[Code of Federal Regulations]
[Title 24, Volume 3]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 24CFR570.482]

[Page 105-109]
 
                 TITLE 24--HOUSING AND URBAN DEVELOPMENT
 
  CHAPTER V--OFFICE OF ASSISTANT SECRETARY FOR COMMUNITY PLANNING AND 
        DEVELOPMENT, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
 
PART 570_COMMUNITY DEVELOPMENT BLOCK GRANTS--Table of Contents
 
        Subpart I_State Community Development Block Grant Program
 
Sec. 570.482  Eligible activities.

    (a) General. The choice of activities on which block grant funds are 
expended represents the determination by state and local participants, 
developed in accordance with the state's program design and procedures, 
as to which approach or approaches will best

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serve these interests. The eligible activities are listed at section 
105(a) of the Act.
    (b) Special assessments under the CDBG program. The following 
policies relate to special assessments under the CDBG program:
    (1) Public improvements initially assisted with CDBG funds. Where 
CDBG funds are used to pay all or part of the cost of a public 
improvement, special assessments may be imposed as follows:
    (i) Special assessments to recover the CDBG funds may be made only 
against properties owned and occupied by persons not of low and moderate 
income. These assessments constitute program income.
    (ii) Special assessments to recover the non-CDBG portion may be 
made, provided that CDBG funds are used to pay the special assessment in 
behalf of all properties owned and occupied by low and moderate income 
persons; except that CDBG funds need not be used to pay the special 
assessments in behalf of properties owned and occupied by moderate 
income persons if, when permitted by the state, the unit of general 
local government certifies that it does not have sufficient CDBG funds 
to pay the assessments in behalf of all of the low and moderate income 
owner-occupant persons. Funds collected through such special assessments 
are not program income.
    (2) Public improvements not initially assisted with CDBG funds. CDBG 
funds may be used to pay special assessments levied against property 
when this form of assessment is used to recover the capital cost of 
eligible public improvements initially financed solely from sources 
other than CDBG funds. The payment of special assessments with CDBG 
funds constitutes CDBG assistance to the public improvement. Therefore, 
CDBG funds may be used to pay special assessments, provided that:
    (i) The installation of the public improvements was carried out in 
compliance with requirements applicable to activities assisted under 
this subpart, including labor, environmental and citizen participation 
requirements;
    (ii) The installation of the public improvement meets a criterion 
for national objectives. (See Sec. 570.483(b)(1), (c), and (d).)
    (iii) The requirements of Sec. 570.482(b)(1)(ii) are met.
    (c) Provision of assistance for microenterprise development. 
Microenterprise development activities eligible under section 105(a)(23) 
of the Housing and Community Development Act of 1974 (the Act), as 
amended, (42 U.S.C. 5301 et seq.) may be carried out either through the 
recipient directly or through public and private organizations, 
agencies, and other subrecipients (including nonprofit and for-profit 
subrecipients).
    (d) Provision of public services. The following activities shall not 
be subject to the restrictions on public services under section 
105(a)(8) of the Housing and Community Development Act of 1974, as 
amended:
    (1) Support services provided under section 105(a)(23) of the 
Housing and Community Development Act of 1974, as amended, and paragraph 
(c) of this section;
    (2) Services carried out under the provisions of section 105(a)(15) 
of the Housing and Community Development Act of 1974, as amended, that 
are specifically designed to increase economic opportunities through job 
training and placement and other employment support services, including, 
but not limited to, peer support programs, counseling, child care, 
transportation, and other similar services; and
    (3) Services of any type carried out under the provisions of section 
105(a)(15) of the Act, pursuant to a strategy approved by a State under 
the provisions of Sec. 91.315(e)(2) of this title.
    (e) Guidelines and objectives for evaluating project costs and 
financial requirements--(1) Applicability. The following guidelines, 
also referred to as the underwriting guidelines, are provided to assist 
the recipient to evaluate and select activities to be carried out for 
economic development purposes. Specifically, these guidelines are 
applicable to activities that are eligible for CDBG assistance under 
section 105(a)(17) of the Act, economic development activities eligible 
under section 105(a)(14) of the Act, and activities that are part of a 
community economic development project eligible under section 105(a)(15) 
of the Act. The use of the underwriting

