U.S. Department of Housing and Urban Development Effective Use of NSP2 Program Income September 18, 2012 HUD Community Planning and Development
U.S. Department of Housing and Urban Development
Effective Use of NSP2 Program Income
September 18, 2012
HUD Community Planning and Development
Speakers • Speakers
– John Laswick, HUD – David Noguera, HUD – Hunter Kurtz, HUD – Les Warner, ICF
• Panelists – Phil Jones, ICF – Jeremey Newberg, Capital Access – Bill Perkins, Wisconsin Housing Partnership – Germán Reyes, Chicanos Por La Causa
2 U.S. Department of Housing and Urban Development • Community Planning and Development
Q and A Format • How to ask questions
– Change status in Live Meeting from green to purple – Press *1 to ask a question through Premiere Conference Provide Name and Organization If question already answered, press *2 to remove from
queue – Change status back to green after question answered – Can also ask question via Live Meeting
3 U.S. Department of Housing and Urban Development • Community Planning and Development
Agenda
• Presentation on key topics: – Brief recap: what is program income (PI)? – What happens to PI after close-out? – Using PI strategically
• Open session to take your questions!
• Per past attendee feedback, will do entire presentation & then take questions
• Quizzes, polls, panel discussions throughout
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Poll: Approximately how much program income does your NSP program earn annually?
• More than $1 million • Between $500k and $1 million • Between $100k and $500k • Less than $100k • None yet but will we will the future • None • Don’t know
5 U.S. Department of Housing and Urban Development • Community Planning and Development
Definition of Program Income • PI = gross income received by the grantee or
subrecipient from the use of program funds:
– Proceeds from sale/lease of property acquired, rehabbed, redeveloped with NSP
– Principal and interest on NSP loans – Recapture of home sales under affordability
agreements – Interest on program income pending use – Repayments of liens placed on privately owned
property that was demolished using NSP money – Net operating income (NOI) from rental properties 6 U.S. Department of Housing and Urban Development • Community Planning and Development
Definition of Program Income (cont) • What isn’t PI (key categories)?
– Income in a single year to grantee and all subs not exceeding $25,000 in total
– Interest earned on funds held in revolving loan fund account (except for funds in approved lump-sum drawdown accounts) -- This interest is returned to HUD fortransmittal to U.S. Treasury
– Subrecipients’ proceeds from disposition of real property five years or more after grant close-out
– Funds earned and retained by entities that are not grantee or subrecipient (developers, owners, contractors, community-based development organizations (CBDOs))
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What Happens To Program Income After The Grant Is Closed Out? • Closeout Notice is in Departmental clearance prior to publication --
Some issues remain that will affect this answer
• It is probably safest course of action to assume that NSP Program Income will operate AFTER closeout in a manner very similar to program income BEFORE closeout
• Keep in mind that closeout cannot occur until all funds have been spent and EVERY activity meets a national objective -- Generally this means having units occupied by LMMI persons and demonstrating compliance with the low-income set-aside
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Quiz: Which of the following is NOT program income?
• Funds recaptured by a grantee due to a NSP homebuyer sale during the affordability period
• Pay-off of an NSP loan by a subrecipient to a NSP1 grantee 11 years after NSP close-out
• 50% of the funds back to a grantee that equally invested HOME & NSP in a rental rehab project
• Funds earned & retained by a landbank for NSP-acquired land sold during the 4th year after close-out
• Net rental income paid to a NSP-assisted developer
• Sales proceeds retained by a unit of local government funded with NSP by a state grantee
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Quiz Answers: Which of the following is NOT program income?
• Funds recaptured by a grantee due to a NSP homebuyer sale during the affordability period
• Pay-off of an NSP loan by a subrecipient to a NSP1 grantee 11 years after NSP close-out
• 50% of the funds back to a grantee that equally invested HOME & NSP in a rental rehab project
• Funds earned & retained by a landbank for NSP-acquired land sold during the 4th year after close-out
• Net rental income paid to a NSP-assisted developer
• Sales proceeds retained by a unit of local government funded with NSP by a state grantee
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Timing of Program Income
• PI is earned in perpetuity – Number of revolutions does not matter – Date of receipt does not matter – PI received
after close-out remains NSP PI (with previous exceptions)
• Low income 25% set-aside applies to PI at least until close-out. Post-closeout status is still under discussion.
