Notice of Neighborhood Stabilization Program; Changes to Closeout Requirements Related to Program Income Amendment, 48165-48168 [2019-19708]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 84, Number 177 (Thursday, September 12, 2019)]
[Notices]
[Pages 48165-48168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19708]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6170-N-01]


Notice of Neighborhood Stabilization Program; Changes to Closeout 
Requirements Related to Program Income Amendment

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

ACTION: Notice.

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SUMMARY: This notice describes changes to closeout requirements applied 
to, and additional regulations waived for, grantees receiving grants in 
the three rounds of funding under the Neighborhood Stabilization 
Program, who are also grantees in the Community Development Block Grant 
(CDBG) program.

DATES: Applicable Date: September 12, 2019.

FOR FURTHER INFORMATION CONTACT: Jessie Handforth Kome, Acting 
Director, Office of Block Grant Assistance, Office of Community 
Planning and Development, Department of Housing and Urban Development, 
451 Seventh Street SW, Room 7282, Washington, DC 20410; telephone 
number 202-708-3587 (this is not a toll-free number). Persons with 
hearing or speech impairments may access this number via TTY by calling 
the Federal Relay at 800-877-8339 (this is a toll-free number).

SUPPLEMENTARY INFORMATION:

I. Background

    The Neighborhood Stabilization Program (NSP) was established by 
Division B, Title III of the Housing and Economic Recovery Act of 2008 
(HERA) (Pub. L. 110-289, approved July 30, 2008), for the stabilization 
of communities that have suffered from residential foreclosures and 
abandonment. As established by HERA, NSP provided grants to all states 
and selected local governments on a formula basis. The American 
Recovery and Reinvestment Act of 2009 (Recovery Act) (division A, title 
XII of Pub. L. 111-5, approved February 17, 2009) authorized additional 
NSP grants to be awarded to states, local governments, nonprofits and a 
consortium of nonprofit entities, but on a competitive basis. The 
Recovery Act also authorized funding for national and local technical 
assistance providers to support NSP grantees. The Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Dodd-Frank Act) (Pub. L. 
111-203, approved July 21, 2010) authorized a third round of NSP grants 
to all states and select units of general local governments (UGLG) on a 
formula basis.
    The purpose of the funds awarded under the three rounds of NSP is 
to target the stabilization of neighborhoods negatively affected by 
residential properties that have been foreclosed upon or abandoned. The 
Notice of Formula Allocations and Program Requirements for Neighborhood 
Stabilization Program Formula Grants, published October 19, 2010 (75 FR 
64322) (``Unified NSP Notice''), as amended, provides further 
background for these programs, the program principles, and the 
objectives and outcomes of the NSP program. The Notice of Neighborhood 
Stabilization Program; Closeout Requirements and Recapture (Closeout 
Notice), published November 27, 2012 (77 FR 70799), as amended, amended 
the Unified NSP Notice by adding grant closeout and related provisions. 
In addition, the Notice of Funding Availability (NOFA) for the 
Neighborhood Stabilization Program 2 Under the American Recovery and 
Reinvestment Act, 2009, 74 FR 21377 (May 7, 2009), as amended by 
subsequent notices (``NSP2 NOFA''), includes requirements specific to 
the competitive round of funding under the Recovery Act.

II. This Notice

    The primary purpose of this Notice is to hasten the expenditure of 
remaining grant funds to facilitate closeout of all open NSP grants, 
given that most originally planned program activities are at or near 
completion. To facilitate that purpose, this notice eliminates the 
requirement that NSP2 and NSP3 grantees must use the HUD Foreclosure 
Need website to identify new target areas before using NSP funds. It 
also provides additional guidance related to NSP program income, as 
well as encourages the use of existing Community Development Block 
Grant formula funds to leverage investments in targeted areas.

