Changes to Accounting Requirements for the Community Development Block Grants (CDBG) Program, 69864-69873 [2015-28700]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 80, Number 218 (Thursday, November 12, 2015)]
[Rules and Regulations]
[Pages 69864-69873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28700]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 91 and 570

[Docket No. FR 5797-I-01]
RIN 2506-AC39


Changes to Accounting Requirements for the Community Development 
Block Grants (CDBG) Program

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, HUD.

ACTION: Interim final rule.

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SUMMARY: This rule makes several changes to the existing Community 
Development Block Grant (CDBG) program regulations in order to better 
track the use of grant funds and improve accounting procedures in the 
program. Through this rule, HUD requires grantees to commence tracking 
the obligations and expenditures of funds for each specific fiscal year 
grant, rather than track such information cumulatively. In order to 
effectively implement this accounting change, changes are needed to the 
regulations applicable to affected grants, such as the program-specific 
regulations, consolidated plan regulations, and methods to calculate 
the cap on administrative and planning expenses. While amending these 
regulations to conform to and support this accounting practice in 
applicable regulations, HUD is also making certain grammatical and 
other technical corrections in those regulations.

DATES: Effective date: December 14, 2015.
    Comment due date: January 11, 2016.

ADDRESSES: Interested persons are invited to submit comments regarding 
this interim rule. Communications must refer to the above docket number 
and title. There are two methods for submitting public comments. All 
submissions must refer to the above docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov Web site can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule.

    No Facsimile Comments. Facsimile (fax) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m., weekdays, at 
the

[[Page 69865]]

above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at 202-402-3055 (this is 
not a toll-free number). Individuals with speech or hearing impairments 
may access this number via TTY by calling the Federal Relay Service, 
toll-free, at 800-877-8339. Copies of all comments submitted are 
available for inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Stanley Gimont, Director, Office of 
Block Grant Assistance, Department of Housing and Urban Development, 
Office of Community Planning and Development, 451 7th Street SW., Suite 
7286, Washington, DC 20410 at 202-708-3587, (this is not a toll-free 
number). Individuals with speech or hearing impairments may access this 
number via TTY by calling the Federal Information Relay Service, toll-
free, at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

A. The CDBG Program

    The CDBG program is a flexible program that provides communities 
with resources to address a wide range of unique community development 
needs. The CDBG program provides annual grants on a formula basis to 
units of general local government and States. The annual CDBG 
appropriation is allocated between metropolitan cities and urban 
counties, which are referred to as ``entitlement areas,'' and States, 
which must distribute the funds to their units of general local 
government, referred to as ``nonentitlement areas.'' HUD determines the 
amount of each grant by using a formula comprised of several measures 
of community need, including the extent of poverty, population, housing 
overcrowding, age of housing, and population growth lag.
    A grantee must develop and follow a consolidated plan describing 
the planned use of CDBG funds, which includes a detailed plan that 
provides for and encourages citizen participation. This integral 
process emphasizes participation by persons of low or moderate income, 
particularly residents of predominantly low- and moderate-income 
neighborhoods, slum or blighted areas, and areas in which the grantee 
proposes to use CDBG funds. Not less than 70 percent of CDBG funds must 
be used for activities that benefit low- and moderate-income persons. 
In addition, each funded activity must meet one of the following 
national objectives for the program: Benefit low- and moderate-income 
persons, prevent or eliminate slums or blight, or address community 
development needs having a particular urgency because existing 
conditions pose a serious and immediate threat to the health or welfare 
of the community for which other funding is not available.
    The regulations for the CDBG program are codified in 24 CFR part 
570 (entitled ``Community Development Block Grants''). The regulations 
governing the CDBG annual plan and citizen participation requirements 
are codified at 24 CFR part 91 (entitled ``Consolidated Submissions for 
Community Planning and Development Programs'').

B. CDBG Accounting Requirements

    CDBG grants funds are currently disbursed through the Integrated 
Disbursement and Information System (IDIS) on a ``first-in, first-out'' 
(FIFO) basis. Under this methodology, CDBG grantees do not designate a 
specific fiscal year grant in IDIS when funding an activity or when 
creating an expenditure voucher. In general, all obligations and 
disbursements are recorded against the earliest annual grant with an 
available balance, thereby exhausting the oldest grant available before 
recording expenditures against the next grant.
    Grantees' accounting systems, on the other hand, typically track 
expenditures according to each annual grant. During any given time 
period, grantees expend funds from multiple grants for a range of 
activities that have a variety of implementation schedules. 
Expenditures are incurred against more recent grants for activities 
that are on schedule; and, often simultaneously, expenditures are 
incurred against earlier annual grants for activities that experience 
acceptable delays.
    These two distinct accounting methods often complicate 
reconciliation between grantees' accounting records and IDIS's FIFO 
records. The revised methodology will simplify reconciliation by 
aligning the accounting practices used by HUD and those used by 
grantees.
    HUD is cognizant that Fiscal Year (FY) 2015 funding and formula 
allocations are underway, but the revised methodology is now available 
and, through this rule, HUD directs CDBG grantees to commence using the 
revised methodology. For the FY 2015 and subsequent fiscal year grants, 
IDIS will support grant-specific accounting. Therefore, as of the 
effective date of this interim rule, when obligating funds to be 
expended for a CDBG activity (i.e., when funding an activity in IDIS), 
grantees must identify the specific annual grant that is the source of 
the funds. When creating an expenditure voucher, HUD, through IDIS, 
will disburse the funds according to the specific annual grant that was 
obligated to that activity.
    In order to complement and support this accounting change, 
conforming changes are needed to the regulations covering affected FY 
grants to reflect this accounting practice, such as clarifying which 
accounting practice is utilized, revising records retention 
requirements, and conforming the calculation of the cap on 
administrative and planning expenses. Conforming changes are not only 
needed to the CDBG regulations in 24 CFR part 570 but also to the CDBG 
planning and citizen participation regulations in part 91. In addition, 
certain grammatical and other technical corrections need to be made to 
the CDBG regulations.
    The following section of this preamble provides a section-by-
section overview of the regulatory changes.

