Clarification of Duplication of Benefits Requirements Under the Stafford Act for Community Development Block Grant (CDBG) Disaster Recovery Grantees, 71060-71066 [2011-29634]
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ENFORCEMENT TESTING TECHNICAL ASSISTANCE
Applicant name
Contact
Region
Award amount
Metropolitan Milwaukee Fair Housing Council, Inc., 600 East
Mason Street, Suite 401, Milwaukee, WI 53202–3876.
Mr. William Tisdale, 414–278–1240 ...........
5
$272,990.00
[FR Doc. 2011–29517 Filed 11–15–11; 8:45 am]
FOR FURTHER INFORMATION CONTACT:
BILLING CODE 4210–67–P
Scott Davis, Director, Disaster Recovery
and Special Issues Division, Office of
Block Grant Assistance, Department of
Housing and Urban Development, 451
7th Street SW., Room 7286, Washington,
DC 20410, telephone number (202) 708–
3587. Persons with hearing or speech
impairments may access this number
via TTY by calling the Federal Relay
Service at (800) 877–8339. Facsimile
inquiries may be sent to Mr. Davis at
(202) 401–2044. (Except for the ‘‘800’’
number, these telephone numbers are
not toll-free.)
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
[Docket No. FR–5582–N–01]
Clarification of Duplication of Benefits
Requirements Under the Stafford Act
for Community Development Block
Grant (CDBG) Disaster Recovery
Grantees
Office of the Assistant
Secretary for Community Planning and
Development, HUD.
AGENCY:
ACTION:
Notice.
This Notice clarifies the
duplication of benefits requirements
under the Stafford Act for all active
Community Development Block Grant
(CDBG) disaster recovery grants, and all
future CDBG disaster recovery grants.
SUMMARY:
DATES:
Effective Date: November 21,
2011.
1. Funds for a Different Purpose
2. Funds for Same Purpose, Different
Eligible Use
3. Funds Not Available to the Applicant
4. Private Loans
5. Other Assets or Lines of Credit
D. Calculate CDBG Disaster Recovery
Award
E. Unmet Need
V. Examples Using Framework
VI. Use of CDBG Funds
A. Use of Funds for Explicit and Eligible
Purposes
B. Treatment of Small Business
Administration Loans
VII. Collecting a Duplication
I. Applicability
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Applicability
II. Background
III. Applicable Law
A. Stafford Act
B. OMB Circular A–87
IV. Framework for Determining CDBG
Disaster Recovery Assistance
A. Assessment of Need Prior to Assistance
B. Total Assistance
C. Non-Duplicative Assistance Excluded
From Final Benefit Calculation
The guidance presented in this Notice
is applicable to all active HUD CDBG
disaster recovery grants, and will be
incorporated by reference into Federal
Register notices governing all future
CDBG disaster recovery grants. Table 1,
below, illustrates the active grants next
to the pertinent appropriation law. The
following guidance is applicable to all
new programs initiated and submitted
to HUD in an Action Plan Amendment
subsequent to the date of this Notice.
TABLE 1—ACTIVE CDBG DISASTER RECOVERY GRANTS
Appropriation law
Date enacted
Grantee
State of New York.
State of New York.
State of New York.
States of Alabama, California, Florida, Maryland, North Carolina,
Ohio, Pennsylvania, Puerto Rico, Virginia and West Virginia.
States of Alabama, Florida, Louisiana, Mississippi, and Texas.
States of Alabama, Florida, Louisiana, Mississippi, and Texas.
State of Louisiana.
States of Arkansas, Colorado, Illinois, Indiana, Iowa, Maine, Minnesota, Mississippi, Missouri, Montana, Nebraska, Oklahoma,
South Dakota, West Virginia, and Wisconsin.
States of Arkansas, California, Florida, Georgia, Illinois, Indiana,
Iowa, Kentucky, Louisiana, Mississippi, Missouri, Puerto Rico, Tennessee, Texas, and Wisconsin.
States of Kentucky, Rhode Island, and Tennessee; City of Cranston,
City of Warwick, City of Memphis, Nashville-Davidson County, and
Shelby County.
Law
Law
Law
Law
107–73 ..........................
107–117 ........................
107–206 ........................
108–324 ........................
November 26, 2001 .......................
January 10, 2002 ...........................
August 2, 2002 ..............................
October 13, 2004 ...........................
Public
Public
Public
Public
Law
Law
Law
Law
109–148
109–234
110–116
110–252
........................
........................
........................
........................
December 30, 2005 .......................
June 15, 2006 ................................
November 13, 2007 .......................
June 30, 2008 ................................
Public Law 110–329 ........................
September 30, 2008 ......................
Public Law 111–212 ........................
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Public
Public
Public
Public
July 29, 2010 .................................
This guidance applies to all CDBG
disaster recovery expenditures,
programs, and activities, regardless of
whether a grantee or subgrantee
administers a program. Although this
Notice frequently references the term
grantee, the actions described are not
limited solely to grantees. Rather, it is
ultimately the grantee’s responsibility to
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ensure no recipient of funds under its
CDBG disaster recovery award has
received a duplicate benefit.
This Notice does not apply to any
funds received annually under the State
CDBG program, or the CDBG
Entitlement program, unless those funds
have specifically been awarded by the
grantee for disaster recovery purposes.
All uses of the term ‘‘CDBG’’ in this
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Notice refer to CDBG disaster recovery
allocations.
II. Background
Grantees have requested clarification
from HUD regarding the duplication of
benefits. This Notice provides
information to ensure all active CDBG
disaster recovery grantees are in
compliance with the Robert T. Stafford
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Disaster Relief and Emergency
Assistance Act, (42 U.S.C. 5121–5207),
as amended, (Stafford Act), and all
future CDBG disaster recovery grantees
address duplication of benefits issues
consistently. This Notice was also
developed in consultation with the
Small Business Administration (SBA)
and the Federal Emergency Management
Agency (FEMA).
Most of the CDBG disaster recovery
supplemental appropriation laws to date
have explicitly required the Secretary of
Housing and Urban Development to
establish procedures to prevent
recipients from receiving any
duplication of benefits. In addition,
most supplemental appropriation laws
also require the Secretary to report
quarterly to the Committees on
Appropriations with regard to all steps
taken to prevent fraud, abuse of funds,
and duplication of benefits. Even in the
absence of these specific requirements,
Stafford Act prohibition on duplication
of benefits in section 312 (42 U.S.C.
5155) is applicable to all CDBG disaster
recovery grants.
HUD has instituted specific reporting,
written procedures, monitoring, and
internal audit requirements for each
grantee to ensure compliance with
program rules for CDBG disaster
recovery awards, including rules related
to prevention of fraud, abuse, and
duplication of benefits. However, HUD
has neither designed nor mandated a
specific process or method by which
grantees must evaluate duplication of
benefits; grantees have been encouraged
to develop policies and procedures
appropriate to their individualized
programs. The Department has
consistently monitored CDBG disaster
recovery grantees to ensure that they are
meeting the above requirements and
that their policies and procedures are
adequately preventing duplication of
benefits.
III. Applicable Law
Two authorities form the foundation
of duplication of benefit inquiries—the
Stafford Act and applicable ‘‘necessary
and reasonable cost principles in 24
CFR part 570 and in OMB Cost Circulars
(codified in title 2 of the Code of Federal
Regulations). Supplemental
appropriations statutes often reinforce
and supplement these authorities.
A. The Stafford Act. The Stafford Act
directs administrators of Federal
assistance to ensure that no ‘‘person,
business concern or other entity’’ will
receive duplicative assistance and
imposes liability ‘‘to the extent such
assistance duplicates benefits available
to the person for the same purpose from
another source.’’ 42 U.S.C. 5155(a) and
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(c). Because assistance to each person
varies widely based on individual
insurance coverage and eligibility for
Federal funding, grantees cannot
comply with the Stafford Act without
completing a duplication of benefits
analysis specific to each applicant. The
Stafford Act provides the framework for
the Federal government’s role in
preparing for and recovering from a
disaster. Its duplication of benefits
requirements apply to all Federal
agencies administering a disaster
recovery program providing financial
assistance, including CDBG disaster
recovery grants. Under the Act’s
framework, Congress instituted a goal to
achieve greater coordination and
responsiveness of disaster preparedness
and relief programs. 42 U.S.C. 5121.
It also sought to guard against fraud
and ineligible uses of taxpayers’ funds.
The President makes major disaster
declarations only when ‘‘response is
beyond the capabilities of the State and
the affected local governments and that
Federal assistance is necessary.’’ (42
U.S.C. 5170). Similarly, the prohibition
on duplication of benefits ensures that
Federal assistance serves only ‘‘to
supplement insurance and other forms
of disaster assistance.’’ To accomplish
these goals, the Stafford Act implies a
hierarchy of funding (see section VII of
this notice: Collecting a Duplication),
and prohibits Federal agencies from
providing recovery assistance to the
extent another source has covered the
same portion of that recovery need.
Specifically, section 312 of the
Stafford Act prohibits any person,
business concern, or other entity from
receiving ‘‘any part of such loss as to
which he has received financial
assistance under any other program or
from insurance or any other source.’’ 42
U.S.C. 5155(a). A duplication occurs
when a beneficiary receives assistance
from multiple sources for a cumulative
amount that exceeds the total need for
a particular recovery purpose. The
amount of the duplication is the amount
of assistance provided in excess of need.
