oversight

The City of Los Angeles, CA, Did Not Always Ensure That Community Development Block Grant-Funded Projects Met National Program Objectives

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-09-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

OFFICE OF AUDIT
REGION 9
   We
LOS ANGELES, CA




                  The City of Los Angeles, CA
     Community Development Block Grant Program




2014-LA-1007                                    SEPTEMBER 29, 2014
                                                        Issue Date: September 29, 2014

                                                        Audit Report Number: 2014-LA-1007




TO:            William G. Vasquez, Director, Office of Community Planning and Development,
               Los Angeles, 9DD

FROM:          Tanya E. Schulze, Regional Inspector General for Audit, Los Angeles Region 9,
               9DGA

               //SIGNED//
SUBJECT:       The City of Los Angeles, CA, Did Not Always Ensure That Community
               Development Block Grant-Funded Projects Met National Program Objectives


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of the City of Los Angeles’ Community
Development Block Grant program.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
213-534-2471.
                                             September 29, 2014
                                             The City of Los Angeles, CA, Did Not Always Ensure
                                             That Community Development Block Grant-Funded
                                             Projects Met National Program Objectives



Highlights
Audit Report 2014-LA-1007


 What We Audited and Why                      What We Found

We initiated a review of the City of Los     The City did not always maintain the required
Angeles’ Community Development               documentation for its CDBG-funded projects to
Block Grant (CDBG) program due to            support its vested interest and ensure that national
concerns that CDBG-funded assets may         program objectives were met. More than $1.9 million
be at risk. We performed our review to       in CDBG funds was at risk of not being used to meet
address questionable costs identified        the specified national program objectives. These funds
during a prior Office of Inspector           may be lost due to the City not ensuring that
General review (audit report 2014-LA-        developers completed projects to meet national
0001). Our objective was to determine        program objectives.
whether the City maintained the
required documentation for its CDBG-
funded projects to support its vested
interest and ensure that national
program objectives were met.

 What We Recommend

We recommend that the Director of the
U.S. Department of Housing and Urban
Development’s (HUD) Los Angeles
Office of Community Planning and
Development require the City to (1)
provide and implement a plan of action
to show use and progress of the projects
in question, (2) review its CDBG-
funded projects in its portfolio that were
managed by its former redevelopment
agency to ensure that all required
executed agreements are in place with
the relevant parties, and (3) review its
CDBG-funded projects in its portfolio
that were managed by its former
redevelopment agency to ensure that all
projects meet national objectives.
                          TABLE OF CONTENTS

Background and Objective                                                     3

Results of Audit
      Finding: More Than $1.9 million in CDBG-Funded Projects Did Not Meet
               National Program Objectives                                   4

Scope and Methodology                                                        8

Internal Controls                                                            10

Appendixes
A.    Schedule of Questioned Costs                                           12
B.    Auditee Comments and OIG’s Evaluation                                  13
C.    Criteria                                                               17




                                          2
                      BACKGROUND AND OBJECTIVE

The City of Los Angeles uses two departments, the Los Angeles Housing + Community
Investment Department and the Economic and Workforce Development Department, to carry out
its housing community development activities. It also used a former redevelopment agency to
serve the City’s housing and development needs.

The mission of the Housing + Community Investment Department is to create viable urban
communities by advocating for safe and livable neighborhoods through the promotion,
development, and preservation of decent, safe, affordable housing and by expanding economic
opportunities and public services, principally for low- and moderate-income persons. The
department oversees administration, regulatory compliance and code, housing development,
program operations, and strategic planning and policy. This department also administers U.S.
Department of Housing and Urban Development (HUD) funding, including Community
Development Block Grant (CDBG), Section 108 Loan Guarantee, and Brownfields Economic
Development Initiative funds.

The Economic and Workforce Development Department is dedicated to building local
businesses, providing residents with the tools they need for quality employment, and improving
the total economic outlook for the City of Los Angeles. The Economic and Workforce
Development Department partners with local agencies and service providers to help shape the
City into a progressive and competitive location for both businesses and skilled workers. The
department also uses HUD funds to accomplish its goals.

