EDA Agenda 08-12-2015EDA MEETING
Wednesday, August 12th, 2015
6:00 p.m.
Mississippi Room - 505 Walnut Street, Monticello, MN
Commissioners: President Bill Demeules, Vice President Bill Tapper, Treasurer Tracy
Hinz, James Davidson, Steve Johnson and Council members Tom Perrault and Lloyd Hilgart
Staff: Executive Director Jeff O'Neill, Angela Schumann, Wayne Oberg
1. Call to Order.
2. Roll Call.
3. Approve Meeting Minutes:
a. Regular Meeting - April 8th, 2015 (to be provided with September 9th agenda)
b. Regular Meeting - July 8th, 2015 (to be provided with September 9th agenda)
c. Special Meeting - July 22nd, 2015 (to be provided with September 91h agenda)
4. Consideration of additional agenda items.
5. Consideration of approving payment of bills.
6. Consideration of Market Matching report.
7. Consideration to adopt Resolution #EDA- 2015 -007 approving final payment to Veit &
Company, Inc. for demolition of 100 East Broadway.
8. Consideration to approve funding for 2015 Industry of Year/MN Manufacturer's Week
activities.
9. Consideration to set a joint EDA /City Council work session for purposes of EDA /HRA
Levy and budget discussions.
10. Consideration of a recommendation regarding a proposed EDA staff position for 2016.
11. Consideration of an update on amendments to the Small Cities Economic Development
Set -Aside Revolving Land Fund Guidelines.
12. Consideration of direction regarding available pooled housing increment, Monticello Tax
Increment Financing District 1 -22.
13. Consideration of Director's Report.
14. Adjourn.
EDA Agenda: 8/12/15
5. Consideration of approving payment of bills (WO)
A. REFERENCE AND BACKGROUND:
Accounts Payable summary statements listing bills submitted during the previous
month are included for review.
B. ALTERNATIVE ACTIONS:
1. Motion to approve payment of bills through July 2015.
2. Motion to approve payment of bills through July 2015 with changes as
directed by the EDA.
C. STAFF RECOMMENDATION:
Staff recommends Alternative 91.
D. SUPPORTING DATA:
Accounts Payable Summary Statements
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EDA Agenda: 08/12/15
6. Consideration of Market Matching report.
A. REFERENCE AND BACKGROUND:
A verbal report will be provided by WSB Market Matching consultant John Uphoff.
EDA Agenda: 08/12/15
7. Consideration to adopt Resolution #EDA- 2015 -007 approve final payment to Veit &
Company, Inc. for abatement and demolition services at 100 East Broadway. (SB /AS)
A. REFERENCE AND BACKGROUND
The EDA is asked to approve final payment to Veit & Company, Inc per their contract for the
abatement and demolition of 100 East Broadway.
On March 11', 2015 the EDA approved the contract with Veit & Company for the project.
The low bid for the abatement and demolition submitted by Veit was $26,253.00. The EDA
approved 90% payment of the contract amount at $23,627.70 in June of 2015. Payment of
$26,584.41 was made to Veit, including the approved 90% contract payment plus the
previously approved expense of $2,956.71 for the required trench box and sewer investigation
required on the site during the demolition process.
WSB & Associates has reviewed the contract and completed work and is recommending final
payment of $2,635.30. Veit & Company has provided final project paperwork and has
completed the repair of the parking lot on the adjacent property to the satisfaction of the
property owner.
Al. Budget Impact: The 10% payment of $2,625.30 is included within the scope of past
EDA approvals and authorized to be paid at present from the EDA General Fund. An
Interfund Loan Resolution was passed by the EDA which will allow for re- payment
through a TIF redevelopment district.
A2. Staff Impact: Minimal due to WSB project management.
B. ALTERNATIVE ACTIONS
1. Motion to adopt Resolution #EDA- 2015 -007 approving a 10% payment of $2,625.30 to
Veit & Company, Inc. for abatement and demolition services at 100 East Broadway.
2. Motion of other.
C. STAFF RECOMMENDATION
Staff recommends alternative 91 above.
D. SUPPORTING DATA
A. Resolution EDA- 2015 -007
B. Invoice, Veit & Company
CITY OF MONTICELLO
WRIGHT COUNTY, MINNNESOTA
ECONOMIC DEVELOPMENT AUTHORITY
RESOLUTION NO. EDA- 2015 -007
WHEREAS, pursuant to a written contract which the City of Monticello awarded to Veit &
Company, Inc of Rogers, Minnesota, the contractor has satisfactorily completed the work for the
abatement and demolition of the building located at 100 Broadway East in accordance with the
contract;
NO W THEREFORE, BE IT RESOL VED BY THE CITY OF MONTICELLO ECONOMIC
DEVELOPMENTAUTHORITY, MINNESOTA that the work completed under said contract is
hereby accepted and approved and that the President and Executive Director of the EDA are hereby
directed to issue a proper order for the final payment on such contract.
Approved this 12'b day of August, 2015, by the City of Monticello Economic Development
Authority.
President
ATTEST:
Executive Director
Veit & Company, Inc.
14000 Veit Place
Rogers,MN 55374
763 -428 -2242
lJ City of Monticello
Suite 1
505 Walnut St
Monticello,MN 55362
Cust # Customer Ref Invoice # Invoice ..
1361 Monticello Demolitio 1 150085 -1 1 5130/2015
100 Broadway East 150085
Additional Excavation 150085
Demolition is complete.
Project Location
900 Broadway East
Monticello, MN
- '- • City of Monticello
Suite 1
505 Walnut St
Monticello,MN 55362
C:7KI17NIT&
Invoice
26,253.00
2,956.71
Notes: Total $29,209.71
Sales Tax
Questions - Please Contact Less Disc
Teresa Dalelden at (763) 428 -6741 Less Retainage
• $29,209.71
A service charge of 1.5% per month (18% annual percentage rate) will be added to any balance or portion there of due in excess of 30 days.
EDA Agenda — 08/12/15
8. Consideration to approve funding for 2015 Industry of Year /MN Manufacturer's
Week activities. (AS)
A. REFERENCE AND BACKGROUND:
The EDA is asked to consider funding the expense activities associated with the Industry
of the Year event.
The Industry of the Year event is a business retention effort coordinated in partnership
between the Industrial and Economic Development Committee (IEDC) and the EDA. The
event is an opportunity to focus on the efforts and contributions of the Monticello
manufacturing and industrial community. It is held each year in conjunction with MN
Manufacturer's Week, this year October 19th -23rd. The event will occur this year on
Wednesday, October 21st at the MCC. Attendance at the event is typically 50 -100
persons. The event includes breakfast and a featured speaker, relevant to economics and
industry. The main focus of the event is an award presentation to the Industry of the Year,
as voted by the full IEDC membership. The 2014 Industry of the Year recipient was Xcel
Energy.
In the past, the EDA has funded the Industry of the Year activities, with the IEDC
completing the planning for the event itself. Costs for the 2015 event are limited to the
cost for the complimentary breakfast and table preparation, estimated at $1000.
Invitations and promotions for the event are completed in house with no cost to the EDA.
In the past, the EDA and IEDC have also been able to arrange for speakers for the
breakfast without cost. However, the IEDC began offering $250 event sponsorships to
help defray both the costs of the event and also a potential speaker fee.
Should the EDA choose to fund the event for 2015, the EDA will receive updates on the
event based on IEDC planning efforts.
Al. Budget Impact: The estimated expenses for the Industry of the Year event are
$1000. The EDA has sufficient funds in its Marketing line item to cover the
estimated costs.
A2. Staff Workload Impact: Staff time for event coordination is estimated at 8 -12
hours.
B. ALTERNATIVE ACTIONS:
Motion to approve funding for the 2015 Industry of the Year event.
Motion to deny funding of the 2015 Industry of the Year event at this time.
C. STAFF RECOMMENDATION:
City staff recommends Alternative 91. This event is Monticello's opportunity to thank its
existing businesses and support business retention and expansion.
A SUPPORTING DATA:
2015 Nomination Criteria and Form
� Monticello
2015 Industry of the Year Nomination Form
(Feel free to nominate more than one qualified industry — please use one form for each nomination)
NOMINATIONS DUE SEPTEMBER 1ft, 2015
Selection Criteria
• Must be classified as Industry.
Industry shall be defined as: a business that performs a majority of their
commercial activity with other businesses and a minority of their commercial
activity directly with the public consumer.
• The Business has been established for at least (5) five years.
• The Business has not received this award in the past five (5) years.
• Business Excellence: Successful business practices, i.e., marketing and promotion of
business ethics; promotion of employee growth and development; contribution to its
industry; and research and development
• Staff training, motivation, and employee engagement: Philosophy of engaging and
empowering employees. Empowered employees are proactive and persistent, and
make decisions that are consistent with the company's strategic goals and objectives.
Organizations benefit greatly from having an engaged workforce. Research shows
strong connections between employee engagement and turnover, productivity,
customer service, loyalty and corporate financial performance.
• Innovation: Creativity, entrepreneurial, and implementing innovation in business
operations, products and services. Strides to continually distinguish itself from other
businesses in their industry.
• Community Involvement: A demonstrated interest in the welfare of the community
through financial contribution, service, and civic leaderships. Actively supports the
community through participating in volunteer programs and /or events
• Customer Relations: A high level of customer confidence and excellence in
customer services and relations.
• Economic Growth: Continual increase in tax base and creation of liveable wage
jobs.
I would like to nominate .
They are deserving of this award because _
Your name
Date
PLEASE RETURN NO LATER THAN SEPTEMBER 1't, 2015.
The IEDC will review and select from the nominations received. The winner will be
recognized at the Annual Manufacturing Appreciation Event to be held on October
21st, 2015.
Return to:
Angela Schumann, City of Monticello — 505 Walnut Street, Suite 1
angela.schumannkci.monticello.mn.us; fax 763 - 295 -4404
EDA Agenda: 08/12/15
9. Consideration to set a ioint EDA/City Council work session for purposes of EDA/HRA
Lew and budget discussions. (AS)
A. REFERENCE AND BACKGROUND
On May 26th, the EDA and Council met in a joint work session to discuss the potential of
establishing an EDA and /or HRA levy for 2016. The EDA recommended, and the City
Council apphroved, moving forward with a letter of intent regarding the EDA and /or HRA levy
on May 26t .
On July 22nd and August 12th (prior to August regular meeting) the EDA held subsequent
workshops to discuss the concept of the two levies. At the July 22nd workshop, the EDA
directed staff to prepare background information on the levy for review in preparation for an
upcoming August workshop with the City Council. Specifically, the EDA requested
information on the following core areas:
1. Budget examples for priority projects or redevelopment areas
2. General operating budget expenses of the EDA, including 20116 proposed
3. Available existing financial resources of the EDA
4. Levy amounts /limits and budget/tax impact
5. Accountability and measurement metrics
The information was presented for review during a workshop immediately prior to the regular
EDA workshop on August 12th, 2015.
At this time, staff is requesting that the EDA set a date for a secondary discussion with the
City Council regarding the potential EDA and /or HRA levy. The EDA indicated their intent
was to have a recommendation on an HRA or EDA levy result from the August joint
Council /EDA meeting. An HRA or EDA levy must be approved by the City Council by
September 15th, 2015.
Al. Budget Impact: None.
A2. Staff Impact: Minimal; related to posting or required notice and preparation of
background materials.
B. ALTERNATIVE ACTIONS
Motion to call for a special meeting of the EDA on August 24th, 2015 at 4:00 PM for
purposes of EDA and HRA levy discussions, and to request attendance of the City
Council.
2. Motion of other.
EDA Agenda: 08/12/15
C. STAFF RECOMMENDATION
Given the Council's previously scheduled budget workshops, a joint EDA and City Council
workshop on August 24th, 2015 at 4:00 PM is recommended.
D. SUPPORTING DATA
None.
2
EDA Agenda: 08/12/15
10. Consideration of a recommendation regarding a proposed EDA staff position for 2016.
(AS)
A. REFERENCE AND BACKGROUND
The EDA is asked to consider making a formal recommendation to the City Council regarding
the re- establishment of an economic development staff position.
The City has been without a dedicated economic development staff person since August of
2012. Since that time, the City Administrator (acting as the EDA Executive Director),
Finance Director and Community Development Director have been providing support for
economic development activities. These efforts have been supplemented over the last two
years with WSB & Associates Market Matching services.
At this time, staff is recommending that the EDA, and ultimately the City Council, authorize
the hire of a dedicated economic development professional. This recommendation is based on
a number of factors.
First, the hiring of a dedicated staff person will allow the EDA to better manage current
economic development workload. Existing staff noted are managing the following duties in
addition to their other job responsibilities:
• Administrative support to the EDA and IEDC, including agenda development, preparation
and follow -up
• Support and management of the EDA budget, financial and fund reports
• Assistance and support to the EDA and IEDC members in developing and implementing
long range goals and strategies for economic development
• Management of the EDA's business subsidies, including TIF districts and loans, as well as
monitoring of updates to regulations and guidelines for compliance
• Office of State Auditor and Dept. of Revenue business subsidy compliance reporting
• Direction and management of the EDA's consultants — legal, financial, relocation and
marketing, etc.
• Responding to leads and prospects
• Liaison to business community for retention and communication efforts
In a number of cases, these basic activities have been delayed and /or response times increased
due to lack of staff time and resources, often as a result of staffs other roles and
responsibilities within the organization. Frequently, these duties require more immediate
response than existing staff are able to provide.
In addition, there are a number of important day -to -day economic development activities
which are not occurring on a regular basis. These include:
• Basic statistical information gathering on number and type of businesses in the
community, employment, space and land availability, etc.
EDA Agenda: 08/12/15
Networking and relationship building. Economic development relies on building of
relationships. Current staff have not been able to attend Chamber of Commerce,
Wright County Economic Development Partnership, Economic Development
Association of MN and MN Department of Employment & Economic Development
events. Maintaining contact with business and property owners, developers, real estate
agents, lending institutions and related organizations have also been given little
attention due to time constraints. While Market Matching representatives have
attended events and organizational seminars on occasion for the City, communication
and resulting actions have been minimal. While the intent of Market Matching was to
broaden the City's reach into the market place, the issue has been consistent
communication and follow -up on marketing initiative and prospect results.
Coordination and support of marketing and sales efforts for the community and for
EDA /City -owned properties. Staff have been unable to focus dedicated efforts on the
marketing of Monticello properties and buildings, as well as develop focused
marketing campaigns for specific market sectors. This area also includes a lack of
participation in exhibitions, seminars, media events, trade shows and conferences and
organization of events, meetings and activities supporting economic development
initiatives, including trainings, industry recognitions, and familiarization tours.
Secondly, an economic development staff person will be able to act more strategically
and proactively for economic development initiatives. While current staff can continue
to manage the above workload to the best of our ability, it has not been possible for staff
to complete more strategic economic development objectives in a timely manner. While
staff have been able to assist the EDA in developing strategic plans (such as the EDA's
current work plan) it is unlikely that the current staff can achieve the timely completion
of these items without additional support. The work plan is attached for reference.
Finally, hiring of a dedicated City staff person is recommended to create a more cost effective
and coordinated approach to economic development. The EDA currently budgets $48,000 for
Market Matching efforts. It is recommended as part of this consideration that these funds be
reallocated to the staff position. The primary issue with Market Matching services has been
the inefficiency created to due to the gap in communication between the involved parties,
which has ultimately made the program less effective than hoped. An in -house staff person
will be available to the City each and every day. This creates the opportunity to fill in the
gaps between economic development's many stakeholders - the City Council, EDA, IEDC,
consultants, the business community, prospects and other staff. It also allows for a quicker
reaction to information and leads (no intermediary necessary). In short, staff believe that a
staff person will provide a better use of time and monetary resources.
Commissioners Hilgart and Davidson assisted staff by reviewing information related to
this item. Both Commissioners support the implementation of an economic development
position.
A sample job description is attached as a reference for the position proposed. The job
description is a blend of the previous position and a similar sample DEED job
EDA Agenda: 08/12/15
description. The position is proposed as a manager or coordinator position, rather than
executive director.
Al. Budget Impact: Based on the City's pay equity program, the estimated budget impact
for this position, including wages and benefits, is estimated at $85,000.
If approved, this position would become part of the EDA's annual operating budget
expenses. Pending the outcome of the EDA41RA levy discussion, the position would
be funded from an annual allocation from the City General Fund or by the EDA or
HRA levy.
A2. Staff Impact: If approved, the re- establishment of an economic development staff
position will create a re- alignment of workload for the City Administrator, Finance
Director and Community Development Director.
B. ALTERNATIVE ACTIONS
1. Motion to recommend to the City Council that the City proceed with establishment and
hire of a full -time EDA staff position for 2016.
2. Motion not to recommend to the City Council that the City proceed with establishment
and hire of a full -time EDA staff position for 2016.
3. Motion to table for more information.
C. STAFF RECOMMENDATION
Staff and the EDA sub - committee recommend alternative 1 above, based on the information
presented in the staff report.
D. SUPPORTING DATA
A. Job Description, Economic Development Coordinator
B. EDA Annual Work Plan
Economic Development Coordinator
City of Monticello
Exempt
Title of Class: Economic Development Manager
Effective Date: November 15, 1991
Revised Date: October 13, 2008
February 11, 2011
June 23rd, 2015
DESCRIPTION OF DUTIES
General Statement of Duties: Performs responsible professional work, planning, promoting,
developing and implementing economic development and redevelopment goals for the City; performs
related duties as required. Generates business leads, promotes business retention and expansion,
creates a positive attitude for development and raises supportive public awareness for strategic
economic planning and development.
Supervision Received: Works under the general supervision of the City Administrator (EDA
Executive Director).
Supervision Exercised: None.
TYPICAL DUTIES PERFORMED
The listed examples may not include all duties performed by all positions in this class. Duties may
vary somewhat from position to position within a class.
ADMINISTRATION
*Provides administrative and professional support to the EDA, managing business affairs, agenda and
minutes, and acting as the staff liaison for the City.
In conjunction with the Finance Director and Executive Director, oversees the Authority's budget,
financial and fund reports.
*Plans, develops, presents for approval, and implements long range goals and strategies which
support the City Council and EDA goals as reflected in the Monticello Comprehensive Plan and
Monticello Redevelopment Project No. 1 Plan.
*Oversees, develops, markets, administers, and evaluates financial funding strategies, policies and
business subsidy programs which support the City's goals and ensures compliance with the MN
Business Subsidy Act, State Auditor's requirements and applicable federal regulations.
*Provides city staff with reports and recommendations on development proposals and assists in
identifying site development issues for economic development projects.
Maintains all business records and reporting requirements for the Economic Development
Department and EDA.
*Primary staff liaison to the Industrial and Economic Development Committee, Chamber of
Commerce, Wright County Economic Development Partnership, Economic Development
Association of MN and MN Department of Employment & Economic Development.
Prepares annual business report for the EDA, completes required forms and publishes notices.
Assists in preparing and updating economic development and redevelopment portions of the
City's comprehensive plan and provides input on other aspects of the plan.
*Facilitates and prepares the annual Economic Development Work Plan and assists in the
development and monitoring of the annual budget.
Economic Development Coordinator
City of Monticello
Exempt
Monitors legislative initiatives related to economic development and redevelopment which may
impact the EDA and City.
Coordinates the work of City consultants as related to economic development initiatives, including
legal and financial services.
May assist in preparation of grant applications.
Performs other duties as needed or assigned by the City Administrator.
BUSINESS & DE VEL OPMENT RELA TIONS
*Maintains regular contact with business and property owners, developers, real estate agents, lending
institutions and related organizations to facilitate achievement of economic development goals
and business retention and expansion efforts.
*Assists developers with preliminary and formal business subsidy applications, analyzes formal
application and financial information and prepares written recommendation for EDA and
Council approval.
*Negotiates terms and conditions for TIF Districts, purchase agreements, development contracts, loan
agreements, land acquisitions and sales, assessment agreements, and other related documents
with assistance from the EDA's attorney and as directed by the EDA.
I W1VXi►lTff,,%V11r MAI
*Prepares, organizes and implements a coordinated marketing program to generate business
and industry leads which are consistent with the City's economic development goals.
*Serves as primary City liaison at prospect stage, assisting in developing, preparing and presenting
individualized project financing proposals in cooperation with City consultants to meet
prospects' financing requirements.
*Participates in the citywide marketing/branding effort.
*Maintains and distributes updated marketing and sales information pertaining to economic
development including: community profile, demographic and employment data, building
and land inventories and contacts, City/EDA property information and sales sheets, and
prospect databases.
*Plans and oversees marketing for City -owned business center and other EDA /City properties.
Participates in exhibitions, seminars, media events, trade shows and conferences to attract businesses to the
City.
Organizes events, meetings and activities supporting economic development initiatives, including
trainings, industry recognitions, and familiarization tours.
KNOWLEDGE, SHILLS AND ABILITIES
*Considerable knowledge of government processes and services, economic research and marketing
related to economic development and redevelopment.
*Considerable knowledge of city planning, project development, financing, land acquisition and
related areas.
*Working knowledge of laws, rules and regulations related to development and related financing and
ability to communicate such to industrial project developers.
*Considerable skill to operate office equipment including personal computer with Internet, word
processing, spreadsheet, Power Point and database management applications.
*Considerable ability to communicate effectively both orally and in writing and maintain effective
working relationships with state and federal agencies, property and businesses owners, elected
and appointed officials, committee members, potential developers and the general public.
Economic Development Coordinator
City of Monticello
Exempt
*Considerable ability to develop alternatives and determine costs, advantages and disadvantages of
various alternatives.
*Considerable ability to analyze financial statements including balance sheets, profit and loss sheets
and cash flow statements.
Working ability to read and interpret building plans, site plans and city service maps.
MINIMUM QUALIFICATIONS
Bachelor's degree with major course work in economic development, local and urban affairs,
planning or a related field and five years of experience in economic or community development.
Must have certification from the National Development Council. Must possess and maintain a valid
MN Class D Driver's license.
*Asterisked items are essential to the job
EDA ANNUAL WORK PLAN
EDA Purpose:
The EDA is charged with coordinating and administering the City of Monticello's economic
development and redevelopment plans and programs. The EDA is also responsible for housing
and housing redevelopment.
EDA Work Plan Mission Statement:
The EDA's 2015 work plan is adopted in support of achieving the goals of the Monticello
Comprehensive Plan. The EDA will be proactive by developing and undertaking actions for
achievement of the Comprehensive Plan's Economic Development goals and will be reactive in
responding to economic development opportunities as they arise in the most timely and effective
manner possible. The EDA shall utilize the economic development strategies of the
Comprehensive Plan as a guide for action.
Comprehensive Plan Goals:
Attracting & Retaining Jobs
Expanding Tax Base
Enhancing Downtown
Facilitating Redevelopment
Housing Choice for Life -Cycle
2015 Action Statements:
1. Research for implementation the adoption of a 2016 EDA (and /or HRA) levy.
2. Research for implementation the use of tax abatement by the City of Monticello,
including specific use criteria.
3. Clearly understand allowable uses of available pooled housing increment as a financial
resource.
4. Continue to support redevelopment efforts for publicly -owned properties on Block 34.
5. Engage as a partner in other redevelopment opportunities as they arise, actively
encouraging redevelopment within the TH25 /CSAH 75 area.
6. Market industrial development at the Monticello Business Center (Otter Creek Business
Park), targeting businesses which will be a supplier, customer or collaborative partner to
existing businesses within the community.
7. Encourage more proactive lead development and response in all market segments to
support a diversified tax base.
8. Develop and re- establish a dedicated economic development staff position to facilitate
and support the accomplishment of Comprehensive Plan goals.
9. Market EDA incentive programs in a more proactive manner, both within the community
and beyond, beginning with the education on these resources at the EDA level.
10. Actively market for sale for development the EDA -owned properties at Cedar Street, 349
West Broadway and 413 W. 4t' Street.
11. Examine housing stock for aging or blighted properties and research development of
programs for redevelopment and /or revitalization.
12. Support the development of the Destination for Innovation brand and implement in
economic development activities.
Appendix: Monticello Comprehensive Plan, Chapter 5 - Economic Development
2
EDAAgenda:08/12/15
11.ConsiderationofanupdateonamendmentstotheSmallCitiesEconomicDevelopment
Set-AsideRevolvingLoanFundGuidelines.(AS)
A.REFERENCEANDBACKGROUND
StaffisproposingaseriesofamendmentstotheSmallCitiesEconomicDevelopment(SCED)
Set-Asideguidelines,basedontherecommendationoftheDepartmentofEmploymentand
EconomicDevelopment.
TheSCEDguidelinesapplytoanexistingrevolvingloanprogramoftheCity,providingthe
regulationsbywhichtheCitymayoriginateanewloanforprivateprojectsusingSCED
funds.SCEDfundswereoriginallyreceivedinapartnershipbetweentheCity,aprivate
projectdeveloper,andtheDepartmentofEmploymentandEconomicDevelopment(DEED).
TheCity,inconjunctionwithprivateprojectdeveloper,appliedforSCEDloanfunds(also
calledMinnesotaInvestmentFund,orMIF)throughDEED.TheDEEDfundingforthisloan
programcamefromamixofbothfederalandstatesources,includingCommunity
DevelopmentBlockGrantfunds.AfterDEEDreviewandapprovaloftheproposedprivate
projects,DEEDthenprovidedSCEDfundingtotheCity,whichthenpassedthefunds
throughtheloanprogramtothequalifiedprivateproject.Oncetheloanswererepaid,the
Citywasabletoretainamajorityofthefunds,includingprincipalandinterest,inarevolving
loanfund.DEEDallowstheCitytocontinuetoholdandadministerthefundsthroughthe
SCEDrevolvingloanprogram.TheCityofMonticellohasadedicatedaccountforSCED
funds.
TheneedtoamendtheguidelinesforthisprogramhasarisenfromdiscussionswithDEED
regardingtherequirementsforlendingofthefunds.TheCity’scurrentguidelinesstatethat
oncethefundsarelentoutfromtheSCEDfundandrepaid,therepaymentsaredirectedtothe
EDA’sGreaterMonticelloEnterpriseFund(GMEF),wherethestateandfederalguidelines
nolongerapplytonewGMEFloans.However,DEEDhasindicatedthatSCEDfundsretain
theirstatusasstateandfederalfundsnomatterhowmanytimesthefundsarecycledthrough
theloanandrepaymentprocess.Thesefundsdonotlosetheirfederalorstateidentityandthe
localgovernmentmustcontinuetocomplywithallrequirementsinanyreuseofthefunds.
Therefore,theguidelinesmustberevisedtoreflectthisrequirement.
DEEDalsorecommendedincludingthemostcurrentfullsetofstateandfederalguidelinesas
exhibitstotheCityguidelines.Thesedocumentsprovideareferencetothestateorfederal
requirementsoftheloanprograms.
ItisalsorecommendedthattheloantermsinSectionVIIIBoftheguidelinesberevised.
Section1statesthat60%oftheprojectfundingisrequiredtocomefroma“publicnon-RLF”
source.ThisseemstosuggestthattheEDAcouldprovidea60%loanunderitsGMEF
programandthentheCitycouldprovideanother30%throughtheSCEDRLF.Giventhe
staterequirementsregardingprivateinvestment,60%ofaprojectmustbeprivatelyfinanced.
So,the“public”statementissuggestedtoberemoved.
1
EDAAgenda:08/12/15
TheEDAwillnotethattheSCEDfundisadministeredbytheCityCouncil.Basedon
discussionswithDEED,thisisrequiredduetothefactthattheCityofMonticelloisthe
designatedrecipientofthefundsfromthestateandfederalgovernment,nottheEDA.The
CitycandesignatethattheEDAprovideareviewandrecommendationonSCEDloan
applications,withtheCityCouncilprovidingthefundadministrationandfinalloanpublic
hearingandapproval.
Atpresent,theguidelinesforapplicationrequirethereviewandapprovaloftheCityCouncil
only.TheEDA’sroleastheeconomicdevelopmentagentfortheCityhasthereforebeen
limitedtothepromotionofthisfundingsourcewhenworkingwithprojectdevelopersand
businesses.Atthistime,staffhasnotprovidedforanamendmentforEDA
review/recommendation,simplytoavoidanadditionallayerofreviewforapplicants.
TheEDA’sattorneyhasreviewedthesuggestedredlinestothedocumentandrecommends
movingforwardwithrevisions.TherecommendedamendmentswillbesenttoDEEDfor
review.AfterDEEDreviewandcomment,finalamendmentswillbesenttotheCityCouncil
forapproval.
A1.BudgetImpact:Atpresent,theCityhasapproximately$1millioninSCEDfunds
availableforloan.Theamendmentofthedocumenthasnodirectimpactonthe
budget.However,DEEDrecommendedcreatingtwosub-fundswiththeSCEDfund,
oneforstatefundsandoneforfederal.
A2.StaffImpact:Stafftimeestimatedat10hourshasbeenspentto-dateinreviewingthe
fundingandguidelines,meetingwithDEED,andpreparingtheamendments.
B.ALTERNATIVEACTIONS
NoactionoftheEDAisrequired.Thisitemisanupdateonly.
C.STAFFRECOMMENDATION
StaffrecommendsamendingtheSCEDguidelines.AmendingtheSCEDguidelinesis
requiredtomeetstateandfederalrequirementsforthesefunds.Staffwillcontinuetowork
withDEEDtorefinetheguidelinesandthenprovideanupdatetotheEDAbeforemovingthe
guidelinesforwardtotheCityCouncil.
D.SUPPORTINGDATA
A.CurrentSmallCitiesEconomicDevelopmentSet-AsideRevolvingLoanFund
Guidelines
B.ProposedAmendmentstoSmallCitiesEconomicDevelopmentSet-AsideRevolving
LoanFundGuidelines
C.StateGuidelinesforSCED
D.FederalManualforSCED
2
MONTICELLO SMALL CITIES ECONOMIC DEVELOPMENT SET-
ASIDE REVOLVING LOAN FUND GUIDELINES
I. PURPOSE:
The City of Monticello has received a grant through the Community Development Block
Grant Economic Development Set Aside program () administered through the
. The grant may be used to make
loans to local businesses as described below.
As the recipient of a grant through the Program, the City is authorized to keep all of the principal
repayments and interest on the loans it makes. The City is required to use these funds to create a
revolving loan fund and to establish policies and procedures for the RLF. The City Council
administers the RLF. Once the RLF funds have been re-issued as new loans, RLF loan repayments
may be redirected to the Greater Monticello Enterprise Fund (GMEF) administered by the City of
.
II. PURPOSE OF THE REVOLVING LOAN FUND
Revolving loan funds are to be used for business start ups, expansions, and retention
where jobs are created or retained. This may be accomplished by the following means:
1.) Creation or retention of permanent private-sector jobs in order to create above average
economic growth;
2.) Stimulation or leverage of private investment to ensure economic renewal and
competitiveness;
3.) Increase to the local tax base;
4.) Improvement of employment and economic opportunity for citizens in the region to
create a reasonable standard of living; and
5.) Stimulation of productivity growth through improved manufacturing or new
technologies.
III. ELIGIBLE EXPENDITURES
buy-downs, and other forms of participation with private sources of financing. The RLF
assistance can be for no more than one-half of the cost of the project. The RLF is subject to
all of the state and federal CDBG requirements, as described in ExhibitsA and B attached.
However, once the loan funds have cycled through the RLF and are redirected to the GMEF,
the funds will no longer be subject to federal CDBG requirements.
IV. ELIGIBLE PROJECTS
The grant or loan must be based on one or more of the following criteria:
1.) Creation of new jobs or retention of existing jobs;
2.) Increase in the tax base;
3.) Investment of public dollars inducing private investment;
4.) Excessive public infrastructure or improvement cost beyond the means of the affected
community and private participants in the project;
5.) Higher wage levels to the community or added value to current workforce skills;
6.) Necessity of assistance to retain existing business; and
7.) Necessity of assistance to attract out-of-state business.
The grant or loan cannot be made based solely on a finding that the conditions in clause
2.), 6.) or 7.) exist. A finding must be made that a condition in clause 1.), 3.), 4.), or 5.)
also exists.
V. ELIGIBLE ACTIVITIES
ing activities:
1.) Purchase of land
2.) Construction of a building or other improvements
3.) Renovation of an existing building to accommodate the business
4.) Construction of tenant improvements
5) Purchase of Capital Equipment
6.) Lease or purchase of an existing building
7.) Site improvements
8.) Public improvements and privately owned utilities
9.) Workforce Development including job training and placement:
a.) Training low skilled, low-income persons for specific jobs for which they
have been hired and which require skill levels beyond what they now have;
b.) Training a pool of low-income prospective employees for specific jobs being
created as a result of a CDBG-funded industrial expansion, where the
employer agrees to give first consideration to filling the new positions with
people from this pool;
c.) Re-training existing employees of a business as part of a project which
qualifies as retaining jobs.
10.) Microenterprise Assistance: RLF assistance can be provided to persons owning or
developing a microenterprise, which is defined as a commercial enterprise that has 5
or fewer employees, one or more of whom owns the enterprise.
VI. INELIGIBLE ACTIVITIES
RLF assistance may not be used for the following:
1.) Operation or expansion of a casino.
2.)
a professional sports team as a principal tenant.
3.) General promotion of the community.
4.) Professional sports teams.
5.) Privately owned recreational facilities that serve a predominantly higher income
clientele where the benefit to users clearly outweighs the benefit of jobs created or
retained.
6.) Acquisition of land for which a specific use has not been identified (i.e. land
banking)
7.) Assistance to a for-profit business that is, or its owner is, the subject of unresolved
findings of noncompliance related to previous CDBG assistance.
8.) For relocation of an out of state business.
9.) New housing construction.
10.) Planning for economic development projects.
11.) Job training that is not part of a CDBG eligible economic development activity to
create or retain permanent jobs.
12.) Working capital.
VII. PUBLIC BENEFIT
A project using RLF funds must show a minimum level of public benefit. The amount of
the assistance must not exceed $50,000 per full-time equivalent, permanent job (created
or retained). If the City finds, after a public hearing, that the primary purpose of the
project is not job creation, this provision is not applicable.
VIII. PROJECT COSTS AND FINANCIAL REQUIREMENTS
A. Acceptable Private Financing Methods:
1. Companion Direct Loan: The RLF is subordinate to the primary lender.
2. Participation Loan: The RLF participates in a portion of the loan.
3. Guarantee Loans: The RLF guarantees a portion of the bank loan.
a. Interest rate cap is subject to City approval
B. Terms and Conditions:
1. Leveraging: Minimum 60% private/public Non-RLF, Maximum 30% RLF,
Minimum 10% equity.
2. Loan Term: Personal property term not to exceed life of equipment (generally
5-7 years). Real estate property maximum of 5-year maturity amortized up to
30 years. Balloon payment at 5 years.
3.Interest Rate: Fixed rate not less than 2% below prime rate as published in the
Wall Street Journal on date of RLF loan approval, with a minimum interest
rate of 3.0%.
4. Loan Fee: Minimum of $500 but not to exceed 1.5% of the total loan. Fees
are to be documented and no duplication of fees between the lending
institution and the RLF. Loan fee may be incorporated into project cost. City
retains the right to reduce or waive loan fee or portion of loan fee. Fee to be
paid by applicant to the City within 5 working days after City Council
approval of RLF loan. The fee is non-refundable.
C. Other:
1. No penalty for prepayment of loan in whole or in part.
2. Extending a balloon payment will require a verification letter from two
lending institutions stating the inability to refinance and is subject to approval
by the City.
3. Monthly payments may be deferred for a determined period of time upon
approval by the City Council.
4. Failure to pay principal or interest when due may result in the loan being
immediately called. In addition to any other amounts due on any loan, and
without waiving any right of the City under any applicable documents, a late
fee of $250 will be imposed on any borrower for any payment not received in
full by the City within 30 calendar days of the date on which it is due.
Furthermore, interest will continue to accrue on any amount due until the date
on which it is paid to the City, and all such interest will be due and payable at
the same time as the amount on which it has accrued.
5. RLF Loans are not assumable.
6. The City will determine appropriate and applicable business equity
requirements on a case by case analysis, utilizing normal lending guidelines,
subject to the type of assistance.
7. Collateral may include:
i. Liens on real property in project (mortgage deed).
ii. Liens on real property in business (mortgage deed).
iii. Liens on real property held personally (subject to City approval, homestead
exempt).
iv. Machinery and equipment liens (except equipment exempt from bankruptcy).
v. Personal and/or corporate guarantees (requires unlimited personal
guarantees).
8.An approved RLFloan shall be null and void if funds are not drawn upon or
disbursed within 180 days from date of City Council approval.
i. The 180-day non-performance date can be extended up to an additional 120
days, upon approval by the City.
ii. A written request must be received 30 days prior to expiration of the 180-day
non-performance date.
9. Legal fees are the responsibility of the RLF applicant.
10. Participating Lending Institutions:
i. shall be determined by the RLF applicant
ii. shall cooperate with the City and assist in carrying out the policies of the RLF
as approved by the City Council.
iii. Shall analyze the formal application and indicate to the City the level at
which the lending institution will participate in the finance package.
11. Loan Administration:
i. City Staff shall collect applicable RLF payments
ii. City Staff shall assure City compliance with all applicable terms and
conditions of the approved loan.
iii. All loan documents shall include the following:
a) Definition of loan default, agreements regarding notification of
default
b) Copy of primary lenders documents
c) Provisions allowing the City to inquire on the status of the primary
loan
IV. LOAN APPLICATION PROCEDURES
The City desires to make the RLF loan application process as simple as possible.
However, certain procedures must be followed prior to City consideration of a loan
request. Information regarding the program and procedures for obtaining a loan are as
follows:
a. City Staff: City Staff shall carry out RLF operating procedures as approved
by the EDA and City Council. Staff is responsible for assisting businesses in
the loan application process and will work closely with applicants in
developing the necessary information.
b.Application Process:
1. Applicant shall complete a preliminary loan application. Staff will
review application for consistency with the policies set forth in the
Guidelines.
2. If applicant gains initial support from lending institution and if the
preliminary loan application is approved, applicant is then asked to
complete a formal application. Formal application shall include a
business plan which will include its management structure, market
analysis, and financial statement. Like documentation necessary for
obtaining the bank loan associated with the proposal is acceptable.
Attached with each formal application is a written release of
information executed by the loan applicant
3. If the preliminary loan application is not approved by staff, the
applicant may request that the City consider approval of the
preliminary application at the next regularly scheduled meeting of the
City Council.
4. City staff shall analyze the formal application and financial
statements contained therein to determine if the proposed business
and finance plan is viable. City staff shall submit a written
recommendation to the City Council. A decision regarding the
application shall be made by the City Council within 60 days of the
submittal of a completed formal application.
5. Prior to issuance of an approved loan, the City Attorney shall review
and/or prepare all contracts, legal documents, and inter-creditor
agreements. After such review is complete, the City shall issue said
loan.
History:
Public Hearing and Adoption on March 23, 2009
ExhibitA
STATE REQUIREMENTS
1. MINNESOTA INVESTMENT FUND (MS.116J.8731)
Wage Goals: Businesses receiving RLF assistance must pay each employee total
compensation, including benefits not mandated by law, that on an annualized basis is equal
to at least 110% of the federal poverty level for a family of four.
Retail Businesses: are not prohibited from receiving federal ED assistance.
2. MUNICIPAL RIGHTS, POWERS, DUTIES (MS 471.87-471.88)
An officer of the city may not have a personal financial interest or personally benefit
financially from the business to be assisted.
3. BUSINESS SUBSIDY LAW (MS 116J.993-116J.995).
Any state or local government agency or public entity that provides financial assistance to a
business must comply with this statute.
4. FIRST SOURCE AGREEMENT (MS 116L.66)
A business that receives grants or loans in an amount greater than $200,000 must list any
vacant or new positions with the Department of Employment and Economic Development.
5. SURETY DEPOSITS REQUIRED FOR CONSTRUCTION CONTRACTS (MS
290.9705)
When a contract exceeds $100,000 and a non-Minnesota construction contractor has been
hired to perform the work, the city must do one of the following:
a. Deposit with the Department of Revenue, 8 % of every payment made to the
contractor; or
b. Have in its possession a Waiver of Withholding from the Department of Revenue.
6. GOVERNMENT DATA PRACTICES (MS 13)
Information contained in the application for assistance will become a matter of public
record with the exception of those items protected under the Minnesota Government Data
Practices Act.
Exhibit B
FEDERAL REQUIREMENTS
A. The project must meet at least one of two national objectives. These objectives are:
Benefit to Low and Moderate Income (LMI) or Prevention or Elimination of Slums or
Blight.
Low and Moderate Income
Job Creation/Retention.
The business to be assisted must commit to the creation and or retention of jobs with 51%
of the jobs to be made available to or held by LMI persons. When jobs will be retained,
the business must document that the jobs would be lost without the RLF assistance and
that one or both of the following applies to at least 51% of the jobs:
a.) The job is held by a LMI person; or
b.) The job can reasonably be expected to turn over within the following 2 years and
steps will be taken to ensure that the job will be filled by, or made available to, a LMI
person.
A position is LMI persons if the following criteria apply to the position:
a.) The job does not require special skills that can only be acquired with substantial
training, work experience or education beyond high school.
b.) The business agrees to hire unqualified persons and provide training; and
c.) The city and the assisted business take actions to ensure that LMI persons receive
first consideration for filling such jobs.
A job that is an LMI person if his/her household income is within the Section
8 income guidelines. (See attached Job Information form)
Retained Jobs
In order to consider jobs retain
evidence that permanent jobs will be lost without such assistance. For these
a) Evidence that the business has issued a notice to affected employees or made a
public announcement to that effect, or
b) Analysis of relevant financial records which clearly and convincingly shows that the
business is likely to have to cut back employment in the near future without the planned
intervention.
To meet the LMI standard, 51% or more of the retained jobs must be either:
a) Known to be held by LMI persons at the time this assistance is provided and/or
b)Jobs not known to be held by LMI persons, but which can be reasonably expected to
business taking actions to ensure that such a job, upon turnover, will be either taken by or
made available to a LMI person in a manner similar to that pertained to a newly created
job.
Slums/Blight
An economic development project, such as commercial rehab, which aid in the
prevention or elimination of slums or blight in a designated area may qualify under the
Slum/Blight National Objective.
To qualify, the economic development activity must take place in an area that:
1.) Has been designated by the city as meeting a definition of a slum, blighted,
deteriorated or deteriorating area under state or local law; and
2.) Has a substantial number of deteriorated or deteriorating buildings, or the public
improvements are in a general state of deterioration.
The assisted activity must address the conditions that contributed to the deterioration of
the delineated area.
The city must maintain documentation on the boundaries of the area and the condition
which qualified the area when it was designated under state or local law.
