[Code of Federal Regulations]
[Title 24, Volume 3]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 24CFR570.209]

[Page 59-62]
 
                 TITLE 24--HOUSING AND URBAN DEVELOPMENT
 
  CHAPTER V--OFFICE OF ASSISTANT SECRETARY FOR COMMUNITY PLANNING AND 
        DEVELOPMENT, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
 
PART 570_COMMUNITY DEVELOPMENT BLOCK GRANTS--Table of Contents
 
                      Subpart C_Eligible Activities
 
Sec. 570.209  Guidelines for evaluating and selecting economic development 
projects.

    The following guidelines are provided to assist the recipient to 
evaluate and select activities to be carried out for economic 
development purposes. Specifically, these guidelines are applicable to 
activities that are eligible for CDBG assistance under Sec. 570.203. 
These guidelines also apply to activities carried out under the 
authority of Sec. 570.204 that would otherwise be eligible under Sec. 
570.203, were it not for the involvement of a Community-Based 
Development Organization (CBDO). (This would include activities where a 
CBDO makes loans to for-profit businesses.) These guidelines are 
composed of two components: guidelines for evaluating project costs and 
financial requirements; and standards for evaluating public benefit. The 
standards for evaluating public benefit are mandatory, but the 
guidelines for evaluating projects costs and financial requirements are 
not.
    (a) Guidelines and objectives for evaluating project costs and 
financial requirements. HUD has developed guidelines that are designed 
to provide the recipient with a framework for financially underwriting 
and selecting CDBG-assisted economic development projects which are 
financially viable and will make the most effective use of the CDBG 
funds. These guidelines, also referred to as the underwriting 
guidelines, are published as appendix A to this part. The use of the 
underwriting guidelines published by HUD is not mandatory. However, 
grantees electing not to use these guidelines would be expected to 
conduct basic financial underwriting prior to the provision of CDBG 
financial assistance to a for-profit business. Where appropriate, HUD's 
underwriting guidelines recognize that different levels of review are 
appropriate to take into account differences in the size and scope of a 
proposed project, and in the case of a microenterprise or other small 
business to take into account the differences in the capacity and level 
of sophistication among businesses of differing sizes. Recipients are 
encouraged, when they develop their own programs and underwriting 
criteria, to also take these factors into account. The objectives of the 
underwriting guidelines are to ensure:
    (1) That project costs are reasonable;
    (2) That all sources of project financing are committed;
    (3) That to the extent practicable, CDBG funds are not substituted 
for non-Federal financial support;
    (4) That the project is financially feasible;
    (5) That to the extent practicable, the return on the owner's equity 
investment will not be unreasonably high; and
    (6) That to the extent practicable, CDBG funds are disbursed on a 
pro rata basis with other finances provided to the project.
    (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 Sec. 
570.201(c) of the regulations, which are undertaken for economic 
development purposes, are also subject to these standards, as specified 
in Sec. 570.208(a)(4)(vi)(F)(2).
    (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; or
    (ii) Provide goods or services to residents of an area, such that 
the number of low- and moderate-income persons residing in the areas 
served by the assisted businesses amounts to at least

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one low- and moderate-income person per $350 of CDBG funds used.
    (2) Applying the aggregate standards. (i) A metropolitan city or an 
urban county shall apply the aggregate standards under paragraph (b)(1) 
of this section to all applicable activities for which CDBG funds are 
first obligated within each single CDBG program year, without regard to 
the source year of the funds used for the activities. A grantee under 
the HUD-Administered Small Cities or Insular Areas CDBG programs shall 
apply the aggregate standards under paragraph (b)(1) of this section to 
all funds obligated for applicable activities from a given grant; 
program income obligated for applicable activities will, for these 
purposes, be aggregated with the most recent open grant. For any time 
period in which a community has no open HUD-Administered or Insular 
Areas grants, the aggregate standards shall be applied to all applicable 
activities for which program income is obligated during that period.
    (ii) The grantee shall apply the aggregate standards to the number 
of jobs to be created/retained, or to the number of persons residing in 
the area served (as applicable), as determined at the time funds are 
obligated to activities.
    (iii) Where an activity is expected both to create or retain jobs 
and to provide goods or services to residents of an area, the grantee 
may elect to count the activity under either the jobs standard or the 
area residents standard, but not both.
    (iv) Where CDBG assistance for an activity is limited to job 
training and placement and/or other employment support services, the 
jobs assisted with CDBG funds shall be considered to be created or 
retained jobs for the purposes of applying the aggregate standards.
    (v) Any activity subject to these guidelines which meets one or more 
of the following criteria may, at the grantee's option, be excluded from 
the aggregate standards described in paragraph (b)(1) of this section:
    (A) Provides jobs exclusively for unemployed persons or participants 
in one or more of the following programs:
    (1) Jobs Training Partnership Act (JTPA);
    (2) Jobs Opportunities for Basic Skills (JOBS); or
    (3) Aid to Families with Dependent Children (AFDC);
    (B) Provides jobs predominantly for residents of Public and Indian 
Housing units;
    (C) Provides jobs predominantly for homeless persons;
    (D) Provides jobs predominantly for low-skilled, low- and moderate-
income persons, where the business agrees to provide clear opportunities 
for promotion and economic advancement, such as through the provision of 
training;
    (E) Provides jobs predominantly for persons residing within a census 
tract (or block numbering area) that has at least 20 percent of its 
residents who are in poverty;
    (F) Provides assistance to business(es) that operate(s) within a 
census tract (or block numbering area) that has at least 20 percent of 
its residents who are in poverty;
    (G) Stabilizes or revitalizes a neighborhood that has at least 70 
percent of its residents who are low- and moderate-income;
    (H) Provides assistance to a Community Development Financial 
Institution that serve an area that is predominantly low- and moderate-
income persons;
    (I) Provides assistance to a Community-Based Development 
Organization serving a neighborhood that has at least 70 percent of its 
residents who are low- and moderate-income;
    (J) Provides employment opportunities that are an integral component 
of a project designed to promote spatial deconcentration of low- and 
moderate-income and minority persons;
    (K) With prior HUD approval, provides substantial benefit to low-
income persons through other innovative approaches;
    (L) Provides services to the residents of an area pursuant to a 
strategy approved by HUD under the provisions of Sec. 91.215(e) of this 
title;
    (M) Creates or retains jobs through businesses assisted in an area 
pursuant to a strategy approved by HUD under the provisions of Sec. 
91.215(e) of this title.

