[Federal Register Volume 59, Number 234 (Wednesday, December 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30115]
[[Page Unknown]]
[Federal Register: December 7, 1994]
_______________________________________________________________________
Part IV
Department of Housing and Urban Development
_______________________________________________________________________
Office of the Assistant Secretary for Community Planning and
Development
_______________________________________________________________________
Funding Availability (NOFA) and Program Guidelines for the Economic
Development Initiative (EDI); Notice
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Community Planning and
Development
[Docket No. N-94-3838; FR-3824-N-01]
Funding Availability (NOFA) and Program Guidelines for the
Economic Development Initiative (EDI)
AGENCY: Office of the Assistant Secretary for Community Planning and
Development, HUD.
SUMMARY: This NOFA announces the availability of funds for grants under
Section 108(q) of the Housing and Community Development Act of 1974, as
amended. HUD reserves the right to award grants under this NOFA up to
the maximum amount authorized by law. As of the date of this NOFA and
subject to funding availability, HUD intends to award up to $300
million in EDI funds. HUD may award in excess of $300 million if more
funds become available.
The Secretary invites applications from specific communities which
qualify under Section II.(C) of this NOFA. In addition, EDI grants must
be used in connection with activities eligible for assistance and
assisted under the HUD Section 108 loan guarantee program (42 U.S.C.
5308)--to enhance the security of the Section 108 guaranteed loan or to
improve the feasibility of proposed Section 108 projects through
techniques such as interest rate subsidies, loan loss reserves, etc.
This NOFA sets out program guidelines that will govern the
application, application review, and award process for EDI grants under
this NOFA.
DATES: Applications from invited applicants are due in HUD Headquarters
by close of business on December 16, 1994. HUD will not accept
applications that are submitted to HUD via facsimile (FAX)
transmission.
ADDRESSES: Completed applications should be submitted to the Office of
Community Planning and Development, Department of Housing and Urban
Development, 451 Seventh Street, SW., Washington, DC 20410. Applicants
are encouraged to submit applications to Room 7180. However, any
application received by the Office of Community Planning and
Development in Headquarters, Washington, DC, by the deadline date will
be accepted.
FOR FURTHER INFORMATION CONTACT: Roy Priest, Director, Office of
Economic Development, Department of Housing and Urban Development, Room
7136, Washington, DC 20410. Telephone (202) 708-2290 (voice) or (202)
708-2565 (TDD). (These are not toll-free numbers.)
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act Statement
The information collection requirements related to this program
have been approved by the Office of Management and Budget (OMB) and
assigned the approval number 2506-0153.
I. Purpose and Substantive Description
(A) Authority
(1) Title I, Housing and Community Development Act of 1974, as
amended (42 U.S.C. 5301-5320) (the ``Act''); 24 CFR part 570.
(2) This NOFA is not subject to Section 102 of the Department of
Housing and Urban Development Reform Act (42 U.S.C. 3545) because funds
under this NOFA are not being awarded on a competitive basis. The
applications will not be reviewed by reviewing panels, nor will
applications be rated or ranked. The award of funds will be made by the
Secretary.
(B) Definitions
Unless otherwise defined herein, terms defined in 24 CFR part 570
and used in this NOFA shall have the respective meanings given to these
terms in that part.
CDBG funds means, in addition to those funds specified at
Sec. 570.3(e), grant funds received pursuant to Section 108(q) of the
Act.
Economic Development Initiative (EDI) or EDI grants means the
provision of economic development grant assistance under Section 108(q)
of the Act, as authorized by Section 232 of the Multifamily Housing
Property Disposition Reform Act of 1994 (Pub. L. 103-233) (the ``1994
Act'').
Economic development project means an activity or activities
(including eligible mixed use projects with housing components) that
are eligible under Section 108 of the Act and under 24 CFR 570.703.
Empowerment Zone means an urban area so designated by the Secretary
pursuant to 24 CFR part 597 (see January 18, 1994 interim rule, 59 FR
2700).
Qualifying Empowerment Zone area means an urban area nominated by
one or more local governments and the State or States in which it is
located for consideration of designation as an Empowerment Zone
pursuant to 24 CFR part 597, and which meets the eligibility
requirements for a nominated area pursuant to 24 CFR part 597, subpart
B.
