California Code of Regulations
Title 25 - Housing and Community Development
Division 1 - Housing and Community Development
Chapter 7 - Department of Housing and Community Development Programs
Subchapter 2 - State Community Development Block Grant Program
Article 2 - Application Process
Section 7062.1 - Special Allocation for Economic Development

Universal Citation: 25 CA Code of Regs 7062.1

Current through Register 2024 Notice Reg. No. 38, September 20, 2024

(a) The Department shall set aside from the total amount available from HUD, for grants to cities and counties an amount equal to thirty percent (30%) for the activities specified in this section. Applications submitted under this section must comply with all the requirements of this subchapter except where noted in this section. Economic Development Allocation funds shall be awarded through the NOFA process for eligible activities listed in Section 7058 and 7062.1)(a)(1).

(1) Activities eligible for funding under the Economic Development Allocation are those activities which are subject to the Standards for Evaluating Public Benefits set forth in subsection (f) of 24 CFR Section 570.482. Eligible activities shall also meet a national objective as specified in Section 104(b)(3) of the Act (42 U.S.C. Sec. 5304(b)(3)) and 24 CFR Section 570.483. The Department shall utilize Section 105(a) of the Act (42 U.S.C. Sec. 5305(a)), 24 CFR Section 570.482, and Subpart C of Part 570 of the federal CDBG regulations commencing with Section 570.200, for guidance in determining the eligibility of activities proposed under this section. Where CDBG funds are used for public improvements (e.g., water, sewer or road improvements) the national objective shall be met pursuant to 24 CFR Section 570.483.

(2) In order to be eligible for funding from the Enterprise Fund as set forth in subsection (b) or the ED OTC as set forth in subsection (c), with the exception of assistance to microenterprises, a project or activity (hereinafter collectively referred to as an "activity") shall be capable of generating sufficient public benefit relative to the amount of CDBG assistance provided as required by the Act. The Department, with respect to activities funded from the ED OTC, and Grantees with respect to activities funded with Enterprise Funds, shall utilize the federal standards specified at 24 CFR Section 570.484(f) to determine whether sufficient public benefit will be generated by a proposed activity.

(3) Prior to the funding of any activity from either the Enterprise Fund or the ED OTC, the activity shall be underwritten to ensure that:

(i) the activity's costs are reasonable;

(ii) that all sources of activity financing are committed;

(iii) that to the extent practicable, CDBG funds are not substituted for non-Federal financial support;

(iv) that the activity is financially feasible;

(v) that to the extent practicable, the return on the owner's equity investment will not be unreasonably high; and

(vi) that to the extent practicable, CDBG funds are disbursed on a pro rata basis with other finances provided to the activity. Activities shall be underwritten by the Department, with respect to activities funded from the ED OTC, and by Grantees with respect to activities funded with Enterprise Funds, utilizing the federal Guidelines and Objectives for Evaluating Project Costs and Financial Requirements set forth as Appendix A to 24 CFR Part 570.

(4) A activity funded from the Enterprise Fund or the ED OTC shall be reevaluated by the Department or grantee pursuant to subsections (a)(2) and (a)(3) of this Section if the underlying assumptions relied upon by the Department or the Enterprise Fund grant recipient in making its original funding decision materially change. A "material change", for these purposes, means:

(1) a change in the size, scope, location or public benefit of the activity; or

(2) a change in the terms or the amount of the private funds (including lender's funds and equity capital) to be invested in the activity; or

(3) a change in the terms or the amount of the CDBG assistance to be made available to the activity. If a material change has occurred and a reevaluation of the activity indicates that the financial elements and public benefit to be derived have also changed, then appropriate adjustments in the amount, the type of CDBG assistance and/or the terms and conditions under which that assistance has been offered shall be made to reflect the impact of the material change.

(5) In the event that an activity funded under the Enterprise Fund or ED OTC fails to meet a federal national objective or state or federal eligibility requirement, at the Department's discretion, a Grantee may be required to repay all or a portion of the grant amount from a non-federal source of revenue, and/or may be required to return all or part of any program income received from the CDBG-assisted activity to the Department. In determining the appropriate remedy, the Department shall, at a minimum, consider the following factors:

(1) actions taken by the Grantee to avoid the adverse circumstances in the first place;

(2) actions taken by the Grantee to mitigate the circumstances once the problem was discovered; and

(3) timeliness of steps taken to protect and/or recover CDBG funds. Failure by a Grantee to comply with any requirements or written instructions issued by the Department pursuant to this subsection shall be considered a failure by the Grantee to resolve any "audit findings or performance problems" and point deductions may be applied to subsequent applications at the time those applications are scored.

