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CDFA Spotlight:
U.S. Department of Housing and Urban Development (HUD) Financing Programs
By CDFA Staff Writers |
The U.S. Department of Housing and Urban Development (HUD) can trace its roots back to the U.S. Housing Act of 1937, however, the Department of Housing and Urban Development Act of 1965 propelled HUD to a Cabinet-level agency to develop and execute housing and urban policy.
The mission of HUD is “to increase homeownership, eliminating chronic homelessness, support community development and increase access to affordable housing free from discrimination.” (Source: U.S. Department of Housing and Urban Development, http://www.hud.gov/library/bookshelf12/hudmission.cfm, accessed March 2007).
Today, HUD plays a significant role in sustaining and revitalizing our nation’s communities. Year after year, HUD provides resources to improve economic conditions and infrastructure in distressed communities. Efforts have enabled millions of individuals and families to become homeowners or obtain safe, affordable rental housing. HUD also continues to strengthen its partnerships with federal agencies, state and local governments and private sector organizations whether they are for-profit, non-profit, faith-based or community–based.
HUD offers a host of programs to help foster community and economic development. These programs include:
- Community Development Block Grant (CDBG)
- Brownfield Economic Development Initiative (BEDI)
- Rural Housing and Economic Development (RHED)
Community Development Block Grant Program (CDBG)
The Community Development Block Grant (CDBG) program is HUD’s flagship program. Block grant programs provide large chunks of federal funding to state and local governments with few strings and general provisions attached. This system allows for creative solutions to local programs to develop. The CDBG program is no different. The CDBG program provides resources for communities to address a wide variety of needs. The CDBG program attempts to provide access to services to the most vulnerable in the community as well as ensure residents have access to affordable housing options. The CDBG provides annual funding grant to over 1,100 local governments and states based on a formula. Here are some of the CDBG programs.
- Entitlement Communities
- State Administered CDBG
- Section 108 Loan Guarantee Program
- HUD Administered Small Cities
- Insular Areas
- Disaster Recovery Assistance
- Renewal Communities/Empowerment Zones/Enterprise Communities (RC/EZ/EC)
There are two main CDBG funding mechanisms, “non-entitlement” and “entitlement” communities. Those receiving funding under the “entitlement” funding formula are communities comprised of a central core of cities within a Metropolitan Statistical Area (MSA). To qualify as a MSA, the core city must have a population of 50,000 and located in an urban county with 200,000 or more residents (excluding those within the core city). States distribute CDBG funds to local communities who do not qualify as entitlement communities. The amount of funding each communities receives is based on a formula made of several indicators including community need, population, housing crowding, age of housing stock, population growth in comparison to other communities among other factors.
A grantee must develop and follow a detailed plan that encourages citizen participation
- Emphasis on participation by low- or moderate-income persons
- Provide reasonable and timely access to local meetings
- Opportunity to review proposed activities and performance
- Provide written complaints and grievances
- Identify needs of non-English speaking residents
Eligible activities from the National Objectives include:
- Benefit low- or moderate-income persons
- Prevention or elimination of slums or blight
- Address community development needs where conditions pose a threat to health or welfare of community
Eligible Activities
- Acquisition of real property
- Relocation and demolition
- Rehabilitation of residential and non-residential structures
- Construction of public facilities and improvements
- Public services
- Activities related to energy conservation and renewable energy sources
- Provision of assistance to profit motivated businesses to carry out economic development and job creation/retention activities
Ineligible Activities
- Acquisition, construction, or reconstruction of buildings for general conduct of government
- Political activities
- Income Payments
- Construction of new housing by units of general local government
Requirements
- Grantee must develop and submit Consolidation Plan to identify goals of program
Citizen Participation
- Provide citizens with reasonable and timely access to local meetings, information, and records related to grantees used of funds
For more information on the CDBG program, visit HUD’s CDBG program Web site at http://www.hud.gov/offices/cpd/communitydevelopment/programs/index.cfm
Here are some of the programs that fall under the CDBG umbrella of programs.