The Stafford Act requires a factspecific inquiry into assistance received
by each person, household, or entity. A
grantee may not make a blanket
determination that a duplication of
benefits does not exist for all
beneficiaries or recipients under a
disaster recovery program. As a result,
all disaster recovery funds must be
governed by policies and procedures to
prevent duplication of benefits.
In disaster recovery, it is common for
multiple sources of funds to be used to
address a single need. Grantees are
advised to coordinate program designs
and choices with related funding
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sources. Together, grantees and funders
can determine the best approaches to
minimize or eliminate duplication,
increase leverage, and maximize
community and individual outcomes.
Furthermore, the Stafford Act provides
that receipt of partial benefits for a
major disaster or emergency shall not
preclude provision of additional Federal
assistance for any part of a loss or need
for which benefits have not been
provided. 42 U.S.C. 5155(b). Thus, to
comply with the Stafford Act, grantees
should ensure that each program
provides assistance to a person or entity
only to the extent that the person or
entity has a disaster recovery need that
has not been fully met. Any recipient
receiving a duplicate benefit may be
liable to the Federal government. 42
U.S.C. 5155(c).
B. Necessary and Reasonable Cost
Principles. Cost principles applicable to
all CDBG disaster recovery grantees
require that costs are necessary and
reasonable. These Federal cost
principles are described in OMB
Circulars and codified in title 2 of the
Code of Federal Regulations. HUD
grantees and subrecipients must
generally adhere to the cost principles
applicable to the specific type of entity
(2 CFR part 225 (OMB Circular A–87),
Cost Principles for State, Local, and
Indian Tribal Governments, 2 CFR part
230 (OMB Circular 122), Cost Principles
for Non-profit Organizations, 2 CFR part
220 (OMB Circular A–21), Cost
Principles for Educational Institutions,
or 45 CFR part 74, Principles for
Determining Costs Applicable to
Research and Development Under
Grants and Contracts with Hospitals, as
applicable). State grantees are subject to
24 CFR 570.489(d), which requires that
states shall have fiscal and
administrative requirements which
ensure that funds received are only
spent ‘‘for reasonable and necessary
costs of operating programs.’’
Federal necessary and reasonable cost
principles apply to:
• State grantees (and their state
recipients) through 24 CFR 570.489(d);
• Subrecipients of state grantees
according to CDBG disaster recovery
Notices, which typically require
subrecipient agreements to comply with
24 CFR 570.503; and
• Local government grantees
receiving CDBG disaster recovery grants
directly from HUD (and their
subrecipients) through 24 CFR 570.610.
Section 570.489(d) of Title 24 Code of
Federal Regulations and the Federal cost
principles applicable to all types of
entities include reasonability
requirements that prohibit costs that
have already been or will be paid from
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another source. For example, principles
and standards established by 2 CFR part
225 (OMB Circular A–87), Cost
Principles for State, Local, and Indian
Tribal Governments, state that a cost
assigned to a grant must be ‘‘necessary
and reasonable for proper and efficient
performance and administration of
Federal awards.’’ 2 CFR part 225,
Appendix A (C)(1)(a). A cost is
reasonable if, in its nature and amount,
it does not exceed that which would be
incurred by a prudent person under the
circumstances prevailing at the time the
decision was made. Other factors related
to the reasonableness of the cost are
described in the basic guidelines in 2
CFR part 225, Appendix A (C)(2). This
requirement applies to a grantee’s costs
in administering its disaster recovery
program, as well as the ultimate uses of
the funds by the grantee.
Grantees must also make decisions
about which types and amounts of cost
items are necessary and reasonable
given the applicable Federal laws,
terms, and conditions of the Federal
award, or other governing regulations.
In the context of the Stafford Act
duplication of benefits provision, the
grantee must conduct an individualized
review of each beneficiary and the
purpose for which CDBG disaster
recovery funds are provided.
Specifically, the grantee must determine
whether a cost is necessary and
reasonable; if a cost has already been or
will be paid from another source, it is
presumed to violate the necessary and
reasonable standard.
IV. Framework for Determining CDBG
Disaster Recovery Assistance
The paragraphs in this section of this
Notice illustrate the primary
considerations that must be taken into
account when analyzing need and
duplication of benefits under CDBG
disaster recovery. While the Department
is providing a suggested framework,
grantees have the discretion to develop
other methods or procedures to evaluate
and address the calculation of need and
assessment of duplication of benefits.
Grantees are required to establish a
duplication of benefits policy that
explains and describes all methods and
procedures to prevent the duplication of
benefits. 42 U.S.C. 5155(a).
Although the potential for duplication
of benefits arises most frequently under
homeowner rehabilitation programs, it
is not limited solely to that program
type. Therefore, this Notice seeks to
provide general, cross-cutting guidance
that can apply to any program.
A grantee that creates several disaster
recovery programs should consider
whether one program will duplicate
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assistance provided by another program,
even when the secondary program is
funded entirely with non-Federal funds.
A. Assessment of need prior to
assistance. A grantee should first
determine the applicant’s total postdisaster need in the absence of any
duplicative benefits or program caps.
Following the identification of total
need, duplicative assistance can later be
subtracted and program caps applied to
arrive at a final award. A rebuilding
project’s cost estimate is often able to
serve as the best demonstration of need.
Some recovery programs not involved
with physical rebuilding, such as
economic development to provide an
affected business with working capital,
may not necessarily base awards on
construction cost estimates. In such
scenarios, the potential award may be
determined by the program and be
guided by standard underwriting
principles; however, it must still be
determined to be cost reasonable.
B. Total assistance available to the
person or entity. Assistance includes all
benefits available to the person,
including cash and other resources such
as insurance proceeds, grants, and SBA
loans (private loans not guaranteed by
SBA are excepted—see paragraph C).
Grantees should identify all assistance
received by each person, business
concern, or other entity, via insurance,
FEMA, SBA, other local, state, or
Federal programs, and private or
nonprofit charity organizations. See,
FEMA Disaster Assistance Policy
9525.3, Duplication of Benefits—NonGovernment Funds.
Grantees should also identify
reasonably anticipated assistance, such
as future insurance claims or approved
SBA loan proceeds. Reasonably
anticipated funds include assistance
that has been awarded, but has not yet
been received. For example, assume a
business was approved to receive an
SBA loan for $30,000, but had only
received $20,000 when it applied for
CDBG disaster recovery assistance for
the same purpose. The grantee should
identify the full amount of assistance for
which the applicant was approved
($30,000).
Funds are not reasonably anticipated
when the source and/or amount is
indefinite, or the applicant is unaware
that he/she may be eligible to receive
additional funds at a later date. To
address any potential duplication,
beneficiaries must enter a signed
agreement to repay any assistance later
received for the same purpose as the
CDBG disaster recovery funds. The
grantee must identify a method to
monitor compliance with the agreement
for a reasonable period, and should
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articulate this method in its written
administrative procedures. Please note
that if additional need is established,
subsequent funds would not be
considered a duplication. See paragraph
E, Unmet Need, for more information on
this issue.
C. Non-duplicative assistance
excluded from final benefit calculation.
Once the grantee has determined the
potential award and the total assistance
received or to be received, it can
exclude for duplication of benefit
purposes, assistance that was: (1)
Provided for a different purpose; (2)
used for a different, eligible purpose; (3)
not available to the applicant; (4) a
private loan not guaranteed by SBA; or
(5) any other asset or line of credit
available to the applicant. Below, each
of these categories is explained in
greater detail.
1. Funds for a different purpose. Any
funds provided for a different purpose,
or a general, non-specific purpose (e.g.,
‘‘disaster relief/recovery’’), may be
excluded from the final award
calculation if they were not used by the
applicant for the same purpose.
Funds provided to a homeowner
typically fall under one of the following
categories: Replacement housing,
rehabilitation assistance, or interim (i.e.,
temporary) housing. Funds provided for
replacement housing are generally easy
to identify—they assist an individual or
household to secure a replacement
home in the event their disaster-affected
home cannot be rehabilitated. This
includes, but is not limited to,
downpayment assistance, interim
mortgage assistance, and acquisition of
the damaged property. While these
types of funds may be delivered through
separate programs, they all have a
uniform purpose—to equip an
individual or household with the funds
necessary to gain replacement housing.
Rehabilitation includes repair and
reconstruction. If a homeowner receives
rehabilitation funds from CDBG disaster
recovery, all other assistance provided
to address that home’s rehabilitation
must be included. If award amounts are
related to a property’s value or
estimated cost of repair/reconstruction,
then HUD will consider them to be for
the purpose of rehabilitation or
replacement housing.
Funds provided for interim housing,
which would be provided if a
household is temporarily unable to
reside in its permanent residence, are
considered to have a different purpose
than rehabilitation or replacement
housing. For example, if FEMA funds
were eligibly used for interim housing,
and CDBG funds were provided for
home rehabilitation, there is no
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duplication regarding those funds
because the funds were provided for
different purposes. However, any FEMA
funds eligibly used for housing
replacement or rehabilitation must be
considered for that purpose.
Economic development programs may
address many unique purposes. Thus,
for a more effective administration of
these programs, each should be
carefully designed from the beginning
with clear, identified purposes of the
funds.
