HOMEfires - Vol. 2 No. 2, April 1999

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A: Questions frequently arise from the involvement of board members serving in various capacities that cause HUD Field Offices, PJs, State recipients, subrecipients and their staffs to question whether a conflict of interest exists when there is no financial benefit or personal financial interest. The conflict of interest provisions in the HOME final rule at 24 CFR 92.356 cover only financial conflicts of interest. While the rule covers only financial conflicts of interest, PJ staff need to be cognizant of the appearance of conflict or preferential treatment of nonprofits or CHDOs on whose boards they serve. This issue of HOMEfires discusses and provides guidance on both financial conflicts as well as appearances of conflicts.

The conflict of interest provisions apply to an employee, agent, consultant, officer or elected or appointed official of the PJ, State recipient or subrecipient that is receiving HOME funds in which that individual could obtain a financial interest or benefit from a HOME-assisted activity, or have an interest in a contract, subcontract or agreement or receive proceeds, either for himself or herself or those with whom he or she has family or business ties during the individual's tenure and for one year after employment. HUD CPD Notice 98-09 delineates the application of conflict of interest provisions when a financial interest or benefit exists.

Although an individual may have direct knowledge of or a responsibility for HOME program activities in his or her capacity as a local government official or staff person, unless the individual receives a financial benefit or gain for himself or herself or those with whom they have family or business ties from a HOME-funded activity, there would be no conflict of interest in serving as a board member of a nonprofit recipient. Likewise, an individual may be a board member of a nonprofit that receives HOME funding and also serve as an officer or board member of a lending institution that is involved in the development of low-income housing with the nonprofit. Again, unless there is a financial benefit or gain to that individual or someone with whom they have family or business ties, there would be no conflict of interest in serving in both capacities. Similarly, there would be no conflict of interest if a person serves on an advisory committee to a CHDO and is a board member of a nonprofit that is also a subrecipient, unless the board member receives a financial benefit from a HOME funded activity.

While the standard to determine a conflict of interest is predicated on receiving a financial benefit or having a personal financial interest, participating jurisdiction staff who serve on nonprofit or CHDO boards of directors should be sensitive to the perception that the organization, on whose board they serve, has a favored or preferential status when the organization receives HOME funds as either a subrecipient or as an owner, sponsor or developer. The appearance of one organization having a favored status in accessing HOME funds can be countered in many ways, including a free and open solicitation process inviting all eligible, qualified organizations to submit in response to a well-developed scope of work or project proposal, which includes clearly enunciated selection criteria. PJ staff could mitigate the appearance of a conflict by choosing to absent themselves from the review or selection process when a proposal or program is being competed, as well as publicly disclosing board relationships. Awareness of public perception will inform State or local PJ staff about how best to involve themselves and minimize adverse or negative consequences, which may impede the ultimate goal of the program, i.e. the development of affordable housing in an efficient, cost effective, and timely manner.

The Department removed the reference to "personal" conflicts of interest in the CDBG interim rule issued on June 17, 1992, thereby limiting the prohibition to situations that provide a financial interest or benefit. The preamble to the interim rule stated, "Many grantees make a practice of designating some of their elected or appointed officials to serve on the boards of non-profit organizations that operate in areas they consider to be in the public interest...HUD believes that this kind of public participation often is beneficial and should not be discouraged." The preamble to the CDBG final rule issued on November 9, 1995, which incorporated the change in the interim rule further reiterated that "HUD believes the conflict rules should be limited to the prohibition of situations that provide a financial interest or benefit." While an important purpose of the conflict of interest rule is to protect the reputation of the program from the appearance of providing special treatment or serving special interests, the Department has not issued policy on non-financial conflicts of interest because of the difficulty in identifying clear criteria that would serve to distinguish the kinds of personal interest or benefits that should be prohibited in such cases. In addition, the Department would not want to have a chilling effect on the many strong collaborative efforts among State and local governments, private organizations and community representatives so integral to affordable housing and community development.

There may be situations similar to these stated here. Each situation should be viewed independent of each other. In all instances, PJs, State recipients, and subrecipients have responsibility under Parts 84 and 85, as applicable, and 24 CFR 92.356 to ensure that no conflicts of interest exist in the administration of their HOME programs.