Section 108 Loan Guarantee Program
The Section 108 Loan Guarantee Program provides communities with a source of funding to address economic development, housing rehabilitation, public facilities as well as large-scale physical development projects. The Section 108 Loan program allows a community to turn part of their CDBG grant funding into a guarantee loan program, allowing a community to stimulate economic revitalization in an area. The Section 108 Loan Program is paired with two other HUD programs including the Economic Development Initiative (EDI) or the Brownfield Economic Development Initiative.
Eligible Applicants
- Metropolitan cities and urban counties
- Non-entitlement communities assisted in submission of apps by States that administer CDBG
- Non-entitlement community’s eligible to receive CDBG funds under Small Cities CDBG program
Eligible activities for Section 108 funding
- Acquisition of property
- Rehabilitation of publicly owned real property
- Housing rehabilitation eligible under CDBG
- Construction, reconstruction, or installation of public facilities
- Related relocation, clearance, and site improvements
- Payment of interest on the guaranteed loan and issuance costs of public offerings
- Debt service reserves
- Public works and site improvements in Colonias
Maximum Commitment Amount
- Entitlement public entities. Entitlement public entity may apply for up to five (5) times the public entity’s latest approved CDBG entitlement amount minus any outstanding balance
- State assisted public entities. Non-entitlement public entity may apply for five times amount of latest approved CDBG amount minus any outstanding balance
- Non-entitlement public entities eligible under HUD administered Small Cities Program. For a public entity in Hawaii, the maximum commitment amount is five times the public entity's latest grant under 24 CFR 570, Subpart F, minus any outstanding Section 108 commitments and/or principal balances on Section 108 loans.
Security
- Principal security is a pledge by applicant or State of its current and future CDBG funds
Repayment
- Maximum repayment period is 20 years
- HUD has the ability to structure the principal amortization to match needs of project and borrower
Financing Source
- Obligations are financed through written public offerings through an interim lending facility
Interest Rates
- Priced at 3 month LIBO rate plus 20 basis points (.2%)
- Permanent financing based on yields on U.S. Treasury
Default
- No defaults on record currently
- In the event of a default requiring payment, HUD continues to make payments
Disaster Recovery Assistance Program
Communities located within a Presidentially declared disaster areas are eligible for Disaster Recover Assistance. Under this HUD program communities have a number of options to promote disaster recovery including, redirect previously awarded grants to focus on recovery efforts, promote the expedition of grant awards for programs start dates adjusted, as well as waive regulatory program requirements. HUD also works with the Federal Emergency Management Agency (FEMA) and the U.S. Small Business Administration (SBA) expedites recovery assistance.
For more information on Disaster Recovery Assistance through HUD, please visit their Web site at http://www.hud.gov/offices/cpd/communitydevelopment/programs/dri/
Colonias
The Colonias program allows Texas, Arizona, California and New Mexico to set-a-side up to 10 percent of State CDBG funds for use in the in colonias. Colonias is the Spanish word for community or neighborhood. The Office of the Secretary of State defines a “colonias” as a residential area along the Mexican border that may lack some of the most basic living necessities, such as potable water, adequate sewer systems, electricity, paved roads and as well as a housing shortage. The set-aside may be used to fund CDBG activities targeted to meet the needs of the colonias that are covered as part of the CDBG program.
Renewal Community/Empowerment Zone
The Community Renewal Initiative program gives distressed communities hope for the future through economic and social renewal and innovative approaches to revitalization. These programs bring communities together through public and private partnerships to attract economic and community development investment.
Renewal Community Incentives (RC)
The Renewal Community Incentives offer more than $5.6 billion to eligible businesses of all sizes to encourage businesses to open, grow and hire local workers. The RC program offers a host of incentives to help encourage business development including tax credits, workforce credits, tax deductions and bond investment incentives.
Empowerment Zones (EZ)
Similar to the RC incentive programs, the EZ program targets small to mid size businesses located within a defined geographic area. The EZ program encourages businesses to open, expand and hire local residents in a targeted area through a mix of incentives including employment tax credits, low-interest loan through EZ facility bond sale proceeds and deductions.