Targeting New Areas of Need

    For all three rounds of NSP, HERA required that grantees give 
priority emphasis to geographic areas of greatest need. To implement 
this requirement, HUD developed a Foreclosure Need website and mapping 
tools and required NSP2 and NSP3 grantees to use the HUD data to 
identify target areas with an individual or average combined index 
score of not less than lesser of 17 or the 20th percentile most needy 
score in an individual state. NSP1 grantees were encouraged, but not 
required, to use the HUD data. Because the program has expended 98% of 
the $8.639 billion in grant funds and program income, HUD is no longer 
updating the Foreclosure Need websites and mapping tools. Moreover, HUD 
has observed that grantees have largely served their identified areas 
of greatest need.
    In identifying new target areas, HUD supports the ability of NSP 
grantees to use these funds in Opportunity Zones. Created by the 2017 
Tax Cut and Jobs Act, the Opportunity Zone tax incentives are designed 
to stimulate private investment in designated, low-income census tracts 
and allows individuals and companies to invest equity in real estate 
projects or in businesses in these communities. It does so by enabling 
them to temporarily defer and reduce their tax liability on investments 
in privately- or publicly managed Qualified Opportunity Funds. These 
Qualified Opportunity Funds must invest funds in real estate projects 
or businesses located in designated Opportunity Zones. Moreover, if 
investors leave their investments in these funds long-term, the profits 
they make on their Qualified Opportunity Fund investments will not be 
taxed. Since the passage of the law, Opportunity Zones (OZ) have been 
designated in all 50 states, the District of Columbia, Puerto Rico, and 
in Insular Areas. The number of census tracts in a State that were 
eligible for designation as Opportunity Zones could not have exceeded 
25 percent of the number of census tracts in the State that are ``low-
income communities'' (LIC).
    Census tracts were eligible for designation as Opportunity Zones if 
they satisfied the definition of a ``low-income community'' per Sec.  
45D(e) of the Internal Revenue Code. The term ``low-income community'' 
means any

[[Page 48166]]

population census tract where: (a) The poverty rate for such tract is 
at least 20 percent, or (b)(i) in the case of a tract not located 
within a metropolitan area, the median family income for such tract 
does not exceed 80 percent of statewide median family income, or 
(b)(ii) in the case of a tract located within a metropolitan area, the 
median family income for such tract does not exceed 80 percent of the 
greater of statewide median family income or the metropolitan area 
median family income. For grantees who are familiar with using New 
Market Tax Credits (NMTC) as a source for community development 
finance, these eligibility criteria are the same as the requirements 
necessary to qualify for NMTC. It is worth noting that some non-LIC 
tracts were also eligible for Opportunity Zone designation if certain 
additional criteria were met.
    HUD notes that, with the target area changes allowed by this 
Notice, grantees have a unique chance to leverage Qualified Opportunity 
Zone Fund capital with NSP funds, along with other HUD funding 
including CDBG formula funds and Section 108 Loan Guarantees, to 
accelerate activities in Opportunity Zones. HUD will publish further 
guidance which will provide additional information related to how 
program funds can be combined to reinforce these strategies.
    In the interim, when considering strategies to facilitate the use 
of NSP and CDBG funds in Opportunity Zones, HUD encourages grantees to 
explore whether these zones would also qualify as Neighborhood 
Revitalization Strategy Areas (NRSAs) under CPD Notice 16-16. Through 
the designation of NRSAs, compliance with certain HUD requirements can 
be streamlined to make it more feasible for grantees and their partners 
to leverage CDBG and Section 108 funds more quickly in Opportunity 
Zones.
    To effectuate these changes, HUD is amending the Unified NSP Notice 
and the NSP2 NOFA to eliminate the requirement that NSP2 and NSP3 
grantees use the HUD Foreclosure Need website. Instead, HUD is 
requiring that grantees meet the statutory requirement to give priority 
emphasis and consideration to areas with the greatest need when 
distributing NSP funds. Given that HERA only requires priority emphasis 
and consideration and HUD's observation that grantees have largely 
served their areas of greatest need, HUD presumes that most, if not 
all, grantees will now be able to serve other areas within their 
jurisdiction.
    NSP1 and NSP3 grantees amending their NSP Action Plan substantial 
amendments or abbreviated plans or NSP2 grantees amending their NSP2 
applications to serve areas other than those that were previously 
identified as areas of greatest need must describe the nature and 
extent of the need for neighborhood stabilization in the amendment, as 
set forth in the requirements below. NSP grantees may identify new 
target areas using local data such as vacancies, home sales, 
employment, assessments of single and multi-family housing needs, 
realtor information, etc. The amendment should identify the factors 
used to select the new target area and the grantee should retain in its 
files all the raw data used to identify the new target area. NSP1 and 
NSP3 grantees must amend their plans in accordance with 24 CFR part 91. 
NSP2 grantees must submit any amendments to the field office to forward 
to HUD Headquarters for review and approval.