Strategic Plan means a strategy developed and agreed to by the
nominating local government(s) and State(s) and submitted in partial
fulfillment of the application requirements for designation as an
Empowerment Zone pursuant to 24 CFR Part 597.
(C) Background
This NOFA provides EDI grant funds to support those communities
that submitted applications on behalf of areas that qualify for
designation as an urban Empowerment Zone and that have remaining
authority to utilize Section 108 funds of at least $40 million, or in
the case of an urban Empowerment Zone application from joint entities,
that have aggregate Section 108 loan authority for all of the entities
that submitted the Empowerment Zone application of at least $40
million. In the case of a joint Empowerment Zone application from two
or more entities, HUD will accept a joint EDI application from public
entities eligible to apply for loan guarantee assistance pursuant to
Sec. 570.702. However, each of the joint applicants will be expected to
execute separate EDI grant agreements and separate loan commitments and
issuance documents for their related Section 108 loan guarantees. EDI
grant awards will not be made to designated urban Empowerment Zone
entities designated under that competition.
EDI is intended to complement and enhance the Section 108 Loan
Guarantee program (see 24 CFR 570.700-710 for regulations governing the
Section 108 program). This provision of the Community Development Block
Grant (CDBG) program provides communities with a source of financing
for economic development, housing rehabilitation, and large scale
physical development projects. HUD is authorized pursuant to Section
108 to guarantee notes issued by CDBG entitlement communities and
nonentitlement units of general local government eligible to receive
funds under their State CDBG program.
The regulations governing the Section 108 program are found at 24
CFR part 570, subpart M. EDI grants shall also be subject to the rules
found at 24 CFR part 570, subpart M.
Additionally, assistance provided under this NOFA is subject to the
requirements of section 3 of the Housing and Urban Development Act of
1968, and the implementing regulations in 24 CFR part 135, as amended
by an interim rule published on June 30, 1994 (59 FR 33866). Section 3
requires that to the greatest extent feasible, and consistent with
Federal, State, and local laws and regulations, job training,
employment and other contracting opportunities generated from certain
HUD financial assistance be directed to low- and very-low income
persons. The eligible activities for which funding is provided under
this NOFA are consistent with the objectives of section 3. Public
entities awarded funds under this NOFA and that intend to use the funds
for housing rehabilitation, housing construction, or other public
construction must comply with the applicable requirements of the
interim regulations published on June 30, 1994.
The Section 108 program is authorized at $2.054 billion in loan
guarantee authority in Fiscal Year 1995. Under the Section 108 program,
units of general local government and States, if applicable, pledge
future years' CDBG allocations as security for loans guaranteed by HUD.
The full faith and credit of the United States is pledged to the
payment of all guarantees made under Section 108. In the event that a
Section 108 funded activity fails to generate sufficient funds to repay
the Section 108 loan and there are insufficient EDI grant funds or
other assets available to be used to make the payment, a community
would be required to use its CDBG funds to make the loan payment.
Without the availability of an EDI grant, this potential disruption in
availability of CDBG funds for program activities has made many
communities reluctant to utilize the Section 108 loan program. EDI
minimizes the potential loss of future CDBG allocations by either
providing a loan loss reserve (for use in making Section 108 guaranteed
loan payments if needed), lowering the cost of borrowing under Section
108 (making full or partial interest payments), or providing other
credit and economic enhancements that reduce the risk that the pledged
annual CDBG allocation would be required to fund repayment shortfalls.
Because economic development projects carried out in, or serving,
the most economically and physically distressed neighborhoods, such as
those found in areas qualifying for urban Empowerment Zone designation,
face the greatest risk of loss of Section 108 loan funds, HUD intends
to provide a maximum ratio of EDI grant funds to Section 108 loan funds
of one-to-one. An EDI grant can reduce the risk to future CDBG funds:
(1) By directly enhancing the security of the guaranteed loan;
(2) By strengthening the economic feasibility of the projects
financed with Section 108 funds (and thereby increasing the probability
that the project will generate enough cash to repay the guaranteed
loan);
(3) By enabling a speedy repayment of the Section 108 loan
guarantee notes; or
(4) Through a combination of these risk mitigation techniques.