The former redevelopment agency’s purpose was to make investments to create economic
opportunity and improve the quality of life for the people who lived and worked in Los Angeles.
The redevelopment agency’s operating funds came from many sources that included incremental
property taxes. Before its dissolution, the redevelopment agency also used the City’s CDBG
funds to carry out projects on the behalf of the City.

A previous review of HUD’s Office of Community Planning and Development’s (CPD)
monitoring redevelopment agencies with CPD-funded assets identified that the City did not
retain documentation to support its vested interest of more than $61 million in CPD-funded
assets. As a result, we determined that a review of the City was warranted to determine the
extent of the City’s lack of supporting documentation for its CDBG-funded assets, as well as
what risks such actions may have on HUD. The City received an allocation of CDBG funds in
the amount of more than $77.9 million for fiscal year 2010; $65.1 million for fiscal year 2011;
and $52.6 million for fiscal year 2012.

Our objective was to determine whether the City maintained the required documentation for its
CDBG-funded projects to support its vested interest and ensure that national program objectives
were met.




                                                3
                               RESULTS OF AUDIT


Finding: More Than $1.9 Million in CDBG-Funded Projects Did Not Meet
            National Program Objectives
The City did not ensure that 2 of the 10 CDBG-funded sampled projects met specific national
program objectives. This condition occurred because the City did not provide sufficient
oversight of CDBG-funded projects managed by its former redevelopment agency and
developers to ensure that HUD requirements, as well as national program objectives, were met.
As a result, more than $1.9 million in CDBG funds was at risk of not meeting HUD’s national
objectives, including providing activities that serve low- and moderate-income persons and
preventing or eliminating blight.


 Two CDBG-Funded Projects
 Did Not Meet National Program
 Objectives

              Chinatown Cultural Center




              The City intended to use $975,817 in CDBG funds to acquire and develop this
              site as part of a cultural center within the Chinatown district of Los Angeles.
              Initially, the City’s former redevelopment agency managed this project, and a
              subrecipient agreement was executed in July 1997. City officials confirmed that
              the project’s initial intent of being a mixed-use development had “evolved” with
              the use of CDBG funding toward the acquisition of land as part of a larger project.
              As a result, in June 2007, the City approved a funding agreement between its
              former redevelopment agency and a developer. Issues with the developer resulted



                                               4
in the foreclosure of the project and the City’s reacquiring the project using non-
Federal funds in 2010.

The City selected a new developer for the project in 2013; however, this
developer did not agree to meet HUD’s program national objective obligation of
job creation or the requirements at 24 CFR (Code of Federal Regulations)
570.208(a)(4)(i) and 570.209(b)(1)(i) (see appendix C) in the targeted areas as
stated under the original funding agreements. The City instead required an
affordable housing component requirement that did not specifically state which
national objective would be met under the program. In addition, the City
provided no correspondence between CPD and the City to address this issue.
Further, the City intended to write off the CDBG funds expended for this project
since the developer did not undertake the previous developer’s duties and
obligations in the original funding agreement.

The funding was also part of the national objective to reduce slum and blight in
the Chinatown district of Los Angeles. More than $3.5 million in CDBG funds
had been used toward the acquisition of this project. A prior Office of Inspector
General (OIG) review (audit report 2014-LA-0001) identified that nearly $2.6
million of those funds was at risk, and we recommended that HUD remedy those
at-risk funds. At the time of the prior internal audit, the required agreements were
not in place. Therefore, the City could not ensure that the developer would follow
CPD requirements when using the allocated $975,817 to meet the designated
national program objective.

As a result of the City’s issues with meeting its original national objective, and
then later changing it to another national objective, there were concerns that the
project would not comply with CPD rules and requirements. In addition, the City
increased its risk of losing $975,817 in CDBG funds due to the lack of oversight
and the enforcement of rules, requirements, and the terms of the agreement.




