Life after Expenditure Deadlines Webinar. May 17, :00 pm ET

Transcription

1 Page 1 WARNING The material covered in this transcript is based on HUD s current assumption of what the Closeout Policy MAY BE at the time of closeout and IS SUBJECT TO CHANGE. It should also be noted that under the current published Notices all NSP Program Income will become CDBG funds after closeout. NSP grantees remain responsible for following program requirements as published. Life after Expenditure Deadlines Webinar May 17, :00 pm ET Operator: Good day, ladies and gentlemen, and welcome to today's Life after Expenditure Deadlines conference call. Please note today's conference is being recorded. I will now turn the conference over to Ms. Marsha Tonkovich. Please go ahead, ma'am. Marsha Tonkovich: Good afternoon everybody and sorry for the short delay in getting started. This just turned out to be a very popular Webinar and we have a lot of folks who were trying to dial in all at the same time, so we wanted to give everybody a chance to join us before we got started. So thanks for being with us and we will go through, you know, about 4:00 today. So with that, I'm going to go ahead and introduce my speakers, my colleagues, who are here with me. We will be putting the PowerPoint s back up in just a moment. We just had a couple of minor inclusions that we needed to add in so you'll get to go back up in just a second, so if you can't see any video or any PowerPoint s you will be shortly. But while we're doing that we're going to go ahead and introduce our speakers today. So Jessie, if you want to say a word about yourself and our reason for talking today? Male: Yes, you're up.

2 Page 2 Jessie Handforth Kome: Oh, I m up. Marsha Tonkovich: So just -- we're just doing introductions, so just introduce yourself. Jessie Handforth Kome: I'm Jessie Handforth Kome, sorry for goofing around but we got a little silly on the wait. Marsha Tonkovich: All right, great, and John? John Laswick: I'm John Laswick here with the NSP program. Marsha Tonkovich: And Hunter? Hunter Kurtz: Hi, I'm Hunter Kurtz. Jessie Handforth Kome: The Hunter Kurtz. Marsha Tonkovich: The Hunter Kurtz, yes. Is there anybody else from HUD who's on with us that we need to introduce? John Laswick: No, I think that everybody else is listening in and waiting for us to... Jessie Handforth Kome: Screw up. John Laswick: Screw up, yes.

3 Page 3 Marsha Tonkovich: And we'll talk about it when we talk about the agenda here, guys, but we are making new policy and talking about new things here, so this will be an innovative Webinar. But before we get there, I just want to remind you -- I'm sure many of you have been on these Webinars before, but in case you haven't -- how to ask questions. So you'll see in the top right-hand corner of your screen that there is a button and that button right now says feedback and it should be green. If you'd like to ask a question, we'd like to ask that you change your button to purple so we can keep track of how many questions are in the queue and make sure that we actually answer them. And then if you would like to audio ask your question, press star 1 on your phone and that will put you into the queue and we'll take the order -- the questions in the order they are received. When you ask your question you can just provide your name, your first name. You don't have to provide your organization or your last name, although you're welcome to if you like to. If someone else has already asked your question while you're waiting to ask it, press star 2 and that will take you out of the queue. Go ahead and make sure you turn your button back to green so we know your question has already been answered. If you want to ask a question by writing in, you don't feel like asking it or the audio was an issue for you, you can also do it by way of Q&A which is at the top middle of your screen. You'll see the type in a question and we'll keep a track of those and periodically answer those as well. So please feel free to ask questions throughout and we will certainly try to get through all of them today. So with that, we're on to our agenda.

4 Page 4 And what we're going to cover today is a little bit of discussion of the difference between the expenditure deadlines that are coming up in the next year and then the year after that and then how that differs from what you have to do at close out and when you have to close out. We're going to try to give you a sense of what HUD is going to expect at close out and the triggers and the timing of close out and then what happens after close out, so your program income, how you continue to manage program, if you want to have a revolving fund, what does that mean and your ongoing responsibilities related to monitoring resell, recapture, rental projects as well as demolished and ((inaudible)) properties. We do want to give you a heads up, as I mentioned when we first started, that the information we'll providing you is literally cutting edge policy. It is being developed as we put these together, so there is a final notice that will be coming out from HUD or a series of notices which will clarify what we're saying. We're doing this to give folks a heads up on generally what to expect because there's been a lot of questions about this. But please watch for these notices that are coming out and those notices will offer the final policy, so you should be following whatever that final policy that comes out of that notice. So I think just to sort of recap that and to reiterate that and also move us into the PowerPoint, I m going to turn it over to Jessie, I believe, who will take the next few slides. John Laswick: I m just going to get a word in here because this first slide, the difference between expenditure deadline at closeout is 50% of the reason we have this Webinar today and so I want everybody listening to understand -- and we're going to keep telling you this -- that the deadline for expenditures is not the same as the closeout date and the fact that we fully expect them to be one or two or maybe even more years between those two dates.