B. An RLF project must also meet the following federal requirements:
1. FAIR HOUSING AND EQUAL ACCESS
a. Title VI of the Civil Rights Act of 1964, as Amended (42 U.S.C. 2000d et seq.) (24
CFR Part 1)
No person may be excluded from participation in, denied the benefits of, or subjected to
discrimination under any program or activity receiving Federal financial assistance on the
basis of race, color or national origin.
b. The Fair Housing Act (42 U.S.C. 3601-3620) ((24 CFR Part 100-115)
Prohibits discrimination in the sale or rental of housing, the financing of housing or the
provision of brokerage services against any person on the basis of race, color, religion,
sex, national origin, handicap or familial status. Furthermore, section 104 (b) (2) of the
Act requires that each grantee certify to the secretary of HUD that it is affirmatively
furthering fair housing. The certification specifically requires grantees to conduct a fair
housing analysis, develop a fair housing plan, take appropriate actions to overcome the
effects of any impediments identified and maintain records on the analysis, plan and
actions in this regard.
c. Equal Opportunity in Housing (Executive Order 11063, as amended by Executive
Order 12259) (24 CFR Part 107)
Prohibits discrimination against individuals on the basis of race, color, religion, sex or
national origin in the sale, rental, leasing or other disposition of residential property, or in
the use or occupancy of housing assisted with Federal funds.
d. Age Discrimination Act of 1975, As Amended (42 U.S.C. 6101) (24 CFR Part 146)
Prohibits age discrimination in programs receiving Federal financial assistance.
e. Section 109 of Title I of the Housing and Community Development Act of 1974
Requires that no person shall be excluded from participation in, be denied the benefits of,
or be subjected to discrimination under any program or activity funded with CDBG funds
on the basis of race, color, religion, national origin or sex.
f. Americans with Disabilities Act (ADA) (42 U.S.C. 12131; 47 U.S.C. 155, 201, 218,
and 225)
Provides comprehensive civil rights to individuals with disabilities in the areas of
employment, public accomodations, state and local government services and
telecommunications. The Act also states that discrimination includes the failure to design
and construct facilities that are accessible to and usable by persons with disabilities and
requites the removal of architectural and communication barriers that are structural in
nature in existing facilities.
g Section 504 of the Rehabilitation Act of 1973
Prohibits discrimination in Federally assisted programs on the basis of handicap. It
impo
programs and activities that receive Federal funds.
h. Architectural Barriers Act of 1968 (942 U.S.C. 4151-4157)
Requires certain Federally funded buildings an other facilities to be designed, constructed
or altered in accordance with standards that ensure accessibility to, and use by, physically
handicapped people.
2. EQUAL OPPORTUNITY
a. Equal Employment Opportunity, Executive Order 11246, as amended.. (41 CFR
part 60)
Prohibits discrimination against any employee or applicant for employment because of
race, color, religion, sex or national origin. Provisions to effectuate this prohibition must
be included in all construction contracts exceeding $10,000.
b. Section 3 of the Housing and Urban Development Act of 1968
Requires that, to the greatest extent feasible, opportunities for training and employment
arising from CDBG will be provided to low-income persons residing in the program
service area. Also, to the greatest extent feasible, contracts for work (all types) to be
performed in connection with CDBG will be awarded to business concerns that are
located in or owned by persons residing in the program service area.
c. ive Orders 11625, 12432, 12138) (24
CFR 85.36(e)).
City must prescribe procedures for a minority outreach program to ensure the inclusion,
to the maximum extent possible, of minorities and women, and entities owned by
minorities and women, in all contracts.
3. LABOR REQUIREMENTS
All contracts for construction and installation of equipment must comply with the
following:
a. Davis-Bacon and Related Acts (40 USC 276 (A)-7)
Ensures that mechanics and laborers employed in construction work under Federally
contracts are paid wages and fringe benefits equal to those that prevail in the locality
where the work is performed.
b. Contract Work Hours and Safety Standards Act, as amended (40 USC 327-333)
Provides that mechanics and laborers employed on Federally assisted construction jobs
are paid time and one-half for work in excess of 40 hours per week, and provides for the
payment liquidated damages where violations occur. It also addresses safe and healthy
working conditions.
c. Copeland (Anti-Kickback)Act (40 USC 276c)
Governs the deductions from paychecks that are allowable. Makes it a criminal offense
to induce anyone employed on a Federally assisted project to relinquish any compensation
to which he/she is entitled, and requires all contractors to submit weekly payrolls and
statements of compliance.
d. Fair Housing Standards Act of 1938, As Amended (29 USC 201, et.seq.)
Establishes the basic minimum wage for all work and requires the payment of overtime at
the rate of at least time and one-half. It also requires the payment of wages for the entire
time that an employee is required or permitted to work, and establishes child labor
standards.
In accordance with 24 CFR Part 5, CDBG funds may not be used to directly or indirectly
employ, award contracts to or otherwise engage the services of any contractor or
subrecipient during any period of debarment, suspension or placement of ineligibility
status. Grantees should check all contractors, subcontractors, lower tier contractors and
subrecipients against the Federal publication that lists debarred, suspended and ineligible
contractors. See internet site at http://www.arnet.gov/epls/.
4. PROCUREMENT
The procurement standards of 24 CFR 85.36 apply.
5. CONFLICT-OF-INTEREST
For the procurement of property and services, the conflict-of-interest provisions at 24
CFR 85.36 and 24 CFR 84.42 apply. This requires the city to maintain written standards
governing the performance of their employees engaged in awarding and administering
contracts. At a minimum, these standards must:
a. Require that no employee, officer, agent of the city or its sub-recipient shall
participate in the selection, award or administration of a contract supported by CDBG if a
conflict-of-interest, either real or apparent, would be involved;
b. Require that grantee or sub-recipient employees, officers and agents not accept
gratuities, favors or anything of monetary value from contractors potential contractors or
parties to sub-agreements; and
c. Stipulate provisions for penalties, sanctions or other disciplinary actions for
violations or standards.
A conflict would arise when any of the following has a financial or other interest in a firm
for award:
a. An employee, agent or officer of the grantee or sub-recipient;
b. Any member of a
c.
d. An organization that employs or is about to employ an employee, agent or officer of
the grantee or sub-recipient.
In cases not covered by the above, the CDBG regulations at 24 CFR 570.611 governing
conflict-of-interest apply. These provisions cover employees, agents, consultants, officers
and elected or appointed officials of the city or sub-recipient. The regulations state that
no person covered who exercises or has exercised any functions or responsibilities with
respect to CDBG activities or who is in a position to participate in decisions or gain
inside information:
a. May obtain a financial interest or benefit from a CDBG activity;
b. Have an interest in any contract, subcontract or agreement for themselves or for
persons with business or family ties.
This requirement applies to covered persons during their tenure and for one year after
leaving the city or sub-recipient entity.
Upon written request, exceptions to these provisions may be granted by HUD on a case-
by-case basis only after the city has:
a. Disclosed the full nature of the conflict and submitted proof that the disclosure has
been made public, and
b. Provided a legal opinion from the city stating that there would be no violation of
state or law if the exception were granted.
6. ENVIRONMENTAL REVIEW
The city is responsible for undertaking environmental reviews in accordance with the
Environmental Handbook. The environmental review must be completed before funds
are committed.
7. FLOOD INSURANCE
Section 202 of the Flood Disaster Protection Act of 1973 (42 USC 4106)
Requires that CDBG funds shall not be provided to an area that has been identified by the
Federal Emergency Management Agency (FEMA) as having special flood hazards unless:
a. The community is participating in the National Flood Insurance Program, or it has
been less than a year since the community was designated as having special flood
hazards; and
b. Flood insurance is obtained.
8. DISPLACEMENT, RELOCATION, ACQUISITION AND REPLACEMENT OF
HOUSING
Projects involving acquisition, rehabilitation or demolition may be subject to the
provisions of the Uniform Relocation Act.
MONTICELLO SMALL CITIES ECONOMIC DEVELOPMENT SET-
ASIDE REVOLVING LOAN FUND GUIDELINES
I. PURPOSE:
The City of Monticello has received a grant through the Community Development Block
Grant Economic Development Set Aside program () and the Minnesota Investment
Fund, .
The grant may be used to make loans to local businesses as described below.
As the recipient of a grant through the Program, the City is authorized to keep all of the principal
repayments and interest on the loans it makes. The City is required to use these funds to create a
revolving loan fund and to establish policies and procedures for the RLF. The City Council
administers the RLF . Once the RLF funds have been re-issued as new loans, RLF loan repayments
may be redirected to the Greater Monticello Enterprise Fund (GMEF) administered by the City of
.
II. PURPOSE OF THE REVOLVING LOAN FUND
Revolving loan funds are to be used for business start ups, expansions, and retention
where jobs are created or retained. This may be accomplished by the following means:
1.) Creation or retention of permanent private-sector jobs in order to create above average
economic growth;
2.) Stimulation or leverage of private investment to ensure economic renewal and
competitiveness;
3.) Increase to the local tax base;
4.) Improvement of employment and economic opportunity for citizens in the region to
create a reasonable standard of living; and
5.) Stimulation of productivity growth through improved manufacturing or new
technologies.
III. ELIGIBLE EXPENDITURES
buy-downs, and other forms of participation with private sources of financing. The RLF
assistance can be for no more than one-half of the cost of the project. The RLF is subject to
all of the state and federal CDBG requirements, as described in ExhibitsA and B attached.
However, once the loan funds have cycled through the RLF and are redirected to the GMEF,
the funds will no longer be subject to federal CDBG requirements.
IV. ELIGIBLE PROJECTS
The grant or loan must be based on one or more of the following criteria:
1.) Creation of new jobs or retention of existing jobs;
2.) Increase in the tax base;
3.) Investment of public dollars inducing private investment;
4.) Excessive public infrastructure or improvement cost beyond the means of the affected
community and private participants in the project;
5.) Higher wage levels to the community or added value to current workforce skills;
6.) Necessity of assistance to retain existing business; and
7.) Necessity of assistance to attract out-of-state business.
The grant or loan cannot be made based solely on a finding that the conditions in clause
2.), 6.) or 7.) exist. A finding must be made that a condition in clause 1.), 3.), 4.), or 5.)
also exists.
V. ELIGIBLE ACTIVITIES
1.) Purchase of land
2.) Construction of a building or other improvements
3.) Renovation of an existing building to accommodate the business
4.) Construction of tenant improvements
5) Purchase of Capital Equipment
6.) Lease or purchase of an existing building
7.) Site improvements
8.) Public improvements and privately owned utilities
9.) Workforce Development including job training and placement:
a.) Training low skilled, low-income persons for specific jobs for which they
have been hired and which require skill levels beyond what they now have;
b.) Training a pool of low-income prospective employees for specific jobs being
created as a result of a CDBG-funded industrial expansion, where the
employer agrees to give first consideration to filling the new positions with
people from this pool;
c.) Re-training existing employees of a business as part of a project which
qualifies as retaining jobs.
10.) Microenterprise Assistance: RLF assistance can be provided to persons owning or
developing a microenterprise, which is defined as a commercial enterprise that has 5
or fewer employees, one or more of whom owns the enterprise.
VI. INELIGIBLE ACTIVITIES
RLF assistance may not be used for the following:
1.) Operation or expansion of a casino.
2.)
a professional sports team as a principal tenant.
3.) General promotion of the community.
4.) Professional sports teams.
5.) Privately owned recreational facilities that serve a predominantly higher income
clientele where the benefit to users clearly outweighs the benefit of jobs created or
retained.
6.) Acquisition of land for which a specific use has not been identified (i.e. land
banking)
7.) Assistance to a for-profit business that is, or its owner is, the subject of unresolved
findings of noncompliance related to previous CDBG assistance.
8.) For relocation of an out of state business.
9.) New housing construction.
10.) Planning for economic development projects.
11.) Job training that is not part of a CDBG eligible economic development activity to
create or retain permanent jobs.
12.) Working capital.
VII. PUBLIC BENEFIT
A project using RLF funds must show a minimum level of public benefit. The amount of
the assistance must not exceed $50,000 per full-time equivalent, permanent job (created
or retained). If the City finds, after a public hearing, that the primary purpose of the
project is not job creation, this provision is not applicable.
VIII. PROJECT COSTS AND FINANCIAL REQUIREMENTS
A. Acceptable Private Financing Methods:
1. Companion Direct Loan: The RLF is subordinate to the primary lender.
2. Participation Loan: The RLF participates in a portion of the loan.
3. Guarantee Loans: The RLF guarantees a portion of the bank loan.
a. Interest rate cap is subject to City approval
B. Terms and Conditions:
1. Leveraging: Minimum 60% private/public Non-RLF, Maximum 30% RLF,
Minimum 10% equity.
2. Loan Term: Personal property term not to exceed life of equipment (generally
5-7 years). Real estate property maximum of 5-year maturity amortized up to
30 years. Balloon payment at 5 years.
3.Interest Rate: Fixed rate not less than 2% below prime rate as published in the
Wall Street Journal on date of RLF loan approval, with a minimum interest
rate of 3.0%.
4. Loan Fee: Minimum of $500 but not to exceed 1.5% of the total loan. Fees
are to be documented and no duplication of fees between the lending
institution and the RLF. Loan fee may be incorporated into project cost. City
retains the right to reduce or waive loan fee or portion of loan fee. Fee to be
paid by applicant to the City within 5 working days after City Council
approval of RLF loan. The fee is non-refundable.
C. Other:
1. No penalty for prepayment of loan in whole or in part.
2. Extending a balloon payment will require a verification letter from two
lending institutions stating the inability to refinance and is subject to approval
by the City.
3. Monthly payments may be deferred for a determined period of time upon
approval by the City Council.
4. Failure to pay principal or interest when due may result in the loan being
immediately called. In addition to any other amounts due on any loan, and
without waiving any right of the City under any applicable documents, a late
fee of $250 will be imposed on any borrower for any payment not received in
full by the City within 30 calendar days of the date on which it is due.
Furthermore, interest will continue to accrue on any amount due until the date
on which it is paid to the City, and all such interest will be due and payable at
the same time as the amount on which it has accrued.
5. RLF Loans are not assumable.
6. The City will determine appropriate and applicable business equity
requirements on a case by case analysis, utilizing normal lending guidelines,
subject to the type of assistance.
7. Collateral may include:
i. Liens on real property in project (mortgage deed).
ii. Liens on real property in business (mortgage deed).
iii. Liens on real property held personally (subject to City approval, homestead
exempt).
iv. Machinery and equipment liens (except equipment exempt from bankruptcy).
v. Personal and/or corporate guarantees (requires unlimited personal
guarantees).
8.An approved RLFloan shall be null and void if funds are not drawn upon or
disbursed within 180 days from date of City Council approval.
i. The 180-day non-performance date can be extended up to an additional 120
days, upon approval by the City.
ii. A written request must be received 30 days prior to expiration of the 180-day
non-performance date.
9. Legal fees are the responsibility of the RLF applicant.
10. Participating Lending Institutions:
i. shall be determined by the RLF applicant
ii. shall cooperate with the City and assist in carrying out the policies of the RLF
as approved by the City Council.
iii. Shall analyze the formal application and indicate to the City the level at
which the lending institution will participate in the finance package.
11. Loan Administration:
i. City Staff shall collect applicable RLF payments
ii. City Staff shall assure City compliance with all applicable terms and
conditions of the approved loan.
iii. All loan documents shall include the following:
a) Definition of loan default, agreements regarding notification of
default
b) Copy of primary lenders documents
c) Provisions allowing the City to inquire on the status of the primary
loan
IV. LOAN APPLICATION PROCEDURES
The City desires to make the RLF loan application process as simple as possible.
However, certain procedures must be followed prior to City consideration of a loan
request. Information regarding the program and procedures for obtaining a loan are as
follows:
a. City Staff: City Staff shall carry out RLF operating procedures as approved
by the EDA and City Council. Staff is responsible for assisting businesses in
the loan application process and will work closely with applicants in
developing the necessary information.
b.Application Process:
1. Applicant shall complete a preliminary loan application. Staff will
review application for consistency with the policies set forth in the
Guidelines.
2. If applicant gains initial support from lending institution and if the
preliminary loan application is approved, applicant is then asked to
complete a formal application. Formal application shall include a
business plan which will include its management structure, market
analysis, and financial statement. Like documentation necessary for
obtaining the bank loan associated with the proposal is acceptable.
Attached with each formal application is a written release of
information executed by the loan applicant
3. If the preliminary loan application is not approved by staff, the
applicant may request that the City consider approval of the
preliminary application at the next regularly scheduled meeting of the
City Council.
4. City staff shall analyze the formal application and financial
statements contained therein to determine if the proposed business
and finance plan is viable. City staff shall submit a written
recommendation to the City Council. A decision regarding the
application shall be made by the City Council within 60 days of the
submittal of a completed formal application.
5. Prior to issuance of an approved loan, the City Attorney shall review
and/or prepare all contracts, legal documents, and inter-creditor
agreements. After such review is complete, the City shall issue said
loan.
History:
Public Hearing and Adoption on March 23, 2009
Exhibit A
STATE REQUIREMENTS
1. MINNESOTA INVESTMENT FUND (MS.116J.8731)
Wage Goals: Businesses receiving RLF assistance must pay each employee total
compensation, including benefits not mandated by law, that on an annualized basis is equal
to at least 110% of the federal poverty level for a family of four.
Retail Businesses: are not prohibited from receiving federal ED assistance.
2. MUNICIPAL RIGHTS, POWERS, DUTIES (MS 471.87-471.88)
An officer of the city may not have a personal financial interest or personally benefit
financially from the business to be assisted.
3. BUSINESS SUBSIDY LAW (MS 116J.993-116J.995).
Any state or local government agency or public entity that provides financial assistance to a
business must comply with this statute.
4. FIRST SOURCE AGREEMENT (MS 116L.66)
A business that receives grants or loans in an amount greater than $200,000 must list any
vacant or new positions with the Department of Employment and Economic Development.
5. SURETY DEPOSITS REQUIRED FOR CONSTRUCTION CONTRACTS (MS
290.9705)
When a contract exceeds $100,000 and a non-Minnesota construction contractor has been
hired to perform the work, the city must do one of the following:
a. Deposit with the Department of Revenue, 8 % of every payment made to the
contractor; or
b. Have in its possession a Waiver of Withholding from the Department of Revenue.
6. GOVERNMENT DATA PRACTICES (MS 13)
Information contained in the application for assistance will become a matter of public
record with the exception of those items protected under the Minnesota Government Data
Practices Act.
Exhibit B
FEDERAL REQUIREMENTS
Federal requirements are as on file with the City Clerk of Monticello and are hereby
incorporated by reference.
A. The project must meet at least one of two national objectives. These objectives are:
Benefit to Low and Moderate Income (LMI) or Prevention or Elimination of Slums or
Blight.
Low and Moderate Income
Job Creation/Retention.
The business to be assisted must commit to the creation and or retention of jobs with 51%
of the jobs to be made available to or held by LMI persons. When jobs will be retained,
the business must document that the jobs would be lost without the RLF assistance and
that one or both of the following applies to at least 51% of the jobs:
a.) The job is held by a LMI person; or
b.) The job can reasonably be expected to turn over within the following 2 years and
steps will be taken to ensure that the job will be filled by, or made available to, a LMI
person.
A position is LMI persons if the following criteria apply to the position:
a.) The job does not require special skills that can only be acquired with substantial
training, work experience or education beyond high school.
b.) The business agrees to hire unqualified persons and provide training; and
c.) The city and the assisted business take actions to ensure that LMI persons receive
first consideration for filling such jobs.
A job that is an LMI person if his/her household income is within the Section
8 income guidelines. (See attached Job Information form)
Retained Jobs
In order to consider job
evidence that permanent jobs will be lost without such assistance. For these
a) Evidence that the business has issued a notice to affected employees or made a
public announcement to that effect, or
b) Analysis of relevant financial records which clearly and convincingly shows that the
business is likely to have to cut back employment in the near future without the planned
intervention.
To meet the LMI standard, 51% or more of the retained jobs must be either:
a) Known to be held by LMI persons at the time this assistance is provided and/or
b) Jobs not known to be held by LMI persons, but which can be reasonably expected to
business taking actions to ensure that such a job, upon turnover, will be either taken by or
made available to a LMI person in a manner similar to that pertained to a newly created
job.
Slums/Blight
An economic development project, such as commercial rehab, which aid in the
prevention or elimination of slums or blight in a designated area may qualify under the
Slum/Blight National Objective.
To qualify, the economic development activity must take place in an area that:
1.) Has been designated by the city as meeting a definition of a slum, blighted,
deteriorated or deteriorating area under state or local law; and
2.) Has a substantial number of deteriorated or deteriorating buildings, or the public
improvements are in a general state of deterioration.
The assisted activity must address the conditions that contributed to the deterioration of
the delineated area.
The city must maintain documentation on the boundaries of the area and the condition
which qualified the area when it was designated under state or local law.
B. An RLF project must also meet the following federal requirements:
1. FAIR HOUSING AND EQUAL ACCESS
a. Title VI of the Civil Rights Act of 1964, as Amended (42 U.S.C. 2000d et seq.) (24
CFR Part 1)
No person may be excluded from participation in, denied the benefits of, or subjected to
discrimination under any program or activity receiving Federal financial assistance on the
basis of race, color or national origin.
b. The Fair Housing Act (42 U.S.C. 3601-3620) ((24 CFR Part 100-115)
Prohibits discrimination in the sale or rental of housing, the financing of housing or the
provision of brokerage services against any person on the basis of race, color, religion,
sex, national origin, handicap or familial status. Furthermore, section 104 (b) (2) of the
Act requires that each grantee certify to the secretary of HUD that it is affirmatively
furthering fair housing. The certification specifically requires grantees to conduct a fair
housing analysis, develop a fair housing plan, take appropriate actions to overcome the
effects of any impediments identified and maintain records on the analysis, plan and
actions in this regard.
c. Equal Opportunity in Housing (Executive Order 11063, as amended by Executive
Order 12259) (24 CFR Part 107)
Prohibits discrimination against individuals on the basis of race, color, religion, sex or
national origin in the sale, rental, leasing or other disposition of residential property, or in
the use or occupancy of housing assisted with Federal funds.
d. Age Discrimination Act of 1975, As Amended (42 U.S.C. 6101) (24 CFR Part 146)
Prohibits age discrimination in programs receiving Federal financial assistance.
e. Section 109 of Title I of the Housing and Community Development Act of 1974
Requires that no person shall be excluded from participation in, be denied the benefits of,
or be subjected to discrimination under any program or activity funded with CDBG funds
on the basis of race, color, religion, national origin or sex.
f. Americans with Disabilities Act (ADA) (42 U.S.C. 12131; 47 U.S.C. 155, 201, 218,
and 225)
Provides comprehensive civil rights to individuals with disabilities in the areas of
employment, public accomodations, state and local government services and
telecommunications. The Act also states that discrimination includes the failure to design
and construct facilities that are accessible to and usable by persons with disabilities and
requites the removal of architectural and communication barriers that are structural in
nature in existing facilities.
g Section 504 of the Rehabilitation Act of 1973
Prohibits discrimination in Federally assisted programs on the basis of handicap. It
programs and activities that receive Federal funds.
h. Architectural Barriers Act of 1968 (942 U.S.C. 4151-4157)
Requires certain Federally funded buildings an other facilities to be designed, constructed
or altered in accordance with standards that ensure accessibility to, and use by, physically
handicapped people.
2. EQUAL OPPORTUNITY
a. Equal Employment Opportunity, Executive Order 11246, as amended.. (41 CFR
part 60)
Prohibits discrimination against any employee or applicant for employment because of
race, color, religion, sex or national origin. Provisions to effectuate this prohibition must
be included in all construction contracts exceeding $10,000.
b. Section 3 of the Housing and Urban Development Act of 1968
Requires that, to the greatest extent feasible, opportunities for training and employment
arising from CDBG will be provided to low-income persons residing in the program
service area. Also, to the greatest extent feasible, contracts for work (all types) to be
performed in connection with CDBG will be awarded to business concerns that are
located in or owned by persons residing in the program service area.
c. (Executive Orders 11625, 12432, 12138) (24
CFR 85.36(e)).
City must prescribe procedures for a minority outreach program to ensure the inclusion,
to the maximum extent possible, of minorities and women, and entities owned by
minorities and women, in all contracts.
3. LABOR REQUIREMENTS
All contracts for construction and installation of equipment must comply with the
following:
a. Davis-Bacon and Related Acts (40 USC 276 (A)-7)
Ensures that mechanics and laborers employed in construction work under Federally
contracts are paid wages and fringe benefits equal to those that prevail in the locality
where the work is performed.
b. Contract Work Hours and Safety Standards Act, as amended (40 USC 327-333)
Provides that mechanics and laborers employed on Federally assisted construction jobs
are paid time and one-half for work in excess of 40 hours per week, and provides for the
payment liquidated damages where violations occur. It also addresses safe and healthy
working conditions.
c. Copeland (Anti-Kickback)Act (40 USC 276c)
Governs the deductions from paychecks that are allowable. Makes it a criminal offense
to induce anyone employed on a Federally assisted project to relinquish any compensation
to which he/she is entitled, and requires all contractors to submit weekly payrolls and
statements of compliance.
d. Fair Housing Standards Act of 1938, As Amended (29 USC 201, et.seq.)
Establishes the basic minimum wage for all work and requires the payment of overtime at
the rate of at least time and one-half. It also requires the payment of wages for the entire
time that an employee is required or permitted to work, and establishes child labor
standards.
In accordance with 24 CFR Part 5, CDBG funds may not be used to directly or indirectly
employ, award contracts to or otherwise engage the services of any contractor or
subrecipient during any period of debarment, suspension or placement of ineligibility
status. Grantees should check all contractors, subcontractors, lower tier contractors and
subrecipients against the Federal publication that lists debarred, suspended and ineligible
contractors. See internet site at http://www.arnet.gov/epls/.
4. PROCUREMENT
The procurement standards of 24 CFR 85.36 apply.
5. CONFLICT-OF-INTEREST
For the procurement of property and services, the conflict-of-interest provisions at 24
CFR 85.36 and 24 CFR 84.42 apply. This requires the city to maintain written standards
governing the performance of their employees engaged in awarding and administering
contracts. At a minimum, these standards must:
a. Require that no employee, officer, agent of the city or its sub-recipient shall
participate in the selection, award or administration of a contract supported by CDBG if a
conflict-of-interest, either real or apparent, would be involved;
b. Require that grantee or sub-recipient employees, officers and agents not accept
gratuities, favors or anything of monetary value from contractors potential contractors or
parties to sub-agreements; and
c. Stipulate provisions for penalties, sanctions or other disciplinary actions for
violations or standards.
A conflict would arise when any of the following has a financial or other interest in a firm
for award:
a. An employee, agent or officer of the grantee or sub-recipient;
b. Any mem
c.
d. An organization that employs or is about to employ an employee, agent or officer of
the grantee or sub-recipient.
In cases not covered by the above, the CDBG regulations at 24 CFR 570.611 governing
conflict-of-interest apply. These provisions cover employees, agents, consultants, officers
and elected or appointed officials of the city or sub-recipient. The regulations state that
no person covered who exercises or has exercised any functions or responsibilities with
respect to CDBG activities or who is in a position to participate in decisions or gain
inside information:
a. May obtain a financial interest or benefit from a CDBG activity;
b. Have an interest in any contract, subcontract or agreement for themselves or for
persons with business or family ties.
This requirement applies to covered persons during their tenure and for one year after
leaving the city or sub-recipient entity.
Upon written request, exceptions to these provisions may be granted by HUD on a case-
by-case basis only after the city has:
a. Disclosed the full nature of the conflict and submitted proof that the disclosure has
been made public, and
b. Provided a legal opinion from the city stating that there would be no violation of
state or law if the exception were granted.
6. ENVIRONMENTAL REVIEW
The city is responsible for undertaking environmental reviews in accordance with the
Environmental Handbook. The environmental review must be completed before funds
are committed.
7. FLOOD INSURANCE
Section 202 of the Flood Disaster Protection Act of 1973 (42 USC 4106)
Requires that CDBG funds shall not be provided to an area that has been identified by the
Federal Emergency Management Agency (FEMA) as having special flood hazards unless:
a. The community is participating in the National Flood Insurance Program, or it has
been less than a year since the community was designated as having special flood
hazards; and
b. Flood insurance is obtained.
8. DISPLACEMENT, RELOCATION, ACQUISITION AND REPLACEMENT OF
HOUSING
Projects involving acquisition, rehabilitation or demolition may be subject to the
provisions of the Uniform Relocation Act.
July 2014
OPERATING GUIDELINES FOR
REVOLVING LOAN FUNDS SEEDED BY
STATE MINNESOTA INVESTMENT FUND AWARDS
A local unit of government may establish a Revolving Loan Fund (RLF) with funds from a variety of sources. The
guidelines outlined in this document pertain only to a RLF seeded with funds received through the repayment of
a loan provided from the state-funded Minnesota Investment Fund (MIF) or Economic Recovery Fund programs
administered through the Department of Employment and Economic Development or its predecessors.
The local government must follow the RLF guidelines that were submitted with the initial MIF application and
approved by your DEED Senior Loan Officer. Although the guidelines provide the policies and procedures for the
reuse of these funds, the RLF policies and procedures must also adhere to the same requirements that are
followed by the local government
underwriting criteria, the guidelines from Minn. Stat. 116J.8731 (some of which is summarized below) and from
the Minnesota Business Subsidy Law (Minn. Stat. 116J. 993 and 116J.994) must be included in the policies and
procedures
General Purposes and Guidelines for RLFs Seeded by the Minnesota Investment Fund
Purpose and Goals
The purpose of the RLF is to provide financial and technical assistance for the creation and retention of new
employment. These objectives may be accomplished through the following means:
1. Create/retain permanent private sector jobs to fuel above-average economic growth consistent with
environmental protection;
2. Investment in technology and equipment that increase productivity and provide for higher wages;
3. Leverage of private investment to ensure economic renewal and competitiveness;
4. Increase the local tax base to guarantee a diversified industry mix;
5. Improve the quality of existing jobs, based on increases in wages or improvements in the job
duties, training, or education associated with those jobs;
6. Improve employment and economic opportunities and create a reasonable standard of living; and
7. Enhance productivity growth through improved manufacturing or new technologies.
One way to meet these objectives is to assist businesses that have location options outside Minnesota.
These firms bring income into the state and raise the overall standard of living.
Eligible Expenditures
The MIF-seeded funds may be used in a variety of ways include example noted below. More information is
available in Minn. Stat. 116J.8731 and through conversations with your loan officer.
1. Provide loans, loan guarantees, interest buy-downs, and other forms of participation, ensuring that RLF
funds are matched by private financing.
2. Fund strategic investments in renewable energy market development. Any expenditure for external
marketing for renewable energy market development is not subject to the matching requirements
listed above.
3. Provide entrepreneurs with training, other technical assistance, and financial assistance as
defined by federal guidelines.
1
July 2014
Eligible Projects
Assistance must be evaluated on the existence of the following conditions as noted in Minn. Stat. 116J.8731:
1. Creation or retention of jobs, or the improvement of jobs as measured by wages, skills or knowledge;
2. Increase in the tax base;
3. Attraction of private funds to the project;
4. Incapacity of local communities and finance partners to finance project;
5. Results in higher wage levels or workforce skills;
6. Supports development of microenterprises, as defined by federal guidelines, through technical
assistance or financial assistance.
7. Need for assistance to retain existing business;
8. Importance of assistance to attract out-of-state business; and
9. The project promotes or advances the green economy.
The assistance cannot meet solely 7. or 8.; other conditions must also be present.
Eligible Activities
to fund a variety of business activities including:
1. Acquisition of land
2. Construction or rehabilitation of facilities
3. Site improvements
4. Utilities or infrastructure
5. Machinery and Equipment
6. Training
7. Working capital
Advance approval from DEED is necessary if the local government would like to provide financing for
activities not listed above. Approval is more likely to occur in projects that relate to business development
and involve other local government funds.
Ineligible Activities
In contrast to federal MIF funds, there are industry limitations on how state MIF RLFs may be used. State
MIF RLFs may not be used for the operation, construction or expansion of a casino, a sport facility that that
has a professional sports team as a principal tenant or any firm engaged in retailing merchandise. All
assistance should follow the approved RLF guidelines. Please call your loan officer to discuss any
prospective financing.
Wage Goals
Businesses receiving RLF-State MIF assistance must pay each employee total compensation, including
benefits not mandated by law, that on an annualized basis is equal to at least 110 % of the federal poverty
level for a family of four, which as of February 1, 2014 is $12.61
.
Other Eligible Uses of the Funds
Minn. Stat. 116J.8731 allows local governments to loan or grant RLF funds to a regional development
commission, other regional entities, or a certain statewide community capital funds to provide the local
match required for capitalization of a regional or statewide RLF. Unlike federal MIF funds, state MIF funds
held by local governments never lose their state identify and must follow all applicable laws and regulations.
2
July 2014
The local governmentmust request permission from the DEED before it can commit toproviding funds to
any of these organizations. The local government does not have the authority to turn over to another
entity, such as Port Authority, Economic Development Authority, Housing Authority, etc. revolving loan
funds for any purpose; these entities may administer MIF transactions provided the MIF grantee still
maintains control over the RLF.
Conflict of Interest
Minn. Stat. 471.87 and 471.88 provide guidance on conflict of interest in a MIF transaction. An actual conflict of
interest shall be deemed to exist when a decision on a MIF transaction would compromise a duty to another
party or if special advantage is deemed to occur. Potential conflict of interests shouldl also be considered.
Business Subsidy Law
As mentioned on page 1, Minn. Stat. 116J.993 and 116J.994 must be followed in the administration of RLF-State
MIF. These sections pertain to the definition of a business subsidy, public purpose of the subsidy, criteria,
subsidy agreements, wage and job goals, timing of the project, public notice and hearing requirements, failure
to meet goals, and reporting of information regarding the outcomes of the subsidy.
Job Listing Requirements
Per Minn. Stat. 116L.66, a business that receives grants or loans in an amount greater than $200,000 must agree
to list any vacant or new positions related to the financial assistance on the MinnesotaWorks.net job bank
website.
Prevailing Wage
Per Minn. Stat. 116J.871, laborers and mechanics at the project site during construction, installation,remodeling,
and repairs must be paid the state prevailing wage if the financial assistance is greater than $500,000 for a loan.
All contracts for publicly owned infrastructure using the RLF must comply with the prevailing wage provisions.
Data Privacy
The provision of any information related to any applications for assistance is guided by Minn. Stat. 13.591,
particularly Subd 1 and 2.
ŷĻƭĻ ƚƦĻƩğƷźƓŭ ŭǒźķĻƌźƓĻƭ ƦƩƚǝźķĻ ğ ƭǒƒƒğƩǤ ƚŅ ŷƚǞ Ʒƚ ğķƒźƓźƭƷĻƩ ƩĻǝƚƌǝźƓŭ ƌƚğƓ ŅǒƓķƭ ƭĻĻķĻķ ǞźƷŷ
ƩĻƦğǤƒĻƓƷƭ ŅƩƚƒ aźƓƓĻƭƚƷğ LƓǝĻƭƷƒĻƓƷ CǒƓķ ƌƚğƓƭ͵ {ƦĻĭźŅźĭ ƷƩğƓƭğĭƷźƚƓƭ ğƓķ w\[C ğķƒźƓźƭƷƩğƷźƚƓ ƭŷƚǒƌķ ĬĻ
ķźƭĭǒƭƭĻķ ǞźƷŷ ǤƚǒƩ 5995 {ĻƓźƚƩ \[ƚğƓ hŅŅźĭĻƩ͵ hƷŷĻƩ ğƦƦƌźĭğĬƌĻ ƭƷğƷĻ ğƓķ ŅĻķĻƩğƌ ƌğǞƭ ğƓķ ƩǒƌĻƭ ƒǒƭƷ ğƌƭƚ ĬĻ
ŅƚƌƌƚǞĻķ͵
3
MinnesotaInvestmentFund
RevolvingLoanFundManual
CommunityDevelopmentBlockGrant
EconomicDevelopmentProgram(CDBG-ED)
Introduction
TheStateofMinnesota,DepartmentofEmploymentandEconomicDevelopment(DEED)receives
CommunityDevelopmentBlockGrant(CDBG)fundsannuallyfromtheU.S.Departmentof
HousingandUrbanDevelopment(HUD).HUDestablishestheCDBGregulationsand
requirementsfortheprogramandhasoversightresponsibilitiesfortheuseofthesefunds.
DEED’s OfficeofCommunityAssistance receives85%oftheannualallocationandawardsgrants
tolocalunitsofgovernmentformoregeneraltypesofcommunitydevelopmentprojectssuchas
housingandcommercialrehabilitationandpublicfacilityactivities.Theremaining15%,
administeredbythe OfficeofBusinessFinance,isdesignatedspecificallyforeconomic
developmentprojectsandisknownastheCommunityDevelopmentBlockGrant-Economic
Development(CDBG-ED)program.ItisalsoknownastheMinnesotaInvestmentFund(MIF).
Uponsubmittalofanapplicationbyaneligibleapplicant,DEEDawardstheMIFgranttoalocal
unitofgovernmentinanamountupto$500,000toassistwiththestartuporexpansionofa
qualifiedbusiness.Whenrepaymentoftheloanoccurs,DEEDallowsthelocalgovernmentto
retainthefunds.Allloanrepaymentsareconsidered“ProgramIncome”(PI)andsincethelocal
governmentispermittedtoretainthePItheloanpaymentsmustbeplacedinaseparate
RevolvingLoanFund(RLF)tofundthesameactivitiesthatgeneratedthePI.Therefore,theRLF
mustbeusedspecificallyforfutureeconomicdevelopmentactivities,allofwhicharediscussedin
thismanual.
ThelocalgovernmentmaybroadentheuseoftheRLFbyusingthefundsforanyCDBGeligible
activitiesortheycanoptto“defederalize”thefundsbysub-grantingalloraportionoftheirRLF
toaqualifiednon-profitorganizationknownasaLocalDevelopmentOrganization(LDO).Please
contactyourDEEDloanofficertolearnmoreabouttheseoptions.
LocalGovernmentResponsibilities
ThelocalgovernmentacceptedcertainresponsibilitiesfortheadministrationofaCDBG-ED
RevolvingLoanFundwhenitacceptedtheCDBG-EDgrantfortheprojectthatprovidedthefunds
fortheRLF.Theseresponsibilitiesincludethefollowing:
Tomaintainanaccountingandfinancialmanagementsystemthatcomplieswithgenerally
acceptedaccountingprinciples;
TocomplywithannualreportingtoDEEDandinclusionoftheRLFinitsannualaudit;
TooperatetheRLFinaccordancewithDEEDapprovedpolicies,procedures,federal,state
andlocallaw,regulation,contracts,guidancemanualsandmemoranda;
Tomaintainanapplicationreviewandselectionprocesstodetermineifthefunding
requestcandemonstrateareasonableexpectationofrepayment,withtheexpectation
havingbeensupportedbymeaningfulandprudentduediligenceonthepartofthelocal
government;
Tomaintainaloanpackagingandstructuringsystemthatmeetsappropriateunderwriting
standardsforsecurityanddocumentation;
Tomaintainaloanservicingandmonitoringsystemensuringthatloanpaymentsare
collected,thatloancovenantsareenforcedandthatloansecurityismaintained;
Tomaintainasystemfortrackingjobcreationandretention.
ThepurposeofthismanualistoprovidegeneralguidanceintheadministrationoftheRLFandto
assistthelocalgovernmentmeetthemyriadoffederalrequirements.Itisintendedasaguide
andreference,notasasubstituteforathoroughknowledgeoffederallaws,regulationsand
guidancereferencedinthemanual.ItisimportantthattheadministratorsoftheRLFbefamiliar
withtheserequirements.
Chapter1
REVOLVINGLOANFUNDS(RLF)
ARevolvingLoanFundundertheCDBG-EDprogramistheadministrativeumbrellaforthere-
useof ProgramIncome inthemakingofbusinessloans.
ProgramIncomeincludes:
o PaymentsofprincipalandinterestonloansmadeusingCDBG-EDfunds;
o ProceedsfromthesaleofloansorobligationssecuredbyloansmadewithCDBG-EDfunds;
o InterestearnedonanRLFpendingitsdisposition;
o Fundscollectedthroughspecialassessmentsonpropertiesnotownedandoccupiedby
LMIhouseholdsinordertorecovertheCDBGportionofapublicimprovement;
o LocalGovernmentorsubgranteeincomefromanownershipinterestinafor-profit
entitythatwasassistedwithCDBG.
Programincomedoesnotinclude:
o Amountsgeneratedandkeptbyanonprofitlocaldevelopmentorganization(LDO).
ProgramincomeretainedbytheLocalGovernmentis:
o SubjecttoallCDBG–EDrequirements;and
o MustmaximizetothefullestextentpossibleitsexistingRLFtowardsanewproject
beforerequestingadditionalfundsfromeithertheSmallCitiesDevelopmentProgramor
theMinnesotaInvestmentFund.
WhenadministeringaCDBG-EDRLF,theLocalGovernmentmustestablishaseparatefundwitha
separatesetofaccountsforthedepositofrepayments(principalandinterest)forloansmadewith
theCDBG-EDRLF.Ifthelocalgovernmentisreceivingpaymentsfromaloanthatwasfunded
throughtheStatefundedMinnesotaInvestmentFundprogram,therepaymentsoftheloanmust
beaccountedforseparatelyfromtheCDBG-EDfund.ThesameappliestoaRLFforcommercialor
housingrehabilitationwherefundingwasprovidedthroughtheSmallCitiesDevelopmentprogram.
TheRLFmustcomplywithCDBGregulationsaswellasallotherfederalrequirementsapplicable
totheCDBG-EDprogram(i.e.,meetanationalobjective,meetthepublicbenefitstandards,
EnvironmentalReview,Davis-Bacon,etc.).Theserequirementsareoutlinedinthismanual;
however,itisrecommendedthatthelocalgovernmentreviewthelaws,regulations,andstatutes
thatapplytoeachofthesecriteria.
TheLocalGovernmentmustkeepthefollowingthreeobjectivesinmindwhenadministeringthe
CDBG-EDRLF:
THECDBG-EDFUNDEDRLFNEVERLOSESITSFEDERALIDENTITY.
THELOCALGOVERNMENTMUSTCONTINUETOCOMPLYWITHALL
FEDERALREQUIREMENTSINANYSUBSEQUENTREUSEOFTHEFUNDS.
and
THELOCALGOVERNMENTSHALLSUBSTANTIALLYDISBURSEFUNDS
FROMTHECDBG-EDRLFBEFOREREQUESTINGADDITIONALECONOMIC
DEVELOPMENTAND/ORSMALLCITIESDEVELOPMENTPROGRAMFUNDSFROMDEED.
and
THELOCALGOVERNMENTMUSTREPORTTODEEDONTHEUSEOF
THERLFANNUALLY.THISREPORTINGISSEPARATEFROMTHE“PROGRAM
INCOME”REPORTINGFORTHECOMPETITIVESCDPPROGRAM.
ARevolvingLoanFundismanagedaccordingtoawrittensetofguidelinesdevelopedbytheLocal
GovernmenttocarryoutCDBGeligibleeconomicdevelopmentprojects.Inthecaseofmost
economicdevelopmentprojects,theprimarygoalofeachprojectwillbeprivatesectorjobcreation
orretentionofwhichatleast51%ofthejobswillbe“takenby”or“made”availabletopersons
fromlowandmoderateincomefamilies.
RLFpoliciesandproceduresshouldhavebeenforwardedtoand
approvedbyDEEDwiththeapplicationforCDBG-EDassistanceforthe
businessprojectthatultimatelyprovidedtheloanrepaymentstothe
localgovernment.
AnyrevisionsmadetotheRLFpoliciesandproceduresmustbeapprovedbyDEED.
ThischapterwilldiscusstherequirementsfortheCDBG-EDRLFaswellasgoodpracticesfor
theestablishmentofafund.
DESIGNANDADMINISTRATIONOFAREVOLVINGLOANFUNDPOLICY
WhenaRLFiscapitalizedwithrepaidCDBG-EDloanrepayments,thelocalgovernmenttakesona
majorresponsibility—functioningasalender.Thelendingresponsibilitiesaresimilartothoseof
commerciallenders,includingloanmarketing,applicationprocessing,creditanalysis,lending
decisions,loanclosinganddocumentation,loanservicing,andprovisionoftechnicalassistance
beforeandduringtheloanterm;inadditiontocomplyingwiththemyriadofCDBG-ED
requirements.Businessfinancingisveryriskyandoftenquitelaborintensiveresultingintheneed
forahighlevelofadministrativecapacity.However,withcleardevelopmentgoals,awell-designed
RLFandcompetentstaffing,thelocalgovernmentcanmitigatetherisksandspurthestartupand
expansionofbusinesses,aswellasthecreationofnewjobs.