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Use of Program Income • Must use PI prior to drawing new NSP funds from
DRGR (first in, first out or FIFO) – PI cannot be held for specific projects – Can allow subrecipients to retain program income while
continuing to draw for other activities, subs
• PI must be used for NSP eligible uses meeting a national objective – Property must be abandoned, foreclosed, or vacant – Located in target area – Must also meet all applicable other federal requirements
(Davis Bacon, environmental, LBP etc) – 10% can be used for program administration and planning
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Reporting & Tracking Program Income • Before close-out, must report PI receipt & use in DRGR
– Program income received = tracked in grantee’s quarterly reports on activity that generated it
– Program income disbursed = tracked in draw-down module on activity for which it was used
– Must separately track & document PI receipt & eligible use under each NSP program
• After close-out: – NSP PI must be included in grantee’s Con Plan/Action
Plan – Will report NSP PI use in IDIS and grantee’s CAPER/PER
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NSP PI Opportunities & Responsibilities After Close-Out • Opportunities: Many grantees/subrecipients will
continue to receive PI after close-out – Can: – Continue to operate almost similar NSP eligible program – Use PI to set up new NSP eligible activities
• Responsibilities: Several tasks required after close-out – Tracking/re-use of PI – Monitoring of affordability period – Tracking of grantee/subrecipient-owned property re-use,
including landbanks
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Poll: What’s your biggest concern about using PI after close-out?
• Needing to plan, track and report PI
• Using it for eligible activities that meet all the NSP rules
• Meeting the other federal requirements on PI (environmental, Davis Bacon, URA etc)
• Not having enough PI to pay for on-going admin responsibilities
• Monitoring the PI held by subrecipient or UGLG partners
• No worries – we have a long term PI plan
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Strategic Decisions to Make About PI
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Where to locate projects, based on current market conditions?
What activity types?
How long will the program last?
Who will administer?
How to track/report?
What Activity Types? • All NSP eligible activities are possible with PI
– Homebuyer, rental under NSP1, NSP2, NSP3
– Public facilities (NSP1)
– Demolition
– Note: new acquisition for land banks is not expected to be allowed after close-out but can maintain/dispose of existing NSP properties in landbanks
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Considerations When Selecting Activity Types • What are the needs in my community now? • What is the market saying? Ownership? Rentals? • Who does my community want to serve (income,
special needs populations etc)? • What other funding is available & what can NSP PI
do that they cannot? – NSP income targeting goes up to 120% but must be
used for foreclosed, abandoned, vacant properties
• How can I use NSP PI in combo with other funds to leverage impacts?
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Panel Discussion: Rental Housing • NSP2 Grantee has long waiting lists at CD agency and PHA for
affordable rental housing – Needs are especially acute for service-enriched housing for
homeless, disabled & elderly persons • The grantee has established Westside as a target
neighborhood - it contains three types of available properties: – Numerous large, foreclosed single family homes – Dilapidated but occupied multifamily rental properties – A HOME/LIHTC project owned by a CHDO that is in default
• Grantee gets NSP2 PI, HOME and CDBG $$ but all resources are tight
• What might be some options for use of NSP PI? How would you leverage this with the other $$$?
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Where to Locate Projects? • Must continue to locate NSP PI projects in “areas of greatest
need”
– Can change or expand from original NSP target areas
– Look at market factors: unit type, location, price
– Must describe in grantee’s Con Plan & back-up using available data
– NSP2 and NSP3 guideline about 20% impact in target areas ends after close-out but grantee should still consider outcomes
– Consider which neighborhoods continue to have high levels of foreclosed, abandoned, vacant units
– Need to make strategic decision about whether will go into the most difficult to serve areas or seek to leverage investment in existing target areas
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Panel Discussion 2: Homebuyer Housing • Local market has begun to recover in many neighborhoods except
lowest income areas – Most available foreclosed units in moderate income areas are purchased
by investors – Foreclosed or abandoned homes are available in very low income
neighborhoods but construction costs far exceed values – Homebuyers have expressed concerns about buying in the very low
income areas • Local leaders have expressed a strong preference for homeownership
v. rental • Low income households cannot get financing and cannot afford to buy
a home in standard condition in the jurisdiction • Grantee predicts it will earn $2 million in NSP program income over
the next 5 years • Would you foster homeownership in the very low income
neighborhood? • How would you suggest the grantee use its program income?
