81 FR 38730 - Notice of Neighborhood Stabilization Program; Changes to Closeout Requirements Related to Program Income

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Federal Register Volume 81, Issue 114 (June 14, 2016)

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

[Federal Register Volume 81, Number 114 (Tuesday, June 14, 2016)]
[Notices]
[Pages 38730-38732]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-14062]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5933-N-01]


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

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 
under the three rounds of funding under the Neighborhood Stabilization 
Program who are also grantees under the Community Development Block 
Grant (CDBG) program.

DATES: Effective Date: June 14, 2016.

FOR FURTHER INFORMATION CONTACT: Stanley Gimont, Director, Office of 
Block Grant Assistance, Office of Community Planning and Development, 
Department of Housing and Urban Development, 451 Seventh Street SW., 
Room 7286, 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 Service at 1-
800-877-8339.

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 purpose of 
stabilizing communities that have suffered from 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) (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 Neighborhood 
Stabilization grants to all states and select local governments 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 
properties that have been foreclosed upon and abandoned. The notice, 
Notice of Formula Allocations and Program Requirements for Neighborhood 
Stabilization Program Formula Grants, published October 19, 2010 (75 FR 
64322) (``Unified NSP Notice''), 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), amended the Unified Notice by adding 
grant closeout and related provisions. In addition, the Notice of Fund 
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 revise requirements set 
forth in the amended Unified NSP Notice and the Closeout Notice to 
revise the treatment of program income for all three rounds of NSP by 
allowing NSP program income received by a CDBG recipient to be 
transferred by the recipient from the NSP program to the CDBG program. 
After the transfer is carried out, any transferred program income will 
be subject to the CDBG program income regulations. Following 
publication of this notice, HUD will update the issued NSP closeout 
instructions (Notice CPD 14-02) to conform the instructions for 
consideration of program income during and after closeout of NSP 
grants.
    The Closeout Notice generally required that with the exception of 
de minimis amounts received after grant closeout, program income 
generated by NSP-assisted activities must continue to be used for NSP 
uses. In attempting to implement this requirement, HUD has become aware 
that it is, in many instances, administratively unworkable for NSP 
grantees and difficult for HUD to oversee effectively. For NSP grantees 
that are generating a substantial amount of program income, the 
requirement to use this program income prior to drawing additional 
funds from the grant's line of credit is also impeding their ability to 
completely expend their NSP grant funds. Further, some grantees no 
longer have an adequate pool of NSP-eligible foreclosed or abandoned 
properties in their target areas although they do have other needs that 
CDBG funding could be used to address. On HUD's part, with dwindling 
administrative resources remaining from those provided for the NSP 
program, the inability to achieve the criteria for grant closeout for 
these grantees creates a looming oversight issue.
    Several NSP grantees have asked that HUD reconsider the NSP program 
income requirements and allow the same flexibility for the NSP program 
income as is currently allowed for the CDBG Disaster Recovery (CDBG-DR) 
grants under Public Law 113-2. These requirements allow a grantee to 
transfer CDBG-DR program income received prior to grant closeout to the 
recipient's CDBG program. HUD agrees that this solution addresses the 
issues identified above and so this notice will provide the same 
flexibility to any NSP grantee that is also a CDBG grantee (entitlement 
or state) with an open formula entitlement grant or a unit of general 
local government (UGLG) recipient of a CDBG grant from a state. HUD 
will not allow transfer of NSP program income to the CDBG program if 
the transfer will result in the NSP grantee failing to meet the 
statutory NSP 25 percent set-aside requirement for low-income housing. 
To prevent such a failure, the grantee must obtain HUD approval by 
notifying HUD in writing prior to a transfer of program income from NSP 
to CDBG to permit HUD's review of compliance with the NSP 25 percent 
requirement. HUD will notify the grantee of any possible issues. Based 
on the data available, HUD anticipates that issues of this sort will be 
uncommon.
    Since this notice applies to grantees receiving grants under any of 
the three rounds of NSP funding, the terms NSP1, NSP2 or NSP3 are used 
to describe each of the three funding rounds. When referring to the 
grants, grantees, assisted activities, and implementation rules under 
HERA, this notice will use the term ``NSP1.'' When referring to the 
grants, grantees, assisted activities, and implementation rules under 
the

[[Page 38731]]

Recovery Act, this notice will use the term ``NSP2.'' When referring to 
the grants, grantees, assisted activities, and implementation rules 
under the Dodd-Frank Act, this notice will use the term ``NSP3.'' 
Collectively, the grants, grantees, assisted activities, and 
implementation rules under these three rounds of funding are referred 
to as NSP. NSP is a component of the CDBG program, authorized under the 
Housing and Community Development Act of 1974 (HCD Act) (42 U.S.C. 5301 
et seq.).

