose, such as

housing or economic development, and the actual specific project is not

yet identified, the grant recipient must document the general use it

intends for the property, the national objective category it expects will

be met, and make a written commitment to use the property only for a

specific project under that general use that will meet the specified

national objective.

State Community Development Block Grant Program Categories of Eligible Activities  2-7

Acquisition of real property may qualify as meeting a national objective

in any of the ways shown in the charts that follow.

Additional

Considerations

If property acquired with CDBG funds, or any interest therein, is

subsequently transferred to another entity within five years of closeout,

the property or interest must be sold to the entity at the current fair

market value unless the property will be used for an activity that meets

a CDBG national objective. Sale proceeds would be program income.

The purchase of real property by the grant recipient or other entities

under this eligibility category is subject to the requirements of the

Uniform Relocation Assistance and Real Property Acquisition Policies

Act of 1970. Among other things, this could mean that persons

displaced as a result of the acquisition must be provided with financial

assistance. Temporary easements, acquisition from another public

agency, and voluntary offers in response to a public solicitation are

exempt from Uniform Act requirements. Reference: 24 CFR 570.488

and –.606; 49 CFR Part 24.

Since the ultimate use of the property determines how a national

objective will be met, whenever the use differs from that contemplated

at the time of acquisition, a review must be made of the new use to

ensure it will meet a national objective. When such review results in the

determination that the national objective being met differs from that

ascribed to the activity initially, an adjustment must be made to the

program records to reflect this change. If the objective claimed for the

original acquisition costs was that of benefit to L/M income persons,

and the objective being met by the new use falls under either of the

other two national objectives, the new use of the property would be

authorized only if the classification of the acquisition costs to the new

objective would not result in a violation of the “overall expenditures

certification” that the state made for the year’s allocation of funds which

the state used to fund the activity. See Chapter 4, Overall

Expenditures—Benefit to L/M Income Persons, of this Guide for further

information on this certification issue.

2-8  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  ACQUISITION OF REAL PROPERTY

Objective Qualifies If Example Additional Information

L/M Income

Area Benefit

The property will be used for an

activity the benefits of which are

available to all the residents in a

particular area that is primarily

residential, and at least 51 percent of

those residents (or fewer if the

exception criteria apply) are L/M

income persons.

Purchasing land for use as a park serving a

primarily residential neighborhood that is

predominantly L/M income.

For more information, see page

3-9.

L/M Income

Limited

Clientele

The property will be used for an

activity the benefits of which will be

limited to a specific group of people;

at least 51 percent of who are L/M

income persons.

Buying a building to be converted into a

sheltered workshop for developmentally-

disabled adults.

For more information, see page

3-16.

L/M Income

Housing

The property will be used for housing

to be occupied by L/M income

persons.

Buying an apartment house to provide

dwelling units to L/M income households at

affordable rents, where at least 51 percent of

the units will be occupied by L/M income

households.

For more information, see page

3-22.

State Community Development Block Grant Program Categories of Eligible Activities  2-9

NATIONAL OBJECTIVES  ACQUISITION OF REAL PROPERTY

Objective Qualifies If Example Additional Information

L/M Income

Jobs

The property acquired is to be used for

an economic development project that

will create or retain permanent jobs at

least 51 percent of which will benefit

L/M income persons.

Acquiring vacant property that is planned to

be used for a commercial purpose, and will

be made available for that purpose only if

the business commits to provide at least 51

percent of the new permanent jobs that will

be created to L/M income persons.

For more information, see page

3-27.

Slum or

Blighted Area

The acquired property is in an area

designated by the grant recipient as a

blighted area, and the property will be

used in a manner that addresses one or

more of the conditions that contributed

to the deterioration of the area.

Using CDBG funds to acquire deteriorated

buildings located in a blighted area for

rehabilitation or demolition.

For more information, see page

3-41.

Spot Blight The acquisition of property is located

outside a designated blighted area and

the acquisition is a prerequisite for

clearance that will eliminate specific

conditions of blight or physical decay

on a spot basis.

The acquisition of a dilapidated property

containing an abandoned grain elevator, the

presence of which is detrimental to public

health and safety, and which will be

demolished.

For more information, see page

3-45.

2-10  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  ACQUISITION OF REAL PROPERTY

Objective Qualifies If Example Additional Information

Urgent Needs The acquisition is part of an activity

designated to alleviate existing

conditions and the state grant recipient

certifies that those conditions are a

serious and immediate threat to the

health or welfare of the community,

they are of recent origin or recently

became urgent, the state grant

recipient is unable to finance the

activity on its own, and other sources

of funds are not available.

Acquisition of property located in a flood

plain that was severely damaged by a recent

flood.

For more information, see page

3-45.

State Community Development Block Grant Program Categories of Eligible Activities  2-11

Public Facilities and

Improvements and Privately-

Owned Utilities

The HCDA

Section 105(a)(2)

(a) Activities assisted under this chapter may include only –

(2) the acquisition, construction, reconstruction, or installation

(including design features and improvements with respect to such

construction, reconstruction, or installation that promote energy

efficiency) of public works, facilities (except for buildings for the

general conduct of government), and site or other improvements;

Eligible

Activities

CDBG funds may be used by the grant recipient or other public

or private nonprofit entities for the:

✓ Acquisition (including long term leases for periods of 15 years

or more),

✓ Construction,

✓ Reconstruction,

✓ Rehabilitation (including removal of architectural barriers to

accessibility), or

✓ Installation

of public improvements or facilities (except for buildings for the general

conduct of government).

Neither the HCDA nor the regulations define the terms “public

facilities” or “public improvements.” However, in the CDBG program,

these terms are broadly interpreted to include all improvements and

facilities that are either publicly owned or that are traditionally provided

by the government, or owned by a nonprofit, and operated so as to be

open to the general public. This would include firehouses, civil defense

shelters, public schools, libraries, and housing shelters. Public

improvements include streets, sidewalks, curbs and gutters, parks,

playgrounds, water and sewer lines, flood and drainage improvements,

parking lots, utility lines, and aesthetic amenities on public property

such as trees, sculptures, pools of water and fountains, and other works

of art. The Entitlement program regulations specify that facilities that

are designed for use in providing shelter for persons having special

needs are considered to be public facilities (and not permanent housing),

and thus are covered under this category of basic eligibility. Such

shelters would include nursing homes, convalescent homes, hospitals,

shelters for victims of domestic violence, shelters and transitional

2-12  Categories of Eligible Activities State Community Development Block Grant Program

facilities/housing for the homeless, itinerant farm workers, group homes

for the developmentally disabled, and shelters for disaster victims.

In the CDBG program, site improvements of any kind that are made to

property that is in public ownership are considered to be a “public

improvement” eligible for assistance under this category. This

distinction would be of particular importance if a community sought to

construct new housing on a publicly-owned property--direct CDBG

assistance could not be used for the new construction, but could be used

for site improvements such as water and sewer connections and

development of streets and sidewalks.

With one notable exception, this category does not authorize

expenditures for “buildings for the general conduct of government.”

The exception is that CDBG funds may be used to remove from such

buildings material and architectural barriers that restrict the mobility

and accessibility of elderly or severely disabled persons.

❖ As defined in Section 102(a)(21) of the HCDA, the term

“buildings for the general conduct of government” means “city

halls, county administrative buildings, state capitol or office

buildings or other facilities in which the legislative or general

administrative affairs of government are conducted.” The term

includes courthouses but does not include jails or prisons. It

does not include buildings that are used to deliver services to the

public, such as police stations or fire stations. County service

centers, which are used by some communities to make certain

services available to the public at a long distance from the main

center, are also not included under this term. Generally

speaking, buildings that house administrative functions of the

government are considered to be “buildings for the general

conduct of government.” Thus, CDBG assistance to a building

in which the chief of police and the fire captain of a city have

their offices would generally be ineligible. For small

communities where one building provides both the

administrative functions and services directly to the public, a

determination should be sought from HUD as to whether the

building may be assisted under this category. It may be possible

to separate or pro-rate the costs of the building associated with

service delivery from the costs of the building associated with

administrative functions.

Public facilities and improvements authorized under this category also

do not include:

✓ Costs of operating or maintaining public facilities or

improvements;

State Community Development Block Grant Program Categories of Eligible Activities  2-13

✓ Costs of purchasing construction equipment;

✓ Costs of furnishings and other personal items such as uniforms;

✓ New construction of public housing.

Inclusion of

Privately-

Owned Utilities

The inclusion of this category of basic eligibility serves to ensure that

publicly regulated utilities may be assisted with CDBG funds without

regard to whether the utility is publicly or privately owned. Thus, the

CDBG program does not constitute a barrier to a community’s

determination to shift one or more of its publicly owned utilities to

private ownership where economic considerations dictate.

Eligible

Activities

for

Privately-

Owned

Utilities

The grant recipient, other public agencies, private nonprofit entities, and

for-profit entities may use CDBG funds to:

✓ Acquire,

✓ Construct,

✓ Reconstruct,

✓ Rehabilitate, or

✓ Install

the distribution lines and related facilities for privately-owned utilities.

This would include placing existing lines and facilities underground.

Definition: A privately owned utility may be defined as a publicly-

regulated service which is provided through the use of physical

distribution lines to private properties and that is owned and operated by

a non-public entity. Utilities include, but are not necessarily limited to,

natural gas, electricity, telephone, water, sewer, and television cable

services.

For example, a grant recipient could use CDBG funds to:

 Pay the costs of placing underground new or existing power

lines and telephone lines where such lines are owned by private

companies.

 Pay the costs of installing water lines where the water service is

owned and operated by a private company or a rural water

system.

2-14  Categories of Eligible Activities State Community Development Block Grant Program

Complying with

National

Objectives

Public Facilities

and

Improvements

and Privately-

Owned Utilities

Except for highly specialized facilities, most public facilities and

improvements by their nature are intended to benefit all the residents of

an area. Thus, to qualify under the national objective of benefit to L/M

income persons, in most cases they must serve a primarily residential

area having at least 51 percent L/M income residents.

Different types and sizes of public facilities and improvements will have

different service areas. The service area might be different than existing

census groupings. It may be larger than the boundary limits of the city.

The service area may even be multi-county, or even statewide. Note that

public facilities that serve the entire jurisdiction of the state grant

recipient, such as a main library, may qualify under the L/M Income

Benefit national objective only if the percentage of L/M income persons

in the entire jurisdiction is sufficiently high to meet the “Area Benefit”

test.

Some facilities by their nature serve an area that is larger (sometimes

much larger) than the grant recipient’s jurisdiction. Regional parks and

education facilities such as community colleges fall into this category.

In such cases, it is important to note that the entire area served by the

facility must be considered in determining if it can meet the L/M

Income Area Benefit subcategory of the L/M Income Benefit national

objective.

A municipal fire department, rescue squad, or other emergency

department may also serve the surrounding rural areas; small towns may

contract with the county sheriff’s office to provide police protection in

their jurisdiction. The service area of the CDBG activity may thus need

to include these surrounding areas as well. However, territory covered

by “mutual aid” agreements, such as with other nearby jurisdictions’

fire departments, would not need to be included in the service area.

Jails and other detention facilities are considered to benefit the entire

community served by the facility; L/M income benefit determinations

must be based on the service area of the facility, not just on the

occupants of the facility. State and federal prisons are particularly

problematic in this regard; the service area could be an entire state or

multiple states. The few prisons that have been assisted with CDBG

funds have been funded on the basis of job creation for L/M Income

Persons, not Area Benefit.

State Community Development Block Grant Program Categories of Eligible Activities  2-15

States are responsible for establishing policies for their program

concerning:

 Determining the appropriate service area of activities,

 When surveys may be used instead of census tract/block

numbering area data to generate L/M income beneficiary data,

and

 Appropriate survey methodologies for obtaining the L/M income

beneficiary data.

The charts following Additional Considerations, below, show several

ways that facilities and improvements eligible under this category may

meet a national objective of the CDBG program.

Privately owned utilities may qualify as meeting a national objective

of the CDBG program in the same ways as are applicable to Public

Facilities and Improvements.

Additional

Considerations

Water/sewer hook-ups:

 The costs of connecting individual properties (such as private

homes) to service collection or distribution lines are NOT

eligible as a public facility. Similarly, costs of constructing,

installing, or reconstructing water wells, septic tanks, drain

fields, etc. for individual properties are not eligible as a public

facility. These activities must be classified as a cost of

construction or rehabilitation of a building, as appropriate. (For

further information, refer to Eligibility of Rehabilitation

Activities, page 2-27.)

“911” Emergency telephone response systems:

 The HCDA and the State CDBG regulations impose special

requirements on how the establishment or operation of

emergency telephone numbering systems can qualify under the

L/M Income Benefit national objective. See Chapter 3, Meeting

a National Objective, and 24 CFR 570.483(b)(1)(iii) (Appendix

B, Code of Federal Regulations, State CDBG regulations, for

more information.

2-16  Categories of Eligible Activities State Community Development Block Grant Program

Title to public facilities:

 Nonprofit entities frequently hold title to and operate facilities

such as senior centers, centers for the handicapped, and

neighborhood facilities. When such facilities are owned by

nonprofit entities, they may qualify for assistance under this

category only if they are made available to the general public.

Where applicable, facilities owned by a nonprofit must be open

for use by the general public during all normal hours of

operation.

Facilities containing both eligible and ineligible uses:

 If a public facility contains both eligible and ineligible uses, 24

CFR 570.200(b)(1) of the Entitlement regulations should be

consulted for guidance on funding for the eligible portion of the

facility.

Fees:

 Reasonable fees may be charged for the use of the facilities

assisted with CDBG funds, but charges, such as excessive

membership fees, which will have the effect of precluding L/M

income persons from using the facilities, are not permitted.

Special assessments:

 There is no special category of basic eligibility authorizing the

use of CDBG funds to pay for special assessments. However,

because of the broad use of this technique for funding public

improvements, the use of CDBG funds to pay special

assessments on behalf of property owners for a public

improvement has been considered to constitute a form of using

CDBG funds to assist the public improvement and is thus

authorized under this category. Therefore, all the rules

applicable to a CDBG-assisted public improvement apply even

if CDBG funds are only used to pay special assessments for that

improvement, but do not assist in the construction. This means

that Davis-Bacon applies, and the rules described in Appendix

D, Special Assessments under the CDBG Program, about the

requirements to pay assessments on behalf of L/M income

property owners also apply.

State Community Development Block Grant Program Categories of Eligible Activities  2-17

 For purposes of the CDBG program, “special assessment” is

defined as the recovery of the capital costs of a public

improvement, such as streets, water or sewer lines, curbs, and

gutters, through:

(1) a fee or charge levied or filed as a lien against a parcel of

real estate as a direct result of a benefit derived from the

installation of a public improvement; or

(2) a one-time charge made as a condition of access to the public

improvement.

The term “special assessment” does not relate to taxes, or to the

establishment of the value of real estate for the purpose of

levying real estate, property or ad valorem taxes. The term does

not include periodic charges based on the use of public

improvements (such as water and sewer user charges) even if

such charges include the recovery of all or some portion of the

capital costs of the public improvement.

 Because many communities levy special assessments against

property owners to help pay for the costs of certain public

facilities, it is important to be aware of limitations, implications,

and requirements that are unique to the CDBG program in this

regard.

 Where CDBG funds are used to pay all or part of the cost of a

public improvement, the rules at 24 CFR 570.482(b) (described

in Appendix B, Code of Federal Regulations, Title 24 570.482 –

.497) apply if special assessments are used to recover capital

costs.

Other

Considerations

Economic development infrastructure projects:

 Not all public facilities or improvements activities are designed

to benefit a primarily residential service area; certain public

facility activities may be undertaken for economic development

purposes. For example, a city may install or upgrade water,

sewer, or road facilities to serve a commercial/ industrial site, in

exchange for a business agreeing to locate or expand there. In

such activities, the activity may be funded on the basis of

meeting a national objective by creating jobs for L/M income

persons.

2-18  Categories of Eligible Activities State Community Development Block Grant Program

 In certain cases, the area served by a public improvement that

enables a business to create or retain jobs may also include other

properties (for example, bringing new water or sewer service to

a fringe area of a community that will not only help a business to

locate there but that also will bring that new water/sewer service

to houses that are located in that area). When, overall, the

properties served by the public improvement are primarily

residential, the benefits to the residents must also be considered.

Therefore, the assisted public improvement in such a case must

not only meet the L/M Income Benefit based on the Jobs criteria

but must also meet the Area Benefit.

(See also the discussion on page 3-27 of this Guide concerning

the case where more than one business may create or retain jobs

as a result of a public improvement.)

Combining CDBG funds with other federal money:

 State CDBG money is frequently combined with funding from

other federal programs to finance the construction of public

facilities. Water and sewer systems are commonly funded with a

combination of State CDBG, EPA Clean Water or Drinking

Water State Revolving Fund, and USDA-Rural Utilities Service

money. Because Congress authorizes these various programs

under different statutes, different sets of federal requirements

apply to each of them. (Some federal requirements, such as the

Davis-Bacon Wage Rate Act, apply to some federal programs

but not others.)

If State CDBG funds are commingled with those of other federal

programs, or are used to jointly fund the same improvements,

the statutory and regulatory requirements of the CDBG program

must be applied to the entire project. However, if State CDBG

funds are used to exclusively finance one type of improvement,

and other federal funds are used to construct another type of

improvement, the CDBG requirements will only apply to the

improvements paid with CDBG funds.

State Community Development Block Grant Program Categories of Eligible Activities  2-19

Example

 A city uses a combination of State CDBG and State Clean Water

Revolving Fund money to install 30 blocks of sanitary sewer lines,

which are engineered, bid and constructed as one project. The

CDBG requirements apply to the entire project.

 A city receives State CDBG funds to run several miles of water lines

that will connect the existing city water system to a new rural water

system; the rural water system is being built using with Rural

Utilities Service loans and grants. The city has contracted the rural

water system to administer their State CDBG grant for them. The

CDBG program requirements apply only to the city’s project, not to

the entire rural water system, provided that separate engineering and

construction contracts have been advertised and let for the city’s

project versus the rural water system project.

 A village receives State Drinking Water Revolving Fund money to

expand and upgrade its water treatment plant; at the same time, it

receives State CDBG funds to replace all the existing water

distribution lines in the village. Each program is run by a separate

state agency, but under the state’s “single application” process, the

village submitted only one application presenting all the

improvements as one project. The two state agencies committed

their respective funding based on the knowledge that the other

funding would also be provided. The CDBG program requirements

would apply only to the replacement of the distribution lines, not to

the water treatment plant, provided that separate engineering and

construction contracts have been advertised and let for the city’s

distribution lines versus the treatment plant.

 One year, a town receives Rural Utilities Service funding to extend

water and sewer lines to a previously unserved neighborhood. The

next year, the town receives a State CDBG Housing Rehabilitation

Grant for the same neighborhood; one of the activities will be

providing water and sewer hookups to income-eligible residents.

The CDBG requirements apply only to the housing

rehabilitation/water and sewer hookups, provided that the water and

sewer hookups are not included in the construction contract for the

distribution/collection lines.