II. This Interim Rule--Section-by-Section Changes

Action Plans (Sec. Sec.  91.220, 91.320, 91.325 and 91.505)

    HUD revises those provisions regarding the CDBG program components 
of the action plans for entitlements at Sec.  91.220(l) and states at 
Sec.  91.320(l). The interim rule adds clarifying language to reiterate 
that the available resources for that annual action plan may include a 
variety of sources of funding in addition to the annual grant.
    For State CDBG recipients, HUD clarifies Sec.  91.320(l) to address 
program income funds that are retained by units of general local 
government. By including locally retained program income funds, such as 
general program income and revolving loan funds, the State's action 
plan will include all the CDBG funds available throughout the State, 
regardless of whether those funds are retained by the State or units of 
general local government.
    For state CDBG recipients, HUD amends Sec.  91.325(b)(4)(ii), which 
provides that the State shall certify that 70 percent of the amount 
expended shall principally benefit low- and moderate-income families, 
on a program year basis. This regulatory provision is inconsistent with 
Sec.  570.484, which requires the same certification to be provided on 
an annual grant basis. Therefore, Sec.  91.325(b)(4)(ii) is amended to 
be consistent with Sec.  570.484.
    HUD amends Sec.  91.505(a)(2) to clarify that an amendment would be 
necessary for the use of program income,

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repayments, or reallocations that were not previously included in an 
action plan.

Definition of Origin Year (Sec. Sec.  570.3 and 570.481)

    The interim rule adds a definition to Sec. Sec.  570.3 and 
570.481(a)(3) for the term ``origin year'' to mean the Federal fiscal 
year in which the annual grant funds were appropriated. Current 
regulations use the term ``grant year,'' which has often been confused 
with a grantee's program year. The term ``origin year'' is intended to 
reinforce specificity concerning any one annual grant and support 
grant-specific accounting. In addition to the new definition, the 
interim rule makes corresponding language changes throughout parts 91 
and 570.

Treasury Account Cancellations Sec. Sec.  570.480(i) and 570.200(k)

    The interim rule adds Sec. Sec.  570.480(i) and 570.200(k) to 
incorporate the requirements of 31 U.S.C. 1552, which states that on 
September 30 of the 5th fiscal year after the period of availability 
for obligation of a fixed appropriation account ends, the United States 
Treasury account shall be canceled and any remaining balance (whether 
obligated or unobligated) shall be canceled and therefore not available 
for obligation or expenditure for any purpose. HUD's obligation period 
for CDBG is typically 3 fiscal years, including the origin year (as 
stated in each annual appropriations act). HUD obligates and makes the 
funds available to grantees as soon as possible, but has until the end 
of 3 fiscal years to do so. For example, a CDBG grant appropriated for 
Fiscal Year 2015 must be obligated by HUD by the end of Fiscal Year 
2017, and any unexpended funds will be canceled and cease to be 
available on September 30, 2022. HUD reserves the right, however, to 
require an earlier expenditure and drawdown deadline under a grant 
agreement due to end-of-year accounting and timing issues. This 
provision is applicable to funds in the grantee's line of credit and 
any funds returned to the line of credit. However, this statute does 
not apply to funds repaid to a local account or program income 
deposited in a local account. CDBG funds have rarely been canceled 
because the FIFO accounting method disperses funds from the oldest 
source grant first, and timely expenditure of grant funds would prevent 
the grantee from having as many years' worth of grant funds in its line 
of credit.

Entitlement Administration and Planning Cap (Sec.  570.200)

    In annual appropriations acts, Congress limits the amount grantees 
may use for planning, management development, and administration to not 
more than 20 percent of each grant. Under the FIFO method of accounting 
in IDIS, grantees would draw funds without distinguishing funds by 
origin year, making the application of a 20 percent limit to any one 
grant impractical for HUD to monitor. Current regulations at Sec.  
570.200(g) base the 20 percent limit upon obligations in a given 
program year, relative to the amount of the most recent grant plus 
program income. Therefore, Sec.  570.200(g) is revised to better 
reflect the limitations imposed by annual appropriations acts.
    Through this rule, HUD divides Sec.  570.200(g) into two distinct 
compliance tests. The current test, retained and redesignated Sec.  
570.200(g)(2), which determines compliance based upon obligations of 
both grant funds and program income, will apply to all prior and future 
program years. For grants made in FY 2015 and subsequent years, an 
additional test is included at Sec.  570.200(g)(1), which would limit 
planning and administration expenditures to no more than 20 percent of 
each separate origin year grant (excluding program income). This new 
test will be used to determine compliance with the annual 
appropriations acts requirement at the end of the grant. The key 
difference between the two tests is that the existing test addresses 
program income and the new test does not. The reason that two tests are 
necessary is because the existing test allows program income to be used 
in lieu of grant funds for planning, management development, and 
administration costs, thereby ensuring that grantees are compliant with 
the cash management principles that require program income to be spent 
ahead of draws of Treasury funds.
    These two tests measure different things over different time 
periods. The existing test (the program year test) limits obligations 
of funds made by the grantee during a program year. The amount of funds 
obligated for planning and administrative costs is limited to 20 
percent of the sum of the origin year grant amount for that program 
year plus the amount of program income received by the grantee (and all 
subrecipients) during that program year. Compliance is determined at 
the end of each program year based on the grantee's annual performance 
report submission. This test allows obligations of program income for 
planning and general administration cost to support grantee compliance 
with Sec.  570.504(b)(2), which requires that program income be 
substantially disbursed before withdrawals of grant funds from the 
United States Treasury.
    The origin year grant test limits expenditures for planning and 
administrative costs against a given origin year's grant. For any given 
origin year grant, compliance will be determined during the grant 
closeout. For purposes of the second test, it does not matter when the 
funds were obligated or expended. Beginning with origin year 2015 
grants and with FY 2015 program years, grantees must ensure that they 
comply with both tests. Grantees are cautioned that compliance with one 
test does not automatically ensure compliance with the other test.
    HUD recognizes that CDBG grantees are administering programs that 
typically have multiple grants open at any given time. The interim rule 
adds language at Sec.  570.200(g) to reiterate that administration and 
planning costs support the general operation of a grantee's CDBG 
program, and thus are not tied to any specific origin year or CDBG 
grant. A grantee may use funds from any origin year grant for 
administration and planning costs for any CDBG grant. This provision is 
limited to only administration and planning costs and does not include 
staff and overhead costs directly related to carrying out activities 
eligible under Sec.  570.201 through Sec.  570.204, since those costs 
are eligible as part of such activities and allocable to specific 
origin year grants.

Eligible Activities: Public Services (Sec.  570.201)

    HUD revises regulations at Sec.  570.201 in order to clarify that 
the public service cap determination is applicable to nonentitlement 
grantees in Hawaii and recipients of insular area funds under the CDBG 
program.