Finally, when providing funds for the
repair, replacement, rehabilitation, or
new construction of public facilities or
improvements, a grantee must address
whether other sources of funds are
available for that same purpose and for
that specific project because funds used
directly by grantees and other
government entities for public facilities
or other purposes are also subject to the
duplication of benefits prohibitions
under the Stafford Act.
2. Funds for same purpose, different
eligible use. Funds used for a different
eligible purpose may be excluded from
the final award calculation. In some
instances, funds provided for the same
general purpose as the CDBG disaster
recovery funds will have been used by
the applicant for a different specific
eligible purpose. In these circumstances,
if the applicant can document that the
funds received were used for a different,
eligible purpose, then the funds are not
duplicative. Each grantee can work with
HUD to determine what documentation
is appropriate. In general, acceptable
documentation may include, but is not
limited to, receipts as well as sworn
statements and certifications that can be
verified or substantiated. FEMA requires
individuals to keep receipts or bills for
three years to demonstrate how all
FEMA-funded assistance was used in
meeting an eligible, disaster related
need. It is advisable for grantees to
remind applicants of this requirement
when submitting an application for
CDBG assistance that supplements
FEMA assistance already received.
Whether the funds are used for an
eligible purpose is dependent upon the
program that provided the funds. For
example, assume a grantee is
administering a homeowner
rehabilitation program and an applicant
to the program previously received
housing assistance from FEMA. If the
applicant can document that the FEMA
funds were used for eligible interim
housing costs (such as rent, in
accordance with FEMA program
eligibility), and not housing
replacement or rehabilitation (which
may also be an eligible use of the funds),
then his or her CDBG award for
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permanent housing should not be
reduced by the amount of FEMA
assistance used for interim housing.
Because FEMA may allow its recovery
funds to be used for multiple purposes,
CDBG disaster recovery funds may not
duplicate the ultimate use of the FEMA
funds.
Because grantees may not be familiar
with other Federal programs and
allowable uses of funds, should this
issue arise, grantees are encouraged to
immediately contact their assigned HUD
Community Planning and Development
(CPD) Representative for further
guidance.
This issue may also emerge when a
grantee provides multiple homeowner
rehabilitation or replacement housing
programs, or multiple economic
development programs. Thus, grantees
are encouraged to clearly define the
purpose and intended use of funds
under each program.
3. Funds not available to the
applicant. Funds that are not available
to an applicant may also be excluded
from the final award calculation. A
benefit is available if a person or entity:
(1) Would receive it by acting in a
commercially reasonable manner, or (2)
has received it, and has legal control
over it. Commercially reasonable efforts
refer to efforts that use a standard of
reasonableness defined by what a
similar person would do as judged by
the standards of the applicable
community. Commercially reasonable
efforts should be consistent with good
faith business judgments. For example,
it may be commercially reasonable for a
person to elect to receive a lump sum
insurance settlement based on estimated
cost of repairs to avoid transaction costs
associated with the alternative of
receiving reimbursement based on
actual replacement cost; any additional
benefits that theoretically might have
been received under another settlement
option do not reduce eligibility for
assistance.
Funds are not available to the person
or entity if the person does not have
legal control of the funds when they are
received and are used for a nonduplicative purpose. For example, if a
homeowner’s mortgage requires any
insurance proceeds to be applied to
reduce the lien balance, then the bank/
mortgage holder (not the homeowner)
has legal control over those funds.
Therefore, the homeowner is legally
obligated to use insurance proceeds for
that purpose and does not have a choice
in using them for any other purpose,
such as to rehabilitate the house. Under
these circumstances, insurance proceeds
do not reduce assistance eligibility.
Alternatively, if a disaster-affected
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homeowner chooses to apply insurance
proceeds to reduce an existing mortgage,
or requests that the lender demand
payment, insurance proceeds reduce the
amount of disaster assistance eligibility.
In addition, if a mortgage requires
insurance proceeds to be used for
rehabilitation of the property, those
proceeds must be considered as
assistance for that purpose.
A homeowner does not need to
possess cash assistance to be considered
as being in legal control over receiving
benefits for a particular purpose. For
example, it is common for homeowners
to choose to apply to local- or stateadministered housing repair or
reconstruction programs where the
program administrator acts directly to
complete the repairs for the homeowner.
In this case, the person asks/applies for
$10,000 worth of repairs (for example)
and the benefit they receive is $10,000
in repair work to the home. The person
does not need to have personally
possessed the $10,000 in order to be in
legal control over receiving that benefit
for that specific purpose.
4. Private loans. Similarly, for
duplication of benefits purposes, private
loans may be excluded from the final
award calculation. Unlike SBA loans (or
any other subsidized loan or Federal
loan guarantee program that provides
assistance after a major disaster or
emergency), private loans not
guaranteed by SBA need not be
considered duplicative assistance.
Congress provided for SBA loans (both
direct and guaranteed) as part of the
overall statutory scheme for disaster
recovery. As such, SBA loans are made
pursuant to a government program.
Since private loans are not provided
under a government program, they do
not need to be considered as potentially
duplicative assistance. However, when
making final award determinations,
necessary and reasonable cost principles
such as OMB Circular A–87 (2 CFR part
225) apply. While private loans need
not be considered for duplication of
benefit purposes, a grantee is not
prohibited from considering loans for
other purposes, such as underwriting.
For purposes of this Notice, private
loans are non-Federal loans (neither
direct nor guaranteed) that are made in
a commercial lending transaction for
fair market rates with a willing borrower
and willing lender, under standard
commercial lending terms in which the
borrower must repay the full amount of
the loan (plus interest, if applicable).
This includes private loans for
construction and bridge financing, but
not forgivable loans. This policy applies
regardless of whether the borrower is a
business or an individual.
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5. Other assets or lines of credit. Other
assets or lines of credit available to a
homeowner or a business owner need
not be included in the award
calculation. This includes, but is not
limited to: Checking or savings
accounts, stocks, bonds, mutual funds,
pension or retirement benefits, credit
cards, mortgages or lines of credit, and
life insurance. Please note that these
items may be held in the name of an
individual, or in the name of a business.
D. Calculate CDBG disaster recovery
award. The calculation may look as
follows: (1) Identify total post-disaster
need prior to any assistance; (2) Identify
potentially duplicative assistance; (3)
Subtract all assistance found to be
duplicative, resulting in the maximum
potential award amount, or unmet need.
E. Unmet need. Long-term recovery is
a process, however, disaster recovery
needs are calculated at points in time.
As a result, a subsequent change in
circumstances can affect need. If, after
needs are initially calculated and/or a
CDBG award has been made, an
applicant for CDBG disaster recovery
assistance can demonstrate a change in
circumstances, such as vandalism,
contractor fraud, an increase in the cost
of materials and/or labor, a change in
local zoning law or building code, or
subsequent damage to a home or
business that was partially repaired, the
grantee may subsequently reevaluate the
calculation of the award by taking into
account the increased need. However,
any reevaluation must be done before
the initial need for which the assistance
was granted has been fully met (e.g.,
before the damaged house is fully
repaired). In effect, once the house is
fully repaired, the need resulting from
the disaster impact will have been fully
met; but actual costs to the point of
completion are eligible.
Oftentimes, unmet need does not
become apparent until after CDBG
disaster recovery assistance has been
provided. For example, a subsequent
storm or disaster may affect the
unrepaired house or business of an
individual or entity that was previously
assisted by CDBG disaster recovery for
a prior disaster. Therefore, to the extent
that an original disaster recovery need
(e.g., rehabilitation of a home) was not
fully met, but was exacerbated by other
factors beyond the government’s and
individual’s control (e.g., lack of
contractor availability or vandalism),
additional CDBG disaster recovery
assistance can be provided to meet the
outstanding need. Grantees have
discretion to determine the best way to
determine and verify additional or
unmet need. Physical inspection and
professional appraisals are highly
recommended. If a subsequent appraisal
demonstrates that the CDBG award is in
excess of need, the grantee should
evaluate whether a duplication of
benefits has occurred or whether the
applicant’s award should be reduced
based upon program eligibility criteria.
V. Example Frameworks for
Calculating Disaster Recovery Awards
The tables below illustrate how a
grantee may wish to address the process
of making disaster recovery awards.
TABLE 2—BASIC FRAMEWORK FOR CALCULATING DISASTER RECOVERY AWARDS
1. Identify Applicant’s Total Need Prior to Any Assistance .................................................................................................................
$100,000
2. Identify All Potentially Duplicative Assistance .................................................................................................................................
35,000
3. Deduct Assistance Determined to be Duplicative ...........................................................................................................................
30,000
4. Maximum Eligible Award (Item 1 less Item 3) ................................................................................................................................
70,000
5. Program Cap (if applicable) ............................................................................................................................................................
50,000
6. Final Award (lesser of Items 4 and 5) .............................................................................................................................................
50,000
Table 2 illustrates a basic way to
calculate an award for CDBG disaster
recovery—taking into account any
duplication of benefit and reducing the
award since the total unmet need is
greater than the program cap set by the
grantee. Table 3, below, uses this basic
framework to calculate a CDBG disaster
recovery homeowner rehabilitation
award:
TABLE 3—BASIC FRAMEWORK—HOMEOWNER REHABILITATION
1. Identify Applicant’s Total Need Prior to Any Assistance (e.g., rehabilitation cost estimate) ..........................................................