5 Page 5 So you do not have to have every unit occupied expenditure deadline, so that's why we call it life after deadline. We hope there's life after closeout too but we think, we're pretty sure there's going to be life after deadline. So I don't want to make you all repeat it, but repeat it to yourself in your head. There is a difference between deadlines for expenditure and the closeout date. All right, now Jessie may proceed. Jessie Handforth Kome: Yes, and John is absolutely right about that one. Let's go ahead and jump to the first slide just to go through the timing. This is the NSP1 and NSP2 lifecycle, obviously the NSP3 grants are a year behind. We are on a period now where we're heading for -- lining up for another expenditure deadline in February and March of NSP2 grantees, it s all going to be on February 11th. NSP1 grantees are spread a little bit and so are NSP3 grantees but there are expenditure deadlines for all three programs sitting in February, March of next year. There's only a couple grantees outside that window ((inaudible)) either way. And you need to recount toward the expenditure deadline. Just repeat again we count for the expenditure deadline, the expenditure of NSP funds. The definition of NSP funds is that it can be funds that you drop from your line of credit or it can be program income. The term NSP funds mean either one of those sources. You're going to meet the expenditure deadlines. We all are going to meet the expenditure deadlines, right. And at that time period and then you will continue to expend your remaining funds in your line of credit and program income and work toward meeting national objectives until you achieve the criteria for grant close out.

6 Page 6 If you want to know where we're going on the criteria for grant closeout -- we haven't published them yet for NSP -- but there is a CPD notice for the CDBG program that walks through it and there's a CDBG entitlement program reg at let's say 509. So it's just technical stuff you've got to meet for grant closeout. You have to and we'll walk through a little more of that but just it's technical things that you have to meet and you have to sign a closeout agreement. We all have to agree who's going to control the program income and assets and, you know, all that technical stuff. But one of the criteria for getting through, hey Hunter just showed me I got the right citation. It is , 24 CFR. To get to grant closeout you're going to have to show that you met the national objective for at least the activities that add up to the funding amount that you met the expenditure deadline for, your original grant amount in other words for activities adding up to that much money. Then we'll do closeout. Closeout is sort of a process because we're going to be signing an agreement and we're going to have to go back and forth a little to -- unless you have an unbelievably simple program it's going to take a little while to get all the information we need to make sure your last report in DRGR is perfect. Remember I have been on before telling you that all your quarterly reports don't have to be perfect. They just have to be as good as you can get them. That last report, that final report for the grant is going to have to be perfect. You're going to be standing on that for all time and it's the basis for your closeout agreement. You're going to be expending program income. If you are CDBG entitlement grantee or a state that gets reg, you know, CDBG, insular areas and Puerto Rico, so all of the various regular

7 Page 7 CDBG grantees, if you keep getting program income, it is going to be in perpetuity, you know, the CDBG program is very sticky and the NSP program rides on it. So that program income will come in and you will be -- it will continue to be governed by program rules. There's a different treatment if you are a non-profit lead grantee, and we'll get to that but there's not very many of you and there's a whole lot of people on the other boat, in the entitlement boat. You will be also monitoring during the affordability period. Whatever the affordability period is, either for the ones that you did before the end of the program or after and you'll be reusing land bank or required and demolished properties and we'll be looking for -- it says at the time of ((inaudible)), but I think we mean at the time of closeout you're going to commit to land banks, reuse of the properties held in your land bank within 10 years. The one thing that is not going to come forward, we have agreed, is that land banks, acquiring new properties to put in a land bank is not going to be eligible with this program income. Operation and disposition will be but acquisition will be taken off the table as you pass back closer to the CDBG world post closeout. Okay, again, we're going to come back to the difference between an expenditure deadline and closeout. It's an apples and oranges thing. They really -- expenditure deadline -- meeting the expenditure deadline or failing to meet it and, you know, taking whatever corrective action HUD specifies, which could be recapture -- it could be other things -- it's very likely to be recapture -- is just a precondition. It's one of many preconditions for grant closeout. We have to get through this expenditure deadline and check and make sure you made it. And then that's one of the preconditions for grant closeout. Some grantees, this is going to be the last

8 Page 8 precondition. We'll pass this deadline and they'll be ready for closeout. I don't know if we'll be ready to close you out but you'll be ready for closeout. So the expenditure deadline is when you have expended an amount that is equal to 100% of the grant that you got. The grant itself as a line of credit is going to remain open and accessible in DRGR. After that point, if you fail to meet the deadline we may limit it until we work out the reconciliation. If you meet the deadline, we're not going to move on your grant until you are ready for closeout, which can happen later. John Laswick: See why we call it life after deadline? You keep living. Jessie Handforth Kome: Yes, you keep moving. Closeout is when you have your original activities. That's the term we're using to describe the activities that are covered by the grants -- the funds covered by the expenditure deadline, the amount of funds. And the funds are also either fully drawn for DRGR, which is what we expect you guys to mostly want to do or you relinquish the remainder of your grants. I'm pretty sure that we don't have too many people who will want to relinquish the remainder of their grants. But it is open if you want to, you know, bring on closeout. And it's very likely for after the expenditure deadline. John Laswick: Or if it's $2.49 that's left ((inaudible)). Jessie Handforth Kome: Yes, yes, it's not uncommon for a grantee to leave, you know, $10 or less in relinquish at a closeout but we don't usually see large amounts left. And some of you have doubled your grant.