State CDBG Program Administrative Requirements (Sec.  570.489)

    HUD revises the regulations for State administrative costs in Sec.  
570.489. Redundancies are removed and clarifying language is added to 
Sec.  570.489(a)(1)(i)(ii) and (iii) and Sec.  570.489(e)(3). Current 
regulations at Sec.  570.489(a)(1)(v) allow State CDBG grantees the 
option of using cumulative accounting of administrative costs, 
consistent with the FIFO accounting method. Under the new grant-based 
accounting, for origin year 2015 grants and subsequent grants, State 
CDBG grantees will no longer have the option

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of cumulative accounting of the State's administrative costs and 
instead must use year-to-year tracking. The cumulative method will only 
continue to be available for State administrative expenses charged to 
FY 2014 and prior fiscal year grants.
    HUD clarifies Sec.  570.489(a)(3) to explain how HUD determines 
compliance with the planning and administration cost cap. While this 
provision is already grant-specific, the current calculation 
incorporates program income into the 20 percent administrative and 
planning cap. Therefore, the interim rule clarifies the compliance test 
at Sec.  570.489(a)(3) by dividing it into multiple parts. Section 
570.489(a)(3)(i) describes administration costs for both States and 
units of general local government. Section 570.489(a)(3)(ii) maintains 
current language of the administrative and planning cap, with added 
clarity. Section 570.489(a)(3)(iii) adds a second compliance test based 
solely upon use of funds from each annual grant (excluding program 
income) beginning with origin year 2015 and subsequent years' grants. 
The second compliance test will demonstrate compliance with annual 
appropriations acts limiting the amount grantees may use for planning, 
management development, and administration to not more than 20 percent 
of each grant.
    As noted under the discussion of changes made to Sec.  570.200, HUD 
recognizes that CDBG grantees are administering programs that typically 
have multiple grants open at any given time. Similar to the change made 
to Sec.  570.200(g), the interim rule revises Sec.  570.489(a)(3)(iv) 
to reiterate that administration and planning costs support the general 
operation of a grantee's CDBG program, and thus are not tied to any 
specific origin year or CDBG grant. A grantee may use funds from any 
origin year grant for administration and planning costs for any CDBG 
grant. This provision is limited to only administration and planning 
costs and does not include staff and overhead costs directly related to 
carrying out other eligible activities, since those costs are eligible 
as part of such activities and allocable to specific origin year 
grants.
    Section 570.489(e)(3) is edited for clarity and to remove 
redundancies.

Records To Be Maintained (Sec.  570.506)

    This rule adds language in Sec.  570.506 specifying that grantees' 
records pertaining to obligations, expenditures, and drawdowns must be 
able to relate financial transactions to either a specific origin 
year's grant or to program income received during a specific program 
year.

Grant Closeout Procedures--Entitlement CDBG (Sec. Sec.  570.509, 
570.513)

    The current regulations at Sec.  570.509 have primarily applied 
when an entitlement CDBG grantee discontinued its participation in the 
program as a grantee. The interim rule will now permit and necessitate 
close out of each origin year grant from HUD. Starting with FY 2015 
origin year grants, each year's grant will be closed out when all 
activity associated with the grant is completed.
    This necessitates several changes to the closeout process, which 
also result in conforming changes to other portions of the regulations. 
The grant funds, as well as program income received during the program 
year corresponding to the grant's origin year, must be fully expended 
before the grant can be closed out. In addition, the grantee must enter 
final accomplishment data and all activities on which those funds were 
expended must be reported as completed in a final annual report. The 
interim rule clarifies that, in order to close out a grant, any 
unexpended program income received during the program year associated 
with the grant's origin year must be included in a subsequent year's 
action plan, thereby rolling forward those available resources onto a 
more recent action plan with ongoing activities. The funds will be 
included in the section describing the CDBG funds available pursuant to 
Sec.  91.220(l), thereby allowing that prior origin year's grant to be 
closed out.
    In addition, the interim rule adds closeout criteria based upon the 
changes to the administration and planning cap at Sec.  570.200(g).
    The interim rule change regarding expenditure of associated program 
income before grant closeout triggers corresponding changes to Sec.  
570.513, lump sum drawdown. A grant cannot be closed out if grant funds 
or associated program income remain unexpended in a deposit account 
subject to an existing lump sum drawdown agreement. The change to Sec.  
570.513 will require a grantee to execute a new lump sum drawdown 
agreement covering any unexpended funds, and that program income must 
be identified in the current program year action plan.

Minor and Technical Changes

    The interim rule makes minor changes to Sec. Sec.  91.505, 570.206, 
570.410, and 570.503 for regulatory and statutory cross-references and 
grammar. The interim rule also makes various technical changes to 
incorporate administrative requirements in 2 CFR part 200. These 
changes include a new paragraph Sec.  570.485(d) to clarify that HUD is 
authorized to establish specific conditions on grants to States in 
accordance with 2 CFR 200.207; changes to Sec.  570.489(g) to make 
clear that States can make subrecipient and contractor determinations 
in accordance with 2 CFR 200.330; and a new paragraph Sec.  570.489(o), 
which states that HUD will close out grants to States in accordance 
with 2 CFR 200.343.

III. Specific Issues for Comment

    HUD solicits and welcomes comments on all aspects of this interim 
rule. HUD also specifically solicits comment on the following topics 
related to the accounting methodology changes for CDBG. HUD seeks the 
view of grantees, other program participants and interested members of 
the public. HUD may, at a future date, offer regulatory changes 
addressing one or more of these topics.

1. Retention of Program Income by Local Governments (Sec.  570.489(e))

    HUD solicits comments about the revisions made to Sec.  
570.489(e)(3)(ii)(B) beyond those made by this interim rule. The intent 
of the section is to reinforce the requirement that program income 
remains subject to CDBG requirements regardless of the status of any 
State award to a unit of general local government. The current language 
of this section uses terms such as ``activity closeout'' and ``grant 
close out'', as well as concepts such as ``part of the unit of general 
local government's grant'' and ``part of the state's program year,'' 
and this language may not reflect HUD's intent as explicitly as 
contemplated by HUD. HUD therefore seeks comment on whether the 
regulatory language clearly reflects HUD's intent and, if not, what 
revisions are recommended to better convey the intent of this section.

2. Limitations on Local Retention of Program Income (Sec.  570.489(e))

    HUD seeks information that better informs the nature of activities 
that continue with program income. For States that limit the local 
retention of program income, what types of limitations do States place 
upon the definition of the ``same activity''? Do the limitations 
restrict the program income for the same activity in a very strict 
sense (i.e., limited to the same work, at the same address, with the 
same beneficiaries)? Do the limitations generally reflect an activity 
type, such as housing rehabilitation; and, if so, what are the 
considerations for not classifying this as a revolving loan fund?

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Do the limitations reflect multiple activities that are bundled into a 
single effort, such as a main street revitalization plan that might use 
program income from business loans for other activities in the 
vicinity, such as fa[ccedil]ade and side walk improvements along the 
same main street? Is tracking and reporting the use of these funds 
problematic, and what solutions have States found (especially for 
States that do not limit the local retention of program income)?