2-20  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  PUBLIC FACILITIES AND IMPROVEMENTS AND

PRIVATELY-OWNED UTIILTIES

Objective Qualifies If Example Additional Information

L/M Income

Area Benefit

The public facility or improvement

will be used for a purpose the benefits

of which are available to all the

residents in a particular area that is

primarily residential, and at least 51

percent of those residents are L/M

income persons.

Paving of gravel road and the

installation of drainage in a

predominantly L/M income

community.

For more information, see page 3-9.

L/M Income

Limited

Clientele

The public facility or improvement

will be used for an activity designed to

benefit a particular group of persons at

least 51 percent of whom are L/M

income persons.

Rehabilitation of a building to be used

as a center for training severely

disabled adults to enable them to live

independently.

For more information, see page 3-16.

L/M Income

Housing

The public facility or improvement

exclusively assists in the provision of

housing to be occupied by L/M

income persons.

Site improvements on publicly-owned

land to serve a new apartment

structure to be rented to L/M income

households at affordable rents.

For more information, see page 3-22.

State Community Development Block Grant Program Categories of Eligible Activities  2-21

NATIONAL OBJECTIVES  PUBLIC FACILITIES AND IMPROVEMENTS AND

PRIVATELY-OWNED UTIILTIES

Objective Qualifies If Example Additional Information

L/M Income

Jobs

The provision of a particular public

improvement needed by one or more

businesses to allow creation or

retention of jobs, primarily for L/M

income persons.

Rebuilding a public road adjacent to a

factory to allow larger and heavier

trucks access to the facility

determined to be necessary for plant

expansion and the creation of new

jobs, where the business agrees to fill

51 percent of the jobs with L/M

income persons.

For more information, see page 3-27.

Slum or

Blighted Area

The public facilities and

improvements are located in a

designated blighted area and are

designed to address one or more

conditions which contributed to the

deterioration of the area.

Renovation of an abandoned,

deteriorated elementary school

building, located in an area designated

by the grant recipient as blighted

pursuant to CDBG rules, in order to

re-open it as a library and community

center.

For more information, see page 3-41.

2-22  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  PUBLIC FACILITIES AND IMPROVEMENTS AND

PRIVATELY-OWNED UTIILTIES

Objective Qualifies If Example Additional Information

Spot Blight The public facilities or improvements

are for the historic preservation or

rehabilitation of blighted or decayed

public facilities/improvements located

outside of a designated blighted area.

Rehabilitation must be limited to the

extent necessary to eliminate specific

conditions detrimental to public health

and safety.

Rehabilitation/restoration of a

severely deteriorated building of

historic significance that is being used

as a museum that is located outside a

designated blighted area (and does not

serve a L/M income area).

For more information, see page 3-45.

State Community Development Block Grant Program Categories of Eligible Activities  2-23

NATIONAL OBJECTIVES  PUBLIC FACILITIES AND IMPROVEMENTS AND

PRIVATELY-OWNED UTIILTIES

Objective Qualifies If Example Additional Information

Urgent Needs The acquisition, construction, or

reconstruction of a public facility or

improvement designed to alleviate

existing conditions and the grant

recipient certifies that those conditions

are a serious and immediate threat to

the health or welfare of the

community, the conditions are of

recent origin, there is no other known

source of funds it can use to

implement the activity and the locality

is unable to finance the activity on its

own.

Extension of municipal water system

distribution lines into a residential

area where residents’ private wells

have recently been found to be

contaminated with high levels of fecal

coliform bacteria.

For more information, see page 3-45.

2-24  Categories of Eligible Activities State Community Development Block Grant Program

Code Enforcement

The HCDA

Section 105(a)(3)

(a) Activities assisted under this chapter may include only –

(3) code enforcement in deteriorated or deteriorating areas in which

such enforcement, together with public or private improvements or

services to be provided, may be expected to arrest the decline of the

area;

Eligible

Activities

Code enforcement involves the payment of salaries and overhead costs

directly related to the enforcement of state and/or local codes.

CDBG funds may be used for code enforcement only in deteriorating or

deteriorated areas where such enforcement, together with public or

private improvements, rehabilitation, or services to be provided, may be

expected to arrest the decline of the area.

Code enforcement does not include the costs of correcting code

violations identified during inspections. The provision of CDBG

assistance to property owners to correct violations may be eligible under

other eligibility categories, such as Rehabilitation.

Compliance

with National

ObjectivesCode

Enforcement

Code enforcement may qualify as meeting a national objective of the

CDBG program as shown in the charts on the following pages.

Additional

Considerations

Code enforcement expenditures should not be included in costs subject

to the 20 percent limit on planning and administration, even though all

expenditures are for staff and related costs, because they are considered

to be an activity delivery cost.

State Community Development Block Grant Program Categories of Eligible Activities  2-25

NATIONAL OBJECTIVES  CODE ENFORCEMENT

Objective Qualifies If Example Additional Information

L/M Income

Area Benefit

The code enforcement is targeted at a

deteriorated or deteriorating area

delineated by the grant recipient and:

(1) At least 51 percent of the residents of

the area are L/M income persons and

(2) The code enforcement, together with

public improvements, rehabilitation, and

services to be provided, may be expected

to arrest the decline of the area.

Code enforcement efforts in a L/M

income deteriorated neighborhood

targeted for rehabilitation assistance,

construction of a neighborhood

facility, and street reconstruction.

For more information, see page 3-16.

L/M Income

Limited

Clientele

Not applicable Not applicable Not applicable

L/M Income

Housing

Not applicable

Not applicable Not applicable

L/M Income

Jobs

Not applicable

Not applicable Not applicable

2-26  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  CODE ENFORCEMENT

Objective Qualifies If Example Additional Information

Slum or

Blighted

Area

The code enforcement is targeted at a

designated blighted area and:

(1) Is designed to address one or more of

the conditions which contributed to the

deterioration of the area and

(2) The code enforcement, together with

public improvements, rehabilitation, and

services to be provided, may be expected

to arrest the decline of the area.

Building inspections for code

violations in a designated blighted

area, which are part of a

comprehensive effort to arrest

decline in that area.

For more information, see page 3-41.

Spot Blight

Not applicable

Not applicable Not applicable

State Community Development Block Grant Program Categories of Eligible Activities  2-27

NATIONAL OBJECTIVES  CODE ENFORCEMENT

Objective Qualifies If Example Additional Information

Urgent

Needs

While this situation is likely to be

infrequent, it is possible for code

enforcement to qualify if:

(1) The code enforcement is targeted at a

deteriorated or deteriorating area;

(2) The code enforcement, together with

public or private improvements,

rehabilitation, and services to be

provided, may be expected to arrest the

decline of the area; and

(3) The grant recipient is able to certify

that the existing conditions which the

code enforcement is designed to

alleviate pose a serious and immediate

threat to the health or welfare of the

community, they are of recent origin or

recently became urgent, the grant

recipient is unable to finance the

activity on its own, and other sources

of funds are not available. *

Code enforcement activities taking

place in an area that has been

severely affected by a flood, and is

part of the community’s overall

response to the emergency.

For more information, see page 3-45.

* In cases where disaster causes the blight of an area, it may be easier to qualify the code enforcement under the “Blighted Area”

category than under the “Urgent Need” category.

2-28  Categories of Eligible Activities State Community Development Block Grant Program

Clearance, Rehabilitation,

Reconstruction, and Construction

of Buildings (Including Housing)

The HCDA

Section 105(a)(4)

(a) Activities assisted under this chapter may include only –

(4) clearance, demolition, removal, reconstruction, and rehabilitation

(including rehabilitation which promotes energy efficiency) of

buildings and improvements (including interim assistance, and

financing public or private acquisition for reconstruction or

rehabilitation, and reconstruction or rehabilitation, of privately owned

properties, and including the renovation of closed school buildings);

Section 105(a)(25)

(a) Activities assisted under this chapter may include only –

(25) lead-based paint hazard evaluation and reduction, as defined in

section 1004 of the Residential Lead-Based Paint Hazard Reduction

Act of 1992.

Eligibility of

Clearance

Activities

Under this category, CDBG funds may be used for:

✓ Demolition of buildings and improvements,

✓ Removal of demolition products (rubble) and other debris,

✓ Physical removal of environmental contaminants or treatment of

such contaminants to render them harmless, and

✓ Movement of structures to other sites.

Additional

Clearance

Considerations

Where activities under this category are integral to the construction of a

building or improvement on the cleared property, and where such

construction is also to be assisted with CDBG funds, the clearance

activities may be treated as a part of the construction costs and need not

be qualified separately under the program.

State Community Development Block Grant Program Categories of Eligible Activities  2-29

Eligibility of

Rehabilitation

Activities

The HCDA provision for rehabilitation activities, Section 105(a)(4),

provides limited information on how to apply eligibility. The following

information on Rehabilitation eligibility was developed as interpretation

of the Entitlement program regulations, and therefore can be used as

interpretive guidance.

Eligible types of property:

Residential—Residential property, whether privately or publicly

owned. This includes manufactured housing when such housing

constitutes part of the community’s housing stock and is classified

as real property.

Commercial/industrial—Commercial or industrial property, but

where such property is owned by a for-profit, rehabilitation under

this category is limited to exterior improvements of the building and

the correction of code violations. (Further improvements for such

buildings may qualify under the category of Special Economic

Development Activities.)

Other—Nonprofit-owned, nonresidential buildings and

improvements that are not considered to be public facilities or

improvements.

Note: Additions to existing buildings may be assisted under this

category when they are incidental to the rehabilitation of the

property, and may be provided as a part of other rehabilitation if the

addition does not materially increase the size or function of the

building.

Eligible types of assistance:

Costs—Costs of labor, materials, supplies and other expenses

required for the rehabilitation of property, including repair or

replacement of principal fixtures and components of existing

structures (for example, the heating system).

Financing—Grants, loans, loan guarantees, interest supplements,

and other forms of financial assistance may be provided under this

category. (A grant recipient may make a “lump sum drawdown” for

the purpose of financing rehabilitation of privately-owned

properties. See 24 CFR 570.513 for details.)

Refinancing—Loans for refinancing existing indebtedness secured

by a property being rehabilitated with CDBG funds, if such

refinancing is determined by the grant recipient to be necessary or

appropriate to achieve its community development objectives.

2-30  Categories of Eligible Activities State Community Development Block Grant Program

Property acquisition—Assistance to private individuals and

entities (whether profit or not-for-profit) to acquire for the purpose

of rehabilitation and to rehabilitate properties for use or resale for

residential purposes.

Security devices—Installation costs of sprinkler systems, smoke

detectors, dead bolt locks, and other devices for security purposes.

Insurance—The costs of initial homeowner warranty premiums

and, where needed to protect the grant recipient’s interest in

properties securing a rehabilitation loan, hazard insurance

premiums, as well as flood insurance premiums for properties

covered by the Flood Disaster Protection Act of 1973, as amended,

pursuant to 24 CFR 570.605.

Conservation—Costs required to increase the efficient use of water

(for example, water saving faucets and shower heads) and

improvements to increase the efficient use of energy in structures

through such means as installation of storm windows and doors,

insulation, and modification or replacement of heating and cooling

equipment.

Water and sewer—Costs of connecting existing residential

structures to water distribution lines or local sewer collection lines,

or installing wells, septic tanks, septic fields for individual houses,

as well as replacing any of the above. (Costs of installing water and

sewer collection lines are not eligible as rehabilitation.)

Tools—Costs of acquiring tools to be lent to owners, tenants, and

others who will use the tools to carry out rehabilitation.

Barrier removal—Costs to remove material and architectural

barriers that restrict the mobility and accessibility of elderly and

severely disabled persons to buildings and improvements that are

eligible for rehabilitation under this category.

Landscaping, sidewalks, and driveways—The costs of installation

or replacement of landscape materials, sidewalks, and driveways

when incidental to other rehabilitation of the property.

Renovation of closed buildings—The conversion of a closed

building from one use to another (for example, the renovation of a

closed school building to residential use). Note that rehabilitation of

a closed building for re-use as a public facility would be eligible as a

public facility.

State Community Development Block Grant Program Categories of Eligible Activities  2-31

Historic preservation—This category also authorizes the costs of

preserving or restoring properties of historic significance, whether

privately or publicly owned, except that buildings for the general

conduct of government may not be restored or preserved with

CDBG assistance (see the section on Public Facilities and

Improvements concerning this limitation). Historic properties are

those sites or structures that are either listed in or eligible to be listed

in the National Register of Historic Places, listed in a state or local

inventory of historic places, or designated as a state or local

landmark or historic district by appropriate law or ordinance.

Lead-based paint hazard evaluation and reduction—The costs of

evaluating and treating lead-based paint may be undertaken in the

State CDBG program in conjunction with other rehabilitation

activities under Section 105(a)(4) of the HCDA or as a separate

activity under Section 105(a)(25). In addition to lead hazard

abatement work itself, CDBG funds may be used for: testing the

blood of children to determine the lead levels, inspecting and testing

homes for lead hazards, temporarily relocating families during lead

control work, community education and outreach, job training for

lead hazard control workers, and collection and analysis of data on

lead hazards.

Rehabilitation services—Staff costs and related expenses required

for outreach efforts for marketing the program, rehabilitation

counseling, screening potential applicant households and structures,

energy auditing, preparing work specifications, loan underwriting

and processing, inspections, and other services related to assisting

owners, tenants, contractors, and other entities who are participating

or seeking to participate in rehabilitation activities eligible under

this category.

Business in a residence—In some cases where a business is

conducted in a residential unit, it may be necessary to make

improvements to the residence in order to conduct the business.

(This would be the case where, for example, the business is

providing child care and local requirements for such business dictate

that modifications be made to the housing unit.) In any case where

the improvements are of such nature that, in addition to facilitating

the business, they also provide a benefit to the resident(s); such

rehabilitation costs may be covered under this category. Other

improvements not meeting this test needed for such a business could

be eligible under the category of Special Economic Development.

2-32  Categories of Eligible Activities State Community Development Block Grant Program

Rehabilitation does not include:

❖ Creation of a secondary housing unit attached to a primary unit;

❖ Installation of luxury items, such as a swimming pool;

❖ Costs of equipment, furnishings, or other personal property not

an integral structural fixture, such as:

(1) a window air conditioner, or

(2) a washer or dryer (but a stove or refrigerator is allowed); or

❖ The value of the homeowner’s sweat equity to rehabilitate their

own property.

Use of subrecipients:

Grant recipients in carrying out a rehabilitation program often use

nonprofit entities. Where the nonprofit entity is acting in the same

capacity as the grant recipient in selecting properties to be rehabilitated,

it is appropriately designated as a subrecipient of the unit of local

government. However, there are instances where a nonprofit entity may

not be considered to be a subrecipient with respect to the use of CDBG

funds for rehabilitation. Simply put, where the nonprofit owns property

that is in need of rehabilitation and it takes advantage of the grant

recipient’s program of using CDBG funds for such rehabilitation (in the

same manner as other property owners do), the entity should not be

considered to be a subrecipient for purposes of the program. Perhaps

the most significant aspect of this is that any income the nonprofit might

receive from the use or rental of the rehabilitated property would not be

considered to be CDBG program income.

Drawing down funds for rehabilitation:

The general Treasury rules for drawing federal funds require that funds

not be drawn until needed. In the CDBG program, this means that a

state and its grant recipients are to minimize the elapsed time between

the state’s receipt of funds from its line of credit (the Treasury) and the

state grant recipient’s disbursement of funds for CDBG activities. The

rules also generally require that any program income on hand must be

used before drawing additional funds from the Treasury (but see the

special rule applying to revolving funds at 24 CFR 570.489(f)). There

are, however, two regulatory provisions that allow drawing funds from

the Treasury in advance which apply with respect to rehabilitation.

They are: (a) Lump Sum Drawdown; and (b) Escrow Accounts. Each of

these is discussed below.

State Community Development Block Grant Program Categories of Eligible Activities  2-33

Special note on lump sum drawdowns and escrow accounts:

Section 104(h) of the HCDA requires HUD to establish standards

governing the use of lump sum drawdowns. These standards are at 24

CFR 570.513 of the Entitlement program regulations. Any state or state

grant recipient wishing to use a lump sum drawdown must follow the

provisions of 24 CFR 570.513. Escrow accounts are not expressly

authorized in the HCDA. States and state grant recipients wishing to

use escrow accounts are advised to follow the provisions of 24 CFR

570.511 of the Entitlement program regulations. HUD plans to revise

sections 24 CFR 570.511 and .513 to incorporate state CDBG-specific

provisions.

Lump Sum Drawdown—A state grant recipient may draw, as a

single amount, the total amount needed for rehabilitation if it

enters into an agreement with a financial institution that meets

the requirements set forth in 24 CFR 570.513(b)(2) and if it

complies with other requirements under 24 CFR 570.513. Some

of the key requirements outlined in that provision include: the

agreement may not exceed two years; the financial institution

must agree to provide certain benefits in conjunction with the

activities paid for from the account; there are time benchmarks

for when the rehabilitation carried out with funds in the account

must begin and the pace at which the funds must be used; and

there are limits to what the funds can be used for. Reference: 24

CFR 570.513

Escrow Account—Some state grant recipients have experienced

difficulty in making timely payments from their CDBG account

to contractors engaged in rehabilitation. Where a CDBG

rehabilitation program makes use of small and minority

contractors or subcontractors, delays in making payment for

invoices presented by such entities can mean that the contractors

or subcontractors are unable to participate in CDBG-assisted

rehabilitation, since they cannot afford to wait long for payment.

In such cases, a state grant recipient may establish an escrow

account for purposes of making timely payments from that

account rather than from the program account, provided it does

so in conformance with the requirements set forth at 24 CFR

570.511. Some of the key requirements contained in that

provision include: the use of this feature must be limited to

residential rehabilitation; the account may not hold more than

the amount expected to be disbursed within ten working days;

and interest earned on the funds on deposit is to be returned to

HUD at least quarterly. It should be noted that, if a state grant

recipient has a lump-sum account, as described in the subsection

above, it may serve the same purpose as an escrow account and

the two may not need to be used together. Reference: 24 CFR

570.511

2-34  Categories of Eligible Activities State Community Development Block Grant Program

Additional

Considerations for

Rehabilitation

When CDBG funds are used under this category for refinancing, the

state or state grant recipient should maintain documentation showing

that the rehabilitation was done with CDBG funds and that the borrower

needed the refinancing in order to make the rehabilitation affordable.

If a state grant recipient or a subrecipient makes a number of loans for

rehabilitation, it will be important that appropriate steps be taken to

manage its portfolio of loans. Some guidance and advice on this matter

is contained in Appendix H, Selling or Securitizing CDBG-Funded

Loans.

Eligibility of

Reconstruction

Activities

Reconstruction became explicitly eligible for CDBG assistance as a

result of a legislative change under Section 225 of the Omnibus

Consolidated Rescissions and Appropriations Act of 1996 (P.L. 104-

234, enacted April 26, 1996). This change [in Section 105(a)(4) of the

Housing and Community Development Act of 1974 as amended]

broadens grant recipients’ ability to use CDBG funds for

“reconstruction” of properties.