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    (3) Standards for individual activities. Any activity subject to 
these guidelines which falls into one or more of the following 
categories will be considered by HUD to provide insufficient public 
benefit, and therefore may under no circumstances be assisted with CDBG 
funds:
    (i) The amount of CDBG assistance exceeds either of the following, 
as applicable:
    (A) $50,000 per full-time equivalent, permanent job created or 
retained; or
    (B) $1,000 per low- and moderate-income person to which goods or 
services are provided by the activity.
    (ii) The activity consists of or includes any of the following:
    (A) General promotion of the community as a whole (as opposed to the 
promotion of specific areas and programs);
    (B) Assistance to professional sports teams;
    (C) Assistance to privately-owned recreational facilities that serve 
a predominantly higher-income clientele, where the recreational benefit 
to users or members clearly outweighs employment or other benefits to 
low- and moderate-income persons;
    (D) Acquisition of land for which the specific proposed use has not 
yet been identified; and
    (E) Assistance to a for-profit business while that business or any 
other business owned by the same person(s) or entity(ies) is the subject 
of unresolved findings of noncompliance relating to previous CDBG 
assistance provided by the recipient.
    (4) Applying the individual activity standards. (i) Where an 
activity is expected both to create or retain jobs and to provide goods 
or services to residents of an area, it will be disqualified only if the 
amount of CDBG assistance exceeds both of the amounts in paragraph 
(b)(3)(i) of this section.
    (ii) The individual activity standards in paragraph (b)(3)(i) of 
this section shall be applied to the number of jobs to be created or 
retained, or to the number of persons residing in the area served (as 
applicable), as determined at the time funds are obligated to 
activities.
    (iii) Where CDBG assistance for an activity is limited to job 
training and placement and/or other employment support services, the 
jobs assisted with CDBG funds shall be considered to be created or 
retained jobs for the purposes of applying the individual activity 
standards in paragraph (b)(3)(i) of this section.
    (c) Amendments to economic development projects after review 
determinations. If, after the grantee enters into a contract to provide 
assistance to a project, the scope or financial elements of the project 
change to the extent that a significant contract amendment is 
appropriate, the project should be reevaluated under these and the 
recipient's guidelines. (This would include, for example, situations 
where the business requests a change in the amount or terms of 
assistance being provided, or an extension to the loan payment period 
required in the contract.) If a reevaluation of the project indicates 
that the financial elements and public benefit to be derived have also 
substantially changed, then the recipient should make appropriate 
adjustments in the amount, type, terms or conditions of CDBG assistance 
which has been offered, to reflect the impact of the substantial change. 
(For example, if a change in the project elements results in a 
substantial reduction of the total project costs, it may be appropriate 
for the recipient to reduce the amount of total CDBG assistance.) If the 
amount of CDBG assistance provided to the project is increased, the 
amended project must still comply with the public benefit standards 
under paragraph (b) of this section.
    (d) Documentation. The grantee must maintain sufficient records to 
demonstrate the level of public benefit, based on the above standards, 
that is actually achieved upon completion of the CDBG-assisted economic 
development activity(ies) and how that compares to the level of such 
benefit anticipated when the CDBG assistance was obligated. If the 
grantee's actual results show a pattern of substantial variation from 
anticipated results, the grantee is expected to take all actions 
reasonably within its control to improve the accuracy of its 
projections. If the actual results demonstrate that the recipient has 
failed the public benefit standards, HUD may require the recipient to 
meet more stringent

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standards in future years as appropriate.

[60 FR 1947, Jan. 5, 1995, as amended at 60 FR 17445, Apr. 6, 1995]