3. Entitlement Administration and Planning Cap (Sec. Sec.  570.200 and 
570.201(e))

    HUD has some flexibility in the manner program income applies to 
the administration and planning cap at Sec.  570.200(g) and the public 
service cap at Sec.  570.201(e). Currently, program income received 
during the current program year is considered in the determination of 
compliance with Sec.  570.200(g) and program income received during the 
prior program year is considered in the determination of compliance 
with Sec.  570.201(e). HUD solicits comments regarding the possibility 
of making these two determinations match in terms of which program year 
is considered for compliance. In this regard, HUD seeks comment on 
whether compliance with both caps should be based on prior year 
receipts of program income or current year receipts, or whether the 
current distinction between the two should be maintained.

IV. Justification for Interim Rulemaking

    HUD generally publishes rules for advance public comment in 
accordance with its rule on rulemaking at 24 CFR part 10. However, 
under 24 CFR 10.1, HUD may omit prior public notice and comment if it 
is ``impracticable, unnecessary, or contrary to the public interest.'' 
In this instance, HUD has determined that it is unnecessary to delay 
the effectiveness of this rule for advance public comment.
    The interim rule provides that, for FY 2015 grants, Entitlement 
CDBG grantees are to track their obligations and expenditures of funds 
for each specific grant year. The scope of the interim regulatory 
amendments is limited to the change in the input of this information in 
IDIS and to those additional changes necessary to conform the 
regulations to the grant accounting system, such as the time periods of 
affected grants, records retention, and the calculation of the cap on 
administrative and planning expenses, along with minor clarifications 
and technical corrections.
    This interim rule does not establish new and unfamiliar 
requirements for CDBG grantees. Rather the regulatory changes eliminate 
administrative burden on grantees by aligning CDBG accounting 
methodology, as reflected in IDIS, with the grant accounting system 
typically used by grantees, and the standard accounting practice of 
keeping track of grant commitments and expenditures on an annual grant 
basis.
    Although, under the current regulations, Entitlement CDBG 
recipients have the option to track expenditures in a cumulative 
manner, HUD estimates that 80 to 90 percent of grantees adhere to the 
grant-specific accounting. In addition, the selection of the grant year 
is already required for State CDBG recipients when requesting funds, so 
grantees are already tracking this information.
    Given that the overwhelming majority of CDBG grantees use grant-
specific accounting (the use of which is also strongly recommended by 
HUD's Office of Inspector General) HUD has the justification necessary 
to issue this rule as an interim rule. While a small percentage of CDBG 
grantees are not using this system, it is not a system that is 
unfamiliar to them. In addition, IDIS itself provides the reports and 
tools necessary to document compliance with the regulatory changes for 
all grantees.
    And with the grant year-specific accounting, it is now possible for 
HUD to determine compliance with the administrative expenditure cap on 
a grant-specific basis. The revised accounting methods also necessitate 
these additional regulatory changes specifying how grantees are to 
handle closeout procedures and maintain records. Since the accounting 
changes are required by existing appropriations law, HUD believes that 
it is appropriate for the remaining regulatory changes to be effective 
for the current grant year through an interim rule.
    Although HUD has determined that good cause exists to publish this 
rule for effect without prior solicitation of public comment, HUD 
recognizes the value and importance of public input in the rulemaking 
process. Accordingly, HUD is issuing these regulatory amendments on an 
interim basis and providing a 60-day public comment period. All 
comments will be considered in the development of the final rule.

V. Findings and Certifications

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this proposed 
rule under Executive Order 12866 (entitled ``Regulatory Planning and 
Review''). OMB determined that this rule was significant under the 
order, but not an economically significant regulatory action. The 
docket file is available for public inspection in the Regulations 
Division, Office of General Counsel, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500. Due to security measures at the HUD 
Headquarters building, please schedule an appointment to review the 
docket file by calling the Regulations Division at 202-402-3055 (this 
is not a toll-free number). Individuals with speech or hearing 
impairments may access this number via TTY by calling the Federal 
Information Relay Service at 800-877-8339. The docket file is available 
for public inspection at the above address, or it may be viewed online 
at www.regulations.gov, under the above docket number. Due to security 
measures at the HUD Headquarters building, an advance appointment to 
review the public comments must be scheduled by calling the Regulations 
Division at 202-708-3055 (this is not a toll-free number). Individuals 
with speech or hearing impairments may access this number through TTY 
by calling the Federal Relay Service at 800-877-8339 (this is a toll-
free number).

Information Collection Requirements

    In accordance with the Paperwork Reduction Act, an agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection displays a currently 
valid OMB control number. The information collection requirements 
contained in this interim rule have been submitted to the OMB under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB 
control number 2506-0117.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
establishes requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and 
the private sector. This rule will not impose any Federal mandates on 
any State, local, or tribal governments or the private sector within 
the meaning of UMRA.

Environmental Review

    This interim rule does not direct, provide for assistance or loan 
and mortgage insurance for, or otherwise govern, or regulate, real 
property acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or

[[Page 69869]]

new construction, or establish, revise, or provide for standards for 
construction or construction materials, manufactured housing, or 
occupancy. Accordingly, under 24 CFR 50.19(c)(1), this rule is 
categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321).

Impact on Small Entities

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
As an initial matter, HUD notes that the scope of the rule is limited 
to accounting methodology, and does not add or modify other CDBG 
program requirements other than to provide grammatical and technical 
corrections. Further, accounting for grant funds by specific funding 
allocations is a practice used in other Federal programs, and so the 
requirements are not unfamiliar to, and may already be used by, CDBG 
grantees that also receive funding under such programs.
    With respect to burden on small entities, as part of the 
development of HUD's Affirmatively Furthering Fair Housing (AFFH) final 
rule, HUD identified small entities participating in the CDBG program 
as those receiving a grant in FY 2015 of $500,000 or less (small CDBG 
grantees).\1\ The number of small CDBG grantees totaled 357 out of 
1,258 CDBG grantees in FY 2015.
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    \1\ See AFFH final rule published on July 16, 2015, at 80 FR 
42272 (https://www.gpo.gov/fdsys/pkg/FR-2015-07-16/pdf/2015-17032.pdf).
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    In this rule, HUD is now requiring small actions that were 
previously optional, but which many grantees were already performing. 
Further, any necessary accounting system changes would be one-time 
updates, rather than a recurring expense, and such costs would be 
reimbursed from the grantee's administrative expense account, funded by 
the CDBG grant. Therefore, the undersigned certifies that this rule 
will not have a significant impact on a substantial number of small 
entities.
    Notwithstanding HUD's belief that this rule will not have a 
significant effect on a substantial number of small entities, HUD 
specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on State and local 
governments and is not required by statute or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive order. This rule does not have federalism 
implications and does not impose substantial direct compliance costs on 
State and local governments nor preempt State law within the meaning of 
the Executive order.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers applicable to 
the program that would be affected by this rule are 14.218, 14.225, 
14.228, and 14.248.