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guidelines published by HUD is not mandatory. However, states electing 
not to use these guidelines would be expected to ensure that the state 
or units of general local government conduct basic financial 
underwriting prior to the provision of CDBG financial assistance to a 
for-profit business.
    (2) Objectives. The underwriting guidelines are designed to provide 
the recipient with a framework for financially underwriting and 
selecting CDBG-assisted economic development projects which are 
financially viable and will make the most effective use of the CDBG 
funds. Where appropriate, HUD's underwriting guidelines recognize that 
different levels of review are appropriate to take into account 
differences in the size and scope of a proposed project, and in the case 
of a microenterprise or other small business to take into account the 
differences in the capacity and level of sophistication among businesses 
of differing sizes. Recipients are encouraged, when they develop their 
own programs and underwriting criteria, to also take these factors into 
account. These underwriting guidelines are published as appendix A to 
this part. The objectives of the underwriting guidelines are to ensure:
    (i) That project costs are reasonable;
    (ii) That all sources of project financing are committed;
    (iii) That to the extent practicable, CDBG funds are not substituted 
for non-Federal financial support;
    (iv) That the project is financially feasible;
    (v) That to the extent practicable, the return on the owner's equity 
investment will not be unreasonably high; and
    (vi) That to the extent practicable, CDBG funds are disbursed on a 
pro rata basis with other finances provided to the project.
    (f) Standards for evaluating public benefit--(1) Purpose and 
applicability. The grantee is responsible for making sure that at least 
a minimum level of public benefit is obtained from the expenditure of 
CDBG funds under the categories of eligibility governed by these 
standards. The standards set forth below identify the types of public 
benefit that will be recognized for this purpose and the minimum level 
of each that must be obtained for the amount of CDBG funds used. These 
standards are applicable to activities that are eligible for CDBG 
assistance under section 105(a)(17) of the Act, economic development 
activities eligible under section 105(a)(14) of the Act, and activities 
that are part of a community economic development project eligible under 
section 105(a)(15) of the Act. Certain public facilities and 
improvements eligible under section 105(a)(2) of the Act, which are 
undertaken for economic development purposes, are also subject to these 
standards, as specified in Sec. 570.483(b)(4)(vi)(F)(2). Unlike the 
guidelines for project costs and financial requirements covered under 
paragraph (a) of this section, the use of the standards for public 
benefit is mandatory.
    (2) Standards for activities in the aggregate. Activities covered by 
these standards must, in the aggregate, either:
    (i) Create or retain at least one full-time equivalent, permanent 
job per $35,000 of CDBG funds used; or
    (ii) Provide goods or services to residents of an area, such that 
the number of low- and moderate-income persons residing in the areas 
served by the assisted businesses amounts to at least one low- and 
moderate-income person per $350 of CDBG funds used.
    (3) Applying the aggregate standards. (i) A state shall apply the 
aggregate standards under paragraph (e)(2) of this section to all funds 
distributed for applicable activities from each annual grant. This 
includes the amount of the annual grant, any funds reallocated by HUD to 
the state, any program income distributed by the state and any 
guaranteed loan funds made under the provisions of subpart M of this 
part covered in the method of distribution in the final statement for a 
given annual grant year.
    (ii) The grantee shall apply the aggregate standards to the number 
of jobs to be created/retained, or to the number of persons residing in 
the area served (as applicable), as determined at the time funds are 
obligated to activities.
    (iii) Where an activity is expected both to create or retain jobs 
and to provide goods or services to residents