HUD envisions that the following project structures could be
typical:
Funding reserves--The cash flow generated by an economic
development project may be expected to be relatively ``thin'' in the
early stages of the project. The EDI grant can make it possible for
debt service or operating reserves to be established in a way that does
not jeopardize the economic feasibility of the project.
An example is a supermarket or neighborhood shopping center that is
designed to provide basic services and jobs for residents in the
distressed neighborhood. The public entity must be prepared for the
Section 108 loan repayments required during the time period after
completion of construction and during the lease-up phase when the
shopping center is not fully leased and generating sufficient revenues
to support the Section 108 loan repayments. It may therefore require
the developer to establish with a trustee a reserve account (or
accounts) that would be available to cover operating expenses and/or
debt service during this lease-up period. While such reserves are
commonplace, their cost may be so high as to make an already risky
neighborhood shopping center project economically infeasible. The
increased cost resulting from establishing such reserves may be
defrayed by the EDI grant. As with the letter of credit example below,
such reserves protect the CDBG program against the risk that CDBG funds
will have to be used to cover shortfalls in the intended source for
repayment of the Section 108 loan.
Over-collateralizing the Section 108 loan--The use of EDI grant
funds may be structured in appropriate cases so as to improve the
chances that cash flow will be sufficient to cover debt service on the
Section 108 loan and directly enhance the guaranteed loan. One
technique for accomplishing this approach is over-collateralization of
the Section 108 loan.
An example is the creation of a loan pool made up of equal amounts
of Section 108 and EDI grant funds. The community would make loans to
various businesses at an interest rate equal to or greater than the
rate on the Section 108 loan. The total loan portfolio would be pledged
to the repayment of the Section 108 loan. If the total loan repayments
from the loan fund were twice the amount of the debt service on the
Section 108 loan, the community could accumulate a loan loss reserve
that would mitigate virtually any risk to future CDBG funds.
Direct enhancement of the security of the Section 108 loan--The EDI
grant can be used to cover the cost of providing enhanced security. An
example of how the EDI grant can be used for this purpose is by using
the grant funds to cover the cost of a standby letter of credit, issued
in favor of HUD. This letter of credit will be available to fund
amounts due on the Section 108 loan if other sources fail to
materialize and will, thus, serve to protect the public entity's future
CDBG funds.
Provision of financing to for-profit businesses at a below market
interest rate--While the rates on loans guaranteed under Section 108
are only slightly above the rates on comparable U.S. Treasury
obligations, they may nonetheless be higher than can be afforded by
businesses in severely, economically distressed neighborhoods. The EDI
grant can be used to make Section 108 financing affordable.
For example, a community's strategic plan to stabilize the economic
viability of a severely distressed neighborhood may provide financial
loan assistance to both new and existing businesses at very low
interest rates for some period of time until each business has reached
a stabilized and profitable level of operation. EDI grant funds would
serve to ``buy down'' the interest rate up front, or make full or
partial interest payments, allowing the businesses to be financially
viable in the early start-up period not otherwise possible with Section
108 alone.
A combination of these techniques--An applicant could employ a
combination of these techniques in order to implement a strategy that
carries out an economic development project.
(D) Timing of Grant Awards
EDI applications will be evaluated concurrently with request(s) or
application(s) for Section 108 guarantee commitments or request(s) or
application(s) for approval of amendments to previously approved
Section 108 applications that will be enhanced by the EDI assistance.
(See II.B. of this NOFA.) HUD notification to the grantee of the amount
and conditions (if any) of EDI funds awarded based upon review of the
EDI application shall constitute an obligation of grant funds, subject
to compliance with the conditions of award and execution of a grant
agreement.