NSP Program Income Transfers

    This Notice also informs grantees of HUD's authority to cancel 
unexpended grant balances and permits NSP grantees to transfer streams 
of program income, including future streams of program income, from NSP 
to the CDBG program with a single written HUD-approved request.
    There are 195 NSP1 grantees and 152 NSP3 grantees that have 
unexpended grant funds totaling over $150 million in their lines of 
credit. This occurred because program income must be spent prior to 
using grant funds, and many communities earned significant amounts of 
program income. With few exceptions, grantees met their expenditure 
deadlines and have expended an additional $1.8B in program income. An 
additional $240,000,000 in program income has not yet been expended. 
These communities do not wish to return the NSP funds because needs 
still remain, often outside the areas identified as areas of greatest 
need using HUD data. HUD urges grantees to complete eligible NSP 
activities and close out the remainder of their grants but recognizes 
that grantees have few or no properties that are eligible to be 
assisted with NSP funds in their identified target areas.
    On June 14, 2016, HUD amended the Closeout Notice to allow the 
transfer of NSP program income to an open CDBG formula entitlement 
grant or a unit of general local government recipient of a grant from a 
state. HUD made this allowance to enable grantees to expend remaining 
grant funds by moving program income out of the NSP program. The June 
14, 2016 Notice permitted transfers of program income on hand. This 
Notice expands that flexibility to include transfers of a future stream 
of program income from an activity, eliminating the need for multiple 
written requests to transfer program income that is anticipated but has 
not yet been received.

Potential for Recapture of Unused Grant Funds

    In addition, to ensure that NSP grantees expend their grant 
balances expeditiously, HUD is reminding them that failure to draw 
funds from the line of credit (whether obligated or unobligated) for 
two consecutive fiscal years may result in HUD determining that need 
for the funds no longer exists, cancelling the line of credit, and 
proceeding to grant closeout in accordance with 31 U.S.C. 1555.
    Except as described in this notice and previous notices governing 
NSP, statutory and regulatory provisions governing the CDBG program, 
including those at 24 CFR part 570 subpart I for states or, for CDBG 
units of general local government, including those at 24 CFR part 570 
subparts A, C, D, J, K, and 0, as appropriate, apply to the use of 
these funds. The State of Hawaii was allocated funds and will be 
subject to part 570, subpart I, as modified by this notice and previous 
notices governing NSP.

III. Alternative Requirement and Regulatory Waivers

    1. Section II of the Unified NSP Notice is amended to eliminate 
paragraphs II.B.2.a.i and II.B.2.a.ii, including the undesignated 
paragraph added to that section by Federal Register Notice, at 78 FR 
29771-29772, and Paragraph II.B.2.b.iii is revised to read:

    ``b. Information by activity describing how the grantee will use 
the funds, identifying:
    i. The areas of greatest need addressed by the activity or 
activities or if addressing other areas, the nature and extent for 
neighborhood stabilization, including the local housing market, 
credit, and employment needs contributing to the decline, in the 
other areas;''

    Section II of the NSP2 NOFA is amended to eliminate paragraph 
II.B.8 and all references that paragraph. Paragraph IV.A.1.a. is 
revised to read:

    ``You must identify the specific geography in which you will 
carry out your NSP2 Program, giving priority emphasis and 
consideration to areas of greatest need. If you are carrying out 
NSP2 activities in other areas, you must identify the nature and 
extent of need for neighborhood stabilization in the other areas. At 
a minimum, the narrative for this factor must address local housing 
market, credit, and employment

[[Page 48167]]

needs that are contributing to decline of the targeted geography.''