While the HCDA does not define the term “reconstruction,” for CDBG

purposes, it is generally defined as meaning the rebuilding of a structure

on the same site in substantially the same manner. Deviations from the

original design are permitted for reasons of safety or if otherwise

impractical. The structure to be reconstructed may be residential or

nonresidential, and either publicly or privately owned. A reconstructed

unit need not contain the same number of rooms as the unit it replaces.

States are cautioned that reconstruction that involves increasing the

number of housing units on a site may constitute new housing

construction. However, there could be situations in which a single-unit

structure could be reconstructed as a multi-unit structure, such as to

allow existing residents to comply with local housing standards on

occupancy standards. (Note that any decrease in the number of units on

a site may require compliance with the one-for-one replacement of L/M

income dwelling units at 24 CFR Part 42, Subpart C.) Reconstruction

of residential structures would also permit replacing an existing

substandard unit of manufactured housing with a new or standard unit of

manufactured housing.

State Community Development Block Grant Program Categories of Eligible Activities  2-35

Eligibility of

Construction of

Buildings

(Including

Housing)

The construction of new buildings, particularly new residential housing,

is not explicitly eligible under the HCDA. However, CDBG funds may

be used in certain specified circumstances to finance the construction of

new permanent residential structures. The following identifies those

limited circumstances:

 A state grant recipient may construct housing of last resort under

24 CFR Part 42, Subpart I. (This is housing that the grant

recipient has determined must be constructed in order to provide

suitable replacement housing for persons to be displaced by a

contemplated CDBG project, subject to the Uniform Act, and

where the project is prevented from proceeding because the

required replacement housing is not available otherwise.)

 Local development corporations and certain nonprofit

organizations eligible under Section 105(a)(15) of the HCDA

may construct new housing (including shared housing) as part of

a neighborhood revitalization or community economic

development project.

Note: Section 105(a)(18) of the HCDA lists as eligible the

rehabilitation or development of housing assisted under Section 17 of

the U.S. Housing Act of 1937. However, that section of the U.S.

Housing Act has been repealed.

Additional

Considerations for

Construction of

Buildings

(Including

Housing)

It is important to note that several activities that support new housing

may be carried out using CDBG funds even though other resources are

supporting the actual housing construction costs. The following are

examples of supportive activities:

 Acquisition of sites on which buildings will be constructed for

use or resale as housing;

 Clearance of toxic contaminants of property to be used for the

new construction of housing;

 Site improvements to publicly-owned land to enable the property

to be used for the new construction of housing, provided the

improvements are undertaken while the property is still in public

ownership; and

 The cost of disposing of real property, acquired with CDBG

funds, which will be used for new construction of housing.

2-36  Categories of Eligible Activities State Community Development Block Grant Program

In addition, certain “soft costs” necessary for the new construction of

housing that would otherwise be ineligible have been previously

determined to be eligible as general administrative costs under HCDA

Section 105(a)(12). Such soft costs include:

✓ Surveys,

✓ Site and utility plans, and

✓ Application processing fees.

24 CFR 570.206(g) of the Entitlement program regulations further

describes the types of “soft costs” which may be eligible. The

limitations on the use of this provision by direct HUD grant recipients

(under the Entitlement program and the HUD-Administered Small

Cities program) are not applicable to the State CDBG program. Soft

costs incurred in support of eligible new housing construction activities

may be paid for as part of the cost of the new construction itself.

Conversion: It should be noted that the cost of converting an existing

non-residential structure to residential is not generally considered to

constitute new construction under the CDBG program and is thus

covered under the basic eligibility category of Rehabilitation. However,

in some cases, the conversion may involve construction that goes

beyond the envelope of the non-residential structure. Where this is the

case, the grant recipient should consult with the local HUD field office

to ensure that the extent of such construction would not constitute new

construction of housing and thus be ineligible for CDBG assistance.

Complying

with National

Objectives

Clearance

Clearance activities may qualify as meeting a national objective of the

CDBG program in the ways depicted in the charts on the following

pages.

State Community Development Block Grant Program Categories of Eligible Activities  2-37

NATIONAL OBJECTIVES  CLEARANCE

Objective Qualifies If Example Additional Information

L/M Income

Area Benefit

The cleared property will be used for a

purpose the benefits of which are

available to all the residents in a

particular area, and at least 51 percent

of those residents are L/M income

persons.

Demolishing a vacant structure and

removing the debris to make a

community park and playground

serving a predominantly residential

L/M income community.

For more information, see page 3-9.

L/M Income

Limited

Clientele

The cleared property will be used for

an activity the benefits of which are

limited to a specific group of people,

at least 51 percent of who are L/M

income persons.

Demolishing a dilapidated structure

from the site on which a community

center will be built, the use of which

will be limited to the elderly.

For more information, see page 3-16.

L/M Income

Housing

The cleared property will be used for

providing housing to be occupied by

L/M income persons. Rental units for

L/M income persons must be occupied

at affordable rents.

Demolishing seriously dilapidated

buildings being used as temporary

housing for migrant farm laborers, to

make room for new migrant farmer

housing.

For more information, see page 3-22.

2-38  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  CLEARANCE

Objective Qualifies If Example Additional Information

L/M Income

Jobs

The clearance is part of an activity

that will create or retain permanent

jobs, at least 51 percent of which are

for L/M income persons.

Using CDBG funds to clear an

environmentally contaminated

(brownfield) site on which a new

business will locate and agrees that at

least 51 percent of the jobs to be

created will be for L/M income

persons.

For more information, see page 3-27.

Slum or

Blighted Area

The clearance activities are within a

designated blighted area and are

designed to address one or more

conditions that contributed to the

deterioration of the area.

Using CDBG funds to demolish one

or more deteriorated buildings located

in a designated blighted area.

For more information, see page 3-41.

Spot Blight The clearance activity is undertaken to

eliminate specific conditions of blight

or physical decay on a spot basis not

located in a designated slum or

blighted area.

Demolition of an abandoned and

deteriorated grain elevator, the

presence of which is detrimental to

public health and safety, located in an

area that is not designated as a slum or

blighted area.

For more information, see page 3-45.

State Community Development Block Grant Program Categories of Eligible Activities  2-39

NATIONAL OBJECTIVES  CLEARANCE

Objective Qualifies If Example Additional Information

Urgent Needs The clearance is part of an activity

designed to alleviate existing

conditions and the grant recipient

certifies that those conditions are a

serious and immediate threat to the

health or welfare of the community,

they are of recent origin or recently

became urgent, the grant recipient is

unable to finance the activity on its

own, and other sources of funds are

not available.

Clearance of a building that was

destroyed by a tornado and that

constitutes a safety hazard to the

community.

For more information, see page 3-45.

State Community Development Block Grant Program Categories of Eligible Activities  2-41

Complying

with National

Objectives

Rehabilitation

Section 105(c)(3) of the HCDA requires that, in order for an activity

that involves the acquisition or improvement of property for housing to

qualify as benefiting L/M income persons, the housing must be

occupied by such persons. Even though a particular housing activity

may provide a clear benefit to an area containing predominantly L/M

Income residents, it cannot qualify on that basis. Instead, the housing

must be occupied by L/M income households. (See page 3-5 of the

Guide for a discussion about the distinction between L/M households

and L/M persons in this regard.) That limitation is reflected in the charts

that follow which provide general guidance on how rehabilitation

activities may qualify as meeting a national objective under the CDBG

program. This section of the HCDA also limits the extent to which

CDBG expenditures for housing activities may count towards the

Overall Expenditures Benefit requirement, as discussed in Chapter 4,

Overall Expenditures—Benefit to L/M Income Persons, of this Guide.

It should also be noted that the section on L/M Income Benefit for

housing in Chapter 3, Meeting a National Objective, of this Guide

covering National Objectives contains important information on the

rules that must be followed concerning housing activities that are not

covered in the following charts in this section. That chapter also

discusses the circumstances under which occupancy of a CDBG-

assisted housing unit by a L/M income household may qualify for the

assistance to that unit without regard to the income of households

occupying any other units that may be located in the same structure.

2-42  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  REHABILITATION

Objective Qualifies If Example Additional Information

L/M Income

Area Benefit

Rehabilitation of a building to be used

for a purpose that will benefit all the

residents of a qualifying L/M income

primarily residential area.

Facade improvements to a commercial

structure serving a predominantly L/M

income primarily residential area.

For more information, see page 3-9.

L/M Income

Limited

Clientele

Not applicable

Not applicable

Not applicable

L/M Income

Housing

Rehabilitation of housing to be

occupied by L/M income persons.

Rental units must be occupied at

affordable rents.

Conversion of an abandoned

warehouse into rental housing for L/M

income households at affordable rents.

Also improvements to a single-family

residence used as a place of business

provided the improvements generally

benefit the unit’s residential

occupants.

For more information, see page 3-22.

L/M Income

Jobs

Rehabilitation of nonresidential

property that will create or retain jobs

for L/M income persons

Correction of code violations that will

enable a business to survive and retain

jobs, the majority of which is held by

L/M income persons.

For more information, see page 3-27.

State Community Development Block Grant Program Categories of Eligible Activities  2-43

NATIONAL OBJECTIVES  REHABILITATION

Objective Qualifies If Example Additional Information

Slum or

Blighted Area

Rehabilitation of residential structures

located in a blighted area, the structure

to be rehabilitated is considered

substandard under local definition

before rehabilitation, and all

deficiencies making the structure

substandard are corrected before less

critical work is undertaken.

Rehabilitation of substandard housing

located in a designated blighted area

and where the housing is expected to

be brought to standard condition and

sold to non-L/M income households.

For more information, see page 3-41.

Spot Blight Rehabilitation of a structure located

outside a designated blighted area,

where the rehabilitation is limited to

the extent necessary to eliminate

specific conditions of blight or decay

that are detrimental to public health

and safety.

Rehabilitation of the deteriorated

exterior of an abandoned

manufacturing building located in an

area that has not been designated as

blighted and where the rehabilitation

is limited to removal of the exterior

blight. Rehabilitation of plumbing in

a building located in an area that has

not been designated as blighted and

where rehabilitation is limited to

corrections of code violators that are

detrimental to public health and

safety.

For more information, see page 3-45.

2-44  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  REHABILITATION

Objective Qualifies If Example Additional Information

Urgent Needs The rehabilitation is part of an activity

designed to alleviate existing

conditions for which the grant

recipient certifies are a serious and

immediate threat to the health or

welfare of the community, the

conditions are of recent origin or

recently became urgent, the grant

recipient is unable to finance the

activity on its own, and other sources

of funds are not available.

Rehabilitation of housing that has

been badly damaged by a tornado and

has been condemned.

For more information, see page 3-45.

State Community Development Block Grant Program Categories of Eligible Activities  2-45

NATIONAL OBJECTIVES  CONSTRUCTION OF BUILDINGS (INCLUDING HOUSING)

Objective Qualifies If Example Additional Information

L/M Income

Area Benefit

Not applicable

Not applicable Not applicable

L/M Income

Limited

Clientele

Not applicable

Not applicable Not applicable

L/M Income

Housing

L/M income households will occupy

the new housing. Rental units must be

occupied at affordable rents.

New construction of “last resort”

housing needed for a L/M income

household being displaced by a

CDBG-assisted project.

For more information, see page 3-22.

L/M Income

Jobs

Not applicable Not applicable Not applicable

2-46  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  CONSTRUCTION OF BUILDINGS (INCLUDING HOUSING)

Objective Qualifies If Example Additional Information

Slum or

Blighted Area

New housing qualifies if:

(1) The new housing is located within

a designated blighted area and

(2) Development of new housing

addresses one of the conditions

that contributed to the

deterioration of the area.

New, modest-income rental housing

constructed by a nonprofit Community

Development Corporation on a

formerly-contaminated site in a

designated blighted area, using a

combination of CDBG and Low

Income Housing Tax Credit funding.

For more information, see page 3-41.

Spot Blight Not applicable Not applicable Not applicable

Urgent Needs The new housing is needed to respond

to a threat to the health or welfare of

the community of recent origin and no

other funding is available to meet the

threat and the new construction is

eligible (or the statutory waiver

Authority for Presidentially-declared

disasters is exercised.

Housing needed to replace units

completely destroyed by a flood and

needed to be built in a new location.

For more information, see page 3-45.

State Community Development Block Grant Program Categories of Eligible Activities  2-47

Architectural Barrier Removal

The HCDA

Section 105(a)(5)

(a) Activities assisted under this title may include only –

(5) special projects directed to the removal of material and

architectural barriers which restrict the mobility and

accessibility of elderly and handicapped persons;

Eligible

Activities

The HCDA makes specifically eligible the removal of material and

architectural barriers that restrict the accessibility or mobility of elderly

or handicapped persons.

Confusion has emerged concerning the distinction between removing

barriers to accessibility and the need to provide for accessibility.

Together, these issues led some grant recipients and beneficiaries to the

impression that the involvement of the removal of barriers would

qualify an entire activity for assistance under the CDBG program, or

that the additional costs of making even newly constructed buildings

accessible to the handicapped should be eligible for CDBG assistance

under that authority, whether or not the rest of the building could so

qualify.

The passage of the Americans with Disabilities Act (ADA) had much to

do with this confusion. Pressure has mounted on grant recipients to

provide accessibility in both public and private places. This has led to

some attempts to use CDBG funds to provide accessibility in ways that

go well beyond the simple removal of existing barriers.

For many years, the CDBG Entitlement regulations contained the

removal of architectural barriers as a separate category of eligibility.

However, this freestanding category was removed in 1995 because of

the confusion it seemed to be causing and was woven into other

eligibility categories as appropriate. The State and Entitlement CDBG

regulations still contain a provision indicating that such barrier removal

can meet the national objective of benefit to L/M income under Limited

Clientele.

2-48  Categories of Eligible Activities State Community Development Block Grant Program

If the construction of a building or improvement is eligible for

assistance with CDBG, a state may consider the costs of making the

building or improvement accessible to persons with handicaps to be

eligible under either:

✓ HCDA Section 105(a)(5) or

✓ HCDA Section 105(a)(2), as an integral cost of the construction.

Similarly, the removal of architectural barriers when undertaken as part

of the rehabilitation or reconstruction of public facilities or buildings,

may be considered to be eligible under:

✓ HCDA Section 105(a)(5);

✓ HCDA Section 105(a)(2) (for public facilities, as an integral

cost of the activity); or

✓ HCDA Section 105(a)(4) (for other buildings, as an integral

cost of the activity).

Activities involving the construction or reconstruction of buildings for

economic development purposes, or by certain types of nonprofit

entities, may qualify under Section 105(a)(5) or Section 105(a)(14), (15)

or (17) as appropriate. However, if the basic building, facility or

activity is not otherwise eligible under another provision of the HCDA,

then the removal of architectural barriers in such a building or facility

must be eligible under Section 105(a)(5). The most obvious example of

such an activity would be the removal of architectural barriers in a

building for the general conduct of government.

The main issue that is presented in the CDBG program with respect to

handicapped accessibility lies in being able to meet a national objective.

If the new construction of a public facility or improvement cannot meet

a national objective based on either area benefit or the clientele to be

served, then the features that are required in such construction in order

to provide for accessibility to handicapped persons also cannot meet a

national objective. The situation is somewhat different with

rehabilitation or reconstruction. Since the cost of removing existing

barriers is specifically eligible under the HCDA, the removal of

accessibility barriers may be presumed to meet the L/M Income Limited

Clientele criteria if the costs of such removal is restricted, to the extent

practicable, to the removal of such barriers in:

State Community Development Block Grant Program Categories of Eligible Activities  2-49

 The reconstruction of a public facility or improvement, or

portion thereof, that does not meet the criteria for L/M Income

Benefit under Area Benefit;

 The rehabilitation of a privately-owned nonresidential building

or improvement that does not meet the criteria for L/M Income

Benefit under Area Benefit or Jobs; or

 The rehabilitation of the common areas of a residential structure

that contains more than one dwelling unit and that does not meet

the criteria for L/M Income Benefit under Housing.

In a related matter, the use in the regulations concerning the

presumption of L/M income status of handicapped persons became

problematical as the use of the term “handicapped” broadened over the

past several years to include categories of handicap that do not

necessarily heavily impact on a person’s capacity to work in good

paying jobs. Thus, HUD changed the regulations to use the term

“severely disabled adult” in lieu of “handicapped.” See the discussion

of this matter under the L/M Income Limited Clientele subsection in

Chapter 3, Meeting a National Objective, of this Guide.

2-50  Categories of Eligible Activities State Community Development Block Grant Program

Loss of Rental Income

The HCDA

Section 105(a)(6)

(a) Activities assisted under this title may include only –

(6) payments to housing owners for losses of rental income incurred

in holding for temporary periods housing units to be utilized for the

relocation of individuals and families displaced by activities under this

chapter;

Eligible

Activities

CDBG funds may be used to pay housing owners for the loss of rental

income incurred in holding, for temporary periods, housing units to be

used for the relocation of individuals and families displaced by CDBG-

assisted activities.

The statutory requirements concerning displacement require certain

replacement housing to be made available to displacees. If the

displaced household requires a type of housing unit that is scarce in that

community, it may be necessary for the grant recipient to have an

existing, available unit held open for the household for a short period

until the displacement actually occurs.

Complying

with National

Objectives

Loss of Rental

Income

Determining compliance of this activity with the national objectives of

the CDBG program must be based on the underlying relocation activity.

If the activity resulting in the relocation assistance to the displaced

household qualified on the basis of benefit to L/M income persons, then

paying housing owners for losses incurred in holding units for those

displacees also qualifies as benefiting L/M income persons, even if the

displaced household itself is not L/M income.

Note: If the relocation assistance to displacees qualified under the

“Blight” or “Urgent Needs” national objectives, then paying housing

owners for losses incurred in holding units for those displacees also

would qualify under “Blight” or “Urgent Needs,” as applicable.

Additional

Considerations

Because the eligibility of this activity is dependent upon the housing

unit being required to relocate a household displaced by another CDBG-

funded activity, it is critical that the displacing activity and the

displaced household be documented as well as the basis upon which the

grant recipient determined that the housing was needed to be kept

available for the displaced household.

State Community Development Block Grant Program Categories of Eligible Activities  2-51

Disposition of Real Property

The HCDA

Section 105(a)(7)

(a) Activities assisted under this title may include only –

(7) disposition (through sale, lease, donation, or otherwise) of any

real property acquired pursuant to this title or its retention for public

purposes;

Eligible

Activities

Under this category, CDBG funds may be used to pay costs incidental to

disposing of real property acquired with CDBG funds, including its

disposition at less than fair market value, provided the property will be

used to meet a national objective of the CDBG program.

The property may be disposed of through:

✓ Sale,

✓ Lease,

✓ Donation, or

✓ Otherwise.

CDBG funds may also be used under this category to pay reasonable

costs of temporarily managing such property until final disposition of

the property is made.