List of Subjects

24 CFR Part 91

    Aged, Grant programs--housing and community development, Homeless, 
Individuals with disabilities, Low and moderate income housing, 
Reporting and recordkeeping requirements.

24 CFR Part 570

    Administrative practice and procedure, American Samoa, Community 
development block grants, Grant programs--education, Grant programs--
housing and community development, Guam, Indians, Loan programs--
housing and community development, Low and moderate income housing, 
Northern Mariana Islands, Pacific Islands Trust Territory, Puerto Rico, 
Reporting and recordkeeping requirements, Student aid, Virgin Islands.

    Accordingly, for the reasons stated in the preamble, HUD is 
amending 24 CFR parts 91 and 570 as follows:

PART 91--CONSOLIDATED SUBMISSIONS FOR COMMUNITY PLANNING AND 
DEVELOPMENT PROGRAMS

0
1. The authority citation for part 91 continues to read as follows:

    Authority: 42 U.S.C. 3535(d), 3601-3619, 5301-5315, 11331-11388, 
12701-12711, 12741-12756, and 12901-12912.


0
2. In Sec.  91.220, revise paragraphs (l)(1)(i) and (ii) to read as 
follows:


Sec.  91.220  Action plan.

* * * * *
    (l) * * *
    (1) * * *
    (i) A jurisdiction must describe activities planned with respect to 
all CDBG funds expected to be available during the program year, except 
that an amount generally not to exceed 10 percent of such total 
available CDBG funds may be excluded from the funds for which eligible 
activities are described if it has been identified for the contingency 
of cost overruns.
    (ii) ``CDBG funds expected to be available during the program 
year'' includes all of the following:
    (A) The CDBG origin year grant.
    (B) Any program income expected to be received during the program 
year.
    (C) Any program income amounts not included in a prior action plan.
    (D) Any program income previously generated under a lump sum 
drawdown agreement for which a new agreement will be executed during 
the program year pursuant to 24 CFR 570.513(b).
    (E) Proceeds from Section 108 loan guarantees that will be used 
during the year to address the priority needs and specific objectives 
identified in its strategic plan.
    (F) Surplus from urban renewal settlements.
    (G) Reimbursements, other than program income, made to a local 
account.
    (H) Income from float-funded activities: The full amount of income 
expected to be generated by a float-funded activity must be shown, 
whether or not some or all of the income is expected to be received in 
a future program year. To assure that citizens understand the risks 
inherent in undertaking float-funded activities, the recipient must 
specify the total amount of program income expected to be received and 
the month(s) and year(s) that it expects the float-funded activity to 
generate such program income.
* * * * *

0
3. Amend Sec.  91.320 as follows:
0
a. Capitalize the word ``state'' and ``state's'' each time it appears; 
and
0
b. Revise paragraph (k)(1).
    The revision reads as follows:


Sec.  91.320  Action plan.

* * * * *
    (k) * * *
    (1) CDBG. The action plan must set forth the State's method of 
distribution.
    (i) The method of distribution must contain a description of all 
criteria used to select applications from local governments for 
funding, including the relative importance of the criteria, where 
applicable. The method of distribution must provide sufficient 
information so that units of general local government will be able to 
understand

[[Page 69870]]

and comment on it, understand what criteria and information their 
application will be judged on, and be able to prepare responsive 
applications. The method of distribution may provide a summary of the 
selection criteria, provided that all criteria are summarized and the 
details are set forth in application manuals or other official State 
publications that are widely distributed to eligible applicants.
    (ii) The action plan must include a description of how all CDBG 
resources will be allocated among funding categories and the threshold 
factors and grant size limits that are to be applied. The total CDBG 
resources to be described in the action plan include all of the 
following:
    (A) The CDBG origin year grant.
    (B) Any program income expected to be returned to the State in 
accordance with 24 CFR 570.489(e)(3)(i) in the program year or not 
included in a prior action plan, and any program income expected to be 
received by any State revolving fund in accordance with 24 CFR 
570.489(f)(2) in the program year or not included in a prior action 
plan.
    (C) Reimbursements, other than program income, made to a local 
account.
    (iii) If the State intends to help nonentitlement units of general 
local government apply for guaranteed loan funds under 24 CFR part 570, 
subpart M, it must describe available guarantee amounts and how 
applications will be selected for assistance. If a State elects to 
allow units of general local government to carry out community 
revitalization strategies, the method of distribution shall reflect the 
State's process and criteria for approving local government's 
revitalization strategies.
    (iv) If the State permits units of general local government to 
retain program income per 24 CFR 570.489(e)(3) or establish local 
revolving funds per 24 CFR 570.489(f)(1), the State must include a 
description of each of the local accounts including the name of the 
local entity administering the funds, contact information for the 
entity administering the funds, the amounts expected to be available 
during the program year, the eligible activity type(s) expected to be 
carried out with the program income, and the national objective(s) 
served with the funds.
    (iv) HUD may monitor the method of distribution as part of its 
audit and review responsibilities, as provided in 24 CFR 570.493(a)(1), 
in order to determine compliance with program requirements.
* * * * *

0
4. In Sec.  91.325, revise paragraph (b)(4)(ii) to read as follows:


Sec.  91.325  Certifications.

* * * * *
    (b) * * *
    (4) * * *
    (ii) In the aggregate, not less than 70 percent of the CDBG funds 
received by the State during a period specified by the State, not to 
exceed three years, will be used for activities that benefit persons of 
low and moderate income. The period selected and certified to by the 
State shall be designated by fiscal year of annual grants, and shall be 
for one, two, or three consecutive annual grants. (See 24 CFR 570.481 
for definition of ``CDBG funds''); and
* * * * *


[Sec.  91.505  Amended]

0
5. In Sec.  91.505, amend paragraph (a)(2) by adding ``, 
reimbursements, or reallocations from HUD'' after ``including program 
income''.

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

0
6. The authority citation for part 570 continues to read as follows:

    Authority: 42 U.S.C. 3535(d) and 5301-5320.


0
7. In Sec.  570.3, revise the definition of ``Entitlement amount'' and 
add the definition of ``Origin year'' in alphabetical order to read as 
follows:


Sec.  570.3  Definitions.

* * * * *
    Entitlement amount means the amount of funds which a metropolitan 
city or urban county is entitled to receive under the Entitlement grant 
program, as determined by formula set forth in section 106 of the Act
* * * * *
    Origin year means the specific Federal fiscal year during which the 
annual grant funds were appropriated.
* * * * *

0
8. In Sec.  570.200, revise paragraph (g) and add paragraph (k) to read 
as follows:


Sec.  570.200  General policies.