    2. Section N of the Unified NSP Notice and section N of Appendix I 
of the NSP2 NOFA are amended by revising paragraph 4 of each to read as 
follows:

    ``4. Transfer of Program Income Before Closeout. With the 
exception of a nonprofit NSP grantee, an NSP grantee may transfer 
un-obligated NSP program income at any time before closeout to its 
annual CDBG program, or, if it is an UGLG that is also a State CDBG 
grant recipient with an open grant, to its State CDBG program using 
a single written request to HUD. In addition, a State grantee may 
transfer un-obligated NSP program income before closeout to any 
annual CDBG-funded activities carried out by a UGLG or Indian tribe 
within the State using a single written request to HUD.
    Transferred NSP program income will become CDBG program income 
upon receipt in the Integrated Disbursement and Information System 
(IDIS). Prior to carrying out a transfer, the grantee must submit a 
written request for approval to the local HUD field office to 
transfer un-obligated NSP funds to CDBG, as prescribed by HUD. 
Grantees may transfer: (1) The amount of unobligated program income 
on hand; (2) amounts of any expected un-obligated NSP program income 
to be received; (3) an unknown amount of future program income from 
a specific NSP activity or activities; or (4) a combination of the 
above. The grantee must also provide the grant number and activity 
number associated with the NSP activity(ies) that generated or will 
generate the program income and the name(s) of the CDBG program 
grantee (or UGLG recipient, if appropriate) to which the funds will 
transfer. The request must include: (a) Proof that the grantee has 
reconciled its own financial records with the Disaster Recovery 
Grant Reporting system (DRGR) and (b) an analysis documenting 
compliance or expected compliance, as established by HUD, with the 
requirement at subparagraph E.2.e of the Unified NSP Notice, 75 FR 
64331, for NSP1 and NSP3 grantees, and subparagraph E.2.e of 
Appendix I of the NSP2 NOFA for NSP2 grantees, which requires not 
less than 25 percent of any NSP funds to be used to house 
individuals or families with incomes at or below 50 percent of area 
median income (LH25).
    HUD will review the request for approval and documentation 
provided against the records in DRGR to ensure that the grantee is 
only transferring un-obligated (on-hand) program income or program 
income expected to be received from identified NSP activities, and 
that the LH25 requirement has been or will be met.
    After HUD approval, if NSP program income funds have already 
been receipted in DRGR, the grantee must first revise the DRGR 
submission to subtract the amounts receipted there prior to 
receipting any transferred amounts in IDIS.
    Further, the grantee must print and maintain a record of the 
transfer(s). Finally, the grantee is to email its local HUD field 
office notifying it that transfer has been completed and provide the 
IDIS program income receipt. The transferred NSP program income 
funds are not considered to be CDBG funds until they have been 
documented in IDIS.
    Upon transfer, all program income must be used and reported on 
in accordance with CDBG program requirements. In addition, the 
grantee must note in its current NSP quarterly or annual (if grant 
has been closed out) performance report the following information:
     HUD approval of the transfer;
     Date of the approval;
     Amount of program income on hand and amount of any 
expected program income to be received that will be transferred; and
     Activity number that generated or will generate the NSP 
program income. Any NSP program income that is not transferred and 
receipted in IDIS will retain its NSP characteristics and 
requirements in accordance with published notices governing NSP.

    3. Section X of the Unified NSP Notice is amended to add the 
following language at the end of the paragraph:

    ``Note that NSP I and NSP3 grant funds are subject to 31 U.S.C. 
1555, which states, ``An appropriation account available for 
obligation for an indefinite period shall be closed, and any 
remaining balance (whether obligated or unobligated) in that account 
shall be canceled and thereafter shall not be available for 
obligation or expenditure for any purpose, if (1) the head of the 
agency concerned or the President determines that the purposes for 
which the appropriation was made have been carried out; and (2) no 
disbursement has been made against the appropriation for two 
consecutive fiscal years.''

