1. ICF Consulting Page 1 CDBG WEBCAST HUD, OFFICE OF BLOCK GRANT ASSISTANCE

2. ICF Consulting Page 2 MODULE 7: Section 108

3. ICF Consulting Page 3 WELCOME q 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

4. ICF Consulting Page 4 CDBG TRAINING SERIES q 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 q Training presented by OBGA staff q Available on HUD’s website at: http://www.hud.gov/offices/cpd/communitydevelopment/programs/index.cfm

5. ICF Consulting Page 5 MODULE 7 TOPICS AND TRAINERS q Topics:  Eligible activities  Transaction types  Section 108 underwriting  HUD review of applications q Trainers:  Dick Kennedy  Paul Webster  Hugh Allen

6. ICF Consulting Page 6 WHAT IS SECTION 108? q Method of expanding CDBG funds by using future CDBG grant as collateral to borrow funds q Section 108 process basics: (1) Community applies to HUD (2) Based on community’s pledge, HUD issues notes (3) $$$ from sale of notes used for Section 108 eligible project (4) Notes are repaid

7. ICF Consulting Page 7 SECTION 108 HISTORY q 1974 law provided opportunity to continue urban renewal q 1979 Demonstration Program q 1986 Consolidated Omnibus Budget Reconciliation Act q 1987 eligibility changes q 1990 National Affordable Housing Act q 1992 Credit Reform Act

8. ICF Consulting Page 8 ADVANTAGES OF SECTION 108 q Leverages grants q Not a general obligation q Receive funds now (no pay as you go) q Spread costs over multi-year period q Long-term, fixed-rate financing at favorable rates

9. ICF Consulting Page 9 PROJECT EXAMPLE: BRYAN/COLLEGE STATION COMMUNITY HEALTH CENTER

10. ICF Consulting Page 10 PROJECT EXAMPLE: FORT WORTH MINYARD FOOD STORES

11. ICF Consulting Page 11 PROJECT EXAMPLE: PHILADELPHIA HOMEOWNERSHIP ZONE

12. ICF Consulting Page 12 ELIGIBLE ACTIVITIES q Real property acquisition q Rehabilitation of publicly owned real property q Relocation q Clearance/demolition q Site preparation q Housing rehabilitation q Economic development q Public facilities/improvements q Issuance costs q Capitalized interest q Reserves

13. ICF Consulting Page 13 APPLICABLE RULES q 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

14. ICF Consulting Page 14 NATIONAL OBJECTIVES LOW/MOD BENEFIT SLUM/BLIGHT URGENT NEED u Area Benefit u Limited Clientele u Housing u Jobs u Area u Urban Renewal u Spot Any national objective is possible, depending on Section 108 project

15. ICF Consulting Page 15 SECTION 108 FINANCING HUD Guarantee Investors Interim Lender Locality Loan Proceeds [State] Loan Proceeds Pledge of CDBG Funds

16. ICF Consulting Page 16 LEVELS OF TRANSACTION q # 1 Communities borrow from investors via notes q # 2 Communities undertake activities or re-lend

17. ICF Consulting Page 17 LEVEL #1 TRANSACTION HUD INVESTORSLOCALITY $$ CDBG PLEDGE [STATE] GUARANTEE

18. ICF Consulting Page 18 LEVEL #2 TRANSACTION HUD INVESTORSLOCALITY $ CDBG PLEDGE [STATE] $ THIRD PARTY GUARANTEE

19. ICF Consulting Page 19 SECTION 108 FINANCING SPECIFICS q Amount  Up to five times annual entitlement q Term q Rates  Permanent financing  Interim financing q Fees

20. ICF Consulting Page 20 TYPES OF FINANCING q Interim – variable rate q Permanent – fixed rate

21. ICF Consulting Page 21 INTERIM LOANS q Public offering usually once a year q Interim loan available until public offering q Fiscal Agent arranges interim loan  Interest rate: 90 day LIBOR + 20 basis points  HUD guarantees obligation

22. ICF Consulting Page 22 PERMANENT LOANS q Public offering provides long-term, fixed-rate financing q “Public offering” conducted annually by Sec. 108 underwriting team q Interest rates q Fees q Loans serviced by trustee

23. ICF Consulting Page 23 SECTION 108 UNDERWRITING q Credit Reform Act q HUD estimates “subsidy rate” for Section 108 q HUD establishes loss reserve q Additional security

24. ICF Consulting Page 24 SOURCES OF REPAYMENT OF SECTION 108 LOANS q CDBG funds q Program income q “Additional security” (negotiated on a case by case basis)

25. ICF Consulting Page 25 FORMS OF ADDITIONAL SECURITY Examples include:  Assets created from use of Sec. 108 funds  Real Property  Portfolio income  Other  Parking revenue  Non tax revenue

26. ICF Consulting Page 26 PROJECT BASED SECURITY Examples include: q Mortgage on real property (in name of Secretary of HUD) q Tax increments q Assignment of third party (e.g., business) loans

27. ICF Consulting Page 27 KEY SECTION 108 STEPS Screen potential applicant or project Apply to HUD Receive approval from HUD and close loan Disburse and service the loan

28. ICF Consulting Page 28 STEP 1: SCREEN THE PROJECT q Grantees screen projects prior to HUD application q Look at:  Eligibility  How will the Section 108 loan be repaid

29. ICF Consulting Page 29 STEP 2: APPLY TO HUD q Presubmission requirements q Submission requirements q Field and HUD Headquarters office review

30. ICF Consulting Page 30 PRESUBMISSION REQUIREMENTS q Citizen participation q Conduct needs hearing q Publish proposed statement and projected uses q Amend CD plan or incorporate Section 108 in final plan q Conduct second public hearing

31. ICF Consulting Page 31 APPLICATION SUBMISSION q Application to HUD should include:  Project description  Eligibility category  National objective  Repayment schedule  Certifications

32. ICF Consulting Page 32 HUD REVIEW q Review by HUD Field Office q Review by HUD Headquarters

33. ICF Consulting Page 33 STEP 3: RECEIVE APPROVAL AND CLOSE q HUD approves & notifies q Close Section 108 loan q Procedures differ for level #1 and level #2 transactions

34. ICF Consulting Page 34 STEP 4: DISBURSE AND SERVICE THE LOAN q Trustee/Fiscal agent services level #1 q Community must establish system for level #2 q Custodial Accounts  Loan Guarantee Account  Loan Repayment Account

35. ICF Consulting Page 35 LOAN PORTFOLIO SYSTEM q Collections q Monitoring & accounting q Collateral preservation q Anticipate & deal with problems q Foreclosure