November
20, 2001
Dear
Chief Elected Official:
The
purpose of this letter is to advise grantees participating in the
Community Development Block Grant (CDBG) program of a new policy
to reduce future grants when a grantee fails to meet the timely
expenditure requirements of the program. As previously indicated
in letters, at timeliness conferences, and in one-on-one discussions
with grantees administering the CDBG program, the Department has
made clear its high priority to reduce the number of entitlement
grantees that exceed the regulatory standard for carrying out their
program in a timely manner. Under the provisions of 24 CFR 570.902
of the CDBG regulations, a grantee is considered to be timely, if
60 days prior to the end of the grantee's program year, the balance
in its line-of-credit does not exceed 1.5 times the annual grant.
For currently timely grantees, and that is 85% of you, I congratulate
you on your excellent record in providing CDBG funds effectively
to principally benefit low- and moderate-income persons. Keep up
the good work.
The
Department, working hand in hand with entitlement communities, has
had substantial results over the past several years in reducing
the number of grantees in non-compliance with the timeliness standard.
Despite our considerable efforts, there is still a significant number
of grantees that exceed that standard. In order to remedy this continuing
problem, HUD has found it necessary to establish and make public
its policy for dealing both with entitlement grantees that are currently
in non-compliance with the 1.5 performance standard for timeliness
and those that come into non-compliance in the future. HUD will
no longer accept promised action, but needs to see actual performance.
HUD
prefers fostering compliance over sanctions, but will take the necessary
steps to institute grant reductions where necessary. Loss of a grant
is a serious step, not one to be taken lightly by either the Department
or the grantee. It is our intention by announcing this policy now,
to put all grantees on notice that HUD is serious about reducing
the backlog of unspent CDBG funds.
Currently Untimely Grantees
HUD
will impose the following corrective actions that could reduce future
grants over two program years for all currently untimely grantees.
Step 1:
HUD
will partially reduce the next grant of any currently untimely grantee
that fails to reach the timeliness standard of 1.5 at their next
60 day test, starting with those grantees with program years beginning
May 1, 2002. The grant will be reduced on a graduated basis, ranging
from 15% to 30% of the amount in excess of 1.5 times the annual
grant, depending on the amount of time between policy announcement
and the program year start date, as indicated below. There are two
possible exceptions to the reduction for:
- Any
grantee drawing down funds at a rate that, if continued, would
bring it into compliance by the following 60 day test, or
- Any
grantee where HUD determines that untimeliness resulted from
factors beyond the grantee's control.
The
percentage of reduction by program year start date is as follows:
Program
Year Start Date % Reduction Program Year Start Date % Reduction
May
1, 2002 15% October 1, 2002 30%
June 1, 2002 18% January 1, 2003 30%
July, 1, 2002 21% February 1, 2003 30%
August 1, 2002 24% March 1, 2003 30%
September 1, 2002 27% April 1, 2003 30%
Step
2:
If,
at the 60 day test the following year, a currently untimely grantee
still does not meet the 1.5 standard, the next grant will be reduced
by 100% of the amount in excess of 1.5 times the annual grant, except:
- Where
HUD determines that untimeliness resulted from factors beyond
the grantee's control.
The
above policy applies to grantees that are currently untimely. This
letter also establishes HUD policy for dealing with grantees that
are currently in compliance with the timeliness standard, but become
untimely (newly untimely grantees).
Newly Untimely Grantees
All
newly untimely grantees (grantees with program years starting February
1, 2002 and later) have 12 months, to their next 60 day test, to
reach 1.5. Failure to meet the 1.5 standard will cause HUD to reduce
the next grant by 100% of the amount in excess of 1.5 with one exception
for:
- Any
grantee where HUD determines that the untimeliness resulted
from factors beyond the grantee's control.
General Issues Related to Grant Reductions
Prior to a grant reduction, each grantee is entitled to an informal
consultation as provided for in 24 CFR 570.911 of the CDBG regulations.
At that time, grantees will have the opportunity to demonstrate
how factors beyond their reasonable control caused significant delays
in program implementation and affected their timely performance.
The burden on grantees will be to clearly demonstrate with compelling
information that the circumstances were truly beyond their control.
Grantees should not delay improving their drawdown ratio on the
basis that they may meet this criteria, as HUD will not make these
determinations until such time as the grantee has not met the standard
and is subject to a grant reduction.
All
grant reductions will be based on the dollar amount in excess of
1.5 times the annual grant. For example, if a grantee's annual grant
is $1 million and the 60 day ratio is 1.57, the maximum amount of
the reduction is $70,000 (1.57 - 1.50 = .07 x $1 million = $70,000).
As indicated, there may be a pro-ration of that amount for currently
untimely grantees.
Please
note that any grant reduction will affect the amount of CDBG funds
available for planning and administration. By law, no more than
20% of any grant may be used for these purposes. If there is a significant
grant reduction or a reduction to zero of a new grant, there will
be limited or zero CDBG funds to pay the grantee's administrative
staff.
HUD field office staff is available to provide technical assistance
to grantees and to assist with reformatting workout plans to conform
to the current policy.
Each
currently untimely grantee will shortly receive a letter from the
HUD field office indicating specifically how this policy affects
that individual grantee and what that grantee must do to improve
performance sufficiently to avert a reduction.
Should
you have general questions about this policy, please contact Nelson
R. Bregón, Deputy Assistant Secretary for Grant Programs
at (202) 708-1506. For information about how this policy specifically
affects your community, please contact your local HUD field office.
Sincerely,
Roy A. Bernardi Assistant Secretary
Cc:
Local CD Director
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