83 FR 50257 - Section 108 Loan Guarantee Program: Announcement of Fee to Cover Credit Subsidy Costs
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Federal Register Volume 83, Issue 194 (October 5, 2018)
Federal Register Volume 83, Issue 194 (October 5, 2018)
| Page Range | 50257-50258 | |
| FR Document | 2018-21686 |
[Federal Register Volume 83, Number 194 (Friday, October 5, 2018)] [Rules and Regulations] [Pages 50257-50258] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-21686] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Part 570 [Docket No. FR-6116-N-01] RIN 2506-AC35 Section 108 Loan Guarantee Program: Announcement of Fee to Cover Credit Subsidy Costs AGENCY: Office of the Assistant Secretary for Community Planning and Development, HUD. ACTION: Notification of fees. ----------------------------------------------------------------------- SUMMARY: This document announces the fee that HUD will collect from borrowers of loans guaranteed under HUD's Section 108 Loan Guarantee Program (Section 108 Program) to offset the credit subsidy costs of the guaranteed loans pursuant to commitments awarded in Fiscal Year 2019. DATES: Applicability date: November 5, 2018. FOR FURTHER INFORMATION CONTACT: Paul Webster, Director, Financial Management Division, Office of Block Grant Assistance, Office of Community Planning and Development, U.S. Department of Housing and Urban Development, 451 7th Street SW, Room 7160, Washington, DC 20410; telephone number 202-402-4563 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number through TTY by calling the toll-free Federal Relay Service at 800-877- 8339. FAX inquiries (but not comments) may be sent to Mr. Webster at 202-708-1798 (this is not a toll-free number). SUPPLEMENTARY INFORMATION: I. Background The Transportation, Housing and Urban Development, and Related Agencies Appropriations Act, 2015 (division K of Pub. L. 113-235, approved December 16, 2014) (2015 Appropriations Act) provided that ``the Secretary shall collect fees from borrowers . . . to result in a credit subsidy cost of zero for guaranteeing'' Section 108 loans. Identical language was continued or included in the Department's continuing resolutions and appropriations acts authorizing HUD to issue Section 108 loan guarantees during Fiscal Years (FYs) 2016, 2017, and 2018. The Fiscal Year (FY) 2019 HUD appropriations bills under consideration in the House of Representatives (H.R. 6072) and the Senate (S. 3023), also have identical language regarding the fees and credit subsidy cost for the Section 108 Program, and the 2018 provision is carried forward in the Continuing Appropriations Act, 2019 (Pub. L. 115-952, approved September 28, 2018). On November 3, 2015, HUD published a final rule (80 FR 67626) that amended the Section 108 Program regulations at 24 CFR part 570 to establish additional procedures, including procedures for announcing the amount of the fee each fiscal year when HUD is required to offset the credit subsidy costs to the Federal Government to guarantee Section 108 loans. For FYs 2016, 2017, and 2018, HUD issued documents to set the fees.\1\ --------------------------------------------------------------------------- \1\ 80 FR 67634 (November 3, 2015), 81 FR 68297 (October 4, 2016), and 82 FR 44518 (September 25, 2017) respectively. --------------------------------------------------------------------------- II. FY 2019 Fee: 2.23 Percent of the Principal Amount of the Loan This document sets the fee for Section 108 loan disbursements under loan guarantee commitments awarded for FY 2019 at 2.23 percent of the principal amount of the loan. HUD will collect this fee from borrowers of loans guaranteed under the Section 108 Program to offset the credit subsidy costs of the guaranteed loans pursuant to commitments awarded in FY 2019. For this fee document, HUD is not changing the underlying assumptions or creating new considerations for borrowers. The calculation of the FY 2019 fee uses a similar calculation model as the FY 2016, FY 2017, and FY 2018 final documents, but incorporates updated information regarding the composition of the Section 108 portfolio and the timing of the estimated future cash flows for defaults and recoveries. The calculation of the fee is also affected by the discount rates required to be used by HUD when calculating the present value of the future cash flows as part of the Federal budget process. [[Page 50258]] As described in 24 CFR 570.712(b), HUD's credit subsidy calculation is based on the amount required to reduce the credit subsidy cost to the Federal Government associated with making a Section 108 loan guarantee to the amount established by applicable appropriation acts. As a result, HUD's credit subsidy cost calculations incorporated assumptions based on: (1) Data on default frequency for municipal debt where such debt is comparable to loans in the Section 108 loan portfolio; (2) data