                                  5
Angelus Project




In May 2008, the City provided $1 million in CDBG funds for use toward the
purchase of the former Angelus Funeral Home. Once construction was
completed, the former redevelopment agency planned to manage the
development, consisting of a childcare center, medical offices, a garden area, and
a parking lot, which would serve 160 low-income households annually. The
project’s intended national objective was providing activities benefiting low- or
moderate-income persons as required by 24 CFR 570.208(a)(2)(i)(B) (see
appendix C).

In May 2011, the redevelopment agency notified the developer of its breach of
contract by failing to construct the project according to its agreement. The
redevelopment agency demanded that the developer cure the breaches and
defaults within 30 days after receiving the notice. In August 2012, the
redevelopment agency sent the developer another notice of breach of contract
with demands to correct the breaches and defaults. There was no documentation
in the reviewed file to indicate that the developer responded to these notices. The
City’s files did not contain monitoring reports, communications regarding the
project, and status reports to support its monitoring of the redevelopment agency’s
management of the project.

The property remained vacant and abandoned with no indication of construction
progress. The City initiated foreclosure on the project since its former
redevelopment agency would not accept a quitclaim to the project from the
developer. The City held title to the project and did not state any plans for the
project. With more than 6 years of no progress at the site, the City’s lack of
oversight of the redevelopment agency’s actions resulted in the project’s not
meeting the stated national program objective of providing the needed services for
low- and moderate-income persons in the targeted area of Los Angeles. As a



                                 6
             result, the City risked the loss of $1 million in CDBG funds on an incomplete
             project that did not meet national program objective.

Conclusion

             The City did not ensure that two CDBG-funded projects met specific program
             national objectives. They did not ensure that the projects would be completed to
             meet a national program objective. This condition occurred because the City did
             not provide oversight of these projects while they were managed by the
             redevelopment agency. Documentation reviewed during the audit revealed that
             the City did not always monitor the status of its projects obtained and managed by
             its former redevelopment agency. Additionally, the City acknowledged that it
             was not always up to date on the status of the projects that were acquired and
             managed by the former redevelopment agency. As a result, more than $1.9
             million in CDBG funds did not meet national program objectives, which included
             providing activities that serve low- and moderate-income persons and preventing
             or eliminating blight in the target areas. Given the size of the City’s allocation of
             CDBG funds and projects, the City must take the necessary steps to ensure that all
             required executed agreements are in place, as well as continuous monitoring of
             project progress, to meet national program objectives and comply with CPD rules
             and requirements.

Recommendations

             We recommend that the Director of HUD’s Los Angeles Office of Community
             Planning and Development require the City to

             1A. Provide and implement a plan of action to show the use and progress of the
                 projects in question within 1 year of this report or reimburse HUD
                 $1,975,817 from non-Federal funds.

             1B. Review the rest of its active CDBG-funded projects in its portfolio managed
                 by its former redevelopment agency to ensure that all required executed
                 agreements are in place with the relevant parties, guaranteeing the City’s
                 vested interest within one year of this report or take appropriate action
                 against the City for those that did not have the applicable required
                 agreements.

             1C. Review the rest of its active CDBG-funded projects in its portfolio that were
                 managed by its former redevelopment agency to ensure that all projects meet
                 a national objective. For those that did not meet program national objectives,
                 provide and implement a plan of action to meet the specific national
                 objective within one year of this report or reimburse HUD from non-Federal
                 funds.




                                               7
                            SCOPE AND METHODOLOGY

We conducted our onsite review work at the City’s Housing Department offices in Los Angeles,
CA, from March 4, 2014, to August 18, 2014. Our review covered the period October 1, 2010,
to September 30, 2012, and was expanded as necessary.

To accomplish our objective, we

    •   Interviewed pertinent City personnel familiar with the administration of the City’s
        CDBG-funded projects and CPD staff;

    •   Reviewed HUD’s monitoring reports, consolidated and annual performance and
        evaluation report, consolidated plans, and CDBG funding agreements;

    •   Reviewed Integrated Disbursement and Information System (IDIS) 1 performance reports
        provided by HUD;

    •   Reviewed the City’s organizational charts;

    •   Reviewed the City’s audited financial statements for fiscal years 2010, 2011, and 2012;

    •   Reviewed sampled project files for CDBG-funded projects;

    •   Conducted site visits to selected sampled CDBG-funded projects;

    •   Reviewed the City’s internal policies and procedures; and

    •   Reviewed applicable CDBG regulations and requirements including CFR references.