$60,000
2. Identify All Potentially Duplicative Assistance:
a. FEMA Housing Grant (assumes interim housing is eligible use).
Interim Housing (e.g., rent) ...................................................................................................................................................
Permanent Housing (e.g., repair/rehabilitation) ....................................................................................................................
b. SBA Loan .................................................................................................................................................................................
c. Insurance (Structure, not Contents) .........................................................................................................................................
5,000
15,000
20,000
15,000
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55,000
3. Deduct Assistance Determined to be Duplicative:
a. FEMA Housing Grant (assumes interim housing is eligible use).
Permanent Housing (e.g., repair/rehabilitation) ....................................................................................................................
b. SBA Loan .................................................................................................................................................................................
c. Insurance (Structure, not Contents) .........................................................................................................................................
15,000
20,000
15,000
50,000
4. Maximum Eligible Award (Item 1 less Item 3) ................................................................................................................................
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71065
TABLE 3—BASIC FRAMEWORK—HOMEOWNER REHABILITATION—Continued
5. Program Cap (if applicable) ............................................................................................................................................................
50,000
6. Final Award (lesser of Items 4 and 5) .............................................................................................................................................
10,000
A similar method may be used for
most programs, so long as Item 1 is
reflective of the program, as for
example, illustrated in table 4:
TABLE 4—BASIC FRAMEWORK—INFRASTRUCTURE
1. Identify Applicant’s Total Need Prior to Any Assistance (e.g., reconstruction cost estimate) ........................................................
$100,000
2. Identify All Potentially Duplicative Assistance:
a. Insurance ..................................................................................................................................................................................
b. FEMA Public Assistance Funds for Permanent Work .............................................................................................................
50,000
25,000
75,000
3. Deduct Assistance Determined to be Duplicative ...........................................................................................................................
75,000
4. Maximum Eligible Award (Item 1 less Item 3) ................................................................................................................................
25,000
5. Program Cap (if applicable) ............................................................................................................................................................
50,000
6. Final Award (lesser of Items 4 and 5) .............................................................................................................................................
25,000
While tables 2, 3, and 4 illustrate
basic ways to calculate a CDBG disaster
recovery award taking into account any
duplication of benefit, table 5 below
considers a scenario in which a CDBG
award has already been made, however,
additional unmet needs were identified
subsequent to the award.
TABLE 5—POST-AWARD IDENTIFICATION OF ADDITIONAL UNMET NEED HOMEOWNER REHABILITATION
1. Identify Applicant’s Total Need Prior to Any Assistance (e.g., rehabilitation cost estimate) ..........................................................
$60,000
2. Identify All Potentially Duplicative Assistance:
a. FEMA Housing Grant (assumes interim housing is eligible use).
Interim Housing (e.g., rent) ...................................................................................................................................................
Permanent Housing (e.g., repair/rehabilitation) ....................................................................................................................
b. SBA Loan .................................................................................................................................................................................
c. Insurance (Structure, not Contents) .........................................................................................................................................
5,000
15,000
20,000
15,000
55,000
3. Deduct Assistance Determined to be Duplicative:
a. FEMA Housing Grant (assumes interim housing is eligible use).
Permanent Housing (e.g., repair/rehabilitation) ....................................................................................................................
b. SBA Loan .................................................................................................................................................................................
c. Insurance (Structure, not Contents) .........................................................................................................................................
15,000
20,000
15,000
50,000
10,000
5. Program Cap (if applicable) ............................................................................................................................................................
50,000
6. Initial Final Award (lesser of Items 4 and 5) ...................................................................................................................................
10,000
7. Demonstrated Additional Unmet Need (e.g., one year later):
a. Actual cost ultimately greater than initially estimated cost ......................................................................................................
5,000
8. Amount Eligible for Additional Award ..............................................................................................................................................
5,000
9. Program Cap (if applicable) ............................................................................................................................................................
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4. Initial Award (Item 1 less Item 3) ....................................................................................................................................................
50,000
10. Additional Award (Item 8 if lesser of Items 6 + 8 and Item 9) .....................................................................................................
5,000
Please note that in the above example,
some type of documentation must
substantiate the amount determined by
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explain why the original CDBG award
was insufficient, and/or why additional
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funds are necessary to complete the
activity. In the above example, the cost
of materials may have increased or a
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fraudulent contractor may have
performed defective construction. In
either case, the grantee has the
discretion to determine what
documentation is sufficient to
demonstrate these events. Ultimately,
required documentation depends on
each particular fact pattern.
VI. Use of CDBG Funds
A. Use of funds for explicit and
eligible purposes. CDBG disaster
recovery funds must be used for eligible
purposes of the program or activity for
which they have been provided. That is,
CDBG funds provided for the sole
purpose of repairing a home should be
used strictly for the repair of that home.
They should not be used for any other
purpose. Similarly, funds provided to a
business for equipment replacement, or
structural repair, should be used only
for those purposes. While some business
assistance programs may provide forprofit entities with working capital, this
purpose should be clearly identified
from the outset of the program so as not
to duplicate other programs or working
capital assistance.
B. Treatment of SBA Loans. CDBG
disaster recovery funds should not be
used to pay down an SBA home or
business loan. In cases where initial
SBA loan amounts approved based on
estimated costs are later determined to
be inadequate relative to the actual costs
to complete home repairs or
reconstruction, the SBA will consider
re-evaluating an applicant’s maximum
eligibility to explore if additional
assistance may be provided. This also
applies to recipients of SBA business
loans (including loans for working
capital). If need remains after all SBA
eligibility has been exhausted,
supplemental disaster recovery CDBG
funds may be used to address that need.
SBA loans are among the Federal
government’s primary and standard
forms of disaster assistance. As disaster
recovery CDBG funds are provided by
Congress through supplemental
appropriations only in extraordinary
circumstances, these funds are intended
to supplement rather than supplant SBA
assistance. Grantees may, on rare
occasion and in extraordinary
circumstances, contend that the
payment of SBA loans with disaster
recovery CDBG for a beneficiary is
justified in keeping with all associate
laws and regulations. In such an
instance, the grantee should contact its
CPD representative for guidance.
VII. Collecting a Duplication
If a potential duplication is
discovered after CDBG disaster recovery
assistance has been provided, the
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grantee may reassess need at that time.
If additional need is not demonstrated,
disaster recovery funds should be
recaptured to the extent they are in
excess of the need and duplicate other
assistance received by the beneficiary
for the same purpose. However, it may
depend on what funds were provided
last.
Under the Stafford Act, a Federal
agency that provides duplicative funds
must collect those funds. FEMA
regulations at 44 CFR 206.191 set forth
a hierarchy of delivery that determines
the order in which beneficiaries should
receive Federal assistance. This
hierarchy is based on which agency has
the primary responsibility for providing
assistance following a disaster, not
which agency actually delivers the
assistance first. As an example, in most
situations, FEMA and SBA assistance is
provided to individuals before
supplemental disaster recovery CDBG
assistance is able to be delivered.
However, there may be cases in which,
prior to receiving FEMA or SBA
assistance, an applicant receives CDBG
assistance for a purpose for which they
are FEMA/SBA eligible. In this latter
case, subject to the agreement that the
grantee should have in place with the
applicant, the applicant should
reimburse the grantee in an amount
equal to all duplicative FEMA or SBA
funds subsequently received for
purposes which CDBG funds were
initially used.
The regulations at 44 CFR 206.191(d)
explain that a duplication of benefits
occurs when an agency provides
assistance which was the primary
responsibility of another agency, and
the agency with primary responsibility
later provides assistance. When the
delivery sequence has been disrupted,
the disrupting agency is responsible for
rectifying the duplication.
Since CDBG disaster recovery
provides long-term recovery assistance
via supplemental congressional
appropriations, and falls lower in the
hierarchy of delivery than FEMA or
SBA assistance, it is intended to
supplement rather than supplant these
sources of assistance. If CDBG disaster
recovery funds or non-Federal funds
were provided last and unknowingly
create a duplication, the method of
recapturing the CDBG funds, and the
timeframe, are the responsibility of the
grantee. HUD has no set guidelines or
regulations for this process. However,
the recapture method and timeframe
should be consistent with OMB Circular
A–87 (2 CFR part 225) or other
applicable cost principles, any relevant
guidance or handbook issued by the
HUD Office of the Inspector General,
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and the Stafford Act, which requires
that duplicative assistance shall be
collected in accordance with chapter 37
of title 31, relating to debt collection.
HUD’s CPD representatives are available
to provide guidance to grantees setting
up or revising their duplication of
benefits policies and procedures.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic
Assistance numbers for the disaster
recovery grants under this Notice are as
follows: 14.218; 14.228.
Finding of No Significant Impact
A Finding of No Significant Impact
(FONSI) with respect to the
environment has been made in
accordance with HUD regulations at 24
CFR part 50, which implement section
102(2)(C) of the National Environmental
Policy Act of 1969 (42 U.S.C. 4332). The
FONSI is available for public inspection
between 8 a.m. and 5 p.m. weekdays in
the Regulations Division, Office of
General Counsel, Department of
Housing and Urban Development, 451
7th Street SW., Room 10276,
Washington, DC 20410–0500. Due to
security measures at the HUD
Headquarters building, an advance
appointment to review the docket file
must be scheduled by calling the
Regulations Division at (202) 708–3055
(this is not a toll-free number). Hearing
or speech-impaired individuals may
access this number through TTY by
calling the toll-free Federal Relay
Service at (800) 877–8339.