9 Page 9 Marsha Tonkovich: Jessie, some people are having a hard time hearing you. They're ing in. So if you could just get a little closer to the phone that would be great. Jessie Handforth Kome: That'll be kind of hard but I'll lean over. Hunter's doing something. Here we go. I hope this is better because I'm projecting. Marsha Tonkovich: Yes, that's much better. Thank you. Jessie Handforth Kome: Okay, so just, you know, be really, really clear that expenditure deadlines, meeting the expenditure deadline is a precondition for grant closeout. It's not the only precondition and they're not necessarily related otherwise. It's certainly not automatic and you don't have to get to meeting a national objective at the expenditure deadline. The expenditure deadline is an expenditure deadline. Meeting a national objective is another precondition for grant closeout and you may -- for many of you on rental programs will meet it after the deadline, okay. So let's go ahead to the next slide. The NSP expenditure deadline, just a word on this, the clock's starting with HUD signing your agreement. NSP1 has to expend 100% within four years and the notice, the October 19, 2010 notice says that if you get to the four-year deadline and you have not met the expenditure requirements, HUD will recapture funds and reallocate them. NSP2 and NSP3, NSP2, you must expend 100% within three years, which means February 11, 2013 is your three-year deadline. NSP3 is 50% in two years, which is March and April of 2013, 100% in three years, March and April on In both those cases HUD, the notice of the HUD will recapture or impose other corrective actions or sanctions. Some of you who have read the notice and are aware of that, I would not think that

10 Page 10 it would be a prudent way to run your program and betting that we ll go with other corrective actions or sanctions because I would bet on recapture. We do not know who is going to be sitting in the assistant secretary or the secretary chair making that decision in 2013 and Run your program and hit those expenditure deadlines because if there's going to be any sanction other than a corrective action other than a recapture, somebody is going to have to make a judgment call and you don't know who that person is right now and we don't know who that person is. It's just really unclear. If you want to be prudent and conservative, manage the meet the requirement. John Laswick: In fact, there is a going away party for Mercedes Marquez that's happening right at this moment. Jessie Handforth Kome: Yes, and it involves desserts and we're not there. John Laswick: So she is going back to California and we will have an active assistant secretary for the next few months at least. Jessie Handforth Kome: Yes. John Laswick: This is Mark Johnston from special needs programs. Jessie Handforth Kome: Yes, so on the NSP expenditure deadlines, the total value of the grant award has to be funded. It can come from grant or program income and we're going to double back and remind you that expenditure is not the same as turn down in DRGR.

11 Page 11 If you are using the accrual method of accounting rather than cash accounting, encumbered costs also count. My understanding from our financial management division is that most governments in the United States, local governments, do use accrual accounting. So if a contractor completes a task, invoices a grantee and you have not yet paid the bill, the funds are encumbered and encumbered costs may be considered expended. To be considered encumbered, you have to have an invoice and not just a contract or a completed work. You report your expenditures in your quarterly performance report every quarter. That's how we reconcile them to draw downs to see what's different. But we do use drawn as a proxy in our weekly reports that we post because we only get expenditures quarterly. John Laswick: Those of you who are on NSP 1 and 3, didn't go through the exercise two months ago, three months ago that we went through with NSP2 to make this distinction. So we track the weekly expenditures that we can see through your draws. We track your draws but you will have to, at the end of the time period, show in your QPR the accurate number of actual expenditures, so just get ready for that one. Jessie Handforth Kome: Right, and we do a random sample verification for if there is a finding on your expenditures for some reason we check them all. So what is going to happen to the expenditure deadline? Yes, that would be the next slide. Yes, put your feet down, Hunter, and actually like click a button or something, man. We're just, like I said, being a little bit silly here.

12 Page 12 If you've met the threshold -- and we will, at the deadline, we will give you 30 days to get all of your, you know, reporting in order for where you were as of the deadline, so you can do expenditures right to the last minute and then clean up if you're really going to do the brinkmanship, you know, cut it that close. So the expenditure deadline, if you have been -- if we find that you have met the threshold, you can continue to use your remaining money in DRGR for eligible activities. If you did not meet the threshold, and we verify that, we're going to recapture the unspent funds. For NSP2, we cannot reallocate those funds. They will go back to the U.S. Treasury. Recovery Act has to pay it back attached to it and those are Recovery Act funds. NSP1 funds and NSP3 funds can be reallocated. As I pointed out, it's really unclear if we're going to be able to do any work out plans at the 100% expenditure deadline. I would be on recapture. If we do recapture we're going to have to make a finding of noncompliance and recommend, you know, advise you to repay us the amount that's in noncompliance. We are not going to go for the whole grant amount. We will go for the amount that was unexpended. That's to answer a question I got a lot this week at the Atlanta-Tennessee clinic. Go ahead and do the next slide, cool. We're working on a closeout notice. That's why this is advisory guidance that we're giving you. We're telling you where we intend on going but until we clear it through the department I can't promise you that every single detail is going to be this way but we want to give you as much as we could for your planning purposes. You will not be able to close out until all funds are drawn from DRGR or you relinquish any unexpended balance. This will correct an expenditure deadline. We're being broken records on