RLF’saregenerallyusedtofilla“financinggap”inabusinessdevelopmentproject.Theyare
typicallycombinedwithotherpublicandprivatefundsandareusedtoinitiate,facilitate,and
promotethelocalgovernment’seconomicdevelopmentneeds,whilecomplementing,not
replacingotherfinancialassistance.Thefundisdesignedtoalleviatethehighcostandshort
supplyofcapitalforbusinessesbyprovidingflexibleloanterms.Typically,RLF’slowertheinterest
rate,lengthentheloanterm,orreducetheriskofaloan.
Thefollowingsectionofthismanualprovidesthelocalgovernmentwithsomethought
provokinginformationfortheplanning,designandadministrationofitsrevolvingloanfund.
RevolvingLoanFundDesign
DesigningtheRLFisoneofthemostcriticalaspectsoftheprogramprocess.Itisatthistimethat
keyelementsoftheprogramwillbedeterminedandoutlined.Thedesignprocessshouldbe
thoroughandclearlydefinedtoaddresstheeconomicdevelopmentneedsofthecommunity
andthegoalsandobjectivesoftheRLFwhilealsoclearlyoutliningtheexpectationsoftheborrowers.
Tobeginthisprocess,itissuggestedthatthelocalgovernmentresearchexistingRLF’sandcompile
samplesofapplicationforms,programguidelines,andothermaterials.Inaddition,lendersand
potentialborrowersshouldbeinvitedtoparticipateinthisprocess.
ThelocalgovernmentmustconsiderthefollowingpriortodevelopingtheRLFpoliciesand
procedures:
Areadequateandappropriateadministrativeresources(legal,financial)available?
Aretheresufficientfundstocarryouttheprogramandtoinvestthelevelofeffort
necessaryforitsimplementation?
KeystepsinestablishingaRLF:
1.ThelocalgovernmentmustdeterminewhowilladministerandimplementtheCDBG-ED
fundedRLF.SincetheLGisultimatelyresponsibleforensuringthatthefundsareusedin
accordancewiththerequirements,theperson(people)administeringtheRLFmustbe
knowledgeableoftheCDBG-EDrequirementsaswellaslendingpractices,etc.Options
are:
a.LocalUnitofGovernmentstaff–
Doestherequiredstaffingcurrentlyexist?
Doesthestaffhavetimetotakeonneworexpandedwork?
DoesthestaffhavethenecessaryCDBG-EDandlendingexperience?
Doesthelocalgovernmenthaveadequateandappropriateadministrative
resources,i.e.,legal,financial?
Iftheanswerstotheabovequestionsareno,thelocalgovernment
shouldstronglyconsidercontractingwithanorganizationthathas
theexpertise.
b.ContractedAdministrators–Acontractorcanbeeitherafor-profitoranon-profitentity
thatispaidfortheirservicesbythelocalunitofgovernment.Thefollowingapply:
AcontractormustbeprocuredcompetitivelyaccordingtotheOMBrules;and
Mostoftheuniformadministrativerequirements donot apply(oncethe
procurementprocessiscomplete);
c.Subgrantee–isapublicorprivatenonprofitagencyororganization,i.e.EDA,Port
Authority,HRA;
Awrittenagreementmustbeexecutedbetweenthetwopartiesdetailingtheworktobe
completedandtherequirementstobefollowed.
Thelocalgovernmentisultimatelyresponsibleforensuringthatthe
fundsareusedinaccordancewithallrequirements.Theuseofcontractors
orsubgranteesdonotrelievethelocalgovernmentofthisresponsibility.
2.IdentifythelocaleconomicdevelopmentneedsandthegoalsoftheRLF:
a.Analyzelocallendinginstitutionsandbusinessestodetermineunmetfinancingneedsof
localbusinesses.
b.Whatarethetechnicalandcreditneeds?
c.Whatothersourcesoffinancing,bothprivateandpublicisavailablelocally,regionallyand
statewide?
d.Whatarethemostcommonreasonsforabusinesstohavedifficultyobtainingcredit?
e.Whattypeoflendingtoolswouldbestservethebusinesscommunity?
f.Identifythecapitalbarrierstobusinessgrowthwhereeconomicdevelopmentincentives
canhavethegreatestimpact.
g.Whattypesofindustries/businessesareneededtoimprovethecommunity?
3.IdentifytheorganizationalstructureoftheRLF:
a.RLFAdministration–whowilladminister?
b.Managementroles–whodoeswhat?
Financialmanagement
Creditanalysis
Marketing
Servicing
LoanClosing
Loanrestructuringandworkouts
c.Legalcounselforthepreparationand/orreviewoftheloanclosingdocuments.
d.RLFCommittee—theestablishmentofaRLFcommitteeisabestpracticeanditisvery
beneficialtohaveacommitteewithdiversebackgroundstoserveasasupportstructure.
Thisprovideswell-roundedreviewandassistanceinareaswherestaffmayhavelimited
expertise.Mostcommitteesincludeaccountants,lawyersandbankers,educators,and
localbusinessowners,butitisagoodideatoincludemembersofthelowincome
community.
4.Determinethefinancingmechanismstobeused--debt,equity,creditenhancement(Chapter
2“FinancingEconomicDevelopment”).
a.Quantifytheleveloffinancialrisktobetaken;
b.DesigntheRLFthatfillstheidentifiedfinancinggaps:
c.Directloans,loanparticipations,guarantees;
d.Public/privatepartnerships;
e.Debtvs.quasi-equityvs.equity
5.DevelopandadoptwrittenRLFadministrativeguidelinesandoperatingproceduresthathelp
guideprogramdecisionsandensureaccuracyandconsistency.Keyelementsinclude:
a.Organizationalmission;
b.GoalsandobjectivesoftheRLF;
c.Minimumandmaximumloanamounts;
d.Typesofavailablefinancing;
e.Privateleverageandequityrequirements;
f.Determinethelengthoftheloanterm,whichmayvarybasedontheuseoftheloan;
g.Determineiftheinterestratewillbevariableorfixedandwhethertheratewillvary
basedontheproject;
h.WilltheRLFprovidefordeferralorforgiveness?
i.Establishanapplicationfee,originationfee,andpoliciesregardingclosingcosts;
j.Applicationreviewcriteria:
Sources/usesstatement,includingcommitmentofotherlenders;
Istheprojectreadytoproceed?
Commitmenttojobretention/creation.
CommitmenttomeetingaNationalObjective.
k.Underwritingcriteria:
Whattypesofborrowerwillbeeligible?
Whatactivitieswillbeeligible?
Howwillabilitytorepaybeanalyzed(cashflowratios)?
Whatkindofcollateralwillberequired?Personalguarantees?
Howwillcredithistorybeassessed?
Doesthebusinessplanoutlinethefinancialandplanningobjectivesofthebusiness
andfiscalsoundness?
Whatisthecommitmentoftheownertohis/herbusinessventureandrepaymentof
theloan(personalguarantee)?
Whataretheskillsoftheowner?
Financialanalysis;
CDBG-EDUnderwritingcriteria.(Chapter7,Underwriting)
l.Jobcreation/retentionandwagecriteria;
m.NationalObjective;
n.Selectionprocesssuchas:decision-makingbodies;applicationtimingandcontent;and
restrictionssuchasconflictofinterestoroverlayingotherFederalrequirementssuchas
Davis-Baconorenvironmental;
o.Applicationproceduresandapprovalprocess;
p.Applicationforms;
q.Loancommitments;
r.Loanclosingsandstandardizeddocuments;
s.Creditandlegalfiles;
t.Servicingpoliciesandprocedures;
u.Definedefaultanddelinquencyterms;
v.Managingloandefaultorworkoutissues;
w.Collectionspolicy.
6.MarkettheRLFtoborrowersandbankers.
MarketingtheRLFisacriticalcomponentofoperatingasuccessfulprogram.Enlistthesupport
oflocallendinginstitutions,businessandindustrygroups,aswellasregionaleconomic
developmentagencies.Inquireaboutupcomingnetworkingeventsorspeakingengagements.
TheseopportunitiescanhighlighttheRLFprogramtoavarietyofbusinessesandhelpspread
thewordabouttheavailablefundingoptions.Usesocialmedia,suchascity’swebsite,twitter,
etc.
7.Maketheloans.
LoanServicing
Administrationoftheloanisfarfromcompleteaftertheloanismade.Ongoingmonitoringand
servicingoftheloaniscriticalandcanbeeasilyoverlooked.Routinemanagementofeachloan-and
theoverallfundportfolio-oftenmeansthedifferencebetweenamarginallyperformingfundanda
successfulone.
Paymentmonitoringshouldberoutineandfollowedonaweeklybasis.Identifyingatroubledloan
beforeitbecomespastduewillincreasetheopportunitytobeginremediation,whetherintheform
ofadditionalassistanceorincreasedmonitoring.
LoanCollections
Unfortunately,notallloanswillbesuccessfulforamyriadofreasons.Therefore,thelocal
governmentisexpectedtofollowsoundlendingpracticesindealingwithdelinquentand/or
defaultedloans.TheLoanAgreementshouldcontainaclausethatdefinesacts,omissionsand
circumstanceswhichqualifyaloantobedeclaredindefaultandprovidesthetimingforresolution.
Followingiscriteriathatthelocalgovernmentmaywanttoconsiderwhendevelopingtheirpolicy:
1.DelinquentLoans
Generally,aloanbecomesdelinquentassoonasthepaymentislate.TheLGmaywishto
th
extendtotheborrowera15-daygraceperiod.Onthe16dayfollowingamissedpayment,
theLGshouldcontactthebusinessinwritingrequestingpayment.Iftheloanisnotbrought
currentasaresultofthewrittennotification,theLGshouldvisitorcallthebusinesstodiscuss
thesituation.Thereafter,thebusinessshouldbecontactedatleastonceamonthduringthe
delinquentperiod.Writtenrecordsshouldbekeptintheloanfilesofallcollectioncontacts
andactivities.TheLGneednotnotifyDEEDduringtheprocessofdealingwithdelinquencies,
exceptforregularreportingofloanstatusviatheRLFAnnualReport.
2.LoanDefaults
Aloanisin“default”whenthebusinessactsorfailstoact,whichconstitutesadefaultas
describedintheloanagreement.ItisalsoindefaultifthejobgoalsandLMIrequirementsare
notmet.See Chapter10,“Recordkeeping”formoreinformation.
Withproperfollow-uptheloanassetsmayberecovered.Ifpossible,theLGshouldattemptto
“workout”thedefaultsituation(i.e.,buy-outbyanotherbusiness,percentageofprincipalpaid
back,etc.)Ifa“workout”cannotbeaccomplished,theLGmustbepreparedtotakeactionagainst
allcollateralpositionsorguarantorsoftheloan.
RecommendedRecordkeepingforloandocumentationcanbefoundinChapter10,
Recordkeeping.
Chapter2
FINANCINGECONOMICDEVELOPMENTPROJECTS
ThereareawidevarietyofwaysthatlocalgovernmentscanusetheirRevolvingLoanFunds
tofinanceeconomicdevelopmentprojects.Forthemostpart,thelocalgovernmenthasmuch
flexibilityindesigningthetoolsthatareusefulandneededbytheirlocality.Thischapter
discussesvariousmethodsthatmightwanttobeconsideredforuseintheRLF.
Whenmostpeoplethinkoffinancingtoolsortechniques,theythinkofbelow-market-rateinterest
bearingloans.Whiletheseloansarecertainlyanimportantpartoftheoverallmixoffinancingtools,
theyarenottheonlytype.
Projectfinancingmechanismstypicallyinclude:
Debt;
Equity;
CreditEnhancement
Thechoiceoffinancingtoolsdependsontheneedsofthelocalgovernment,aswellastheneeds
oflocalbusinessesandisperhapsoneofthemostimportantintheeffectivedesignofaRLF.The
chosenmechanismmustmatchthemarketand/orfinancingneedsoftheproject.
Forexample,averysmallbusinessmayonlyneedafewthousanddollarstogetitsnewproduct
started.Mostprivatelenderswillnotmakeloansofthissizebecauseitisnotcosteffectivefor
themtodoso.
Itisimportantthatthelocalgovernmentunderstandtheothertypesofeconomicdevelopment
financingthatisavailableatthelocal,regionalandstatewidelevel,aswellashavesomebasic
understandingoftheprogramrequirementsofthosetypesoffinancing.
FINANCINGTOOLS
1.Debt
o Debtfinancingusuallyinvolvestheprovisionofaloantoabusinessandaspecified
timeframe(term)and/orconditionsforrepayment.
o Eachofthekeydebtinstrumenttypesisdescribedbelow.
1.AmortizingDirectLoans:Underthisstandardoption,thelocalgovernment
providesaloantothebusinessthatispaidbackovertime.Amortizingdirectloans
maybeinterestbearingorprincipalonly.Typicallybusinessloanshaveaninterest
rate,regardlessofhowsmall.Thetermoftheamortizingloanmaybeshorterfor
loansonitemssuchasequipmentorinventoryandlongeronrealestate.Direct
loansareusuallysecuredbytheproject,byadditional/alternatecollateral,and/ora
personalguaranteefromtheowner(s).
Pluses:
Repaymenthelpstoensurethatthebusinessisfullycommittedtotheproject.
Providesrepaymentthatcanbelentoutagain.
Theinterestincomecanhelpincreaseandmultiplytheoverallleveloffunding
availableforfutureprojects.
Minuses:
Requiresrisktakingandthemeanstoprocessandservicetheloans;
Iftheloandefaults,thelocalgovernmentmusthaveproceduresandtheskills
forloanforeclosureandcollection;
Forsomebusinesses,anamortizingloanwillnotbefinanciallyfeasible,
regardlessoftheinterestrate.Thisismostlikelytobetrueforverysmall
startupcompanies.
2.DeferredPayment/ForgivableLoans:Underthisoption,thelocalgovernment
makesadirectloanbutitsrepaymentisnotamortizedovertime.Rather,its
repaymentisdeferredandcontingentuponanevent(suchasthesaleofthe
company,thebusinessreachingaparticularlevelofprofitability,oraparticular
numberofyearsthathaveelapsed.)Thistypeofloanmyrequirerepaymentof
onlytheprincipal,or,atthetimeofrepayment,mayrequiresomeamountof
accruedinteresttobepaid.
Localgovernmentsmayalsomixthecontingent-paymentloanwithan
amortizingloaninordertorequireparttobepaidperiodicallyandpartpaidat
asetpointintime:
Examples:
Aforgivabledeferred-paymentloanisprovidedtoabusinessandrequires
norepaymentunlessthebusinessleavestheareabeforeacertain
timeframe(e.g.,fiveyears);
Adeferred-paymentloanisprovidedtoabusinesstoassistwiththe
purchaseofequipmentaspartofastart-uporexpansion.Forexample,
interestonlypaymentsmaybeprovidedforthefirstyeartohelpwithcash
flow.
Aloantoabusinessmaybeforgivenafterthebusinesshasmetcertaincriteria
determinedbythelocalgovernment,i.e.,afterthejobsarecreatedand
maintainedforaperiodoftime.
Pluses:
Permitstheloantofunctionlikeagrantintheshorttermandyetallowsfor
theoptionofeventualrepayment;and
Mayberelativelyeasytoadministersincenomonthlyloanservicingis
required.
Minuses:
Loanrepaymentmaynotoccurifthecontingenteventdoesnothappen.For
example,ifthebusinessneverreachesitsintendedlevelofprofitability,the
loanisnotrepaid.Thelocalgovernmentshouldanticipatenon-payment;
Thelocalgovernmentmustbepreparedtoimplement“clawback”procedures
ifthebusinessdoesnotmeetitsgoals;
Thelackofarequiredmonthlypaymentmayinhibitsomeoftheincentivefor
theownertobefullydedicatedtotheproject’ssuccess;and
Thelocalgovernment’sloan-servicingprocedureswouldneedamethodfor
indicatingwhenthescheduledtimeforloanpaymenthasarrived.
3.Co-Lending:Co-lendingoccurswhenthelocalgovernmentisonlyoneofthe
lendersonagivenproject,whichisthetypicalsituation.
Thepublicco-lendingloanmaybemadeintwoways:
Subordinatefinancing:Underthisoption,theloanandtheprivateloanshare
thesamecollateralfromthebusinessbuttherightofrepaymentontheloan
orsharedfirstpositionisplacedbehindtheloanmadebytheprivatelender.
Thus,iftheprojectfails,theprivatelenderisrepaidfirstandthelocal
governmentsloanisrepaidwithwhateverproceedsremain;and
Tandemloan:Underthisoption,theprivatelender’sloanissecuredby
differentcollateralthanthelocalgovernment’sloan.Forexample,the
privatelendermightlendfundsfortheconstructionofafacilityandthat
loanmightbecollateralizedbythebuilding.Simultaneously,thelocal
governmentmightmakealoanforanewpieceofequipmentanditwould
becollateralizedbythatequipment(andmaybesomeadditionalcollateral
fromthebusinessowner).
Generally,theinterestrateontheloanfromthepublicentityislowerthanthe
interestrateontheloanfromtheprivatelender(s).Thus,itislessexpensive
forthebusinesstohavemultipleloans,ratherthanonelargerloanfromthe
privatelender.
Pluses:
Co-lendingallowsflexibilitybymixingandmatchingfinancingtypes;
Inaddition,co-lendinghelpsensurethatthereisrepaymentoftheCDBG-
EDfundstobemadeavailableforfutureactivities;and
Subordinatedloansmayenticeprivatelenderstoparticipateintheproject
byreducingtheirriskandleveloffinancing.
Minuses:
Subordinatedloanscausegreaterriskforthelocalgovernmentsincethey
arelastinlinewhenadefaultoccursandcollateralissoughtforrepayment;
Establishingtheproperinterestrateonapublicloancanbecomplex;and
Underwritingusingco-lendingloanscanbecomplicatedandrequiresa
thoroughunderstandingofcollateral,security,andprivatelender
expectations,aswellasthepotentialforthebusinesstosucceedinachieving
thedesiredpublicbenefit.
GeneralGuidelinesforloans:
o LoanTerms:Thetermsoftheloanshouldbeconsistentwiththeuseoffundsandthe
usefullifeoftheassetfinanced.
Machineryandequipment—between5and10years.
Buildingsandrealestate—between15and20years.
Workingcapital—asshortaspossible,butnolongerthan7years.
Ifadeferralofpaymentsisapproved,thetermoftheloanshouldincludethe
deferredperiod.Forexample,aloanwitha10yeartermwitha1yeardeferral
periodhasatotaltermof10years,not11.
o LoanSecurity:Allloansshouldbesecuredwithfixedassets,inventory,receivables,
etc.,personalguarantees,andoranyotherreasonablesourceofavailablecollateral.
InmostsituationstheRLFloanwillbeplacedinasubordinatedsecuritypositionto
otherlendersinvolvedintheproject.Thebusinessshouldprovidethelocal
governmentwithdocumentationforthevalueofthecollateralofferedforsecurity
andadescriptionofallsecuritypositionsheldbylendersandanyliensthatmayapply
tothecollateral(taxliens,mechanicsliens,etc.).Thelocalgovernmentshould
negotiatewiththebusinessforthemostsecurepositionthatisreasonablyavailable,
regardlessoftheuseoftheRLFfunds(forexample,fixedassetsmaybeusedto
secureworkingcapitalloans).
2.Equity(withorwithoutownership)
Equityistheinvestmentoffundsinaventurethatisnotsubjecttorepaymentasaloan,but
istreatedasanownershipinvestmentthatmayreceivedividendsorreturnsthroughthe
profitsoftheventure.Localgovernmentsmaytakean“equityposition”oranownership
positionintheventure.
Therangeoftoolsusedtoprovideequityinaprojectvarieswidely.Forsomeofthese
equitytools,thelocalgovernmentmayelecttotakeanownershippositionintheproject.
Forotherprojects,thelocalgovernmentmerelyprovidescashinfusionintotheproject.
Forexample,assumethatthelocalgovernmentisfundingthedevelopmentofahotel.
Thelocalgovernmentcoulduseagranttothedeveloperasanequityinvestmentinthe
projectandshareinthegainsandlossesoftheproject.Thecommunitywouldthusbe
apartialownerofthehotel.Underthisscenario,thecommunitymightthengeta
portionoftheproceedsfromthehotel.
1.Equityinvestment:Fundsareinvestedwithanexpectationofreturnonthe
investmentoutoftheprofitsoftheventure.
Pluses:
Thebusinessisnotsaddledwithdebtorrepaymentinthenearterm;and
Thelocalgovernmentmayrecovertheinvestmentovertimeiftheventureis
successful.
Minuses:
Higherriskthatfundsmightnotbeabletoberepaid;
Lowersecuritythandebt;and
DelayinrecoveryoftheRLFinvestment.
2.In-KindContributions:In-kindcontributionsarethedonationofgoodsorservices
toaprojectinordertoreducecoststhatmustbeincurredbythebusinessowner.
Examplesofin-kindcontributionsincludedonatedorreducedcostsfor
professionalservicessuchasaccountantsorlawyers,equipmentor
inventory,commercialspace,orsupplies.
Itisimportanttoaddresslegalliabilityissueswithdonatedprofessionalservices.
In-kindcontributionsarenotacommonmethodofCDBG-EDproject
financing.However,theymayaccompanytheCDBG-EDfinancing.
Forexample,theCDBG-EDRLFmayprovideabusinessownera
low-costloanandthebusinessownermightteamthiswithdonated
professionalservicesfromhis/herlocalChamberofCommerce.
Pluses:
Goodwayofgettinglow-orno-costinvestmentintoabusiness;
Typicallygetscommunityorganizationsinvolvedinthebusiness
developmentprocess.
Minuses:
Donatedmaterialsmaynotbewhatthebusinessneeds(i.e.,lastyear’s
computerequipmentor1,000eraserswhenwhatthebusinessreallywants
is20staplers);and
Maybeinsufficienttohelptheprojectgetstarted.
3.PurchaseandLow-CostSaleorLease:Underthisoption,thelocalgovernment
purchaseslandorpropertyandthensellsorleasesittotheprojectata
substantiallyreducedcost.
Keepinmindthatacquisitionthrougheminentdomainislimited.
Pluses:
Canbeawayforlocalgovernmentstoeasilyinvestexistingresources(i.e.,
landalreadyownedbythelocalgovernment);
Canalsoenablethelocalgovernmenttohelpdirectthelocationofthe
economicdevelopmentactivitybyselectingtheparcelorpropertytobe
soldorleased;and
Whenapplicable,enablesthelocalgovernmenttouseanynecessaryand
availablepublicmeanstoobtainand/orclearthesite.
Minuses:
Mayhavelimitedapplicabilitydependinguponavailablelandand
structuresandthecostofthosestructuresinagivencommunity(i.e.,it
maysimplybecostprohibitiveforalocalgovernmenttopurchasesuch
properties);and
Requiresthatthelocalgovernmentbeskilledinlandand/orproperty
acquisitionand/orleasing.
3.CreditEnhancement
Creditenhancementmakesiteasierforabusinesstoborrowfundsfromaprivatelender
bymakingthatloanmoreattractivetomakefromthelender’sperspective.
Thisisgenerallydoneinoneoftwoways:
o Interestsubsidies;or
o Loanguarantees.
1.InterestSubsidies:Underthisoption,thelocalgovernmentmakesapaymenttoa
lenderwhichisusedtobuydowntheinterestratetoaratewhichismoreaffordable
tothebusinessorproject.
Forexample,ifthemarketinterestrateis8percent,buttheborrowercan
onlyaffordtheprincipalwithinterestat5percent,aninterestsubsidy
paymentcanbemadetocoverthe3-percentgap(usuallybymakinga
principalreductiongrantthatreducesthepaymenttotheequivalentofthe
largerloanatthelowerinterestrate).
o Pluses:
Makesprivatefinancingmorefeasibleforborrowers;and
Negatestheneedforthelocalgovernmenttodoloanservicing(thelender
doesthis).
o Minuses:
Functionslikeagrantinthatthereistypicallynorequirementforthe
borrowertorepaytheinterestsubsidy.
2.LoanGuarantees:Loanguaranteesinduceprivatelendingbypledgingthatthe
lender’sloanwillberepaid(percentagenegotiated)withtheRLFfunds,shouldthe
borrowerdefault.
o Thepurposeoftheloanguaranteeistoreducerisktothelenderandthus
makethemmorewillingtomakethebusinessloan;
o Loanguaranteesmaybestructuredtocover100percentoftheoutstanding
indebtednessontheloanorforaportionofthisdebt;
o Inreturnfortheguarantee,thegranteerequiresthelendertorelaxsomeof
theirnormalunderwritingstandardsinordertoaddressthecreditneedsof
smallerormore“risky”businesses;
o Pluses:
Induceslenderstomakeloanstoawidervarietyofborrowers;and
DoesnotrequiresignificantexpenditureofRLFfundsunlessthebusiness
defaults.
o Minuses:
Canbeverydifficulttostructure.Itisimperativethatthelocalgovernment
haveclearguidelinesonwhattheguaranteecoversandwhen/howitwillbe
paidoutifacollateraldefaultoccurs;
Ifthecriteriaforwhenandhowguaranteeswillbemadeareatallvagueor
unmonitored,itispossiblethatshoddyunderwritingwillresult,particularlyif
a100percentguaranteeisoffered(rememberthatunderthesetypesof
guarantees,thelenderhasverylittlerisk).Considerprovidingaguaranteeof
thetop20-30percentofaloantodiscouragethis,sothatthelenderretains
somerisk.
Chapter3
NATIONALOBJECTIVES
TheCDBGprogramrequiresthateachprojectfunded,exceptforadministrationactivities,must
meetoneofthreeNationalObjectives:
BenefittoLowandModerateIncome(LMI)persons;
Aidinthepreventionoreliminationofslumsorblight;OR
Meetaneedhavingaparticularurgency(referredtoasurgentneed).
AprojectthatdoesnotmeetaNationalObjectiveisnotincompliancewithCDBGrequirements
andwillbesubjecttoremedialactions,includingtherepaymentoffunds.
Eachofthethreeobjectives,andthesubcategoriesofcriteriaforhowthatobjectivemaybemet,
isdescribedinthischapter.Itwillexplorethestrategicdecisionslocalgovernmentscanmake
whenqualifyinganeligibleactivityunderaNationalObjective.
ItishighlyrecommendedthatthelocalgovernmentdownloadandprintHUD’s
“GuidetoNationalObjectivesandEligibleActivitiesforStateCDBGPrograms”
http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_16362.pdf
This“Guide”willprovideadditionaldetailtoassistyouindeterminingprojecteligibilityand
compliancewiththeNationalObjectivecriteria.
I.BenefittoLow-andModerate-IncomePersons
TheLMINationalObjectiveisoftenreferredtoasthe“primary”NationalObjectivebecausethe
regulationsrequirethatGrantees,both StateandtheLocalGovernmentexpend70%oftheir
CDBGfundstomeetthisObjective.ThisObjectiveisusedforthelargemajorityofeconomic
developmentprojects.Thissectioncoversthe3categoriesthatcanbeusedtomeettheLMI
Objective,aswellasthedefinitionofLow-andModerate-Income.
UNDERSTANDINGWHAT“LOW-ANDMODERATE-INCOME”(LMI)MEANS
o Low-andModerate-Income isdefinedinregulation(24CFR5.609)asthegreaterof
either:
~80%ofthemedianfamilyincomeforthecountyinwhichaCDBGprojectis
located;or
~80%ofthemedianfamilyincomeforthenon-metropolitanareaoftheState.
o Low-IncomeHousehold/Family:Ahousehold/familyhavinganincomeequaltoorless
thantheSection8veryLowIncomelimits(50%oftheareamedianincome).
o Moderate-IncomeHousehold/Family:Ahousehold/familyhavinganincomeequalto
orlessthantheSection8LowIncomelimit(80%ofareamedianincome),butgreater
thantheSection8VeryLowIncomelimit(50%ofareamedianincome).
HUDregulationsrequirethat moderate incomepersonsarenotbenefitedtotheexclusionof low
incomepersons.ThisdoesnotmeanthateachCDBG-EDassistedactivitymustinvolvebothlow-
andmoderate-incomebeneficiaries.However,itdoesmeanthatthelocalgovernment’sCDBG-
EDprogram,asawhole,mustprimarilybenefitlow-incomepersons,andthatmoderate-income
personsdonotbenefittotheexclusionoflow-incomepersons.
Theseincomelimitschangeonanannualbasistypicallybythefirstofthecalendaryear.The
incomelimitsforMinnesotaandyourcountycanbefoundatthefollowingwebsite:
http://www.huduser.org/portal/datasets/il.html
A.LowModJobCreationorRetention(LMJ-Low-ModerateIncomeJobs)
MosteconomicdevelopmentprojectswillfallundertheLMJNationalObjective.
TheLMJObjectiveaddresseseconomicdevelopmentprojectsthatcreateorretain
permanentjobs,atleast51%ofwhich(computedonafull-timeequivalentbasis)willbe
either“heldby”or“madeavailableto”LMIpersons.
Whatjobscountforaneconomicdevelopmentproject?
o Onlypermanentjobscount;temporaryjobsmaynotbeincluded.
o Permanentpart-timejobsareeligiblebutthejobsmustbeaddedtogetherin
ordertocalculatethefulltimeequivalent(FTE)ofthetotaljobs.
Forexample:Afulltimeequivalentjobisonethatisemployed2080
hoursperyear.Therefore,if2part-timeemployeeswork520hours
peryeareachandonepart-timeemployeeworks1,040hoursperyear,
thetotalfulltimeequivalentjobisone.
o Seasonaljobsareconsideredtobepermanentonlyiftheseasonislongenoughfor
thejobtobeconsideredastheemployee’sprincipaloccupation;
o Jobsindirectlycreatedorretained(i.e.,“spinoff”jobs)maynotbecounted.
o ThebusinesstobeassistedmustcommittothecreationofjobsandtotheLMI
requirement.
1.Jobs“heldby”LMIpersons:
o Createdorretainedjobsareonlyconsideredtobe“heldby”LMIpersonswhen
thejobisactuallyheldbyanLMIperson.
o AjobisconsideredtobeheldbyaLMIpersonifthepersonis,atthetimetheir
employmentcommences,amemberofafamilywhoseincomefallsatorbelowthe
applicableSection8programincomelimits.The family’sentire incomemustbe
counted.Thisisparticularlyimportantwhendealingwithpart-timejobsorjobs
takenbystudents.
Theannualsalaryorhourlywageofthejobthatthepersonfillsisirrelevant.
2.Jobs“availableto”LMIpersons:
o Jobsthatarenot“heldby”LMIpersonsmaybeclaimedtobe“availableto”
LMIpersonsonlywhenbothofthefollowingaremet:
Thejobsdonotrequirespecialskillsthatcanonlybeacquiredwith
substantial(i.e.,oneyearormore)trainingorworkexperience,and
educationbeyondhighschoolisnotaprerequisitetofillsuchjobs,unless
thebusinessagreestohireunqualifiedpersonsandtrainthem,and
TheassistedbusinessagreestotakeactionstoensurethatLMIpersons
st
receive“1consideration”forfillingsuchjobs.
st
Principlesinvolvedinproviding“1consideration”:
Thebusinessmustuseahiringpracticethatunderusualcircumstances
wouldresultinover51%ofLMIpersonsinterviewedforapplicablejobs
beinghired;
ThebusinessmustseriouslyconsiderasufficientnumberofLMIjob
applicantstogivereasonableopportunitytofillthepositionwithsucha
person.
DEEDstronglyrecommendsthatlocalgovernmentsusethe“heldby”criteriafor
documentingtheLMIrequirement.Thisapproachismoreeasilydocumentedand
defensible.However,thelocalgovernmentcanconsiderusingthe“availableto”
method
iftheydevelopaprocessusingagenciesthatpre-qualifypeopleasLMIandthebusiness
agreestointerviewtheseindividuals.
Retained Jobs:
Theassistedbusinessmustprovideclearandobjectiveevidencethatpermanentjobs
wouldbelostwithouttheassistanceandthatatleast51%ofthejobsareLMI.For
thesepurposes,“clearandobjective”evidenceincludes:
o Evidencethatthebusinesshasissuedanoticetoaffectedemployeesormadea
publicannouncementtothateffect,or
o Analysisofrelevantfinancialrecordswhichclearlyandconvincinglyshowsthat
Thebusinessislikelytohavetocutbackemploymentinthenearfuturewithout
theplannedintervention,and
o ThejobisheldbyaLMIperson;or
o Thejobcanreasonablybeexpectedtoturnoverwithinthefollowing2yearsand
stepswillbetakentoensurethatthejobwillbefilledby,ormadeavailabletoLMI
persons.
Verificationrequiredtodocumentjobretention:
o ThebusinessmustaskeachexistingemployeetocompletetheJobInformation
form(AppendixD)toverifythenumberofpositionscurrentlyheldbyLMIpersons
atthebusiness.Ifabusinessisonlyproposingtoretainexistingemployeesandnot
createnewpositions,thenataminimum,51%oftheexistingemployeesmustbe
qualifiedLMI.
ThetestfordeterminingwhetheranemployeeorapplicantisLMImustbemadebasedonthe
person’sfamilyincomestatus atthetimetheCDBG-EDassistanceisprovided.Oneofthemost
importantaspectsofthisisthattheincomethepersonwouldmakefromtheassistedjobunder
considerationis notincludedinthecalculation.
Notethat,sincethedeterminationofLMIstatusistobemadebasedonincomeatthetimethe
CDBG-EDassistanceisprovided,apersonwhooccupiesahigh-payingbutlow-skilledjobmaynot
qualifyasaLMIpersoninaretainedjob,butthesamejobmightbefilledbyaLMIpersonifit
weretobecreated(insteadofretained)orifitweretobecomeavailabletobefilledthrough
turnoverbyaLMIperson.
Forcreatedjobs,thebenefitisintendedforpersonswhoareLMIpriortobeinghired.For
retainedjobs,thefamilymustbeLMIatthetimethejobisretained.
B.LowModAreaWideBenefit(LMA)
TheAreaWideBenefitcategoryisanactivitythatisavailabletoalltheresidentsofa
defined“servicearea”thatisprimarilyresidential.Atleast51%ofallpersonslivingwithin
theareamustbeLMI.Thelocalgovernmentdeterminesthe“servicearea”.
AnareaisconsideredtomeetthetestofbeingLMIifitprincipallybenefits(51%)ofLMI
personsresidinginthe“servicearea”asdeterminedby:
o ThemostrecentlyavailabledecennialCensus/AmericanCommunitySurvey(ACS)information,
togetherwiththeSection8incomelimitsthatwouldhaveappliedatthetimetheincome
informationwascollectedbytheCensusBureau.Thisinformationcanbefoundat:
http://www.hud.gov/offices/cpd/systems/census/lowmod/;or
o Thecompletionofacurrentsurveyoftheresidentsofthe“servicearea”bytheLG.
Example:Thestartuporexpansionofaretailoperation(i.e.,grocerystoreor
Laundromat)thatprovidesessentialgoodsandservicestoacommunityof950
people,62%ofwhomareLMIbasedontheaboveinformation.
C.LowModLimitedClientele(LMC)
AnLMCactivityisonethatprovidesbenefitstoaclearlyspecifiedgroupofpersons
ratherthaneveryoneinthearea.Ifapopulationistargetedtobethebeneficiaryofa
project,theprojectscopemustdemonstratethatthebenefitstobeprovidedtothat
populationarenotavailabletoallresidentsandthatthetargetedpopulationmeets one
ofthecriterialistedbelow:
1.Benefitisspecificallytargetedtoagroup“presumed”tobe51%ormoreLMI.
The“limitedclientele”definitioncanbeappliedonlytothosepresumedLMI
groupsperCDBGregulations,whichinclude:
~AbusedChildrenMigrantFarmWorkers
~HomelessPersonsSeverelyDisabledAdults
~BatteredSpousesPersonsLivingWithAids
~IlliterateAdultsElderlyPersons
~Personsmeetingthecensusdefinitionofseverelydisabledadults;or
2.Informationonfamilysizeandincomeshowsthat51%oftheclienteleisLMI;or
3.BenefitsarelimitedtoLMI;or
4.Natureandlocationoftheactivitysupportstheconclusionthatclienteleis
51%ormoreLMI.(e.g.,adaycarecenterthatisdesignedtoserveresidentsof
apublichousingcomplex.
IncontrasttotheAreaBenefitcategory,itisnottheLMIconcentrationofthe“service
area”oftheactivitythatdetermineswhethertheactivitywillqualifyornot,butratherthe
actualnumberofLMIpersonsthatbenefitfromtheactivity.
Examplesofeconomicdevelopmentactivitiesthatmayqualify:
A Jobtraining programforlow-andmoderate-incomepersons.Activities
thatprovidetrainingandotheremploymentsupportserviceswhenthe
percentageofpersonsassistedislessthan51%LMImayqualifyif:the
proportionoftotalcostbornebytheCDBG-EDRLFisnogreaterthanthe
proportionofLMIpersonsassisted;andwhentheserviceassistsbusinesses,
CDBG-EDRLFisonlyusedintheprojecttopayforthejobtrainingand/or
supportiveservices;
Microenterprise activitiesiftheownerofthebusinessisLMI.Thelocal
governmentmustdocumenttheincomeofthebusinessowner.
DocumentationtodeterminetheLMIstatusofanapplicantoremployee
Whendocumentingincome,theincomestatusofanindividualismadeatthetimetheCDBG-ED
jobisfilled.Thismayhaveaneffectontheretentionofhigh-paying,unskilledjobscountingas
eligibleexceptforturnoverpurposes.Thisisbecauseapersonwhooccupiesahigh-payingbut
low-skilledjobmaynotqualifyasaLMIperson.WhereasaLMIpersonmayfillthejobatalower
payrateifitwerecreatedorifitbecameavailablethroughturnover.
Thefollowingtypesofinformationwillserveasdocumentation:
o Aself-certification,“JobInformationForm”,(AppendixD)signedanddatedbythe
neworretainedemployeestatinghis/herfamilysizeandtotalfamilyincome.This
formshouldincludetheaddressoftheemployee;or
o Referralsfromanagencythathasagreedtoreferindividualswhoaredeterminedto
beLMIbasedonHUD’sdefinitionofLMI.Theseagenciesmustmaintainrecords,
whichmustbeavailabletoDEED,showingthebasisuponwhichtheydetermined
thatthepersonwasLMI;
o Qualificationofemployeeorapplicationforassistanceunderanotherprogram
withincomequalificationthatareasrestrictiveasthoseusedbytheCDBG
program.Examplesincludereferralsfrompublichousing,welfareagency,orthe
WorkforceInvestmentAct(WIA)program;
o Evidencethattheindividualishomeless;or
o Theneworretained employee maybe presumed tobeLMIbywayofresidence
addressif:
He/sheresidesinaCensus/ACStract/blocknumberingareathathasa
20%povertyrate(30%povertyrateiftheareaincludesthecentral
businessdistrict);andtheareaevidencespervasivepovertyandgeneral
distress;or
•He/sheresidesinaCensus/ACStract/blocknumberingareawhereat
least70%oftheresidentsareLMI.
o Theassisted business islocatedinaCensus/ACStractandthejobwillbe
withinthesametract,thecreatedorretainedjobispresumedtobe
LMIifthetract:
Hasa20%povertyrate(30%povertyrateiftheareaincludesthecentral
businessdistrict);AND
Evidencespervasivepovertyandgeneraldistressbymeetingatleast
oneofthefollowing:
(i)Allblockgroupsinthecensustracthave20%orgreaterpovertyrates;or
(ii)Thespecificactivityisundertakeninablockgroupwitha20%or
greaterpovertyrate;or
(iii)HUDdeterminesthatthetractshowsothersignsofdistress(e.g.,crime,
homelessness,deterioratedhousing,etc.)
Thisinformationcanbefoundatthefollowingwebsite:
http://www.hud.gov/offices/cpd/systems/census/lowmod/
Asageneralrule,eachassistedbusinessshallbeconsideredtobeaseparateprojectforpurposes
ofdeterminingwhethertheactivityqualifiesunderthejobcreationandretentioncategoryfor
meetingaNationalObjective.However,incertaincases,thejobsmaybe aggregated bytwoor
moreassistedbusinesses.Thefollowingdescribesthosecircumstances:
o WhenCDBG-EDfundsareusedto acquire,develop,orimprovearealproperty
(e.g.,abusinessincubatororanindustrialpark),jobsmaybeaggregatedforallof
thebusinesseswhichlocateontheproperty,providedsuchbusinessesarenot
otherwiseassistedwithCDBG-EDfunds;or
o WhereCDBG-EDfundsareusedsolelytoprovide technicalassistance to
businesses,jobscreatedorretainedbyallofthebusinessesreceivingsuchtechnical
assistanceduringanyoneyearperiodmaybeaggregated;or
o WhenCDBG-EDfundsareusedfor publicfacilitiesorimprovements
(infrastructure),thatwillresultinthecreationorretentionofjobs,bymorethan
onebusiness,thejobscreatedorretainedbyallsuchbusinessesasaresultofthe
publicfacilityorimprovementmay(andsometimesmust)beaggregated.(Chapter
5.d“Infrastructure”).
2.EliminationofSlumsandBlight
ActivitiesunderthisNationalObjectivearecarriedouttoaddressoneormoreoftheconditions
whichhavecontributedtothedeteriorationofanareadesignatedasaslumorblightedarea.The
focusofthisObjectiveisachangeinthephysicalenvironmentofadeterioratingarea.This
contrastswiththeLMIbenefitNationalObjectivewherethegoalistoensurethatfunded
activitiesbenefitLMIpersons.
Thisdifferenceinfocushasanimpactontheinformationthatisrequiredtoassessthe
qualificationsofanactivity.UndertheLMIbenefitNationalObjective,determiningthenumber
ofLMIpersonsthatactuallyorcouldpotentiallybenefitfromanactivityiscentraltoqualifying
theactivity.UndertheEliminationofSlumandBlightNationalObjective,determiningthe
extentofandphysicalconditionsthatcontributetoblightiscentraltoqualifyinganactivity.
TherearetwocategoriesthatcanbeusedtoqualifyactivitiesunderthisNationalObjective:
o Preventoreliminateslumsandblightonan area basis;or
o Preventoreliminateslumandblightona spot basis.
SlumBlightAreaBasis(SBA)
Thiscategorycoversactivitiesthataidinthepreventionoreliminationofslumsorblightina
designatedarea.Examplesof economicdevelopmentactivities thatqualifywhentheyare
locatedwithintheslumorblightedareainclude:
o Infrastructureimprovementsinadeterioratedarea;
o Alow-interestloantoabusinessasaninducementtolocateabranchstoreina
redevelopingblightedarea.
o Renovationandreuseofabandoned,historicbuildings.
Toqualifyunderthiscategory,theareainwhichtheactivityoccursmustbedesignatedas
slumorblighted.Thefollowingtestsapply:
o Thedesignatedareainwhichtheactivityoccursmustmeetthedefinition
ofaslum,blighted,deterioratedordeterioratingareaunderStateor
locallaw;
o Additionally,theareamustmeeteitheroneofthetwoconditionsspecifiedbelow:
Publicimprovementsthroughouttheareaareinageneralstateof
deterioration;or
Atleast25%ofthepropertiesthroughouttheareaexhibitoneor
moreofthefollowing:
~Physicaldeteriorationofbuildings/improvements;
~Abandonmentofproperties;
~Chronichighoccupancyturnoverratesorchronichigh
vacancyratesincommercialorindustrialbuildings;
~Significantdeclinesinpropertyvaluesorabnormallylowproperty
valuesrelativetootherareasinthecommunity;AND
~Knownorsuspectedenvironmentalcontamination.