(E) Limitations on Grant Amounts
HUD expects to approve EDI grant amounts of up to $100 million each
with the ratio of EDI to Section 108 funds of 1:1. Applicants cannot
request grants exceeding a one-to-one ratio of EDI funds to Section 108
funds. In the case of requested amendments to an approved Section 108
loan guarantee commitment, the EDI assistance approved will be based on
the increased amount of Section 108 loan guarantee assistance. HUD
reserves the right to determine a minimum and a maximum amount of any
EDI award per application or project and to modify requests
accordingly. The applicant will be required to modify its project plans
and application to conform to the terms of HUD approval (final
obligation) before execution of a grant agreement. HUD reserves the
right to reduce or de-obligate the EDI award if approvable Section 108
loan guarantee applications are not submitted by the grantee in the
required amounts on a timely basis.
(F) Eligible Applicants for EDI Grant Assistance
Generally, eligible applicants for EDI grants under section 108(q)
of the Act are those public entities eligible to apply for loan
guarantee assistance pursuant to Sec. 570.702. However, this NOFA
further limits eligible applicants to those communities that submitted
applications on behalf of areas that qualify for designation as an
urban Empowerment Zone, and that have remaining Section 108 loan
guarantee authority of at least $40 million; or in the case of an urban
Empowerment Zone application from joint entities, an aggregate Section
108 loan authority for all of the entities that submitted the
Empowerment Zone application of at least $40 million. In the case of a
joint Empowerment Zone application for two or more entities, HUD will
accept a joint EDI application from the same public entities eligible
to apply for loan guarantee assistance pursuant to Sec. 570.702.
However, each of the joint applications will be expected to execute
separate EDI grant agreements and separate loan commitments and
issuance documents for their related section 108 loan guarantees.
(G) Eligible Activities
EDI grant funds may be used for:
(1) Activities listed at Sec. 570.703, provided such activities are
carried out in the qualifying Empowerment Zone area.
(2) Payment of costs of private financial guaranty insurance
policies, letters of credit, or other credit enhancements for the notes
or other obligations guaranteed by HUD pursuant to Section 108,
provided such notes or obligations are used to finance an economic
development project. Such enhancements shall be specified in the
contract required by Sec. 570.705(b)(1), and shall be satisfactory in
form and substance to HUD for security purposes.
(3) The payment of principal or interest due (including such
servicing, underwriting, or other costs as may be authorized by HUD) on
the notes or other obligations guaranteed pursuant to the Section 108
loan guarantee program.
II. The Application Process
Public entities applying for EDI assistance under this NOFA must
make a specific request for that assistance, in accordance with this
NOFA. The EDI application shall be accompanied by a request or requests
for Section 108 loan guarantee commitment(s), as further described in
Section II.B. of this NOFA below. Application guidelines for the
Section 108 program are found at Sec. 570.704.
(A) Timing of Submission
Applications for EDI assistance shall be received at HUD
Headquarters at the address listed above at Addresses by close of
business on December 16, 1994. Applicants are encouraged to submit
applications to Room 7180. However, any application received by the
Office of Community Planning and Development in Headquarters,
Washington, DC, by the deadline date will be accepted. HUD will not
accept applications which are submitted to HUD via facsimile (FAX)
transmission.
(B) Submission Requirements
(1) The EDI application (an original and two copies) shall be
accompanied by a request for loan guarantee assistance under Section
108. The request for Section 108 loan guarantee can be either one or
more of the following:
(a) A formal application for Section 108 loan guarantee(s),
including the documents listed at Sec. 570.704(b);
(b) A brief description of a Section 108 loan guarantee
application(s) to be submitted within 60 days (with HUD reserving the
right to extend such period for good cause, generally, on a case-by-
case basis) of a notice of EDI selection (EDI awards will be
conditioned on approval of actual Section 108 loan commitments). This
description must be sufficient to support the basic eligibility of the
proposed project or activities for Section 108 assistance;
(c) If applicable, a copy of a Section 108 loan guarantee approval
document with grant number and date of approval (which was approved
after the date of this NOFA, except in conjunction with a previous EDI
award); or
(d) A request for a Section 108 loan guarantee amendment (analogous
to subparagraph (a) or (b) above) that proposes to increase the amount
of a previously approved application. However, any amount of Section
108 loan guarantee authority approved before the date of this NOFA is
not eligible to be used in conjunction with an EDI grant under this
NOFA. Further, a Section 108 loan guarantee application that is the
subject of a prior EDI grant award, whether or not the Section 108 loan
guarantee has been approved as of the date of this NOFA, is not
eligible for an EDI award under this NOFA. For example, if a community
has a previously approved Section 108 loan guarantee of $12 million,
even if none of the funds have been utilized, or if the community had
previously been awarded an EDI grant of $1 million and had certified
that it will submit a Section 108 loan application for $10 million in
support of that EDI grant, the community's application under this NOFA
must propose to increase the amount of its total Section 108 loan
guarantee commitments beyond those amounts (the $12 million or $10
million in this example) it has previously committed.