Dated: November 4, 2011.
´
Mercedes M. Marquez,
Assistant Secretary for Community Planning
and Development.
[FR Doc. 2011–29634 Filed 11–15–11; 8:45 am]
BILLING CODE 4210–67–P
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
[Docket No. FR–5580–N–02]
HUD Draft Environmental Justice
Strategy, Extension of Public
Comment Period
Office of Sustainable Housing
and Communities, HUD.
ACTION: Notice.
AGENCY:
Through this notice, HUD
extends the period by which comments
may be submitted on HUD’s draft
Environmental Justice Strategy, for
which the availability of review and the
opportunity to submit public comments
were announced by notice published in
the Federal Register on October 7, 2011.
SUMMARY:
E:\FR\FM\16NON1.SGM
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]]>Agencies
[Federal Register Volume 76, Number 221 (Wednesday, November 16, 2011)]
[Notices]
[Pages 71060-71066]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29634]
-----------------------------------------------------------------------
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-5582-N-01]
Clarification of Duplication of Benefits Requirements Under the
Stafford Act for Community Development Block Grant (CDBG) Disaster
Recovery Grantees
AGENCY: Office of the Assistant Secretary for Community Planning and
Development, HUD.
ACTION: Notice.
-----------------------------------------------------------------------
SUMMARY: This Notice clarifies the duplication of benefits requirements
under the Stafford Act for all active Community Development Block Grant
(CDBG) disaster recovery grants, and all future CDBG disaster recovery
grants.
DATES: Effective Date: November 21, 2011.
FOR FURTHER INFORMATION CONTACT: Scott Davis, Director, Disaster
Recovery and Special Issues Division, Office of Block Grant Assistance,
Department of Housing and Urban Development, 451 7th Street SW., Room
7286, Washington, DC 20410, telephone number (202) 708-3587. Persons
with hearing or speech impairments may access this number via TTY by
calling the Federal Relay Service at (800) 877-8339. Facsimile
inquiries may be sent to Mr. Davis at (202) 401-2044. (Except for the
``800'' number, these telephone numbers are not toll-free.)
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Applicability
II. Background
III. Applicable Law
A. Stafford Act
B. OMB Circular A-87
IV. Framework for Determining CDBG Disaster Recovery Assistance
A. Assessment of Need Prior to Assistance
B. Total Assistance
C. Non-Duplicative Assistance Excluded From Final Benefit
Calculation
1. Funds for a Different Purpose
2. Funds for Same Purpose, Different Eligible Use
3. Funds Not Available to the Applicant
4. Private Loans
5. Other Assets or Lines of Credit
D. Calculate CDBG Disaster Recovery Award
E. Unmet Need
V. Examples Using Framework
VI. Use of CDBG Funds
A. Use of Funds for Explicit and Eligible Purposes
B. Treatment of Small Business Administration Loans
VII. Collecting a Duplication
I. Applicability
The guidance presented in this Notice is applicable to all active
HUD CDBG disaster recovery grants, and will be incorporated by
reference into Federal Register notices governing all future CDBG
disaster recovery grants. Table 1, below, illustrates the active grants
next to the pertinent appropriation law. The following guidance is
applicable to all new programs initiated and submitted to HUD in an
Action Plan Amendment subsequent to the date of this Notice.
Table 1--Active CDBG Disaster Recovery Grants
------------------------------------------------------------------------
Appropriation law Date enacted Grantee
------------------------------------------------------------------------
Public Law 107-73............. November 26, 2001 State of New York.
Public Law 107-117............ January 10, 2002. State of New York.
Public Law 107-206............ August 2, 2002... State of New York.
Public Law 108-324............ October 13, 2004. States of Alabama,
California, Florida,
Maryland, North
Carolina, Ohio,
Pennsylvania, Puerto
Rico, Virginia and
West Virginia.
Public Law 109-148............ December 30, 2005 States of Alabama,
Florida, Louisiana,
Mississippi, and
Texas.
Public Law 109-234............ June 15, 2006.... States of Alabama,
Florida, Louisiana,
Mississippi, and
Texas.
Public Law 110-116............ November 13, 2007 State of Louisiana.
Public Law 110-252............ June 30, 2008.... States of Arkansas,
Colorado, Illinois,
Indiana, Iowa,
Maine, Minnesota,
Mississippi,
Missouri, Montana,
Nebraska, Oklahoma,
South Dakota, West
Virginia, and
Wisconsin.
Public Law 110-329............ September 30, States of Arkansas,
2008. California, Florida,
Georgia, Illinois,
Indiana, Iowa,
Kentucky, Louisiana,
Mississippi,
Missouri, Puerto
Rico, Tennessee,
Texas, and
Wisconsin.
Public Law 111-212............ July 29, 2010.... States of Kentucky,
Rhode Island, and
Tennessee; City of
Cranston, City of
Warwick, City of
Memphis, Nashville-
Davidson County, and
Shelby County.
------------------------------------------------------------------------
This guidance applies to all CDBG disaster recovery expenditures,
programs, and activities, regardless of whether a grantee or subgrantee
administers a program. Although this Notice frequently references the
term grantee, the actions described are not limited solely to grantees.
Rather, it is ultimately the grantee's responsibility to ensure no
recipient of funds under its CDBG disaster recovery award has received
a duplicate benefit.
This Notice does not apply to any funds received annually under the
State CDBG program, or the CDBG Entitlement program, unless those funds
have specifically been awarded by the grantee for disaster recovery
purposes. All uses of the term ``CDBG'' in this Notice refer to CDBG
disaster recovery allocations.
II. Background
Grantees have requested clarification from HUD regarding the
duplication of benefits. This Notice provides information to ensure all
active CDBG disaster recovery grantees are in compliance with the
Robert T. Stafford
[[Page 71061]]
Disaster Relief and Emergency Assistance Act, (42 U.S.C. 5121-5207), as
amended, (Stafford Act), and all future CDBG disaster recovery grantees
address duplication of benefits issues consistently. This Notice was
also developed in consultation with the Small Business Administration
(SBA) and the Federal Emergency Management Agency (FEMA).
Most of the CDBG disaster recovery supplemental appropriation laws
to date have explicitly required the Secretary of Housing and Urban
Development to establish procedures to prevent recipients from
receiving any duplication of benefits. In addition, most supplemental
appropriation laws also require the Secretary to report quarterly to
the Committees on Appropriations with regard to all steps taken to
prevent fraud, abuse of funds, and duplication of benefits. Even in the
absence of these specific requirements, Stafford Act prohibition on
duplication of benefits in section 312 (42 U.S.C. 5155) is applicable
to all CDBG disaster recovery grants.
HUD has instituted specific reporting, written procedures,
monitoring, and internal audit requirements for each grantee to ensure
compliance with program rules for CDBG disaster recovery awards,
including rules related to prevention of fraud, abuse, and duplication
of benefits. However, HUD has neither designed nor mandated a specific
process or method by which grantees must evaluate duplication of
benefits; grantees have been encouraged to develop policies and
procedures appropriate to their individualized programs. The Department
has consistently monitored CDBG disaster recovery grantees to ensure
that they are meeting the above requirements and that their policies
and procedures are adequately preventing duplication of benefits.
III. Applicable Law
Two authorities form the foundation of duplication of benefit
inquiries--the Stafford Act and applicable ``necessary and reasonable
cost principles in 24 CFR part 570 and in OMB Cost Circulars (codified
in title 2 of the Code of Federal Regulations). Supplemental
appropriations statutes often reinforce and supplement these
authorities.
A. The Stafford Act. The Stafford Act directs administrators of
Federal assistance to ensure that no ``person, business concern or
other entity'' will receive duplicative assistance and imposes
liability ``to the extent such assistance duplicates benefits available
to the person for the same purpose from another source.'' 42 U.S.C.
5155(a) and (c). Because assistance to each person varies widely based
on individual insurance coverage and eligibility for Federal funding,
grantees cannot comply with the Stafford Act without completing a
duplication of benefits analysis specific to each applicant. The
Stafford Act provides the framework for the Federal government's role
in preparing for and recovering from a disaster. Its duplication of
benefits requirements apply to all Federal agencies administering a
disaster recovery program providing financial assistance, including
CDBG disaster recovery grants. Under the Act's framework, Congress
instituted a goal to achieve greater coordination and responsiveness of
disaster preparedness and relief programs. 42 U.S.C. 5121.
It also sought to guard against fraud and ineligible uses of
taxpayers' funds. The President makes major disaster declarations only
when ``response is beyond the capabilities of the State and the
affected local governments and that Federal assistance is necessary.''
(42 U.S.C. 5170). Similarly, the prohibition on duplication of benefits
ensures that Federal assistance serves only ``to supplement insurance
and other forms of disaster assistance.'' To accomplish these goals,
the Stafford Act implies a hierarchy of funding (see section VII of
this notice: Collecting a Duplication), and prohibits Federal agencies
from providing recovery assistance to the extent another source has
covered the same portion of that recovery need.