To test the City’s CDBG-funded projects, we selected a nonstatistical sample. During our survey
review, we used the listing of all CPD-funded projects that were managed by the City’s former
community redevelopment agency, which was obtained during an internal CPD review (audit
report 2014-LA-0001). During that audit, we reviewed the 10 largest funded projects.
Therefore, we removed those projects from the list to establish a universe for our survey review
of the City’s CDBG-funded projects. As a result, we determined a total universe of 30 CPD-
funded projects totaling more than $8.4 million in CDBG funds that the redevelopment agency
managed and controlled. We sorted the universe from largest to least by funded project. From
this universe, we selected the top five largest funded projects to review during the survey phase
of our audit totaling more than $5 million in CDBG funds. We verified the funding amounts for
these projects against HUD’s IDIS reports.



1
 Integrated Disbursement and Information System (IDIS) is a database and reporting system that HUD uses to
monitor its grantees.


                                                       8
For our audit phase, we expanded our sample and selected five additional projects from the list,
provided by the City, of all open and closed projects that were for the acquisition and
redevelopment of assets, including all loans and grants between January 1, 2010, and December
31, 2013, that the City originated and managed. To obtain a sample, we sorted the audit universe
into the three types of funding found on the list: Section 108, Brownfields, and “other.”

Due to the large number of projects classified as “other,” 203 projects, we selected the largest 3
funded projects from that category. These three projects were funded with more than $12.8
million in CDBG funds. An additional sample with the largest funding was selected from each
of the Section 108 (23 projects) and Brownfields (3 projects) categories. The Section 108 project
was funded in the amount of $25 million, and the Brownfields project was funded in the amount
of $1.4 million.

We found that data contained in the City’s source documentation provided by the City agreed
with data contained in HUD’s IDIS reporting system. Therefore, we assessed the data to be
sufficiently reliable for our use during this audit.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our finding
and conclusions based on our audit objective.




                                                9
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.


 Relevant Internal Controls

               We determined that the following internal controls were relevant to our audit
               objective:

               •   Effectiveness and efficiency of operations – Implementation of policies and
                   procedures to ensure that CDBG-funded assets meet specific CDBG program
                   objectives, which include providing needed services for low- and moderate-
                   income persons within the targeted area.

               •   Compliance with applicable laws and regulations – Implementation of policies
                   and procedures to ensure that monitoring and program funds of CDBG
                   activities comply with applicable requirements and regulations.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.




                                                 10
Significant Deficiency

            Based on our review, we believe that the following item is a significant deficiency:

                  •   The City did not provide sufficient oversight of the two projects that
                      were managed by the former redevelopment agencies to ensure that
                      HUD requirements and program objectives were met (finding).




                                             11
                                    APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                            Recommendation         Unsupported
                                number              Funds 1/
                                  1A               $1,975,817



1/   Unsupported funds are those funds charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. This decision, in
     addition to obtaining supporting documentation, might involve a legal interpretation or
     clarification of departmental policies and procedures. In this instance, the unsupported
     funds totaled more than $1.9 million for CDBG-funded projects for which the City did
     not provide oversight of the former redevelopment agencies to ensure that the agreements
     were executed and national program objectives were met. Implementation of a plan of
     action to show the use and progress of the projects in question within 1 year of this report
     would minimize instances of incomplete projects that do not meet national program
     objectives and maintain the City’s interests.




                                              12
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1



Comment 2




Comment 3




                         13
Comment 4




            14
Comment 5




            15
                            OIG Evaluation of Auditee Comments

Comment 1 We appreciate the City’s acknowledgement of the issues identified in the report.
          We commend the City for taking the necessary actions to address these issues and
          ensure that all projects managed by the former redevelopment agencies meet HUD
          rules and requirements.