Example

Disposition costs include preparation of legal documents, as well as fees

paid for:

✓ Surveys,

✓ Marketing,

✓ Financial services, and

✓ Transfer taxes and other costs involved in the transfer of

ownership of property.

Caveat: Because this category only authorizes the costs of temporarily

managing property pending its disposition, care should be taken to

avoid spending CDBG funds to manage properties for which there are

no plans for disposition in the near future or where the market is such

that it is not likely to be sold in the near future.

2-52  Categories of Eligible Activities State Community Development Block Grant Program

Complying

with National

Objectives

Disposition

For disposition costs to be eligible, the use of the CDBG-acquired

property after disposition must meet a national objective of the CDBG

program. When property is disposed of for the same purpose as that for

which it was acquired, the costs of disposition will be considered to

meet the same national objective ascribed to the CDBG funds spent on

its acquisition. For an example on how such acquired property may

meet a national objective, see the charts on National Objectives—

Acquisition of Real Property on pages 2-8 through 2-10

If the property is being disposed of for a purpose other than that for

which it was acquired, the new activity must be reviewed to determine

whether a national objective will be met by the new use. See the

discussion in the preceding section on Acquisition of Real Property on

page 2-4 for more details. Property acquired with CDBG funds may be

used for purposes that do not meet a national objective, but only after

the CDBG program is reimbursed as specified under 24 CFR

570.489(j)(2).

Additional

Considerations

Gross proceeds from the disposition of real property acquired with

CDBG funds that are received by the grant recipient or a subrecipient

are program income. Reference: 24 CFR 570.489(e)(1)

State Community Development Block Grant Program Categories of Eligible Activities  2-53

Public Services

The HCDA

Section 105(a)(8)

(a) Activities assisted under this title may include only –

(8) provision of public services, including but not limited to those

concerned with employment, crime prevention, child care, health,

drug abuse, education, energy conservation, welfare or recreation

needs, if such services have not been provided by the unit of general

local government (through funds raised by such unit, or received by

such unit from the State in which it is located) during any part of the

twelve-month period immediately preceding the date of submission of

the statement with respect to which funds are to be made available

under this title, and which are to be used for such services, unless the

Secretary finds that the discontinuation of such services was the

result of events not within the control of the unit of general local

government, except that not more than 15 per centum of the amount

of any assistance to a unit of general local government (or in the case

of nonentitled communities not more than 15 per centum statewide)

under this title including program income may be used for activities

under this paragraph unless such unit of general local government

used more than 15 percent of the assistance received under this title

for fiscal year 1982 or fiscal year 1983 for such activities (excluding

any assistance received pursuant to Public Law

98-8), in which case such unit of general local government may use

not more than the percentage or amount of such assistance used for

such activities for such fiscal year, whichever method of calculation

yields the higher amount, except that of any amount of assistance

under this title (including program income) in each of fiscal years

1993 through 2000 to the City of Los Angeles and County of Los

Angeles, each such unit of general government may use not more

than 25 percent in each such fiscal year for activities under this

paragraph, and except that of any amount of assistance under this

title (including program income) in each of the fiscal years 1999,

2000, and 2001, to the City of Miami, such city may use not more

than 25 percent in each fiscal year for activities under this paragraph;

Eligible

Activities

Under this category, CDBG funds may be used to provide public

services (including labor, supplies, materials and other costs), provided

that each of the following criteria is met:

2-54  Categories of Eligible Activities State Community Development Block Grant Program

(1) The public service must be either:

 A new service; or

 A quantifiable increase in the level of a service above that which

has been provided by or on behalf of the unit of general local

government through funds raised by such unit, or received by

such unit from the state in which it is located during the 12

months prior to submission of the grant recipient’s applicable

Action Plan. (This requirement is intended to prevent the

substitution of CDBG funds for recent support of public services

by the grant recipient using local or state government funds.)

HUD may grant an exception to this limitation if it is determined that

the level of service from the previous period has decreased for reasons

beyond the unit of local government’s control.

(2) No more than 15 percent of a state’s yearly allocation of funds, plus

program income distributed by the state as part of that year’s

method-of-distribution, may be expended for public service

activities. Note that the 15 percent cap applies to the state, not to

individual local governments receiving state CDBG funds. A state

could make a grant to a town solely for public services activities. In

the State CDBG program, compliance with the 15 percent cap is

determined by expenditures over the life of a given fiscal year’s

allocation of funds (plus program income). (In contrast, compliance

is determined in the Entitlement program based on obligations

during each 12-month program year period.)

Public services that are not subject to the cap: Certain types of services

fall under other categories of basic eligibility (such as Sections

105(a)(15) and 105(a)(23)) and are not subject to the dollar limitation

that applies to services carried out under Section 105(a)(8). (See

especially the category of Special Activities by Nonprofit Development

Groups and Appendix E, Community Revitalization Strategy Areas.) In

addition, discussion of the factors to consider in deciding how to

categorize public services that a grant recipient may be interested in

assisting with CDBG funds may be found in the subsection entitled

Making the Best Choice, at the end of this chapter on page 2-115.

Reference: 24 CFR 570.482(d)

State Community Development Block Grant Program Categories of Eligible Activities  2-55

Example

Public services include, but are not limited to:

✓ Child care,

✓ Health care,

✓ Job training (including training a qualified pool of candidates for

unspecified jobs. See categories Special Economic

Development Activities and Special Activities by Nonprofit

Development Organization),

✓ Recreation programs,

✓ Education programs,

✓ Public safety services,

✓ Fair housing activities (but see Program Administration

category),

✓ Services for senior citizens,

✓ Services for homeless persons,

✓ Drug abuse counseling and treatment,

✓ Energy conservation counseling and testing,

✓ Homebuyer downpayment assistance, and

✓ Emergency assistance payments (for example, to keep tenants

from losing housing).

Paying the cost of operating and maintaining that portion of a facility in

which the service is located is also considered to fall under the basic

eligibility category of Public Services, even if such costs are the only

contributions made by CDBG for those services.

The following Public services are not eligible under this category:

 Political activities;

 Ongoing grants or non-emergency payments (defined in the

Entitlement program as more than three consecutive months) to

individuals for their food, clothing, rent, utilities, or other

income payments.

2-56  Categories of Eligible Activities State Community Development Block Grant Program

Complying with

National

Objectives

Public Services

Public service activities may qualify as meeting a national objective of

the CDBG program as depicted in the charts on the following pages.

Additional

Considerations

Substitution of CDBG funds for private or other federal funds:

❖ The prohibition on substituting CDBG funds for recent local or

state government funding of a public service, as described on

page 2-52, does not extend to prohibiting the substitution of

CDBG funds for private or other federal funding of a public

service.

❖ It also does not prevent continued funding of a CDBG-funded

public service at the same or smaller level in the subsequent

program year.

Purchase or lease of personal property for a public service:

❖ The purchase or lease of furnishings, equipment, or other

personal property needed for an eligible public service may be

paid for with CDBG funds.

State Community Development Block Grant Program Categories of Eligible Activities  2-57

NATIONAL OBJECTIVES  PUBLIC SERVICES

Objective Qualifies If Example Additional Information

L/M Income

Area Benefit

The public service is available to all

the residents in a particular primarily

residential area, and at least 51 percent

of those residents are L/M income

persons.

Operation of after-school programs for

children attending an elementary

school serving a predominantly L/M

income area.

For more information, see page 3-9.

L/M Income

Limited

Clientele

The public service is limited to a

specific group of people, at least 51

percent of who are L/M income

persons. Services qualifying under this

category serve a specific clientele,

rather than providing service to all the

persons in a geographic area.

Provision of meals to the homeless.

(Most public services qualify under

this category.)

For more information, see page 3-16.

L/M Income

Housing

Not applicable Not applicable

Not applicable

L/M Income

Jobs

Not applicable

Not applicable Not applicable

2-58  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  PUBLIC SERVICES

Objective Qualifies If Example Additional Information

Slum or

Blighted Area

The public service is provided within

a designated slum or blighted area,

and is designed to address one or more

conditions which contributed to the

deterioration of the area.

Provision of crime prevention

counseling to residents of a designated

Slum or Blighted Area area.

For more information, see page 3-41.

Spot Blight Not applicable

Not applicable

Not applicable

Urgent Needs The public service is designed to

alleviate existing conditions that pose

a serious and immediate threat to the

health or welfare of the community,

they are of recent origin or recently

became urgent, and the grant recipient

is unable to find other available funds

to support the activity.

Additional police protection to prevent

looting in an area damaged by a

tornado.

For more information, see page 3-45.

State Community Development Block Grant Program Categories of Eligible Activities  2-59

Payment of Non-Federal Share

The HCDA

Section 105(a)(9)

(a) Activities assisted under this title may include only –

(9) payment of the non-Federal share required in connection with a

Federal grant-in-aid program undertaken as part of activities assisted

under this chapter;

Eligible

Activities

This provision does not make any additional activities eligible for

CDBG assistance because it limits the use of CDBG funds to paying the

non-federal share only for activities that are otherwise eligible for

CDBG assistance. Therefore, any proposed use of CDBG funds to pay

the non-federal share of a federal grant-in-aid program should be

evaluated against the requirements of the applicable eligibility category.

It should also be noted that the authority to use CDBG funds for the

non-federal share of another program does not override any specific

restriction against that use that may be contained in the HCDA or

regulations for that program. For example, the HOME program requires

a non-federal match, but specifically states that CDBG expenditures

may not count towards meeting that requirement.

2-60  Categories of Eligible Activities State Community Development Block Grant Program

Relocation

The HCDA

Section 105(a)(11)

(a) Activities assisted under this title may include only –

(11) relocation payments and assistance for displaced individuals,

families, businesses, organizations, and farm operations, when

determined by the grantee to be appropriate;

Eligible

Activities

CDBG funds may be used for relocation payments and assistance to

displaced persons, including:

✓ Individuals,

✓ Families,

✓ Businesses,

✓ Non-profit organizations, and

✓ Farms

where required under 24 CFR 570.606 of the regulations. (24 CFR

570.488 refers to 24 CFR 570.606.)

A state may permit CDBG funds to be used for optional relocation

payments and assistance to persons (individuals, families, businesses,

non-profit organizations, and farms) displaced by an activity that is not

subject to the requirements described above. This may include

payments and other assistance for temporary relocation (when persons

are not permanently displaced.)

Optional relocation payments and assistance may also include payments

and assistance at levels higher than those required.

Unless optional payments and assistance are made pursuant to state or

local law, a state grant recipient may make such payments and

assistance only upon the basis of a written determination that such

payments and assistance are appropriate, and only if the grant recipient

adopts a written policy available to the public setting forth the

relocation payments and assistance it elects to provide.

This written policy must also provide for equal payments and assistance

within each class of displacees. References: 24 CFR 570.488 and 24

CFR 570.606(d)

State Community Development Block Grant Program Categories of Eligible Activities  2-61

Complying

With National

Objectives

Relocation

The compliance of relocation activities with the national objectives of

the CDBG program must be determined in one of two ways, depending

on whether the relocation assistance is mandatory for the grant

recipient.

Where such assistance is required under the Uniform Act or the

HCDA, the activity may qualify as meeting the national objective of

benefiting L/M income persons only where the acquisition or

rehabilitation causing the relocation can also qualify under that

objective.

If the grant recipient acquires property for construction of a public

facility that will serve an area that qualified under the slums/blight

objective, but cannot qualify as benefiting L/M income persons, the

payment of assistance to those displaced by such activity would qualify

under the slums/blight objective even if most or all of the displacees are

L/M income.

This is because the grant recipient is required by law to make such

payments and therefore it must be viewed as an integral part of the

displacing activity.

In any case where the payment of such assistance is voluntary on the

part of the grant recipient, however, the relocation payments could

qualify either on the basis of the re-use of the property or the income of

the recipients of the relocation assistance, at the grant recipient’s option.

Thus, HUD would accept a claim of addressing the L/M Income Benefit

objective where the voluntary payment of relocation benefits is made to

L/M income persons who were displaced by an activity that could not

be considered to meet that objective. This is because the payment of

such benefits clearly would not be needed to make possible the activity

causing the displacement.

Additional

Considerations

Because of the relationship of the optional versus mandatory aspects of

relocation payments to the national objectives determinations, it is

critical that states and state grant recipients make this distinction in their

program files and identify the displacing project.

2-62  Categories of Eligible Activities State Community Development Block Grant Program

Planning and

Capacity Building

The HCDA

Section 105(a)(12)

(a) Activities assisted under this title may include only –

(12) activities necessary

(A) to develop a comprehensive community development plan, and

(B) to develop a policy-planning-management capacity so that the

recipient of assistance under this title may more rationally and

effectively

(i) determine its needs,

(ii) set long-term goals and short-term objectives,

(iii) devise programs and activities to meet these goals and

objectives,

(iv) evaluate the progress of such programs in accomplishing

these goals and objectives, and

(v) carry out management, coordination, and monitoring of

activities necessary for effective planning implementation;

Section 105(a)(16)

(a) Activities assisted under this title may include only –

(16) activities necessary to the development of energy use strategies

related to a recipient's development goals, to assure that those goals

are achieved with maximum energy efficiency, including items such

as--

(A) an analysis of the manner in, and the extent to, which energy

conservation objectives will be integrated into local government

operations, purchasing and service delivery, capital improvements

budgeting, waste management, district heating and cooling, land

use planning and zoning, and traffic control, parking, and public

transportation functions; and

State Community Development Block Grant Program Categories of Eligible Activities  2-63

(B) a statement of the actions the recipient will take to foster energy

conservation and the use of renewable energy resources in the

private sector, including the enactment and enforcement of local

codes and ordinances to encourage or mandate energy

conservation or use of renewable energy resources, financial and

other assistance to be provided (principally for the benefit of low-

and moderate-income persons) to make energy conserving

improvements to residential structures, and any other proposed

energy conservation activities;

Eligible

Activities

CDBG funds may be used for:

✓ Studies,

✓ Analysis,

✓ Data gathering,

✓ Preparation of plans, and

✓ Identification of actions that will implement plans.

Under HCDA Section 105(a)(14), planning activities may also be

carried out by public or private nonprofit entities.

Example

The types of plans which may be paid for with CDBG funds include,

but are not limited to:

✓ Comprehensive plans;

✓ Individual project plans;

✓ Community development plans;

✓ Capital improvement programs;

✓ Small area and neighborhood plans;

✓ Local analyses of impediments to fair housing choice;

✓ Environmental and historic preservation studies; and

✓ Functional plans (such as plans for housing, land use, energy

conservation, or economic development).

Such funds may also be used under this category for activities designed

to improve a state grant recipient’s capacity (or that of its subrecipients)

to plan and manage programs and activities for the grant recipient’s

CDBG program. However, the amount of CDBG funds that may be

used for activities under this category (whether by the grant recipient or

its subrecipients) is subject to the statutory limitation on planning and

administrative costs.

2-64  Categories of Eligible Activities State Community Development Block Grant Program

Planning and capacity building activities do not include:

 Engineering, architectural, and design costs related to a specific

project (for example, detailed engineering specifications and

working drawings); or

 Other costs of implementing plans.

Example

While developing an economic development strategy for the city or

county is an eligible planning activity, printing brochures promoting the

city or county in order to attract businesses is not.

Complying with

National

Objectives

Planning and

Capacity

Building

CDBG funds spent for planning and capacity building costs, when

undertaken in conjunction with other CDBG assisted activities, are

considered to address the national objectives of the CDBG program as a

whole; no documentation of such compliance is required. Reference: 24

CFR 570.483(f)

However, states may also award grants to units of general local

government in which planning is the only activity, or in which planning

activities are unrelated to any other activity funded as part of the grant.

These are often referred to as “planning-only grants” or “planning-only

activities.” Planning-only grants or activities must comply with the

requirements or the L/M income or slum and blight national objectives.

(It is not possible for a planning-only grant or activity to comply with

the Urgent Needs national objective.)

Planning-only grants or activities can meet the L/M Income Benefit

objective if it can be shown that at least 51 percent of the persons who

would benefit from implementation of the plan are L/M income persons.

Planning-only grants or activities can meet the Slum/Blight national

objective if the plans are for a slum or blighted area, or if all the

elements of the planning are both necessary for and related to an activity

which, if implemented, could be shown to meet the Slum/Blight

national objective criteria. For either the L/M Income Benefit or the

Slum/Blight national objective, such determinations are not dependent

on the planned-for activity or project actually being implemented at

some point. Reference: 24 CFR 570.483(b)(5); 24 CFR 570.483(c)(3).

State Community Development Block Grant Program Categories of Eligible Activities  2-65

Additional

Considerations -

Capacity

Building

Note that capacity building is also eligible under two other categories of

Technical Assistance. The Technical Assistance provision (HCDA

Section 105(a)(19)) makes eligible the use of CDBG funds to increase

the capacity of public or nonprofit entities to carry out eligible

neighborhood revitalization or economic development activities. The

use of funds under that category is not subject to the 20 percent cap, but

must be shown to meet a national objective. In addition, a state may

deduct an amount, not to exceed one percent of the amount so received,

to provide technical assistance to local governments and nonprofit

program recipients. The one percent Technical Assistance Set-Aside

funds are subject to neither the 20 percent cap nor the requirement to

meet a national objective. These two provisions are discussed in this

Guide under the subsection of this chapter entitled Technical

Assistance.

Additional

Considerations -

Planning

The cost of implementing plans, while not eligible as planning costs,

may qualify for CDBG funding if the implementing actions are

otherwise eligible activities.

A market study performed on behalf of the grant recipient to determine

the market for some type of facility or business would be eligible under

the category of Planning. But a market study performed on behalf of a

particular business would only be eligible for CDBG funding under the

category of Special Economic Development Activities. Similarly,

conducting a market study on the need for a new hotel downtown would

be eligible under Planning, while conducting a feasibility study of a

specific proposed hotel project on a specific site would have to qualify

under the Special Economic Development Activities category.

2-66  Categories of Eligible Activities State Community Development Block Grant Program

Program Administration Costs

The HCDA

Section 105(a)(13)

(a) Activities assisted under this title may include only –

(13) payment of reasonable administrative costs related to

establishing and administering federally approved enterprise zones

and payment of reasonable administrative costs and carrying charges

related to

(A) administering the HOME Program under title II of the Cranston-

Gonzalez National Affordable Housing Act; and

(B) the planning and execution of community development and

housing activities, including the provision of information and

resources to residents of areas in which community development

and housing activities are to be concentrated with respect to the

planning and execution of such activities, and including the carrying

out of activities as described in section 701(e) of the Housing Act of

1954 on the date prior to the date of enactment of the Housing and

Community Development Amendments of 1981;

Eligible

Activities

CDBG funds may be used to pay reasonable program administration

costs and carrying charges related to the planning and execution of

community development activities assisted in whole or in part with

funds provided under the CDBG or HOME programs.

Program administration costs include staff and related costs required for

overall program management, coordination, monitoring, reporting, and

evaluation. In the State CDBG program, this category includes both the

state’s costs of administering the CDBG program, as well as units of

general local governments’ (and their subrecipients’) costs of

administering grants awarded to them by the state.