Documentationmustbemaintainedontheboundariesoftheareaandtheconditionsthat
qualifiedtheareaatthetimeofitsdesignation.Thedesignationofanareaasslumorblighted
mustbere-determinedevery10yearsforcontinuedqualifications.Documentationmust
include:
o Amapandanarrativedescribingtheboundariesofthetargetarea;and
o Oneofthefollowing:
Aletterfromtheapplicant,signedbyeitherthemayor/boardchairor
the
LG’slegalcounsel;or
Acouncil/boardresolution
Theabovemustcertifythatthetargetareameetsalegaldefinitionofslum,blighted,
deterioratedordeterioratingareaunderstateorlocallaw(indicatethestateorlocallawused),
andthattheCDBG-EDfundingwillbeusedtoalleviateconditionsthatcontributedtothe
determinationofslumandblightarea.
MinnesotaStatutescontaintwodefinitionsthatcanbeusedasthebasisforthisdetermination:
o TheHRAstatute,whichincludesredevelopmentprojects,definitionof“blighted”
areacanbefoundatMNStat.469.002,subdivision11;or
o TheTIFstatutedefiningslumandblightisfoundatMNStat.469.174
SlumBlightSpotBasis(SBS)
Theseareactivitiesthateliminatespecificconditionsofblightorphysicaldecayonaspotbasis
andarenotlocatedinaslumorblightedarea.Activitiesunderthiscategoryarelimitedto
acquisition,clearance,relocation,historicpreservation,remediationofenvironmentally
contaminatedproperties,andbuildingrehabilitationactivities.
IfCDBG-EDfundsareusedfor Rehabilitation onlythoseconditionsthataredetrimentalto
publichealthandsafetyareeligible.
If acquisitionofrealproperty occurs,NationalObjectivecomplianceisbasedontheuseofthe
propertyafterthe acquisition takesplace.Theinitialdeterminationisbasedonthe planned use
oftheproperty,butthefinaldeterminationistobebasedonthe actual use.However,when
propertyisacquiredforthepurposeof clearance toremovespecificconditionsofblightor
physicaldecay,theclearanceisconsideredtobetheactualuseoftheproperty,butany
subsequentusemadeofthepropertyfollowingclearancemustbeconsideredtobea“changeof
use”under24CFR570.489(j).
AnexampleofaneconomicdevelopmentprojectistheprovisionofCDBG-ED
fundstoabusinesstodemolishadecayedstructureandconstructanew
buildingonthesite.
Documentationmustinclude:
o Amapindicatingthelocationofthesite;and
o Documentationthattheentirebuilding(foracquisition/demolition)orcertainbuilding
conditions(forrehabilitation);and
o Showhowtheproposedactivitywilleliminatethosespecificconditionsofblightor
physicaldecay.
3.UrgentNeed(URG)
UseoftheurgentneedNationalObjectivecategoryisrare.Itisdesignedonlyforactivitiesthat
alleviateemergencyconditionswhichthelocalgovernmentcertifies.
AnexampleistheprovisionofCDBG-EDfundstoabusinessthatwasdamagedbyafloodor
tornado.
Urgentneedqualifiedactivitiesmustmeetthefollowingcriteria:
o Theexistingconditionsposeaseriousandimmediatethreattothehealthor
welfareofthecommunity;
o Theexistingconditions(damagetobusinessesorpublicinfrastructure)areof
recentoriginorrecentlybecameurgent(generally,withinthepast18months);
and
o Thelocalgovernmentcertifiesthatitisunabletofinancetheactivityonitsown,
andothersourcesoffunding(FEMA,SBA,insurance)arenotavailable.
ChoosingtheRightNationalObjective
LocalgovernmentsmayhaveoptionsregardingwhichNationalObjectiveisusedforaparticular
activity.SomeprojectsmayqualifyformorethanoneNationalObjective.Foractivitiesthat
meetmorethanoneNationalObjective,localgovernmentsmayfinditusefultodocument
compliancewithalltheapplicableNationalObjectives,especiallyifthereissomeuncertainty
regardingtheabilityofanactivitytomeetthechosenNationalObjectiveuponcompletion.
Forexample,localgovernmentsmayhaveconcernsthatanactivityqualifyingonthebasisof
creatingjobsmaynotmeetthetestthatatleast51%ofthejobscreatedwillbenefitLMI
persons.Iftheactivitycouldalsoqualifyundertheslum/blightareacategory,itmaybebest
servedbydocumentingcompliancewithbothNationalObjectives.Thisway,iftheactivitydoes
notmeettheLMIjobcreationcriteriathelocalgovernmentcanswitchtheactivitytothe
slum/blightareaNationalObjectiveratherthanhavetheactivityinnoncompliancewithCDBG
rules.
DocumentingNationalObjectives
LocalgovernmentsmustmaintainrecordsthatprojectsmeetoneoftheNationalObjectives.
TherecordsdependontheNationalObjectivecategory.Detailedinformationisprovidedin
Chapter10,Recordkeeping ofthismanual.
Thetimingofdocumentationforactivitiesisanimportantconsideration.Compliancewith
NationalObjectivescanbedocumentedupfrontforanumberofthecategories.Forexample,
documentationforthefollowingNationalObjectivescanbeestablishedupfront:
o TheLMIareabenefit;
o BothAreaBasisandSpotBasis;and
o UrgentNeed
SomeNationalObjectivesmustbedocumentedovertime.
o TheLMIJobsrequirementthat51%ofthejobswillbe“madeavailableto”or
“heldby”LMIpersonswillrequirecollectingdocumentationdemonstrating
complianceuntilcompletionoftheproject.
Chapter4
PUBLICBENEFITSTANDARDS(PBS)
WhenCDBG-EDfundsareusedforeconomicdevelopmentprojectsforthepurposeofcreating/
retainingjobsforLMIpersons,ortoassistbusinessesthatprovideessentialgoodsandservicesin
apredominatelyLMIcommunity,thelocalgovernment must ensurethattheprojectmeetsaminimum
levelofpublicbenefit.The PublicBenefitStandard isbasedona“costperjob”calculation
asdetailedbelow.Theuseofthesestandardsis mandatory.
THEPUBLICBENEFITSTANDARDSARENOTTHESAMEASTHENATIONALOBJECTIVEREQUIREMENT.
ThePBSisseparatefromtheNationalObjectiverequirementthat51%ofthejobsactuallycreatedor
retainedbetakenbyLMIpersons.Thesamefactors(jobsandareaserved)areinvolvedinthecriteria
forbothrequirements,howevertheyareuseddifferently.ThePBSinvolvesthetotalnumberofjobs
createdorretainedwithoutregardtohowmany(ifany)benefitLMIpersons.Incontrast,theuseof
jobsformeetingaNationalObjectiveisdeterminedbythepercentageofthecreatedorretainedjobs
thatbenefitLMIincomepersons,andonlyincidentallyinvolvesthetotalnumberofjobs.The
determinationofcompliancewiththeLMIJobsNationalObjectiveisbasedonthejobsthatareactually
createdorretainedandwhoactuallybenefitsfromthosejobs.Thefocusfordeterminingcompliancefor
PublicBenefitpurposesliesinthenumberofjobsexpectedtobecreateorretained.
Similarly,fortheAreaBenefitfactor,compliancewithNationalObjectivesisbasedonthe
percentageofLMIresidentsserved,whilepublicbenefitisdeterminedbasedonthenumberof
LMIpersonsserved.
ProjectsInvolvingJobCreation
Inthecaseofjobcreation/retentionprojects,thePublicBenefitStandardsarereallya“costper
job”calculationusedtodetermineiftheCDBGfinancialassistanceperjobcreated/retainedis
appropriate.
The“CDBG-EDcostperjob”iscalculatedbydividing:
ThetotaldollaramountofCDBG-EDfundstobespentfortheactivity,by
Thetotalnumberofjobstobecreated/retainedbytheassistedbusiness.
Therearetwolevelsofstandards:
1.IndividualBenefit:TheindividualbenefitisusedtodeterminePBSfora single business.
ThemaximumamountoftheCDBG-EDassistancecannotexceed$50,000 foreachjobtobe
created/retainedbythebusiness.
2.AggregateBenefit:Thelocalgovernment’s total CDBG-EDfinancialassistance
portfoliocannotexceed$35,000 ofCDBG-EDfundsperjob.Thisincludesalljobs
eithercreatedorretainedorboth.
AswiththeindividualactivitycanbothcreateorretainjobsANDprovidegoodsor
servicetoresidentsofanarea,theLGmayelecttoapplyeitheroftheaggregate
standardstotheproject.However,onlyonestandardshallbeusedforeachsuch
activity.Thatis,iftheLGelectstousetheAreaWidebenefit,anyjobscreatedor
retainedbytheprojectarenottobecountedforpurposesofapplyingtheaggregate
standard.
o Thefollowingactivitiesmaybeexcludedfromtheaggregatestandards:
JobsprovidedexclusivelyforunemployedpersonsorparticipantsofWIA,
JOBS,orTANFprograms;
JobsprovidedpredominantlyforresidentsofpublicorIndianhousingunits;
Jobsprovidedpredominantlyforhomelesspersons;
Jobsprovidedpredominantlyforlow-skilled,LMIpersonsandthebusiness
agreestoprovideclearopportunitiesforpromotionandeconomic
advancement(e.g.,provisionoftraining);
Jobsprovidedpredominantlyforpersonsresidinginacensustractwith
atleast20%oftheresidentsinpoverty;
Assistanceprovidedtobusinessesthatoperateinacensustractwith
atleast20%oftheresidentsinpoverty;
Activitiesthatstabilizeorrevitalizeaneighborhoodthathasatleast70
percentLMIresidents.
Boththeindividualandaggregatestandardsaretobeappliedbasedonthenumberofjobstobe
createdorretainedortothenumberofpersonsresidingtheareaserved(asapplicable),thebusiness
applicationisapprovedbythelocalgovernmentandpriortoanyassistancebeingprovided.Thisis
becausethereisalwaysthepossibilitythataprojectmightnotproceedasplanned,andforthepurpose
ofthisparticularrequirement,thebusinessshouldonlybeheldtotheconditionsthatprevailedatthe
timetheassistancewasapproved/provided.Nevertheless,theLGmustkeeprecordsthatshowhowit
performedagainstthePublicServiceStandardsbasedonactualjobsandLMIpersonsserved.Whenthe
actualresultsconsistentlyfallsubstantiallybelowwhatisexpected,theLGisexpectedtomake
adjustmentsinhowitconductsitsfrontendassessmentsforcomplyingwiththePBSforfutureprojects.
ProjectsInvolvingEssentialGoodsandServices
Forprojectsinvolvingassistancetolocalbusinessesthatprovideessentialgoodsandservicesin
predominantlyLMI communities,thePublicBenefitiscalculatedasthecostperpersonbenefitted.
Theseprojectsmustqualifyasan“areawide”LMIbenefit.Thismeanstheareaservedmust
consistofatleast51%LMIpersonsandthecostperLMIpersonresidingintheareaservedbythe
assistedbusinesscannotexceed$350,exceptinacensustractwithatleast20%povertyorina
70%LMIservicearea.Ina20%povertyareaor70%LMIservicearea,thecostperLMIresident
cannotexceed$1,000.
o WhenCDBG-EDassistanceisprovidedto abusiness thatprovidesessentialgoods
andservicestoadefinedareathatservestheLMIpopulation,theamountper
personbenefittingcannotexceed$1,000/LMIperson(i.e.,grocerystore,dry
cleaners,otherretailoperations)
o ThemaximumamountofthelocalgovernmentstotalCDBG-EDfinancialassistance
portfolioprovidedtobusinessesthatprovidegoods/servicestoresidentsofan
areacannotexceed$350 CDBG-EDfunds/LMIresidentofthatarea.Suchprojects
qualifyasanAreaWideLMIbenefit(NationalObjective).
(SeeChapter3,NationalObjectivesformoreinformationon“areawide”benefit.)
Iftheactivityislimitedto jobtraining,thejobsassistedwithCDBG-EDfundsareconsidered
asjobscreatedorretainedwhenapplyingeithertheindividualortheaggregatestandards.
Thelocalgovernmentmayelecttoapplythestandardstothecreation/retentionofjobsORtothe
provisionofgoodsandservices,butcannotcountanactivityunderbothstandards;and
Ifanactivitybothcreates/retainsjobsandprovidesgoods/servicestoresidentsofanarea,the
activityisineligibleonlyifitfailsbothstandards.
SeeChapter5.d.“Infrastructure”forspecificinformationontheapplication
ofthePublicBenefitStandardsastheyapplytoInfrastructure.
Chapter5
ELIGIBLEECONOMICDEVELOPMENTACTIVITIES
Foranygiveneconomicdevelopmentproject,howthedealisstructured(whopaysforwhat,and
whocarrieswhatout)maybethebiggestdeterminanttohowtheactivityqualifiesaseligiblefor
CDBG-EDfunding.Aswillbediscussedbelow,howthedealisstructured,andwhichactivity(ies)
thefundsareusedfor,affectswhetherornottheactivityissubjecttothePublicBenefit
StandardsandUnderwritingGuidelines.
Thischapteralsodescribeswhatispossibleunderthestatuteandtheregulations.Itisimportant
forthelocalgovernmentadministeringtheRLFtounderstandwhatisandisnotallowedunder
theCDBG-EDprogram.Aneconomicdevelopmentprojectofteninvolvesanumberofdifferent
activitiesthatcouldbeassistedinlieuofthespecificassistancerequestedbyabusiness.
Consider,forexample,abusinessthatwantstoexpandandhasrequestedfinancialassistanceto
payfortheconstructionofabuilding.Itmaybethatthebusinessneedstopurchaselandforthe
expansionormightbeplanningtopaytohavethestreetwidenedorotherwiseimprovedto
supporttrucktraffic.EitheroftheseneedscouldbemetwithCDBGfunds.Thissortof
assessmentofalternativeactivitiesmightalsohelpdeterminewhetherDavis-Baconwouldapply
totheformofassistancebeingcontemplated.
ProvidingdirectfinancialassistancetoabusinessmaybethemostcommonuseofCDBG-ED
fundstopromoteeconomicdevelopment,butitcertainlyisnottheonlyway.Technical
assistance,training,provisionofinfrastructure,andmicroenterpriseassistancearejustafewof
theotherstatutoryeligibilitycategoriesunderwhicheconomicdevelopmentactivitiescanbe
carriedout.Evenwithintherealmofdirectfinancialassistance,therecanbeloans,interestrate
subsidies,participationloans,loanlossreservefunds,creditenhancements,third-party
guarantees,etc.
AsoutlinedinHUD’sGuidetoEligibleActivitiesandNationalObjectivesandthischapter,the
localgovernmentshouldtakeseveralkeystepspriortofundinganyeconomicdevelopment
activity.Thesestepsinclude:
o Determineiftheproposedactivityisincludedinthelistofeligibleactivities;
o Determineiftheproposedactivityfallswithinacategoryofexplicitlyineligible
activities;AND
o Determineiftheproposedactivitycanmeetoneofthenationalobjectives;
Determiningthecategoryofeligibleactivitiesunderwhichanactivityfallsisimportant.The
regulationsandstatutesplacedifferentrequirementsandstipulationsondifferentcategories.
Additionally,thecategoryofeligibilitymaydictatethecoststhatareeligible,thenational
objectiveunderwhichtheactivityfalls,andtherulesthataretriggered.
Thischapteroutlinesthoseactivitiesthatareeligibleforeconomicdevelopmentassistance.
Chapter5.a.
Administration
Upto$5,000oftheRLFcanbeusedforadministrativecosts,however,onlytohireaconsultant
fortheapplicationreview,processingandservicingofindividualprojects.FundfromtheRLFcan
beusedforthesecostsprovided:
1.ThecostsarereasonablefortheservicesprovidedandareinaccordancewithOMB
CircularA-87,24CFRPart85,or24CFRPart570.503,anddonotexceedtheamount
authorized.
2.Thelocalgovernmenthasfollowedastateapprovedprocurementprocessforthehiring
oftheconsultantandhasenteredintoawrittenagreementwiththeconsultant.
Inanycase,theLocalGovernmentisresponsibleforensuringthattheCDBG-EDRLF’sareusedin
amannercompliantwithprogramrequirements.Thus,theyshouldassessthecapacityofthe
consultantbeforeselectingsuchtoadministerand/orimplementtheproject.Inaddition,the
Granteeisdirectlyresponsibleforallenvironmentalreviewrequirementsandforreportingto
DEED.
Administrativecostsmustbesupportedbydetailedtimesheetsandpaidinvoicesthatmustbe
keptintheLG’sRLFfiles.
Chapter5.b.
BusinessIncubators
Incubatorsaremulti-tenantbuildingsthatprovideaffordable,flexiblespacealongwithavariety
ofofficeandprofessionalservicestypicallytosmalland/ornewbusinesses.Incubatorsare
differentfromothertypesofcommercialandindustrialfacilitiesinthattheirpurposeistocreate
anatmosphereconducivetothecreationandgrowthoffledglingbusinesses.Theyalsooffer
accesstobusinessandtechnicalassistanceprovidedthroughin-houseexpertiseand/ora
networkofcommunityresources.
CDBG-EDfundscanbeprovidedeithertothedeveloperoroperatorofanincubator,ortooneor
moreofthebusinesseslocatedwithintheincubator,aslongastheactivityiseligibleandmeets
oneoftheNationalObjectives.
EligibleActivitiesforIncubators
Awiderangeofactivitiesthatpertaintothedevelopmentandoperationofanincubatorortoa
businesswithinanincubatorareeligible.Examplesofthesetypesofactivitiesarelistedbelow:
For“hardcosts”associatedwiththedevelopment,rehabilitationorpropertyimprovementof
abuildingortheactualconstructionofabuildingtohousetheincubator.Thiscaninclude:
o acquisitionoflandandbuildings;
o architectural,engineeringanddesigncostsforconstructionorrehabilitationofan
incubator;
o constructionofanewincubatorbuilding;
o demolitionofexistingbuildingstoclearlandforanincubator
o rehabilitation,preservation,orrenovationofexistingbuildingsforuseas
incubators;
o publicimprovementsintegraltoanincubatorincludingcurbs,gutters,
water/sewerimprovements,streetimprovements,andlighting.
For“softcosts”associatedwiththedeveloperoftheincubatororthebusinesseslocated
withintheincubator,including:
o developmentoffeasibilitystudies,businessassistancestrategies,market
assessments,andtenantselectionplans;
o thepurchaseofequipmentfortheincubatororforabusinesslocatedwithinthe
incubator;
o technicalassistance;
The PublicBenefitStandards(Chapter4)applytotheaboveactivities.
Ifthelocalgovernmentassistsindividualbusinesseslocatedwithintheincubator,itmaybe
undertakenasaMicroenterpriseassistanceactivity,ifsoqualified.(Chapter5.f.)Direct
assistancetoanindividualbusinessisnotsubjecttothe PublicBenefitStandards.Ifa
businessdoesnotqualifyasaMicroenterprise,theLGcanprovideassistanceunder“Direct
FinancialAssistancetoBusinesses”(Chapter8.c.).
DocumentingaNationalObjective
CDBG-EDfundeddevelopmentofanincubatororassistancetoanindividualbusinesswithinthe
incubatorisusuallydocumentedundertheLMIjobcreation/retentionNationalObjectiveorthe
LMILimitedClienteleNationalObjective,ifthebusinessqualifiesasamicroenterprise.Itis
possiblethatthedevelopmentofanincubatorcouldfallundertheSlumandBlightNational
Objective,althoughthedeveloperwouldneedtodemonstratehowtheincubatorhelpedaddress
conditionsthatcontributedtothedeclineofthearea.Becauseofthenatureandfunctionof
incubatorsandthebusinesseswithinthem,itishighlyunlikelythatanactivitywouldevermeet
theurgentneedsobjective.
Low-andmoderate–incomepersonsbenefit:
Aswithanyotherbusinessassistance,thisobjectivemaybemeteitherbythe
creation/retentionofjobs,orbytheprovisionofservicestoanareacontainingasufficient
concentrationoflow-andmoderate–incomeresidents.
WhenCDBG-EDassistanceisprovideddirectlytoanindividualbusinessinanincubator,each
businessmustmeettheobjectiveindependentlyfromtheotherbusiness(es)intheincubator,
unlessthatbusinesshasbeenfundedthroughtheMicroenterpriseactivity.
Whenassistanceisprovidedtoadeveloperoroperatorofanincubator,compliancewiththe
jobcreation/retentionrequirementcanbemetbyaggregating(countingthejobscreatedbyall
ofthebusinesseslocatedwithintheincubator,unlessthebusinesswasotherwiseassistedwith
CDBG-EDfunds).
o Businesses“occupying”theincubatorare:
•ThosebusinessesthatoccupyspaceintheincubatoratthetimetheCDBG-ED
assistanceisprovided;and
•Anyotherfirmsthatmoveintotheincubatoraftertheassistancehasbeen
provideduntilenoughfirmsareincludedinthiscountsothatthetotalamountof
spacethesefirmsoccupy(oroccupied)isequaltothetotalsquarefootageof
spaceintheincubator.
o Countthejobscreatedbyeachofthebusinessesdescribedaboveasfollows:
•Ifthosebusinessesarealreadyhousedinthefacilitywhentheassistanceis
provided,countthejobscreatedfor three yearsfromthedateoftheassistance
ORuntilthebusinessmovesoutoftheincubator,whichevercomesfirst.
•Forthosebusinessesthatenterthefacilitysubsequenttothetimeoftheprovision
ofassistance,countthejobscreatedovera three yearperiodfromthedateof
theirinitialoccupancyORuntilthebusinessmovesoutoftheincubator,whichever
comesfirst.
Incountingjobs,includeanyjobscreatedorretainedbytheincubatorandthebusiness,
butexcludeanypositionsheldbythebusinessownersandanyotherhavingasubstantial
equityinthebusiness.
Tohelpensurethateachbusinessfulfillsitsresponsibilitiesformeetingitsshareofthelow/mod
jobrequirementsandformaintainingthenecessaryrecordsandprovidingperiodicreports,the
agreementbetweentheoperatoroftheincubatorandthebusinessmustspecifythese
requirements.Inaddition,theagreementshoulddescribethefinancialpenaltiesorlease
terminationiftherequirementsarenotmet.
Slum/Blight:
TheSlum/BlightNationalObjectivemaybeusedtoifthebusinessincubatormeetsoneofthe
following:
o Iftheincubatorisorwillbeinaslumorblightedareaandiftheassistanceisforan
activitywhichaddressesatleastoneoftheconditionswhichqualifiedtheareaassuch
(e.g.,rehabilitationofablightedbuilding);or
o Iftheincubatorislocatedoutsideofaslumorblightedarea,iftheassistanceisfor
demolition,rehabilitation,orhistoricpreservationdesignedtoeliminatespecific
conditionsofblightorphysicaldecayonaspotbasis.
Underthiscriterion,rehabilitationislimitedtotheextentnecessarytoeliminatespecific
conditionsofblightorphysicaldecayonaSpotBasisortotheextentnecessarytoeliminate
specificconditionsdetrimentaltothepublichealthandsafety.Relocationandproperty
acquisitionactivitiesmayalsobeassistediftheyareanintegralpartofthedemolition,
rehabilitationorhistoricpreservationactivities.
EvaluationCriteriaforBusinessIncubators
ItissuggestedthattheLGusethefollowingcriteriawhenevaluatingproposalsfortheseed
fundingofabusinessincubator:
o Evidenceofdemandforincubatorservices;
o Qualifiedmanagement;
o Broad-basedsupportfromcommunity-basedorganizationsandbusinesses;
o Clusterconcentration;
o Abilitytoleverageresources;
o Aplanforself-sufficiency;
o Solidgrowthpotential;
o An"economicbase"sectorthatservesmarketsoutsidetheregion;
o Afeasibilitystudyandbusinessplan;and
o Evidenceofadequatesupport,sinceincubatorsoftenprovidemoreservicesthanthe
rentssupport.
TheIncubatorDevelopmentProcess
WhenproposingtouseCDBG-EDfundsthefollowinginformationprovidesasuggestedprocess
forthedevelopmentofanIncubator.
Thedevelopermustfirstprepareafeasibilitystudytodeterminetheneedforanincubator
facility.
AssumingthatthebasicCDBG-EDthresholdcriteriaaremetandthefeasibilitystudyyieldsa“go,”
theprocessofdevelopingtheincubatorcancommence.Thisprocesswillnecessitatethatthe
followingstepsbetaken:
o Locateasiteforconstructionofnewbuildingorrehabilitationofexistingbuilding.
o Assembleadevelopmentteamthatincludes:
•Projectsponsor;
•Architect;
•Attorney;
•Engineer;
•Contractor;
•Financialconsultant;and
•Marketingconsultant.
o Preparefinancials,includingproformas,forthedevelopmentphaseandsubsequent
operationalphase.
o Preparemarketingplan.
o Preparemanagementplanandensuretheavailabilityofqualifiedstaff.
o Identifyprojectfinancingsourcesforbothconstructionandpermanentdebt.
o Engageindesignphaseandenvironmentalreview.
o Addressgeneraldevelopmentalissues(e.g.,zoning,utilities,curbcuts,etc.).
o Finalizeconstructioncontractwithgeneralcontractor.
o Commencemarketingphaseandobtainpreconstructionleasecommitments,whenever
feasible.
TheNationalBusinessIncubatorAssociation(NBIA)isasourceofinformationandtechnical
assistance.PotentialincubatordevelopersandCDBG-EDgranteesshouldrefertoitswebsite
at:www.nbia.org.
Chapter5.c.
DirectFinancialAssistancetoaBusiness
CDBG-EDfundscanbeusedtoprovidedirectfinancialassistancetoa private,forprofit businessin
theformofloans,forgivableloans,loanguarantees,interestsubsidies,orotherassistanceasdefined
bythelocalgovernment.TheLGhasmuchflexibilityindeterminingwhatform(s)offinancingthey
wanttobeavailabletobusinesses.(Chapter2,FinancingEconomicDevelopmentProjects).
Thischapterdiscussesthetypesofbusinessesandtheactivitiesthatareeligibleforthesefunds.
EligibleActivities:
1.Projectbasedlandacquisition
•Thelocalgovernmentmayprovidefinancialassistancetoabusinesstoassistwiththe
purchaseofrealproperty(landandorbuilding)foracommercialorindustrialpurposeand
tocreatejobs.
•Ineligible:Acquisitionofpropertythatisthenexpectedtobedonatedorsoldat
lessthanthepurchasepricetothesameentityfromwhichthepropertywas
purchasedisnotaneligibleactivitysinceitisnotconsideredtoinvolvealegitimate
changeofownership.
2.Constructionofanewbuildingorrenovationstoanexistingbuilding;
3.Purchaseofmachineryandequipment;
4.SiteImprovements:
•Demolitionofbuildingsandimprovements;
•Removalofdemolitionproducts,rubble,andotherdebris;
5.Cleanuporsiteclearancefortheproject,suchasassistancewiththeremovalof
environmentalcontaminantsortreatmentofsuchcontaminantstorenderthem
harmless.Example:UsingCDBG-EDfundstoclearanenvironmentallycontaminated
(brownfield)siteonwhichanewbusinesswilllocatethatwillcreatejobs,ofwhichat
least51percentwillbenefitLMIpeople.
6.Railroadspursorsimilarextensions.
7.Workingcapital(receivablefinancing,purchaseinventory,commercialsupplies,etc.);
EligibleBusinesses:
1.Retailoperations;
2.Commercialfacilitiessuchashotels,shippingdistributioncenters,orofficebuildings;
3.Industrial/manufacturingoperations;and
4.Private,forprofitbusinesses.
The UnderwritingGuidelines(Chapter7)andthe PublicBenefitStandards(Chapter4)applyto
anyDirectFinancialAssistanceprovidedtoabusiness.
DocumentingaNationalObjective
FinancialassistancetobusinessestypicallyqualifiesundertheBenefittoLMIPersonsNational
Objective.Assuch,atleast51%ofthefulltimejobpositionscreatedorretainedwillbeeither
“madeavailableto”oractually“heldby”personswhoseannualfamilyincomesareatorbelow
80%ofthejurisdiction’scountymedianincome(Chapter3-NationalObjectives).
FinancialassistancetobusinessesrarelyqualifiesundertheSlumandBlightorUrgentNeed
NationalObjectives.
Chapter5.d.
Infrastructure
CDBG-EDfundsmaybeusedtoprovidepubliclyownedinfrastructuretoserveneworexpanding
businessesaspartofabiggereconomicdevelopmentproject.Insuchprojects,thebusiness
benefittingfromtheinfrastructureagreestolocateorexpandinthecommunityandagreesto
createjobsprincipallybenefittingLMIpersons.Inaddition,someprivateutilityactivitiesare
eligibleforthesefunds.
EligibleInfrastructureActivities
PublicFacilities
Thoughunderwritingisnotrequiredforbusinessesbenefittingfromthepublicinfrastructure
improvements,thelocalgovernmentisstronglyencouragedtoreviewbusinessplans,financial
statements,hiringplans,etc.todemonstrateviabilityofthebusiness(es).AllotherCDBG-ED
requirementscontainedinthismanualapplytopublicfacilitiesprojects.
Theacquisition,construction,reconstruction,rehabilitation,orinstallationofpublicfacilitiesand
improvementsandarecarriedoutbythelocalgovernmentwhoisthe owner ofthefacility.
Eligibletypesoffacilitiesandimprovementsinclude:
o Infrastructureimprovements(constructionorinstallation)including,butnotlimitedto:
Streetandroadimprovements;
Sidewalkimprovements;
Sewerandwaterimprovements;
Floodanddrainageimprovements;
Parkingfacilities;
Solidwastefacilities;and
Bridges
IneligibleActivities:
o Themaintenance,repairandoperationofpublicfacilities;
o Costsofpurchasingconstructionequipment;
o Governmentbuildings;
LegalAgreement:
o ThoughtheCDBG-EDfundsdonotflowdirectlytothebusiness,thebusinessis
benefittedbythepublicfacilitiesproject,thereforethebusinessmustenterintoan
agreementwiththelocalgovernment.Ataminimum,thebusinessmustagreetothe
following:
Tocarryouttheexpansionofitsbusinessfacility;
TocreateandmaintainjobshavingtherequiredLMIbenefit;
TorepaytothelocalgovernmenttheamountoftheCDBG-EDfundsprovided
shouldthebusinessfailtomeettherequirementsoftheagreement;
~Repaymentamountcanbepro-ratedifthejobcommitmentisnotachieved.
~ThebusinessmustrepaythetotalamountiftheLMIrequirementisnot
achieved.
SpecialAssessments
Specialassessmentsareusedtorecoverthecapitalcostsofapublicimprovementthrougha
feeleviedoralienfiledagainstaparcelofrealestate,eitheras:
o Adirectresultofthebenefitderivedfromtheinstallationofapublicimprovement;or
o Aone-timechargemadeasaconditionofaccesstoanimprovement.
SpecialassessmentactivitiesunderCDBG-ED can beusedto:
o Recovercapitalcostsofapublicimprovement
TorecoverCDBG-EDfundsonlyagainstpropertiesownedandoccupiedbynon-
LMIpersons(andsuchassessmentsareprogramincome);or
Torecovernon-CDBG-EDsourcesoffinancing,providedthatCDBG-EDfundsare
usedtopaythespecialassessmentonbehalfofallpropertiesownedand
occupiedbyLMIpersons.(CDBG-EDfundsdonothavetobeusedtopayspecial
assessmentsonbehalfofpropertiesowned/occupiedbymoderate-income
residentsifthelocalgovernmentdoesnothavesufficientCDBG-EDfundstopay
theassessmentsonbehalfofalltheLMIowner/occupants).
and/or
o PayforspecialassessmentsforpublicimprovementsnotinitiallyassistedwithCDBG-ED
Fundsprovided:
Theinstallationofthepublicimprovementswasundertakenincompliancewith
allapplicablerequirements(e.g.,environmental,citizenparticipation,andDavis-
Bacon);and
TheCDBG-EDfundsareusedtopaythespecialassessmentonbehalfofallLMI
owneroccupants(orforlow-incomeowner/occupantsonlyiftherearenot
sufficientfundstopayforallLMIowner/occupants).
Specialassessments cannot beusedtopayfor:
o Becausespecialassessmentsarenottaxestheestablishmentofthevalueofreal
estateforthepurposeofanytypeoftaxes.
o Periodicchargesbasedontheuseofapublicimprovement,suchaswaterorsewer
usercharges,evenifthechargesincludetherecoveryofallorsomeportionofthe
capitalcostsofthepublicimprovement.
PrivatelyOwnedUtilities
Privatelyownedutilitiesarethoseownedbyaprivatecompanyratherthanapublicagency.The
rehabilitationorconstructionoftheseutilitiesiseligibleundercertainconditions.
o Toacquire,construct,reconstruct,rehabilitate,andinstallthedistributionlinesand
relatedfacilitiesforprivatelyownedutilities;
o Aprivatelyownedutilityreferstoservicethatispubliclyregulatedandisprovided
throughtheuseofphysicaldistributionlinestoprivateproperties;and
o Utilitiesinclude,butarenotlimitedto,electricity,telephone,water,sewer,naturalgas,
andcabletelevision.
o Privately-ownedutilityactivitiesmayqualifyunderallthreeofthenationalobjectives,
dependingonthesituation.Thesamerequirementsfordocumentationasforpublic
facilitiesapply.
DocumentingtheNationalObjectiveandPublicBenefitStandards
ThetypicalNationalObjectiveforaneconomicdevelopmentprojectwherefundsareusedfor
infrastructureistheLowModerateJobsobjective.Ifmorethanonebusinesswillbeservedby
theinfrastructure,the51%LMIjobrequirementmaybemetbyaggregatingthejobscreatedor
retainedbyaffectedbusinessesunderthefollowingcriteria:
o IftheCDBG-EDcostperjobcreatedorretainedis less than$10,000perfull-time-
equivalent(FTE)employee,thelocalgovernmentmustensurethat51%ofthejobs
createdorretained bythebusinessesforwhichtheprojectisprincipallyundertaken
aremadeavailabletoorheldbyLMIpersons;and
Forexample,CDBG-EDfundsareusedtowidenandupgradeanaccessroadtomeet
theneedsofamanufacturingplantexpansionthatwillcreate175newjobs.Other
businesseslocatedalongorneartheroadmayenjoyimprovedtransportationaccess,
buttheydidnotrequesttheimprovements,havenoknownexpansionplans,andhave
notcommittedtoincreasetheiremploymentlevels.
o WhentheCDBG-EDcostperFTEjobexpectedtobecreatedorretainedis$10,000or
more,theLGmustensurethat51%of alljobs createdorretainedby allbusinesses
benefittingfromtheinfrastructureimprovement mustbetrackedforthepurposearea
areavailabletoorheldbyLMIpersons.Forthispurposethejobsmaybeaggregated.
Thisincludesallbusinesseswhich,asaresultoftheproject,locateorexpandinthe
serviceareabetweenthedatetheactivityisawardedandoneandoneyearafter
completionoftheimprovement.Inaddition,theactivitymustcomplywiththePublic
BenefitStandards.
Forexample:Acityneedstoincreasethecapacityofitssewagetreatmentplantby
50%toaccommodatetheexpansionofapoultryprocessingplant.Thecityagreesto
usefundsfromitsRLFtoassistwithexpansionofthesewagetreatmentfacilityata
costof$11,200pernewpoultryplantjob.Overthenext12months,4newbusinesses
decidetolocateintown,becausethecitynowhassufficientsewagetreatment
capacitytohandletheireffluent.Thecitymustaggregatejobcreationfiguresforthe
poultryplantplusthe4newbusinesses.
Thenatureofjobcreationpublicfacilityactivitiesmeansthatlocalgovernmentmustcarefully
plantheseprojectsandtrackthebusinessesandjobsthatresult.Specifically,itisimportantto
determinetheamountofRLFfundsthatwillbespentperjobcreated/retained.Some
community’slimittheamounttolessthan$10,000tokeepthingssimpleandminimize
trackingtoonlythebusiness(es)forwhichtheimprovementisundertaken(vs.anyothersthat
benefitwithinoneyearaftercompletion.
Thelocalgovernmentmustassurethatithasappropriateandenforceablelegaldocumentsin
placerunningwiththelandand/orwitheachbusinessthatbenefitsfromtheimprovement.
Thisisparticularlyimportantifthecostperjobwillbemorethan$10,000becausenational
objectivedocumentationmustbeobtainedandmaintainedevenifthebusinessesmovedin
afterthefacility/improvementwascompleted(uptooneyear).
Chapter5.e.
JobTraining
Jobtrainingcanplayanimportantroleinacommunity’seconomicdevelopmentprogram.It
canincreasetheimpactsofothereconomicdevelopmentefforts,suchasfinancialassistance
toabusiness.TheRLFcanbeusedtoprovidefinancialassistancetoabusinessforjob
trainingneedsinoneofseveralways.
EligibleCDBG-EDJobTrainingActivities
Trainingunskilled,LMIpersonsforspecificjobsforwhichtheyhavebeenhiredandwhich
requireskilllevelsbeyondwhattheynowhave;
TrainingapoolofLMIprospectiveemployeesforspecificjobsbeingcreatedasaresultofa
st
CDBGfundedindustrialexpansion,wheretheemployeragreestogive1considerationto
fillingthenewpositionswithpeoplefromthispool;
Re-trainingexistingemployeesofabusinessaspartofaprojectwhichqualifiesasretention
ofjobs;and
Customizedtrainingtonewemployeesofabusiness.
TypesofJobTrainingPrograms
Ajobtrainingprogram’ssuccessdependsuponwhetherornotitmeetstheneedsofthepeopleit
serves.Manymodelshaveprovensuccessfulwhenusedinthecorrectcontext.Someexamplesof
jobtrainingprogramsare:
o Subsidizedemployment–providingfinancialassistancetoabusinesstohireand
provideon-the-jobtrainingtodisadvantagedindividuals.
o On-the-jobtraining–financialassistancetopayforthetrainingprogram.
TheJobTrainingprogrammustbelinkedtoaspecificposition,i.e.,thiseligibilitycategoryisnot
anopportunitytosetupagenericjobtrainingprogram,butratherisfortrainingrelatedto
specificjobs.
NationalObjective
IncertaincircumstancesjobtrainingactivitiescanbeconsideredtomeettheLMILimited
Clienteleobjectiveevenwhenthepercentageofpersonsassistedislessthanthe51%threshold.
Thespecialcircumstancesunderwhichthisisallowedare:
o WhentheonlyuseoftheCDBG-EDfundsintheprojectisforjobtraining;and
o TheproportionofthetotalcostofthejobtrainingtobepaidwithCDBG-EDfundsis
notgreaterthantheproportionofthetotalnumberofassistedLMIpersons.
Chapter5.f.
MicroenterpriseDevelopment
Microenterprisesarethesmallest,leastvisibleportionofthebusinessworld,butareoneofthe
majorjobgeneratorsinoureconomy.However,theyrangeintypeandcapacity.Theyincludea
rangeofserviceprovidersandretailbusinesses.Someexamplesarethehome-baseddaycare
provider,therovingautomobilemechanic,orthehairdresserwhoservestheneighborhood.
Somemicroenterprisebusinessesareoperatedpart-time,byownerswhousetheextraincometo
supplementwageandsalaryemployment.
DefinitionofMicroenterprise
TheCDBGregulationsprovidethefollowingdefinitions:
o A“microenterprise”isacommercial for-profit enterprisethathasfiveorfewer
employees,oneormoreofwhomownstheenterprise.
o"Personsdevelopingmicroenterprises"meanspersonswhohaveexpressedinterests
inandwhoare,orafteraninitialscreeningprocessareexpectedtobe,actively
workingtowarddevelopingbusinesses,eachofwhichisexpectedtobea
microenterpriseatthetimeitisformed.
Note:ThisdefinitiondiffersfromSBA’sdefinition.
EligibleActivities
Eligiblemicroenterpriseactivitiesincludeproviding:
o DirectFinancialAssistance:Loansfortheestablishment,stabilizationandexpansionof
microenterprises;
o TrainingandTechnicalAssistance:Forownersofmicroenterprisesandpersonsdeveloping
microenterprisesincludingbusinessassessment,adviceandsupportrelatingtothe
developmentofbusinessplans,managementdevelopment,cashflow,customerservice,
competitiveanalysis,securingfunding,recordkeepingandmarketing;
o SupportServices:Inconjunctionwithoneoftheabove,generalsupporttoownersof
microenterprisesandpersonsdevelopingmicroenterprisesincludingpeersupportprograms,
counseling,childcare,ortransportation.
TheCDBG-EDprogramdoesnotcaptheamountofassistancethatmaybeprovidedtoa
microenterprise.However,manyrecipientslimitthelevelofmicroenterprisefinancial
assistanceinordertotargetsmallstartups,minimizetherecipient’sfinancialexposure,and
helptheassistedbusinesstomaintainareasonabledebtlevel.
Giventheirsizeandlevelofdevelopment,loanstomicroenterprisesareusuallyquitesmall,
rangingfrom$500to$20,000.Thesmallsizeoftheloans,combinedwiththecostoflarge
amountsoftechnicalassistance,meansthatsuchprogramsusuallyrequireongoingpublic
subsidy.
Microenterpriseactivitiesarenotsubjecttothe PublicBenefitStandardsif theyare
maintainedasaseparateprogram,apartfromthegeneralRLFrequirements.
o TheCDBGregulationsspecificallystatethataRLFprogramopentoboth
microenterprisesandnon-microenterprisescannotexemptamicroenterpriseapplicant
fromthe PublicBenefit tests.Forthisreason,amicroenterpriseloanfundshouldbe
keptseparatefromthegeneralRLFprogram.
o Dependingupontheprogramtypeselectedbytherecipient,underwritingcriteria
mustbeestablished.(Chapter7-Underwriting)
ManyadministratorsofRLF’s require thatthemicroenterpriseborrowerobtain Technical
Assistance onissuessuchasbudgeting,marketing,orbusinessplanninginconjunctionwiththe
microloaninordertohelpalleviateriskandassuresuccess.
o Trainingandtechnicalassistancearecriticalformicroenterprises,manyofwhich
arestartupconcernsrequiringintensivebusinessplanning,basicaccounting,and
marketresearchassistance.
o Thismakesmicroenterprisedevelopmentaverylaborintensiveandexpensivestrategy.
o Sincethereareprogramsalreadyinplacetoprovidecounselingortrainingtosmall
businesses,projectsshouldincorporatetheseexistingserviceswheneverpossibleand
notattempttocreateneworduplicativeprograms.Trainingshouldbeprovidedby
approvedoraccreditedproviders,suchastheSmallBusinessDevelopmentCenters.
