icf consulting page 1 cdbg webcast hud, office of block grant assistance
TRANSCRIPT
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CDBG WEBCASTHUD, OFFICE OF BLOCK GRANT ASSISTANCE
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MODULE 7: Section 108
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WELCOME
Training Presented by HUD, Office of Community Planning and Development, Office of Block Grant Assistance (OBGA) Richard Kennedy, Director, OBGA
Paul Webster, Director of Financial Management Division
Hugh Allen, Deputy Director of Financial Management Division
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CDBG TRAINING SERIES Eight modules in series:
Module 1: Welcome, CDBG Statutory/Regulatory Context, National Objectives
Module 2: State CDBG Program Module 3: Administration/Planning, Financial Management,
Including Program Income Module 4: Housing and Other Real Property Activities Module 5: Public Facilities, Interim Assistance, Public Services and
Other Activities Module 6: Economic Development, Including Public Benefit Module 7: Section 108 Module 8: IDIS, Performance Measurement, Reporting
Training presented by OBGA staff Available on HUD’s website at:
http://www.hud.gov/offices/cpd/communitydevelopment/programs/index.cfm
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MODULE 7 TOPICS AND TRAINERS Topics:
Eligible activities
Transaction types
Section 108 underwriting
HUD review of applications
Trainers: Dick Kennedy
Paul Webster
Hugh Allen
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WHAT IS SECTION 108?WHAT IS SECTION 108? Method of expanding CDBG funds by using future
CDBG grant as collateral to borrow funds Section 108 process basics:
(1) Community applies to HUD
(2) Based on community’s pledge, HUDissues notes
(3) $$$ from sale of notes used forSection 108 eligible project
(4) Notes are repaid
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SECTION 108 HISTORY 1974 law provided opportunity to continue urban
renewal 1979 Demonstration Program 1986 Consolidated Omnibus Budget
Reconciliation Act 1987 eligibility changes 1990 National Affordable Housing Act 1992 Credit Reform Act
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ADVANTAGES OF SECTION 108
Leverages grants Not a general obligation Receive funds now (no pay as you go) Spread costs over multi-year period Long-term, fixed-rate financing at favorable rates
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PROJECT EXAMPLE: BRYAN/COLLEGE STATION COMMUNITY HEALTH CENTER
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PROJECT EXAMPLE: FORT WORTHMINYARD FOOD STORES
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PROJECT EXAMPLE: PHILADELPHIAHOMEOWNERSHIP ZONE
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ELIGIBLE ACTIVITIES Real property acquisition Rehabilitation of publicly owned real property Relocation Clearance/demolition Site preparation Housing rehabilitation Economic development Public facilities/improvements Issuance costs Capitalized interest Reserves
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APPLICABLE RULES Section 108 must comply with all key CDBG
rules National objective 70% LMI targeting Other federal requirements
Environmental review Davis Bacon URA OMB circulars Fair housing/equal opportunity Lead Based Paint HUD Reform Act
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NATIONAL OBJECTIVES
LOW/MOD BENEFIT
SLUM/BLIGHT
URGENT NEED
Area Benefit Limited Clientele
Housing Jobs
Area
Urban Renewal
Spot
• Any national objective is possible, depending on Section 108 project
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SECTION 108 FINANCING
HUD
Guarantee
Guarantee
Investors
Interim Lender
Locality
Loan Proceeds
[State]
Loan Proceeds
Pledge of CDBGFunds
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LEVELS OF TRANSACTION # 1 Communities borrow from investors
via notes # 2 Communities undertake activities or
re-lend
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LEVEL #1 TRANSACTION
HUD
INVESTORS LOCALITY$$
CDBG PLEDGE[STATE]
GUARANTEE
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LEVEL #2 TRANSACTION
HUD
INVESTORS LOCALITY$
CDBG PLEDGE[STATE]
$ THIRDPARTY
GUARANTEE
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SECTION 108 FINANCING SPECIFICSSECTION 108 FINANCING SPECIFICS
Amount Up to five times annual entitlement
Term Rates
Permanent financing
Interim financing
Fees
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TYPES OF FINANCING
Interim – variable rate Permanent – fixed rate
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INTERIM LOANS
Public offering usually once a year Interim loan available until public offering Fiscal Agent arranges interim loan
Interest rate: 90 day LIBOR + 20 basis points HUD guarantees obligation
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PERMANENT LOANS
Public offering provides long-term, fixed-rate financing
“Public offering” conducted annually by Sec. 108 underwriting team
Interest rates Fees Loans serviced by trustee
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SECTION 108 UNDERWRITINGSECTION 108 UNDERWRITING
Credit Reform Act HUD estimates “subsidy rate” for Section
108 HUD establishes loss reserve Additional security
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SOURCES OF REPAYMENT OF SECTION 108 LOANS
CDBG funds Program income “Additional security” (negotiated on a
case by case basis)
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FORMS OF ADDITIONAL SECURITYExamples include:
Assets created from use of Sec. 108 funds
Real Property
Portfolio income
Other Parking revenue Non tax revenue
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PROJECT BASED SECURITYExamples include: Mortgage on real property (in name of
Secretary of HUD) Tax increments Assignment of third party (e.g., business)
loans
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KEY SECTION 108 STEPSKEY SECTION 108 STEPS
Screen potential applicant or project
Apply to HUD
Receive approval from HUD and close loan
Disburse and service the loan
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STEP 1: SCREEN THE PROJECTSTEP 1: SCREEN THE PROJECT Grantees screen projects prior to HUD
application Look at:
Eligibility
How will the Section 108 loan be repaid
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STEP 2: APPLY TO HUDSTEP 2: APPLY TO HUD
Presubmission requirements Submission requirements Field and HUD Headquarters office review
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PRESUBMISSION REQUIREMENTSPRESUBMISSION REQUIREMENTS
Citizen participation Conduct needs hearing Publish proposed statement and
projected uses Amend CD plan or incorporate Section
108 in final plan Conduct second public hearing
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APPLICATION SUBMISSIONAPPLICATION SUBMISSION
Application to HUD should include: Project description
Eligibility category National objective
Repayment schedule
Certifications
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HUD REVIEWHUD REVIEW Review by HUD Field Office Review by HUD Headquarters
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STEP 3: RECEIVE APPROVAL AND CLOSESTEP 3: RECEIVE APPROVAL AND CLOSE HUD approves & notifies Close Section 108 loan Procedures differ for level #1 and level #2
transactions
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STEP 4: DISBURSE AND SERVICE THE LOANSTEP 4: DISBURSE AND SERVICE THE LOAN Trustee/Fiscal agent services level #1 Community must establish system for level
#2 Custodial Accounts
Loan Guarantee Account Loan Repayment Account
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LOAN PORTFOLIO SYSTEM Collections Monitoring & accounting Collateral preservation Anticipate & deal with problems Foreclosure