Specifically, section 312 of the Stafford Act prohibits any person,
business concern, or other entity from receiving ``any part of such
loss as to which he has received financial assistance under any other
program or from insurance or any other source.'' 42 U.S.C. 5155(a). A
duplication occurs when a beneficiary receives assistance from multiple
sources for a cumulative amount that exceeds the total need for a
particular recovery purpose. The amount of the duplication is the
amount of assistance provided in excess of need.
The Stafford Act requires a fact-specific inquiry into assistance
received by each person, household, or entity. A grantee may not make a
blanket determination that a duplication of benefits does not exist for
all beneficiaries or recipients under a disaster recovery program. As a
result, all disaster recovery funds must be governed by policies and
procedures to prevent duplication of benefits.
In disaster recovery, it is common for multiple sources of funds to
be used to address a single need. Grantees are advised to coordinate
program designs and choices with related funding sources. Together,
grantees and funders can determine the best approaches to minimize or
eliminate duplication, increase leverage, and maximize community and
individual outcomes. Furthermore, the Stafford Act provides that
receipt of partial benefits for a major disaster or emergency shall not
preclude provision of additional Federal assistance for any part of a
loss or need for which benefits have not been provided. 42 U.S.C.
5155(b). Thus, to comply with the Stafford Act, grantees should ensure
that each program provides assistance to a person or entity only to the
extent that the person or entity has a disaster recovery need that has
not been fully met. Any recipient receiving a duplicate benefit may be
liable to the Federal government. 42 U.S.C. 5155(c).
B. Necessary and Reasonable Cost Principles. Cost principles
applicable to all CDBG disaster recovery grantees require that costs
are necessary and reasonable. These Federal cost principles are
described in OMB Circulars and codified in title 2 of the Code of
Federal Regulations. HUD grantees and subrecipients must generally
adhere to the cost principles applicable to the specific type of entity
(2 CFR part 225 (OMB Circular A-87), Cost Principles for State, Local,
and Indian Tribal Governments, 2 CFR part 230 (OMB Circular 122), Cost
Principles for Non-profit Organizations, 2 CFR part 220 (OMB Circular
A-21), Cost Principles for Educational Institutions, or 45 CFR part 74,
Principles for Determining Costs Applicable to Research and Development
Under Grants and Contracts with Hospitals, as applicable). State
grantees are subject to 24 CFR 570.489(d), which requires that states
shall have fiscal and administrative requirements which ensure that
funds received are only spent ``for reasonable and necessary costs of
operating programs.''
Federal necessary and reasonable cost principles apply to:
State grantees (and their state recipients) through 24 CFR
570.489(d);
Subrecipients of state grantees according to CDBG disaster
recovery Notices, which typically require subrecipient agreements to
comply with 24 CFR 570.503; and
Local government grantees receiving CDBG disaster recovery
grants directly from HUD (and their subrecipients) through 24 CFR
570.610.
Section 570.489(d) of Title 24 Code of Federal Regulations and the
Federal cost principles applicable to all types of entities include
reasonability requirements that prohibit costs that have already been
or will be paid from
[[Page 71062]]
another source. For example, principles and standards established by 2
CFR part 225 (OMB Circular A-87), Cost Principles for State, Local, and
Indian Tribal Governments, state that a cost assigned to a grant must
be ``necessary and reasonable for proper and efficient performance and
administration of Federal awards.'' 2 CFR part 225, Appendix A
(C)(1)(a). A cost is reasonable if, in its nature and amount, it does
not exceed that which would be incurred by a prudent person under the
circumstances prevailing at the time the decision was made. Other
factors related to the reasonableness of the cost are described in the
basic guidelines in 2 CFR part 225, Appendix A (C)(2). This requirement
applies to a grantee's costs in administering its disaster recovery
program, as well as the ultimate uses of the funds by the grantee.
Grantees must also make decisions about which types and amounts of
cost items are necessary and reasonable given the applicable Federal
laws, terms, and conditions of the Federal award, or other governing
regulations. In the context of the Stafford Act duplication of benefits
provision, the grantee must conduct an individualized review of each
beneficiary and the purpose for which CDBG disaster recovery funds are
provided. Specifically, the grantee must determine whether a cost is
necessary and reasonable; if a cost has already been or will be paid
from another source, it is presumed to violate the necessary and
reasonable standard.
IV. Framework for Determining CDBG Disaster Recovery Assistance
The paragraphs in this section of this Notice illustrate the
primary considerations that must be taken into account when analyzing
need and duplication of benefits under CDBG disaster recovery. While
the Department is providing a suggested framework, grantees have the
discretion to develop other methods or procedures to evaluate and
address the calculation of need and assessment of duplication of
benefits. Grantees are required to establish a duplication of benefits
policy that explains and describes all methods and procedures to
prevent the duplication of benefits. 42 U.S.C. 5155(a).
Although the potential for duplication of benefits arises most
frequently under homeowner rehabilitation programs, it is not limited
solely to that program type. Therefore, this Notice seeks to provide
general, cross-cutting guidance that can apply to any program.
A grantee that creates several disaster recovery programs should
consider whether one program will duplicate assistance provided by
another program, even when the secondary program is funded entirely
with non-Federal funds.
A. Assessment of need prior to assistance. A grantee should first
determine the applicant's total post-disaster need in the absence of
any duplicative benefits or program caps. Following the identification
of total need, duplicative assistance can later be subtracted and
program caps applied to arrive at a final award. A rebuilding project's
cost estimate is often able to serve as the best demonstration of need.
Some recovery programs not involved with physical rebuilding, such
as economic development to provide an affected business with working
capital, may not necessarily base awards on construction cost
estimates. In such scenarios, the potential award may be determined by
the program and be guided by standard underwriting principles; however,
it must still be determined to be cost reasonable.
B. Total assistance available to the person or entity. Assistance
includes all benefits available to the person, including cash and other
resources such as insurance proceeds, grants, and SBA loans (private
loans not guaranteed by SBA are excepted--see paragraph C). Grantees
should identify all assistance received by each person, business
concern, or other entity, via insurance, FEMA, SBA, other local, state,
or Federal programs, and private or nonprofit charity organizations.
See, FEMA Disaster Assistance Policy 9525.3, Duplication of Benefits--
Non-Government Funds.
Grantees should also identify reasonably anticipated assistance,
such as future insurance claims or approved SBA loan proceeds.
Reasonably anticipated funds include assistance that has been awarded,
but has not yet been received. For example, assume a business was
approved to receive an SBA loan for $30,000, but had only received
$20,000 when it applied for CDBG disaster recovery assistance for the
same purpose. The grantee should identify the full amount of assistance
for which the applicant was approved ($30,000).
Funds are not reasonably anticipated when the source and/or amount
is indefinite, or the applicant is unaware that he/she may be eligible
to receive additional funds at a later date. To address any potential
duplication, beneficiaries must enter a signed agreement to repay any
assistance later received for the same purpose as the CDBG disaster
recovery funds. The grantee must identify a method to monitor
compliance with the agreement for a reasonable period, and should
articulate this method in its written administrative procedures. Please
note that if additional need is established, subsequent funds would not
be considered a duplication. See paragraph E, Unmet Need, for more
information on this issue.
C. Non-duplicative assistance excluded from final benefit
calculation. Once the grantee has determined the potential award and
the total assistance received or to be received, it can exclude for
duplication of benefit purposes, assistance that was: (1) Provided for
a different purpose; (2) used for a different, eligible purpose; (3)
not available to the applicant; (4) a private loan not guaranteed by
SBA; or (5) any other asset or line of credit available to the
applicant. Below, each of these categories is explained in greater
detail.
1. Funds for a different purpose. Any funds provided for a
different purpose, or a general, non-specific purpose (e.g., ``disaster
relief/recovery''), may be excluded from the final award calculation if
they were not used by the applicant for the same purpose.
Funds provided to a homeowner typically fall under one of the
following categories: Replacement housing, rehabilitation assistance,
or interim (i.e., temporary) housing. Funds provided for replacement
housing are generally easy to identify--they assist an individual or
household to secure a replacement home in the event their disaster-
affected home cannot be rehabilitated. This includes, but is not
limited to, downpayment assistance, interim mortgage assistance, and
acquisition of the damaged property. While these types of funds may be
delivered through separate programs, they all have a uniform purpose--
to equip an individual or household with the funds necessary to gain
replacement housing.
Rehabilitation includes repair and reconstruction. If a homeowner
receives rehabilitation funds from CDBG disaster recovery, all other
assistance provided to address that home's rehabilitation must be
included. If award amounts are related to a property's value or
estimated cost of repair/reconstruction, then HUD will consider them to
be for the purpose of rehabilitation or replacement housing.
Funds provided for interim housing, which would be provided if a
household is temporarily unable to reside in its permanent residence,
are considered to have a different purpose than rehabilitation or
replacement housing. For example, if FEMA funds were eligibly used for
interim housing, and CDBG funds were provided for home rehabilitation,
there is no
[[Page 71063]]
duplication regarding those funds because the funds were provided for
different purposes. However, any FEMA funds eligibly used for housing
replacement or rehabilitation must be considered for that purpose.
Economic development programs may address many unique purposes.
Thus, for a more effective administration of these programs, each
should be carefully designed from the beginning with clear, identified
purposes of the funds.
Finally, when providing funds for the repair, replacement,
rehabilitation, or new construction of public facilities or
improvements, a grantee must address whether other sources of funds are
available for that same purpose and for that specific project because
funds used directly by grantees and other government entities for
public facilities or other purposes are also subject to the duplication
of benefits prohibitions under the Stafford Act.