DocumentingNationalObjectiveforMicroenterpriseActivities
ThereissubstantialflexibilityinhowCDBG-EDfundedmicroenterpriseactivitiescanmeeta
NationalObjective.Themosttypicalapproachesare:
o LimitedClientele(LMIJobs).Microenterpriseassistancecanqualifyunderthese
criteriaifthebusinessownerisLMI.Thiseliminatestheneedtotrackjobcreationor
retention.IncertifyingLMIstatus,theLGneedlookonlyattheowner’sincome,not
thatofanyemployees.Furthermore,thatpersonispresumedtocontinuetoqualifyas
LMIforuptoa3-yearperiodaftertheCDBG-EDassistanceisprovided.Note,
however,thatinordertoqualifyasaneligiblemicroenterpriseactivity,thebusiness
muststillmeetthedefinitionof“microenterprise”eachtimenewfinancingis
provided.
o LMIJobCreation/Retention.IftheownerisnotLMI,therecipientcanstill
providemicroenterpriseassistancebymeetingthesecriteria.
SeeChapter3foradditionalinformationonNationalObjectives.
Chapter5.f.
TechnicalAssistance(TA)
Technicalassistanceisamongthemostfrequentlycitedneedsbysmallbusinessowners,bankers,
andEDpractitioners.TherearetwotypesofTechnicalAssistanceeligibletobepaidforwith
CDBG-EDRLFfunds:
1.Fortrainingandortechnicalassistancetothe localgovernment toincreaseitscapacity
tocarryouteligibleeconomicdevelopmentactivities.Thiscouldincludesuchtopicsas
RLFadministration,HUD-CDBGtraining,NDCtraining,etc.Thiscanincludepaymentfor
tuition,training,andtravelexpenses.
Priortoundertakingthetechnicalassistance,thelocalgovernmentmustdetermine:
•Theeligibilityoftheactivityforwhichthecapacityistobebuilt;and
•WhetheritislikelythatanationalobjectivewillbemetoncetheTAhasbeenreceived.
ThisisespeciallyimportantbecausetheTAwillonlymeetanationalobjectiveIFthe
economicdevelopmentactivitywillmeetanationalobjective.
2.Fortheprovisionoftechnicalassistanceand/ortrainingdirectlyto businesses ontopics
suchasbusinessplanningoraccounting.Assistancetoabusinesscanrangefromgeneral
helpwithbusinessplanningtospecializedassistanceincreatinganInternetsiteforonline
sales.Whateveritsnature,goodTAcanenableentrepreneurstorecognizeandaddress
theinherentoperatingandfinancialrisksofowningandmanagingabusiness.
Thescopeandintensityoftheassistancewilldependheavilyuponthebusinessowner’s
levelofbusinessexperienceandthespecificsituation.Forexample,startupbusinesses
mayrequireassistancewithbusinessplanningandaccountingsystems,whileexisting
firmsmightneedhelpwithqualityimprovementorfacilitydesign(i.e.,managingcash
flow).TAprogramsmustbetailoredtospecificneedsandshouldutilizeprofessionals
withsolidindustryexperienceandanabilitytoassessthecriticalproblemswithinany
business.
Furthermore,TAusuallyworkshand-in-handwithfinancialassistancebecause:
Thereisastrongincentiveforabusinessownertousetechnical
assistanceproductivelyifaccesstofinancingismadecontingentupon
receivingup-frontand/orcontinuingTA;
TimelyTAcanhelppreventabusinessloanfromgoingintodefault.
TechnicalAssistancetoabusinesscanbedoneinanumberofways:
AmongthemostcommonsourcesofTAarelocalnonprofitagenciesand
communitydevelopmentcorporations,private-sectorprofessionalswillingto
discount/donatetheirservices,andtheserviceprogramsoftheU.S.Small
BusinessAdministration(www.sba.gov);
Hiringacontractor;
Grantingfundstoanorganizationsuchascommunitycollegeorregionalplanning
organizationtoallowthemtoprovidetheTA.
Chapter6
IneligibleCDBG-EDActivities
ThegeneralruleintheCDBG-EDprogramisthatanyactivitynotstatedintheHCDAshouldbe
consideredineligible.
However,thefollowingactivitiesareaddressedinCDBGrulesandmaynotbeassistedwith
CDBGfundsunderanycircumstance:
Buildingsorportionsthereofusedforthegeneralconductofgovernment.
GeneralGovernmentExpenses.
Generalpromotionofthecommunityasawhole.
PoliticalActivities.CDBGfundsmaynotbeusedtofinancetheuseoffacilitiesor
equipmentforpoliticalpurposesortoengageinotherpartisanpoliticalactivities,suchas
candidateforums,votertransportation,orvoterregistration.
Operatingandmaintenanceexpenses.Thegeneralruleisthatanyexpenseassociated
withrepairing,operating,ormaintainingpublicfacilities,improvements,andservices.
Assistancetoprofessionalsportsteams.
Assistancetoprivatelyownedrecreationalfacilitiesthatservepredominantlyahigher-
incomeclientele,wheretherecreationalbenefittousersormembersclearlyoutweighs
employmentorotherbenefitstoLMIpersons;
Acquisitionoflandforwhichthespecificproposedusehasnotyetbeenidentified(i.e.
specbuildingorlandbanking);
Projectsthatdonotmeetanationalobjective.
Thefollowingactivitiesarenotaddressedasineligibleinstatute,butitisstrongly
recommendedthattheynotbeeligible”
Refinancing ofexistingdebt;
Chapter7
UNDERWRITING/CREDITANALYSIS
Underwritingisassociatedwithrisk.Itisthedisciplinedprocessananalystpursuesindetermining
risk,inestablishingprocedureswhichenablealenderorinvestortotakeonly"reasonable"risks,and
inevaluatingrewardssothattheyarecommensuratewiththerisksincurred.Inadditiontothe
financialunderwritingofapubliclyfundedloantoabusiness,thereviewermustalsoconsidersocial
factors,suchasjobcreation.
ThischapterwillprovideinformationonCDBG-EDunderwritingcriteriaaswellasabriefstudyon
creditanalysis.
Publicvs.PrivateUnderwriting
A privateunderwriter hasacleargoal.He/shehasafiduciaryresponsibilitytomaximizereturns
(foragivenrisklevel)and,ifemployedbyacorporation,maximizeshareholdervalue.Although
theprivatelendermayhaveotherlegitimateconcerns(developmentofdistressedareas,job
creation,entrepreneurship,etc.),theseconcernstypicallydonotmateriallycompromisehis/her
fiduciaryobligations.Moreover,theprivatelenderhasonlyonesourceofreturn,namely
repaymentfromaloantransaction.
Publicunderwriters havemultiplegoals.Notonlymusttheunderwritersatisfycriteriaconcerning
socialgoals(jobcreation,nationalobjective,Davis-Bacon,etc.),thepublicunderwriteralsohasa
financialresponsibilitytoutilizepublicfundswisely.Thepubliclendercanincurmoreriskand
acceptlessreturnoninvestmentthantheprivatelendersinceitssourcefundingisinterestedas
muchinthesocialbenefitsofaloanprogramasareturnoninvestmentandpreservationofcapital.
Thereturntothepubliclenderismultiple.Inadditiontoprincipalandinterestpayments,the
publiclendercancollectvarioustaxes(property,wage,sales,businesslicense,etc.),depending
onthelocaltaxstructure.Accordingly,thetotalreturntothepubliclenderonatransactionwith
arelativelylowinterestratemaybeenhancedsignificantlybyaloanwhichgeneratesincreased
investments,jobs,andbusinessactivitiesandthusincreasedtaxrevenues.
Publiclendersshouldunderstandtheirniche—tobecompatiblewithconventionallendersby
providingloansthatconventionallenderswouldnotaccept,nottocompetewithordisplacethem.
Publiclendersshouldbepreparedtotakeonmoreriskthanconventionallenders,butthat
additionalriskshouldbereasonableandrelatedtothepublicpurposethefundsareintendedto
accomplish.
Ingeneral,thereare2basictypesofunderwriting–BusinessLoansandRealEstateTransactions.
Theyareanalyzeddifferently.Bothwillbediscussedlaterinthischapter.However,before
generalUnderwritingcriteriaarediscussedforeachoftheseareas,theCDBGregulatory
requirementwillbeexplained.
HUDregulationsprovideguidelinesforfinancialanalysisandpublicbenefitstandards.These
guidelinesareapplicabletoprojectsthatarefundedwithCDBG-EDfunds.Thefinancialguidelines
andobjectivesarevoluntary,butarerecommendedasa“bestpractice”andareusedbyDEEDto
evaluateprojects.ThePublicBenefitStandardsare mandatory(Chapter4,PublicBenefit
Standards).Together,thesestandardsandguidelinesrequireLG’stodeterminereasonablepublic
assistanceandbenefitbasedongeneralcostprinciplesandspecificprogramstandards.
HUD’s“GuidelinesandObjectivesforEvaluatingProjectCostsandFinancialRequirements”which
areknownas“UnderwritingGuidelines”aredesignedtoassisttheLGtoselecteconomic
developmentprojectsthatarefinanciallyviable,haveaneedforthefinancingandwillresultinthe
mosteffectiveuseofCDBG-EDfunds.Theuseoftheseguidelinesis voluntary;howevertheyare
recommendedasa“bestpractice”andaredescribedbelow.Ifthelocalgovernmentchoosesnotto
usetheseguidelinestheymustdevelopmenttheirowncriteria.Thisfollowingcriterionoutlinesthe
6objectivesforeconomicdevelopmentunderwriting.
Note:theseguidelinesdonotapplytoadministration,publicfacilitiesormicroenterprises
activities.
1.ProjectCostsareReasonable
Abreakdownofallcosts(includingworkingcapital)associatedwiththeprojectshouldbe
evaluatedtodeterminethereasonablenessofeachcost.Thiswillhelptoavoidproviding
toomuchortoolittleCDBR-EDassistancefortheproposedproject.
Ifthebudgetisfoundtobeoverstated,thereisprobablynoneedfortheloan.Conversely,
ifthebudgetisunderstated,thequalityoftheprojectmaybeadverselyaffected
whichcouldjeopardizethesuccessofthebusiness.Inextremecases,theprojectmaygo
unfinishedorfail.
TheLGcancontroltheserisksinthefollowingways:
Receivequotesfromindependent,thirdpartiesforconstruction,aswellas
machineryandequipmentcosts;
Comparetheproposalwithcostsofcomparableprojects;
Useguaranteedcontracts,performancebonds,orlettersofcredit;and
Useretainagesforcontractor’sfee,developer’sfeeorleasingreserve.
2.AllSourcesareCommitted
TheLGwantstoavoidtheriskofapprovinganddisbursingfundstofundaportionofthe
projectwithoutsufficientfundsfromothersourcestocompletetheproject.TheLGshould
first,reviewallproposedsourcesoffinancingnecessarytocarryouttheprojectto
determineiftheprojectisreadytoproceed.PriortothecommitmentoftheRLFfunds,the
LGshouldreceivelettersofcommitmentfromotherlenders,equitypartners,etc.thatwill
beparticipatingintheprojectfinancingaffirmingthatthefundsareavailable.
BeforetheRLFfundsaredisbursed,theLGshouldrequireclosingdocumentsfromother
lenders.
3.CDBG-EDFundsareNotSubstitutedforNon-FederalFunds
TheLGshouldclearlyestablishthatthereisaneedfortheloan.Beginbyreviewingthe
projecttoensurethattheRLFwillnotbeusedtosubstantiallyreducetheamountof
non-CDBG-EDfinancialsupport.TheLGshouldassurethatallotheravailablefinancing,
whetheritisprivateorotherpublic(local,InitiativeFoundation,RegionalDevelopment
Organization,SBA,etc.)hasbeenmaximized.Todeterminethattheassistanceis
needed,theLGshouldconductafinancialunderwritinganalysis,includingreviewsof
appropriateprojectionsofrevenues,expenses,debtserviceandreturnsonequity
investments.Theextentofthisreviewshouldbeappropriateforthesizeandcomplexity
oftheprojectandshoulduseindustrystandards,takingintoaccountanyuniquefactors
oftheprojectsuchasriskandlocation.
Historically,publiclendershaveestablishedtheneedforpublicinvestmentifaprojecthas
oneortwotypesoffundinggaps:
Financinggap;or
Rateofreturn(ROR)gap.
FinancingGap—Afinancinggapisdeterminedbycalculatingtheamountofdebtthe
projectcansupport,andcomputingtheamountofequitytheprojectcangenerateorthe
ownerhasavailable.Afinancinggapisdeterminedasfollows:
Step1:Determinethebudget.
Step2:Calculatetheamountofdebttheprojectcansupport.
Step3:Computetheamountofequitytheprojectcangenerateortheownerhas
available.
~Ifthebudgetisgreaterthan/equaltothesumofdebtplusequity,then
thereisafinancialgap.Theloanisneeded.
~Ifthebudgetislessthanthesumofdebtplusequity,thereisnofinancing
gapand,therefore,thereisnoneedfortheloan.
Theconceptsoundscomplicatedbutisquitesimple.Assumeyoucontracttobuyahouse
for$100,000.Yougotoyourlenderwhowillloanyou$80,000basedonyourincome.You
have$12,000inequity.Sinceyourbudgetof$100,000(ignoringclosingcostsfor
simplicity)isgreaterthanthesumofdebtandequity($92,000),thetransactioncannot
occursincethereisafinancinggap.Ifyouaccessanadditional$8,000,youcancomplete
thedeal.
RateofReturnGap—Therateofreturn(ROR)gapisavariationofthefinancinggapand
istheratioofincomereceivedbytheownertotheequityinvestedbytheownerandis
determinedasfollows:
Step1:Determinethebudget.
Step2:Calculatetheamountofdebttheprojectcansupport.
Step3:Computeamountofequitynecessarytocompletetheproject.
Step4:Comparethebenefitsoftheprojecttotheequityinvested.Isthereturna
marketrate?
~Ifthemarketrateisgreaterthan/equaltotherateoftheprospective
project,agapexists.Publicfundsshouldbeinvested.
~Ifthemarketrateislessthantherateoftheprospectiveproject,thereis
nogapandthusnoneedforpublicinvestment.
Asimpleexampleofhowthiswouldwork:Arentalhousecostsaninvestor$100,000and
willhaveadebtof$80,000.Theequityrequiredtocompletethehouseis$20,000.The
benefitsareestimatedat$1,000peryearinareturnmarketthatisaveraging10%.The
returnonthispropertyis5%($1,000/$20,000).Ifthemarketisdemandinga10%return,
whywouldarationalinvestoracceptaprospectiveprojectwitha5%return?Thus,aROR
gapexistsandpublicfundscanbeinjectedintotheproject,therebypushingtheRORtoa
marketratethatwillenticeanownertoinvesthis/herequityinthedeal.TheRORmethod
ismoreapplicabletorealestatetransactionsthanbusinessdeals,particularlyforsmaller
projects.
4.FinancialFeasibility
ThepublicbenefitalocalcommunityexpectstoderivefromaRLFassistedprojectwillnot
materializeiftheprojectisnotfinanciallyfeasible.Theassistedbusinessshouldbeableto
achievealevelofoperationthatissuccessfulinthenearandlongterm.Itshouldprovide
sufficientcashflowtorepaydebtandprovideareasonableRORonequityinvested.
Feasibilityisathreshold,becauseaninfeasibleprojectwillbeunabletorepaythepublic
investment,ormeetthecommunitydevelopmentobjectivesifthebusinessfailsoris
foreclosedupon.Inaco-lendingopportunity,theprivatelendercanbearesourcefor
conductingthefeasibilityanalysis.
Determinationoffeasibilityrequiresanunderstandingoftheindustry,andtheabilityto
testvariousassumptionsaboutoperations.Workingwithlenderswhohavethis
experiencewillbehelpfultolocalgovernments.Viabilityorsustainabilityisachieving
feasibilityoverthelongrun.Publicunderwritersneedtobeconcernedthattheventure
remainsfeasibleorviableforatleastthetermoftheloan.Repaymenttermsareapartof
feasibilitybecauseifthetermsaretooharsh,thesurvivalofthebusinessisjeopardized.
Calculatingthefinancinggapdeterminestheleastamountofpublicfundsneededto
completetheproject.However,keepinmindthatthatadditionofpublicdebt,particularly
amortizingpublicdebt,maycausetheotherlenderstoreducetheirloanamounts.Adding
publicdebtcanaffecttheconventionaldebtandequityandpubliclendersmustfindthe
propercombinationwhichclosesthegap.
Inadditiontothefinancialunderwritingreviews,evaluatethemanagementexperience
andcapacityofthebusinessowner.Basedonthisanalysis,identifythoseelements,ifany,
thatposethegreatestriskscontributingtotheproject’slackoffinancialfeasibility.
5.Owner’sEquityReturnisReasonable
TheCDBG-EDRLFshouldnotprovidemorethanareasonablereturnoninvestmenttoan
owner,givenindustryratesofreturn,localconditions,andtheriskoftheproject.However,
itisdifficulttocomputereturnonequityforsmallbusinessprojects.Theuseof
standardizedpublicationstocalculateRORsforsmallbusinessesisnotrecommended.
Therearesignificantvariationsinthedataandtherearemanyanomaliesassociatedwith
smallbusinessesthatskewtheresults.Thisapproachismoreapplicabletopubliclytraded
companiesorrealestateprojects.Forrealestateventures,thereturnonequityshould
comefromcashflowoftheproject,notcapitalsources.
Repaymenttermsareapartoffeasibilitybecause,ifthetermsofrepaymentaretoo
lenient,theborrowermayreceiveanexcessiveROR–oneabovethegoingmarketrate.
ThelocalgovernmentisnotexpectedtolimittheprovisionoftheCDBG-EDassistance
astojeopardizethechanceofsuccessoftheproject.Atthesametime,itis
inappropriatetosubstitutetheRLFforequityfundsiftheproject’srateofreturn
suggestsadditionalequityshouldbeinvested.Equityfundsshouldbearthegreatest
riskofallfundsinvestedinaproject.
6.DisbursementofRLFFundsonaProRataBasis
Asageneralrule,theRLFfundsshouldbedisbursedproportionaltothepercentageofthe
projectthatisfundedorserveas“takeout”financing,wherefundsaredisbursedupon
completionoftheproject.TheRLFshouldnotbeplacedatgreaterriskthanotherlenders.
Thiswillhelptoavoidthesituationwhereaproblemdevelopsthatblocksthecompletionof
theprojectafterallormostoftheRLFfundshavebeendisbursed.
Example:ifCDBGfundsare20percentoftheproject,eachdollarofCDBG-EDfunds
disbursedfortheprojectshouldbematchedbyfourdollarsfromotherfundingsources.
SeeAppendixC–CreditAnalysiswhichprovidesthebasicconceptsofcreditreview
andunderwritingbutdoesnotreplaceacreditcourse.
Chapter8
OtherFederalRequirements
Chapter8.a.
AcquisitionandRelocation
WheneverFederalfundsareusedinaprojectinvolvingtheacquisition,rehabilitationordemolition
ofrealproperty,aFederallawknownasthe UniformRelocationAssistanceandRealProperty
AcquisitionPoliciesActof1970(UniformAct)generallyapplies.RealPropertyisdefinedasland,
includingallthenaturalresourcesandpermanentbuildingsonit.Section104(d)oftheHousingand
CommunityDevelopmentAct“TheBarneyFrankAmendment”appliestothedisplacementofpeople
orbusinessesduetotheacquisition,rehabilitationordemolitionofabuilding.
Foreconomicdevelopmentprojectstheserequirementswilltypicallyapplytothe
purchaseofabuildingbyabusinessandthebuildinghouseseitheranotherbusinessor
peoplewhowillberequiredtomove.ThelocalgovernmentshouldcontactitsDEED
representativetofurtherdiscusstheserequirementsifaprojectinvolvesacquisitionof
landorabuildingordisplacementofabusinessorindividualresidinginthatbuilding.
The“UniformAct”
The“UniformAct”establishesminimumstandardsforfederallyfundedprojectsthatrequirethe
acquisitionofrealpropertyorthatdisplacepersonsfromtheirhomes,businesses,orfarms.
Objectivesofthe“UniformAct”
o Toprovideuniform,fair,andequitabletreatmentofpersonswhoserealpropertyis
acquiredorwhoaredisplacedinconnectionwithFederallyfundedprojects;
o Toensurerelocationassistanceisprovidedtodisplacedpersonsorbusinessestolessenthe
emotionalandfinancialimpactofdisplacement;
o Toensurethatnoindividualorfamilyisdisplacedunlessdecent,safe,andsanitary(DSS)
housingisavailablewithinthedisplacedperson'sfinancialmeans;
o Tohelpimprovethehousingconditionsofdisplacedpersonslivinginsubstandardhousing;AND
o Toencourageandexpediteacquisitionbyagreementandwithoutcoercion.
LocalgovernmentsconductingaprojectundertheUniformActmustcarryouttheirlegal
responsibilitiestoaffectedpropertyownersanddisplacedpersons.Theyshouldplanaccordinglyto
ensurethatadequatetime,funding,andstaffingareavailabletocarryouttheirresponsibilities.
Moreinformationonthe“UniformAct”canbefoundat:
o 49CFRPart24:federalregulationsimplementingtheUniformAct.
o HUDHandbook1378 providespolicyandguidanceonimplementingtheUniformAct.
o HUD’swebsite:http://www.hud.gov/offices/cpd/library/relocation/index.cfm
“TheBarneyFrankAmendment”
Section104(d)oftheHousingandCommunityDevelopmentAct(HCDA)providesminimum
requirementsforCDBGfundedprogramsorprojectswhenunitsthatarepartofacommunity’slow-
incomehousingsupplyaredemolishedorconvertedtoauseotherthanlow-ormoderate-income
dwellings.
TheserequirementsaretriggeredbytheuseofCDBGfundinginaprojectinvolvingthedemolitionor
conversionoflow-ormoderate-incomehousing.ItshouldbenotedthatCDBGfundingusedsolelyfor
relocationassistanceorprojectadministrationdoesnottriggerSection104(d)requirements.
Moreinformationcanbefoundat:
o 24CFRPart42:federalregulationsimplementingSection104(d).
o HUDHandbook1378 providespolicyandguidanceonimplementingSection104(d).
Chapter8.b.
CITIZENPARTICIPATION
Citizennotificationandinvolvementintheplanningandimplementationofthe
proposedprojectisrequired.Ataminimum,theLGmustholdtwopublichearings,
oneheldpriortoapprovalofthebusinessapplicationandasecondhearingatsome
pointthroughprojectimplementation.
TheLocalGovernmentcanfollowitsinternalpolicyforPublicHearings.Thenoticefor
st
the1publichearingmustincludethenameofthebusinesstobeassisted,the
amountoffundsrequested,whatthefundswillbeusedfor,thenumberofjobstobe
createdandthenumberofLMIjobs.
SamplesofPHnoticescanbefoundin
NOTICEOFPUBLICHEARING
FOR1stPUBLICHEARING
(PRE-AWARD)
SUGGESTEDFORMAT
NOTICEOFPUBLICHEARING
ND
FOR2PUBLICHEARING
(POSTAWARD)
SUGGESTEDFORMAT
NOTICEOFPUBLICHEARING
TOOBTAINCITIZENCOMMENTSONTHEIMPLEMENTATIONOFTHE
PROJECTFUNDEDBYTHECITYOF________________ONBEHALFOF
________________________
(NameofBusiness)
NOTICEISHEREBYGIVENthattheCityCouncil(the“Council)oftheCityof
______________,______________County,Minnesota,willholdapublichearingon_____,
_______________,20__at__________attheCityHall,_______________
(Day)(Month,Date)(Time)(Address)
relatingtotheimplementationoftheprojectpartiallyfundedbytheCityof____________’s
CommunityDevelopmentBlockGrant-EconomicDevelopment(CDBG-ED)RevolvingLoan
Fund.Asummaryoftheprojectascompletedwillbeonfileand
availableforpublicinspectionattheofficeoftheCityAdministratoratCityHallduring
regularofficehours.
Allinterestedpersonsmayappearatthehearingandpresenttheirvieworallyorinwriting.
Chapter8.c.
CONFLICTOFINTEREST
Insmallcommunities,itispossiblethataconflictofinterestmayarisewhenundertakingprograms
thatprovideassistancetosmallbusinessesinthecommunity.Thelocalgovernmentshouldbe
awareoftheapplicableconflictofinterestrequirementsandmustevaluateconflictsandpotential
conflictsinvolvingitsemployee,agent,consultant,officer,orelectedofficialorappointedofficialof
thelocalgovernment,thatarereceivingfundsonbehalfofthelocalgovernment.
ConflictsofinterestandpotentialconflictsofinterestaregovernedbyMinnesotaStatutesand
FederalRegulationsat:
o MinnesotaStatutes471.87-471.89and412.311
o FederalRegulationsat24CFR,Part570.611
Inaddition,theremaybelocallawsgoverningconflictofinterest.
ThelocalunitofgovernmentisresponsibleforevaluatingconflictsinthecontextofMinnesota
Statutes,andanylocallaws.DEED(withtheassistanceoftheMinnesotaOfficeoftheAttorneys
General,ifneeded)isresponsibleforevaluatingconflictstothefederallaws,andgranting
exceptionstothoselaws,wherewarranted.
ThegeneralruleispersonsactingonbehalfoftheLGinaCDBG-EDRLFdecisionmakingroleorwho
areinapositiontogaininsideinformation(andtheirfamilymembers)cannotobtainafinancial
interestorbenefitfromtheCDBG-EDRLF.Thisprohibitionendsoneyearafterthedecisionmaking
personhaslefthis/herposition.
IfthelocalgovernmentneedstorequestanexceptiontotheFederalconflictofinterestregulation,
theymustprovidetoyourDEEDloanofficerthefollowing:
1.Anopinionofthelocalgovernment’sattorneystatingthattheinterestforwhichan
exceptionissoughtwouldnotviolateStateorlocallaw,orfallsunderthe“exceptions”of
theStateorlocallaw.
2.Adescriptionofthenatureoftheconflict.Includesufficientdetail,suchastherelationship
thatresultsintheconflict,howlongthepersonhasbeenintheposition(ifapplicable),
whetherthepersonisinapositiontogaininsideinformation,whethertheperson
participatesorparticipatedinanypartoftheloandecisionmakingprocess(suchas
approvingindividualapplications),whethertheinterestorbenefitwaspresentbeforethe
personwasintheircurrentposition,etc.
3.Evidencethattherehasbeenapublicdisclosureoftheconflict(i.e.,copyofcouncil
minutes,copyofmeetingannouncementwithconflictontheagenda).
Allcorrespondenceandsupportdocumentationmustberetainedbythelocalgovernmentina
separatefile.
Asample“ConflictofInterestInterviewForm”thatlocalgovernmentsmayfeelfreetouseoradapt
isattached.IfaftercompletingtheInterviewFormthereappearstobeapossibleconflict,the
“ConflictofInterestWorksheet”,alsoattached,mustbecompletedbythelocalgovernmentand
reviewedbyDEED.
CONFLICTOFINTERESTINTERVIEWFORM
CDBG-EDRevolvingLoanFundProgram
Areyouorhaveyoubeenoneofthefollowing,duringthelast12months:
___Wageearner
___Consultant
___Officer
___ElectedOfficial
___AppointedOfficial
ofthe:
___Localgovernment/itsagentsNamePosition:_____________________________________
___Managing/consultingagencyNameAgency:_____________________________________
OR
Doyouorhaveyouoranyfamilymemberhadabusinessrelationshipwithanyoftheabovenamed
persons?
Ifyes,describe:
Note:Ifaconflictexists,itmaybepossibleforthelocalgovernmentanditsagentstorequestan
exceptiontotheconflictfromDEEDbycompletingandsubmittingthe“ConflictofInterest
Worksheet”whichisattached.
___________________________________________________________________________
SignatureofApplicantDate
CONFLICTOFINTERESTWORKSHEET
Date:
LocalUnitofGovernment:
Istheindividualwithinthelast12monthsorcurrently,anemployee,agent,consultant,officer,or
electedofficialorappointedofficialofthestate,orunitoflocalgovernment,oranydesignated
publicagencies,orsub-recipientsthatarereceivingassistancefortheCDBG-EDRLFprogram?
IfNo,nofurtheractionisrequired.
IfYes,thelocalunitofgovernmentmustprovidetoDEEDthefollowing:
Descriptionoftheconflict:
Disclosureofthenatureoftheconflict.
Assurancethattherehasbeenapublicdisclosureoftheconflict.
Describehowthepublicdisclosurewasmade.
Anopinionoftheattorneyforthelocalunitofgovernmentthattheinterestforwhichthe
exceptionissoughtwouldnotviolateStateorlocallaw.
1.HasordoesthisindividualexerciseanyfunctionswithrespecttotheCDBG-EDloan?Describe.
2.Doesthisindividualparticipateinthedecision-makingprocess?
Ifyes,theymustofficiallyannouncethattheyremovethemselvesfromthedecisionmaking
process.
3.Isthisindividualinapositiontogaininsideinformation?
4.Doesthisindividualhave,orwillobtainafinancialinterestorbenefitfromtheactivity?
5.Doestheindividualinvolvedhaveaninterestinanycontract,subcontractoragreement,orthe
proceedsthereunderforthemselves,theirfamily,orthosewithwhomtheyhavebusiness
ties?
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ThefollowingwillbecompletedbyDEEDandreturnedtotheLocalUnitofGovernment.
Basedonalltheinformationgatheredandtheanswerstoquestionsabove,Irecommend:
Approvaloftherequestforanexceptiontotheconflictofinterestrules.
Denialoftherequestforanexceptiontotheconflictofinterestrules.
Sr.LoanOfficerDate
Chapter8.d.
EminentDomain
ThelocalgovernmentisprohibitedfromusingCDBG-EDfundsforprojectsthatseektousethe
powerofeminentdomain,unlessthatpowerissoughtforcertainpublicuses.“Publicuse”isnotto
beconstruedtoincludeeconomicdevelopmentthatprimarilybenefitsprivateentities.Therefore,
therestrictionexistsontheuseofCDBG-EDfundsfororinconnectionwithapplicationsofeminent
domainpowers.
Thefollowingareeligibleaspublicuses:
o Masstransit,railroad,airport,seaportorhighwayprojects;
o Utilityprojectswhichbenefitorservethegeneralpublic(includingenergy-related,
communication-related,water-related,andwastewater-relatedinfrastructure);
o Structuresforusebythegeneralpublicorwhichhaveothercommon-carrierorpublic-utility
functionsthatservethegeneralpublicandaresubjecttoregulationandoversightbythe
government;and
o Projectsthatinvolvetheremovalofanimmediatethreattopublichealthandsafetyorthe
removalofbrownfields.
Ifaprojectinvolveseminentdomain,theLGshouldreviewStatelaw.
Chapter8.e.
ENVIRONMENTALREVIEW
AllCDBG-EDPROJECTSARESUBJECTTOANENVIRONMENTALREVIEW
DEED’sEnvironmentalManualandotherinformationregarding
environmentalreviewcanbefoundat:
http://mn.gov/deed/government/financial-assistance/community-funding/#
Thismanualisdesignedfor“communitydevelopment”typeprojectsandforthemostpartdoesnot
addresseconomicdevelopment,howevertheappropriateformsareincluded.Theenvironmental
reviewprocessforeconomicdevelopmentprojectswillbediscussedinthissection.
Thepurposeoftheenvironmentalreviewprocessistoanalyzetheeffectaproposedproject
willhaveonthepeopleandthenaturalenvironmentwithinadesignatedprojectareaandthe
effectthematerialandsocialenvironmentmayhaveonaproject.
Thelocalgovernmentistheresponsibleentityandmustcompleteanenvironmentalreview
for all projects.
TheEnvironmentalReviewprocessisgovernedbythefollowing:
o NationalEnvironmentalPolicyAct(NEPA)of1969(42U.S.C.4321 etseq.)
o HUDEnvironmentalReviewProcedures:24CFRPart58
http://www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title24/24cfr58_main_02.tpl
o CouncilonEnvironmentalQualityregulations:Title40,ChapterV,Part1500.1-.2
http://www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title40/40cfr1500_main_02.tpl
Thelocalgovernmentisrequiredtoensurethatenvironmentalinformationisavailablebefore
decisionsaremadeandbeforeactionsaretaken.Inordertoachievethisobjective,Part58
prohibitsthecommitmentorexpenditureofCDBG-EDfundsuntiltheenvironmentalreview
processhasbeencompleted.
o Thelocalgovernmentmaynotspendeitherpublicorprivatefunds(CDBG-ED,otherFederal
ornon-Federalfunds),orexecutealegallybindingagreementforpropertyacquisition,
rehabilitation,conversion,repairorconstructionpertainingtoaspecificsiteuntil
environmentalclearancehasbeenachieved.
o Thelocalgovernmentmustavoidanyandallactionsthatwouldprecludetheselectionof
alternativechoicesbeforeafinaldecisionismade–thatdecisionbeingbaseduponan
understandingoftheenvironmentalconsequencesandactionsthatcanprotect,restoreand
enhancethehumanenvironment(i.e.,thenatural,physical,socialandeconomic
environment).
Activitiesthathavephysicalimpactsorwhichlimitthechoiceofalternativescannotbeundertaken,
evenwiththelocalgovernment’sorotherprojectparticipant’sownfunds,priortoobtaining
environmentalclearance.
Forpurposesoftheenvironmentalreviewprocess,“commitmentoffunds”includes:
o Executionofalegallybindingagreement(suchasapropertypurchaseorconstruction
contract);
o ExpenditureofCDBG-EDfunds;
o Useofnon-CDBGfundsonactionsthatwouldhaveanadverseimpact---e.g.,demolition,
dredging,filling,excavating;and
o Useofnon-CDBGfundsonactionsthatwouldbe“choicelimiting”---e.g.,acquisitionofreal
property;leasingproperty;rehabilitation,demolition,constructionofbuildingsorstructures;
relocatingbuildingsorstructures,conversionoflandorbuildings/structures.
Itisacceptableforthelocalgovernmenttoexecutenon-legallybindingagreementspriorto
completionoftheenvironmentalreviewprocess.Anon-legallybindingagreementcontains
stipulationsthatensuretheprojectparticipantdoesnothavealegalclaimtoanyamountofCDBG-
EDfundstobeusedforthespecificprojectorsiteuntiltheenvironmentalreviewprocessis
satisfactorilycompleted.
DeterminationoftheAppropriateLevelofReview
Tobegintheenvironmentalreviewprocess,thelocalgovernmentmustfirstdeterminethe
environmentalclassificationoftheproject.Theterm“project”canbedefinedasallactivitiesto
bedone,includingsiteimprovements,buildingrenovation,acquisition,construction,purchase
ofmachinery,workingcapitalthataregeographically,functionally,orintegrallyrelated,
regardlessoffundingsource,tobeundertakenbythebusinessinwholeorinpartto
accomplishaspecificobjective.
Mosteconomicdevelopmentprojectshavemanyactivities,sothelocalgovernmentmust
followthereviewstepsrequiredforthemoststringentclassification.
Thelevelofreviewrequiredandtheamountoftimeitwilltakevariesdependingonthe
natureoftheprojectwhichmayimpactprojectscheduling.
Thefiveenvironmentalclassificationsare:
o ExemptActivities;
o CategoricallyExcludedActivitiesNotSubjecttoSection58.5;
o CategoricallyExcludedActivitiesSubjecttoSection58.5;
o ActivitiesRequiringanEnvironmentAssessment;OR
o ActivitiesRequiringanEnvironmentalImpactStatement.
Relatedactivitiesareonesthat:
o Automaticallytriggerotheractions;
o Cannotorwillnotproceedunlessotheractionsaretakenbeforehandoratthesametime;
OR
o Aremutuallydependentpartsofalargerproject?
1.ExemptActivities
Certainactivitiesarebytheirnaturehighlyunlikelytohaveanydirectimpactonthe
environment.Accordingly,theseactivitiesarenotsubjecttomostoftheprocedural
requirementsofenvironmentalreview.
Thefollowingactivitiesmaybeexemptfromenvironmentalreviewforeconomicdevelopment
projects.Foralistofallactivitiesrefertotheenvironmentalregulations.
o Technicalassistanceortraining;
o AnyofthecategoricallyexcludedactivitiessubjecttoPart58.5(aslistedin58.35(a))
providedtherearenocircumstanceswhichrequirecompliancewithanyotherFederallaws
andauthoritieslistedatPart58.5oftheregulations.Refertothesectionbelowon
categoricallyexcludedactivitiessubjecttoPart58.5.
o Aprojectthathasnootheractivitiesexceptworkingcapital.
Thelocalgovernmentmustalsodetermineifanyofthefollowingrequirementsareapplicable
andaddressasappropriate.
o theFloodDisasterProtectionAct;
o theCoastalBarriersResourcesAct;and
o HUD’srequirementfordisclosureofpropertieslocatedinairportrunwayclearzones.
Ifaprojectisdeterminedtobeexempt,thelocalgovernmentisrequiredtodocumentinwriting
thattheprojectisexemptandmeetstheconditionsforexemption.
SeeSectionEN-A1inDEED’sEnvironmentalManualforthecorrectformstobecompleted.
2.CategoricallyExcludedActivitiesnotSubjectto58.5
Thefollowingactivities,specificallyrelatedtoeconomicdevelopment,havebeendeterminedto
becategoricallyexcludedfromNEPArequirementsandarenotsubjecttoSection58.5
compliancedeterminations.Foracompletelistoftheseactivitiesreferto24CFRPart58.35(b).
o Economicdevelopmentactivitiesincludingbutnotlimitedtoequipmentpurchase,
inventoryfinancing,interestsubsidy,operatingexpensesandsimilarcostsnotassociated
withconstructionorexpansionofexistingoperations;
Thelocalgovernmentmustalsodetermineifthefollowingrequirementsareapplicableand
addressasappropriate.
o theFloodDisasterProtectionAct;
o theCoastalBarriersResourcesAct;AND
o HUD’srequirementfordisclosureofpropertieslocatedinairportrunwayclearzones.
TocompleteenvironmentalrequirementsforCategoricallyExcludedprojectsnotSubjectto24
CFRPart§58.5,thelocalgovernmentmusttakethefollowingsteps:
o CompletetheStatutoryChecklist;
o Identifyanddescribethespecificprojectactivityoractivitiesandprovideinformation
abouttheestimatedamountofCDBG-EDandotherfundstobeused.
o MakeafindingofCategoricalExclusionnotSubjectto§58.5
o CompletetheCertificateofExemption;
o PlacealldocumentationintheEnvironmentalReviewRecord.
Afindingof“CategoricalExclusionnotSubjectto§58.5”doesnotrequireapublicnoticeand
therequestforreleaseoffunds(RROF).
3.CategoricallyExcludedActivitiesSubjectto58.5
WhilethefollowingactivitiesarecategoricallyexcludedfromNEPArequirements,thelocal
governmentmustneverthelessdemonstratecompliancewiththelaws,authoritiesandExecutive
Orderslistedin58.5.
o Thefollowingarecategoricallyexcludedactivitiesthattypicallypertaintoeconomic
developmentprojects.Foracompletelistofactivitiesreferto24CFRPart.58.35(a).
•Acquisition,repair,improvement,reconstruction,orrehabilitationofpublicfacilities
andimprovements(otherthanbuildings)whenthefacilitiesandimprovementsarein
placeandwillberetainedinthesameusewithoutchangeinsize,orcapacityofmore
than20percent.
•Rehabilitationofbuildingsandimprovementswhenthefollowingconditionsaremet:
Forcommercial,industrialandpublicbuildings:
Thefacilitiesandimprovementsareinplaceandwillnotbechangedinsizeor
capacitybymorethan20percent;and
Theactivitydoesnotinvolveachangeinlanduse,e.g.fromcommercialto
industrial,orfromoneindustrialusetoanother.
Acquisition(includingleasing)ordispositionoforequityloansonanexistingstructure,
oracquisition(includingleasing)ofvacantlandprovidedthatthestructureorland
acquired,financed,ordisposedofwillberetainedforthesameuse.
Combinationsoftheaboveactivities.
TocompleteenvironmentalrequirementsforCategoricallyExcludedProjectsSubjectto24CFR
Part§58.5,thelocalgovernmentmustfollowthedirectionsprovidedinDEED’sEnvironmental
Manual:
http://mn.gov/deed/images/EN-A2-EnvironmentalReviewForCE.pdf
Uponcompletionoftheforms,etc.,thelocalgovernmentwillmakeoneofthreeenvironmental
findings:
o Theprojectconvertstoexempt;
o Theprojectinvokescompliancewithoneormoreofthelawsand/orauthoritiesand,
therefore,requirespublicnotificationandapprovalfromDEED;
ThelocalgovernmentmustpublishorpostapublicnotificationknownastheNoticeof
IntenttoRequestReleaseofFunds(NOI/RROF).
Aftertheseven-daycommentperiodhaselapsed,thelocalgovernmentmustprepare
theRequestforReleaseofFunds(RROF)andEnvironmentalCertification.The
EnvironmentalCertificationcertifiesthatthelocalgovernmentisincompliancewithall
theenvironmentalreviewrequirements.TheRROFandCertificationmustbesignedby
theCertifyingOfficerandsubmittedtoDEED.Thelocalgovernmentmustreceivethe
releaseoffundsfromDEEDbeforeproceedingforwardwiththeproject.
o Theunusualcircumstancesoftheprojectmayresultinasignificantenvironmental
impact,therefore,compliancewithNEPAisrequiredandfurtherreviewwarrantedi.e.,
EnvironmentalAssessmentorEnvironmentalImpactStatement.
TheERRmustcontainawrittendeterminationofthelocalgovernmentsfindingthattheprojectis
categoricallyexcludedsubjectto§58.5.Thisdeterminationshould:
o Includeadescriptionoftheproject(includingalltherelatedactivities,eventhoughCDBG-ED
fundsmaynotbeusedforallofthem);
o Citetheapplicablesubsectionof§58.35(a);
o Providethetotalestimatedprojectcost;
o Providewrittendocumentationastowhetherornottherewereanycircumstanceswhich
requiredcompliancewithanyoftheFederallawsandauthoritiescitedin§58.5;AND
o InformationrequiredintheEnvironmentalManual:
http://mn.gov/deed/images/EN-A2-EnvironmentalReviewForCE.pdf
4.EnvironmentalAssessment(EA)
Activitieswhichareneitherexemptnorcategoricallyexcluded(undereithercategory)will
requireanenvironmentalassessment(EA)documentingcompliancewithNEPA,HUDandwith
theenvironmentalrequirementsofotherapplicableFederallaws.
Todeterminethestepstocompletetheenvironmentalrequirementsforprojectsrequiring
anenvironmentalassessment,thelocalgovernmentmustreviewthe“GuideforEA
Projects”inDEED’sEnvironmentalManualfoundat:
http://mn.gov/deed/images/EN-A3-EnvironmentalReviewForEA.pdf
Uponcompletionofthestepsdetailedinthe“GuideforEAProjects”includingconsultation
withapplicableagenciesandpersons,thelocalgovernmentmustmakeadetermination
astowhethertheprojectwillorwillnothaveasignificantimpactontheenvironment.
Thiscanbedoneoncethereviewhasbeencompletedandanycommentshavebeen
addressedappropriately.Thelocalgovernmentmustselectoneofthefollowingtwo
findings/determinations:
o Theprojectisnotanactionthatsignificantlyaffectsthequalityofthehuman
environmentand,therefore,doesnotrequirethepreparationofan
environmentalimpactstatement;OR
o Theprojectisanactionthatsignificantlyaffectsthequalityofthehumanenvironment
and,therefore,requiresthepreparationofanenvironmentalimpactstatement.