on recovery rates on collateral security for comparable municipal debt; (3) the expected composition of the Section 108 portfolio by end users of the guaranteed loan funds (e.g., third- party borrowers and public entities); and (4) other factors that HUD determined were relevant to this calculation (e.g., assumptions as to loan disbursement and repayment patterns). Taking these factors into consideration, HUD determined that the fee for disbursements made under loan guarantee commitments awarded in FY 2019 will be 2.23 percent, which will be applied only at the time of loan disbursements. Note that future documents may provide for a combination of upfront and periodic fees for loan guarantee commitments awarded in future fiscal years but, if so, will provide the public an opportunity to comment if appropriate under 24 CFR 570.712(b)(2). The expected cost of a Section 108 loan guarantee is difficult to estimate using historical program data because there have been no defaults in the history of the program that required HUD to invoke its full faith and credit guarantee or use the credit subsidy reserved each year for future losses.\2\ This is due to a variety of factors, including the availability of Community Development Block Grant (CDBG) funds as security for HUD's guarantee as provided in 24 CFR 570.705(b). As authorized by Section 108 of the Housing and Community Development Act of 1974, as amended (42 U.S.C. 5308), borrowers may make payments on Section 108 loans using CDBG grant funds. Borrowers may also make Section 108 loan payments from other anticipated sources but continue to have CDBG funds available should they encounter shortfalls in the anticipated repayment source. Despite the program's history of no defaults, Federal credit budgeting principles require that the availability of CDBG funds to repay the guaranteed loans cannot be assumed in the development of the credit subsidy cost estimate (see 80 FR 67629, November 3, 2015). Thus, the estimate must incorporate the risk that alternative sources are used to repay the guaranteed loan in lieu of CDBG funds, and that those sources may be insufficient. Based on the rate that CDBG funds are used annually for repayment of loan guarantees, HUD's calculation of the credit subsidy cost must acknowledge the possibility of future defaults if those CDBG funds were not available. The fee of 2.23 percent of the principal amount of the loan will offset the expected cost to the Federal Government due to default, financing costs, and other relevant factors. To arrive at this measure, HUD analyzed data on comparable municipal debt over an extended period. The estimated rate is based on the default and recovery rates for general purpose municipal debt and industrial development bonds. The cumulative default rates on industrial development bonds were higher than the default rates on general purpose municipal debt during the period from which the data were taken. These two subsectors of municipal debt were chosen because their purposes and loan terms most closely resemble those of Section 108 guaranteed loans. --------------------------------------------------------------------------- \2\ U.S. Department of Housing and Urban Development, Study of HUD's Section 108 Loan Guarantee Program, (prepared by Econometrica, Inc. and The Urban Institute), September 2012, at pages 73-74. This fact has not changed since the issuance of this report. --------------------------------------------------------------------------- In this regard, Section 108 guaranteed loans can be broken down into two categories: (1) Loans that finance public infrastructure and activities to support subsidized housing (other than financing new construction) and (2) other development projects (e.g., retail, commercial, industrial). The 2.23 percent fee was derived by weighting the default and recovery data for general purpose municipal debt and the data for industrial development bonds according to the expected composition of the Section 108 portfolio by corresponding project type. Based on the dollar amount of Section 108 loan guarantee commitments awarded from FY 2013 through FY 2017, HUD expects that 35 percent of the Section 108 portfolio will be similar to general purpose municipal debt and 65 percent of the portfolio will be similar to industrial development bonds. In setting the fee at 2.23 percent of the principal amount of the guaranteed loan, HUD expects that the amount generated will fully offset the cost to the Federal Government associated with making guarantee commitments awarded in FY 2019. Note that the FY 2019 fee represents a 0.135 percent decrease from the FY 2018 fee of 2.365 percent. This document establishes a rate that does not constitute a development decision that affects the physical condition of specific project areas or building sites. Accordingly, under 24 CFR 50.19(c)(6), this document is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321). Dated: September 14, 2018. Neal Rackleff, Assistant Secretary for Community Planning and Development. [FR Doc. 2018-21686 Filed 10-4-18; 8:45 am] BILLING CODE 4210-67-P