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of an area, the grantee may elect to count the activity under either the 
jobs standard or the area residents standard, but not both.
    (iv) Where CDBG assistance for an activity is limited to job 
training and placement and/or other employment support services, the 
jobs assisted with CDBG funds shall be considered to be created or 
retained jobs for the purposes of applying the aggregate standards.
    (v) Any activity subject to these standards which meets one or more 
of the following criteria may, at the grantee's option, be excluded from 
the aggregate standards described in paragraph (f)(2) of this section:
    (A) Provides jobs exclusively for unemployed persons or participants 
in one or more of the following programs:
    (1) Jobs Training Partnership Act (JTPA);
    (2) Jobs Opportunities for Basic Skills (JOBS); or
    (3) Aid to Families with Dependent Children (AFDC);
    (B) Provides jobs predominantly for residents of Public and Indian 
Housing units;
    (C) Provides jobs predominantly for homeless persons;
    (D) Provides jobs predominantly for low-skilled, low- and moderate-
income persons, where the business agrees to provide clear opportunities 
for promotion and economic advancement, such as through the provision of 
training;
    (E) Provides jobs predominantly for persons residing within a census 
tract (or block numbering area) that has at least 20 percent of its 
residents who are in poverty;
    (F) Provides assistance to business(es) that operate(s) within a 
census tract (or block numbering area) that has at least 20 percent of 
its residents who are in poverty;
    (G) Stabilizes or revitalizes a neighborhood income that has at 
least 70 percent of its residents who are low- and moderate-income;
    (H) Provides assistance to a Community Development Financial 
Institution (as defined in the Community Development Banking and 
Financial Institutions Act of 1994, (12 U.S.C. 4701 note)) serving an 
area that has at least 70 percent of its residents who are low- and 
moderate-income;
    (I) Provides assistance to an organization eligible to carry out 
activities under section 105(a)(15) of the Act serving an area that has 
at least 70 percent of its residents who are low- and moderate-income;
    (J) Provides employment opportunities that are an integral component 
of a project designed to promote spatial deconcentration of low- and 
moderate-income and minority persons;
    (K) With prior HUD approval, provides substantial benefit to low-
income persons through other innovative approaches;
    (L) Provides services to the residents of an area pursuant to a 
strategy approved by the State under the provisions of Sec. 
91.315(e)(2) of this title;
    (M) Creates or retains jobs through businesses assisted in an area 
pursuant to a strategy approved by the State under the provisions of 
Sec. 91.315(e)(2) of this title.
    (4) Standards for individual activities. Any activity subject to 
these standards which falls into one or more of the following categories 
will be considered by HUD to provide insufficient public benefit, and 
therefore may under no circumstances be assisted with CDBG funds:
    (i) The amount of CDBG assistance exceeds either of the following, 
as applicable:
    (A) $50,000 per full-time equivalent, permanent job created or 
retained; or
    (B) $1,000 per low- and moderate-income person to which goods or 
services are provided by the activity.
    (ii) The activity consists of or includes any of the following:
    (A) General promotion of the community as a whole (as opposed to the 
promotion of specific areas and programs);
    (B) Assistance to professional sports teams;
    (C) Assistance to privately-owned recreational facilities that serve 
a predominantly higher-income clientele, where the recreational benefit 
to users or members clearly outweighs employment or other benefits to 
low- and moderate-income persons;
    (D) Acquisition of land for which the specific proposed use has not 
yet been identified; and

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    (E) Assistance to a for-profit business while that business or any 
other business owned by the same person(s) or entity(ies) is the subject 
of unresolved findings of noncompliance relating to previous CDBG 
assistance provided by the recipient.
    (5) Applying the individual activity standards. (i) Where an 
activity is expected both to create or retain jobs and to provide goods 
or services to residents of an area, it will be disqualified only if the 
amount of CDBG assistance exceeds both of the amounts in paragraph 
(f)(4)(i) of this section.
    (ii) The individual activity tests in paragraph (f)(4)(i) of this 
section shall be applied to the number of jobs to be created or 
retained, or to the number of persons residing in the area served (as 
applicable), as determined at the time funds are obligated to 
activities.
    (iii) Where CDBG assistance for an activity is limited to job 
training and placement and/or other employment support services, the 
jobs assisted with CDBG funds shall be considered to be created or 
retained jobs for the purposes of applying the individual activity 
standards in paragraph (f)(4)(i) of this section.
    (6) Documentation. The state and its grant recipients must maintain 
sufficient records to demonstrate the level of public benefit, based on 
the above standards, that is actually achieved upon completion of the 
CDBG-assisted economic development activity(ies) and how that compares 
to the level of such benefit anticipated when the CDBG assistance was 
obligated. If a state grant recipient's actual results show a pattern of 
substantial variation from anticipated results, the state and its 
recipient are expected to take those actions reasonably within their 
respective control to improve the accuracy of the projections. If the 
actual results demonstrate that the state has failed the public benefit 
standards, HUD may require the state to meet more stringent standards in 
future years as appropriate.
    (g) Amendments to economic development projects after review 
determinations. If, after the grantee enters into a contract to provide 
assistance to a project, the scope or financial elements of the project 
change to the extent that a significant contract amendment is 
appropriate, the project should be reevaluated under these and the 
recipient's guidelines. (This would include, for example, situations 
where the business requests a change in the amount or terms of 
assistance being provided, or an extension to the loan payment period 
required in the contract.) If a reevaluation of the project indicates 
that the financial elements and public benefit to be derived have also 
substantially changed, then the recipient should make appropriate 
adjustments in the amount, type, terms or conditions of CDBG assistance 
which has been offered, to reflect the impact of the substantial change. 
(For example, if a change in the project elements results in a 
substantial reduction of the total project costs, it may be appropriate 
for the recipient to reduce the amount of total CDBG assistance.) If the 
amount of CDBG assistance provided to the project is increased, the 
amended project must still comply with the public benefit standards 
under paragraph (f) of this section.

[57 FR 53397, Nov. 9, 1992, as amended at 60 FR 1949, Jan. 5, 1995; 61 
FR 54921, Oct. 22, 1996]