Inmostinstances,theenvironmentalassessmentwillresultinafindingthattheprojectisnot
anactionthatsignificantlyaffectsthequalityoftheenvironmentand,therefore,doesnot
requireanenvironmentalimpactstatement.Ifthisisthecase,theresponsibleentitymust
completethefollowing:
o PublishanddistributeapublicnoticecalledaCombined/ConcurrentNoticeofFindingofNo
SignificantImpact(FONSI)andNoticeofIntenttoRequestReleaseofFunds(NOI/RROF).
o TheRROFandEnvironmentalCertificationmustbesubmittedtoDEEDnosoonerthan16
daysafterpublishingthecombined/concurrentnotice.TheCertificationmustbesignedby
thelocalgovernment’sCertifyingOfficer.
o DEEDmustholdtheReleaseofFundsfora15-dayperiodtoallowforpublic
comment.Ifnocommentsarereceivedduringthistime,DEEDwillsendbacka
signedReleaseofFundsandtheprojectmayproceed.
Iftheenvironmentalassessmentwillresultinafindingthattheprojectwillsignificantlyaffect
theenvironmentand,therefore,requiresanenvironmentalimpactstatement,thelocal
governmentshouldcontactDEEDforguidance.
5.EnvironmentalImpactStatement
AnEnvironmentalImpactStatement(EIS)detailsthelocalgovernment’sfinalanalysesand
conclusions,accordingtoNEPA,relatedtopotentialsignificantenvironmentalimpactofthe
project.Thelocalgovernmentmustfollowprescribedstepsinthecourseofpreparation,
filingandreviewofanEnvironmentalImpactStatement(See24CFR58,SubpartG,and40
CFR1500-1508).
AnEISmayberequiredwhen:
o Theprojectissolargethatittriggersdensitythresholds,andcommonsensesuggestsitmay
haveasubstantialenvironmentalimpact.
o AFindingofSignificantImpact(FOSI)isfoundasaresultofcompletinganenvironmental
assessmentfortheproject.
o PreparationofanEISismandatoryiftheprojectmeetsanyoftheserequirementsbelow:
•Anyprojecttoprovideasiteorsitesforhospitalsandnursinghomeswithatotalofat
least2,500beds.
•Anyprojectstoremove,destroy,convertorsubstantiallyrehabilitateatleast2,500existing
housingunits.
•Anyprojecttoconstruct,installorprovidesitesforatleast2,500housingunits.
•Anyprojecttoprovidewaterandsewercapacityforatleast2,500housingunits.
Anyprojectthatexceedsthe2,500-unitthresholdfornonresidentialhousingconstruction.
EISsareveryrareundertheCDBGprogram.ContactDEEDifthereisanyindication
thatanEISmaybenecessary.
Chapter8.f.
FAIRHOUSING,ACCESSIBILITY,ANDEQUALEMPLOYMENT
Thelocalgovernmentmustadheretoallthebasictenetsoffairhousingandequalopportunity
regulations.Todemonstratesupportforensuringthesetenets,localgovernmentsmustendorsein
attitudeanddeedallregulationsforfairnessintheprovisionoftheirCDBG-EDRLFprogramandthe
projectsitfunds.
Fairhousingandequalopportunitylawsarelikeanumbrella,intendedtoprotectindividuals
fromdiscriminationinhousing,employment,throughbusinessopportunitiessuchascontracting,
orthroughotherbenefitscreatedbyCDBG-EDprojects.
ApplicableLaws
Thischapterisbrokendownintothreebroadareasfortheapplicablerequirements:
o FairHousing;
o HandicapAccessibility;AND
o EqualOpportunity.
1.FairHousing
ThoughtheprovisionsoftheFairHousingActapplytohousing,thelocalgovernmentshouldbe
awarethattheseprovisionsapplytothelocalityasawholeandnotjusttoaspecificproject,whetherit
isforhousingoreconomicdevelopment.Thelocalgovernmentmustunderstandthatimplementingfair
housingactivitiesisanessentialpartoftheirresponsibilitiesastheadministratorofaCDBG-ED
fundedRevolvingLoanFund.
Fairhousingactionsshouldincreasehousingopportunitiesandaffirmativelypromotefairhousing
throughouttheentirehousingmarketatallincomelevels.Theseactivitiesmayincludeindependent
actionsbythelocalgovernmentorcooperativeventureswithhousingrelatedindustries,suchas
mortgagelenders,homebuilders,andlocalnon-profitsworkinginhousing.Thelocalgovernmentis
expectedtotakeprogressiveactionstofurtherfairhousingwitheachCDBG-EDfundedproject.
ThelocalgovernmentmustassurethatallCDBG-EDfundedactivitiesundertakenaspartofthe
projectareconductedinamannersothat:
Nopersonshallbesubjectedtodiscriminationbecauseof:
race,color,religion,sex,disability,age,familialstatus,ornationalorigin.
Segregatedfacilities,services,orbenefitsanddifferenttreatmentareprohibited.
Thelocalgovernmentshouldtakecaretoensurethefollowing:
o Accesstoanyadvantagearisingoutoftheprojectisnot:
•Deniedsolelyonthebasisofrace,color,religion,sex,disability,familialstatus,
ornationalorigin;OR
•Offeredfortheenjoymentofasegmentofthepopulationinsuchawayas
tointentionallyexcludeanymemberoftheseprotectedgroups.
Selectionofsitesandlocationsforfacilitiesandimprovementsdonothaveanexclusionary
ordiscriminatoryeffect.
RLFevaluationcriteriaandadministrativepracticesdonothaveadiscriminatoryeffect.
Affirmativeactionisusedtoovercometheeffectsofpastdiscrimination.
AFairHousingPosterisdisplayedinaprominentplaceattheofficeofthelocalgovernment.
FairHousingActivities
TheFairHousingActprovidesthat,inconnectionwiththedesignandconstructionofmulti-
familyhousing,thepublicuseandcommonareasmustbeaccessibleandusablebypersons
withhandicaps,alldoorsmustbedesignedtobewideenoughforwheelchairaccessible,and
allpremisesshouldbeofadaptivedesign(e.g.,reinforcementswithinabathroomtoallow
installationofgrabbars).
TheLocalgovernment’sundertakingofhousingprojectsandactivitiesmustensurefairhousing
rulesarefollowedintheprovisionofhousingservicesandassistance.Opportunitiesfor
purchaseorrental,termsandconditions,advertisingandmarketinginformation,andavailability
ofrealestateservicesshouldnotdiscriminate.
Ifthelocalgovernmenthasnotdoneso,itmusttakestepstoensurefairhousinginits
community.Someexamplesofpossibleactionsarelisted:
o Developingandimplementingafairhousingresolution;
o Marketinginformationconcerninghousingservicesandactivitiesshouldbedisseminated
throughagenciesandorganizationsthatroutinelyprovideservicestoprotectedgroups;
o Criteriaforselectingrecipientsofhousingservicesorassistanceshouldbeevaluatedfor
anydiscriminatoryeffect;
o Policiesguidingtheprovisionsofrelocationhousingandservicesforpersonsdisplacedby
housingactivitiesshouldbeevaluatedfordiscriminatoryeffect;and
o Legaldocumentsusedbythelocalgovernmentandlendinginstitutionsshouldbe
reviewedandrevisedifnecessarytoeliminateanydiscriminatoryintentorpractice.
ItisimportantforthelocalgovernmenttounderstandboththeFairHousingAmendmentand
Section504.TheFairHousingAmendmentrequiresthatalandlordmustallowatenantto
makereasonablemodificationstoaunitpaidforbythetenant.Section504providesthatthe
landlordisresponsibleformakingreasonableaccommodations.Finally,theaccessibilitylogo
shouldbeusedinhousingprojectswhereunitsareavailableforthedisabled.
AffirmativeMarketing
Thelocalgovernmentmustadoptaffirmativemarketingproceduresandrequirements
forallCDBG-EDassistedhousingwithfiveormoreunits.
Requirementsandproceduresmustinclude:
o Methodsforinformingthepublic,ownersandpotentialtenantsaboutfairhousinglaws
andthelocalgovernment'spolicies(forexample,useoftheFairHousinglogoorequal
opportunitylanguage);
o Adescriptionofwhatownersand/orthelocalgovernmentwilldotoaffirmativelymarket
housingassistedwithCDBGfunds;
o Adescriptionofwhatownersand/orthelocalgovernmentwilldotoinformpersonsnot
likelytoapplyforhousingwithoutspecialoutreach;
o MaintenanceofrecordstodocumentactionstakentoaffirmativelymarketCDBG-assisted
unitsandtoassessmarketingeffectiveness;and
o Descriptionofhoweffortswillbeassessedandwhatcorrectiveactionswillbetaken
whererequirementsarenotmet.
2.HandicappedAccessibilityandSection504
ProgramAccessibility
Communicationisanimportantcomponentofprogramaccessibility.Disabilitiesinvolving
impairmentstohearing,vision,speechormobilitymayaffectcommunication.Membersof
thecommunitywhohavedisabilitiesmustbeabletoaccessandenjoythebenefitsofa
programoractivityreceivingCDBG-EDfunds;therefore,variedapproachesmayberequired
toassureeffectivecommunicationandinformationdissemination.
Specifically,thelocalgovernmentmustbereceptivetotherequestsandneedsofthe
disabledperson(s)withinthecommunitywhendeterminingwhichauxiliaryaidsorservices
arenecessary.ForthepurposesofSection504compliance,thetargetpopulationincludes:
thehearingimpaired,visuallyimpaired,mobilityimpaired,developmentallydisabled,and
thosepersonsrequiringin-homecareorinstitutionalcare.Thelocalgovernmentmust
furnishauxiliaryaidsandservices,asnecessary,whichmayinclude:
o Forpersonswithhearingimpairments:
•Qualifiedsignlanguageinterpreters;
•Notetakers;
•Telecommunicationdevicesfordeafpersons(TDDs);
•Telephonehandsetamplifiers;
•Assertivelisteningdevices(devicesthatincreasethesoundinlargegroupsettings);
•Flashinglights(whereauralcommunicationisused,suchaswarningbells);
•Videotextdisplays(devicesthatdisplaytextthatissimultaneouslybeingspokencan
beusedwhereapublicaddresssystemprovidesinformation);
•Transcriptionservices;AND
•Closedandopencaptioning.
o Forpersonswithvisionimpairments:
•Qualifiedreaders;
•Writtenmaterialstranslatedintoalternativeformats(e.g.,Braille,audiotape,large
print);
•Auralcommunication(e.g.,Bellsorothersoundsusedwherevisualcuesarenecessary);
AND
•Audiodescriptionservices(i.e.,throughaheadset,anarratordescribeswhatthe
visuallyimpairedpersoncannotsee).
Thelocalgovernmentmustensureeffectivecommunicationwithpersonswithalltypesof
disabilitiesinallactivities.Wherethelocalgovernmentcommunicateswithapplicantsand
beneficiariesbyphone,aTDDisrequiredoranequivalentsystemmustbeavailable.Please
notethatthelocalgovernmentisnotrequiredtotakeanyactionthatwouldresultina
fundamentalalterationinthenatureofaprogramoractivityorunduefinancialand
administrativeburdens.
Facilities
“Facility”isdefinedunderSection504asanyportionofabuilding,equipment,roads,
walkways,parkinglotorotherrealproperty.“Accessible”fornon-housingpurposesmeans
thatafacilityorportionofafacilitycanbeapproached,enteredandusedbyindividualswith
physicalhandicaps.
Non-housingprograms,aswellasexistingfacilitiesinwhichtheyaresituated,mustbereadily
accessibletoandusablebypersonswithdisabilities.Accessibilityprogramswillbe
determinedonceagainunderself-evaluation.Thefocusofprogramaccessisproviding
programsinthemostintegratedsettingpossible.Providingseparateordifferentprogramsis
illegalunlessnecessarytoachieveequalopportunity.
Methodsofimprovingprogramaccessinexistingfacilitiescanincludethefollowing:
o Relocatingprogramstoaccessiblefacilitiesoraccessibleportionsoffacilities;
o Acquiringorbuildingnewfacilities;
o Selectivelyalteringfacilities;
o Changingoperatingpoliciesandprocedures;
o Assigningaidestoassistbeneficiaries;
o Addingorredesigningequipmentorfurnishings;and
o Conductinghomevisits.
SpecialRequirementsforLocalGovernmentswith15orMoreEmployees
TherearetwoadditionalrequirementsforSection504complianceforlocalgovernments(called
“recipients”under504toincludepublicagencies,instrumentalities,andpublicandprivateentities
includingnonprofits)with15ormorefullorpart-timeemployees:
Designationofresponsibleemployeeandadoptionofgrievanceprocedures:
o Atleastonepersonmustbedesignatedtocoordinate504andrelatedcomplianceefforts.
Theagencycoordinatorshouldbedesignatedinwritingandidentifiedinanywritten
notices.
o Agrievanceproceduremustalsobeadoptedincorporatingdueprocessstandardsand
allowingforpromptlocalresolutionofanycomplaintsofdiscriminationbasedon
disability.Existinggrievanceprocedurescanoftenbeadaptedtosatisfythis
requirement.
o Anyindividualorauthorizedrepresentativewhobelievesthattheyhavebeendenied
opportunitiesortreateddifferentlyduetotheirrace,color,nationalorigin,sex,age,
disability,religionandfamilialstatusmayfileacomplaint.Thecomplaintmaybefiled
withthelocalgovernmentorHUD.
Notificationtoparticipants,beneficiaries,applicantsandemployeesoftheirnondiscriminatory
provisions.Insummary,thelocalgovernmentmustprovidenoticeregardingthefollowing:
o Thelocalgovernmentsmustpublishinanewspaperofgeneralcirculationthe
notice“PolicyofNon-DiscriminationontheBasisofDisabilityStatus.”
o Thelocalgovernmentmustincludethesamelanguagefoundintheirpolicyof
nondiscrimination(mentionedinthefirstbullet)inallmaterialusedforrecruitment
orgeneralinformation.
o Thelocalgovernmentmustensurethatallmembersofthepopulationwithvisualor
hearingimpairmentsareprovidedwiththeinformationnecessarytounderstandand
participateintheprogramsoffered.
o Methodsforensuringparticipationmayincludequalifiedsignlanguageand
oralinterpreters,readers,ortheuseoftapedandBraillematerials.
24CFRPart42:FederalregulationsimplementingSection104(d).
HUDHandbook1378 providespolicyandguidanceonimplementingSection104(d).
2.OtherAccessibilityRules
AmericanswithDisabilitiesActof1990(ADA)
TheAmericanswithDisabilitiesActof1990(ADA)guaranteesequalopportunitiesfor
personswithdisabilitiesinemployment,publicaccommodations,transportation,Stateand
localgovernmentservices,andtelecommunications.UnlikeSection504whichappliesonly
toprogramsandactivitiesreceivingFederalfinancialassistance,theADAappliesevenifno
Federalfinancialassistanceisgiven.TitleIIofADAprohibitsdiscriminationbasedon
disabilitybyStateandlocalgovernments.
Facilities
o TitleIIalsorequiresthatfacilitiesthatarenewlyconstructedoraltered,by,onbehalf
of,orforuseofapublicentity,bedesignedandconstructedinamannerthatmakes
thefacilityreadilyaccessibletoandusablebypersonswithdisabilities.Facilities
constructedoralteredinconformancewitheithertheUniformFederalAccessibility
Standards(UFAS)ortheADAAccessibilityGuidelinesforBuildingsandFacilities
(ADAAG)shallbedeemedtocomplywiththeTitleIIAccessibilityrequirements,except
thattheelevatorexemptioncontainedinSection4.1.3(5)andSection4.1.6(1)(j)of
ADAAGshallnotapply.
RoadsandPedestrianWalkways
o TitleIIspecificallyrequiresthatallnewlyconstructedoralteredstreets,roads,
highways,andpedestrianwalkwaysmustcontaincurbrampsorotherslopedareasat
anyintersectionhavingcurbsorotherbarrierstoentryfromastreetlevelor
pedestrianwalkwayandthatallnewlyconstructedoralteredstreetlevelpedestrian
walkwaysmusthavecurbrampsatintersections.Newlyconstructedoralteredstreet
levelpedestrianwalkwaysmustcontaincurbrampsorotherslopedareasat
intersectionstostreets,roads,orhighways.
ArchitecturalBarriersActof1968
TheArchitecturalBarriersActof1968(ABA)requiresthatcertainbuildingsfinancedwith
Federalfundsmustbedesigned,constructed,oralteredinaccordancewithstandardsthat
ensureaccessibilityforpersonswithphysicaldisabilities.TheABAcoversanybuildingor
facilityfinancedinwholeorinpartwithFederalfunds,exceptprivately-ownedresidential
structures.Coveredbuildingsandfacilitiesdesigned,constructed,oralteredwithCDBG
fundsaresubjecttotheABAandmustcomplywiththeUniformFederalAccessibility
Standards(UFAS).Inpractice,buildingsbuilttomeettherequirementsofSection504and
theADAwillconformtotherequirementsoftheABA.
Self-EvaluationPlanandTransitionPlan
Self-EvaluationPlan
Self-evaluationisrequiredbybothSection504andtheAmericanswithDisabilitiesAct.Self-
evaluationpromotesinclusionoftheprogrammaticandproject-specificalternationsthatare
necessarytoensurelongtermcompliancewiththerequirements.
IfthelocalgovernmenthasnotalreadyperformedaSection504self-evaluationofprograms,
services,andactivitiestodetermineiftheyareprogrammaticallyandphysicallyaccessibleto
personwithdisabilities,theymustconductsuchevaluationanddocumentallneeds.Note:Ifa
localgovernmenthasalreadyperformedaself-evaluation,anewoneisnotrequired.
Alocalgovernmentshouldalsoinvolvepersonswithdisabilitiesintheseevaluations.While
performingtheself-evaluation,acarefulinspectionofthefollowingshouldbeperformedto
determineiftheyarefreefromdiscriminatoryeffectsandpractices:
o Evaluatecurrentpoliciesandpracticesandanalyzethemtodetermineiftheyadversely
affectthefullparticipationofindividualswithdisabilitiesinitsprograms,activities,and
services.Bemindfulofthefactthatapolicyorpracticemayappearneutralonitsface,
butmayhaveadiscriminatoryeffectonindividualswithdisabilities.
o Modifyanypoliciesandpracticesthatarenotormaynotbeincompliancewith
Section504orTitleIIandTitleIIIoftheADAregulations.(See24CFRPart8and28
CFRParts35,36.)
o Takeappropriatecorrectivestepstoremedythosepoliciesandpracticesthateither
arediscriminatoryorhaveadiscriminatoryeffect.Developpoliciesandprocedures
bywhichpersonswithdisabilitiesmayrequestamodificationofaphysicalbarrieror
aruleorpracticethathastheeffectoflimitingorexcludingapersonwithadisability
fromthebenefitsoftheprogram.
o Documenttheself-evaluationprocessandactivities.HUDrecommendsthatall
recipientskeeptheself-evaluationonfileforatleastthreeyears,includingrecordsof
theindividualsandorganizationsconsulted,areasexaminedandproblemsidentified,
anddocumentmodificationsandremedialsteps.
Anapproachmanylocalgovernmentshaveusedtoexamineserviceandprogram
accessibilityistodoawalk-throughoftheprocessrequiredforparticipation.Analyzenot
onlythephysicalpathtraveled,butalsotheadministrativerequirements,servicedelivery,
eligibilitycriteria,andapplicationprocedures.
AnypoliciesandpracticesthatarefoundtobediscriminatoryorcontrarytoSection504
requirementsmustbemodifiedandstepstakentoremedythediscrimination.
TransitionPlan
Ifstructuralbarriershavebeenidentifiedduringtheself-evaluationprocessandcannotbe
removedwithnonstructuralsolution,aTransitionPlanmustbecompletedandmadeavailable
forpublicreviewandcomment.
Theplanmustaddressthefollowingitems:
o Identificationofphysicalobstaclesinthefacilitiesthatlimitprogramaccessibility;
o Descriptionofthemethodthatwillbeusedtomakefacilitiesaccessible;
o Specifyascheduletoachievefullprogramcomplianceand,iftheplanislongerthanone
year,identifystepstobetakenduringeachyear;
o Indicatethepersonresponsibleforimplementingtheplan;and
o Identifythepersonorgroupswithwhoseassistancetheplanwasprepared.
Thelocalgovernmentisnotnecessarilyrequiredtomakeeachexistingfacilityoreverypart
ofanexistingfacilityaccessible.TheTransitionPlanmustinvolvepersonswithdisabilities
and/orrepresentativeorganizations.
EmploymentandContracting
Employmentandcontractingactivitiesalsotriggeremploymentandcontractingrulesrelatedto
equalemploymentpractices.
Employment
Nondiscriminationisarequirementofemploymentandemploymentpractices.Employment
opportunitiesmaynotbedeniedonthebasisofrace,color,nationalorigin,sex,age,religion,
familialstatus,ordisability.Affirmativeactionandequalemploymentopportunitypoliciesare
fundamentalaspectsofCDBG-EDfundedactivities.
The AmericanswithDisabilitiesAct modifiesandexpandstheSection504RehabilitationActof
1973toprohibitdiscriminationagainst“aqualifiedindividualwithadisability”inemployment
andpublicaccommodations.TheADArequiresthatanindividualwithaphysicalormental
impairmentwhoisotherwisequalifiedtoperformtheessentialfunctionsofajob,withor
withoutreasonableaccommodation,beaffordedequalemploymentopportunityinallphasesof
employment.
The EqualEmploymentOpportunityAct empowerstheEqualEmploymentOpportunity
Commission(EEOC)tobringcivilactioninFederalcourtagainstprivatesectoremployers
aftertheEEOChasinvestigatedthecharge,found“probablecause”ofdiscrimination,and
failedtoobtainaconciliationagreementacceptabletotheEEOC.ItalsobringsFederal,
State,andlocalgovernmentsundertheCivilRightsActof1964.
Stepsthatcanbetakentopreventdiscriminationinemploymentincludethefollowing:
o Reviewofjurisdictionalemploymentpoliciesandproceduresfordiscriminatoryintentor
practiceanddocumentreview;
o Advertiseemploymentopportunitiesand/ortorecruitemployeesforproject-related
positions;
o Developandmaintainemploymentdatathatindicatesstaffcompositionbyrace,sex,
handicapstatusandnationalorigin;and
o AnEqualEmploymentOpportunityPostermustbedisplayedinaprominentplaceatthe
officeofthelocalgovernment.
Specifically,Section504hasanumberofgeneralprohibitionsagainstemploymentdiscrimination.
Thelocalgovernmentmustensurethatthefollowingitemsareadheredto:
o Noqualifiedindividualwithadisabilityshall,solelyonthebasisoftheirdisabilitybe
subjecttodiscriminationinemploymentunderanyprogramoractivitythatreceives
Federalassistance.
o Anylocalgovernmentcannotlegallylimit,segregateorclassifyapplicantsoremployeesin
anywaythatnegativelyaffectstheirstatusoropportunitiesbecauseofdisability.
Inpre-employmentandemploymentactivities,discriminationbasedonadisabilitymustnot
occurandreasonableaccommodationsmustbemadetothephysicalormentallimitationsof
otherwisequalifiedindividualsunlessitcreatesunduehardshipforthelocalgovernment.HUD
regulationsspecifythatanemployerisprohibitedfromdiscriminationinthefollowing
instances:
o Recruiting,advertising,andprocessingofapplications;
Hiring,upgrading,promoting,tenure,demotion,transfer,layoffs,terminationrightor
returnfromlayoffs,illness,andrehiring;
Ratesofpayandanyotherformsofcompensation;
Jobassignments,classificationsanddescriptions,organizationalstructures,lines,
progression,andsenioritylists;
Leavesofabsence,sickleave,oranyotherleave;
Fringebenefitsavailablebyvirtueofemployment;
Selectionandfinancialsupportfortraining,includingapprenticeship,professional
meetings,conferences,andotherrelatedactivitiesandselectionforleavesofabsence
fortraining;
Employersponsoredactivities(includingsocialorrecreationprograms);and
Anyotherterm,condition,orprivilegeofemployment.
Thelocalgovernmentmaynotparticipateinacontractualorotherrelationshipthatsubjects
qualifieddisabledapplicantsoremployeestodiscrimination.
Reasonableaccommodation,underSection504,inemploymentisdeterminedonacase-by-
casebasis.Itmeansreasonablemodificationsonthejoborintheworkplacetoenablea
disabledpersontoperformthejobforwhichshe/heisqualified.Section504doesnotrequire
thehiringorpromotionofsomeonesimplybecauseshe/hehasadisability.
Section3
Section3oftheHousingandUrbanDevelopmentActof1968,asamended,requiresthe
provisionoftraining,employmentandothereconomicopportunitiesthatarisethroughHUD-
financedhousingandcommunitydevelopmentassistancetolower-incomeresidentsofthe
projectarea,particularlyresidentsofgovernment-subsidizedhousing,tothegreatestextent
feasibleandconsistentwithFederal,State,andlocallawsandregulations.Alsorequiredisthat
contractsbeawardedtobusinessesthatprovideeconomicopportunitiesforlow-andverylow-
incomepersonsresidingintheprojectarea.AmendmentstoSection3in1992included
requirementsforprovidingtheseopportunitiesincontractsforhousingrehabilitation,
includinglead-basedpaintabatement,andotherconstructioncontracts.
Section3applieswhenpublicinstructionprojectoractivityexceedscertainthresholds.
Contractorsandsubcontractorsprovidingservicesonprojectsforwhichthetotalamountof
thehousingandcommunitydevelopmentassistanceexceeds$200,000andtheamountof
thecontractorsubcontractexceeds$100,000arerequiredtocomplywithSection3.Ifa
localgovernmentreceiveshousingorcommunitydevelopmentassistanceforacovered
projectthatisfundedinpartwithCDBGfunds,Section3requirementsapplytotheentire
projectoractivity.
ItisimportanttodocumenteffortsmadetocomplywithSection3throughrecordkeeping.
Filesshouldcontainmemoranda,correspondence,advertisements,etc.,illustrating
contractorandsubcontractorattemptstohirelowincomeresidentsandbusinessconcerns.
FairHousingandEqualOpportunity
MajorRegulationsandRequirements
Equal
FairHousing
FederalandStateLawsand
Accessibility
Employment
and
Regulations(included
and
Nondiscriminat
amendments)
Contracting
ion
TitleVIIIoftheCivilRightsActof1968(TheFair
HousingAct):ThisActprohibitsdiscriminationin
XX
housingonthebasisofrace,color,religion,sex
and/ornationalorigin.Thislawalsorequires
actionswhichaffirmativelypromotesfair housing.
TitleVIoftheCivilRightsActof1964:ThisAct
providesthatnopersonshallbeexcludedfrom
participation,deniedprogrambenefits,orsubject
X
todiscriminationbasedonand/ornationalorigin
underanyprogramoractivityreceivingFederal
financialassistance.
RestorationActof1987.ThisActrestoresthe
broadscopeofcoverageandclarifiesthe
applicationoftheCivilRightsActof1964.Italso
X
specifiesthataninstitutionwhichreceivesFederal
financialassistanceisprohibitedfrom
discriminatingonthebasisofrace,color,national
origin,religion,sex,disability,orageinaprogram
oractivitywhichdoesnotdirectlybenefitfrom
suchassistance.
Section109ofTitle1oftheHousingand
CommunityDevelopmentActof1974:This
sectionofTitle1providesthatnopersonshallbe
XX
excludedfromparticipation(including
employment),deniedprogrambenefits,orsubject
todiscriminationonthebasisofrace,color,
nationalorigin,orsexunderanyprogramor
activityfundedinwholeorinpartunderTitleIof
theAct.
TheFairHousingAmendmentActof1988:ThisAct
amendedtheoriginalFairHousingActtoprovide
fortheprotectionoffamilieswithchildrenand
peoplewithdisabilities,strengthenpunishmentfor
X
actsofhousingdiscrimination,expandofthe
JusticeDepartmentjurisdictiontobringsuiton
behalfofvictimsinFederaldistrictcourts,and
createanexemptiontotheprovisionsbarring
discriminationonthebasisoffamilialstatusfor
thosehousingdevelopmentsthatqualifyas
housingforpersonsage55orolder.
TheHousingforOlderPersonsActof1995
(HOPA):Retainedtherequirementthatthe
housingmusthaveonepersonwhois55yearsof
X
ageorolderlivinginatleast80percentofits
occupiedunits.TheActalsoretainedthe
requirementthathousingfacilitiespublishand
followpoliciesandproceduresthatdemonstrate
intenttobehousingforpersons55andolder.
TheAgeDiscriminationActof1975:ThisAct
providesthatnopersonshallbeexcludedfrom
participation,deniedprogrambenefits,orsubject
todiscriminationonthebasisofageunderany
X
programoractivityreceivingFederalfunding
assistance.EffectiveJanuary1987,theagecapof
70wasdeletedfromthelaws.
Section504oftheRehabilitationActof1973:Itis
unlawfultodiscriminatebasedondisabilityin
Federallyassistedprograms.Thissectionprovides
thatnootherwisequalifiedindividualshall,solely
XXX
byreasonofhisorherdisability,beexcludedfrom
participation(includingemployment),denied
programbenefits,orsubjectedtodiscrimination
underanyprogramoractivityreceivingFederal
fundingassistance.
TheAmericanswithDisabilitiesActof1990(ADA):
ThisActmodifiesandexpandstheRehabilitation
Actof1973toprohibitdiscriminationagainst“a
qualifiedindividualwithadisability”in
XXX
employmentandpublicaccommodations.The
ADArequiresthatanindividualwithaphysicalor
mentalimpairmentwhoisotherwisequalifiedto
performtheessentialfunctionsofajob,withor
withoutreasonableaccommodation,beafforded
equalemploymentopportunityinallphasesof
employment.
ExecutiveOrder11063:ThisExecutiveOrder
providesthatnopersonshallbediscriminated
againstonthebasisofrace,color,religion,sex,or
X
nationalorigininhousingandrelatedfacilities
providedwithFederalassistanceandlending
practiceswithrespecttoresidentialpropertywhen
suchpracticesareconnectedwithloansinsuredor
guaranteedbytheFederalgovernment.
ExecutiveOrder11259:ThisExecutiveOrder
providesthattheadministrationofallFederal
X
programsandactivitiesrelatingtohousingand
urbandevelopmentbecarriedoutinamannerto
furtherhousingopportunitiesthroughoutthe
UnitedStates.
Section109ofTitleIoftheHousingand
CommunityDevelopmentActof1974:Requires
thatnopersonshallbeexcludedfrom
XX
participationin,bedeniedthebenefitsof,orbe
subjectedtodiscriminationunderanyprogramor
activityfundedwithCDBGfundsonthebasisof
race,color,religion,nationalorigin,orsex.
TheEqualEmploymentOpportunityAct:ThisAct
empowerstheEqualEmploymentOpportunity
Commission(EEOC)tobringcivilactioninFederal
X
courtagainstprivatesectoremployersafterthe
EEOChasinvestigatedthecharge,found“probable
cause”ofdiscrimination,andfailedtoobtaina
conciliationagreementacceptabletotheEEOC.It
alsobringsFederal,State,andlocalgovernments
undertheCivilRightsActof1964.
Chapter8.g.
ParticipationofFaith-BasedOrganizations
In2003,HUDissuedaFinalRulewhichremovedbarrierstotheparticipationoffaith-based
organizations,whileadheringtotheFirstAmendmentrequiringseparationofchurchandState.
Thefollowingpolicieswereestablished(24CFR§570.200(j)):
o Faith-basedorganizationsareeligibleforCDBGfundingonanequalfootingwithany
otherorganization.ThereisnoFederalrequirementforanorganizationtoincorporate
oroperateasanonprofittoobtaintax-exemptstatusunderSection501(c)(3)inorderto
receiveCDBGfunds.
o OrganizationsmaynotusedirectCDBGfundstosupportinherentlyreligiousactivities
suchasworshiporreligiousinstruction.Ifanorganizationdoesconductsuch
activities,theactivitiesmustbeofferedseparatelyfromactivitiesfundedbytheCDBG
program,intimeorlocation.
o Faith-basedorganizationsretaintheirindependencefromFederal,State,andlocal
governments,includingtheirexemptionfromtheFederalprohibitionon
employmentdiscriminationonthebasisofreligionforemployeesnotinvolvedin
CDBG-fundedactivities(§570.607).
o Faith-basedorganizations,likeallorganizationsimplementingHUD-fundedprograms,
mustservealleligiblebeneficiarieswithoutregardtoreligion.TheCDBGstatueand
regulationsprohibitanypersonfrombeingdeniedthebenefitsof,orbeingsubjected
todiscrimination,onthebasisofreligionunderanyactivityfundedinwholeorin
partwithCDBGfunds.
o Faith-basedorganizations,likeallorganizations,mayreceiveCDBGfundstoacquire,
construct,orrehabilitatebuildingsandotherrealpropertyaslongasthefundsonlypay
thecostsattributabletoCDBGactivities.
o ThisappliestoStateorlocalfundsifaStateorlocalgovernmentchoosesto
commingleitsownfundswithCDBGfunds.
Formoreinformationregardingtheparticipationoffaith-basedorganizationsintheCDBG
Program,seethefollowingresources:
o HUDCenterforFaith-BasedandCommunityInitiatives:
http://portal.hud.gov/hudportal/HUD?src=/program_offices/faith_based
Chapter8.h.
“Anti-Pirating”ofJobs
ThepurposeoftheCDBG-EDprogramistocreatejobs,butnotifassistancewillresultinotherjobs
beinglostinanothercommunityorregion.Therefore,underfederalanti-piratingstatutes,CDBG-
EDfundscannotbeusedtoassistdirectlyintherelocationofanyindustrialorcommercialplant,
facility,oroperation,fromoneareatoanotheriftherelocationislikelytoresultinasignificantloss
ofemploymentintheLaborMarketAreafromwhichtherelocationoccurs.
Federalregulationssetthefollowingparametersforacompany’srelocationfromoneLMAto
anotherandwhetherthenumberofjobsbeinglostwilltriggertheanti-piratingprovisions:
o Lossof<26jobs:isnotasignificantloss,sotheanti-piratingregulationisnottriggered.
o Lossof>499jobs:issignificantandwouldautomaticallyinvoketheanti-pirating
provisions.
o Lossof26–499jobs:issignificantifthejoblossismorethan.1%ofthetotalnumberof
personsinthelaborforceintheLMA.
o Ajobisconsideredtobelostifthejobisrelocatedwithin3yearsoftheprovisionof
CDBG-EDassistancetothebusiness.
o JobrelocationwithinthesameLMAisnotsubjecttotheanti-piratingrequirement.
BeforedirectlyassistingabusinesswithCDBG-EDfunds,thelocalgovernmentmustobtaina
writtencertificationfromthebusinessthatincludes:
o Astatementastowhetherthefinancialassistancewillresultintherelocationofany
industrialorcommercialplant,facility,oroperationfromoneLMAtoanother,and,if
so,thenumberofjobsthatwillberelocatedfromeachLMA.
o Iftheassistancewillnotresultinarelocationcoveredbythissection,thecertification
muststatethatneitherthebusiness,noranyofitssubsidiaries,haveplanstorelocate
jobsatthetimetheagreementissignedthatwouldresultinasignificantjobloss;and
o Theloanagreementshallprovideforfullreimbursementofanyassistanceprovided
tothebusinessintheeventtheassistanceresultsinarelocationprohibitedunder
thissection.
LaborMarketArea(LMA):ALMAisaneconomicallyintegratedgeographicareawhere
individualscanliveandworkwithinareasonabledistanceorcanreadilychangeemployment
withoutchangingtheirplaceofresidence.
AlistofLMA’swithintheU.S.canbefoundat:
www.bls.gov/lau/lmadir.pdf.
Chapter8.i.
LABORSTANDARDS
FederalLaborStandardsrulesapplytoprojectusingCDBG-EDfundsthatinvolvephysicalconstruction
suchasbuildingconstruction,publicfacilities,andinstallationofequipment.Theserequirements
shouldbegivencarefulconsiderationwhenplanningCDBG-EDfundedeconomicdevelopment
projects.Whenapplicable,thelocalgovernmentmustbeproactivewiththebusinessreceivingthe
financingtoassurethatthecontractor(s)areawareoftherequirementsandthattheconstruction
contract(s)betweenthebusinessandthecontractor(s)containthenecessarylanguagetoensure
compliance.
Underthelaborlaws,theprimeorgeneralcontractorisresponsibleforfullcompliancewithapplicable
requirements,includingallemployers/subcontractorsontheproject.Thelocalgovernmentisresponsible
fortheadministrationandenforcementoftherequirementstoensurecompliance,includingobtaining
andprovidingthecorrectwagedecisionstothecontractor(s);ensurethatthelaborstandards
provisionsareincludedinbidandcontractdocuments;andmonitorcontractorsforcompliancewith
wageratesandcollectingrestitutionformcontractorsthatviolatewagerequirements.
Thelaborstandardsrequirementsapplytothefollowing:
Constructionworkincluding,butnotlimitedtobuildingrenovation,remodeling,andsite
development,wheneven$1ofCDBG-EDfundsisusedfortheseactivities;
Installationofequipmentiftheinstallationcostisgreaterthan$2,000;and
Installationofpublicinfrastructurebythelocalgovernment.
ThelaborlawsthatmayapplytoCDBG-EDfundedconstructionworkincludethefollowing:
TheContractWorkHoursandSafetyStandardsAct applytocontractsover$100,000and
requiresthatworkersreceiveovertimecompensation(timeandonehalf)forhoursworked
inexcessof40hoursinoneweek.
Copeland“Anti-Kickback”Act requiresthatworkersbepaidweekly,thatdeductionsfrom
workers’paybepermissible,andthatcontractorsmaintainandsubmitweeklypayrolls.
Davis-BaconAct:Triggeredwhenconstructionworkover$2,000isfinancedinwholeorin
partwithCDBG-EDfunds.Itrequiresthatconstructionworkersreceivenolessthanthe
prevailingwagesbeingpaidforsimilarworkinthesamearea.
HUDhaspublishedthefollowingguidesthatareavailablefordownloadingfromitswebsite:
“MakingDavisBaconWork:APracticalGuideforStates,IndianTribesandLocalAgency’s”
“Contractor’sGuidetoDavis-Bacon:PrevailingWageRequirementsforFederally-Assisted
ConstructionProjects.”
Fordetailedinformationonthelaborstandardsrequirements,pleasereferDEED’sLaborStandards
ManualwhichcanbefoundontheDEEDwebsiteat:
http://mn.gov/deed/images/Labor_Stards_Hbook_07.pdf
Chapter9
FINANCIALMANAGEMENT
ThebasicrequirementsforaccountingfortheRLFmustincludethefollowing:
1.TheCDBG-EDfundedRLFmustbeaccountedforseparately.
2.FinancialrecordsonthereceiptandexpenditureoftheRevolvingLoanFundsmustbe
maintained.
3.Ataminimum,aLoanRegister,whichisanaccountthatprovidesdocumentationforeach
businessloanfundedwiththeRLF.TheRegistershouldincludethefollowinginformation:
a.NameofBorrower
b.DateLoanMade
c.AmountofLoan
d.Termsoftheloan(interestrate,maturitydateandfrequencyofpayments).
e.Paymentsandcurrentbalance
4.RevolvingLoanfundsmustbedisbursedforeconomicdevelopmentprojectsbeforeadditional
requestsaremadefornewCDBG-EDfunds.TheLGwillalsobeexpectedtomaximizetothe
greatestamountfeasibletheprovisionoffundsfromthisaccounttoanynewSmallCities
DevelopmentProgramapplication.
Theremainderofthechapterprovidesabriefoverviewoftherequirementsthatmaybeapplicableto
thefinancialmanagementoftheCDBG-EDfunds.ItisrecommendedthattheLGreviewthe
followinginformation.Thefinancialmanagementsystemrequiredforthelocalgovernmentandthe
useandaccountingforCDBG-EDfundsisgovernedby:
1.OMBCircularA-87,“CostPrinciplesforState,LocalandIndianTribalGovernments.”
Thiscircularestablishesprinciplesandstandardsfordeterminingallowablecostsunder
Federalgrants.
2.OMBCircularA-133,“AuditsofStateandLocalGovernments.”
3.24CFRPart85“UniformAdministrativeRequirementsforGrantsandCooperative
AgreementstoStateandLocalGovernments.”
StandardsforFinancialManagementSystems
T heLocalGovernmentmusthavefinancialmanagementsystemsinplacetocomplywiththe
followingstandards:
Provideeffectivecontroloverandaccountabilityforallfunds,propertyandotherassets;
Identifythesourceandapplicationoffundsforfederally-sponsoredactivities,including
recordsandreportsthat:
o Verifythe“reasonableness,allowabilityandallocability”ofcosts;and
o Verifythatfundshavenotbeenusedinviolationofanyoftherestrictionsor
prohibitionsthatapplytothefederalassistance(throughtheuseofbudgetcontrols
andadequateaccountingrecords).
Permittheaccurate,completeandtimelydisclosureoffinancialresultsinaccordancewith
Statereportingrequirements.
MinimizethetimeelapsingbetweenthetransferoffundsfromtheU.S.Treasuryand
disbursementbytheStateorLG.
InternalControls
Internalcontrolsarethecombinationofpolicies,procedures,jobresponsibilities,personnel
andrecordsthattogethercreateaccountabilityinanorganization’sfinancialsystemand
safeguarditscash,propertyandotherassets.
Throughitssystemofinternalcontrols,anorganizationcanensurethat:
o Resourcesareusedforauthorizedpurposesandinamannerconsistentwith
applicablelaws,regulationsandpolicies;
o Resourcesareprotectedagainstwaste,mismanagementorloss;and
o Informationonthesource,amountanduseoffundsarereliable,securedandup-
to-dateandthatthisinformationisdisclosedintheappropriatereportsand
records.
Thebasicelementsofaninternalcontrolsysteminclude:
o Anorganizationalchartsettingforththeactuallinesofresponsibilityof
personnelinvolvedinfinancialtransactions.
o Writtendefinitionanddelineationofdutiesamongkeypersonnelinvolvedin
financialtransactions.
o Anaccountingpolicyandproceduresmanualthatincludes:
•Specificapprovalauthorityforfinancialtransactionsandguidelinesfor
controllingexpenditures;
•Asetofwrittenproceduresforrecordingoftransactions;and
•Achartofaccounts.
o Adequateseparationofdutiessothatnooneindividualhasauthorityovera
financialtransactionfrombeginningtoend.Inotherwords,onepersonshouldnot
haveresponsibilityfor morethanone ofthefollowingfunctions:
•Authorizationtoexecuteatransaction.
•Recordingofthetransaction.
•Custodyoftheassetsinvolvedinthetransaction.
o Hiringpoliciesensuringthatstaffqualificationsarecommensuratewithjob
responsibilities.
o Controloverassets,blankformsandconfidentialdocumentssothatthesetypesof
documentsarelimitedtoauthorizedpersonnelonly.
o Periodiccomparisonsoffinancialrecordstoactualassetsandliabilities(i.e.,
reconciliation).Incaseswherediscrepanciesarefound,correctiveactionmustbe
takentoresolvesuchdiscrepancies.
BudgetControls
TheLocalGovernmentmusthaveproceduresinplacetocompareandcontrolexpenditures
againstapprovedbudgetsforCDBG-EDRLFfundedactivities.
TheLocalGovernmentshould:
o Maintaininitsaccountingrecords(seebelow)theamountsbudgetedfor
eligibleactivities;
o Periodicallycompareactualobligationsandexpenditurestodateagainstplanned
obligationsandexpenditures,andagainstprojectedaccomplishmentsforsuchoutlays;
and
o Reportdeviationsfrombudgetandprogramplans,andrequestapprovalforbudgetand
programplanrevisions.
CashManagement
TheLocalGovernmentshouldhaveproceduresinplacetominimizetheamountoftimethat
elapsesbetweenreceiptofCDBGfundsandtheactualdisbursementofthosefunds,whichwill
curtailunnecessarydrawdownsofCDBGfundsandminimizethecostoffinancingtheCDBG
programbythefederalgovernment.