![Federal Register / Vol. 83, No. 194 / Friday, October 5, 2018 / Rules and Regulations 50257
under Executive Order 12866; (2) is not and within a 6.6-mile radius of the airport Agencies Appropriations Act, 2015
a ‘‘significant rule’’ under DOT from the 115° bearing to the airport 164° (division K of Pub. L. 113–235,
Regulatory Policies and Procedures (44 bearing, and within a 4.1-mile radius of the approved December 16, 2014) (2015
airport from the airport 164° bearing to the
FR 11034; February 26, 1979); and (3) airport 230° bearing, and within a 6.6-mile
Appropriations Act) provided that ‘‘the
does not warrant preparation of a radius of the airport from the 230° bearing to Secretary shall collect fees from
regulatory evaluation as the anticipated the airport 290° bearing. This Class D borrowers . . . to result in a credit
impact is so minimal. Since this is a airspace area is effective during the specific subsidy cost of zero for guaranteeing’’
routine matter that only affects air traffic dates and times established in advance by a Section 108 loans. Identical language
procedures and air navigation, it is Notice to Airmen. The effective date and time was continued or included in the
certified that this rule, when will thereafter be continuously published in Department’s continuing resolutions
the Chart Supplement. and appropriations acts authorizing
promulgated, does not have a significant
economic impact on a substantial Issued in Seattle, Washington, on HUD to issue Section 108 loan
number of small entities under the September 28, 2018. guarantees during Fiscal Years (FYs)
criteria of the Regulatory Flexibility Act. Stephanie Harris, 2016, 2017, and 2018. The Fiscal Year
Acting Manager, Operations Support Group, (FY) 2019 HUD appropriations bills
Environmental Review Western Service Center. under consideration in the House of
The FAA has determined that this [FR Doc. 2018–21660 Filed 10–4–18; 8:45 am] Representatives (H.R. 6072) and the
action qualifies for categorical exclusion BILLING CODE 4910–13–P Senate (S. 3023), also have identical
under the National Environmental language regarding the fees and credit
Policy Act in accordance with FAA subsidy cost for the Section 108
Order 1050.1F, ‘‘Environmental DEPARTMENT OF HOUSING AND Program, and the 2018 provision is
Impacts: Policies and Procedures,’’ URBAN DEVELOPMENT carried forward in the Continuing
paragraph 5–6.5a. This airspace action Appropriations Act, 2019 (Pub. L. 115–
is not expected to cause any potentially 24 CFR Part 570 952, approved September 28, 2018).
significant environmental impacts, and On November 3, 2015, HUD
[Docket No. FR–6116–N–01]
no extraordinary circumstances exist published a final rule (80 FR 67626) that
that warrant preparation of an RIN 2506–AC35 amended the Section 108 Program
environmental assessment. regulations at 24 CFR part 570 to
Section 108 Loan Guarantee Program: establish additional procedures,
Lists of Subjects in 14 CFR Part 71 Announcement of Fee to Cover Credit including procedures for announcing
Airspace, Incorporation by reference, Subsidy Costs the amount of the fee each fiscal year
Navigation (air). when HUD is required to offset the
AGENCY: Office of the Assistant
Adoption of the Amendment Secretary for Community Planning and credit subsidy costs to the Federal
Development, HUD. Government to guarantee Section 108
In consideration of the foregoing, the
ACTION: Notification of fees. loans. For FYs 2016, 2017, and 2018,
Federal Aviation Administration
HUD issued documents to set the fees.1
amends 14 CFR part 71 as follows: SUMMARY: This document announces the
II. FY 2019 Fee: 2.23 Percent of the
PART 71—DESIGNATION OF CLASS A, fee that HUD will collect from
Principal Amount of the Loan
B, C, D, AND E AIRSPACE AREAS; AIR borrowers of loans guaranteed under
HUD’s Section 108 Loan Guarantee This document sets the fee for Section
TRAFFIC SERVICE ROUTES; AND
Program (Section 108 Program) to offset 108 loan disbursements under loan
REPORTING POINTS
the credit subsidy costs of the guarantee commitments awarded for FY
■ 1. The authority citation for part 71 guaranteed loans pursuant to 2019 at 2.23 percent of the principal
continues to read as follows: commitments awarded in Fiscal Year amount of the loan. HUD will collect
2019. this fee from borrowers of loans
Authority: 49 U.S.C. 106(f), 106(g); 40103,
40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR,
guaranteed under the Section 108
DATES: Applicability date: November 5,
1959–1963 Comp., p. 389. Program to offset the credit subsidy
2018.
costs of the guaranteed loans pursuant
§ 71.1 [Amended] FOR FURTHER INFORMATION CONTACT: Paul
to commitments awarded in FY 2019.