    (g) Limitation on planning and administrative costs--(1) Origin 
year grant expenditure test. For origin year 2015 grants and subsequent 
grants, no more than 20 percent of any origin year grant shall be 
expended for planning and program administrative costs, as defined in 
Sec. Sec.  570.205 and 570.206, respectively. Expenditures of program 
income for planning and program administrative costs are excluded from 
this calculation.
    (2) Program year obligation test. For all grants and recipients 
subject to subpart D, the amount of CDBG funds obligated during each 
program year for planning plus administrative costs, as defined in 
Sec. Sec.  570.205 and 570.206, respectively, shall be limited to an 
amount no greater than 20 percent of the sum of the grant made for that 
program year (if any) plus the program income received by the recipient 
and its subrecipients (if any) during that program year. For origin 
year 2015 grants and subsequent grants, recipients must apply this test 
consistent with paragraph (g)(1) of this section.
    (3) Funds from a grant of any origin year may be used to pay 
planning and program administrative costs associated with any grant of 
any origin year.
* * * * *
    (k) Any unexpended CDBG origin year grant funds in the United 
States Treasury account on September 30 of the fifth Federal fiscal 
year after the end of the origin year grant's period of availability 
for obligation by HUD will be canceled. HUD may require an earlier 
expenditure and draw down deadline under a grant agreement.


[Sec.  570.201  Amended]

0
9. Amend Sec.  570.201 as follows:
0
a. In paragraph (e)(1), add ``nonentitlement CDBG grants in Hawaii, and 
for recipients of insular area funds under section 106 of the Act,'' 
following ``subpart D of this part,'' both times such language appears; 
and
0
b. In paragraph (e)(2), remove ``Federal fiscal year'' and add in its 
place ``origin year''.


[Sec.  570.206  Amended]

0
10. Amend Sec.  570.206 as follows:
0
a. In the introductory text, add ``program'' after ``reasonable''; and
0
b. In paragraph (a)(1) introductory text, remove ``(or the grant period 
for grants under subpart F)''.


[Sec.  570.410  Amended]

0
11. Amend Sec.  570.410 as follows:
0
a. In paragraph (c)(2)(ii), remove ``federal fiscal year'' and add in 
its place ``origin year''; and
0
b. In paragraph (c)(2)(iii), remove ``(e)(3)'' and add in its place 
``(e)(2)'', and remove ``federal fiscal year'' and add in its place 
``origin year''.

0
12. In Sec.  570.480, add paragraph (h) to read as follows:


Sec.  570.480  General.

* * * * *
    (h) Any unexpended CDBG origin year grant funds in the United 
States Treasury account on September 30 of the fifth Federal fiscal 
year after the end of the origin year grant's period of

[[Page 69871]]

availability for obligation by HUD will be canceled. HUD may require an 
earlier expenditure and draw down deadline under a grant agreement.

0
13. In Sec.  570.481, revise paragraph (a)(2) and add paragraph (a)(3) 
to read as follows:


Sec.  570.481  Definitions.

    (a) * * *
    (2) CDBG funds means Community Development Block Grant funds, in 
the form of grants under this subpart including any reimbursements, 
program income, and loans guaranteed under section 108 of the Act.
    (3) Origin year means the specific Federal fiscal year during which 
the annual grant funds were appropriated.
* * * * *

0
14. In Sec.  570.485, add paragraph (d) to read as follows:


Sec.  570.485  Making of grants.

* * * * *
    (d) Specific conditions.--HUD may impose additional specific award 
conditions on States in accordance with 2 CFR 200.207.

0
15. Amend Sec.  570.489 as follows:
0
a. Capitalize the words ``state'' and ``state's'' each time they 
appear; and
0
b. In Sec.  570.489, revise paragraphs (a)(1)(i), (ii), (iii), and (v) 
and (a)(2) and (3), paragraphs (e)(3) introductory text, (e)(3)(i) and 
(ii), and paragraph (g) and add paragraph (o) to read as follows:


Sec.  570.489  Program administrative requirements.

    (a) Administrative and planning costs.--(1) State administrative 
and technical assistance costs. (i) The State is responsible for the 
administration of all CDBG funds. The State may use CDBG funds not to 
exceed $100,000, plus 50 percent of administrative expenses incurred in 
excess of $100,000. Amounts of CDBG funds used to pay administrative 
expenses in excess of $100,000 shall not, subject to paragraph 
(a)(1)(iii) of this section, exceed the sum of 3 percent of the State's 
annual grant; 3 percent of program income received by units of general 
local government during each program year, regardless of the origin 
year in which the State grant funds that generate the program income 
were appropriated (whether retained by units of general local 
government or paid to the State); and 3 percent of funds reallocated by 
HUD to the State.
    (ii) To pay the costs of providing technical assistance to local 
governments and nonprofit program recipients, a State may, subject to 
paragraph (a)(1)(iii) of this section, use CDBG funds received on or 
after January 23, 2004, in an amount not to exceed the sum of 3 percent 
of its annual grant; 3 percent of program income received by units of 
general local government during each program year, regardless of the 
origin year in which the State grant funds that generate the program 
income were appropriated (whether retained by units of general local 
government or paid to the State); and 3 percent of funds reallocated by 
HUD to the State during each program year.
    (iii) The amount of CDBG funds used to pay the sum of 
administrative costs in excess of $100,000 paid pursuant to paragraph 
(a)(1)(i) of this section and technical assistance costs paid pursuant 
to paragraph (a)(1)(ii) of this section must not exceed the sum of 3 
percent of the State's annual grant; 3 percent of program income 
received by units of general local government during each program year, 
regardless of the origin year in which the State grant funds that 
generate the program income were appropriated (whether retained by the 
unit of general local government or paid to the State); and 3 percent 
of funds reallocated by HUD to the state.
* * * * *
    (v) In regard to its administrative costs, for grants before origin 
year 2015, the State has the option of selecting its approach for 
demonstrating compliance with the requirements of paragraph (a)(1) of 
this section. For grants beginning with origin year 2015 grants and 
subsequent grants, the State must use the approach in paragraph 
(a)(1)(v)(A) of this section. Any State whose matching cost 
contributions toward State administrative expense matching requirements 
are in arrears must bring matching cost contributions up to the level 
of CDBG funds expended for such costs. A State grant may not be closed 
out if the State's matching cost contribution is not at least equal to 
the amount of CDBG funds in excess of $100,000 expended for 
administration. The two approaches for demonstrating compliance with 
this paragraph (a)(1) are:
    (A) Year-to-year tracking and limitation on drawdown of funds. The 
State will calculate the maximum allowable amount of CDBG funds that 
may be used for State administrative expenses from the sum of each 
origin year grant, program income received during that associated 
program year and reallocations by HUD to the State during that 
associated program year. The State will draw down amounts of those 
funds only upon its own expenditure of an equal or greater amount of 
matching funds from its own resources after the expenditure of the 
initial $100,000 for State administrative expenses. The State will be 
considered to be in compliance with the applicable requirements if the 
actual amount of CDBG funds spent on State administrative expenses does 
not exceed the maximum allowable amount, and if the amount of matching 
funds that the state has expended for that grant year is equal to or 
greater than the amount of CDBG funds in excess of $100,000 spent 
during that same grant year. Under this approach, the State must 
demonstrate that it has paid from its own funds at least 50 percent of 
its administrative expenses in excess of $100,000 by the closeout of 
each grant.
    (B) Cumulative accounting of administrative costs incurred by the 
State since its assumption of the CDBG program for grants before origin 
year 2015. Under this approach, the State will identify, for each grant 
it has received, the CDBG funds eligible to be used for State 
administrative expenses, as well as the minimum amount of matching 
funds that the State is required to contribute. The amounts will then 
be aggregated for all grants received. The State must keep records 
demonstrating the actual amount of CDBG funds from each grant received 
that was used for State administrative expenses, as well as matching 
amounts that were contributed by the State. The State will be 
considered to be in compliance with the applicable requirements if the 
aggregate of the actual amounts of CDBG funds spent on State 
administrative expenses does not exceed the aggregate maximum allowable 
amount and if the aggregate amount of matching funds that the State has 
expended is equal to or greater than the aggregate amount of CDBG funds 
in excess of $100,000 (for each annual grant within the subject period) 
spent on administrative expenses during its 3- to 5-year Consolidated 
Planning period. If the State grant for any grant year within the 3- to 
5-year period has been closed out, the aggregate amount of CDBG funds 
spent on State administrative expenses, the aggregate maximum allowable 
amount, the aggregate matching funds expended, and the aggregate amount 
of CDBG funds in excess of $100,000 (for each annual grant within the 
subject period) will be reduced by amounts attributable to the grant 
year for which the State grant has been closed out.
    (2) The State may not charge fees of any entity for processing or 
considering any application for CDBG funds, or for carrying out its 
responsibilities under this subpart.
    (3)(i) Administrative costs are those described at Sec.  
570.489(a)(1) for states and, for units of general local