(2) In addition, for EDI grant assistance, the public entity/
entities shall submit the following:
(a) SF 424, Application for Federal Assistance.
(b) The certification regarding lobbying required under 24 CFR part
87 (Appendix A).
(c) A brief narrative statement describing the activities that will
be carried out with the EDI grant funds and explaining how the use of
EDI grant funds meets the selection criteria in paragraph II.(C) below.
(3) The application shall be deemed to include a copy of the
strategic plan for community revitalization previously submitted to HUD
as part of a Federal Empowerment Zone application pursuant to a Notice
inviting applications, published on January 18, 1994 at 59 FR 2711.
(C) Award Criteria
All applications will be considered for awards under this NOFA
based upon the following criteria that demonstrate the quality of the
proposed project, and the applicant's capacity and commitment to use
EDI funds, in accordance with the purposes of EDI. HUD reserves the
right to determine a minimum and maximum amount of any EDI award per
application or project and to modify requests accordingly.
(1) Threshold--Only applications that address these threshold
factors will be considered:
(a) Quality of the Section 108/EDI plan. HUD must determine that
the applicant's proposed plan for the EDI grant/Section 108 loan
guarantee project(s) or activities will address economic needs in the
applicant's qualifying Empowerment Zone area, and the plan for such
project(s) or activities is logically, feasibly, and substantially
likely to achieve its stated purpose.
(b) The capacity or potential of the public entity to successfully
carry out the Section 108/EDI plan. HUD must determine that the public
entity's performance in the administration of its CDBG program; its
previous experience, if any, in administering a section 108 loan
guarantee; its performance and capacity in carrying out economic
development projects; its ability to conduct prudent underwriting; and
its capacity to manage and service loans made with the guaranteed loan
funds or EDI grant funds demonstrate that it is substantially likely to
carry out the approved projects or activities in a satisfactory manner.
(c) Distress. HUD must determine that the level of distress in the
immediate community to be served and/or the jurisdiction applying for
assistance meets the test of general distress set forth in 24 CFR
597.102 (see January 18, 1994 interim rule, at 59 FR 2704-2705).
(d) Extent of need for assistance. HUD must determine that there is
a lack of financial resources to carry out the project without EDI
assistance. In making this determination, HUD will consider:
(i) Projects costs and financial requirements;
(ii) The amount of any debt service or operating reserve accounts
to be established in connection with the economic development project;
(iii) The reasonableness of the costs of any credit enhancement
paid with EDI grant funds;
(iv) The amount of program income (if any) to be received each year
during the repayment period for the guaranteed loan;
(v) Interest rates on those loans to third parties (other than
subrecipients) (either as an absolute rate or as a plus/minus spread to
the Section 108 rate);
(vi) Underwriting guidelines used (or expected to be used) in
determining project feasibility; and
(vii) Other relevant information.
(2) Other award factors.--The Secretary has determined that the
following additional factors are appropriate to this NOFA:
(a) The applicant submitted an application for urban Empowerment
Zone designation pursuant to the Notice inviting Empowerment Zone
applications published January 18, 1994 at 59 FR 2711 (see also
paragraph (d) below).