Webster, Director, Financial For this fee document, HUD is not
■ 2. The incorporation by reference in Management Division, Office of Block
14 CFR 71.1 of Federal Aviation changing the underlying assumptions or
Grant Assistance, Office of Community creating new considerations for
Administration Order 7400.11C, Planning and Development, U.S.
Airspace Designations and Reporting borrowers. The calculation of the FY
Department of Housing and Urban 2019 fee uses a similar calculation
Points, dated August 13, 2018, effective Development, 451 7th Street SW, Room
September 15, 2018, is amended as model as the FY 2016, FY 2017, and FY
7160, Washington, DC 20410; telephone 2018 final documents, but incorporates
follows: number 202–402–4563 (this is not a toll- updated information regarding the
Paragraph 5000 Class D Airspace. free number). Individuals with speech composition of the Section 108 portfolio
* * * * * or hearing impairments may access this and the timing of the estimated future
number through TTY by calling the toll- cash flows for defaults and recoveries.
ANM ID D Lewiston, ID [Amended]
free Federal Relay Service at 800–877– The calculation of the fee is also
Lewiston-Nez Perce County Airport, ID 8339. FAX inquiries (but not comments)
(Lat. 46°22′28″ N, long. 117°00′55″ W) affected by the discount rates required
daltland on DSKBBV9HB2PROD with RULES
may be sent to Mr. Webster at 202–708– to be used by HUD when calculating the
That airspace extending upward from the 1798 (this is not a toll-free number).
surface to and including 3,900 feet MSL present value of the future cash flows as
within a 4.1-mile radius from Lewiston-Nez SUPPLEMENTARY INFORMATION: part of the Federal budget process.
Perce County Airport clockwise from the I. Background
airport 290° bearing to the 066° bearing, and 1 80 FR 67634 (November 3, 2015), 81 FR 68297
within a 5.1-mile radius of the airport from The Transportation, Housing and (October 4, 2016), and 82 FR 44518 (September 25,
the 066° bearing to the airport 115° bearing Urban Development, and Related 2017) respectively.
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![50258 Federal Register / Vol. 83, No. 194 / Friday, October 5, 2018 / Rules and Regulations
As described in 24 CFR 570.712(b), the availability of CDBG funds to repay This document establishes a rate that
HUD’s credit subsidy calculation is the guaranteed loans cannot be assumed does not constitute a development
based on the amount required to reduce in the development of the credit subsidy decision that affects the physical
the credit subsidy cost to the Federal cost estimate (see 80 FR 67629, condition of specific project areas or
Government associated with making a November 3, 2015). Thus, the estimate building sites. Accordingly, under 24
Section 108 loan guarantee to the must incorporate the risk that CFR 50.19(c)(6), this document is
amount established by applicable alternative sources are used to repay the categorically excluded from
appropriation acts. As a result, HUD’s guaranteed loan in lieu of CDBG funds, environmental review under the
credit subsidy cost calculations and that those sources may be National Environmental Policy Act of
incorporated assumptions based on: (1) insufficient. Based on the rate that 1969 (42 U.S.C. 4321).
Data on default frequency for municipal CDBG funds are used annually for Dated: September 14, 2018.
debt where such debt is comparable to repayment of loan guarantees, HUD’s Neal Rackleff,
loans in the Section 108 loan portfolio; calculation of the credit subsidy cost
(2) data on recovery rates on collateral Assistant Secretary for Community Planning
must acknowledge the possibility of and Development.
security for comparable municipal debt; future defaults if those CDBG funds
[FR Doc. 2018–21686 Filed 10–4–18; 8:45 am]
(3) the expected composition of the were not available. The fee of 2.23
Section 108 portfolio by end users of the percent of the principal amount of the BILLING CODE 4210–67–P
guaranteed loan funds (e.g., third-party loan will offset the expected cost to the
borrowers and public entities); and (4) Federal Government due to default,
other factors that HUD determined were financing costs, and other relevant
relevant to this calculation (e.g., DEPARTMENT OF THE TREASURY
factors. To arrive at this measure, HUD
assumptions as to loan disbursement analyzed data on comparable municipal Internal Revenue Service
and repayment patterns). debt over an extended period. The
Taking these factors into estimated rate is based on the default
consideration, HUD determined that the 26 CFR Part 1
and recovery rates for general purpose
fee for disbursements made under loan municipal debt and industrial
guarantee commitments awarded in FY [TD 9787]
development bonds. The cumulative
2019 will be 2.23 percent, which will be default rates on industrial development
applied only at the time of loan bonds were higher than the default rates RIN 1545–BK29
disbursements. Note that future on general purpose municipal debt
documents may provide for a during the period from which the data Section 707 Regarding Disguised
combination of upfront and periodic were taken. These two subsectors of Sales, Generally; Correction
fees for loan guarantee commitments municipal debt were chosen because
awarded in future fiscal years but, if so, AGENCY: Internal Revenue Service (IRS),
their purposes and loan terms most Treasury.