Other activities eligible under this category include:

✓ Citizen participation costs,

✓ Fair housing activities,

✓ Indirect costs charged using an accepted cost allocation plan,

✓ Development of submissions or applications for federal

programs,

✓ Staff and overhead costs for project delivery, and

✓ Certain costs of administering the HOME program or a federally

designated Empowerment Zone or Enterprise Community.

State Community Development Block Grant Program Categories of Eligible Activities  2-67

Office space:

A state or state grant recipient may charge to the CDBG program the

costs of rent and maintenance of office space to house the staff involved

in program administration, but may not purchase or construct offices for

this purpose.

Proration:

Where an individual staff person performs some duties that are eligible

as administration costs as well as other duties that are eligible under

other categories of basic eligibility, the grant recipient may elect to

charge either all of such person’s costs to administration if the person’s

primary duties are program administration, or only the portion of the

staff’s duties that are covered under this category (provided appropriate

time distribution records are kept).

20 percent cap:

Costs that are charged to administrative costs and to planning and

capacity building under Section 105(a)(12) are subject to a statutory

limitation that not more than 20 percent of grant funds plus program

income may be used for planning and administration. This 20 percent

limitation applies to the entire state grant, not individual local

governments. A state could make a grant to a town solely for planning

activities. In the State CDBG program, compliance with the 20 percent

cap is determined by expenditures over the life of a given fiscal year’s

allocation of funds (plus program income distributed by the state as part

of that year’s method-of-distribution).

Two percent state administration cap:

States can spend $100,000 on state administration costs of State CDBG

grants, and can also spend up to two percent of the total CDBG grant

more. But this additional two percent must be matched by state or in-

kind funds. The allowance of $100,000 plus up to two percent for state

administrative costs is also included within the overall 20 percent cap

on planning plus administrative costs.

2-68  Categories of Eligible Activities State Community Development Block Grant Program

Example

Overall program management, coordination, monitoring, and

evaluation include, but are not limited to, the following types of

assistance:

✓ Preparing program budgets, schedules and amendments;

✓ Evaluating program results against stated objectives;

✓ Coordinating the resolution of audit and monitoring findings;

✓ Developing systems for assuring compliance with program

requirements;

✓ Monitoring program activities for progress and compliance with

program requirements;

✓ Preparing reports and other compliance documents related to the

program for submission to HUD; and

✓ Developing interagency agreements and agreements with

subrecipients and contractors to carry out program activities.

✓ Development of the Consolidated Plan

Not

Eligible

Program administration does not authorize:

 Political activities.

 The acquisition, construction, or reconstruction of space in a

government office building for staff administering the grant

recipient’s CDBG or HOME programs, since CDBG funds may

not be used to assist “buildings for the general conduct of

government.” See the section on Public Facilities and

Improvements for more information on this limitation.

Complying

with National

Objectives

Program

Administration

Costs

Costs that are appropriately charged to this category are presumed to

meet a CDBG national objective, and the grant recipient does not have

to maintain any other documentation for this purpose.

State Community Development Block Grant Program Categories of Eligible Activities  2-69

Other

Considerations

In general, states’ approach to the eligibility of administrative costs is

very different from that allowed under the CDBG Entitlement program.

In the Entitlement program regulations, a distinction is made between

general administrative costs and activity-specific administrative costs

related to carrying out other eligible activities. The latter, sometimes

called “activity delivery costs,” represent the administrative costs

incurred in implementing specific activities; they are considered part of

the cost of those activities and are not subject to the 20 percent planning

plus administrative cost cap. (Examples of such activity-specific

administrative costs include: costs of printing brochures advertising the

availability of housing rehabilitation loan funds; staff costs of

underwriting and approving loans to businesses; staff costs of housing

rehabilitation specialists performing work write-ups and inspecting

completed construction work.)

Few, if any, states elect to make such distinctions between “activity

delivery costs” and “general administrative costs” (such as indirect

costs, staff costs of a bookkeeper, or costs of obtaining an audit when

required). Most states choose to categorize all types of administrative

costs together for administrative and eligibility purposes, since no

distinctions are made under HCDA 106 (d) (3) (A). (No such

distinction would be possible in any event for the state’s own $100,000

plus two percent administrative cost allowance, as states do not directly

carry out activities in the CDBG program).

In addition, states may choose to limit state grant recipients to a lower

percentage allowance for program administration costs. Some states set

different maximum administrative cost allowances for different types of

activities; for instance, up to ten percent housing rehabilitation grants,

but only six percent for infrastructure grants. Some states do not allow

state grant recipients to charge any administrative costs to their CDBG

grant, and require the state grant recipient to cover all administrative

expenses as a form of local funding match requirement.

2-70  Categories of Eligible Activities State Community Development Block Grant Program

Activities Carried Out through

Nonprofit Development Organizations

The HCDA Section 105(a)(14)

(a) Activities assisted under this title may include only –

(14) provision of assistance including loans (both interim and long-

term) and grants for activities which are carried out by public or

private nonprofit entities, including

(A) acquisition of real property;

(B) acquisition, construction, reconstruction, rehabilitation, or

installation of

(i) public facilities (except for buildings for the general conduct of

government), site improvements, and utilities, and

(ii) commercial or industrial buildings or structures and other

commercial or industrial real property improvements; and

(C) planning;

Section 105(a)(15)

(a) Activities assisted under this title may include only –

(15) assistance to neighborhood-based nonprofit organizations, local

development corporations, nonprofit organizations serving the

development needs of the communities in nonentitlement areas, or

entities organized under section 301(d) of the Small Business

Investment Act of 1958 to carry out a neighborhood revitalization or

community economic development or energy conservation project in

furtherance of the objectives of section 101(c) of this title, and

assistance to neighborhood-based nonprofit organizations, or other

private or public nonprofit organizations, for the purpose of assisting,

as part of neighborhood revitalization or other community

development, the development of shared housing opportunities (other

than by construction of new facilities) in which elderly families (as

defined in section 3(b)(3) of the United States Housing Act of 1937)

benefit as a result of living in a dwelling in which the facilities are

shared with others in a manner that effectively and efficiently meets

the housing needs of the residents and thereby reduces their cost of

housing;

State Community Development Block Grant Program Categories of Eligible Activities  2-71

Preface

Two consecutive provisions of the HCDA authorize state grant

recipients to provide funding to various types of nonprofit organizations

to carry out CDBG activities. At first glance, they may appear

redundant. It is important to note the differences between these two

sections, as they deal with different types of organizations and deal with

the eligibility of different types of activities.

Eligible

Activities -

Section

105(a)(14)

HCDA Section 105(a)(14) authorizes funds to be provided (in the form

of loans or grants) from state grant recipients to public and private

nonprofit entities, to carry out:

✓ Acquisition,

✓ Construction,

✓ Rehabilitation,

✓ Reconstruction,

✓ Installation of commercial or industrial buildings or structures

and other related real property equipment and improvements,

and

✓ Planning.

At first glance, this section might appear to add little to the scope of

activities eligible under the HCDA. The activities listed are generally

eligible under other statutory eligibility categories as well, and the list is

illustrative rather than exclusive.

Eligible

Entities -

Section

105(a)(14)

Neither the statute nor the CDBG regulations further define the term

“public and private nonprofit entities”; and there is no language

elsewhere in the HCDA that prohibits a grant recipient from using other

entities to carry out otherwise-eligible activities.

However, this section of the HCDA is significant in that:

 It was written with a distinct orientation toward economic

development and physical development activities;

 Inclusion of “public nonprofit entities” allows certain publicly

sponsored or quasi-governmental organizations to carry out

CDBG activities (depending on state law, this may include

industrial development, redevelopment or port authorities, local

development corporations, housing authorities, etc.);

 This provision makes clearly eligible the installation of rail

spurs, private utilities and other site improvements on private

property, and the development of such projects as industrial

parks and business incubators; and

2-72  Categories of Eligible Activities State Community Development Block Grant Program

 The HUD entitlement regulations (at 24 CFR 570.203)

implement and interpret this provision to clarify that such

activities may also be carried out directly by a grant recipient

itself.

Examples of

Eligible

Entities -

Section

105(a)(14)

 Construction by a subrecipient of a business incubator designed

to provide inexpensive space and assistance to new firms to help

them become viable businesses;

 Acquisition of land and installation of infrastructure by a County

Industrial Development Authority, to expand an existing

industrial park;

 A loan to a private nonprofit organization to finance the

development of a sheltered workshop to provide training and

employment for developmentally disabled adults.

Planning activities eligible under this provision are discussed elsewhere

in this Chapter under the “planning and capacity-building” section.

Eligible

Entities -

Section

105(a)(15)

The range of entities and activities eligible under HCDA Section

105(a)(15) is simultaneously broader and narrower than under HCDA

Section 105(a)(14).

When initially added to the HCDA, Section 105(a)(15) was limited to:

✓ Neighborhood-based nonprofit organizations,

✓ Local development corporations, and

✓ Entities organized under Section 301(d) of the Small Business

Investment Act of 1958.

Making use of this provision in rural areas and small communities was

difficult, given the dearth of organizations serving these areas that

qualified, and given the vagaries of defining a “neighborhood” in such

areas. The 1992 Amendments to the HCDA revised this section to

make it much more useful in small communities and rural areas; to the

above list was added:

✓ Nonprofit organizations serving the development needs of the

communities in nonentitlement areas.

State Community Development Block Grant Program Categories of Eligible Activities  2-73

HUD has chosen not to further define what constitutes a nonprofit

organization serving the development needs of nonentitlement

communities. (In the preamble to the 1995 CDBG Economic

Development regulations, the Department suggested that such an

organization should at least meet an IRS definition of a nonprofit.)

HUD also defers to states on what constitutes “the development needs”

of nonentitlement communities. Nevertheless, this phrase should not be

overlooked. In considering whether a given nonprofit organization

qualifies under HCDA Section 105(a)(15), a state or a state grant

recipient needs to make a determination that the nonprofit is organized

under state or local law to carry out community development activities

which address the development needs of the community in question.

In the entitlement regulations (24 CFR 570.204) there is a lengthy

description of the criteria that an organization must meet in order to

qualify as a Community Based Development Organization under HCDA

Section 105(a)(15). The term “community based development

organization” is also occasionally used in the State CDBG program as a

generic term. It is important for states and their grant recipients to

understand that they are not bound by the Entitlement program’s CBDO

qualification requirements in 24 CFR 570.204. The language in HCDA

Section 105(a)(15) allows a much broader range of nonprofit

organizations to qualify under this provision in the State CDBG

program than in the Entitlement program. There is nothing to prevent a

regional or even a statewide entity from qualifying.

Examples of

Eligible Entities -

Section

105(a)(15)

The following are examples of the types of entities that may qualify as

nonprofit development organizations under HCDA Section 105(a)(15).

A state or state grant recipient should research any nonprofit under

consideration to ensure that it meets the other requirements of HCDA

Section 105(a)(15) discussed below:

✓ Small Business Investment Companies organized under 15 USC

Section 681,

✓ SBA Section 504 Certified Development Companies,

✓ Community Action Agencies,

✓ Community Development Corporations,

✓ Local Development Corporations, and

✓ Community Housing Development Organizations (CHDOs)

under the HOME program.

2-74  Categories of Eligible Activities State Community Development Block Grant Program

Eligible Activities

& Projects -

Section

105(a)(15)

Concerning the activities eligible under HCDA Section 105(a)(15), the

statutory language is similarly both expansive and limiting. This

category authorizes a grant recipient to designate certain types of

entities to carry out a range of activities, including activities the grant

recipient may otherwise not carry out itself. While the “otherwise

ineligible” activities covered by this authority may take many forms, the

most frequent use of this provision in the CDBG program has been to

carry out new construction of housing.

However, there are also other advantages of using a nonprofit

development group in the CDBG program: specifically, for the purpose

of providing public services that in certain circumstances are not subject

to the limitations on the use of funds for Public Services. (This

exception is explained in more detail later in this subsection.)

Under the provisions of HCDA Section 105(a)(15), a qualified nonprofit

development group can only carry out the following three types of

projects:

✓ Neighborhood revitalization projects,

✓ Community economic development projects, and

✓ Energy conservation projects.

The following discussion of these terms appears in the CDBG

Entitlement program regulations at 24 CFR 570.204; states are free to

use this as interpretive guidance. HUD defers to states in interpreting

what constitutes a “neighborhood” for purposes of this provision, but

suggests that a state’s definition should be consistent with terminology

used under its Community Revitalization Strategy process.

 Neighborhood revitalization: Activities undertaken under this

provision must be of sufficient size and scope to have an impact

on the decline of a designated geographic location within the

jurisdiction of the community (but not the entire jurisdiction of

an entitlement community unless it has a population of 25,000 or

less). The activities to be considered for this purpose are not

limited to those funded (or to be funded) with CDBG assistance.

State Community Development Block Grant Program Categories of Eligible Activities  2-75

 Community Economic Development: This type of project must

include activities that increase economic opportunity, principally

for low- and moderate-income persons, or that are expected to

create or retain businesses or permanent jobs within the

community. Housing activities may be included within this

project type if they can clearly link the need for affordable

housing accessible to existing or planned jobs, or otherwise

address the Consolidated Plan’s definition of “expanded

economic opportunity” at 24 CFR Part 91.1(a)(1)(iii).

 Energy Conservation: Activities carried out under this provision

are clearly designed to conserve energy for the benefit of

residents within the grant recipient’s jurisdiction. An example

of this type of project may involve the construction of energy

efficient housing where substantial savings in heating and/or

cooling costs can expect to be realized.

The typical CDBG eligibility categories (for example, public facilities

and improvements, public services, rehabilitation) may appear either

singly or in virtually any combination under any one of these three types

of projects. CDBG funds do not have to constitute the only source of

funding in the project.

“Carry out”

Section

105(a)(15)

Activities

The authority conveyed under this category requires that the nonprofit

development group “carry out” the funded activities. This means that

the nonprofit development group will undertake the activity directly or

through contracts with an entity other than the state grant recipient. In

any case where the nonprofit development group provides CDBG funds

to another entity, it must be clear that the nonprofit development group

has a direct and controlling interest in how and where the activities are

undertaken. The purpose of this restriction is to ensure that the state

grant recipient itself is not playing a major and controlling role.

Nothing prevents a nonprofit development group from entering into a

contract with another entity to assist in project implementation, so long

as the contract provides the nonprofit development group with sufficient

control over the project to ensure compliance with all program

requirements. (For example, a nonprofit development group can

contract with a developer to build housing and not have to use nonprofit

development group staff to construct the units.)

2-76  Categories of Eligible Activities State Community Development Block Grant Program

Entities that do not meet the nonprofit development group requirements

could establish a subsidiary organization to carry out an activity under

this category, but the subsidiary organization in such case would need to

be in control of itself and not be merely a “front” for the parent

organization. Perhaps the “litmus test” which can be induced from the

above discussion is whether the entity has the authority, independent of

the state grant recipient or other involved/related entities, to stop the

project if something is going wrong.

If a state grant recipient intends to fund a nonprofit development group

that lacks capacity to carry out complex development activities without

substantial “hand-holding,” careful consideration must be paid to the

“carry out” aspect to ensure that program requirements are not violated.

One solution may be to assist the nonprofit development group in hiring

professionals, such as a more experienced nonprofit, a general

contractor, or an architectural and engineering firm, to provide needed

expertise to complete the project. The state or its grant recipients could

also break a project into two parts and, in the first year, fund capacity

building for the nonprofit development group before the nonprofit

development group carries out the project.

Fundamentally, in order to use the authority provided under this

category of activities by nonprofit development groups, the grant

recipient must ensure that four key tests are met:

(1) That the entity selected qualifies as a nonprofit development

group under HCDA Section 105(a)(15);

(2) That the project that the nonprofit development group will

undertake qualifies under HCDA Section 105(a)(15);

(3) That the nonprofit development group will be “carrying out”

the activities; and

(4) That the nonprofit development group is not carrying out an

activity that is specifically ineligible under the CDBG program.

State Community Development Block Grant Program Categories of Eligible Activities  2-77

Additional

Considerations

When an activity is being carried out by a nonprofit development group

under this category and the activity is of such nature that it would also

qualify under the category of economic development assistance to a for-

profit business (as specified in HCDA Section 105(a)(17)), that activity

will be subject to the Public Benefit requirements described in

Appendix C of this Guide, Public Benefit Standards. However, if the

nonprofit development group is carrying out any such activities

pursuant to a state-approved Community Revitalization Strategy (CRS),

the state may allow the activities to be exempted from the aggregate

public benefit standards. See Appendix E, Community Revitalization

Strategy Areas, and Appendix C, Public Benefit Standards.

A further discussion of the eligibility or ineligibility of new housing

construction appears in the “Other Provisions Relating To Eligibility”

subsection near the end of this chapter.

Public services:

There are two situations in which public services activities carried out

by nonprofit development groups can be excluded from the limitations

placed on public services expenditures (for example, the 15 percent

cap):

 Any services provided by a nonprofit development group that

are specifically designed to increase economic opportunities

through job training and placement and other employment

support services (for example, peer support programs,

counseling, child care, transportation, and other similar

services), and

 Services of any type being provided by a nonprofit development

group pursuant to a state-approved Community Revitalization

Strategy. (Reference: 24 CFR 91.315(e) and Appendix E,

Community Revitalization Strategy Areas, for further

information on such strategies.)

2-78  Categories of Eligible Activities State Community Development Block Grant Program

Repayments and program income requirements:

Any revenue (such as loan repayments) paid to a nonprofit development

organization and generated by an activity carried out by that nonprofit

under HCDA Section 105(a)(15) is not considered to be CDBG program

income. The nonprofit organization would thus be free to use these

repayments to carry out activities that would not be eligible under the

CDBG program. If, for example, the organization administers a

regional revolving loan fund, the repayments could be used to fund

additional loans in communities other than the one to which the state’s

grant was awarded. Or, the funds could be lent to a high-technology

business start-up project that could not meet the L/M Income Benefit

national objective requirements. Reference: 24 CFR 570.489(e)(2)(ii)

This may be a way to carry out local economic development objectives

that, while worthwhile, do not fit into the requirements of the CDBG

program. This may also be a way to help a high-performing nonprofit

development group secure ongoing funding to continue its mission

following completion of the CDBG-funded project. However, states

and their grant recipients should keep the following considerations in

mind:

 Since such revenue is not program income, it cannot be included

in the bases for calculating the public services or

planning/administration caps.

 A state or a state grant recipient can override the provisions of

24 CFR 570.489(e)(2)(ii) and require that a nonprofit

development organization re-use the repayments in accordance

with any or all CDBG program requirements.

 When a state grant recipient provides funds to a nonprofit

development group in the form of a loan, such as under the

provisions of HCDA Section 105(a)(14), any payments made by

the nonprofit development group to the state grant recipient on

that loan would be CDBG program income.

 Any repayments that the state requires to be returned to the state

are automatically CDBG program income.