13 Page 13 this but there is a reason because we get asked these questions literally multiple times a day right now. The national objective for each of your activities has to be met and documented and we're going to require you to meet your reporting in DRGR. And after closeout, if you're an entitlement or a state CDBG grantee, your continued reporting will stop being quarterly. It'll be annual and it's going to move to IDIS. We're going to transfer some of the information from DRGR to IDIS to join the CDBG reporting and the CDBG action plans and the CDBG everything. It'll be essentially, as I understand it from talking to the IDIS people, a new fund type in IDIS that will mostly be like the CDBG type and only have a few variations to account for the differences in NSP eligibility and particularly land banking and to wall off the NSP program income. The main reason for walling off the NSP program income is so that you can get the 10% admin dedicated to helping you monitor the continuing affordability. But it will also help you in that it can retain some additional NSP eligibility beyond that. So you have witnessed the opportunities and responsibilities. Wait, did I jump a slide? Just a sec, guys, like I said, we were editing this up to the last minute. I did. I turned it the wrong way. Okay, NSP program closeout. Again, you don't have to meet the national objective by the expenditure deadline, although, I'm not going to argue against getting, you know, people into houses sooner. You'll have a reasonable timeframe after expenditure deadline but you're going to need to meet the national objective and document that you met the national objective before we can close out

14 Page 14 the NSP grant. In most cases, of course, you're going to meet the national objective by LMMI occupancy of an NSP assisted unit LMMH low, moderate, middle income housing. Some activities that use area benefit meets the national objective immediately if some are based on and use of property. John Laswick: We'll talk more about this later on. Jessie Handforth Kome: Plus this is whole -- I mean, this is basic NSP stuff that, you know, if you have run the program for a while you probably know a chunk of this, at least about the basics of meeting a national objective. You'll have opportunities and responsibilities after close out. Your opportunity is that if you're receiving program income, you will get to keep using it to operate existing or develop new NSP program, align to business, whatever it is you call it, carry out new NSP activities. The NSP activity we are taking off the table is acquisition for land banks but we're leaving every other activity and will be in the new IDIS fund type to be available. As you know, most of them are available for CDBG anyway, so that will work. Responsibilities, several tasks are going to be required after closeout. You are going to have to track and reuse your program income. You're going to need to monitor the affordability period for your NSP properties in which you have NSP investments and you'll have to track the use or reuse or disposition of grantee or sub-recipient owned property, including land bank property. John Laswick: Let me just say that there's an opportunity here that we didn't really point out. Maybe we'll get to it later. But this money will continue to look and act very much like NSP funds in terms of

15 Page 15 eligible uses except for acquiring property for land banks plus 120% income level will be something that you can go to with this money. You will be able to continue to do new construction with this money. So it really will seem like -- very much like your current NSP program. So and we think that's an opportunity. I mean, there were arguments, good arguments both ways and some people thought it should be CDBG and the secretary and the assistant secretary decided that keep it more like NSP. It does give you sort of a complementary -- some complementary activities and a little bit different target clientele. So that -- none of that will change. Jessie Handforth Kome: Okay, but exactly -- finding the exact balance point is actually probably the trickiest part of operating the closeout guidance and we're definitely still working on getting the details really nailed down. If you're operating NSP programs after closeout, then if you receive and NSP program income after closeout, you can continue to operate almost the same eligible program and eligible activities and we will also have a capped amount for the NSP program administration. It will not be the CDBG 20%. Okay, it will be an up to 10% and it is going to be calculated the same way as a CDBG because we're converting from a rifle shot program to dropping into the CDBG world so it would be up to 10% of program income received annually, same as CDBG, calculated the same way because calculating these differently would just be an unbelievable headache. It does provide a significant opportunity to continue address affordable housing needs in your community: home buyer programs, rental programs, including special needs, related public facilities with the NSP1 program income and demolition.