    4. Under the ``Background'' subheading in section Z of the Unified 
NSP Notice, the Program Income paragraphs are amended to read as 
follows:

    ``Program Income. NSP program income received at the time of or 
after closeout may be transferred to an annual CDBG program as 
provided in section N and transferred funds will become CDBG program 
income upon receipt in IDIS (such receipt in IDIS will be subsequent 
to edits to remove receipt of the funds in DRGR, if such receipt was 
already entered). Upon transfer, CDBG program income will be subject 
to all CDBG statutory and regulatory requirements for program 
income.
    Any NSP program income not transferred to CDBG shall, subject to 
the de minimis exception provided for in section Y of the NSP 
Closeout Notice, continue to be used in accordance with NSP 
requirements. If annual NSP program income does not exceed $25,000, 
the funds shall be used for general administrative costs related to 
ensuring continued affordability of NSP units or added to the 
grantee's CDBG program income receipts and the CDBG requirements at 
24 CFR 570.500(a)(4) shall apply, which may exclude such amounts 
from the definition of program income. Funds not transferred to CDBG 
will retain NSP characteristics and be subject to NSP requirements, 
so the additional flexibility created by the legislation for the 
creation of financing mechanisms, development of new housing, 
operation of land banks, and service of families up to 120 percent 
of Area Median Income (AMI), will remain in place. However, HUD 
notes that continued acquisition of new land bank property after 
closeout with NSP program income could undermine the urgency of 
finding uses for the properties already acquired. Grantees will be 
required to allocate not less than 25 percent of NSP program income 
to housing for families with incomes at or below 50 percent of AMI 
when the amount of annual program income received by a grantee is 
sufficient to make application of this requirement reasonable. HUD 
has defined this amount as $250,000 in section Y of the NSP Closeout 
Notice.
    After grant closeout, former NSP grantees that are CDBG 
entitlements or States will report at least annually as provided for 
by HUD on the receipt and use of NSP program income, and on the 
disposition of land-banked properties. These grantees must also 
include NSP program income in the annual CDBG Action Plan or 
substantial amendment in accordance with CDBG requirements. All 
former NSP grantees, including nonprofits and non-entitlement units 
of general local government receiving funds directly from HUD, must 
report at least annually in a form acceptable to the Secretary 
regarding enforcement of any NSP continuing affordability 
restrictions. Reporting will continue over the course of the minimum 
period of affordability set forth in HOME program standards at 24 
CFR 92.252 (e) and 92.254(a)(4).
    Finally, most program income will be received by CDBG 
entitlement cities and counties, and by states, which have systems 
and procedures to manage NSP revenues, which are treated in most 
respects like CDBG revenues. However, NSP2 nonprofit grantees and/or 
nonprofit consortium members in NSP2 grant consortia that receive 
revenues generated by NSP projects will not have access to the state 
and municipal CDBG tracking systems. Further, the CDBG regulations 
and Office of Management and Budget (OMB) circular implemented at 24 
CFR 84.24(e) or 2 CFR 200.307(f), as applicable, do not require that 
nonprofit grantees continue to treat revenues generated from use of 
NSP funds and received after grant closeout as federal funds unless 
HUD regulations or the terms and conditions of the award provide 
otherwise. Thus, for NSP2 grantees that are not direct formula CDBG 
grantees (nonprofits and non-entitlement local governments, 
including those that are part of a consortium), HUD is requiring 
that revenues generated by projects funded before closeout but 
received within 5 years after grant closeout must be used for NSP-
eligible activities and meet NSP benefit requirements, but no other 
federal requirements would apply. With the exception of income 
earned from the sale of NSP-assisted real property or loans, any 
income earned by such post-closeout use of funds would not be 
governed by any NSP requirements and would be miscellaneous 
revenues, although HUD

[[Page 48168]]

encourages such grantees to apply NSP principles to subsequent uses 
of the funds.