View RC/EZ/EC’s by state: http://www.hud.gov/offices/cpd/economicdevelopment/programs/rc/tour/index.cfm
View designated 40 Urban and Rural Renewal Communities: http://www.hud.gov/news/releasedocs/rcinitiative.cfm
Brownfields Economic Development Initiative (BEDI)
HUD’s Brownfield Economic Development Initiative (BEDI) provides competitive grants to spur the redevelopment of brownfields. Brownfield refers to industrial or commercial sites that are underused or idle and where expansion and redeveloped is hindered by real or perceived environmental contamination. The BEDI program is used in conjunction with Section 108 Loan Guarantee program. Consistent with the HUD mission the BEDI program aims at increasing economic opportunities for low- and moderate-income people.
Eligible Applicants
- Include both CDBG entitlement communities and non-entitlement communities
- A request for a new Section 108 loan guarantee must accompany each BEDI application
Rating Factors of Applicants
- Capacity of applicant and relative organizational experience
- Need and extent of problem
- Soundness of approach
- Leveraging Resources
- Achieving program results and evaluation
CDBG National Objectives
- Benefit low and moderate income persons
- Prevent or eliminate slums or blight
- Address imminent threats and urgent community needs
Uses of BEDI Grant Funds
- Land write-downs
- Site remediation costs
- Funding reserves
- Over-collateralizing the Section 108 Loan
- Direct enhancement of the security of the Section 108 Loan
- Provisions of financing to for-profit businesses at below market interest rate
For more information on the BEDI program, visit HUD’s Web site at http://www.hud.gov/offices/cpd/economicdevelopment/programs/bedi/index.cfm
Rural Housing and Economic Development (RHED)
The purpose of the Rural Housing and Economic Development (RHED) program is to provide grants to meet rural communities’ housing and economic development needs. It is capacity building at the state and local level encouraging new and innovative approaches in serving the housing and economic development activities in rural areas.
HUD defines a rural area using the following 5 criteria:
- Place with fewer than 2,500 inhabitants
- County or parish with urban population of 20,000 or less
- Territory, persons, or housing units in the rural portion of “extended cities”
- Open country that is not part of or associated with urban area
- Any place with a population not in excess of 20,000 and not located in MSA
Applicant Eligibility
- Local rural nonprofit organizations
- Community Development Corporations (CDC)
- Federally recognized Indian tribes
- State housing finance agencies
- State/Community economic development agencies
Rating Factors of Applicants
- Capacity of applicant and relative organizational experience
- Need and extent of problem
- Soundness of approach
- Leveraging Resources
- Achieving program results and evaluation
(Source: U.S. Department of Housing and Urban Development. Web site accessed April 17, 2007. http://www.hud.gov/offices/cpd/economicdevelopment/programs/rhed/)
Funds are available in two categories:
1.) Capacity building and support for innovative housing and economic development activities, which will enhance existing organizations to carry out new functions and/or perform more effectively. Maximum award amount is $150,000.
Eligible activities include:
- Hiring and training staff
- Purchasing software and other tools
- Obtaining expertise from outside sources
- Developing an accounting system
- Conducting asset inventories
- Developing strategic plans
- Seeking technical assistance
- Improving management capability
- Purchasing or leasing office space
2.) Support for innovative housing and economic development activities. Maximum award amount $400,000.
Eligible activities include:
- Preparation of plans
- Architectural drawings
- Acquisition of land and buildings
- Demolition
- Provision of infrastructure
- Purchase of materials and construction costs
- Use of local labor markets
Additional Resources
The U.S. Department of Housing and Urban Development: http://www.hud.gov
HUD Strategic Plan for 2006-2011: http://www.hud.gov/offices/cfo/reports/hud_strat_plan_2006-2011.pdf
HUD Programs: http://www.huduser.org/resources/hudprgs/ProgOfHUD06.pdf
Empowerment Zones Tax Tips: http://www.hud.gov/offices/cpd/economicdevelopment/library/taxincentivesez.pdf
Renewal Communities Tax Tips: http://www.hud.gov/offices/cpd/economicdevelopment/library/taxincentivesrc.pdf
This article is intended to provide accurate and authoritative information in regard to the subject matter covered. The author and CDFA are not herein engaged in rendering legal, accounting or other professional services, nor does it intend that the material included herein be relied upon to the exclusion of outside counsel. CDFA is not responsible for the accuracy of the information provided in this fact sheet. The information provided has been collected from a variety of sources. Those seeking to conduct complex financial deals using the tools mentioned in this document are encouraged to seek the advice of a skilled legal/consulting professional.
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