Requirementsconcerningcashmanagementincludethefollowing:
o TheLGmustincludeaccurateinformationindrawdownrequests;
o Fundsdrawndownerroneouslymustbereturned.(Thisincludesfundsdrawndown
underthecashadvancemethodwheretheexpenditureoffundsisdelayed.)
o Disbursementoffundsmustoccurinatimelymanner.Whilethereisnoexplicittime
period,thegeneralruleisthatpaymentmusttakeplacewithinthreebusinessdaysof
depositofCDBGfunds.Ifpaymenttakeslongerthanthreebusinessdays,written
justificationshouldbemaintainedinthefiles.
o Ifgrantadvancesareplacedinaninterest-bearingaccount,interestincome
mustberemittedtotheU.S.Treasury.(However,interestamountsupto
$100peryearmayberetainedbythestateforadministrativeexpenses.)
AuditRequirements
States,LocalGovernmentandnonprofitorganizationsthatexpend$750,000ormoreinfederal
financialassistance(includingnon-CDBG-EDfunds)intheLocalGovernment’sfiscalyearmusthavean
auditdoneinaccordancewiththerequirementsoftheSingleAuditAct(OMBCircularA-133“Auditsof
States,LocalGovernmentsandNon-profitOrganizations”).
IftheLocalGovernmentexpendslessthan$750,000ayearinfederalawards,itisexemptfromthe
auditrequirementsforthatyear;however,recordsmustbeavailableforreview.A singleaudit isan
auditthatincludesbothanentity’sfinancialstatementsanditsfederalawards(fromallapplicable
federalprograms).
TheauditmustbeperformedbyanindependentauditorinaccordancewithGovernmentAuditing
StandardsandmustbeconductedinaccordancewiththeOMBcirculars.
IftheLocalgovernmentwishes,theymayusefundsfromtheRLFtopayfortheshareoftheA-
133auditcoststhatrelatetothepercentageofCDBG-EDfundsaudited.Forexample,ifanA-
133auditisrequiredandCDBG-EDfundsrepresent50%ofauditedfederalexpenditures,RLF
fundscanbeusedtopayfornomorethan50%oftheA-133costs.
InordertouseRLFfundstopayforA-133auditcosts,theLGmustprocureauditservicesas
outlinedintheProcurementsectionofthischapter.
FundsfromtheRLFcannotbeusedtopayforanyportionofanonA-133audit.
TheCatalogofFederalDomesticAssistanceNumberfortheCommunityDevelopmentBlock
Grantprogramis14.228.
ThemostcurrentversionofCircularA-133canbefoundatthefollowinglink:
www.whitehouse.gov/omb/circulars/a133_compliance_supplement_2014
Procurement
RegulationsgoverningprocurementofgoodsandservicesforwhichtheCDBG-EDRLF
willbeusedrequirethatLG’susecompetitiveprocessestoprocurethosegoodsand
services(24CFR85.36),inparticularprocuringaconsultantoranengineer.Through
thecompetitiveprocess,twoormorevendorsorcontractorsbidtoprovidetheLGwith
themostfavorableprice,qualityandservice.
Dependingonthenatureofthepurchaseandthenumberofavailableproviders,theLG
mayselectfromthefollowingoptions:
1.Smallpurchasesprocedures;
2.Competitivesealedbids(formaladvertising);
3.Competitivenegotiation;
4.Noncompetitivenegotiation.
TheLGmustmaintaindocumentationthatshowsthatprofessionalserviceswereprocuredin
accordancewith24CFR,Part85.Servicesobtainedfromaspecialpurposeunitofgovernment,
suchasanHRA,PortAuthorityorEDAarenotrequiredtobeprocuredbycompetitivenegotiation.
AllconstructionperformedbytheLocalGovernmentmustbeprocuredbycompetitivebidding.
TheCDBGprocurementrequirementsdonotapplytoaprivatebusinessiftheCDBG-EDRLFwillbe
providedforconstructionpurposesorforthepurchaseofequipment.However,aspartofthe
Underwritingprocess,thebusinessmustprovidetheLGwithdocumentationthatsuchcostsare
reasonable.
IftheLGhasnotadequatelydocumentedaprocurementprocess,itmaybeliableforallfunds
expendedonthegoodorservice.
ChangeofUse
ThestandardsdescribedinthissectionapplytorealpropertywithintheLocalGovernment’s
controlthatwasacquiredorimproved,inwholeorinpart,usingCDBGfundsinexcess
of$100,000.ThesestandardsshallapplyfromthedateCDBGfundsarefirstspentforthe
propertyuntilfiveyearsafterfinalclose-outofthegrantfromwhichassistancetothe
propertywasprovided.
TheLocalGovernmentmaynotchangetheuseorplanneduseofanysuchproperty(including
thebeneficiariesofsuchuse)fromthatforwhichtheacquisitionorimprovementwasmade,
unlesstheLocalGovernmentprovidesaffectedcitizenswithreasonablenoticeofand
opportunitytocommentonanyproposedchange,andeither:
–Thenewuseofthepropertyqualifiesasmeetingoneofthenationalobjectivesand
isnotabuildingforthegeneralconductofgovernment;or
–TheLocalGovernmentdetermines,afterconsultationwithaffectedcitizens,thatitis
appropriatetochangetheuseofthepropertytoausewhichdoesnotqualifyas
meetingaNationalObjective,itmayretainordisposeofthepropertyforthe
changeduseifthestate’sCDBGprogramisreimbursedintheamountofthecurrent
fairmarketvalueoftheproperty,lessanyportionofthevalueattributableto
expendituresofnon-CDBGfundsforacquisitionof,andimprovementsto,the
property.
–FollowingthereimbursementoftheCDBGprogram,thepropertynolongerwill
besubjecttoanyCDBGrequirements.
Chapter10
MONITORING/JOBTRACKING/CLOSEOUT
MONITORING
MonitoringbeginswhentheRLFloanisapprovedandcontinuesthroughprojectcompletion.
Thepurposeofmonitoringistobeproactivewithanyissuesorconcernsthebusinessmayhave,
todetermineifthebusinessisincompliancewithvariousconditionsoftheLoanAgreement,
includingprojecttiming,jobcreationandmeetingtheNationalObjective.Forexample,thelocal
governmentshould:
o Requireregularprogressreportsthatflaganypendingoranticipatedproblems.Ata
minimum,thismustbedoneonanannualbasis,sotheLGcanpreparethe“RLFReport”for
submittaltoDEED;and
o Makeperiodicvisitstothebusinesstoevaluateprogressanddiscussissuesandprovideany
technicalassistanceneeded.
AdditionalinformationonLoanServicingcanbefoundinChapter1,RevolvingLoanFunds.
Ifissuesarefoundduringthemonitoringvisit,theLGshouldattempttoeitherprovidethe
necessarytechnicalassistanceorreferthebusinesstoanorganizationthatcanassist,suchasthe
SmallBusinessDevelopmentCenter.
JOBTRACKING
ThebusinessisrequiredtotrackjobcreationforcompliancewiththeLMINationalObjectivefrom
thedatetheLocalGovernmentreceivestheapplicationuntiltheprojectiscomplete.Theproject
iscompletewhenthe“project”asdefinedintheapplicationisfinishedandthejobcreationgoals
aremet.Todeterminetheenddate,thebusinessmustprovidetheLGwithanestimatedtime
frameforcompletionoftheproject.Inmostcasestheprojectitselfwillbecompletebeforethe
jobgoalsaremet.DEEDallowsuptotwoyears.
Iftheprojectiscompleteandthejobgoalsaremetbeforetheenddate,thebusinessmust
continuetoreportuntiltheenddate.If,attheenddate,thegoalsare not met,theLG,after
holdingapublichearing,canamendtheloanagreementtoprovideadditionaltimeforthe
businesstomeetthejobgoals.ThebusinessmustprovideawrittenrequesttotheLGexplaining
thereasonsfornotmeetingtheNationalObjectivewithinthetimeframeandthelikelihoodof
compliancewithinareasonableperiodoftime.
JobCreationScenarios:
a.Projectiscomplete;jobgoalsandLMIaremetattheenddate:
1.JobInformationforms(AppendixD)toLG;
2.Documentationofexpenditures;
3.LG“closes”thefile,expectforreceiptofpayments;and
4.LGdocumentsthisinformationinnextannualreporttoDEED;
5.NoadditionalreportingtoDEED.
b.JobcreationisatorabovetheagreedlevelbutjobsforLMIpersonsdonotmeetthe51%
threshold.
1.Fifty-onepercentof all newjobsmustmeettheLMIrequirement.
2.EnddatecanbeextendedtoprovideadditionaltimetomeettheNationalObjective;or
3.Thebusinessmayprovidedocumentationthatatleast51%ofthecreatedjobsweremade
availabletoLMIpersons.Thisprocessrequiressupportingdocumentationonallapplicants
andanarrativeanalysisexplainingthe“madeavailableto”process(Chapter3-National
Objectives);or
3.Thebusinessmustrepay100%oftheloanatanacceleratedrate.
c.Jobcreationbelowtheagreeduponlevel.ThebusinessmustprovidetotheLGadetailed
narrativeanalysisoutliningthereasonsfornotmeetingthejobgoal.TheLGmaylookfavorably
uponthesituationaslongasnomorethan$35,000(Chapter4,PublicBenefitStandards)ofCDBG-
EDRLFfundsarespentoneachfull-timeequivalentjobcreatedorretained,andaslongasa
NationalObjectivehasbeenmet.Forinfrastructureimprovements,nomorethan$10,000of
CDBG-EDRLFfundscanbespentforeachFTEjobcreatedorretained,andaslongasaNational
Objectiveismet.
d.NoJobCreation–
1.Ifthebusinessisstilloperating,butnojobswerecreatedasaresultoftheCDBG-ED
assistance,proceduresoutlinedinitemb.aboveshouldbefollowed.
2.Ifthebusinessisnolongeroperating,theLGmustdeterminetheappropriatecourseof
actionbasedonitsRevolvingLoanFundPolicies.
GENERALCLOSEOUTREQUIREMENTS
Thelocalgovernmentmustensurethatstatutoryandregulatoryrequirementsthatgovernthe
CDBG-EDprogramhavebeenmetpriortoclosingaproject.Thisincludesthatthejobshave
beencreated,aNationalObjectivehasbeenmet,projectcostshavebeendocumented,
compliancewithenvironmentalandlaborstandards,etc.Whenthedeterminationhasbeen
madethattheprojectisincompliance,theLGmuststatethisonthenextannualReportForm
andfurtherreportingontheprojectisnolongerrequired.
Chapter11
RECORDKEEPING
TheLocalGovernmentmustmaintainfilesandrecordsonitsorganization,financialand
administrativesystems,compliancewiththeCDBG-EDrequirements,aswellasthespecific
project(s)fundedwiththeRLF.Accuraterecordkeepingiscrucialtothesuccessfulmanagementof
thefund.
Citizensmustbeprovidedwithreasonableaccesstotheserecordsconsistentwithapplicable
Stateandlocallawsregardingprivacyandconfidentiality.Furthermore,DEED,HUD,the
ComptrollerGeneraloftheUnitedStates,ortheirauthorizedrepresentatives,StateAuditor
andLegislativeAuditorhastherighttoaccessalllocalgovernmentprogramrecords.Thisright
isnotlimitedtotheretentionperiod(discussedbelow).
UndertheuniformadministrativerequirementsoftheCDBGregulations,theLGisrequiredto
retainCDBGrecordsforaperiodofnotlessthanfiveyearsfromthedatetheactivitywasassisted.
However,DEEDrecommendsthattherecordsbemaintaineduntiltheloantothebusinessis
paidinfull.
Thischapterprovidesalistingofthedocumentationthatshouldbeonfilewiththelocalgovernment.
A.GeneralAdministrativeFiles.Thelocalgovernmentmustmaintainfilesandrecordsthat
relatetotheoveralladministrationoftheCDBG-EDRLF.
1.Citizenparticipationinformation;
2.FairHousingandEqualOpportunityrecords;
3.EnvironmentalReviewRecords;
4.DocumentationofcompliancewithotherFederalrequirements(e.g.,DavisBacon,Uniform
RelocationAct,etc.).
B.FinancialRecords.
1.LoanRegister;
2.Sourcedocumentation(invoices,canceledchecks,etc.);
3.Procurementfiles(bids,contracts,etc.);
a.RequestforProposalordocumentusedtonotifyprospectiveconsultants/others;
b.Listofrespondents,includingcontactinformationandthedollaramountofeach
proposal;
c.Descriptionoftheprocessusedtoselecttheconsultant/others,includingtherationale
fortheselection;
d.ExecutedContract(s).
4.BankaccountrecordsfortheRLF;
5.Financialreports;
6.Relevantfinancialcorrespondence.
C.ProjectRecords
Individualfilesforeachbusinessfundedandestablishasystemforensuringthateveryfile
containsthenecessaryinformation.ConsideraTableofContentsandChecklistforeveryfile.
1.BusinessApplication
2.JobCreationPlan
3.UnderwritingReview
4.Staffwriteupandrecommendation
5.Awardletter
6.PublicHearingminutes,noticeofpublichearing,affidavitofpublication
7.LoanDocumentation
a.LoanAgreement
b.PromissoryNote
c.SecurityDocuments
d.AmortizationSchedule
8.Amendments,Revisions,Extensions,etc.
9.EvidenceofhavingmetaNationalObjective
10.Eligibilityoftheproject;
11.Compliancewithotherprogramrequirements,includingenvironmentalreview,labor
standards
12.Documentationofprojectexpenditures(invoices,contracts,canceledchecks,finalsworn
constructionstatement(s)
13.Statusoftheproject,includingjobcreation
14.Correspondencefile
D.Environmental
1.EnvironmentalReviewRecord
2.CopiesofPublicNoticesandAffidavitsofPublication,ifapplicable
3.NoticeofEnvironmentalClearancefromDEED,ifapplicable
4.Correspondencefile
5.SeeDEEDEnvironmentalManualfordetailedinformation:
http://mn.gov/deed/government/financial-assistance/community-funding/
E.FairHousingRecords
1.Documentationoftheaction(s)thelocalgovernmenthastakentoaffirmativelyfurther
fairhousing,includingrecordsonfundsprovided,ifany,forsuchactions;
2.Demographicdata(actualsurveyorlatestCensus/AmericanCommunitySurveydata)
dependingontheprojectundertakenmayinclude:
•Thepopulationofthejurisdictionoftheunitofgenerallocalgovernmentreceiving
CDBGfunds;
•Theminoritypopulationofthelocality(numberandpercentage);
•Thetargetareapopulation;
•Theminoritypopulationofthetargetarea(numberandpercentage);
•Thenumberofdisabled,elderlyhouseholds,andfemale-headedhouseholdsinthe
targetarea;and
Amapofthelocalityshowingthelocationsofassistedhousingunits,concentrationsof
minoritypopulation,concentrationsofLMI,
andthetargetarea.
F.DirectBenefitRecords
Thelocalgovernmentmustmaintainstatisticalinformationonthepersonsbenefittingfrom
theproject.Recordsmustbekeptbyrace,ethnicity,andgender,andheadofhouseholds.
Formosteconomicdevelopmentprojects,thiswillbeaccomplishedbyhavingonfilethe“Job
InformationForms”(AppendixD)foreachneworretainedemployee.
G.Section504Records,whenapplicable
1.Acopyoftheself-evaluation;
2.Acopyofthetransitionplan;
3.Alistofinterestedpersonswhowereconsulted;
4.Adescriptionofareasandbuildingsexaminedandanyproblemsidentified;
5.Adescriptionofmodificationsmadeandremedialstepstakentocomplywiththe
regulations;and
6.Evidencethatneworsubstantialrehabmulti-familyprojectswere
constructed/rehabilitatedtomeet504standards.
H.EmploymentandContracting
Dataonemploymentofthelocalgovernmentthatiscarryingoutanactivityfundedin
wholeorinpartwithCDBGfunds.Thedatatobemaintainedinthefilesincludes:
1.Adescriptionofthelocalgovernmentworkforceinpercentagebyrace,gender,job
title,salary,andhiredate;
2.Thepercentageofminoritiesinthejurisdictionofthelocalgovernmentthatisreceiving
CDBGfundsandthepercentageofminoritiesworkingforthatunitoflocalgovernment;
3.ThenumberofprojectarearesidentsemployedwithCDBG-EDfunds;
•Datashouldshowthepercentagebyraceandgenderofthepersonnelinany
department,office,oragencyofthelocalgovernmentusingCDBG-EDfundsto
employstaff.
•Forexample,ifCDBGfundsarebeingusedtopayaportionofabookkeeper's
salaryintheaccountingdepartmentofthecity,thenemploymentdatashouldbe
availableforthedepartment.
4.Governmenthiringpracticesandpolicies;
5.AffirmativeActionPlan(ifapplicable);
6.Documentationoftheaffirmativeactionsthelocalgovernmenthastakentoovercometheeffects
ofpriordiscriminationasdeterminedthroughaformalcompliancerevieworcourtproceeding,
wherethelocalgovernmenthaspreviouslydiscriminatedagainstpersonsonthegroundsof
race,color,nationalorigin,orsexinadministeringaprogramoractivityfundedinwholeorin
partwithCDBGfunds.
7.Procurementproceduresandimplementationplan;
8.MinorityandWomenBusinessEnterprise(MBE/WBE)outreachandnetworking;
9.MBEandWBEreporting;
10.Section3Plan;
I.LaborStandards:
DEED’sLaborStandardsManualcanbefoundontheDEEDwebsiteat:
http://mn.gov/deed/government/financial-assistance/community-funding/
J.DocumentationformeetingaNationalObjective
NationalObjective
RecordstobeMaintained
LMI–AreaBenefit
•Boundariesofservicearea;
•Informationontheprimarilyresidentialcharacteroftheservicearea;
•PercentageofLMIpersonsthatresideintheservicearea;and
•ThedatausedfordeterminingpercentageofLMIpersons.
LMI–LimitedOneofthefollowing:
•Documentationshowingthattheactivityisdesignedforexclusiveusebya
Clientele
segmentofthepopulationpresumedbyHUDtobeLMIpersons;
•Documentationdescribinghowthenatureandthelocationoftheactivity
establishesthatitwillbeusedpredominantlybyLMIpersons;or
•Datashowingthefamilysizeandannualincomeofeachpersonreceivingthe
benefit;
AdditionalInformation:
•Datashowingthatbarrierstomobilityoraccessibilityhavebeen
removedandhowthebarrierremovalwasrestrictedtotheextent
feasibletooneoftheparticularcasesauthorizedunderthiscategory;or
•Documentationshowingthattheactivityqualifiesunderthespecial
conditionsregardingjobserviceswherelessthan51%ofthepersons
benefitingareLMIpersons.
LMI--JobCreation
LoanApplication:
“TakenbyLMI”
•Acommitmentbythebusinessthatatleast51%ofthejobsonaFTEbasis,
willbeheldbyLMIpersons;
•Alisting,byjobtitle,ofemployeesatthetimetheapplicationforassistanceis
submitted(identifyingwhichareparttime,ifany)whichwilldeterminethe
baseemployment;
•Alisting,byjobtitle,ofthepermanentjobstobecreated;
LoanAgreement:
ThebasenumberofFTEpermanentjobs;
ThenumberofFTEpermanentjobstobecreated;
Astatementthatatleast51%ofthejobs,onaFTEbasis,willbeheldby
LMIpersons.
•Evidencesupportingtheestimatedtotalnumberofjobstobecreated;
Reportinginformation:
•Alisting,byjobtitle,race,ethnicity,genderandhandicappedstatusof
thepermanentjobsactuallycreatedandthoseinitiallytakenbyLMI
persons;
•AdescriptionofhowtheLMIstatusofthosehiredwasdetermined;
•Adescriptionofhowthetotalnumberofjobswasdetermined.
•JobInformationformforeachpersonhiredwhichincludesthesizeand
annualincomeoftheperson’sfamilypriortothetimethepersonwas
hiredforthejob,orevidencethepersonqualifiesas“presumed”tobe
LMIbaseduponlocationofthebusinessortheperson’sresidence.
LMIJobCreation
LoanApplication:
“AvailabletoLMI”
•Acommitmentbythebusinessthatitwillmakeatleast51%oftheFTEjobs
availabletoLMIpersonsandwillprovidetrainingforanyofthosejobs
requiringspecialskillsoreducation;
•Alisting,byjobtitle,ofemployeesatthetimetheapplicationforassistanceis
submitted(identifyingwhichareparttime,ifany),whichwilldeterminethe
baseemployment;
•Alisting,byjobtitle,ofthepermanentjobstobecreated,indicatingwhich
jobswillbeavailabletoLMIpersons,whichjobsrequiredspecialskillsor
education,andwhichjobsarepart-time;and
•AdescriptionoftheactionstobetakentoensurethatLMIpersonsreceive
firstconsiderationforthesejobs.
•Evidencesupportingtheestimatedtotalnumberofjobstobecreated;
LoanAgreement:
ThebasenumberofFTEpermanentjobs,whichmustbemaintaineduntil
theenddate;
ThenumberofFTEpermanentjobstobecreated;
Astatementthatatleast51%ofthejobs,onaFTEbasis,willbemade
availabletoLMIpersons;
Reportinginformation:
•Alisting,byjobtitle,race,ethnicity,genderandhandicappedstatusof
thepermanentjobsactuallycreatedandthoseinitiallytakenbyLMI
persons;
•Alistingbyjobtitleofthepermanentjobscreatedandwhichjobswere
availabletoLMIpersons;
st
•Adescriptionofhow“1consideration”wasgiventosuchpersonsfor
thesejobs;
o Typeofhiringprocesswasused;
o NamesofLMIpersonsinterviewedforaparticularjob;and
o NamesofLMIintervieweeswhowerehired.
LMI–JobRetention
LoanApplication:
•Evidencethat,intheabsenceoftheLG’sRLFassistance,thejobswouldbe
lost;
•Acommitmentbythebusinesstomeetthestandardforretainedjobs
involvingtheemploymentofLMIpersons;and
•Alistingbyjobtitle,ofpermanentjobsretained,indicatingwhichofthose
jobsarepart-timeand(whereitisknown)whichareheldbyLMIpersons;
ForeachretainedjobtobeheldbyaLMIperson,aJobInformationformon
thesizeandannualincomeoftheperson’sfamilyorevidencethatthe
personmaybepresumedtobeLMIbasedonthelocationofthebusinessor
theperson’sresidence;
----------------------------------------------------------------------------------------------------------
-----------------------------
-
LMI–Job
LoanApplication:
Retention–Jobs
•Alistingoftheretainedjobsthatareprojectedtobecomeavailablewithin
claimedtobe
twoyearsofassistance;
“availableto”LMI
personsbasedonjob
•Thebasisofthedeterminationthatthejobislikelytoturnover
turnover
withintwoyearsofassistance;
LoanAgreement:
Statementthatatleast51%ofthejobs,onaFTEbasis,willbe
“madeavailable”toLMIpersons;
ThebasenumberofFTEpermanentjobs;
ReportingInformation:
•Theactualturnoverdate;
•Thenameandincomestatusofthepersonwhofilledthevacancy;
•IfthepersonwhotookthejobwasnotaLMIperson,recordsto
demonstratethatthejobwas“madeavailable”toLMIpersons:
o Thename(s)ofperson(s)interviewedforthejobandthedateofthe
interview(s);
o Theincomestatusoftheperson(s)interviewed;and
Slum/Blight-
•Boundariesofthearea;and
AreaBasis
•Descriptionoftheconditionsthatqualifiedtheareaatthetimeofits
designationinsufficientdetailtodemonstratehowtheareametthe
qualifyingcriteria(i.e.,theareameetsadefinitionofslum,blighted,
deterioratingareaunderstateorlocallaw);and
•Oneofthefollowing:
Aletterfromtheapplicant,signedbyeitherthemayor/boardchairor
theLG’slegalcounsel;or
Acouncil/boardresolution
ReportingCriteria:
•Howtheassistedactivityaddressedoneormoreoftheconditionsthat
contributedtothedeteriorationofthearea.
Slum/Blight-
•Amapindicatingthelocationofthesite;and
SpotBasis
•Descriptionofthespecificconditionofblightorphysicaldecaytreated;
•Documentationthattheentirebuilding(foracquisition/demolition)or
certainbuildingconditions(forrehabilitation)arehazardoustopublic
healthandsafety
•Documentationconcerningthenatureanddegreeofseriousnessofthe
UrgentNeed
conditionrequiringassistance;
•Informationonthetimingofthedevelopmentoftheseriouscondition;and
•Evidencethatotherfinancingresourcesarenotavailable.
CHAPTER12
WEBSITES,LAWS,REGULATIONS,EXECUTIVEORDERS,ETC.
ItistheresponsibilityoftheLocalGovernmenttoensurethattheCDBG-EDRLFcomplywithallapplicable
FederalandStatelaws,regulationsandexecutiveorders.Thespecificlaws,regulations,executiveorders
pertainingtotheCDBGprogramareavailableontheWorldWideWeb.
FollowingarethewebsitesformajorLaws,Regulations,OMBCircularsandExecutiveOrdersthatpertainto
theCDBGprogram:
DepartmentofHousingandUrbanDevelopment:www.hud.gov
HUDExchange:www.hudexchange.info/cdbg-state/
CPDNotices:www.hudexchange.info/manage-a-program/cpd-notices/*
CPDMemoranda:
www.hudexchange.info/community-development/cdbg-memoranda/**
OfficeofManagementandBudget(OMB)Circulars:
www.whitehouse.gov/omb/circulars_default/
PresidentialExecutiveOrders:
http://www.archives.gov/federal-register/executive-orders/
MinnesotaRules,Chapter4300,CommunityDevelopmentBlockGrants:
www.revisor.mn.gov/rules/?id=4300
HUDLawsandRegulations:www.hud.gov/offices/cpd/lawsregs/index.cfm
*CPDNotice:ANoticeisadocumentissued,inthiscasebyHUD’sOfficeofCommunityPlanning
andDevelopment,toclarifyorinformregardingaspecifictopic.
**CPDMemoranda:HUDprovidesguidanceontheCDBGprogramthroughPolicyMemoranda.
Publications:
BasicallyCDBGforStates:
https://www.hudexchange.info/resource/269/basically-cdbg-for-states/
HUD’sGuidetoEligibleActivitiesandNationalObjectives:
https://www.hudexchange.info/resource/2179/guide-national-objectives-eligible-activities-state-cdbg-
programs/
HUDEconomicDevelopmentToolkit:www.hud.gov/offices/cpd/economicdevelopment/toolkit/index.cfm
CDBGToolkitonCrosscuttingIssues
https://www.hudexchange.info/resource/34/cdbg-crosscutting-issues-toolkit-contents/
Applicablelaws,regulationsandExecutiveOrders(classifiedingeneralbycompliancearea)includebutare
notlimitedtothefollowing:
General:
1.TitleIoftheHousingandCommunityDevelopmentActof1974,asamended.
www.hudexchange.info/community-development/cdbg/-laws-and-regulations
2.24CFR,Part570,SubpartI,CommunitydevelopmentBlockGrant:StateProgramRegulations,andSubpart
C,EligibleActivities.www.ecfr.gov/ecfr
3.Section104(a)(3)oftheHCDA&24CFR570.486(5):CitizenParticipation.
4.105(h)oftheHCDA;24CFRPart570.482;Section588oftheQualityHousingandWorkResponsibilityAct
of1998:JobPiratingProvisions
5.31U.S.C.1352,Anti-Lobbying
6.24CFR570,AppendixA,“GuidelinesandObjectivesforEvaluatingProjectCostsandFinancial
Requirements.
7.24CFR570.482(f).PublicBenefitStandards.
FinancialManagement:
1.24CFRPart85.AdministrativeRequirementsforGrantsandCooperativeAgreementstoState,Localand
RecognizedIndianTribalGovernments,asmodifiedby24CFR579,SubpartJ,“GrantAdministration.”Also
knownas“theCommonRule.”www.hud.gov/offices/lead/library/lead/24_CFRPART_85.pdf
2.OMBCircularA-133.AuditsManagement.
3.OMBCircularA-87.CostPrinciples.
CivilRights:
1.TitleVI–CivilRightsActof1964.
2.Section109–TitleI–HousingandCommunityDevelopmentActof1974.NondiscriminationinPrograms
andActivitiesReceivingAssistanceunderTitleIoftheHCDA.
3.TitleVIIIoftheCivilRightsAct,1968,asamended.4.Section504oftheRehabilitationActof1973,and
theAmericanswithDisabilitiesActof1990.
4.ExecutiveOrder11246–EqualEmploymentOpportunity,asamendedbyExecutiveOrder11375.
5.ExecutiveOrder11063–EqualEmploymentOpportunity,asamendedbyExecutiveOrder112259.
6.Section3oftheHCDAof1968,asamended;
7.Section118ofTitleI,CommunityDevelopmentandHousingAct1974,andimplementedbyHUD
regulations;24CFR,part135.
8.AgeDiscriminationActof1975.
9.Section504oftheRehabilitationActof1973andimplementingregulation(24CFRPart8).
NondiscriminationBasedonHandicap.
10.FairHousingAmendmentActof1988;24CFR570.487(b)FairHousingAct.
LaborStandards
1.FairLaborStandardsAct
2.TheContractWorkHourandSafetyStandardsAct(40U.S.C.327-330assupplementedbyDepartmentof
Laborregulations.
3.TheDavisBaconAct(40U.S.C.276(a)to(a-7),assupplementedbyDepartmentofLaborregulations.
4.TheCopeland“Anti-Kickback”Actof1986(18U.S.C.874)assupplementedbyDepartmentofLabor
regulations.
Acquisition/Relocation
1.TheUniformRelocationAssistanceandRealPropertyAcquisitionPoliciesActof1970(46U.S.C.4601and
regulationsat49CFR,Part24.www.hud.gov/relocation
Environmental
1.TheNationalEnvironmentalPolicyAct(NEPA)of1969,asamendedbyExecutiveOrder11991ofMay24,
1977andtheCouncilonEnvironmentalQuality’s(CEQ)NEPARegulations,40CFRParts1500-1508.
2.HUDEnvironmentalStandards(24CFR,Part51)EnvironmentalCriteriaandStandards.
3.EnvironmentReviewproceduresfortheCDBGProgram,24CFRPart58
4.TheNationalHistoricPreservationActof1966,asamended,particularlySection106.
5.ExecutiveOrder11593,ProtectionandEnhancementoftheCulturalEnvironment,May13,1971.
6.TheReservoirSalvageActof1960,asamended,particularlySection3,asamendedbytheArcheological
andHistoricPreservationActof1974.
7.FloodDisasterProtectionActof1973,asamended.
8.ExecutiveOrder11988,FloodplainManagement,May24,1977.
9.ExecutiveOrder11990,ProtectionofWetlands,May24,1977.
10.ExecutiveOrder12898,FederalActionstoAddressEnvironmentalJusticeinMinorityPopulationsand
LowIncomePopulations.
11.TheCoastalZoneManagementActof1972,asamended.
12.TheSafeDrinkingWaterActof1974,asamended.
13.TheEndangeredSpeciesActof1973,asamended;particularlySection7.
14.TheArcheologicalandHistoricPreservationActof1974.
15.TheCoastalResourcesBarriersActof1982.
16.TheWildandScenicRiversActof1968,asamended.
17.TheCleanAirActAmendmentsof1970,asamended.
18.FarmlandProtectionPolicyActof1981
19.NoticeofRunwayClearanceZone
20.EPASoleSourceAquifers,40CFRPart149.
21.NoiseAbatementandControl,24CFRPart51.
AppendixA
DEFINITIONOFINCOME
Incomeincludesthefollowing:
GeneralCategoryStatementfrom24CFR5.609paragraph(b)(June25,2014)
1.Incomefrom
Thefullamount,beforeanypayrolldeductions,ofwagesandsalaries,overtimepay,commissions,fees,tips
wages,salaries,tips,
andbonuses,andothercompensationforpersonalservices.
etc.
Thenetincomefromtheoperationofabusinessorprofession.Expendituresforbusinessexpansionor
amortizationofcapitalindebtednessshallnotbeusedasdeductionsindeterminingnetincome.Anallowance
fordepreciationofassetsusedinabusinessorprofessionmaybededucted,basedonstraight-line
2.BusinessIncome
depreciation,asprovidedinInternalRevenueServiceregulations.Anywithdrawalofcashorassetsfromthe
operationofabusinessorprofessionwillbeincludedinincome,excepttotheextentthewithdrawalis
reimbursementofcashorassetsinvestedintheoperationbythefamily.
Interest,dividends,andothernetincomeofanykindfromrealorpersonalproperty.Expendituresfor
amortizationofcapitalindebtednessshallnotbeusedasdeductionsindeterminingnetincome.Anallowance
fordepreciationispermittedonlyasauthorizedin#2.Anywithdrawalofcashorassetsfromaninvestment
3.Interest&
willbeincludedinincome,excepttotheextentthewithdrawalisreimbursementofcashorassetsinvestedby
DividendIncome
thefamily.Wherethefamilyhasnetfamilyassetsinexcessof$5,000,annualincomeshallincludethegreater
oftheactualincomederivedfromallnetfamilyassetsorapercentageofthevalueofsuchassetsbasedon
thecurrentpassbooksavingsrate,asdeterminedbyHUD.
ThefullamountofperiodicamountsreceivedfromSocialSecurity,annuities,insurancepolicies,retirement
funds,pensions,disabilityordeathbenefits,andothersimilartypesofperiodicreceipts,includingalump-sum
4.Retirement&
amountorprospectivemonthlyamountsforthedelayedstartofaperiodicamount(exceptasprovidedin#14
InsuranceIncome
ofIncomeExclusions).
5.Unemployment&Paymentsinlieuofearnings,suchasunemploymentanddisabilitycompensation,worker'scompensation,
DisabilityIncomeandseverancepay(exceptasprovidedinnumber3ofIncomeExclusions).
WelfareassistancepaymentsmadeundertheTemporaryAssistanceforNeedyFamilies(TANF)programare
includedinannualincomeonlytotheextentsuchpayments:
QualifyasassistanceundertheTANFprogramdefinitionat45CFR260.31;and
ArenototherwiseexcludedundertheIncomeExclusionssection.
Ifthewelfareassistancepaymentincludesanamountspecificallydesignatedforshelterandutilitiesthatis
subjecttoadjustmentbythewelfareassistanceagencyinaccordancewiththeactualcostofshelterand
6.WelfareAssistance
utilities,theamountofwelfareassistanceincometobeincludedasincomeshallconsistof:
theamountoftheallowanceorgrantexclusiveoftheamountspecificallydesignatedforshelteror
utilities;plus
themaximumamountthatthewelfareassistanceagencycouldinfactallowthefamilyforshelter
andutilities.Ifthefamily'swelfareassistanceisreducedfromthestandardofneedbyapplyinga
percentage,theamountcalculatedunderthissectionshallbetheamountresultingfromone
applicationofthepercentage.
7.Alimony,Child
Periodicanddeterminableallowances,suchasalimonyandchildsupportpayments,andregularcontributions
Support,&Gift
orgiftsreceivedfromorganizationsorfrompersonsnotresidinginthedwelling.
Income
8.ArmedForcesAllregularpay,specialdayandallowancesofamemberoftheArmedForces(exceptasprovidedinnumber7
IncomeofIncomeExclusions).
Anyfinancialassistance,inexcessofamountsreceivedfortuition,thatanindividualreceivesundertheHigher
9.Tuition
EducationActof1965,fromprivatesources,orfromaninstitutionofhighereducation(asdefinedunderthe
HigherEducationActof1965),shallbeconsideredincometothatindividual,exceptthatfinancialassistance
describedinthisparagraphisnotconsideredannualincomeforpersonsovertheageof23withdependent
children.Forpurposesofthisparagraph,“financialassistance”doesnotincludeloanproceedsforthe
purposeofdeterminingincome.
IncomeExclusions
AnnualIncomedoesnotincludethefollowing:
GeneralCategoryStatementfrom24CFR5.609paragraph(c)(April1,2004)
1.IncomeofChildrenIncomefromemploymentofchildren(includingfosterchildren)undertheageof18years.
2.FosterCarePaymentsreceivedforthecareoffosterchildrenorfosteradults(usuallypersonswithdisabilities,unrelated
Paymentstothetenantfamily,whoareunabletolivealone).
3.InheritanceandLump-sumadditionstofamilyassets,suchasinheritances,insurancepayments(includingpaymentsunder
InsuranceIncomehealthandaccidentinsuranceandworker'scompensation),capitalgainsandsettlementforpersonalor
propertylosses(exceptasprovidedin#5ofthissection).
4.MedicalExpenseAmountsreceivedbythefamilythatarespecificallyfor,orinreimbursementof,thecostofmedicalexpenses
Reimbursementsforanyfamilymember.
5.IncomeofLive-in
Incomeofalive-inaide(asdefinedin24CFR5.403).
Aides
6.StudentFinancial
Thefullamountofstudentfinancialassistancepaiddirectlytothestudentortotheeducationalinstitution.
Aid
7.ArmedForces
ThespecialpaytoafamilymemberservingintheArmedForceswhoisexposedtohostilefire.
HostileFirePay
8.Self-Sufficiencya.AmountsreceivedundertrainingprogramsfundedbyHUD.
ProgramIncomeb.Amountsreceivedbyapersonwithadisabilitythataredisregardedforalimitedtimeforpurposesof
SupplementalSecurityIncomeeligibilityandbenefitsbecausetheyaresetasideforuseunderaPlan
toAttainSelf-Sufficiency(PASS).
c.Amountsreceivedbyaparticipantinotherpubliclyassistedprogramsthatarespecificallyfor,orin
reimbursementof,out-of-pocketexpensesincurred(specialequipment,clothing,transportation,
childcare,etc.)andwhicharemadesolelytoallowparticipationinaspecificprogram.
d.Amountsreceivedunderaresidentservicestipend.Aresidentservicestipendisamodestamount
(nottoexceed$200permonth)receivedbyaresidentforperformingaserviceforthePHAorowner,
onapart-timebasis,thatenhancesthequalityoflifeinthedevelopment.Suchservicesmayinclude,
butarenotlimitedto,firepatrol,hallmonitoring,lawnmaintenance,residentinitiatives
coordination,andservingasamemberofthePHA'sgoverningboard.Noresidentmayreceivemore
thanonesuchstipendduringthesameperiodoftime.
Incrementalearningsandbenefitsresultingtoanyfamilymemberfromparticipationinqualifyingstateor
localemploymenttrainingprograms(includingtrainingnotaffiliatedwithalocalgovernment)andtrainingof
afamilymemberasresidentmanagementstaff.Amountsexcludedbythisprovisionmustbereceivedunder
employmenttrainingprogramswithclearlydefinedgoalsandobjectives,andareexcludedonlyfortheperiod
duringwhichthefamilymemberparticipatesintheemploymenttrainingprogram.
9.Gifts
Temporary,nonrecurring,orsporadicincome(includinggifts).
10.ReparationsReparationpaymentspaidbyaforeigngovernmentpursuanttoclaimsfiledunderthelawsofthat
governmentbypersonswhowerepersecutedduringtheNaziera.
11.IncomefromFull-Earningsinexcessof$480foreachfull-timestudent18yearsoldorolder(excludingtheheadofhouseholdor
timeStudentsspouse).
12.Adoption
Adoptionassistancepaymentsinexcessof$480peradoptedchild.
AssistancePayments
13.SocialSecurity&DeferredperiodicamountsfromSSIandSocialSecuritybenefitsthatarereceivedinalumpsumamountorin
Veteransprospectivemonthlyamounts,oranydeferredDept.ofVeteransAffairsdisabilitybenefitsthatarereceivedin
alumpsumamountorinprospectivemonthlyamounts.
14.PropertyTaxAmountsreceivedbythefamilyintheformofrefundsorrebatesunderstateorlocallawforpropertytaxes
Refundspaidonthedwellingunit.
15.HomeCareAmountspaidbyastateagencytoafamilywithamemberwhohasadevelopmentaldisabilityandislivingat
Assistancehometooffsetthecostofservicesandequipmentneededtokeepthisdevelopmentallydisabledfamily
memberathome.
16.OtherFederalAmountsspecificallyexcludedbyanyotherfederalstatutefromconsiderationasincomeforpurposesof
Exclusionsdeterminingeligibilityorbenefitsunderacategoryofassistanceprogramsthatincludesassistanceunderany
programtowhichtheexclusionsof24CFR5.609(c)apply,including:
ThevalueoftheallotmentmadeundertheFoodStampActof1977;
PaymentsreceivedundertheDomesticVolunteerServiceActof1973(employmentthroughVISTA,
RetiredSeniorVolunteerProgram,FosterGrandparentsProgram,youthfuloffenderincarceration
alternatives,seniorcompanions);
PaymentsreceivedundertheAlaskanNativeClaimsSettlementAct;
IncomederivedfromthedispositionoffundstotheGrandRiverBandofOttawaIndians;
IncomederivedfromcertainsubmarginallandoftheUnitedStatesthatisheldintrustforcertain
Indiantribes;
PaymentsorallowancesmadeundertheDepartmentofHealthandHumanServices'Low-Income
HomeEnergyAssistanceProgram;
PaymentsreceivedundertheMaineIndianClaimsSettlementActof1980(25U.S.C.1721);
Thefirst$2,000ofpercapitasharesreceivedfromjudgmentfundsawardedbytheIndianClaims
CommissionortheU.S.ClaimsCourtandtheinterestsofindividualIndiansintrustorrestricted
lands,includingthefirst$2,000peryearofincomereceivedbyindividualIndiansfromfundsderived
frominterestsheldinsuchtrustorrestrictedlands;
AmountsofscholarshipsfundedunderTitleIVoftheHigherEducationActof1965,includingawards
undertheFederalworkstudyprogramorundertheBureauofIndianAffairsstudentassistance
programs;
PaymentsreceivedfromprogramsfundedunderTitleVoftheOlderAmericansActof1985(Green
Thumb,SeniorAides,OlderAmericanCommunityServiceEmploymentProgram);
PaymentsreceivedonorafterJanuary1,1989,fromtheAgentOrangeSettlementFundoranyother
fundestablishedpursuanttothesettlementintheInReAgentOrangeproductliabilitylitigation,
M.D.L.No.381(E.D.N.Y.);
EarnedincometaxcreditrefundpaymentsreceivedonorafterJanuary1,1991,includingadvanced
earnedincomecreditpayments;
Thevalueofanychildcareprovidedorarranged(oranyamountreceivedaspaymentforsuchcareor
reimbursementforcostsincurredforsuchcare)undertheChildCareandDevelopmentBlockGrant
Actof1990;
PaymentsreceivedunderprogramsfundedinwholeorinpartundertheJobTrainingPartnershipAct
(employmentandtrainingprogramsforNativeAmericansandmigrantandseasonalfarmworkers,
JobCorps,statejobtrainingprogramsandcareerinternprograms,AmeriCorps);
PaymentsbytheIndianClaimsCommissiontotheConfederatedTribesandBandsofYakimaIndian
NationortheApacheTribeofMescaleroReservation;
Allowances,earnings,andpaymentstoAmeriCorpsparticipantsundertheNationalandCommunity
ServiceActof1990;
Anyallowancepaidundertheprovisionsof38U.S.C.1805toachildsufferingfromspinabifidawhois
thechildofaVietnamveteran;
Anyamountofcrimevictimcompensation(undertheVictimsofCrimeAct)receivedthroughcrime
victimassistance(orpaymentorreimbursementofthecostofsuchassistance)asdeterminedunder
theVictimsofCrimeActbecauseofthecommissionofacrimeagainsttheapplicantunderthe
VictimsofCrimeAct;and
Allowances,earnings,andpaymentstoindividualsparticipatinginprogramsundertheWorkforce
InvestmentActof1998.