will provide the public an opportunity closely resemble those of Section 108
to comment if appropriate under 24 CFR ACTION: Correcting amendment.
guaranteed loans.
570.712(b)(2).
The expected cost of a Section 108 In this regard, Section 108 guaranteed SUMMARY: This document contains
loan guarantee is difficult to estimate loans can be broken down into two corrections to final regulations (TD
using historical program data because categories: (1) Loans that finance public 9787) that were published in the
there have been no defaults in the infrastructure and activities to support Federal Register on Wednesday,
history of the program that required subsidized housing (other than October 5, 2016. The final regulations
HUD to invoke its full faith and credit financing new construction) and (2) are under sections 707 and 752 of the
guarantee or use the credit subsidy other development projects (e.g., retail, Internal Revenue Code.
reserved each year for future losses.2 commercial, industrial). The 2.23
DATES: This correction is effective
This is due to a variety of factors, percent fee was derived by weighting
October 5, 2018 and is applicable on
including the availability of Community the default and recovery data for general
and after October 5, 2016.
Development Block Grant (CDBG) funds purpose municipal debt and the data for
industrial development bonds according FOR FURTHER INFORMATION CONTACT:
as security for HUD’s guarantee as
provided in 24 CFR 570.705(b). As to the expected composition of the Deane M. Burke or Caroline E. Hay at
authorized by Section 108 of the Section 108 portfolio by corresponding (202) 317–5279 (not a toll-free number).
Housing and Community Development project type. Based on the dollar amount SUPPLEMENTARY INFORMATION:
Act of 1974, as amended (42 U.S.C. of Section 108 loan guarantee
Background
5308), borrowers may make payments commitments awarded from FY 2013
on Section 108 loans using CDBG grant through FY 2017, HUD expects that 35 The final regulations (TD 9787),
funds. Borrowers may also make Section percent of the Section 108 portfolio will published October 5, 2016 (81 FR
108 loan payments from other be similar to general purpose municipal 69291), that are the subject of this
anticipated sources but continue to have debt and 65 percent of the portfolio will correction are under sections 707 and
CDBG funds available should they be similar to industrial development 752 of the Internal Revenue Code.
encounter shortfalls in the anticipated bonds. In setting the fee at 2.23 percent
Need for Correction
repayment source. Despite the of the principal amount of the
program’s history of no defaults, Federal guaranteed loan, HUD expects that the As published, the final regulations
amount generated will fully offset the (TD 9787) contain an error that may
daltland on DSKBBV9HB2PROD with RULES
credit budgeting principles require that
cost to the Federal Government prove to be misleading and are in need
2 U.S. Department of Housing and Urban associated with making guarantee of clarification.
Development, Study of HUD’s Section 108 Loan commitments awarded in FY 2019. Note
Guarantee Program, (prepared by Econometrica, Inc. List of Subjects in 26 CFR Part 1
and The Urban Institute), September 2012, at pages
that the FY 2019 fee represents a 0.135
73–74. This fact has not changed since the issuance percent decrease from the FY 2018 fee Income taxes, Reporting and
of this report. of 2.365 percent. recordkeeping requirements.
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Document Created: 2018-10-05 01:52:19
Document Modified: 2018-10-05 01:52:19
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Notification of fees. | |
| Dates | Applicability date: November 5, 2018. | |
| Contact | Paul Webster, Director, Financial Management Division, Office of Block Grant Assistance, Office of Community Planning and Development, U.S. Department of Housing and Urban Development, 451 7th Street SW, Room 7160, Washington, DC 20410; telephone number 202-402-4563 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number through TTY by calling the toll-free Federal Relay Service at 800-877- 8339. FAX inquiries (but not comments) may be sent to Mr. Webster at 202-708-1798 (this is not a toll-free number). | |
| FR Citation | 83 FR 50257 | |
| RIN Number | 2506-AC35 |
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