Comment 2 We understand that departments may view the same activities through different
          lenses. Our conclusions were made on documents received from the City. As a
          result, we changed the statement in question from “refused” to “did not agree”.
          However, it still remains that the developer did not enter into an agreement to meet
          HUD’s program national objective obligation of job creation or the requirements at
          24 CFR 570.208(a)(4)(i) and 570.209(b)(1)(i) in the targeted areas as stated under
          the original funding agreements.

Comment 3 The City provided a signed and executed Disposition and Development Agreement
          (DDA) for their Blossom Plaza project with its response, which had not been
          previously provided during the audit fieldwork. Nonetheless, the City showed that
          it had entered into an agreement with their new developer for the development of
          the Blossom Plaza project on March 4, 2013. The City did not require the
          developer to meet the original program national objective obligation of job creation
          or the requirements at 24 CFR 570.208(a)(4)(i) and 570.209(b)(1)(i), but instead
          required an affordable housing component requirement (Section 7.2 of the DDA).
          The DDA did not stipulate any of HUD’s national objectives that were to be met.
          In addition, the City did not provide correspondence between CPD and the City to
          address this issue during our audit.

Comment 4 We agree that the HUD grantee training manual stated that “Activities may qualify
          for more than one national objective category” and that “for the activities that meet
          more than one national objective, states [grantees] may find it useful to document
          compliance with all the applicable national objectives, especially if there is some
          uncertainty regarding the ability of an activity to meet the chosen national objective
          upon completion.” In this instance, the City had changed the national objective for
          this project from 24 CFR 570.208(a)(4)(i), Job Creation, to 570.208(a)(3), Housing
          Activities. The training manual also stated that “it is critical that states [grantees]
          document the results of their activity and the related national objective”. According
          to the City, the goal of this project is to provide affordable housing. The City only
          obtained a HOME loan agreement on July 1, 2014, and until recently, they did not
          document their activity and related national objective. To date, the City did not
          provide any documentation that the national objective for this project was met.

Comment 5 We thank the City for providing us the additional documents for our review. Based
          on our review of these documents, we adjusted our report accordingly.




                                               16
Appendix C

                                          CRITERIA

24 CFR 570.208(a)(2), Criteria for national objectives
Limited clientele activities.
(i) An activity which benefits a limited clientele, at least 51 percent of whom are low- or
    moderate-income persons. (The following kinds of activities may not qualify under paragraph
    (a)(2) of this section: activities, the benefits of which are available to all the residents of an
    area; activities involving the acquisition, construction or rehabilitation of property for
    housing; or activities where the benefit to low- and moderate-income persons to be considered
    is the creation or retention of jobs, except as provided in paragraph (a)(2)(iv) of this section.)
    To qualify under paragraph (a)(2) of this section, the activity must meet one of the following
    tests:

   (A) Benefit a clientele who are generally presumed to be principally low and moderate
       income persons. Activities that exclusively serve a group of persons in any one or a
       combination of the following categories may be presumed to benefit persons, 51 percent
       of whom are low- and moderate-income: abused children, battered spouses, elderly
       persons, adults meeting the Bureau of the Census’ Current Population Reports definition
       of “severely disabled,” homeless persons, illiterate adults, persons living with AIDS, and
       migrant farm workers; or

   (B) Require information on family size and income so that it is evident that at least 51 percent
       of the clientele are persons whose family income does not exceed the low and moderate
       income limit; or

   (C) Have income eligibility requirements which limit the activity exclusively to low and
       moderate income persons; or

   (D) Be of such nature and be in such location that it may be concluded that the activity’s
       clientele will primarily be low and moderate income persons.

(ii) An activity that serves to remove material or architectural barriers to the mobility or
     accessibility of elderly persons or of adults meeting the Bureau of the Census’ Current
     Population Reports definition of “severely disabled” will be presumed to qualify under this
     criterion if it is restricted, to the extent practicable, to the removal of such barriers by
     assisting:

   (A) The reconstruction of a public facility or improvement, or portion thereof, that does not
       qualify under paragraph (a)(1) of this section;

   (B) The rehabilitation of a privately owned nonresidential building or improvement that does
       not qualify under paragraph (a)(1) or (4) of this section; or



                                                 17
   (C) The rehabilitation of the common areas of a residential structure that contains more than
       one dwelling unit and that does not qualify under paragraph (a)(3) of this section.

