Strategies and Compliance: Implementing the OCR s New CDBG Program Income Requirements

Transcription

1 Strategies and Compliance: Implementing the OCR s New CDBG Program Income Requirements A New York State Economic Development Council Workshop Presented by: Harry Sicherman, President The Harrison Studio Lockport, New York

2 NYS CDBG Program Income 2 INTRODUCTION Community Development Block Grant funding HUD- and State-administered CDBG programs CDBG Program Income compliance issues OCR s approach

3 NYS CDBG PROGRAM INCOME 3 Represents cash-on-hand derived from the use of GOSC/OCR CDBG grants (2000-present) Usually realized in the form of loan repayments (P+I), sale or other liquidation of loans, collateral disposition, insurance proceeds, grant recaptures, and net profits from real estate rental or sale; complete definition at 24 CFR (e) Ultimately belongs to a municipal grantee, even if generated and held by a subrecipient $35,000 rule: If income from all sources in a NYS CDBG program year (April 1 March 31) generated from the use of CDBG funds does not exceed $35,000, then it is not CDBG program income. Does not apply to RLFs, where all income is CDBG program income.

4 4 NYS CDBG PROGRAM INCOME Accounting Municipal grantees and subrecipients must maintain an accounting of all CDBG assets including cash, notes receivable, real property, and personal property Segregate HUD- and State-administered program income assets; forensic accounting will be required if there has been co-mingling

5 OCR PROGRAM INCOME DIRECTIVES 5 March 29, 2018 OCR letter to all grant recipients with directives, informational fact sheet, schedule of grants awarded, and certification form NYS CDBG Program Income to be reported to the OCR by the municipal grantee on the certification form by 5/31/18 NYS Program Income cash-on-hand at 3/31/19 to be transferred to the OCR by 4/30/19; exception only for funds committed in a manner acceptable to the OCR All NYS Program Income received after 3/31/19 to be transferred to the OCR periodically, but no less frequently than annually

6 CDBG PROGRAM ADMINISTRATIVE ISSUES 6 Municipally-held CDBG Funds and Assets Legislative requirements for the use of CDBG program income Current OCR program income plan Subrecipient-held CDBG Funds and Assets Review written subrecipient agreement; if none, research initial approvals and legislative authorizations Municipal grantee and subrecipient should agree on a liquidation strategy for addressing cash, notes receivable, and other CDBG assets including real and personal property

7 REQUIREMENTS AND STRATEGIES FOR EXPENDING PROGRAM INCOME THROUGH MARCH 31, Identifying and Implementing Activities Must be CDBG-eligible activities; no programs for future implementation Will require local approvals All CDBG rules and regulations are applicable including NEPA CDBG funds must be expended or committed by 3/31/19. No conditions that would make timely expenditure unlikely. Public improvements should be under contract. Section 105(a) grants to nonprofits not allowed

8 REQUIREMENTS AND STRATEGIES FOR EXPENDING PROGRAM INCOME THROUGH MARCH 31, OCR Submission Requirements and Processing Evidence of municipal grantee legislative approval or, if authorized by legislative action, board approval by a subrecipient Submissions should address eligibility, statutory objective, commitment status, budget, environmental review, and any issues that could preclude a timely implementation of the activity and expenditure of the CDBG funds No guidance yet on additional submission requirements, time frames for processing, or the form of approval

9 REQUIREMENTS AND STRATEGIES FOR EXPENDING PROGRAM INCOME THROUGH MARCH 31, Strategies for Developing or Selecting Projects and Activities Select activities that best fit your mission or enhance your asset base Timing; ability to expend or commit Loans vs. grants $35,000 rule OCR requirements may change in subsequent years Administrative and program delivery costs

10 10 LIQUIDATION OF LOAN FUNDS Prepayments by borrowers Negotiated sales to third-parties Bid sale Sales to affiliated interests

11 LIQUIDATION OF LOAN FUNDS 11 Prepayments by Borrowers Simple; least expensive; usually highest yield to the lender Borrower must have sufficient liquidity or access to capital Borrower s incentive to prepay Cash savings Avoid assignment to a new lender Present value calculation; discount rate; additional negotiated discount Document the process; may require OCR review

12 Original loan: $100, Interest rate: 3.00% Term: 84 mos. Monthly payment: $1, Principal balance $73, $73, $73, Monthly payment $1, $1, $1, Payments remaining Total payments $79, $79, $79, Discount rate 6.00% 8.00% 10.00% Present value $68, $65, $62,188.88

13 LIQUIDATION OF LOAN FUNDS 13 Negotiated Sales to Third-Parties Individual loans and portfolios must be well-organized with all relevant documentation regarding borrower information, latest financial statements, payment history, collateral, guaranties and other security, etc. Perform an internal or obtain a third-party analysis of individual loans and overall portfolios to establish a valuation range including a floor value Purchaser will build into the offered sale price such factors as net present value, collection risk, rising interest rates, opportunity costs, transaction fees including due diligence, and servicing costs Document the process; may require OCR review

14 LIQUIDATION OF LOAN FUNDS 14 Bid Sale May yield higher third-party sale price Same loan information and documentation as negotiated third-party sales Higher administrative and transaction costs than negotiated sales Use the floor value as a bid reserve Document the process; may require OCR review

15 LIQUIDATION OF LOAN FUNDS 15 Sales to Affiliated Interests Simple, easy, and low-cost; relies more on valuation than negotiation The loan fund stays home and the repayments are not CDBG program income Purchase must be made with non-federal funds; purchased loans can be used as security for procuring capital from institutional lenders and other capital sources Purchase price must be reasonable; at least the floor valuation Document the process; may require OCR review

16 SUMMARY STRATEGIES Expend CDBG Program Income by March 31, Analyze CDBG notes receivable to determine the likelihood of producing CDBG program income ($35,000 rule) 3. Liquidate CDBG notes receivable to the extent necessary to avoid CDBG program income 4. See #1

17 Harry Sicherman, President Chuck Bell, Vice President 160 Washburn Street, Suite Washburn Street, Suite 200 Lockport, New York Lockport, New York , ext , ext. 2 hsicherman@harrisonplacestudio cbell@harrisonplacestudio