16 Page 16 NSP1 program income is in perpetuity by grantees and sub-recipients -- NSP grantees and subrecipients who are also CDBG grantees in those areas. The number of revolutions does not matter. The CDBG program, the underlying program is very sticky for program income. It likes to keep it and NSP shares that because it rides on that chassis. The date of receipt doesn't matter. The program income received after expenditure deadlines or closeout is still program income. The pending closeout notes that we're writing that will be showing up without a register is going to contain more information on use and tracking of program income after closeout and there'll be even more like detailed technical information when the bridge between DRGR and IDIS is created and we can really show you how to do it. Another advantage of shifting over to IDIS is, of course, you get the linkage to the new econ planning software, which is going to really, really help and your target areas will be shown there and you'll be able to amend them and we'll talk about that a little bit more later. It's going to be different for non-profit grantees under NSP2 after closeout. So how many of those did you say we had John? We have 14 of those. The income coming back from a non-profit NSP2 grantee after closeout is program income for the first revolution and its miscellaneous revenue after. Now, it's also not completely program income. It must be ((inaudible)) for an eligible activity in an eligible target area, eligible use and meet a national objective. But if it's received after closeout, the cross cutting requirements are gone for a non-profit.

17 Page 17 So that means environmental, Davis-Bacon, labor. That's what the OMB circulars say and that is actually -- we never close out anything on the NSP -- on the CDBG chassis that was like this but it looks like that's where we're going to come out. This is one of the points that we don't have fully cleared yet. We're just reading -- telling you this based on our reading of the existing rule and the decisions made by the secretary and assistant secretary. So for those 14, this is where we're trying to go, don't bank on it yet. You can read the regs yourself and check on it. We think this is where we're going. John Laswick: The worst case, it wouldn t be any more complicated than the current program that you're running. Jessie Handforth Kome: The guidance is forthcoming for how this is going to relate to PHA s and redevelopment authorities. The difference with these public or quasi-public non-profits is that some of them are actually the grantee doing business as another organization and these may end up being boutique closeouts where we have to pick through everybody's charters and agreements to figure out which requirements actually apply. We're hoping now. We're hoping we can get a single answer but we have to work with our friends in PIH on the PHA one. And there are five PHA direct grantees, I think, something like that. So -- yes, and a couple of redevelopments ((inaudible)). Program income after closeout -- oh this is the same header as the previous one but we have new words. The use of program income after closeout and you want to use it for NSP eligible uses, meeting a national objective, comply with cross cutting other federal requirements.

18 Page 18 This is for obviously for the grantees that are also CDBG grantees or state CDBG grantees. Target areas can change over time. You can amend them. You will be in the con plan, action plan, caper world. You will be accounting for your program income the same way you account for your CDBG program income if you have any. John Laswick: So what we're saying there is that you will still have to have a target are but you can, A, amend it in the same way you can amend it now and, B, HUD will no longer be involved in that amendment process. So we want you to continue to focus and you'll have a lot more flexibility in how you make those changes. Jessie Handforth Kome: And I think this is probably a good place to say the NSP2 grantees, this means you too. You are -- we're going to unify as much as we possibly can to post closeout for NSP 1, 2 and 3. It should be virtually identical. It's going to be very, very close to the same. That's one of our goals is, you know, creating something that we can all manage over time when there's a lot less money involved and we're in the long, long term with, in our case, all of our term employees having moved on to other adventures. You must track and document your NSP program income receipt and use and it's going to look a lot like CDBG program income receipt and use, except for the eligible and international objectives. We will -- we plan to allow up to 10% for administration, including monitoring during the affordability period. So laws that makes the secretary responsible for maintaining affordability as long as feasible and this is one of the ways that we are addressing that statutory direction. However, we decided that the 25% low-income set aside will apply up to closeout to expenditures up to closeout but it's not going to apply to program income received and expended after closeout

19 Page 19 because we expect that program income to be very lump and it's very, very difficult to do housing development with unpredictable amounts of money that may be too small one year, too big the next year and just very confusing. So that is going to drop away after closeout. We are also urging you to consider depositing your program income into one or more single use revolving funds, revolving loan funds so that it's going to make it simpler to deal with in the long haul to keep track of. It will be a separate set of accounts and easier to trace in the context of being managed alongside your CDBG program. And we're also urging it for non-profits because, well, we'd really like to see this money continue to get used for NSP type purposes. We have a bigger crisis than we have money to deal with, as I'm sure you're all aware. Revolving funds, just a little, quick premiere on revolving funds, it's a separate fund or account that generates repayments for reuse for a singular activity. That's why they call it revolving. You can't capitalize it with a draw. You can't dump money into an account and then wait to use it but you can use -- make loans for single family housing and have in your program design your action plan that you will deposit the program income into your revolving fund and continue it revolving. It is sheltered from the rule that you have to draw your grant funds before you have to draw program income but you do have to keep a -- revolving fund has to be in an interest bearing account. And interest on funds just sitting there has to go back to HUD, we actually give it to treasury. And interest paid by borrowers are loan repayments, so that's program income.