(iii) A microenterprise assistance activity carried out in accordance with the provisions of §
      570.201(o) with respect to those owners of microenterprises and persons developing
      microenterprises assisted under the activity during each program year who are low- and
      moderate-income persons. For purposes of this paragraph, persons determined to be low
      and moderate income may be presumed to continue to qualify as such for up to a three-year
      period.

(iv) An activity designed to provide job training and placement and/or other employment support
     services, including, but not limited to, peer support programs, counseling, child care,
     transportation, and other similar services, in which the percentage of low- and moderate-
     income persons assisted is less than 51 percent may qualify under this paragraph in the
     following limited circumstance:

   (A) In such cases where such training or provision of supportive services assists business(es),
       the only use of CDBG assistance for the project is to provide the job training and/or
       supportive services; and

   (B) The proportion of the total cost of the project borne by CDBG funds is no greater than
       the proportion of the total number of persons assisted who are low or moderate income.

24 CFR 570.208(a)(4)(i), Criteria for national objectives
Job creation or retention activities.

An activity designed to create or retain permanent jobs where at least 51 percent of the jobs,
computed on a full time equivalent basis, involve the employment of low- and moderate-income
persons. To qualify under this paragraph, the activity must meet the following criteria:

(a) For an activity that creates jobs, the recipient must document that at least 51 percent of the
    jobs will be held by, or will be available to, low- and moderate-income persons.

24 CFR 570.209(b)(1)(i), Guidelines for evaluating and selecting economic development
projects
(b) Standards for evaluating public benefit. The grantee is responsible for making sure that at
    least a minimum level of public benefit is obtained from the expenditure of CDBG funds
    under the categories of eligibility governed by these guidelines. The standards set forth
    below identify the types of public benefit that will be recognized for this purpose and the
    minimum level of each that must be obtained for the amount of CDBG funds used. Unlike
    the guidelines for project costs and financial requirements covered under paragraph (a) of
    this section, the use of the standards for public benefit is mandatory. Certain public facilities
    and improvements eligible under § 570.201(c) of the regulations, which are undertaken for
    economic development purposes, are also subject to these standards, as specified in §
    570.208(a)(4)(vi)(F)(2).




                                                 18
       (1) Standards for activities in the aggregate. Activities covered by these guidelines
           must, in the aggregate, either:

               (i) Create or retain at least one full-time equivalent, permanent job per $35,000 of
                   CDBG funds used;

24 CFR 570.501(b), Responsibility for grant administration
The recipient is responsible for ensuring that CDBG funds are used in accordance with all
program requirements. The use of designated public agencies, subrecipients, or contractors does
not relieve the recipient of this responsibility. The recipient is also responsible for determining
the adequacy of performance under subrecipient agreements and procurement contracts, and for
taking appropriate action when performance problems arise, such as the actions described in
§570.910. Where a unit of general local government is participating with, or as part of, an urban
county, or as part of a metropolitan city, the recipient is responsible for applying to the unit of
general local government the same requirements as are applicable to subrecipients, except that
the five-year period identified under §570.503(b)(8)(i) shall begin with the date that the unit of
general local government is no longer considered by HUD to be a part of the metropolitan city or
urban county, as applicable, instead of the date that the subrecipient agreement expires.

24 CFR 570.503, Agreements with subrecipients
(a) Before disbursing any CDBG funds to a subrecipient, the recipient shall sign a written
    agreement with the subrecipient. The agreement shall remain in effect during any period that
    the subrecipient has control over CDBG funds, including program income.

(b) At a minimum, the written agreement with the subrecipient shall include provisions
    concerning the following items:

   (1) Statement of work. The agreement shall include a description of the work to be
       performed, a schedule for completing the work, and a budget. These items shall be in
       sufficient detail to provide a sound basis for the recipient effectively to monitor
       performance under the agreement.