(6) Funding maximums from the Economic Development Enterprise Fund Allocation and the Planning Component shall be as set forth in Health and Safety Code Section 50832 subdivision (a) and Section 50833 subdivisions (a) and (b). The Department may waive the eight hundred thousand dollar ($800,000) and five hundred thousand dollar ($500,000) limitations for the Economic Development Allocation after September 1 of each year. Pursuant to Health and Safety Code 50834(c) all funds awarded to the Department from HUD, must be awarded within the Funding Cycle. If not awarded by the end of the Funding Cycle, the funds shall no longer be available for Economic Development activities. The Department may allocate funds between the Enterprise funds and OTC as set forth in the NOFA. The NOFA will announce open and close dates for the ED OTC. These dates will be in compliance with encumbrance regulations at 24 CFR 570.494 and Health & Safety Code Section 50834(c).

(7) All Economic Development Allocation funds returned, disencumbered or paid to the State in the form of program income ("returned funds") shall be made available to fund current-year applications to the Enterprise Fund or the ED OTC.

(8) Grants to eligible local governments may be passed through to qualified organizations chartered to perform economic development activities.

(9) Notwithstanding any other provision of this Section, the Director may alter the order applications are reviewed for applicants requesting funds for an urgent need such as an imminent plant closure, an emergency recognized by the State. The Director's decision to alter the order an application is reviewed shall be in writing and made part of the application file.

(b) Enterprise Fund. Economic Development Allocation funds set aside for use pursuant to this subsection shall be known as the Enterprise Fund (Enterprise Fund). The purpose of the Enterprise Fund is to provide a source of funds to establish or enhance local revolving loan fund programs.

(1) Al least seventy (70) days prior to the due date for applications, the Department shall notify all eligible cities and counties of the anticipated level of funding for the Enterprise Fund through a Notice of Funding Availability (NOFA) and the deadline for receipt of applications. The Department shall also make available application forms and a training manual which will provide eligible applicants with a consistent format for presenting proposals, information on proposal review factors, and guidance on program policies that may affect an applicant's program design.

(2) Two activities are eligible under the Enterprise Fund. The first is Business Assistance activities under HUD's Special Economic Development Activities under section 105(a)(14), 105(a)(15), and 105(a)(17) of the Housing and Community Development Act of 1974. The second is Micro Enterprise Assistance activities under section (105(a)(22). All Business assistance activities must meet the HUD public benefit standard of job creation or retention under the Statutes covering Special Economic Development Activities referenced above. Business Assistance program activities must also meet the HUD national objective of benefit to TIG persons by mandating 51% of jobs created under public benefit standard be made available to low income persons. No public benefit requirement will apply to Micro Enterprise Assistance program activities. All Micro Enterprise Assistance programs must meet the HUD definition of micro enterprise size (five or fewer employees) and also meet the national objective of benefit to low income beneficiaries by restricting the program to low income micro business owners.

(3) The maximum Enterprise Fund grant award to a single applicant in a program year shall not exceed $500,000, except as specified at 7062.1(a)(6). The Director may establish a lower maximum award through each year's NOFA. A decision to reduce the maximum award shall be based upon the relative demand for Enterprise Fund grants and OTC Component funds during the previous year and the total Economic Development Allocation funds available.

(4) Activities which are eligible for funding from a local revolving loan fund include, but are not limited to: construction loans; new equipment purchase loans; working capital loans; land acquisition loans; loan guarantees; loans for privately owned on-site improvements; grants for public off-site sewer, water and road improvements; and assistance to microenterprises.

(5) Except for assistance to micro enterprises, the cost-per-job created or retained for a grantee's activities proposed for funding from the Enterprise Fund shall not exceed $35,000 in CDBG funds, per job created or retained for each activity. Any activity funded under this component shall meet the standards for public benefit set forth in subsection (f) of 24 CFR Section 570.482.

(6) Allocation Review Procedures and Evaluation Criteria.

(A) Each eligible applicant shall submit an original and two (2) copies of its application to the Department by the application deadline specified in the NOFA. Applications submitted by mail shall be received no later than the deadline. Applications delivered to the Department must be date stamped by the Department prior to 5 P.M. on the due date.

(B) Within thirty (30) days of receipt of an incomplete application, the Department shall return the application to the applicant with a written explanation of the reasons why the application is incomplete.

(C) The Department shall complete the ranking of applications pursuant to the evaluation criteria described in Section 7078(d)(6), within eighty (80) days from the application deadline. Applicants shall be notified in writing of point scores, fund reservations and any adjustments necessary to comply with national objective or eligibility requirements. The Department may condition its award of funds in order to achieve the purposes of this subchapter and to ensure compliance with applicable State and federal requirements.

(D) Successful applicants shall receive a reservation of Enterprise Funds equal to the approved grant amount. These reserved funds shall be held by the Department pending drawdown requests for specific eligible activities.