III. Authority To Provide Alternative Requirements and Grant Regulatory 
Waivers

    HERA appropriated $3.92 billion for emergency assistance for 
redevelopment of abandoned and foreclosed homes and residential 
properties, and provides under a rule of construction that, unless HERA 
states otherwise, the funds are to be treated as CDBG funds. HERA, the 
Recovery Act, and the Dodd-Frank Act authorize the Secretary of HUD to 
specify alternative requirements to any provision under Title I of the 
HCD Act except for requirements related to fair housing, 
nondiscrimination, labor standards, and the environment. Any 
alternative requirements must be in accordance with the terms of 
section 2301 of HERA and for the sole purpose of expediting for NSP1 or 
facilitating the NSP2 or NSP3 use of grant funds. The CDBG requirements 
will apply to NSP funds except where this or other published notices 
supersede or amend such requirements.
    This Notice amends an existing alternative requirement by allowing 
an NSP grantee that is also a CDBG formula grantee or a State CDBG UGLG 
grant recipient to transfer NSP program income to the CDBG program 
rather than limiting the use of such program income to NSP purposes 
before, at, and after grant closeout. 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 entitlement communities, 
including those at 24 CFR part 570, subparts A, C, D, J, K, and O, 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.

IV. Alternative Requirements and Regulatory Waivers

    1. Section N of the Unified NSP Notice and section N of Appendix I 
of the NSP2 NOFA is amended to add a new subparagraph 4, as follows:
    ``4. An NSP grantee may transfer NSP program income at any time 
before, at the time of, or after closeout to its annual CDBG program, 
or, if it is an UGLG that is also a State CDBG grant recipient, to its 
State CDBG program. In addition, a State grantee may transfer NSP 
program income before or at closeout to any annual CDBG-funded 
activities carried out by a UGLG or Indian tribe within the State. 
Program income generated by an NSP-assisted activity and received by a 
CDBG grantee, or received and retained by a CDBG subgrantee, after 
closeout of the grant that generated the program income, may also be 
transferred to a grantee's annual CDBG award. 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 notify HUD in writing of the amount of 
program income on hand to be transferred, the grant number and activity 
number associated with the NSP activity that generated the program 
income, and the name of the CDBG program grantee (or subgrantee, if 
appropriate) to which the funds will transfer. On receipt of a 
notification, HUD will review NSP grant information reported in the 
Disaster Recovery Grant Reporting System (DRGR) for the applicable 
grant to ensure the grantee is in compliance with the requirement at 
paragraph E.2.e of the Unified Notice, 75 FR 64331, for NSP1 and NSP3 
grantees, and Appendix I of the NSP2 NOFA for NSP2 grantees, and only 
approve the transfer if use of NSP funds remaining after the transfer 
will comply with this requirement. 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. Subsequent 
to transfer, all transferred program income must be treated 
(documented, receipted in IDIS, used, and reported on) in accordance 
with CDBG program requirements. Any NSP program income that is not 
receipted in IDIS will retain its NSP characteristics and requirements 
in accordance with published notices governing NSP.''
    2. Section Y(c)(3)(i) of the Unified NSP Notice is amended to read 
as follows:
    ``Any NSP program income on deposit in financial institutions at 
the time the closeout agreement is signed and any NSP program income 
currently held by subrecipients or consortium members, together with 
the amounts of any NSP program income that have been transferred to the 
CDBG program of the grantee or a specified UGLG recipient prior to 
execution of the closeout agreement.''
    3. 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 before, 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, continue to be used 
in accordance with NSP requirements. The un-transferred funds 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 25 percent of 
NSP program income to housing for families with less than 50 percent of 
AMI when the amount of annual program income received by a grantee is 
sufficient to make application of this requirement reasonable. After 
grant closeout, former NSP grantees that are CDBG entitlements or State 
governments will report at least annually as provided for by HUD, 
initially in DRGR and later in an enhanced IDIS, on the receipt and use 
of NSP program income, and 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 
nonentitlement 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

[[Page 38732]]

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, non-profit 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 regulation 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 non-profit 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 (non-profits 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 
encourages such grantees to apply NSP principles to subsequent uses of 
the funds.''
    4. The paragraphs in section Z under the ``Requirements'' 
subheading are amended to read as follows:
``Requirements
    ``1. Program Income. Gross revenues received by NSP grantees after 
closeout will be governed by the following requirements:
    ``a.i. After notifying HUD in writing 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 approve a transfer 
unless the transfer would result in non-compliance with the requirement 
at 75 FR 64331, paragraph E.2.e based on the use of the NSP funds that 
would remain after transfer.
    ``a.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 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 funded before closeout for NSP purposes. If the grantee does 
not have another ongoing 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. 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 Service, toll 
free, at 1-800-877-8339.

    Dated: May 16, 2016.
Harriet Tregoning,
Principal Deputy Assistant Secretary for Community Planning and 
Development.
[FR Doc. 2016-14062 Filed 6-13-16; 8:45 am]
 BILLING CODE 4210-67-P