2. Funds for same purpose, different eligible use. Funds used for a
different eligible purpose may be excluded from the final award
calculation. In some instances, funds provided for the same general
purpose as the CDBG disaster recovery funds will have been used by the
applicant for a different specific eligible purpose. In these
circumstances, if the applicant can document that the funds received
were used for a different, eligible purpose, then the funds are not
duplicative. Each grantee can work with HUD to determine what
documentation is appropriate. In general, acceptable documentation may
include, but is not limited to, receipts as well as sworn statements
and certifications that can be verified or substantiated. FEMA requires
individuals to keep receipts or bills for three years to demonstrate
how all FEMA-funded assistance was used in meeting an eligible,
disaster related need. It is advisable for grantees to remind
applicants of this requirement when submitting an application for CDBG
assistance that supplements FEMA assistance already received.
Whether the funds are used for an eligible purpose is dependent
upon the program that provided the funds. For example, assume a grantee
is administering a homeowner rehabilitation program and an applicant to
the program previously received housing assistance from FEMA. If the
applicant can document that the FEMA funds were used for eligible
interim housing costs (such as rent, in accordance with FEMA program
eligibility), and not housing replacement or rehabilitation (which may
also be an eligible use of the funds), then his or her CDBG award for
permanent housing should not be reduced by the amount of FEMA
assistance used for interim housing. Because FEMA may allow its
recovery funds to be used for multiple purposes, CDBG disaster recovery
funds may not duplicate the ultimate use of the FEMA funds.
Because grantees may not be familiar with other Federal programs
and allowable uses of funds, should this issue arise, grantees are
encouraged to immediately contact their assigned HUD Community Planning
and Development (CPD) Representative for further guidance.
This issue may also emerge when a grantee provides multiple
homeowner rehabilitation or replacement housing programs, or multiple
economic development programs. Thus, grantees are encouraged to clearly
define the purpose and intended use of funds under each program.
3. Funds not available to the applicant. Funds that are not
available to an applicant may also be excluded from the final award
calculation. A benefit is available if a person or entity: (1) Would
receive it by acting in a commercially reasonable manner, or (2) has
received it, and has legal control over it. Commercially reasonable
efforts refer to efforts that use a standard of reasonableness defined
by what a similar person would do as judged by the standards of the
applicable community. Commercially reasonable efforts should be
consistent with good faith business judgments. For example, it may be
commercially reasonable for a person to elect to receive a lump sum
insurance settlement based on estimated cost of repairs to avoid
transaction costs associated with the alternative of receiving
reimbursement based on actual replacement cost; any additional benefits
that theoretically might have been received under another settlement
option do not reduce eligibility for assistance.
Funds are not available to the person or entity if the person does
not have legal control of the funds when they are received and are used
for a non-duplicative purpose. For example, if a homeowner's mortgage
requires any insurance proceeds to be applied to reduce the lien
balance, then the bank/mortgage holder (not the homeowner) has legal
control over those funds. Therefore, the homeowner is legally obligated
to use insurance proceeds for that purpose and does not have a choice
in using them for any other purpose, such as to rehabilitate the house.
Under these circumstances, insurance proceeds do not reduce assistance
eligibility. Alternatively, if a disaster-affected homeowner chooses to
apply insurance proceeds to reduce an existing mortgage, or requests
that the lender demand payment, insurance proceeds reduce the amount of
disaster assistance eligibility. In addition, if a mortgage requires
insurance proceeds to be used for rehabilitation of the property, those
proceeds must be considered as assistance for that purpose.
A homeowner does not need to possess cash assistance to be
considered as being in legal control over receiving benefits for a
particular purpose. For example, it is common for homeowners to choose
to apply to local- or state-administered housing repair or
reconstruction programs where the program administrator acts directly
to complete the repairs for the homeowner. In this case, the person
asks/applies for $10,000 worth of repairs (for example) and the benefit
they receive is $10,000 in repair work to the home. The person does not
need to have personally possessed the $10,000 in order to be in legal
control over receiving that benefit for that specific purpose.
4. Private loans. Similarly, for duplication of benefits purposes,
private loans may be excluded from the final award calculation. Unlike
SBA loans (or any other subsidized loan or Federal loan guarantee
program that provides assistance after a major disaster or emergency),
private loans not guaranteed by SBA need not be considered duplicative
assistance. Congress provided for SBA loans (both direct and
guaranteed) as part of the overall statutory scheme for disaster
recovery. As such, SBA loans are made pursuant to a government program.
Since private loans are not provided under a government program, they
do not need to be considered as potentially duplicative assistance.
However, when making final award determinations, necessary and
reasonable cost principles such as OMB Circular A-87 (2 CFR part 225)
apply. While private loans need not be considered for duplication of
benefit purposes, a grantee is not prohibited from considering loans
for other purposes, such as underwriting. For purposes of this Notice,
private loans are non-Federal loans (neither direct nor guaranteed)
that are made in a commercial lending transaction for fair market rates
with a willing borrower and willing lender, under standard commercial
lending terms in which the borrower must repay the full amount of the
loan (plus interest, if applicable). This includes private loans for
construction and bridge financing, but not forgivable loans. This
policy applies regardless of whether the borrower is a business or an
individual.
[[Page 71064]]
5. Other assets or lines of credit. Other assets or lines of credit
available to a homeowner or a business owner need not be included in
the award calculation. This includes, but is not limited to: Checking
or savings accounts, stocks, bonds, mutual funds, pension or retirement
benefits, credit cards, mortgages or lines of credit, and life
insurance. Please note that these items may be held in the name of an
individual, or in the name of a business.
D. Calculate CDBG disaster recovery award. The calculation may look
as follows: (1) Identify total post-disaster need prior to any
assistance; (2) Identify potentially duplicative assistance; (3)
Subtract all assistance found to be duplicative, resulting in the
maximum potential award amount, or unmet need.
E. Unmet need. Long-term recovery is a process, however, disaster
recovery needs are calculated at points in time. As a result, a
subsequent change in circumstances can affect need. If, after needs are
initially calculated and/or a CDBG award has been made, an applicant
for CDBG disaster recovery assistance can demonstrate a change in
circumstances, such as vandalism, contractor fraud, an increase in the
cost of materials and/or labor, a change in local zoning law or
building code, or subsequent damage to a home or business that was
partially repaired, the grantee may subsequently reevaluate the
calculation of the award by taking into account the increased need.
However, any reevaluation must be done before the initial need for
which the assistance was granted has been fully met (e.g., before the
damaged house is fully repaired). In effect, once the house is fully
repaired, the need resulting from the disaster impact will have been
fully met; but actual costs to the point of completion are eligible.
Oftentimes, unmet need does not become apparent until after CDBG
disaster recovery assistance has been provided. For example, a
subsequent storm or disaster may affect the unrepaired house or
business of an individual or entity that was previously assisted by
CDBG disaster recovery for a prior disaster. Therefore, to the extent
that an original disaster recovery need (e.g., rehabilitation of a
home) was not fully met, but was exacerbated by other factors beyond
the government's and individual's control (e.g., lack of contractor
availability or vandalism), additional CDBG disaster recovery
assistance can be provided to meet the outstanding need. Grantees have
discretion to determine the best way to determine and verify additional
or unmet need. Physical inspection and professional appraisals are
highly recommended. If a subsequent appraisal demonstrates that the
CDBG award is in excess of need, the grantee should evaluate whether a
duplication of benefits has occurred or whether the applicant's award
should be reduced based upon program eligibility criteria.
V. Example Frameworks for Calculating Disaster Recovery Awards
The tables below illustrate how a grantee may wish to address the
process of making disaster recovery awards.
Table 2--Basic Framework for Calculating Disaster Recovery Awards
------------------------------------------------------------------------
------------------------------------------------------------------------
1. Identify Applicant's Total Need Prior to Any $100,000
Assistance.............................................
------------------------------------------------------------------------
2. Identify All Potentially Duplicative Assistance...... 35,000
------------------------------------------------------------------------
3. Deduct Assistance Determined to be Duplicative....... 30,000
------------------------------------------------------------------------
4. Maximum Eligible Award (Item 1 less Item 3).......... 70,000
------------------------------------------------------------------------
5. Program Cap (if applicable).......................... 50,000
------------------------------------------------------------------------
6. Final Award (lesser of Items 4 and 5)................ 50,000
------------------------------------------------------------------------
Table 2 illustrates a basic way to calculate an award for CDBG
disaster recovery--taking into account any duplication of benefit and
reducing the award since the total unmet need is greater than the
program cap set by the grantee. Table 3, below, uses this basic
framework to calculate a CDBG disaster recovery homeowner
rehabilitation award:
Table 3--Basic Framework--Homeowner Rehabilitation
------------------------------------------------------------------------
------------------------------------------------------------------------
1. Identify Applicant's Total Need Prior to Any $60,000
Assistance (e.g., rehabilitation cost estimate)........
------------------------------------------------------------------------
2. Identify All Potentially Duplicative Assistance:
a. FEMA Housing Grant (assumes interim housing is
eligible use)......................................