State Community Development Block Grant Program Categories of Eligible Activities  2-79

Complying

with National

Objectives

Activities

by Nonprofit

Development

Groups under

Sections

105(a)(14) and

(15)

The majority of activities carried out by a nonprofit development group

under this authority are also eligible under other categories covered in

this Guide. The fact that they are carried out by a nonprofit

organization does not affect how they can meet a national objective.

Even for “otherwise ineligible activities” such as new housing

construction, the parallels with requirements for similar eligible

activities are fairly obvious. Readers can refer to the other relevant

sections in this chapter concerning the considerations necessary to

determine how to meet the CDBG national objectives. For reference,

information on new housing construction by nonprofit development

organizations is provided here.

2-80  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  ACTIVITIES BY NONPROFIT DEVELOPMENT

ORGANIZATIONS

Objective Qualifies If Example Additional Information

L/M Income

Housing

L/M income households will occupy

the new housing. Rental units must

be occupied at affordable rents.

New housing construction can only

be undertaken:

✓ By a non-profit development

organization pursuant to

HCDA Section 105(a)(15), or

✓ Under the last resort housing

provisions in 49 CFR Part 24.

New construction of multi-family

(rental) apartment building for lower-

income households by a Community

Development Corporation

For more information, see pages 3-21

and 2-108.

State Community Development Block Grant Program Categories of Eligible Activities  2-81

Economic Development

Assistance to For-Profit

Business

The HCDA

Section 105(a)(17)

(a) Activities assisted under this title may include only –

(17) provision of assistance to private, for-profit entities, when the

assistance is appropriate to carry out an economic development

project (that shall minimize, to the extent practicable, displacement of

existing businesses and jobs in neighborhoods) that--

(A) creates or retains jobs for low- and moderate-income persons;

(B) prevents or eliminates slums and blight;

(C) meets urgent needs;

(D) creates or retains businesses owned by community residents;

(E) assists businesses that provide goods or services needed by,

and affordable to, low- and moderate-income residents; or

(F) provides technical assistance to promote any of the activities

under subparagraphs (A) through (E);

Preface While this section of the statute deals exclusively with economic

development activities, it is important to note that this is not the only

section of the HCDA under which economic development activities may

be undertaken. Indeed, the term “economic development” has different

meanings to different people. At its broadest, the term can be

interpreted to include all endeavors intended to sustain or increase the

level of business activity. Remember, too, that not everything that

might constitute “economic development” in its broadest sense is

eligible in the CDBG program.

Providing direct financial assistance to a business may be the most

common use of CDBG funds to promote economic development, but it

certainly is not the only way. Land acquisition, clearance and

disposition, provision of infrastructure, and microenterprise assistance

are just a few of the other statutory eligibility categories under which

economic development activities can be carried out. Even within the

realm of direct financial assistance, there can be loans, interest rate

2-82  Categories of Eligible Activities State Community Development Block Grant Program

subsidies, loan loss reserve funds, credit enhancements, third-party

guarantees, etc. A particular project utilizing any of these may be a

stand-alone, single-user deal, or may be funded through a revolving loan

fund.

For any given economic development project, how the deal is structured

(who pays for what, and who carries what out) may be the biggest

determinant to how the activity qualifies as eligible for CDBG funding.

As will be discussed below, how the deal is structured, and which

activity(ies) CDBG funds are used for, affects whether or not the

activity is subject to the Public Benefit Standards and Underwriting

Guidelines.

This section describes what is possible under the statute and the

regulations. Not all states design their CDBG programs to encompass

everything that is possible. It is important for both states and state grant

recipients to understand what is and is not allowed under the CDBG

program, and to distinguish between federal program requirements and

additional state-imposed requirements.

Each state takes a slightly different approach to economic development

in its CDBG program, reflecting the unique needs and established

priorities of that state. One state may choose to fund only single-user

deals emphasizing manufacturing facilities which promote economic

diversification; another may encourage regional revolving loan funds

focusing on revitalizing small town business districts. A third state may

be willing to assist any type of business so long as they agree to meet

“social goals,” such as moving hard-to-employ people from welfare into

the labor force, paying higher-than-minimum wages or providing health

care benefits; yet another may limit its economic development

assistance activities to job training and provision of infrastructure.

Many states set maximum-assistance-per-job-created levels below those

established under HUD’s Public Benefit Standards.

Eligible

Activities

 Direct financial assistance to private for-profit entities, for an

activity determined by the grant recipient to be appropriate to

carry out an economic development project; this may include,

but is not limited to:

✓ grants,

✓ loans,

✓ loan guarantees,

✓ interest supplements, and

✓ any other form.

For activities funded under HCDA Section 105(a)(17), the

State Community Development Block Grant Program Categories of Eligible Activities  2-83

statute requires that the state and its grant recipients shall

minimize, to the extent practical, displacement of existing

businesses and jobs in neighborhoods.

 Economic development services in connection with the above

subcategories, including outreach efforts to market available

forms of assistance; screening of applicants; reviewing and

underwriting applications for assistance; preparation of

agreements; management of assisted activities; and the

screening, referral, and placement of applicants for employment

opportunities generated by CDBG-eligible economic

development activities. The costs of providing necessary job

training for persons filling those positions may also be provided.

 Technical assistance to businesses

Example

Activities eligible under this section include:

 Loans or other direct financial assistance to pay for the expansion of

a factory or commercial business, or the establishment of a new

facility or business. Under this provision, there are no restrictions

on how this financial assistance might be structured. For example,

the CDBG funds could be given to the company with which to:

✓ Purchase land;

✓ Construct a building or other improvements;

✓ Renovate an existing building to accommodate the business;

✓ Construct tenant improvements/finishes;

✓ Lease space in or purchase an existing building;

✓ Purchase capital equipment;

✓ Purchase inventory;

✓ Use as working capital;

✓ Provide employees with higher wages or fringe benefits (such

as health insurance) that the company would not otherwise

provide; and

✓ Provide job training to newly-hired employees who otherwise

would not qualify for those jobs.

 Technical assistance to a business facing bankruptcy.

2-84  Categories of Eligible Activities State Community Development Block Grant Program

 Providing services or benefits to newly-hired employees that

allow them to hold the jobs, such as transportation to the jobsite

or day care assistance. The company could provide subsidies or

vouchers to employees for obtain such services on their own; or

the company could provide these services directly for their

employees (for example, operating an on-site day care center);

or the company could contract with a third party to

provide/operate these services (for example, contracting with a

bus service to transport employees to work).

 Providing training needed by persons on welfare to enable them

to qualify for jobs created by CDBG-assisted special economic

development activities.

Ineligible

Activities

Economic development activities eligible under HCDA Section

105(a)(17) do not include:

 Assistance to a for-profit business in the form of lobbying or

other political activities.

 Public facilities and improvements carried out to support or

benefit a private for-profit business. These activities may,

however, be eligible under the category of Public Facilities and

Improvements.

 New Housing Construction. This activity may, however, be

eligible under HCDA Section 105(a)(15) when undertaken by

nonprofit development groups. When a project to be assisted

includes new construction of housing as part of a commercial

structure (for example, a “mixed use” project), those costs

clearly attributable to the commercial portion of the project may

be eligible as economic development assistance to a for-profit

business.

 Planning for economic development projects, including

conducting market surveys to determine an appropriate type of

business to attempt to attract to a particular area, developing

individual commercial or industrial project plans, and

identifying actions to implement those plans. Such planning

activities may be eligible under the category of Planning and

Capacity Building.

State Community Development Block Grant Program Categories of Eligible Activities  2-85

 Job training that is not part of a CDBG-eligible economic

development activity to create or retain permanent jobs.

There are important distinctions that need to be made by the

state and its grant recipients between the types of job training

eligible under this section and more generalized job training

activities that may be eligible under the categories of Public

Services or Activities by Nonprofit Development Groups.

Examples of training activities eligible under this section

include:

• Training unskilled, low-income persons for specific jobs for

which they have been hired and which require skill levels

beyond what they now have;

• Training a pool of low-income prospective employees for

specific jobs being created as a result of a CDBG-funded

industrial expansion, where the employer agrees to give first

consideration to filling the new positions with people from

this pool;

• Re-training existing employees of a business as part of a

project which qualifies as retaining jobs under the L/M

Income Jobs national objective criterion.

 In contrast, the following are examples of training which would

not qualify under HCDA Section 105(a)(17), but which could

qualify under HCDA Section 105(a)(8) or (15):

• Providing generalized, “how to find and keep a job” training

to welfare recipients who have never been in the labor force

before;

• Providing specialized training to low-income high school

dropouts so they are qualified to find jobs in some particular

industry or employment field (for example, COBOL

programmers), in the absence of any linkage to specific

positions at specific firms. (In other words, the job openings

have to come first; training residents in some field of

endeavor in hopes of attracting businesses in that industry

cannot qualify as providing assistance to a for-profit

business.)

2-86  Categories of Eligible Activities State Community Development Block Grant Program

Complying

with National

Objectives

Economic

Development

Assistance to

For-Profit

Business

Section 105(c)(1) of the HCDA specifies certain limitations on how

activities under Section 105(a)(17) may meet the national objective of

Benefit to L/M Income Persons. These limitations are reflected in the

charts that follow which show how activities in this category may meet

the CDBG national objectives.

State Community Development Block Grant Program Categories of Eligible Activities  2-87

NATIONAL OBJECTIVES  ECONOMIC DEVELOPMENT ASSISTANCE TO

FOR-PROFIT BUSINESS

Objective Qualifies If Example Additional Information

L/M Income

Area Benefit

The assistance is to a business that

provides goods or services to residents

of a L/M income residential area.

Assistance to downtown businesses

such as grocery stores and

laundromats, serving a town of 950

people, 62 percent of whom are L/M

income.

For more information, see page 3-9.

L/M Income

Limited

Clientele

The only use of CDBG is to provide

job training or other employment

support services as part of a CDBG-

eligible economic development

project, and the percentage of total

project cost contributed by CDBG

does not exceed the percentage of all

persons assisted who are L/M income,

but the percentage of L/M income

persons assisted is less than 51

percent.

Training for the 30 new employees,

ten of whom are L/M income, hired by

a manufacturer adding new machinery

to its plant where CDBG pays no more

than one-third of the total cost of the

project, including the training.

For more information, see page 3-16.

2-88  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  ECONOMIC DEVELOPMENT ASSISTANCE TO

FOR-PROFIT BUSINESS

Objective Qualifies If Example Additional Information

L/M Income

Jobs

The assisted project involves the

creation or retention of jobs at least 51

percent of which benefit L/M income

persons.

Financial assistance to a manufacturer

for the expansion of its facilities that

is expected to create permanent jobs,

at least 51 percent of which will be

taken by L/M income persons.

For more information, see page 3-27

State Community Development Block Grant Program Categories of Eligible Activities  2-89

NATIONAL OBJECTIVES  ECONOMIC DEVELOPMENT ASSISTANCE TO

FOR-PROFIT BUSINESS

Objective Qualifies If Example Additional Information

Slum or

Blighted Area

The assistance is to a business in a

designated slum or blighted area and

addresses one or more of the

conditions that contributed to the

deterioration of the area.

A low-interest loan to a private

development company to acquire and

clear an abandoned rail yard complex

in a designated, blighted

redevelopment district; the company

will redevelop the site as an industrial

park.

For more information, see page 3-41.

2-90  Categories of Eligible Activities State Community Development Block Grant Program

NATIONAL OBJECTIVES  ECONOMIC DEVELOPMENT ASSISTANCE TO

FOR-PROFIT BUSINESS

Objective Qualifies If Example Additional Information

Spot Blight The assistance is to a business located

outside of a designated slum or

blighted area where:

(1) The assistance is designed to

eliminate specific conditions of

blight or physical decay; and

(2) The assistance is limited to the

following activities:

✓ acquisition,

✓ clearance,

✓ relocation,

✓ historic preservation, and

✓ building rehabilitation.

Rehabilitation must be limited to

the extent necessary to eliminate

specific conditions detrimental to

public safety and health.

Financial assistance to a business to

demolish a decayed structure it owns

in order to assist the business in

constructing a new building on the

site.

For more information, see page 3-45.

State Community Development Block Grant Program Categories of Eligible Activities  2-91

NATIONAL OBJECTIVES  ECONOMIC DEVELOPMENT ASSISTANCE TO

FOR-PROFIT BUSINESS

Objective Qualifies If Example Additional Information

Urgent Need The assistance to a commercial or

industrial business is designed to

alleviate existing conditions and the

grant recipient certifies that such

conditions pose a serious and

immediate threat to the health or

welfare of the community, they are of

recent origin or recently became

urgent, the grant recipient is unable to

finance the activity on its own, and

other sources of funds are not

available.

Assistance in reconstructing the only

grocery store in a small, remote town

that was damaged by a tornado, where

no other funds are available for the

reconstruction.

For more information, see page 3-45.

2-92  Categories of Eligible Activities State Community Development Block Grant Program

Additional Applicable

Requirements - Activities

Funded Under Section

105(a)(14), (15), and (17)

The HCDA Section 105(e)

(e) Guidelines for evaluating and selecting economic development

projects

(1) Establishment

The Secretary shall establish, by regulation, guidelines to assist grant

recipients under this chapter to evaluate and select activities

described in subsection (a)(14), (15), and (17) of this section for

assistance with grant amounts. The Secretary shall not base a

determination of eligibility of the use of funds under this chapter for

such assistance solely on the basis that the recipient fails to achieve

one or more of the guidelines' objectives as stated in paragraph (2).

(2) Project costs and financial requirements

The guidelines established under this subsection shall include the

following objectives:

(A) The project costs of such activities are reasonable.

(B) To the extent practicable, reasonable financial support has been

committed for such activities from non-Federal sources prior to

disbursement of Federal funds.

(C) To the extent practicable, any grant amounts to be provided for

such activities do not substantially reduce the amount of non-

Federal financial support for the activity.

(D) Such activities are financially feasible.

(E) To the extent practicable, such activities provide not more than

a reasonable return on investment to the owner.

(F) To the extent practicable, grant amounts used for the costs of

such activities are disbursed on a pro rata basis with amounts from

other sources.

State Community Development Block Grant Program Categories of Eligible Activities  2-93

(3) Public benefit

The guidelines established under this subsection shall provide that

the public benefit provided by the activity is appropriate relative to the

amount of assistance provided with grant amounts under this chapter.

Public

Benefit

The 1992 Amendments to the HCDA added new requirements for

economic development activities funded under HCDA Section

105(a)(14), (15), and (17). The previous requirement (that assistance to

certain economic development activities be determined to be

“appropriate”) was replaced with a requirement that the level of public

benefit to be derived from the activity must be appropriate given the

amount of CDBG assistance being provided. HUD revised the CDBG

regulations in 1995 to implement this requirement through the addition

of the Public Benefit Standards and Underwriting Guidelines. These

requirements, which are found at 24 CFR 570.482(e) and (f) and are

further discussed in Appendix C, Public Benefits Standards, apply to all

economic development activities funded under HCDA Section

105(a)(14), (15), and (17). The regulations provide several avenues by

which states and their grant recipients can demonstrate that reasonable

public benefits are accruing from CDBG-assisted economic

development activities.

Grant recipients are also expected to perform due diligence through

financial underwriting of any assistance being provided to a for-profit

business and HUD has developed guidelines that a grant recipient may

use for this purpose. It is important to note, however, that grant

recipients are not required to use the HUD-supplied underwriting

guidelines. (See Appendix C, Public Benefits Standards.)

How the assistance to a given project is structured affects more than just

the category under which the activity may be eligible; it affects the

applicability of the public benefit standards and underwriting guidelines

to the activity as well. The public benefit standards and underwriting

guidelines do not apply to a number of other eligibility categories under

which economic development activities could be carried out, such as:

✓ Microenterprise assistance activities funded under HCDA

Section 105(a)(22),

✓ Acquisition funded under HCDA Section 105(a)(1),

✓ Rehabilitation or construction of buildings funded under HCDA

Section 105(a)(4),

2-94  Categories of Eligible Activities State Community Development Block Grant Program

✓ Provision of public facilities under HCDA Section 105(a)(2), in

most cases. (However, HUD has by regulation applied them to

certain economic development infrastructure activities.)

The public benefit standards and underwriting guidelines do not apply

to non-economic development activities (such as new housing

construction) carried out by nonprofit organizations under HCDA

Section 105(a)(15).

On the other hand, states and state grant recipients should be aware that

the public benefit standards and underwriting guidelines do apply to job

training and other economic development services activities funded

under HCDA Section 105(a)(17), even though they may not involve

direct financial assistance to a business. Furthermore, it is important to

remember that the public benefit standards are part of the statutory

eligibility requirements of the program. Their applicability is triggered

by the eligibility category under which the activity is funded, not by

what national objective the activity is designed to address.

Prohibition

Against

Relocation

of Jobs

It is common practice in the economic development field for

communities to compete against one another to be the site of new

commercial or industrial facilities. One of the more controversial

aspects of this practice is when communities offer CDBG assistance to a

business to induce the business to move its existing operations from

another community. The gaining community seeks to provide new jobs

for its residents, but those gains sometimes come at the expense of

employees currently holding jobs with that business in another

community, who are not in a position to follow their employer (and their

job) to a new location. This practice has come to be known as “job

relocation,” or more commonly, “job piracy.”

Section 588 of Public Law Section 105-276 (the FY 1999 HUD

Appropriations Act) amended Section 105 of the HCDA to prohibit

CDBG funds from being used “…to assist directly in the relocation of

any industrial or commercial plant, facility, or operation, from (one)

area to another, if the relocation is likely to result in a significant loss of

employment in the labor market area from which the relocation occurs.”

HUD plans to revise the CDBG regulations to interpret and implement

the job-relocation prohibition. Until final rules are in effect, HUD’s

approach to implementing Section 588 in the State CDBG program is to

encourage states to proceed cautiously and with the admonition that

states which undertake projects which might fall within the purview of

Section 588 do so at their own risk. HUD will give maximum feasible

deference to a state’s interpretation of the statutory requirements of the

HCDA, providing such interpretations are not plainly inconsistent with

State Community Development Block Grant Program Categories of Eligible Activities  2-95

the HCDA. Notwithstanding this deference, HUD urges states to collect

and consider the following information regarding any proposed project

which might fall under the purview of Section 588:

 The extent to which CDBG funds will assist directly in the

relocation of a company’s operations to a new locality, such as

whether or not there has been or will be any agreement between

the new locality and the company related to job creation and

meeting national CDBG objectives; whether some or all of the

company’s existing operations will be transferred to the new

locality; and the extent to which any such transfer is assisted

with CDBG funds.

 The significance of any loss of employment in the company’s

present location as it relates to any CDBG funding in a new

locality; the scope and nature of any resulting change in

operations in the company’s present location, including changes

in plant production and in the size of the resultant workforce at

the respective plants.