(b) The applicant has remaining Section 108 loan guarantee
authority of at least $40 million or in the case of an urban
Empowerment Zone application from joint entities an aggregate Section
108 loan authority for all of the entities that submitted the
Empowerment Zone application of at least $40 million;
(c) Timing of grant awards--HUD will, consistent with the
approvability of the Section 108 guarantee applications submitted,
strive to obligate EDI grants contemporaneously with HUD approval of
the related Section 108 loan guarantee commitment. However, the EDI
grant may be awarded prior to HUD approval of the Section 108
commitment, if approvable Section 108 guarantee applications have not
been submitted by the applicant at the time of EDI awards. In addition,
EDI funds shall not be disbursed to the public entity before the
issuance of the related Section 108 guaranteed obligations;
(d) Activities proposed and approved to be carried out with EDI
funds under this NOFA must be located in or serve an area qualifying
for designation as an urban Empowerment Zone under the notice inviting
applications, published on January 18, 1994 at 59 FR 2711.
(e) Applicants subsequently designated as Federal Empowerment Zones
are not eligible to receive funds under this NOFA.
III. Other Matters
Environmental Impact
A Finding of No Significant Impact with respect to the environment
has been made in accordance with HUD regulations at 24 CFR part 50,
implementing section 102(2)(C) of the National Environmental Policy Act
of 1969 (42 U.S.C. 4332). The Finding of No Significant Impact is
available for public inspection and copying between 7:30 am and 5:30 pm
weekdays at the Office of the Rules Docket Clerk, 451 Seventh Street,
SW, Room 10276, Washington, DC 20410.
Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that this NOFA
will not have substantial, direct effects on States, on their political
subdivisions, or on their relationship with the Federal Government, or
on the distribution of power and responsibilities between them and
other levels of government. While the NOFA offers financial assistance
to units of general local government, none of its provisions will have
an effect on the relationship between the Federal Government and the
States, or the States' political subdivisions.
Family
The General Counsel, as the Designated Official for Executive Order
12606, The Family, has determined that the policies announced in this
NOFA would not have the potential for significant impact on family
formation, maintenance and general well-being within the meaning of the
Order. No significant change in existing HUD policies and programs will
result from issuance of this NOFA, as those policies and programs
relate to family concerns.
Prohibition Against Lobbying Activities
The use of funds awarded under this NOFA is subject to the
disclosure requirements and prohibitions of section 319 of the
Department of Interior and Related Agencies Appropriations Act for
Fiscal Year 1990 (31 U.S.C. 1352) and the implementing regulations at
24 CFR part 87. These authorities prohibit recipients of Federal
contracts, grants, or loans from using appropriated funds for lobbying
the Executive or Legislative Branches of the Federal Government in
connection with a specific contract, grant, or loan. The prohibition
also covers the awarding of contracts, grants, cooperative agreements,
or loans unless the recipient has made an acceptable certification
regarding lobbying. Under 24 CFR part 87, applicants, recipients, and
subrecipients of assistance exceeding $100,000 must certify that no
Federal funds have been or will be spent on lobbying activities in
connection with the assistance.
Prohibition Against Lobbying of HUD Personnel
Section 13 of the Department of Housing and Urban Development Act
(42 U.S.C. 3537b) contains two provisions dealing with efforts to
influence HUD's decisions with respect to financial assistance. The
first imposes disclosure requirements on those who are typically
involved in these efforts--those who pay others to influence the award
of assistance or the taking of a management action by the Department
and those who are paid to provide the influence. The second restricts
the payment of fees to those who are paid to influence the award of HUD
assistance, if the fees are tied to the number of housing units
received or are based on the amount of assistance received, or if they
are contingent upon the receipt of assistance. HUD's regulation
implementing section 13 is codified at 24 CFR part 86. If readers are
involved in any efforts to influence the Department in these ways, they
are urged to read the final rule, particularly the examples contained
in Appendix A of the rule. Appendix A of this rule contains examples of
activities covered by this rule.
Any questions concerning the rule should be directed to the Office
of Ethics, Room 2158, Department of Housing and Urban Development, 451
Seventh Street, SW, Washington DC 20410-3000. Telephone: (202) 708-3815
(voice/TDD). (This is not a toll-free number.) Forms necessary for
compliance with the rule may be obtained from the local HUD Office.
Dated: December 2, 1994.
Mark D. Fabiani
Deputy Assistant Secretary for Operations.
[FR Doc. 94-30115 Filed 12-02-94; 8:45 am]
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