20 Page 20 Marsha Tonkovich: Jessie, we actually have a number of questions backed up in the queue about program income. Would you like to take a few questions or do you want to get through the slides? Jessie Handforth Kome: Okay, John says we're at a break point, so let's go ahead and take a few questions and then we'll keep overwhelming people. Marsha Tonkovich: Okay, so let me give you -- there were a bunch of written in ones and then, Holly, I'm going to ask you for questions that are on the phone as well. So let's start with the first question which is Steve. His question's easy. He asks whether or not the PowerPoint presentation will be available. Yes, they'll be posted afterwards, so remember they're posted in draft because we are giving you advance guidance on this stuff. So do take that with a grain of salt and make sure you watch for the notices. The next question from Loretta is, are the post NSP like activities limited to the original census track? John Laswick: You would have to amend you program after closeout or, you know, it depends on what period you're in. If we haven't closed out yet then you can amend as you would now. If you're NSP2 that would require you to bring it back to headquarters for re-rating. If you're NSP 1 and 3 it requires you to talk to your field office. Post closeout you will amend through the consolidated, inform your citizens of what you're doing but it won't require a HUD preapproval. Jessie Handforth Kome: Yes. You'll be doing it just like the CDBG. So this participation will snap back to regular CDBG citizen participation. Okay?

21 Page 21 Marsha Tonkovich: Okay. So that means you can change the location but you would do it through your con plan post closeout? Jessie Handforth Kome: Your citizens need to be notified. Marsha Tonkovich: Okay. The next one is from Mindy. She asks will program income earned after closeout still be subject to the 25% set aside? John Laswick: No. Jessie Handforth Kome: No. Marsha Tonkovich: Okay. The next one comes from Mark. Will NSP property types remain in effect i.e. does the property have to be foreclosed? John Laswick: Could you repeat that? Marsha Tonkovich: I think what Mark is asking John is NSP now requires you to work on vacant, abandoned or foreclosed properties. And he s asking whether those limitations on the types of properties you can address will remain? John Laswick: I mean I guess I've been assuming that but I don't know that we've... Jessie Handforth Kome: We haven't formally addressed that. We - I just started getting asked that question a lot recently and...

22 Page 22 John Laswick: I mean if we re going - if we re saying that this is in effect NSP light and not that weight, yes, there's a few things that have changed but for the most part it's - it operates like NSP then I don't know, I think that it would make sense to continue to work on these three property types. But we have to make that decision. Jessie Handforth Kome: We don't know if - how far the lawyers would let us move also. So, you know, we need to look at that. I mean the law still says that the funds are for these things and it says it's CDBG. And, you know, CDBG just doesn't really have a concept of ending really. So we re picking our way through what goes away and what lasts of - from HERA, from the NSP statutes. I think personally that the property types because those are the property types that are causing the crisis in most of the areas that have received NSP funds we should stick with the property types. But whether those property types need to be welded to the eligible uses in the same way I don't know. And that's one of the questions we have to ask our lawyers that we can't answer yet today. John Laswick: Keep in mind the property types are described in the legislation so... Jessie Handforth Kome: Right. It's a - there s a statutory thing going on here. Marsha Tonkovich: Okay. The next question comes from Cara. We will meet the expenditure deadline for NSP 1... Jessie Handforth Kome: Yeah.

23 Page 23 Marsha Tonkovich:...but have not drawn all the original grant before February How much time do we have to draw from the original grant allocation? John Laswick: We don't have a set time period but you will have time to take down - you know, continue to spend out your line of credit. Now if you have multiple activities and a lot of program income that could be kind of confusing. So this is where the revolving funds come in because that allows you to kind of, you know, instead of having one set of program income that you have to spend before you could do any next activity if you have a revolving fund you could stick a program income from that activity into that fund. And then if you need funds for a different activity you can draw down from your line of credit for that different activity. So, you know, I don't, you know, hopefully we don't have to get too complicated about this. But it'll sort of depend on whether there s any real time limit on the funds after the deadline date in terms of being out of the line of credit. But we'll work with you to make sure that you don't lose any of that money. Jessie Handforth Kome: Yes and NSP 1 and 3 don't have a statutory deadline date provided you meet the expenditure deadline. Inactivity in the funds can cause Treasury to close it. So we definitely need to work on making sure that you are drawing regularly from the line of credit.

24 Page 24 NSP 2 because it's in the Recovery Act as stimulus money there is an extreme sense of urgency in - among the people who - in Washington are watching over the Recovery Act as a whole which includes the RAT Board which is the assembled offices of Inspector General, so I would say... John Laswick: That's an acronym actually but... Jessie Handforth Kome: Yes it is an acronym but it's called the RAT Board, I can t help it, Recovery Act something board, anyway - Transparency Board, yes that's what it is Recovery Act Transparency Board. And so I would say that we should all be feeling urgency. We got this money because there's a crisis and we need to try to get it extended and demonstrate that it was needed because we have the data that shows that it is needed and get it out there for the people who need it. And if that means accelerating your expenditures to the point that you can expand your program income and your grant funds that you're moving fast enough then we will help you move faster. We ll get the TA there. If it means segregation of funds, you re using revolving funds and allowing sub recipients to keep program income and reuse it while you draw new activities with grant funds we will help you do that. We modified DRGR to help with that accounting mechanism which is allowed by the regulation. Marsha Tonkovich: Great. Okay the next question comes from Lisa. Her question is if you are a nonprofit grantee with local government consortium members or sub recipients -- obviously this is NSP2 -- how is the revolution of program income treated for the governmental consortium member?