    5. The paragraphs in section Z under the ``Requirements'' 
subheading, are amended to read as follows:

    ``Transfer of Program Income After Closeout.
    1. Program Income. Gross revenues received by NSP grantees after 
closeout will be governed by the following requirements:
    i. After requesting approval from the local HUD field office in 
writing, as set forth in paragraph N.4, and receiving prior written 
approval, the grantee may receipt the amounts to IDIS (after first 
revising any DRGR entries related to the funds) and add them to the 
grantee's CDBG program income receipts and all relevant CDBG program 
income requirements shall then apply. HUD will review and approve or 
deny a transfer consistent with paragraph N.4. Grantees must also 
provide proof of the program income transfer and submit information 
in their performance report as set forth in paragraph N.4.
    ii. If the amounts are not receipted in IDIS, annual amounts of 
program income in excess of $25,000 shall be used in accordance with 
all NSP requirements for eligible NSP properties, uses, and 
activities, including new construction, financing mechanisms, and 
management and disposition of land bank property.
    b. If annual NSP program income does not exceed $25,000, the 
funds shall be used for general administrative costs related to 
ensuring continued affordability of NSP units or added to the 
grantee's CDBG program income receipts and the CDBG requirements at 
24 CFR 570.500(a)(4) shall apply, which may exclude such amounts 
from the definition of program income.
    c. NSP program income may provide benefit to individuals and 
families with incomes up to 120 percent of AMI as permitted in NSP 
under section II.E;
    d. If a grantee's annual NSP program income exceeds $250,000 
(after any transfer of program income to CDBG), 25 percent of the 
program income shall be used to house individuals or families at or 
below 50 percent of AMI; in instances in which a grantee's annual 
NSP program income does not exceed $250,000, the requirements of 
paragraph II.E.2.e do not apply.
    e. NSP2 grantees that are not CDBG entitlement communities or 
States must use post-closeout revenues generated from NSP-assisted 
activities that were funded before closeout for NSP purposes. If the 
grantee does not have another ongoing CDBG grant received directly 
from HUD at the time of closeout, then in accordance with 24 CFR 
570.504(b)(5), income received after closeout from the disposition 
of real property or from loans outstanding at the time of closeout 
shall not be governed by NSP or CDBG rules, except that such income 
shall be used for activities that meet one of the national 
objectives in 24 CFR 570.208 and the eligibility requirements 
described in section 105 of the HCD Act. The provisions of 24 CFR 
570.504(b)(5) are waived to limit its application to income received 
within 5 years of grant closeout. Any income received 5 years after 
grant closeout, as well as program income from funds outlaid after 
the date of the closeout agreement may be used without restriction. 
Such grantees are encouraged to use such funds in accordance with 
the principles above.
    f. States may continue to act directly to implement NSP 
activities post-closeout.
    g. HUD will provide direction to grantees by the date of 
closeout on procedures for reporting and tracking NSP program income 
revenues. Tracking will continue in DRGR until IDIS enhancements to 
allow NSP property registry and program income tracking are 
developed and released.''

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for grants made 
under NSP are as follows: 14.218; 14.225; and 14.228.

Paperwork Reduction Act

    HUD has approval from OMB for information collection requirements 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520). OMB approval is under OMB control number 2506-0165, 2506-0185, 
2506-0117, and 2506-0193. In accordance with the Paperwork Reduction 
Act, HUD may not conduct, or sponsor and a person is not required to 
respond to, a collection of information, unless the collection displays 
a valid control number.

Environmental Review

    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(2)(C)). The FONSI is 
available for public inspection between the hours of 8 a.m. and 5 p.m. 
weekdays in the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 Seventh Street SW, 
Room 10276, Washington, DC 20410. Due to security measures at the HUD 
Headquarters building, please schedule an appointment to review the 
FONSI by calling the Regulations Division at 202-708-3055 (this is not 
a toll-free number). Individuals with speech or hearing impairments may 
access this number via TTY by calling the Federal Relay at 800-877-8339 
(this is a toll-free number).

    Dated: August 30, 2019.
David C. Woll, Jr.,
Principal Deputy Assistant Secretary for Community Planning and 
Development.
[FR Doc. 2019-19708 Filed 9-11-19; 8:45 am]
BILLING CODE 4210-67-P