Additional

Considerations

States and their grant recipients should take special precautions in the

design and implementation of economic development assistance

programs, particularly when providing assistance to a for-profit

business. First, it should be evident that all business activity involves

more than the average amount of risk and it is possible that the

contemplated results will not materialize. It is to be expected that

businesses will focus heavily on their own interests; it should not be

surprising if they show little interest in the fulfillment of the

community’s goals and objectives or in the particular requirements of

the CDBG program. States and their grant recipients must therefore

maintain proper documentation in the activity files and offer technical

assistance to avoid program non-compliance. Care should be taken to

protect the community’s interests in their dealings with those entities

that work in the economic development sphere.

If a state grant recipient, subrecipient, or other nonprofit organization

makes a number of CDBG loans for economic development, it will be

important to take appropriate steps to manage the loan portfolio. Some

guidance and advice concerning this matter may be found in Appendix

H, Selling or Securitizing CDBG-funded Loans Using the Section 108

Program and Other Secondary Markets.

2-96  Categories of Eligible Activities State Community Development Block Grant Program

Technical Assistance

The HCDA

Section 105(a)(19)

(a) Activities assisted under this title may include only –

(19) provision of technical assistance to public or nonprofit entities to

increase the capacity of such entities to carry out eligible

neighborhood revitalization or economic development activities, which

assistance shall not be considered a planning cost as defined in

paragraph (12) or administrative cost as defined in paragraph (13);

Eligible

Activities

This provision makes eligible the use of CDBG funds to increase the

capacity of public or nonprofit entities to carry out eligible

neighborhood revitalization or economic development activities. (This

could include the state grant recipient itself.) In order to use the funds

under this authority, the state must determine, prior to providing the

assistance, the eligibility of the activity for which capacity is to be built

and that there is a reasonable expectation that a national objective can

be met once the entity has received the technical assistance and

undertakes the activity. It should be noted that, while building capacity

of an entity under this authority provides an alternative to using the

authority under the category of Planning and Capacity Building (and

thus can help avoid a problem with exceeding the 20 percent cap), the

program does not provide a presumption concerning national objective

compliance. Thus, it is important that this be considered before

charging costs under this category. Factors that should be considered in

determining if a national objective can be met include the nature of the

organization receiving the assistance, the type and eligibility of the

activity to be carried out, the location of the activity, and the entity’s

expected (or traditional) clientele. Based on a review of these factors,

the state should have a reasonable expectation that the activity to be

undertaken by the entity would comply with a national objective before

funding capacity building.

The HCDA

Section 106(d)(5)

From the amounts received … for distribution in nonentitlement areas,

the state may deduct an amount, not to exceed one percent of the

amount so received, to provide technical assistance to local

governments and nonprofit program recipients.

State Community Development Block Grant Program Categories of Eligible Activities  2-97

Eligible

Activities

HUD has taken an expansive view of the one percent Technical

Assistance Set-Aside provision; this provision is the most flexible of all

the statutory provisions concerning technical assistance and capacity

building, though in terms of the potential level of funding which can be

used, it is the most limited. States may distribute the funds, and ensure

provision of technical assistance in a variety of ways:

✓ Using the funds to support state agency staff to provide the T.A.,

✓ Hiring a contractor to provide the T.A.,

✓ Granting the funds to recipients for them to ‘purchase’ T.A., and

✓ Granting the funds to a subrecipient such as a regional planning

organization or a community college to provide the T.A.

HUD has issued a Notice, included as Appendix G, One Percent

Technical Assistance Set-Aside, which describes a wide variety of

activities that may be considered to constitute technical assistance to

nonprofit and local government program participants. The technical

assistance does not have to be directly related to State CDBG-funded

activities.

Some actions and expenses that a state undertakes in administering the

CDBG program could be eligible as either “two percent” state

administrative cost, or one percent technical assistance costs. Examples

of these include presenting workshops on applying for or implementing

CDBG-funded activities, or on-site technical assistance by state staff to

grant recipients on improving some aspect of grant implementation.

There are several categories of activities which are ineligible for

funding through the one percent Technical Assistance Set-Aside:

 General administrative activities of the state which are required

aspects of their administration of the CDBG program, such as

monitoring state grant recipients, or developing the state’s

Consolidated Plan or Analysis of Impediments to Fair Housing;

 State grant recipients’ general grant administrative costs, such as

salaries for grant administrators;

 Local administrative expenses not related to community

development, such as providing guidance on computerizing

county personnel records;

 Training of state staff to perform required administrative

functions, such as training state staff to conduct or review fiscal

audits of local governments; and

2-98  Categories of Eligible Activities State Community Development Block Grant Program

 Training designed exclusively for entities other than local

government and nonprofit program participants, such as lead

paint abatement certification training for contractors. (Training

of this sort may qualify as eligible under one of the HCDA

Section 105(a) eligibility categories.)

Reference: HCDA Section 105(d)(5); Appendix G, One Percent

Technical Assistance Set-Aside

Additional

Considerations

The one percent Technical Assistance Set-Aside is not subject to either

the 20 percent planning plus administrative costs cap or the $100,000

plus two percent state administrative costs cap. Activities funded under

the one percent Technical Assistance Set-Aside do not have to meet a

national objective. These funds represent the only situation in which a

state can directly carry out an activity using CDBG funds, if a state

elects to directly provide the technical assistance itself. A state is

required to include the proposed use of one percent technical assistance

funds in its method-of-distribution that is contained in the state’s annual

Consolidated Plan Action Plan.

State Community Development Block Grant Program Categories of Eligible Activities  2-99

Housing Services

The HCDA

Section 105(a)(20)

(a) Activities assisted under this title may include only –

(20) housing services, such as housing counseling, in connection with

tenant-based rental assistance and affordable housing projects

assisted under title II of the Cranston-Gonzalez National Affordable

Housing Act, energy auditing, preparation of work specifications, loan

processing, inspections, tenant selection, management of tenant-

based rental assistance, and other services related to assisting

owners, tenants, contractors, and other entities, participating or

seeking to participate in housing activities assisted under title II of the

Cranston-Gonzalez National Affordable Housing Act;

Eligible

Activities

HCDA Section 105(a)(20) provides that CDBG funds may be used to

pay costs in support of activities eligible for funding under the HOME

program. This includes services such as housing counseling in

connection with tenant-based rental assistance and affordable housing

projects, energy auditing, preparation of work specifications, loan

processing, inspections, tenant selection, management of tenant-based

rental assistance, and other services related to assisting owners, tenants,

contractors, and other entities participating or seeking to participate in

the HOME program. Since such assistance must also meet HOME

income targeting requirements, see the discussion under L/M Income

Housing in Chapter 3, Meeting a National Objective, to determine how

these services can meet the CDBG national objectives. (Note that

activities funded under this provision are not prohibited from qualifying

under other CDBG national objectives, but the requirement to comply

with HOME criteria makes the L/M Income Housing Benefit the clear

alternative for CDBG compliance.)

2-100  Categories of Eligible Activities State Community Development Block Grant Program

Assistance to Institutions

of Higher Education

The HCDA

Section 105(a)(21)

(a) Activities assisted under this title may include only –

(21) provision of assistance by recipients under this title to institutions

of higher education having a demonstrated capacity to carry out

eligible activities under this subsection for carrying out such activities;

Eligible

Activities

This authority may be used by a grant recipient to provide assistance to

an institution of higher education (for example, universities, community

colleges, Historically Black Colleges) when the grant recipient

determines that such an institution has demonstrated a capacity to carry

out activities that fall under one or more of the basic eligibility

categories under the CDBG program.

State Community Development Block Grant Program Categories of Eligible Activities  2-101

Microenterprise

Assistance

The HCDA

Section 105(a)(22)

(a) Activities assisted under this title may include only –

(22) provision of assistance to public and private organizations,

agencies, and other entities (including nonprofit and for-profit entities)

to enable such entities to facilitate economic development by--

(A) providing credit (including providing direct loans and loan

guarantees, establishing revolving loan funds, and facilitating peer

lending programs) for the establishment, stabilization, and

expansion of microenterprises;

(B) providing technical assistance, advice, and business support

services (including assistance, advice, and support relating to

developing business plans, securing funding, conducting marketing,

and otherwise engaging in microenterprise activities) to owners of

microenterprises and persons developing microenterprises; and

(C) providing general support (such as peer support programs and

counseling) to owners of microenterprises and persons developing

microenterprises;

Section 102(a)(22)

(a) Definitions

(22) The term "microenterprise" means a commercial enterprise that

has 5 or fewer employees, 1 or more of whom owns the enterprise.

Eligible

Activities

Under this category, grant recipients and other public or private

organizations may use CDBG funds to facilitate economic development

through the establishment, stabilization, and expansion of

microenterprises.

This category authorizes the use of CDBG funds to provide financial

assistance of virtually any kind to an existing microenterprise or to

assist in the establishment of a microenterprise. It also authorizes the

provision of:

✓ Technical assistance to a new or existing microenterprise

or to persons developing a microenterprise and

2-102  Categories of Eligible Activities State Community Development Block Grant Program

✓ General support to owners of microenterprises or to persons

developing a microenterprise.

Note that under the subcategory of “general support,” CDBG funds may

be used to provide services of any kind that may be needed by the

owner of or person developing a microenterprise to enable the

establishment, stabilization, or expansion of the business. This could

include, for example, child care, transportation, counseling, and peer

support programs. Any such services provided under this authority are

not subject to the cap on public services regardless of the entity

providing the service.

It should also be noted that financially or technically assisting a

microenterprise may also be carried out under the provisions of HCDA

Section 105(a)(15) [assistance to nonprofit organizations] and Section

105(a)(17) [assistance to for-profit businesses]. However, if carried out

under either of those categories, such assistance would be subject to the

requirements concerning Public Benefit (see Appendix C, Public

Benefits Standards).

Complying

with National

Objectives

Microenterprise

Assistance

Because microenterprises are for-profit businesses, most of the

guidelines for meeting national objectives under other economic

development eligibility categories also apply here. There is one notable

exception, however. A microenterprise assistance activity may qualify

under the L/M Income Limited Clientele national objective criteria if it

assists owners of and/or persons developing a microenterprise who are

L/M income persons. If such assistance is provided to owners/persons

developing a microenterprise who are not L/M income persons, it would

not qualify under Limited Clientele, but would need to meet the

requirements of other subcategories (for example, Area Benefit or Jobs).

See the following chart for further elaboration on meeting the L/M

Income Benefit national objective.

Additional

Considerations

In the Entitlement program regulations (24 CFR 570.201(o)), a “Person

developing a microenterprise” means any person who has expressed an

interest and who is, after an initial screening, expected to be actively

working towards developing a business that is expected to be a

microenterprise at the time it is formed.

Many communities have been assisting some microenterprises as part of

their CDBG economic development programs. The creation of a

separate eligibility category for this class of businesses does not mean

that such grant recipients may no longer do so. First, it should be made

clear that just because a business is small enough to meet the CDBG

definition of a microenterprise would not preclude its being assisted

State Community Development Block Grant Program Categories of Eligible Activities  2-103

under the category of Special Economic Development. However, when

a state grant recipient provides assistance to such businesses under that

category, all applicable requirements, including Public Benefit (see

Appendix C, Public Benefits Standards), will apply. In order to take

advantage of the special advantages available under the Microenterprise

Assistance category, the state grant recipient would need to establish an

activity for providing such assistance separate from all other business

assistance it might elect to provide. This is necessary to avoid the

confusion that would result from mixing assistance under two categories

having different requirements. Therefore, states and state grant

recipients should design their CDBG economic development programs

to clearly separate microenterprise assistance from all other forms.

2-104 ❖ Categories of Eligible Activities Community Development Block Grant Program

NATIONAL OBJECTIVES  MICROENTERPRISE ASSISTANCE

Objective Qualifies If Example Additional Information

L/M Income

Area Benefit

The microenterprise assisted provides

services to a residential area that has a

sufficiently high percentage of L/M

income persons.

A small carry-out store in a

neighborhood having more than 51

percent L/M income residents.

For more information, see page 3-9.

L/M Income

Limited

Income

The microenterprise assistance is

provided to a L/M income person who

owns or is developing a

microenterprise.

Assisting a resident of public housing

to establish a business providing

childcare.

For more information, see page 3-16.

L/M Income

Housing

Not applicable Not applicable Not applicable

L/M Income

Jobs

The microenterprise assisted will

create or retain jobs, 51 percent or

more of which will benefit L/M

income persons.

Assisting in the expansion of a house

cleaning service with two employees

that agrees to hire an additional L/M

income person for the business.

For more information, see page 3-27.

For other national objective possibilities, see pages 2-85 through 2-88 (chart on Economic Development Assistance to For-Profit

Business).

State Community Development Block Grant Program Categories of Eligible Activities  2-105

In Rem Housing

The HCDA

Section 105(a)(23)

(a) Activities assisted under this title may include only –

(23) activities necessary to make essential repairs and to pay

operating expenses necessary to maintain the habitability of housing

units acquired through tax foreclosure proceedings in order to prevent

abandonment and deterioration of such housing in primarily low- and

moderate-income neighborhoods;

Eligible

Activities

Section 105(a) (23) of the HCDA, as added by Section 807 (a) (4) of the

Housing and Community Development Act of 1992, provided a separate

category of eligibility under the CDBG program regarding the provision

of assistance to housing units acquired through tax foreclosure

proceedings. Specifically, it authorizes activities necessary to make

essential repairs and payment of operating expenses needed to maintain

the habitability of housing units acquired through tax foreclosure

proceedings in order to prevent abandonment and deterioration of such

housing in primarily low- and moderate-income neighborhoods.

Complying

with

National

Objectives

Since these expenses are statutorily limited to housing located in

primarily low- and moderate-income neighborhoods, the L/M Income

Benefit national objective is to be met through the Area Benefit

subcategory. This means that, even though these are housing activities,

the usual requirement that occupancy by L/M income households must

be demonstrated does not apply to activities carried out under this

authority. Of course, the grant recipient could also claim such activities

as qualifying under the Slums/Blight objective in particular

circumstances where meeting the criteria for this objective could be

demonstrated.

2-106  Categories of Eligible Activities State Community Development Block Grant Program

Homeownership

Assistance

The HCDA

Section 105(a)(24)

(a) Activities assisted under this title may include only –

(24) provision of direct assistance to facilitate and expand

homeownership among persons of low- and moderate- income

(except that such assistance shall not be considered a public service

for purposes of paragraph (8)) by using such assistance to--

(A) subsidize interest rates and mortgage principal amounts for low-

and moderate-income homebuyers;

(B) finance the acquisition by low- and moderate-income

homebuyers of housing that is occupied by the homebuyers;

(C) acquire guarantees for mortgage financing obtained by low- and

moderate-income homebuyers from private lenders (except that

amounts received under this title may not be used under this

subparagraph to directly guarantee such mortgage financing and

grantees under this title may not directly provide such guarantees);

(D) provide up to 50 percent of any downpayment required from

low- or moderate-income homebuyer; or

(E) pay reasonable closing costs (normally associated with the

purchase of a home) incurred by low- or moderate-income

homebuyers;

Such activities may be carried out by a state grant recipient, or a

subrecipient thereof.

State Community Development Block Grant Program Categories of Eligible Activities  2-107

Eligible

Activities

The specific purposes for which financial assistance using CDBG funds

may be provided under this category are to:

 Subsidize interest rates and mortgage principal amounts,

including making a grant to reduce the effective interest rate on

the amount needed by the purchaser to an affordable level. (The

funds granted would have to be applied towards the purchase

price.) Alternatively, the grant recipient/subrecipient could

make a subordinate loan for part of the purchase price, at little or

no interest, for an amount of funds the payments on which,

together with that required under the first mortgage, would be

affordable to the purchaser.

 Finance the cost of acquiring property already occupied by the

household at terms needed to make the purchase affordable.

 Pay all or part of the premium (on behalf of the purchaser) for

mortgage insurance required up-front by a private mortgagee.

(This would include the cost for private mortgage insurance.)

 Pay any or all of the reasonable closing costs associated with the

home purchase on behalf of the purchaser.

 Pay up to 50 percent of the down payment required by the

mortgagee for the purchase on behalf of the purchaser.

Note especially that the use of funds under this category is specifically

limited to assisting low- and moderate-income households.

Complying

with National

Objectives

Homeownership

Assistance

Because the use of CDBG funds authorized under this category is

limited to assisting low- and moderate-income households, any such use

of funds must qualify under the national objective of benefit to low- and

moderate-income persons-housing activities; no further consideration

needs to be given here.

2-108  Categories of Eligible Activities State Community Development Block Grant Program

Additional

Considerations

Homeownership assistance may also be eligible under the categories of

Public Services or assistance to nonprofit development groups (HCDA

Section 105(a)(8) and (15)). While these categories don’t have the same

restrictions on the type of assistance that may be provided, they may

have to comply with the public services cap. However, under these

provisions, assistance is not specifically limited by HCDA to L/M

income persons. Therefore, a state grant recipient should carefully

consider its objectives against these factors and select the category that

best fits those objectives in the context of its entire CDBG program.

In the case where a community submits (and a state approves) a

Community Revitalization Strategy (CRS) which includes

homeownership assistance, two further considerations should be given.

First, if the state grant recipient elects to use a nonprofit development

group to deliver services in the strategy area, any services provided by

the nonprofit development group (including homeownership assistance)

may be exempt from the expenditures cap on Public Services. Second,

if the strategy involves assisting non-L/M income households to

purchase houses in the area, CDBG assistance could not be provided

under the Homeownership Assistance category (which is limited to

assistance provided to L/M income households). The use of a nonprofit

development group would be needed for this purpose. It should also be

noted that where CDBG funds are provided to non-L/M income

households in a CRS area, meeting the L/M Income Benefit national

objective is made feasible by a special feature offered by a CRS. All

housing units assisted in such an area may be considered to be part of a

single structure for the purpose of meeting the 51 percent plus

occupancy requirement. See Appendix E, Community Revitalization

Strategy Areas that describes the CRS feature of the CDBG program in

further detail.

State Community Development Block Grant Program Categories of Eligible Activities  2-109

Other Provisions Relating to

Eligible Activities

New Housing

Construction

The construction of new permanent residential structures is ineligible in

the State CDBG program except under two limited circumstances:

 Under the housing of last resort provisions of 49 CFR Part 24

(discussed below) and

 When undertaken by a nonprofit development organization

which qualifies under HCDA Section 105(a)(15), and when

undertaken as part of an eligible project under Section

105(a)(15).

It is important to note, though, that several activities that support new

housing may be carried out using CDBG funds even though other

resources are supporting the actual housing construction costs. The

following are examples of supportive activities:

 Acquisition of sites on which buildings will be constructed for

use or resale as housing;

 Clearance of environmental contamination from sites to be used

for the construction of new housing;

 Site improvements to publicly-owned land to enable the property

to be used for the new construction of housing, provided the

improvements are undertaken while the property is still in public

ownership; and

 The cost of disposing of real property, acquired with CDBG

funds, which will be used for the construction of new housing.