[[Page 69872]]

government, are those described at sections 105(a)(12) and (a)(13) of 
the Act.
    (ii) For grants before origin year 2015, the combined expenditures 
by the State and its funded units of general local government for 
planning, management, and administrative costs shall not exceed 20 
percent of the aggregate amount of the origin year grant, any origin 
year grant funds reallocated by HUD to the State, and the amount of any 
program income received during the program year.
    (iii) For origin year 2015 grants and subsequent grants, no more 
than 20 percent of any annual grant (excluding program income) shall be 
expended by the State and its funded units of general local government 
for planning, management, and administrative costs. In addition, the 
combined expenditures by the States and its unit of general local 
government for planning, management, and administrative costs shall not 
exceed 20 percent of any origin year grant funds reallocated by HUD to 
the State.
    (iv) Funds from a grant of any origin year may be used to pay 
planning and program administrative costs associated with any grant of 
any origin year.
* * * * *
    (e) * * *
    (3) The State may permit the unit of general local government which 
receives or will receive program income to retain it, subject to the 
requirements of paragraph (e)(3)(ii) of this section, or may require 
the unit of general local government to pay the program income to the 
State. The State, however, must permit the unit of general local 
government to retain the program income if it will be used to continue 
the activity from which it was derived. The State will determine when 
an activity is being continued.
    (i) Program income paid to the State. Except as described in 
paragraph (e)(3)(ii)(A) of this section, the State may require the unit 
of general local government that receives or will receive program 
income to return the program income to the State. Program income that 
is paid to the State is treated as additional CDBG funds subject to the 
requirements of this subpart. Except for program income retained and 
used by the State for administrative costs or technical assistance 
under paragraph (a) of this section, program income paid to the State 
must be distributed to units of general local government in accordance 
with the method of distribution in the action plan under 24 CFR 
91.320(k)(1)(i) that is in effect at the time the program income is 
distributed. To the maximum extent feasible, the State must distribute 
program income before it makes additional withdrawals from the United 
States Treasury, except as provided in paragraph (f) of this section.
    (ii) Program income retained by a unit of general local government. 
A State may permit a unit of general local government that receives or 
will receive program income to retain it. Alternatively, a State may 
require that the unit of general local government pay any such income 
to the State unless the exception in paragraph (e)(3)(ii)(A) of this 
section applies.
    (A) A State must permit the unit of general local government to 
retain the program income if the program income will be used to 
continue the activity from which it was derived. A State will determine 
when an activity is being continued. In making such a determination, a 
State may consider whether the unit of general local government is or 
will be unable to comply with the requirements of paragraph 
(e)(3)(ii)(B) of this section or other requirements of this part, and 
the extent to which the program income is unlikely to be applied to 
continue the activity within the reasonably near future. When a State 
determines that the program income will be applied to continue the 
activity from which it was derived, but the amount of program income 
held by the unit of general local government exceeds projected cash 
needs for the reasonably near future, the State may require the local 
government to return all or part of the program income to the State 
until such time as it is needed by the unit of general local 
government. When a State determines that a unit of local government is 
not likely to apply any significant amount of program income to 
continue the activity within a reasonable amount of time, or that it is 
not likely to apply the program income in accordance with applicable 
requirements, the State may require the unit of general local 
government to return all of the program income to the State for 
disbursement to other units of local government. A State that intends 
to require units of general local government to return program income 
in accordance with this paragraph must describe its approach in the 
State's action plan required under 24 CFR 91.320 of this title or in a 
substantial amendment if the State intends to implement this option 
after the action plan is submitted to and approved by HUD.
    (B) Program income that is received and retained by the unit of 
general local government is treated as additional CDBG funds and is 
subject to all applicable requirements of this subpart, regardless of 
whether the activity that generated the program income has been closed 
out. If the grant between the State and the unit of general local 
government that generated the program income is still open when it is 
generated, program income permitted to be retained will be considered 
part of the unit of general local government's grant that generated the 
program income. If the grant between the State and the unit of general 
local government is closed out, program income permitted to be retained 
will be considered to be part of the unit of general local government's 
most recently awarded open grant. If the unit of general local 
government has no open grants with the State, the program income 
retained by the unit of general local government will be counted as 
part of the State's program year in which the program income was 
received. A State must employ one or more of the following methods to 
ensure that units of general local government comply with applicable 
program income requirements:
    (1) Maintaining contractual relationships with units of general 
local government for the duration of the existence of the program 
income;
    (2) Closing out the underlying activity, but requiring as a 
condition of closeout that the unit of general local government obtain 
advance State approval of either a unit of general local government's 
plan for the use of program income or of each use of program income by 
grant recipients via regularly occurring reports and requests for 
approval;
    (3) Closing out the underlying activity, but requiring as a 
condition of closeout that the unit of general local government report 
to the State when new program income is received; or
    (4) With prior HUD approval, other approaches that demonstrate that 
the State will ensure compliance with the requirements of this subpart 
by units of general local government.
* * * * *
    (g) Procurement. When procuring property or services to be paid for 
in whole or in part with CDBG funds, the State shall follow its 
procurement policies and procedures. The State shall establish 
requirements for procurement policies and procedures for units of 
general local government, based on full and open competition. Methods 
of procurement (e.g., small purchase, sealed bids/formal advertising, 
competitive proposals, and noncompetitive proposals) and their 
applicability shall be specified by the State. Cost plus a percentage 
of cost and percentage of construction costs