(7) A Grantee's unused Enterprise Fund grant funds shall be disencumbered thirty-six months after grant agreement execution. The Department may waive this provision in writing if it determines that compelling circumstances warrant the waiver. For purposes of this subsection only, for activities of $50,000 or less, funds shall be considered "unused" if not approved by the local loan committee for disbursement as a loan to a specified borrower; for activities over $50,000, funds shall be considered unused if the Department has not yet received complete documentation, as determined by the Department, of the proposed borrower's eligibility.

(c) Over-the-Counter Component. Economic Development Allocation funds not allocated to either the Enterprise Fund or the Planning Component shall be made available for award pursuant to this subsection (c), which shall be known as the "Economic Development Over-the Counter-Component" or "ED OTC". Through the ED OTC, the Department shall provide grants to eligible cities and counties to: make loans to employers for an identified CDBG-eligible activity, provided the loan will result in the creation or retention of permanent jobs; or to construct infrastructure improvements which are necessary to accommodate the creation, expansion or retention of a business that will create or retain jobs.

(1) Through a notice of funding availability ("NOFA"), each program year the Department shall notify all eligible cities and counties of the anticipated level of funding for the OTC Component. OTC Component applications shall be accepted on a continuous basis.

(2) Awards from the OTC Component to a single city or county in a single program year shall not exceed $3,000,000, regardless of the number of applications.

(3) Notwithstanding Section 7064(c), two or more applicants may submit a joint application for an OTC Component award. The maximum award for a joint application may not exceed the limit set in 7062.1(c)(2).

(4) All applications will be accepted on a first-come, first-served basis. The Department will use the tiebreaker process as determined in the HUD Annual Plan pursuant to the procedures set forth under Section 7078 if more applications than can be funded are received by the Department on the same day.

(5) All application evaluation criteria are subject to Sections 7070, 7076 and 7078.

(6) In order to be considered complete, an application shall contain the information requested in the NOFA, and such other information as necessary for the Department to evaluate the application using the points and rating factors set forth in subsection (c)(4) of this section and the following information as appropriate:

(A) If an applicant contains a description or analysis which includes quantified information, the source of the information, and the method of computation shall be described. If the Department determines that the method of computation leads to conclusions which are inaccurate or misleading, it may, after consultation with the applicant, adjust the method of computation or the conclusions during the evaluation process.

(B) Evidence that activities proposed for funding meet one of the national objectives specified under Section 7056(b)(3) and detailed under 24 CFR Section 570.483.

(C) If an applicant asserts that an activity will meet the national objective of principally benefitting the TIG, the application shall include a description of the means of verification which the applicant will use to determine the number and income of those households actually benefitting from the program.

(D) A schedule demonstrating that any new jobs that will be generated by the program will be available within 24 months of execution of the grant agreement by the Department.

(E) For off-site public improvement activities, the application shall document the following: how the activity meets the national objective and public benefit requirements specified in 24 CFR Section 570.482(f); that the applicant has negotiated with the businesses and other beneficiaries that will be served by these improvements and obtained an appropriate funding contribution towards the cost of the improvements; and how the activity meets the requirements of paragraphs (2) and (3) of subsection (a) of this Section.

(7) The Department shall review applications based on order of receipt. Within thirty (30) days of receipt of an incomplete application, the Department shall notify the applicant in writing of the reasons why the application is incomplete.

(8) Within 60 days of the date an application is determined to be complete, the Department shall review the application for compliance with state and federal program requirements and provide the applicant, in writing, the Department's decision to approve or deny funding for the application. Applications eligible for funding shall be funded in order of receipt of a complete application.

(9) In making funding decisions, the Department shall first evaluate the application using the following factors and points as threshold criteria. To pass threshold, an application must score at least 50 points.

Factor Points

(A) Percent of county-wide unemployment relative to the Statewide average (A maximum of twenty-five points).

(B) Ratio of CDBG funds per job -- maximum ratio of $35,000 per job created or retained (A maximum of fifteen points).

(D) Quality of applicant's past performance for CDBG economic development contracts (A maximum of fifteen points).

(E) Percent of funds allocated to applicant's general administrative costs (for this purpose, general administrative costs do not include funds budgeted for planning studies). (A maximum of ten points).

(10) Applications which have received 50 or more points shall be reviewed for funding using the following factors:

(A) the extent of the applicant's need for CDBG funds,

(B) the market feasibility of the proposed activities,

(D) the financial feasibility of the proposed activities. (In analyzing this factor, the Department may determine that an activity is feasible even though other funding sources have not committed their funding to an activity. If the application documents the terms and conditions that will be offered by the other funding sources, then the Department may conditionally commit to funding. This commitment of funding by the Department shall be conditioned upon the final commitment from the other funding sources.),

(E) the capacity of the applicant and its borrower, subcontractors or subgrantees to manage the proposed activities,

(F) the appropriateness of the terms proposed by the applicant, given the documented needs of the business and given the amount of public benefit in the form of job creation or job retention that will result from the CDBG-assisted activity,

(G) the status of the ownership or control of any real estate needed for the proposed activities,

(H) the extent to which the proposed activities involve intrastate relocation of jobs or business, and

(I) the extent of recruitment, training and promotional opportunities for targeted income groups.