   (2) Records and reports. The recipient shall specify in the agreement the particular records
       the subrecipient must maintain and the particular reports the subrecipient must submit in
       order to assist the recipient in meeting its recordkeeping and reporting requirements.

   (3) Program income. The agreement shall include the program income requirements set
       forth in § 570.504(c). The agreement shall also specify that, at the end of the program
       year, the grantee may require remittance of all or part of any program income balances
       (including investments thereof) held by the subrecipient (except those needed for
       immediate cash needs, cash balances of a revolving loan fund, cash balances from a lump
       sum drawdown, or cash or investments held for section 108 security needs).

   (4) Uniform administrative requirements. The agreement shall require the subrecipient to
       comply with applicable uniform administrative requirements, as described in §570.502.




                                                19
   (5) Other program requirements. The agreement shall require the subrecipient to carry out
       each activity in compliance with all Federal laws and regulations described in subpart K
       of these regulations, except that:

       (i) The subrecipient does not assume the recipient’s environmental responsibilities
           described at § 570.604; and

       (ii) The subrecipient does not assume the recipient’s responsibility for initiating the
            review process under the provisions of 24 CFR part 52.

   (6) Suspension and termination. The agreement shall specify that, in accordance with 24
       CFR 85.43, suspension or termination may occur if the subrecipient materially fails to
       comply with any term of the award, and that the award may be terminated for
       convenience in accordance with 24 CFR 85.44.

   (7) Reversion of assets. The agreement shall specify that upon its expiration the subrecipient
       shall transfer to the recipient any CDBG funds on hand at the time of expiration and any
       accounts receivable attributable to the use of CDBG funds. It shall also include
       provisions designed to ensure that any real property under the subrecipient’s control that
       was acquired or improved in whole or in part with CDBG funds (including CDBG funds
       provided to the subrecipient in the form of a loan) in excess of $25,000 is either:

       (i) Used to meet one of the national objectives in § 570.208 (formerly § 570.901) until
           five years after expiration of the agreement, or for such longer period of time as
           determined to be appropriate by the recipient; or

       (ii) Not used in accordance with paragraph (b)(7)(i) of this section, in which event the
            subrecipient shall pay to the recipient an amount equal to the current market value of
            the property less any portion of the value attributable to expenditures of non-CDBG
            funds for the acquisition of, or improvement to, the property. The payment is
            program income to the recipient. (No payment is required after the period of time
            specified in paragraph (b)(7)(i) of this section.)

24 CFR 570.505, Use of real property
The standards described in this section apply to real property within the recipient’s control which
was acquired or improved in whole or in part using CDBG funds in excess of $25,000. These
standards shall apply from the date CDBG funds are first spent for the property until five years
after closeout of an entitlement recipient’s participation in the entitlement CDBG program or,
with respect to other recipients, until five years after the closeout of the grant from which the
assistance to the property was provided.

(a) A recipient may not change the use or planned use of any such property (including the
    beneficiaries of such use) from that for which the acquisition or improvement was made
    unless the recipient provides affected citizens with reasonable notice of, and opportunity to
    comment on, any proposed change, and either:




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       (1) The new use of such property qualifies as meeting one of the national objectives in §
           570.208 (formerly § 570.901) and is not a building for the general conduct of
           government; or

       (2) The requirements in paragraph (b) of this section are met.

(b) If the recipient determines, after consultation with affected citizens, that it is appropriate to
    change the use of the property to a use which does not qualify under paragraph (a)(1) of this
    section, it may retain or dispose of the property for the changed use if the recipient’s CDBG
    program is reimbursed in the amount of the current fair market value of the property, less any
    portion of the value attributable to expenses of non-CDBG funds for acquisition or, and
    improvements to, the property.

(c) If the change of use occurs after closeout, the provisions governing income from the
    disposition of the real property in § 570.404(b)(4) or (5), as applicable, shall apply to the use
    of funds reimbursed.

(d) Following the reimbursement of the CDBG program in accordance with paragraph (b) of this
    section, the property no longer will be subject to any CDBG requirements.




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