25 Page 25 Jessie Handforth Kome: There s going to be - the answer is it's not too complicated. It s a little more complicated. It's one of the variations we've been looking at. It s also going to - there's another complication when state governments have given money to entitlement. In the case of a nonprofit consortium the nonprofit lead that member is going to be covered by the nonprofit requirement. But if their grant agreement, their sub recipient agreement with the consortium member allows the entitlement consortium member to retain program income then that program income -- I told you CDBG was sticky -- is going to go work out a closeout agreement. That entitlement will be keeping track of that program income and recording just its piece in IDIS. For a state that gave funds to an entitlement and the state allowed the entitlement to retain the NSP program income the same thing is going to happen. If the state requires that the funds come back to the state the state will be the one keeping track of it. We can work out an alternative arrangement on that particular thing between states and entitlements at closeout if we need to because either way it gets reported to us. So in some ways we re indifferent. If state gave funds to a non-entitlement and they re going to close their NSP 1 out and they allowed the non-entitlement keep NSP 1 and the non-entitlement has NSP 3 that s a variation we haven't figured out yet. It just makes my head hurt.

26 Page 26 Marsha Tonkovich: Okay great. All right we... John Laswick: The whole thing makes my head hurt. I don't know. Marsha Tonkovich: Well at least we re getting through it, right? Jessie Handforth Kome: Yes. Marsha Tonkovich: And so Holly why don't we take some questions from the phone and then we'll go back to the rest of the slides? We have about 12 slides left to go and then we'll come back and take more of the written in questions. So Holly do we have folks on the phone? Operator: Ladies and gentlemen at this time it is star 1 to ask a question. Marsha Tonkovich: And Holly, do we have folks on the phone? Operator: At this time we have no questions over the phone lines. Marsha Tonkovich: Okay. So Jessie, why don't we go ahead and complete the slides and then we can come back to the rest of the written in questions? Jessie Handforth Kome: Okay just - okay we were just doing some moving around. We move furniture, you know, during these to keep, you know, our energy up. So what slide are we on?

27 Page 27 John Laswick: Monitoring during the affordability period. Jessie Handforth Kome: Monitoring during the affordability period. We are going to require limited monitoring of projects during the affordability period. There is going to be some monitoring for both home buyer and rental units. We re also going to be tracking disposition of NSP assisted properties owned by the grantee and sub recipients. We keep promising more later on that. It's coming. If you have NSP program income we re going to allow the use of 10%, up to 10% for administration including monitoring. And if there's no NSP program income or remaining NSP admin money it is going to be okay to use CDBG add money - admin money to monitor NSP units. That's another one where we intend to go there and we think we re going to be okay doing that but we have to get that cleared. Monitoring during the affordability period for specifics and home buyer program. You re not required to track ongoing unit quality in CDBG, not required to keep track of homeowner income. CDBG roots for homeowners to make more money or residencies. But you are required to track the sales during the affordability period and follow your resale or recapture policy.

28 Page 28 For recapture at the time of sale during the affordability period the grantee is going to need to determine and collect the net proceeds based on the grantee s chosen method, remove any lien or deed restriction that's placed on the unit when the recapture period in - or at the time of sale for recapture. And if the funds were originally provided as a loan the funds rate captured are program income in the CDBG world which is different from HOME. John Laswick: Which means that you can put - you can charge or take 10% of that amount for administrative costs as well which is a different - I think is different from the HOME program so... Jessie Handforth Kome: Right. If the funds were granted to the homeowner if you granted them a recapture is literally a recapture of grant funds. It is not program income. If the funds were loaned to the homeowner then even if they were a zero interest loan... John Laswick: Forgivable. Jessie Handforth Kome:...forgivable and all that, if it was a loan then the recapture will count as program income for CDBG. Marsha Tonkovich: Those of you who are HOME PJs out there John Laswick: Yes. Marsha Tonkovich:...is the point that John Laswick made which is all this money has to be used for the eligible uses. But under NSP you do get to take the 10% per admin out of the recaptured funds that you get back. So that s a helpful flexibility.