(d) Planning and Technical Assistance Component. Through the Planning and Technical Assistance Component ("Planning Component"), eligible cities and counties may apply for, and the Department may award, grants for economic development planning and technical assistance activities. Pursuant to Health and Safety Code 50833 no single city or county shall receive more than two grants. Two or more applicants which share a planning program may submit a joint application. The maximum award for a joint application shall not be more than the maximum grant amount as set for in the NOFA.

(1) Application Procedures and Evaluation Criteria. Each program year, the Department shall notify all eligible cities and counties of the anticipated level of funding for the Planning Component and the earliest date for submitting applications through a notice of funding availability ("NOFA"). The Department shall review Planning Component applications to determine if they meet minimum program eligibility and cash match requirements. Department shall notify applicants, in writing, within 60 days of receipt of a complete application of the Department's funding determination. To be eligible for funding consideration, an application must meet the following requirements:

(A) The funding request shall contain all the information required in the NOFA and shall contain a certified resolution adopted by the governing body of the eligible jurisdiction documenting the availability of the cash match;

(B) The funding request shall be for an eligible activity and must meet a national objective as specified in 24 CFR Section 570.483; and

(C) If funds will be used to provide direct assistance to an identified business, the activity shall be considered to be technical assistance to a private, for-profit business and the application must include a letter from the benefitted business which:

(i) explains why the benefitting business is unable to provide funding for the activity; and

(ii) conditionally commits the business to proceeding with the activities which are the subject of the CDBG grant.

1. New section filed 1-19-84; effective upon filing pursuant to Government Code section 11346.2(d) (Register 84, No. 3).
2. Repealer filed 2-22-85; effective upon filing pursuant to Government Code section 11346.2(d) (Register 85, No. 9).
3. Amendment filed 3-4-87; effective upon filing pursuant to Government Code section 11346.2(d) (Register 87, No. 10).
4. Amendment filed 8-26-92 as an emergency; operative 8-26-92 (Register 92, No. 35). A Certificate of Compliance must be transmitted to OAL 12-24-92 or emergency language will be repealed by operation of law on the following day.
5. Amendment refiled 12-28-92 as an emergency; operative 12-28-92 (Register 93, No. 1). A Certificate of Compliance must be transmitted to OAL 4-27-93 or emergency language will be repealed by operation of law on the following day.
6. Amendment refiled 4-23-93 as an emergency, including additional amendments to subsections (d) and (e)(4); operative 4-27-93 (Register 93, No. 17). A Certificate of Compliance must be transmitted to OAL 8-25-93 or emergency language will be repealed by operation of law on the following day.
7. Amendment refiled 8-23-93 as an emergency, including additional amendment of subsection (d); operative 8-23-93 (Register 93, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-21-93 or emergency language will be repealed by operation of law on the following day.
8. Editorial correction of HISTORY 6 (Register 93, No. 35).
9. Certificate of Compliance as to 8-23-93 order transmitted to OAL 9-16-93; disapproved by OAL and order of repeal as to 8-23-93 order issued on 10-29-93 pursuant to Government Code section 11349.6(d) (Register 94, No. 16).
10. Amendment of section filed 4-20-94; operative 4-20-94 (Register 94, No. 16).
11. Amendment of section and NOTE filed 11-8-95; operative 11-8-95 pursuant to Government Code section 11343.4(d) (Register 96, No. 48).
12. Amendment of subsections (b)(2), (b)(5)(A)-(B) and (d)(3) filed 4-26-2002; operative 4-26-2002 pursuant to Government Code section 11343.4 (Register 2002, No. 17).
13. Amendment of subsection (a)(6) filed 4-25-2005; operative 5-25-2005 (Register 2005, No. 17).
14. Amendment filed 8-13-2012; operative 8-13-2012 pursuant to Government Code section 11343.4 (Register 2012, No. 33).

Note: Authority cited: Sections 50406(h) and 50406(n), Health and Safety Code; and 24 CFR 570.489(b). Reference: Sections 50406, 50407, 50832, 50833 and 50834, Health and Safety Code; 42 U.S.C. 5304(b)(3), 42 U.S.C. 5305(a) and 42 USC 5306(d)(2) and (3); 24 CFR 570.482, 570.483, 570.489 and 570.493.

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