It should be noted that the cost of converting an existing non-residential

structure to residential use is generally not considered to constitute new

construction under the CDBG program; it is thus covered under the

basic category of Rehabilitation. However, in some cases, the

conversion may involve construction that goes beyond the envelope of

the non-residential structure; in other cases, a portion of the structure (or

additions thereto) may be in such condition that it must be removed and

reconstructed. State grant recipients should consult their state, and

states should consult their HUD field office, to ensure that the extent of

such construction would not violate the prohibition against new

construction of housing.

2-110  Categories of Eligible Activities State Community Development Block Grant Program

Last Resort

Housing

The regulations implementing the Uniform Relocation Assistance and

Real Property Acquisition Policies Act of 1970 (the “Uniform Act”) are

issued by the U.S. Department of Transportation, and are found at 49

CFR Part 24. In certain circumstances, 49 CFR 24.404(c)(1) authorizes

the construction of new housing units as a last resort for providing

replacement housing for persons displaced as a result of CDBG-assisted

activities. (This is housing that the state or state grant recipient has

determined must be constructed in order to provide suitable replacement

housing for persons to be displaced by a contemplated CDBG project,

subject to the Uniform Act, and where the project is prevented from

proceeding because the required replacement housing is not available

otherwise.)

The provision of last resort housing under the Uniform Act is not

specifically listed in the categories of eligible activities in HCDA

Section 105, though it is included in the Entitlement program eligibility

regulations. New construction of last resort housing is eligible in the

State CDBG program pursuant to 49 CFR 24.404, because the Uniform

Act is one of the other applicable laws to which the State CDBG

program is subject.

Brownfields

Redevelopment

Activities

In the Fiscal Year 1999 (FY99) HUD Appropriations Act (PL Section

105-276), Congress explicitly stated the eligibility of environmental

cleanup and economic development activities under the CDBG

program. Section 205 of this legislation stated:

For fiscal years 1998, 1999 and all fiscal years thereafter, States

and entitlement communities may use funds allocated under the

community development block grants program under Title 1 of the

Housing and Community Development Act of 1974 for

environmental cleanup and economic development activities related

to Brownfields projects in conjunction with the appropriate

environmental regulatory agencies, as if such activities were

eligible under Section 105(a) of such Act.

The FY99 appropriations act language does not, itself, add any new

eligibility categories to HCDA Section 105. The intent of the

language, as worded, is to clarify that environmental remediation and

development of environmentally contaminated sites are indeed eligible

activities within the existing categories of eligible activities. HUD

plans to revise and clarify the CDBG Entitlement program eligibility

regulations to incorporate this language.

State Community Development Block Grant Program Categories of Eligible Activities  2-111

Interim

Assistance

HCDA Section 105 contains no discussion of “interim assistance” as a

separate category of eligible activity. The CDBG Entitlement program

regulations, at 24 CFR 570.201(f), have interpreted the HCDA as

allowing CDBG funds to be used for certain activities on an interim

basis, providing that the activities meet a national objective. The

following Entitlement program policy information is provided as

interpretive guidance that states may follow if they choose.

There are two subcategories of interim assistance activities:

(1) The first subcategory covers limited improvements to a deteriorating

area as a prelude to permanent improvements. To qualify under this

subcategory:

❖ The area must be exhibiting objectively determinable signs of

physical deterioration.

❖ The grant recipient must determine that immediate action is

needed to arrest the deterioration and that permanent

improvements will be undertaken as soon as practicable.

Documentation of this determination must be maintained.

❖ The activities that may be carried out with CDBG funds under

this subcategory are limited to:

(A) The repair of:

✓ streets,

✓ sidewalks,

✓ public buildings,

✓ parks and playgrounds, and

✓ publicly-owned utilities.

(B) The execution of special (i.e., beyond that normally

provided):

✓ garbage,

✓ trash, and

✓ debris removal, including neighborhood cleanup

campaigns.

References from Entitlement program regulations (to be used as

interpretive guidance only): 24 CFR 570.201(f)(1) and 24 CFR

570.200(e)

2-112  Categories of Eligible Activities State Community Development Block Grant Program

(2) The second subcategory covers activities to alleviate an emergency

condition. To qualify under the second subcategory:

 The grant recipient’s chief executive officer must determine

that emergency conditions threatening the public health and

safety exist in the area and require immediate resolution.

Documentation of that determination must be maintained.

 The activities that may be carried out with CDBG funds

under this subcategory are limited to:

✓ Activities eligible under the first subcategory, except

for the repair of parks and playgrounds;

✓ Clearance of streets, including snow removal and

similar activities; and

✓ Improvements to private properties.

These activities may not go beyond what is necessary to alleviate the

emergency condition. References from Entitlement program

regulations (to be used as interpretive guidance only): 24 CFR

570.201(f)(2) and 24 CFR 570.200(e)

State Community Development Block Grant Program Categories of Eligible Activities  2-113

Activities Specified

as Ineligible

Ineligible

Activities

The general rule in the State CDBG program is that any activity that is

not stated in the HCDA as eligible should be considered ineligible.

However, through the Entitlement program regulations, HUD has

interpreted some activities not specifically stated in the HCDA to fall

under the HCDA categories of eligibility. These eligible activities are

set forth in the preceding subsections of this chapter. The activities

stated below have been determined to be ineligible under the HCDA.

Categorically ineligible

The following activities may not be assisted with CDBG funds under

any circumstance:

 Buildings or portions thereof used for the general conduct of

government as defined in HCDA Section 102(a)(21). This does

not include, however, the removal of architectural barriers

involving any such building, which may be assisted under the

category of Public Facilities and Improvements. Also, where

acquisition of real property includes a building or other

improvement that would be used for the general conduct of

government, the portion of the acquisition cost attributable to

the land may be assisted under the category of Acquisition of

Real Property.

 General government expenses. Except as otherwise specifically

authorized under OMB Circular A-87, expenses required to

carry out the regular responsibilities of the unit of general local

government are not eligible for assistance under this part.

 Political activities. CDBG funds may not be used to finance the

use of facilities or equipment for political purposes or to engage

in other partisan political activities, such as candidate forums,

voter transportation, or voter registration. However, a facility

originally assisted with CDBG funds may be used on an

incidental basis to hold political meetings, candidate forums, or

voter registration campaigns, provided that all parties and

organizations have access to the facility on an equal basis, and

are assessed equal rent or use charges, if any.

2-114  Categories of Eligible Activities State Community Development Block Grant Program

Generally ineligible:

The following activities may not be assisted with CDBG funds unless

undertaken either:

✓ As part of an activity providing economic development

assistance to a for-profit business under HCDA Section

105(a)(17) or

✓ By an eligible nonprofit organization under HCDA

Section 105(a)(15).

 Purchase of equipment. The purchase of equipment with

CDBG funds is generally ineligible, with the following possible

exceptions:

✓ Construction equipment. The purchase of construction

equipment is ineligible. However, the purchase of

construction equipment for use as part of a solid waste

disposal facility is eligible under the category of Public

Facilities and Improvements.

✓ Fire protection equipment. Fire protection equipment is

considered for this purpose to be an integral part of a

public facility. Thus, purchase of such equipment would

be eligible under the category of Public Facilities and

Improvements. This includes fire engines and

specialized tools such as “jaws of life” and life-saving

equipment as well as protective clothing worn by fire

fighters.

✓ Furnishings and personal property. The purchase of

equipment, fixtures, motor vehicles, furnishings, or other

personal property not an integral structural fixture is

generally ineligible, unless eligible as part of an

administration or public service activity.

 Operating and maintenance expenses. The general rule is that

any expense associated with repairing, operating, or maintaining

public facilities, improvements, and services is ineligible.

Specific exceptions to this general rule are operating and

maintenance expenses associated with public service activities,

interim assistance, and office space for program staff employed

in carrying out the CDBG program. For example, the use of

CDBG funds to pay the allowable costs of operating and

maintaining a facility used in providing a public service (for

example, salaries, rent) would be eligible, even if no other costs

State Community Development Block Grant Program Categories of Eligible Activities  2-115

of providing the service there are assisted with such funds.

Examples of operating and maintenance expenses that are

generally ineligible include:

✓ Maintenance and repair of publicly owned streets, parks,

playgrounds, water and sewer facilities, neighborhood

facilities, senior centers, centers for persons with

disabilities, parking, and other public facilities and

improvements. Examples of maintenance and repair

activities for which CDBG funds may not be used include

the filling of pot holes in streets, repairing of cracks in

sidewalks, the mowing of grass in city or county parks, and

the replacement of street light bulbs.

✓ Payment of salaries for staff, utility costs, and similar

expenses necessary for the operation of public works and

facilities.

 New housing construction. See the discussion of this activity

type under the earlier sections of this chapter entitled

Construction of Housing and Special Activities by nonprofit

development groups.

 Income payments. The general rule is that CDBG funds may

not be used for income payments. For purposes of the CDBG

program, “income payments” is defined as a series of

subsistence-type grant payments made to an individual or

family for items such as food, clothing, housing (rent or

mortgage), or utilities. However, 24 CFR 570.207(b)(4) of the

Entitlement program regulations allows, as eligible, emergency

grant payments made over a period of up to three consecutive

months directly to the provider of such items or services on

behalf of an individual or family. One-time grants, emergency

type grants, or loans for such purposes may be authorized under

the category of Public Services.

Other

Limitations

on the

Eligibility of

Activities

Certain activities, even if they would otherwise be eligible under the

category of Special Economic Development Activities, cannot be

assisted with CDBG funds if they are specifically ineligible under the

provisions of the Public Benefit standards. For example, assisting a

business to create jobs that would cost more than $50,000 in CDBG

funds per job would be unallowable. Also, providing assistance to a

professional sports team is not allowed. See Appendix C, Public

Benefits Standards, for further details.

2-116  Categories of Eligible Activities State Community Development Block Grant Program

Statutory

Provision

regarding

“Job

Pirating”

Section 588 of Public Law Section 105-276 amended Section 105 of the

Housing and Community Development Act of 1974 to prohibit CDBG

funds from being used “…to assist directly in the relocation of any

industrial or commercial plant, facility, or operation, from one area to

another, if the relocation is likely to result in a significant loss of

employment in the labor market area from which the relocation occurs.”

Because this is a new, restrictive provision in the HCDA, HUD plans to

revise the CDBG regulations to interpret and implement the job-

relocation prohibition. Until such time as HUD has issued a final rule to

implement Section 588, states are encouraged to proceed cautiously and

with the admonition that states which undertake projects that might fall

within the purview of Section 588 do so at their own risk. Under 24

CFR 570.480(c) of the State CDBG regulations, HUD will give

maximum feasible deference to a state’s interpretation of the statutory

requirements of the HCDA, providing such interpretations are not

plainly inconsistent with the HCDA.

Notwithstanding this deference, HUD urges states to exercise caution in

interpreting and implementing Section 588. States are encouraged to

examine the following issues in considering whether this provision

applies to an economic development assistance activity which may

result in a company’s operations from one labor market area to another:

 The extent to which CDBG funds will assist directly in the

relocation of a company’s operations to a new locality, such as

whether or not there has been or will be any agreement between

the new locality and the company related to job creation and

meeting national CDBG objectives; whether some or all of the

company’s operations in its present location is being transferred

to a new locality and the extent to which any such transfer is

assisted with CDBG funds.

 The significance of any loss of employment in the company’s

present location as it relates to any CDBG funding in the new

locality. Details should be provided concerning the resulting

change in operations in the present company location, including

changes in plant production and in the size of the resultant

workforce at the respective plants.

State Community Development Block Grant Program Categories of Eligible Activities  2-117

Documenting Compliance

This section of the chapter provides special guidance on the requirement

the state and state grant recipient must document that each assisted

activity falls within a specified category and that it meets the

requirements that apply to that category. Both the state and the local

grant recipient must maintain records related to the State CDBG grant.

The state must also conduct reviews of recipients to ensure compliance

with applicable laws.

HUD and states jointly developed record-keeping requirements in

response to 24 CFR 570.490 of the State CDBG regulations that were

issued in 1992. Several changes to the State CDBG regulations have

since been issued and HUD anticipates issuing further changes to the

State CDBG regulations. The current Model Record-Keeping

Requirements (included in Appendix I, Model Record-Keeping

Requirements), therefore, have become outdated. At some future point,

HUD and the states will update the record-keeping requirements. In the

meantime, the Model Record-Keeping Requirements should be used for

documenting compliance with State CDBG regulations.

The Model Record-Keeping Requirements identify the records that must

be collected and maintained by states and local governments, as well as

the state grant recipient, to establish:

✓ Each activity funded by state block grant money is eligible under

HCDA Section 105(a) and

✓ Each activity meets one of the national objectives.

The Model Record-Keeping Requirements establish what

documentation is required on the state and local level to demonstrate

compliance with eligibility requirements. The Model Record-Keeping

Requirements spell out a system for states to review state grant

recipients. States are required to have a process to review state grant

recipients to ensure compliance of state CDBG-funded activities. Refer

to Appendix I, Model Record-Keeping Requirements.

2-118  Categories of Eligible Activities State Community Development Block Grant Program

Making the Best Choice

This section of the chapter stresses the desirability of considering

alternative categories of eligibility for certain types of activities.

Several examples are provided for key program areas to illustrate

possible alternatives that may be available and the considerations that

should guide the state and state grant recipients in making the wisest

choice among them.

The most common among these activity types and the requirements that

the state and state grant recipients should consider are:

✓ Public services (public services cap),

✓ Commercial/industrial projects (public benefit requirements (see

Appendix C, Public Benefits Standards)), and

✓ Planning and administration (planning/admin cap).

The following discussion of these key areas is intended to assist the

state and state grant recipients in thinking through the alternatives that

may be available, the factors that should be considered, and some

ground rules that may be helpful in this process.

Public Services:

While the CDBG program was, from the onset, intended to be a

physical development program, it was recognized that certain services

could be very helpful to stabilize a community and to make for a

sustainable redevelopment of areas needing revitalization. Therefore,

the program authorizes the use of funds to provide services generally,

but with a dollar limitation (usually no more than 15 percent of a state’s

yearly allocation of funds may be used for services). However, there

are certain situations where the regulations provide that services are not

subject to this dollar limitation.

The most notable types of services that are not subject to the cap are:

 Financial assistance for homeownership, when funded under the

provisions of HCDA Section 105(a)(24);

 Employment services (including job training) related to

employment opportunities generated by CDBG-eligible

economic development activities (see 24 CFR 570.482(d));

State Community Development Block Grant Program Categories of Eligible Activities  2-119

 Services provided by a nonprofit development and that are

specifically designed to increase economic opportunities

through job training and placement and other related support

services, such as child care and transportation (see 24 CFR

570.482(d));

 Services of any kind that are provided by a nonprofit

development group and that are carried out pursuant to a

Community Revitalization Strategy approved by HUD under 24

CFR 91.315(e)(2) (see also Appendix E, Community

Revitalization Strategy Areas, and 24 CFR 570.482(d)); and

 General support services provided to owners of and/or persons

developing microenterprises, under the provisions of HCDA

Section 105(a)(22) and 24 CFR 570.482(c).

Commercial/Industrial Projects:

Usually, when a commercial or industrial project is provided assistance

through a for-profit business under HCDA Section 105(a)(17), or when

it is carried out through a nonprofit organization eligible under HCDA

Section 105(a)(14) or (15), the assistance will be subject to the public

benefit requirements, described in 24 CFR 570.482(f) of the State

CDBG regulations (discussed further in Appendix C, Public Benefits

Standards). In certain limited cases, provision of infrastructure to assist

an economic development project may also trigger the requirements of

the public benefit standards. While those requirements may not prevent

the project from going forward as planned, it may nevertheless be useful

to consider whether any other category could be used that may be more

desirable.

The alternatives that should be considered in this regard are:

 Employment services that are also eligible under the Public

Services category;

 Depending on the size of the business, assistance that is eligible

may also be eligible under the Microenterprise Assistance

category of HCDA Section 105(a)(22);

 Property acquisition that is undertaken by a nonprofit

organization may also be eligible under the category of

Acquisition of Real Property under HCDA Section 105(a)(1);

2-120  Categories of Eligible Activities State Community Development Block Grant Program

 Rehabilitation or reconstruction of a commercial or industrial

property that is eligible under HCDA Section 105(a)(14), (15)

or (17) may also be eligible, at least in part, under the category

of Rehabilitation under HCDA Section 105(a)(4);

 Provision of one or more public improvements or utilities

needed by the business may qualify under the category of Public

Improvements under HCDA Section 105(a)(2).

Moreover, an economic development project often involves a number of

different activities that could be assisted in lieu of the specific assistance

requested by a business. Consider, for example, a business that wants to

expand and has requested financial assistance to pay for the construction

of a building. It may be that the business needs to purchase land for the

expansion or might be planning to pay to have the street widened or

otherwise improved to support truck traffic. Either of these needs could

be met with CDBG funds, under other categories than the Economic

Development Assistance, which might be more desirable for the grant

recipient to provide in order to help the project go forward. This sort of

assessment of alternative activities might also help determine whether

Davis-Bacon would apply to the form of assistance being contemplated.

Planning/administration:

There are a few activities eligible under the categories of Planning and

Capacity Building and Program Administrative costs that are also

eligible under other eligibility categories. Such activities include:

 Fair Housing Counseling – States and state grant recipients in

the CDBG program have a responsibility to affirmatively

further fair housing. Activities carried out pursuant to this

responsibility may be charged to Program Administration.

When a state grant recipient is planning to provide counseling to

advise persons of their rights under the Fair Housing Act or

otherwise assist them in this regard, such activities could also be

eligible under the category of Public Services. While both of

these alternatives involve an overall cost limitation (i.e., the 20

percent cap and the 15 percent cap), it is not likely that a state

would reach both caps in the same program year, thus allowing

the state or its grant recipient to shift the costs of these services

to the appropriate category.

State Community Development Block Grant Program Categories of Eligible Activities  2-121

 Environmental Assessments – The costs of performing the

assessment and related public notices as required under 24 CFR

Part 58 may be considered to be “activity delivery costs” as part

of the costs of carrying out the activity under the same basic

eligibility category applicable to that activity. As such, these

costs are not subject to the 20 percent cap. The Entitlement

program regulations allow charging these costs under 24 CFR

570.205. As is discussed on page 2-67, states may adopt this

approach from the Entitlement program (though most do not).

 Split-function Staff – State grant recipients and their

subrecipients frequently have staff that perform both program

administration and activity delivery functions. The Entitlement

regulations provide grant recipients (and subrecipients) the

option of prorating the costs according to the extent of time

involved in each, or, in the case of staff whose primary function

is program administration, charging all the person’s time to the

category of Program Administration. The implications to be

considered in evaluating this option are virtually the same as

those for the environmental assessment function discussed

above.

 Capacity Building – A discussion of the alternatives available

for the costs of capacity building may be found under the

sections of this chapter entitled Technical Assistance and

Planning and Capacity Building. How such costs are

categoriized may affect a state’s compliance with its 20 percent

planning/administration cap and its one percent technical

assistance set-aside cap. In some cases, it may affect whether

such activities must meet a national objective.