[[Page 69873]]

methods of contracting shall not be used. The policies and procedures 
shall also include standards of conduct governing employees engaged in 
the award or administration of contracts. (Other conflicts of interest 
are covered by Sec.  570.489(h).) The State shall ensure that all 
purchase orders and contracts include any clauses required by Federal 
statutes, Executive orders, and implementing regulations. The State 
shall make subrecipient and contractor determinations in accordance 
with the standards in 2 CFR 200.330.
* * * * *
    (o) Grant Closeout.--HUD will close grants to States in accordance 
with the grant closeout requirements of 2 CFR 200.343.


[Sec.  570.503  Amended]

0
16. In Sec.  570.503, amend paragraph (b) introductory text by removing 
the second occurrence of the word ``following''.

0
17. Amend Sec.  570.506 as follows:
0
a. In paragraph (d), add ``Sec.  570.503(b)(7) or'' before ``Sec.  
570.505''; and
0
b. Revise paragraph (h).
    The revision reads as follows:


Sec.  570.506  Records to be maintained.

* * * * *
    (h) Financial records, in accordance with the applicable 
requirements listed in Sec.  570.502, including source documentation 
for entities not subject to 2 CFR part 200. Grantees shall maintain 
evidence to support how the CDBG funds provided to such entities are 
expended. Such documentation must include, to the extent applicable, 
invoices, schedules containing comparisons of budgeted amounts and 
actual expenditures, construction progress schedules signed by 
appropriate parties (e.g., general contractor and/or a project 
architect), and/or other documentation appropriate to the nature of the 
activity. Grantee records pertaining to obligations, expenditures, and 
drawdowns must be able to relate financial transactions to either a 
specific origin year grant or to program income received during a 
specific program year.
* * * * *

0
18. Amend Sec.  570.509 as follows:
0
a. Revise paragraph (a);
0
b. Remove paragraph (b)(1) and redesignate paragraphs (b)(2) through 
(4) as paragraphs (b)(1) through (3), respectively;
0
c. In newly redesignated paragraph (b)(2), add a sentence at the end;
0
d. In newly redesignated paragraph (b)(3), remove``24 CFR part 44'' and 
add in its place ``HUD regulations implementing the Single Audit Act 
requirements at 2 CFR part 200'';
0
e. Remove paragraph (c)(3) and redesignate paragraphs (c)(4) and (5) as 
paragraphs (c)(3) and (4), respectively; and
0
f. Revise newly redesignated paragraph (c)(3).
    The revisions and additions read as follows:


Sec.  570.509  Grant closeout procedures.

    (a) Criteria for closeout. HUD may make grant closeout 
determinations for individual grants or multiple grants simultaneously. 
A grant will be closed out when HUD determines, in consultation with 
the recipient, that the following criteria have been met:
    (1) All costs to be paid with CDBG funds from a given origin year's 
grant have been expended and drawn down, with the exception of closeout 
costs (e.g., audit costs) and costs resulting from contingent 
liabilities described in the closeout agreement pursuant to paragraph 
(c) of this section. Contingent liabilities include, but are not 
limited to, third-party claims against the recipient, as well as 
related administrative costs.
    (2) All activities for which funds were expended from the origin 
year grant are physically completed, are eligible, have met a national 
objective under Sec.  570.208, and the grantee has reported on all 
accomplishments resulting from the activity.
    (3) A final performance and expenditure report for completed 
activities has been submitted to HUD pursuant to 24 CFR 91.520, and HUD 
has determined the plan is satisfactory.
    (4) All program income received by the grantee during the grantee 
program year associated with the origin year grant has been expended, 
or identified in a more recent program year's Action Plan, pursuant to 
24 CFR 91.220(l).
    (5) For origin year 2015 grants and subsequent grants, the grantee 
has expended no more than 20 percent of the origin year grant for 
planning and program administrative costs, under Sec.  570.200(g)(1).
    (6) Other responsibilities of the recipient under the grant 
agreement and applicable laws and regulations appear to have been 
carried out satisfactorily or there is no further Federal interest in 
keeping the grant agreement open for the purpose of securing 
performance.
    (b) * * *
    (2) * * * Any funds which have exceeded the statutory time limit on 
the use of funds will be recaptured by the U.S. Treasury pursuant to 24 
CFR 570.200(k).
* * * * *
    (c) * * *
    (3) Description of the recipient's responsibility after closeout 
for:
    (i) Compliance with all program requirements, certifications, and 
assurances in using any remaining CDBG funds available for closeout 
costs and contingent liabilities;
    (ii) Use of real property assisted with CDBG funds in accordance 
with the principles described in Sec. Sec.  570.503(b)(7) and 570.505;
    (iii) Compliance with requirements governing future program income 
or receivables generated from activities funded from the origin year 
grant, as described in Sec.  570.504(b)(4) and (5);
    (iv) Ensuring that flood insurance coverage for affected property 
owners is maintained for the mandatory period; and
* * * * *

0
19. In Sec.  570.513, amend paragraph (b)(7) by adding after the first 
sentence a new second sentence to read as follows:


Sec.  570.513  Lump sum drawdown for financing of property 
rehabilitation activities.

* * * * *
    (b) * * *
    (7) * * * Any program income which will be governed by a new 
agreement must be identified in the current program year Action Plan, 
pursuant to 24 CFR 91.220(l). * * *
* * * * *

    Dated: September 18, 2015.
Harriet Tregoning,
Principal Deputy Assistant, Secretary for Community Planning and 
Development.
    Approved on: October 13, 2015.
Nani A. Coloretti,
Deputy Secretary.
[FR Doc. 2015-28700 Filed 11-10-15; 8:45 am]
 BILLING CODE 4210-67-P