AppendixB
DEFINITIONS
FollowingaresomeofthedefinitionsoftermsthatpertaintotheCDBG-EDprogramthatwillbereferredtoin
thismanual:
AnnualIncome:AsdefinedunderHUD’sSection8LowIncomeLimits,annualincomeisthegross
amount(beforedeductions)ofincomeearnedbyalladultfamilymembers.
CDBG-ED:CommunityDevelopmentBlockGrantProgram-EconomicDevelopmentprogram.
DEED:MinnesotaDepartmentofEmploymentandEconomicDevelopment.
ENTITLEMENT:MetropolitancitiesorurbancountiesthatreceiveannualCDBGfundingdirectlyfrom
HUD.MinnesotaEntitlementsincludethecitiesof:Bloomington,CoonRapids,Duluth,EdenPrairie,
Mankato,Minneapolis,Moorhead,NorthMankato,Plymouth,Rochester,St.CloudandSt.Paul,;and
thecountiesofAnoka,Dakota,Hennepin,Ramsey,St.LouisandWashington.Entitlementsare
administereddirectlybyHUD.
Family:Allpersonslivinginahouseholdwhoarerelatedbybirth,marriageoradoption.Family
incomeisusedforeconomicdevelopment.
HUD:U.S.DepartmentofHousingandUrbanDevelopment.CDBGfundsareprovidedtostates
throughHUD.HUDestablishedtheregulationsandrequirementsfortheprogramandhasoversight
responsibilitiesfortheuseofCDBGfunds.
LocalGovernment:ThepublicentitythathasreceivedCDBG-EDfundsfromtheStateofMinnesota.
LMI–LowandModerateIncome:Ahousehold/familyhavinganincomeequaltoorlessthanthe
Section8LowIncomelimit(80%oftheareamedian)asestablishedbyHUD.
LowIncome:Ahousehold/familyhavinganincomeequaltoorlessthantheSection8VeryLow
Incomelimit(50%oftheareamedianincome)asestablishedbyHUD.
ModerateIncome:Ahousehold/familyhavinganincomeequaltoorlessthantheSection8Low
Incomelimit(80%oftheareamedia),butgreaterthantheSection8VeryLowIncomelimit(50%ofthe
areamedian).
NationalObjective(s):ReferstothethreemaingoalsoftheCDBGprogram
1)BenefittoLMIpersons;
2)Preventionoreliminationofslums/blight;or
3)Urgentneed.
AllprojectsfundedwithCDBG-EDfundsmustmeetanationalobjective.Economicdevelopment
projectstypicallymeettheBenefittoLMIpersonsobjective.
Non-EntitlementArea:TheStateofMinnesota,excludingthoseareasidentifiedintheEntitlement
definition.
Regulations:Referstotheimplementingrequirementsthataredevelopedandissuedbytheagency
responsibleforacertainprogramorrequirement.InthecaseoftheCDBGprogram,regulationsare
issuedbyHUDandcanbefoundat24CFRPart58.
RLF–RevolvingLoanFund:aseparatefundwithasetofaccountsthatareindependentofother
programaccounts.
Statute/Statutory:ReferstorequirementswhichhavetheirbasisinthelawpassedbyCongress.In
thecaseofCDBG,thestatuteisTitle1oftheHousingandCommunityDevelopmentActof1974.
URA–UniformRelocationAct:Federalregulationgoverningtheacquisitionofrealpropertyandthe
relocationordisplacementofpersonsfromfederallyassistedprojects.
VeryLowIncome:Ahousehold/familyhavinganannualincomethatdoesnotexceed50%ofthearea
medianasestablishedbyHUD.
AppendixC
CREDITANALYSIS
Professionalcreditanalysisisbeyondthelimitedscopeofachapterinamanualofthisnature.Accordingly,
thischapteridentifiestheprimaryconceptsofcreditanalysisandfinancialunderwritingbutdoesnottryto
replaceacreditcourse.
Ingeneral,therearetwobasictypesofunderwriting--BusinessLoansandRealEstateTransactions.
Theyareanalyzedin2differentwaysthatwillbediscussedinthissection.
1.BusinessLoans involveoperatingcompaniesthatprovideservicesorproducegoods.Paymentof
debtserviceisafunctionofcashflowgeneratedbyoperationsofthecompany.Examplesof
operatingcompaniesareretailbusinesses,industrialconcerns,wholesalers,etc.
2.RealEstatetran sactionsaretypicallyreferredtoasdeveloperdeals.Cashflowfor
repaymentofdebtserviceisderivedfromleasestothird-partytenants.Examplesofrealestate
transactionsareshoppingcenters,industrialparks,officebuildings,incubators,etc.;
BusinessLoans
Themaincriteriaforunderwritingbusinessloansare:
Abilitytorepay;
Collateral;
Commitment;
Balancesheetanalysis;
Managementexperience;AND
Credithistory.
Ofthesesixcreditcriteria,theabilitytorepayisgenerallythemostimportanttopubliclenders.However,
allareimportantandtheabsenceofanyonemaybesufficienttodeclinealoanrequest.
1.TheAbilitytoRepay
Theabilitytorepayisusuallyexpressedinasimplecalculationcalledthedebtcoverageratio(DCR).Itis
definedasfollows:
DebtCoverageRatio=CashFlowAvailableforDebtService/DebtService
Ingeneral,privatelenderslookforaminimumDCRof1.25.Thistranslatesintoaprojecthaving$1.25of
cashflowavailableforevery$1ofnewandexistingdebtservice.Manypubliclendersacceptaratioof1.1
to1.15.Althoughthecalculationissimple,determiningthecashflowavailablefordebtservicecanrequire
judgmentandexperience.Iftheanalystknowstwoofthevariablesinathreevariableequation,hecan
solvetheunknown.Forexample,ifaprivatelenderhasaDCRof1.25andthereis$100,000ofcashflow
availablefordebtservice,debtservicecannotexceed$80,000.
2.Collateral
Iftheprojectcannotrepaytheloanfromcashflow,thelenderattemptstocollectpaymentbyliquidating
theassetpursuanttothespecificliensecuringtheloan.Thisabilityismeasuredbyaratiocalledloan-to-
value(LTV).Itisexpressedasfollows:
LoantoValue=Loan/Lesserof(1)Costor(2)Value
LTVratioswillvaryastothenatureoftheassetbeingfinanced.Thefollowingaregenerallyaccepted
loan-to-valuestandards(maximums):
AssetLTV
RealEstate80%
Machinery&
50-75%
EquipmentInventory
50-60%
Receivables
75%
3.Commitment
Ifthemethodsofrepaymentareinsufficient,thelendermustattempttocollectonothercollateral,
generallyintheformofpersonalandcorporateguarantees.Ownersmustguaranteetheloanalthough
theguaranteemaybeproportionatetotheirownershipinterests.Forexample,anownerwith20
percentinterestinacompanyborrowing$100,000wouldguarantee$20,000personallyalthoughthe
companywouldbeliablefortheentireloan.
4.BalanceSheetAnalysis
Thebalancesheetmustbesoundbeforealoanismade.Soundnessisdeterminedprimarilyby
analyzingthefollowing:
Doesthecompanycollectitsreceivables?Aninabilitytocollectreceivableswillhampercash
flow;
Doesthecompanypayitsbills?Lateormissedpaymentsmayindicatepoorcashfloworunreliable
character;
Isthecompanymanagingitsinventory?Sloppyinventorypracticesmaybeindicativeofoverall
managementdeficiencies;
Doesthecompanygeneratesufficientcashrelativetoitscashneeds?
Istheownerpayinghimself/herselfareasonablesalaryorchargingreasonablefees?
Anaffirmativeanswertothesefivequestionsprobablymeansthebalancesheetisinsound
condition.
5.ExperiencedManagement
Themanagementteam,whichincludestheprincipals,directors,seniormanagementandconsultants,
musthaveexperienceinallareasofrunningthebusiness:sales,finance,operations,personnel,etc.
Theyshouldhavedirectexperienceintheseareasorhavecomparablebusinessesskillsthatcanbe
transferred.
6.CreditHistory
Theownersandmanagementshouldhavefavorablecredithistories,areputationfortreating
customersfairly,nobankruptcyinthepastfiveyears,andacleancriminalrecord.Inmostcases,a
creditreportandaDun&Bradstreetcheckaresufficient.
EvaluatingStartups/SmallLoans
Thecreditcriteriaenumeratedabovereflectprofessionalstandards.Startupsorsmallloans(under
$15,000)mayhavetroublesatisfyingallofthesecriteria.Ingeneral,theseclassesofloansarehighrisk.
Accordingly,publiclenderswillprobablyhavetoallocatedisproportionatestafftimeinmonitoringand
servicingtheseloansandincreasereserveswhencomparedtoaportfolioreflectingprofessionalstandards.
Awidelydisseminatedstatisticindicatesthatonlyonebusinessoutofeveryfiveisinexistence5yearsafter
itsinception,althoughthesestatisticsmayalsoreflectbusinessesthatareboughtoutorgopublicasno
longerinexistence.Recentresearchisbeginningtoexplorethismoreandchallengethereliabilityofthis
statistic.Forexample,aBLSstudyshowed66percentofbusinessstartupsstillinbusinessafter2years,and
44percentinbusinessafter4years.
Regardlessofwhichstatisticismoreaccurate,aportfoliofocusingonstartupsmustaddresshighrisk
factorsandplanforlossrateswhichfarexceedaportfoliotargetedtoexistingandexpandingbusinesses.
Onetoolthatcanhelpreducetheriskassociatedwithlendingtosuchbusinessesistheprovisionofbusiness
trainingandongoingtechnicalassistancetobusinessesreceivingloans.Recipientsshouldinvestigateoptions
forprovidingthisassistance,suchas:
SmallBusinessAdministration(SBA)BusinessCenters;
Localeducationalinstitutions;and
BusinessmentoringthroughinstitutionssuchasthelocalChamberofCommerce.
Inadditiontotheconventionalcriteria,apubliclendershouldconsiderthefollowingadditionalfactors:
1.BusinessPlan
Abusinessplancanidentifyobviouslyworthyorunworthyventures;however,ananalystshouldnot
overrelyonabusinessplan.Theworthofabusinessplanisincreasedgreatlyiftheentrepreneurdoesit
personally.Remember,youarefinancingtheentrepreneur,nottheaccountantorconsultantwhowrites
theplan.Ofparticularimportanceismonthlycashflowstatementforthefirstyear.Ahandwrittencash
flowstatementpreparedbytheentrepreneurcanbefarmorerelevantthanthefanciestcomputerized
spreadsheet.
2.BorrowerCommitment
Howmuchmoneytheborrowercommitsisgenerallynotasimportantashavingtheborrowerput
everythinghehasintothedeal?Althoughtherearemanycaveats,aborrowerinjectingmostofhis
assetsintoapotentialtransactionislesslikelytoletthedealfailthansomeoneinjectingafractionof
theirnetworth.Theborrowershouldsignpersonallyfortheloanandshouldbepreparedtotakeouta
minimumsalaryuntilthebusinessisestablished.
3.Niche
Itisdifficultforasmallfirmtocompetewithmuchlargercompaniesonprice.Isthe
entrepreneurcommittedtocustomerservice?Astartuporsmallbusinessneedstounderstandthe
marketinordertocreateamarketnicheorofferauniqueproductorservicetodifferentiate
itself.
RealEstateTransactions
Realestatetransactionsarealsocalleddeveloperdeals.Cashflowforrepaymentofdebtserviceisderived
fromleasestothirdpartytenants.Examplesofrealestatetransactionsareshoppingcenters,industrialparks,
officebuildings,incubators,etc.Despitetherangeofproperties,allrealestatedealsareanalyzedinessentially
thesamemanner.
Realestatetransactionsareexpressedasthefollowing:
GrossRent$250,000
VacancyandUncollectedRents-$20,000EffectiveGross
Rents$230,000
OperatingExpenses-$120,000
NetOperatingIncome$110,000
Netoperatingincome(NOI)paysclaimsinthefollowingpriority:
Mandatorydebtservice;
Replacementreserves;
Non-mandatoryorcashflowloans;and
Distributionstoowners.
Thisisacashdefinition.Theownerscollectcash(rents)andpayoutcash(operatingexpenses).Theremaining
cashistheNOIandpayslenderdebt,fundsthereplacementreserves,andprovidesareturntoinvestors.
Underwritinganalysisisonlyassoundasthequalityoftheinformationananalystuses.Theproperwayto
determinerents,operatingexpenses(taxes,utilities,maintenance,insurance,management,etc.)istoobserve
themarket.Findcomparablepropertiestothesubjectandadjustaccordingly.
Itisalsoimportanttoidentifyanytenantcontributions.Forexample,ifapropertyleasesfor$10persquare
footwiththetenantpayingalloperatingexpensesanda"comparable"propertyleasesfor$15persquarefoot
withthelandlordpayingallexpenses,theamountofthetenantcontributionisimportantincomparingthe
twoproperties.
RealEstateLoanUnderwritingCriteria
Businessloansandrealestateloanshavesimilarunderwritingconcepts,buteachtransactionisanalyzed
differently.Relevantcriteriaforrealestateunderwritinginclude:
Abilitytorepay;
Collateral;
Commitmenttoproject;AND
Experienceofdevelopmentteam.
Allofthesecriteriaareimportantandrejectingonlyonemaybecausetorejecttheloan.
1.AbilitytoRepay
Alenderisconcernedwiththeabilityoftheprojecttorepaytheexistingandproposeddebtservice.
Theprimaryratiolendersutilizetodeterminethiscapacityisthedebtcoverageratio,definedas
follows:
DCR=NetOperatingIncome/DebtService
Althoughthemathissimple,determiningNOIcanbeinvolved.Findingcomparablepropertiesand
makingadjustmentstothesubjectpropertytoestablishrents,vacancyrates,andoperatingexpenses
requiresexperienceandjudgment.InusingNOI,thelenderusesastabilizedyear.Forexample,ifa
projecttakes2yearstolease-up,thelenderutilizesthestabilizedvacancybeginninginyear3butdoes
notinflatetherentsincalculatingDCR.
MostconventionallendershaveathresholdforDCRintherangeof1.20to1.3withpubliclenders
acceptingarangeof1.1to1.15.Ingeneral,thelenderwantsahighprobabilityofleasing(ifnot
signedleases)andtenantsofacceptablecreditquality.Forlargerprojects,amarketorfeasibility
studyorappraisalisoftenrequired.
Ingeneral,thelenderwantsahighprobabilityofleasing(ifnotsignedleases)andtenantsof
acceptablecreditquality.Forlargerprojects,amarketorfeasibilitystudybyanindependentthird-
partyprofessionalisoftenrequired.
2.Collateral/Appraisals
Thesecondmeansofrepaymentisliquidatingthemortgageordeedoftrustwhichsecuresthereal
estateloan.Lendersmeasurethiscapacitywiththeloan-to-value(LTV)ratio,definedasfollows:
LTV=Loan/Value
Anappraisernormallydeterminesvalue.Theappraisershouldhaveexperiencewithcomparable
projectsandhavethenecessaryStatecertifications.Ifproperlyprepared,theappraisalshouldhavea
wealthofinformationconcerningrents,vacancyandoperatingexpenses.Ingeneral,thepurposeof
theappraisalshouldbetodeterminefairmarketvaluewithfeesimpleownership.
Questionstoask:
Whatisthepurposeoftheappraisal?
Hastheappraiservaluedsimilarprojectsastotypeandscale?
Arethecomparablesreally“comparable”?
Whataretheassumptionsandlimitingconditions?
ThethresholdLTVforconventionallendersforrealestateprojectsisgenerallyintherangeof75
percentto80percent.Publiclenderswillusuallygoashighas90percent.
3.CommitmenttoProject
Largertransactionsmayincludeadeveloper,asyndicator,multipleinvestorsandpropertymanager.For
thesetypesofprojects,itmaybedifficultforageneralpartnerofalimitedpartnershipdevelopmenttosign
arecoursenoteforthemortgageduetocomplicatedtaxissues.However,adevelopercanshow
commitmentinotherways:
Completionguarantee;
Recourseduringtheconstructionperiod;
Deferralofdevelopmentfeeuntilconstructionisfinishedandprojectleased;or
Guaranteecashflowshortfalls.
Forsmallerprojectswithouttheseissues,theownercansignpersonallyand/orcorporately.Inadditionto
theequityinjectedintotheproject,commitmentbytheownersandthedeveloperreducetherisktothe
lenderandenhancethesuccessoftheventure.
4.ExperienceoftheDevelopmentTeam
Itiscriticaltothesuccessofthetransactionthatthedevelopmentteamhasexperienceincompleting
projectsofsimilartypeandscale.Thedevelopmentteamincludesthedeveloper,architect,contractor,
propertymanager,syndicator,leasingagents,mortgagebanker,etc.Insmallerprojects,theownermay
performalloftheroleslistedabove.Thedeveloperoftheprojectshouldhaveagoodcredithistoryand
bereputable.
Allthecriteriaareimportantandanymaybesufficienttorefusealoanrequest.Businessloansandreal
estateloanshavesimilarunderwritingconcepts,buteachtransactionisanalyzeddifferently.Forareal
estateprojectinvolvingbusinesstenants,twolevelsofanalysisareneeded:(1)todeterminethe
feasibilityoftherealestateproject;and(2)todeterminewhethertheprojectwillgeneratetheprojected
rents.
Thefollowingthresholdsmayserveasgeneralrulesofthumb:
Aloan-to-value(LTV)ratioofnomorethan80percent(forrealestate).
Adebtcoverageratio(DCR)ofatleast1.15-1.25.
Usingprudentunderwritingstandardsandriskmanagementtechniquescanhelpcommunitiesinsulate
risktoanacceptablelevel.
RiskContinuum
LowerRiskHigherRisk
LOAN
CHARACTERISTIC
DebtCoverageRatio1.25+1.151.00
LTVRatios0.50.81.0+
StructureofLoansApproximatesaninstallmentloanwith
Interestonlypaymentswith
evenpayments,includesadebt
balloonpaymentdueatendofthe
servicereserveintheloanamount
term
StructureofThirdNumerousborrowersandprojects,Majorityoffundingallocatedto
PartyPortfoliononeofwhichaccountformoreoneborrowerorproject
than20-30%oftotalportfolio
LeveragePrivatelenderparticipationSolelyfinancedwithCDBGfunds
Thesecurityrequirementwouldbesatisfiedbyaspecificlienontherealestate(mortgageordeedof
trust)oraUCCfilingonpersonalproperty,plussomeformofgenerallien(personal,corporate
guarantee,developercompletion,etc.).
Ifthetransactiondoesnotconformtotheunderwritingthresholds,theborrowershouldpledge
additionalsecurity.Examplesofadditionalsecuritypledgedincludethefollowing:
Incomestreamfroma“seasoned”loanportfolio;
Parkingrevenue;
Pledgeoftaxincrementfromataxincrementfinancingdistrict;
Pledgeoflandorproperty(musthavevalue);or
Generalobligationofthecommunity.
JOBINFORMATIONFORM
Thisformmustbecompletedwithintwoweeksofhiring.
TheCityofhasreceivedCommunityDevelopmentBlock
Grant(CDBG)fundstoincreaseemployment.Certain
informationmustbecollectedregardingeachpositionandthe
employeeacceptingtheposition.Thisinformationwillnotbe
disclosedorreleasedbythisofficewithoutyourconsent,except
totheCityoforitsagent,MinnesotaDepartmentof
EmploymentandEconomicDevelopmentandtothefederal
DepartmentofHousingandUrbanDevelopment.
TheobjectiveoftheCDBGprogramistocreate/retainjobs,of
whichaminimumof51%willbe“heldby”lowandmoderate
income(LMI)persons.AnLMIpersonmeansamemberofa
familyhavinganincomeequalto,orlessthan,theSection8low-
incomelimitestablishedbyHUD.
1.Thefamily’sentireincomemustbecounted.Afamily
isallpersonslivinginthesamehouseholdwhoare
relatedbyblood,marriage,oradoption.
2.Adultchildrenwhocontinuetoliveathome
3.Adependentchildwhoislivingoutsideofthehome.
Theinformationinthissectionisaskedforthesole
EMPLOYEECERTIFICATION purposeofgatheringdata.Thedataiscompiledand
(TobecompletedbytheEmployee)
providedtotheU.S.DepartmentofHousingand
UrbanDevelopmentforpurposesofevaluating
compliancewithCivilRightslaws.
1.Theemployeeacceptingthispositionis:
MaleFemaleFemaleHeadofHousehold
PersonwithadisabilityHispanicEligibleforSection8
Housing
2.Theemployee’shousehold:
(1)White(2)Black/AfricanAmerican
(3)Asian(4)AmericanIndian/AlaskanNative
(5)NativeHawaiian/OtherPacificIslander(6)AmericanIndian/AlaskanNativeWhite
(7)Asian&White(8)Black/AfricanAmerican&White
(9)AmericanIndian/AlaskanNative(10)OtherMulti-Racial
&Black/AfricanAmerican
3.Wereyouunemployedpriortoacceptingthisposition?YesNo
4.Whatisthenumberoffamilymemberslivinginyourhousehold?
5.Locateyourfamilysizeinthefarleftcolumninthechartbelow.Checktheoneboxinthesamerowas
yourfamilysizethatreflectsyourfamilyincomeforthepast12monthsandpriortoacceptingthis
position.
Family
SizeFamilyIncomeLevel
EXTREMELYLOWLOWMODERATENON-LMI
1Member$orless$to$$to$$ormore
2Members$orless$to$$to$$ormore
3Members$orless$to$$to$$ormore
4Members$orless$to$$to$$ormore
5Members$orless$to$$to$$ormore
6Members$orless$to$$to$$ormore
Ifmorethan6familymembers,statetotalfamilyincome:$
PerSection8IncomeLimitsforeffectiveDecember18,2013.
Ifrequested,Iwouldagreetomakemyfinancialrecordsavailabletothecityoritsagentforverificationoftheabove
information.Icertifythatthisincomeinformationis,tothebestofmyknowledgeandbelief,atrue,correctand
completestatementofmyfinancialconditionasofthedatestatedhereinandIunderstandthatthisinformationissubject
toverificationbyauthorizedrepresentativesoftheCityofandoritsagent.
________________________________________________________________________________
Signature(Employee)Date
________________________________________________________________________________
PrintedNameHomePhoneNumber
WARNING:Title18,Section1001oftheU.S.Codestatesthatapersonisguiltyofafelonyforknowinglyand
willinglymakingfalseorfraudulentstatementstoanydepartmentoftheUnitedStatesGovernment.
1.Wages
$Totalannualhoursforthisposition
COMPANYCERTIFICATION
(TobecompletedbytheCompany.)
$Hourlywageexclusiveofbenefits.
$Hourlyvalueofbenefits.
2.Benefitsthatapplytothisposition
HealthRetirement
DentalLong/ShortTermDisability
LifeInsuranceOther:
Icertifytothefollowing:
That___________________________________washiredfor___________________________on______________.
EmployeeJobTitleDate
Thatthispositionmeetsthe“heldby”LMIcriteriaasoutlinedonPage2.
ThatthispositiondoesnotmeettheLMIcriteria.
Thatthisemployeeis:anewhire
arecallfromatemporarylayoff
recalledfromapermanentlayoff
acceptingalateraltransfer
acceptingapromotion
______________________________________________________________________________________
CompanyOfficerDate
IacknowledgethatIhavereviewedtheaboveinformationanditmeets
thefollowingcriteria:
HeldbyanLMIpersonNon-LMI
GRANTEECERTIFICATION
(TobecompletedbytheGrantee)
_________________________________________________
ProjectDirector Date
WARNING:Title18,Section1001oftheU.S.Codestatesthatapersonisguiltyofafelonyforknowinglyandwillingly
makingfalseorfraudulentstatementstoanydepartmentoftheUnitedStatesGovernment.
EDA Agenda: 08/12/15
1
12. Consideration of direction regarding available pooled housing increment, Monticello
Tax Increment Financing District 1-22.(AS/Northland Securities)
A. REFERENCE AND BACKGROUND
The EDA is asked to consider providing staff with direction related to the available pooled
housing increment in Monticello Tax Increment Financing District 1-22.
As the EDA is aware, due to the 6-year rule, the EDA is required to calculate excess tax
increment in TIF District 1-22 and return it to Wright County for redistribution each year.
Excess increment is that which is collected within the district on parcels for which no
obligation was created within the first 5 years. Seventy five percent of the increment beyond
that which is obligated is considered excess and is returned to Wright County. The EDA is
allowed to “pool” the balance, or 25%, of the excess increment for allowable uses. The EDA
has previously taken action in terms of management of the district to retain as many parcels
within the district as possible to maximize this 25% pooling allowance.
In addition to the 25% pooling, the EDA is also allowed to pool an additional 10% of
captured tax increment within the district for housing. At present, the EDA is not capturing
the 10% allowable housing pooling. Instead, that increment is being included within the 75%
and the excess is being returned to Wright County each year.
In order to be able to pool the 10% for housing purposes, the EDA is required to complete a
modification to the TIF 1-22 Plan. The modification would include a budget modification and
would require a public hearing and full modification of the plan. The Planning Commission
would be required to review the plan modification for conformity to the Comprehensive Plan
and the City Council would also need to ratify the modification.
The EDA will note that this 10% of pooled funds available for housing can only be used for
“qualifying” housing projects within the redevelopment project area (projects do not
necessarily need to occur within TIF 1-22 itself). This requires that the project meet standards
for low to moderate income for either/both rental or owner-occupied units.More information
on the required standards can be found in the supporting data on housing districts. It should
be noted that the EDA would not necessarily need to create a new TIF housing district to
utilize the pooled funds, but would need to use the guidelines established for TIF housing
districts in order to apply the available pooled housing resource to a given project. For
example, if there were an identified housing project not located within the boundaries of an
existing (or new) TIF district, but to which the EDA desired to provide financial assistance,
the EDA would have the authority to provide tax increment assistance from TIF 1-22 revenue.
A contract for private redevelopment would be created and would state the requirements for
qualified housing. The owner would be required to satisfy the same income qualification for
residents as required for a property located within a housing TIF district. The contract would
be clear that the funding sources is increment from TIF 1-22 as formally approved by the City
and EDA under 10% pooling allowances.
EDA Agenda: 08/12/15
2
The EDA does not need to have a project immediately pending to capture the 10% pooling
available for housing purposes.
At present, if the EDA were to act to modify the district to capture the 10% available pooling
for housing, the amount of pooled increment generated over the remaining life of TIF 1-22 is
estimated to be approximately $345,000 (collected over 10 years, between years 2016 and
2024). It is estimated that the EDA returns approximately $35,000 annually in increment
which could be used to assist affordable housing projects. The EDA would have the authority
to capitalize this annual revenue through an interfund TIF loan (i.e., $345,000 interfund loan).
A1. Budget Impact:As noted above, the estimated amount of available pooled housing
increment is $345,000 over the balance of the life of the district. There would be a cost
related to the modification as noted below.
A2. Staff Impact:If the EDA directs staff to begin the modification process, staff will
work with Northland Securities and Kennedy & Graven to support the process.
Northland estimates the cost to complete the modification process will not exceed
$4,000
B. ALTERNATIVE ACTIONS
1.Motion to direct EDA staff and financial consultants to begin the modification of TIF
District 1-22 as related to the establishment of a 10% pooling allowance for housing.
2.Motion to table for more information.
C. STAFF RECOMMENDATION
One of the EDA’s adopted annual work plan goals is to “Clearly understand allowable uses of
available pooled housing increment as a financial resource”. This report, and the action to
modify TIF District 1-22, provide for understanding and path for the use of the available
housing resources of community. If the EDA would like to continue a forward path toward
the use of these funds, then alternative #1 above is appropriate.
D. SUPPORTING DATA
A. House of Representatives House Research Department Information – Housing TIF
Districts
B. Northland Securities Memo, TIF Pooling
C. TIF 1-22 Financial Summary
It goes without saying that the rules governing the use of tax increment fi nancing (TIF) are
complicated. We often create basic principles to ensure that TIF is used correctly. While usually
a safe strategy, this approach may result in overlooking important and useful TIF powers. A
good example is the “fi ve year rule”. A basic approach to this rule is that TIF district revenues
can only be spent on obligations incurred within fi ve years of certifi cation and on administra-
tive expense. However, a closer look at the statutes governing the use of TIF fi nds substantial
funding capacity after the initial fi ve-year period.
• TIF district revenues that are NOT “tax increments paid by the properties” are not
subject to fi ve-year or pooling restrictions.
• The amount of “pooling” expenditures increases for certain housing projects.
As with all aspects of TIF, the devil is in the details. This profi le highlights the key elements of
this statutory authority. Northland can help you more thoroughly evaluate potential applica-
tions and devise a plan of action.
TAX INCREMENT NOT DERIVED FROM PROPERTY
All tax increment is not the “same”. Revenues that are derived from tax increments paid by
the properties in the TIF district are not the same as other revenues within the TIF district. The
authority has discretion as to timing of the use of these other dollars and geographically where
these dollars are spent. Revenues not derived from property include investment earnings/
interest income on or from tax increment derived from properties, proceeds from the sale or
lease of property purchased with tax increments, principal and interest received on loans or
advances made with tax increments, repayments to an authority, and market value credit paid
to the authority. The use of these other revenues must be for tax increment eligible purposes
but can be spent without regard to the fi ve-year rule or pooling restrictions.
HOUSING TIF DISTRICTS
For housing TIF districts, tax increments can be spent on other projects that meet the criteria for
establishing a housing district (% of units occupied by persons with qualifying incomes). The
practical application of this authority includes:
• This use of tax increment is not limited by pooling restrictions or the fi ve-year rule.
• The tax increment can be spent on activities outside of the TIF district, but within the proj-
ect area/development district.
• This authority does not extend the maximum statutory duration of a TIF district.
• As with a housing TIF district, a portion of the assistance may go to persons with
incomes above the qualifying limits. Using this authority to provide such assistance
requires careful defi nition of the “housing project”.
TIF POOLING
Northland Securities is committed
to keeping local governments in-
formed of the latest tools, issues and
trends in public finance.
Northland’s Public Finance Group
specializes in the public finance
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As a diversified financial services
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Our mission is to “provide direction
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Northland Securities, Inc.
45 South 7th Street , Suite 2000
Minneapolis, MN 55402
Toll Free 1-800-851-2920
Main 612-851-5900
www.northlandsecurities.com
Member FINRA and SIPC
(Continued on Page 2)
limitations. A critical limitation is the requirement to use the tax
increments solely for expenditures related to qualifying housing
for low/moderate income persons.
FORECLOSED HOUSING
The 2011 Amendments to the TIF Act expanded authority related
to foreclosed housing. The expanded poling authority may be
used to develop housing under the following criteria:
1. The parcel contains a residence containing 1 to 4 family
dwelling units that has been vacant for 6 or more months and
is in foreclosure (as defi ned in MN Statues, Section 325N.10,
Subdivision 7), but without regard to whether the residence
is the owner’s principal residence, and only after the redemp-
tion period stated in the notice provided under MN Statues,
Section 580.06 has expired.
2. The market value of the housing does not exceed the lesser
of: 150% of the average market value of single-family homes
in that municipality or $200,000 for municipalities located
in the metropolitan area (as defi ned in MN Statues, Section
473.121) or $125,000 for all other municipalities.
3. The tax increments are used to pay the cost of site acquisi-
tion, relocation, demolition of existing structures, site prepa-
ration, and pollution abatement on one or more parcels.
This authority expires on December 31, 2016. Increments may
continue to be expended under this authority after that date, if
they are used to pay bonds or qualifying binding contracts.
• The tax increment must be used solely to fi nance the cost of
the “housing project” as defi ned by the statute and no more
than 20% of the sq. footage of buildings that receive assis-
tance may consist of commercial, retail, or other nonresiden-
tial uses.
Potential applications of this authority include:
• Avoid the need to create a new TIF district for an
individual housing project.
• Supplement the revenues of another housing TIF district.
• Provide assistance for renovation of existing housing.
• Provide assistance for foreclosed housing.
• Acquire land for housing.
• Provide assistance to make public improvements more
affordable.
NON-HOUSING TIF DISTRICTS
For all other types of TIF district, the amount of expenditure is
limited to an additional 10% in the regular pooling limitations.
The qualifi ed uses are different from housing districts. To qualify
for the 10% pooling increase, the expenditure must:
1. Be used exclusively to assist housing that meets the require-
ment for a qualifi ed low-income building, as that term is de-
fi ned in Internal Revenue Code (IRC).
2. Not exceed the qualifi ed basis of the housing, as defi ned un-
der IRC, less the amount of any credit allowed under IRC.
3. Be used to acquire and prepare the site of the housing; ac-
quire, construct, or rehabilitate the housing; or make public
improvements directly related to the housing.
4. Be used to develop housing if the market value of the hous-
ing does not exceed the lesser of: 150% of the average mar-
ket value of single-family homes in that municipality; or
$200,000 for municipalities located in the metropolitan area,
as defi ned in the TIF Act, or $125,000 for all other municipali-
ties; and if the expenditures are used to pay the cost of site
acquisition, relocation, demolition of existing structures, site
preparation, and pollution abatement on one or more par-
cels, if the parcel contains a residence containing 1 to 4 family
dwelling units that has been vacant for 6 or more months and
is in foreclosure as defi ned Statutes, but without regard to
whether the residence is the owner’s principal residence, and
only after the redemption period stated in the notice pro-
vided under Statute has expired.
Not only may the expenditures be made for activities outside of
the TIF district, they may also occur outside of the project area/
development district. Since this authority is an expansion of ex-
isting pooling authority, the determination of the funding capac-
ity requires analysis of the other expenditures subject to pooling
TIF Pooling
PAGE 2
The information in this summary is based on sources believed to be
reliable, but does not purport to be complete and is not warranted
by Northland Securities, Inc. (ASL 12-308)
For more information about the services available from
Northland Strategies, please contact:
Tammy Omdal
Manager of Northland Strategies
(612) 851-4964
tomdal@northlandsecurities.com
www.northlandsecurities.com/public_fi nance/services_strategies
City of Monticello, Tax Increment Financing District No. 1-22
Projected Year-End Fund Balance Designations
Final Year of Tax Increment Collection for TIF 1-22 is Year 2024
2014 Actual 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Excess increment to be returned to County by September of following year 1 195,267 154,139 154,139 154,139 154,139 154,139 211,710 211,710 211,710 211,710 211,710
Increment available under 25% pooling 2 (133,883) (60,470) 12,943 86,356 159,768 233,181 306,594 380,007 453,419 526,832 600,245
Increment available under 10% pooling for housing (or return as excess)3 - 34,485 68,970 103,455 137,940 172,426 206,911 241,396 275,881 310,366 344,851
Increment not derived from property 4 46,252 58,731 60,883 64,621 70,560 78,731 89,179 101,949 118,237 136,938 158,123
Total Estimated Year End Fund Balance 107,637 186,884 296,935 408,571 522,407 638,476 814,393 935,061 1,059,247 1,185,846 1,314,928
Notes:
1 Assumes the City annually returns the prior year balance of excess increment due to the County.
3 The balance assumes the EDA acts to authorize the additional 10% pooling for housing. If the EDA does not authorize than this balance will need to be returned annually to the County.
4 The balance shown does not anticipate any spending of these funds over the period shown. Increment not derived from property is not subject to pooling limitations. Actual year to year spending
will reduce the balance of funds shown as available. TIF 1-22 reports an asset for land held for resale of $221,900 at the end of 2014. The future year projections shown above do not anticipate land
sale proceeds from the sale of land held for resale. The sale of land is considered increment not derived from property and will impact the projections shown here.
Projected
2 The balance shown does not anticipate any new pooled spending. Actual year to year spending will reduce the balance of funds shown as available. Negative balances are covered by a previously
authorized interfund loan.
8/3/2015
EDA Agenda: 08/12/15
13. Economic Development Report (JO /AS)
Hospitality Study Update
Staff have received the first draft of the hospitality update and will be reviewing over the next
week. It is expected that the document will come to the EDA for review at its September
meeting.
Solar Energy Update
As the EDA is aware, the City adopted an interim ordinance placing a moratorium on
principal use solar energy systems within the City of Monticello in November of 2014. At the
time the moratorium was adopted, solar energy systems were considered permitted accessory
uses in all zoning districts within the city. Principal use solar energy systems were considered
to be prohibited uses within the city.
Since shortly after the moratorium's adoption, the Planning Commission has been in the
process of analyzing the issue, including existing ordinance and proposed ordinance language
for solar energy systems. A series of public hearings before the Planning Commission have
been held regarding solar energy system ordinance amendments.
As a result of this analysis, during its July 2015 regular meeting, the Planning Commission
recommended to the City Council a series of amendments to the Monticello Zoning
Ordinance which would continue to allow solar energy systems as an accessory use by
conditional use permit in all districts, including commercial and industrial zoning districts.
The ordinance amendments recommended by the Commission also included ordinance
language which would allow for principal use solar energy systems through Planned Unit
Development, which requires a rezoning action by the City. It should be noted that an action
to rezone to PUD provides for a significant amount of discretion by the City in its
consideration. Further, the amendments included revisions to the ordinance definitions
language for solar energy systems and utilities to provide clarity in use designation.
Background information from Planning Commission items is available on the Planning
Commission agenda page of the City's website. The item has been considered by the
Planning Commission every month since January of 2015, with the exception of May, 2015.
It is anticipated that the ordinance amendments will go forward to the City Council on August
24', 2015. Comments of the IEDC can be provided to the Council if desired.
Wright County Ordinancc
The Wright County Planning Commission has made a recommendation to the County Board
to move forward on the proposed solar ordinance amendment. The County Board addressed
the item on July 14', requesting minor modifications. The item came back before the board
on July 28th and the revised ordinance was subsequently approved. The agenda item reviewed
on July 28th can be viewed at the County Board agenda page for that date.
EDA Agenda: 08/12/15
The Monticello Orderly Annexation board will need to determine whether to adopt the Wright
County ordinances above for the MOAA area.
Block 34 Update
The EDA and City Council continue to receive updates on the progress of environmental
analysis on Block 34. At this time, the City's consulting engineer, WSB & Associates,
continues to work with the MPCA and MnDOT to provide required information relating to
moving forward with the TH 25 /CSAH 75 project. An update from WSB & Associates is
included with this report.
On July 27', 2015, the City Council approved a Cooperative Construction Agreement with
MnDOT and accepted the Corridor Investment Management (CIMS) grant of $616,000, and
approved an agency agreement with MnDOT relating to federal aid for the TH 25 /CSAH 75
Intersection Improvement. A schedule, including timeline for property owner meetings, is
included with this report. More information on the above items can be found on the Council
agenda page.
Landmark Square II/ TIF 1 -35 Update
TIF 1 -35 was established as a redevelopment TIF district in 2005 and certified in August of
2006. The district was created to fund a commercial development of approximately 11,000
square feet. The developer removed three residential structure(s) on the property, which
satisfied the 4 -year knockdown requirement for activity in the district.
A contract for private redevelopment was approved in September of 2005 between the
Housing and Redevelopment Authority (as subsequently assigned to the EDA) and the
developer. The contract has been amended twice since its original adoption, first in June of
2006 and then in December 18, 2007. As a redevelopment district, the district will run until
decertification in December, 2033. Given the contract and the removal of the buildings, an
obligation for the district is in place and the 5 year rule has been satisfied. The district was
developed as a pay -as- you -go district in which the developer will receive tax increment
payments resulting from the captured increase in value once the property is developed.
The contract for private redevelopment as amended in December of 2007 requires a
completion of these minimum improvements by December 31, 2009. To date, the developer
has not completed the required minimum improvements for the district.
Staff has communicated a number of times with the developer regarding the district, the
contract, and the developer's intention to develop the site. On August 5', 2015, staff sent a
letter to the developer requesting formal correspondence regarding the developer's plan for
the district. At the time such correspondence from the developer is received, further action of
the EDA may be necessary.
EDA Agenda: 08/12/15
TH 25 /CSAH 75 Preliminary Schedule — Presented to City Council July 27`h 2015
95% plan submittal for MnDOT review and comment
03/16/15
MnDOT preliminary comments received
04/09/15
MnDOT request for Phase 2 Environmental Investigation at SE corner of intersection
05/01/15
Contamination release detected at 100 W Broadway
05/06/15
EDA authorized Phase 2 Environmental Investigation at SE corner of intersection
05/13/15
100% plan submittal to MnDOT
05/15/15
Environmental Borings Complete
06/02/15
Preliminary test results /environmental report submittal to MPCA
06/19/15
MPCA boring request at 216 Pine Street (Finder's Keeper'sproperty)
06/22/15
Environmental reports (RAP /CCP) submittal to MnDOT/
07/17/15
MnDOT Final Plan approval
07/17/15
MnDOT Final Plan signatures obtained to advertise project
07/22/15
Project Advertisement Dates
07/23/15 07/30/15
Anticipated Project Open House /Adjacent Property Owner Meetings
Aug /Sep 15
Anticipated Project Bid Opening
08/18/15
Anticipated Project Award
08/24/15
(contingent on MOOT Approval)
or 09/14/15
Anticipated Construction Duration for Substantial Completion
09/15/15 to 11/15/15
Final Completion of Traffic Signal
12/15/15
Update on environmental items for the EDA -owned proyerty at 100 East Broadway.
(SB)
This report provides an update to the report provided to the EDA at the July 8, 2015
meeting.
1. The Limited Site Investigation (LSI) for the 100 East Broadway property is complete
pending drilling of the additional boring and subsequent test results required by the
MPCA on the Finder's Keepers property, owned by James Wolff, located at 216 Pine St
(TH 25). Mr. Wolff is agreeable to allowing a boring on his property as long as a general
liability assurance letter is granted to him from the MPCA. The City requested this
assurance letter from the MPCA on July 17, 2015 through application of the Petroleum
Brownfields Program. The requested letter is for the 100 East Broadway property,
MnDOT (since part of the property will be conveyed to them for right of way) and for the
216 Pine Street property. The assurance letter is intended to provide general
environmental liability assurance to the City, MnDOT, and Finder's Keepers indicating
that they cannot be held responsible to fund any remediation or clean up as related to the
petroleum leak found on 100 East Broadway. The review period for the application to
obtain the assurance letter is 30 days from the date application is made. Therefore, City
staff anticipates comments to be received and likely the assurance letter by August 17,
2015.
The boring on the Wolff property is required by the MPCA and is needed in order to
delineate the southern boundary of the petroleum leak, which would then allow the City
to have closure of the release and resulting MPCA leak number as identified as part of the
Petrofund program. After the LSI is completed and approved by the MPCA, the City can
apply for Petrofund reimbursement. The estimated reimbursement amount is $6,400.
2. WSB has prepared a Response Action Plan (RAP) for the TH 25 /CSAH 75
Intersection improvements project that outlines how the contractor will need to manage
petroleum impacted soils during construction (if encountered). MnDOT has approved the
RAP and has authorized the project advertisement of bids. Bids are planned to be opened
on August 18 with construction starting mid - September. MnDOT has indicated that
construction and conveyance of the right of way can proceed prior to closure of the leak
number at 100 East Broadway.
It should be noted that costs for removal and proper disposal of encountered
contaminated soils for the project will be reimbursed through the federal and state funds
granted for the intersection project. It is estimated that these cost would be in the range of
$25,000.