29 Page 29 Jessie Handforth Kome: Right. Okay the next slide this is for resale - that's okay there's - a ghost in the machine that s doing it now. John Laswick: Yes. Jessie Handforth Kome: For resale at the time of sale during the affordability period the grantee has to document that the new buyer is income eligible. If the property was originally one of your set aside units and the household is going to have to be at or equal to 50% of AMI, Area Median income. Otherwise they have to be, the household income has to be at or equal to 120% of AMI if it's not a set aside unit. If the home has to be affordable to the new buyer the new buyer must occupy the house as a principle residence. The original buyer will get their fair return and the remaining reseller restrictions are imposed if there are any are imposed on the new buyer. John Laswick: That's pretty much the way that HOME operates it. So we re not really changing anything there. It's just that, you know, if you're ten years through a 15 year affordability period then this new buyer is going to have to carry those affordability provisions for those next five years before they are finished. Jessie Handforth Kome: I turned the page the wrong way again, sorry.

30 Page 30 John Laswick: All right so we re looking at rentals too and there s a little bit - there's a few differences between NSP and HOME because we didn't adopt 100% of the sections in 92, 252. So you have to, you know, most places, most communities use the HOME as a safe harbor. You have to keep the rents affordable which means you're going to have to review the rents on an annual basis. And you'll have to - you do not have to review the incomes on an annual basis. You are - you're required to share the new rent limits with the owners if they re published. And you have to document the rents charged to NSP assisted units. So you re going to have to be getting those from your property owners or your nonprofits or your for profit property owners during that time. Let's see but you don't - you're not required to do annual inspections either. So I mean it's a good thing to do that but you're not required to. And you have to ensure that you've got basically the same tenant income eligibility. So if you had as in a owner program if somebody's in a 50% of median income then the new tenant is supposed to be 50% of median income as well. Again now if you're not monitoring the incomes annually that particular individual may have gone over 50% during that time and you won't even know that. But the new person coming in has to meet the income requirement. There is no - we don't have fixed and floating units as the HOME program does.

31 Page 31 So if you have 20 units and five of them are supposed to be for very low income people it doesn't matter which five as long as there's at least five that are comparable. And then when you sell a project if a project is sold they have to continue the quality and income and rent restrictions for the balance of the affordability period. And that'll happen. Somebody will sell after five years or whatever so that just has to transfer with the title. Jessie Handforth Kome: Okay for the slides from here to the end this is where we re really getting into draft territory. We re talking to you about the stuff that we re still talking about internally. And in fact John Laswick and I were arguing about pretty loudly in the hallway most recently as of an hour ago. So we are still hacking through the details on this. But we wanted to let you know where the big shape of sort of the 5000 foot level stuff of where we re going on some of these issues so that you can wind up and be ready for post closeout. And I don't think it's going to be a surprise to everybody that a lot of these issues are hanging around the use of the property because the real estate nature of NSP is really the big thing that, you know, harks back to maybe urban renewal even but it hasn't been done on a scale of CDBG in a very long time. And we are having to build new policy particularly as we move it back into CDBG program.

32 Page 32 John Laswick: Yes. I think along with, you know, some of this tracks along with land banks as, you know, kind of new territory literally for us because these are essentially purchases with somewhat unknown futures at least for a certain period of time. And historically we haven't had to deal with that and in the block grant program. So but we have a different program now and we re trying to work it out. Let me say before, you know, I think Jessie s right. I mean these are I think still evolving although I think we re not, you know, I think the general shape of things is pretty close to where we'll end up. But I think up till this point we re pretty - I don't see it whole lot of changes. I mean the Assistant Secretary Mercedes Marquez and the Secretary did talk about this - these big questions, you know, that it will continue to be NSP money for example. That s really not an issue. I mean there's some little fine points about, you know, small aspects of that. But big picture stuff is of everything that we've told you so far I think it's pretty clear. Jessie Handforth Kome: Well CDBG operations NSP eligibility I mean that's, you know, I mean grant operations like the con plan in the annual nature coming back. John Laswick: Right. Jessie Handforth Kome: The NSP eligibility grantees were very clear, those of you who gave us feedback. So what's... John Laswick: So the - yes the question they we've been getting a lot of inquiries about lately have to do with property that doesn't have an immediate future.

33 Page 33 And so, you know, or its - or the planned future for that has not materialized. And so, you know, there s kind of three main categories that properties that are being changed, changing the use of after you've acquired them, properties that are in land banks and that need to come out of land banks at some point and then properties that were acquired and requires some redevelopment but that the plan for redevelopment either has changed or has proven infeasible or any number of things. Jessie Handforth Kome: So you haven't met a national objective. So one of the things that we re going to be talking about here when we talk about closeouts because national - meeting a national objective is one of their criteria for a closeout is in some cases we may actually have to be making findings and working out corrective actions through the period of a closeout agreement. And some of those are going to have to be, you know, almost boutique designed to that particular case. We re going to try to get some - the best general rules we can so we know you guys are operating in the real world. So after closeout in general you're going to have to track and document the end user reuse of your NSP assisted real property owned by the grantee or sub recipient. You could be dealing with are property holding that you had an existing NSP activity and you're doing your change of use. I got asked two times in the clinic in Atlanta this week about properties were a grantee had acquired several single family properties, taking them down, put a multi-family, a multi-unit structure on one and they wanted to change the use of the other end of the property and sell it.