Interim Housing (e.g., rent).................... 5,000
Permanent Housing (e.g., repair/rehabilitation). 15,000
b. SBA Loan......................................... 20,000
c. Insurance (Structure, not Contents).............. 15,000
---------------
55,000
------------------------------------------------------------------------
3. Deduct Assistance Determined to be Duplicative:
a. FEMA Housing Grant (assumes interim housing is
eligible use)......................................
Permanent Housing (e.g., repair/rehabilitation). 15,000
b. SBA Loan......................................... 20,000
c. Insurance (Structure, not Contents).............. 15,000
---------------
50,000
------------------------------------------------------------------------
4. Maximum Eligible Award (Item 1 less Item 3).......... 10,000
------------------------------------------------------------------------
[[Page 71065]]
5. Program Cap (if applicable).......................... 50,000
------------------------------------------------------------------------
6. Final Award (lesser of Items 4 and 5)................ 10,000
------------------------------------------------------------------------
A similar method may be used for most programs, so long as Item 1
is reflective of the program, as for example, illustrated in table 4:
Table 4--Basic Framework--Infrastructure
------------------------------------------------------------------------
------------------------------------------------------------------------
1. Identify Applicant's Total Need Prior to Any $100,000
Assistance (e.g., reconstruction cost estimate)........
------------------------------------------------------------------------
2. Identify All Potentially Duplicative Assistance:
a. Insurance........................................ 50,000
b. FEMA Public Assistance Funds for Permanent Work.. 25,000
---------------
75,000
------------------------------------------------------------------------
3. Deduct Assistance Determined to be Duplicative....... 75,000
------------------------------------------------------------------------
4. Maximum Eligible Award (Item 1 less Item 3).......... 25,000
------------------------------------------------------------------------
5. Program Cap (if applicable).......................... 50,000
------------------------------------------------------------------------
6. Final Award (lesser of Items 4 and 5)................ 25,000
------------------------------------------------------------------------
While tables 2, 3, and 4 illustrate basic ways to calculate a CDBG
disaster recovery award taking into account any duplication of benefit,
table 5 below considers a scenario in which a CDBG award has already
been made, however, additional unmet needs were identified subsequent
to the award.
Table 5--Post-Award Identification of Additional Unmet Need Homeowner
Rehabilitation
------------------------------------------------------------------------
------------------------------------------------------------------------
1. Identify Applicant's Total Need Prior to Any $60,000
Assistance (e.g., rehabilitation cost estimate)........
------------------------------------------------------------------------
2. Identify All Potentially Duplicative Assistance:
a. FEMA Housing Grant (assumes interim housing is
eligible use)......................................
Interim Housing (e.g., rent).................... 5,000
Permanent Housing (e.g., repair/rehabilitation). 15,000
b. SBA Loan......................................... 20,000
c. Insurance (Structure, not Contents).............. 15,000
---------------
55,000
------------------------------------------------------------------------
3. Deduct Assistance Determined to be Duplicative:
a. FEMA Housing Grant (assumes interim housing is
eligible use)......................................
Permanent Housing (e.g., repair/rehabilitation). 15,000
b. SBA Loan......................................... 20,000
c. Insurance (Structure, not Contents).............. 15,000
---------------
50,000
------------------------------------------------------------------------
4. Initial Award (Item 1 less Item 3)................... 10,000
------------------------------------------------------------------------
5. Program Cap (if applicable).......................... 50,000
------------------------------------------------------------------------
6. Initial Final Award (lesser of Items 4 and 5)........ 10,000
------------------------------------------------------------------------
7. Demonstrated Additional Unmet Need (e.g., one year
later):
a. Actual cost ultimately greater than initially 5,000
estimated cost.....................................
------------------------------------------------------------------------
8. Amount Eligible for Additional Award................. 5,000
------------------------------------------------------------------------
9. Program Cap (if applicable).......................... 50,000
------------------------------------------------------------------------
10. Additional Award (Item 8 if lesser of Items 6 + 8 5,000
and Item 9)............................................
------------------------------------------------------------------------
Please note that in the above example, some type of documentation
must substantiate the amount determined by Item 5. That is, the project
files should explain why the original CDBG award was insufficient, and/
or why additional funds are necessary to complete the activity. In the
above example, the cost of materials may have increased or a
[[Page 71066]]
fraudulent contractor may have performed defective construction. In
either case, the grantee has the discretion to determine what
documentation is sufficient to demonstrate these events. Ultimately,
required documentation depends on each particular fact pattern.
VI. Use of CDBG Funds
A. Use of funds for explicit and eligible purposes. CDBG disaster
recovery funds must be used for eligible purposes of the program or
activity for which they have been provided. That is, CDBG funds
provided for the sole purpose of repairing a home should be used
strictly for the repair of that home. They should not be used for any
other purpose. Similarly, funds provided to a business for equipment
replacement, or structural repair, should be used only for those
purposes. While some business assistance programs may provide for-
profit entities with working capital, this purpose should be clearly
identified from the outset of the program so as not to duplicate other
programs or working capital assistance.
B. Treatment of SBA Loans. CDBG disaster recovery funds should not
be used to pay down an SBA home or business loan. In cases where
initial SBA loan amounts approved based on estimated costs are later
determined to be inadequate relative to the actual costs to complete
home repairs or reconstruction, the SBA will consider re-evaluating an
applicant's maximum eligibility to explore if additional assistance may
be provided. This also applies to recipients of SBA business loans
(including loans for working capital). If need remains after all SBA
eligibility has been exhausted, supplemental disaster recovery CDBG
funds may be used to address that need.
SBA loans are among the Federal government's primary and standard
forms of disaster assistance. As disaster recovery CDBG funds are
provided by Congress through supplemental appropriations only in
extraordinary circumstances, these funds are intended to supplement
rather than supplant SBA assistance. Grantees may, on rare occasion and
in extraordinary circumstances, contend that the payment of SBA loans
with disaster recovery CDBG for a beneficiary is justified in keeping
with all associate laws and regulations. In such an instance, the
grantee should contact its CPD representative for guidance.
VII. Collecting a Duplication
If a potential duplication is discovered after CDBG disaster
recovery assistance has been provided, the grantee may reassess need at
that time. If additional need is not demonstrated, disaster recovery
funds should be recaptured to the extent they are in excess of the need
and duplicate other assistance received by the beneficiary for the same
purpose. However, it may depend on what funds were provided last.
Under the Stafford Act, a Federal agency that provides duplicative
funds must collect those funds. FEMA regulations at 44 CFR 206.191 set
forth a hierarchy of delivery that determines the order in which
beneficiaries should receive Federal assistance. This hierarchy is
based on which agency has the primary responsibility for providing
assistance following a disaster, not which agency actually delivers the
assistance first. As an example, in most situations, FEMA and SBA
assistance is provided to individuals before supplemental disaster
recovery CDBG assistance is able to be delivered. However, there may be
cases in which, prior to receiving FEMA or SBA assistance, an applicant
receives CDBG assistance for a purpose for which they are FEMA/SBA
eligible. In this latter case, subject to the agreement that the
grantee should have in place with the applicant, the applicant should
reimburse the grantee in an amount equal to all duplicative FEMA or SBA
funds subsequently received for purposes which CDBG funds were
initially used.
The regulations at 44 CFR 206.191(d) explain that a duplication of
benefits occurs when an agency provides assistance which was the
primary responsibility of another agency, and the agency with primary
responsibility later provides assistance. When the delivery sequence
has been disrupted, the disrupting agency is responsible for rectifying
the duplication.
Since CDBG disaster recovery provides long-term recovery assistance
via supplemental congressional appropriations, and falls lower in the
hierarchy of delivery than FEMA or SBA assistance, it is intended to
supplement rather than supplant these sources of assistance. If CDBG
disaster recovery funds or non-Federal funds were provided last and
unknowingly create a duplication, the method of recapturing the CDBG
funds, and the timeframe, are the responsibility of the grantee. HUD
has no set guidelines or regulations for this process. However, the
recapture method and timeframe should be consistent with OMB Circular
A-87 (2 CFR part 225) or other applicable cost principles, any relevant
guidance or handbook issued by the HUD Office of the Inspector General,
and the Stafford Act, which requires that duplicative assistance shall
be collected in accordance with chapter 37 of title 31, relating to
debt collection. HUD's CPD representatives are available to provide
guidance to grantees setting up or revising their duplication of
benefits policies and procedures.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance numbers for the disaster
recovery grants under this Notice are as follows: 14.218; 14.228.
Finding of No Significant Impact
A Finding of No Significant Impact (FONSI) with respect to the
environment has been made in accordance with HUD regulations at 24 CFR
part 50, which implement section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C. 4332). The FONSI is
available for public inspection between 8 a.m. and 5 p.m. weekdays in
the Regulations Division, Office of General Counsel, Department of
Housing and Urban Development, 451 7th Street SW., Room 10276,
Washington, DC 20410-0500. Due to security measures at the HUD
Headquarters building, an advance appointment to review the docket file
must be scheduled by calling the Regulations Division at (202) 708-3055
(this is not a toll-free number). Hearing or speech-impaired
individuals may access this number through TTY by calling the toll-free
Federal Relay Service at (800) 877-8339.
Dated: November 4, 2011.
Mercedes M. M[aacute]rquez,
Assistant Secretary for Community Planning and Development.
[FR Doc. 2011-29634 Filed 11-15-11; 8:45 am]
BILLING CODE 4210-67-P