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How Long Will The Program Last? • Key strategic decision is how long grantee wants to
continue to operate an NSP program using PI
– One school of thought: spend it quickly with deep subsidies provided as a grant and minimize on-going administrative burden
– Another approach: create a program design that earns PI in perpetuity, continuing to compound NSP impact
If on-going impact across several different activity types is desired, consider establishing one or more revolving funds (RF)
See Policy Alert from 8/20/12
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Revolving Funds • Definition: Separate fund/account that generates
repayments for reuse for singular activity (hence revolving funds)
– Must describe in Action Plan
– RFs must actually revolve (not a parking lot)
• Activities funded by RF must be NSP eligible and meet national objective, other federal requirements – continued revolutions remain PI
• Can combine NSP1, NSP2, NSP3 in RF but must track PI and each activity must meet requirements of applicable (or all) programs
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U.S. Department of Housing and Urban Development • Community Planning and Development
Revolving Funds (cont) • Cannot capitalize with DRGR draw but can deposit PI
from any NSP activity
• Why develop RF? “Sheltered” from FIFO rule – must be used for next similar activity but not other types of activities
• Must be in an interest bearing account
– Interest earned on fund remitted to HUD
– Interest paid by borrowers & loan repayments are program income
• Can be administered by grantee or subrecipient
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Poll: Does your grantee have an existing RF (either NSP or CDBG)?
• Yes – NSP direct homeownership assistance • Yes – NSP rehab or construction assistance • Yes – other NSP assistance • Yes -- CDBG • No but we are considering it • No
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Who Will Administer? • Many options for administering NSP PI over time:
– Grantee, subrecipient, PHA, contractor
– Regardless of administrator, grantee remains responsible for compliance
• Key NSP PI administrative tasks:
– Planning in annual Action Plan/Con Plan
– Tracking as PI is earned
– Managing accounts to address FIFO rules
– Reporting PI use
– Monitoring PI compliance with NSP rules
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How to Track/Report PI? • Grantees need system for collecting, tracking, reporting PI over
time
– Particularly important if subrecipients get to keep PI
• Look to PI tracking systems developed for other CPD programs
– Many grantees have existing spreadsheets, approval forms, processes developed for CDBG or HOME
– Often tracking systems are tied to subrecipient funding requests – for example: grantee could enact a rule that subs cannot request or use funds until report PI status to grantee
– Until close-out, be certain tracking process builds in FIFO – net out PI before new draws – integrate with DRGR process
– After close-out, use PI to pay next eligible NSP bill unless have RF – integrate with IDIS reporting process
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Strategic PI Example: Chicanos Por La Causa
• $137M Award
• All 5 Eligible Activities but highly concentrated on Rehab/Redevelopment of single and multifamily properties
– 13 Non Profit Consortium Members
– 15 distinct markets
• Approximately $40M of PI generated AND expended to date!
• Most PI as a result of SFR sales
• For several members, plan/outcomes predicated on generation – Part of Initial Strategy – Nearly 1000 single family units / another 1000 units of
MF/landbank/demolition
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Strategic PI Example: Chicanos Por La Causa Maximizing PI is one of CPLC’s priorities: Why?
– Leverage
• PI viewed as means to leverage NSP2 Grant
• Recycling = Leverage
– $137M Grant => $200M community investment!
– As a result of $63M of recycled PI –> a CPLC National GOAL
– Additional $$ creates Capacity Building
– Maximize benefit to community
• Expenditure => Jobs!
• $90,000 expended in ARRA funds = 1 job is created or retained1
– Additional admin allowed 1According to the President's Council of Economic Advisors for every
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Strategic PI Example: Chicanos Por La Causa CPLC National Strategy:
Realized early in NSP2 Program that development and direct subsidies were “ok”
– PI included in expenditure total -> great strategic decision by HUD. Does not create a disadvantage for grantees that generate PI
– Total recapture of TDC not required
– Focused on sales rather than on minimizing subsidy
80 cents in PI today better than $1 in one year
Consider holding costs and “opportunity” cost of PI 30 U.S. Department of Housing and Urban Development • Community Planning and Development
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Strategic PI Example: Chicanos Por La Causa • CPLC “NSP2 Portal” provides tool to assist with draw requests and PI/FIFO requirements • After Closeout:
• PI key in propagating our NSP2 grant/benefit • Highly focused on leveraging PI
• i.e. Single Family acquisitions with 20% PI with private or foundation grants/loans on acquisition • Redevelopment of lots owned by consortium members • Purchase of MF distressed properties, stabilize, refinance
• Aggressively seeking to layer PI with other key funding sources upon disposition of properties
• i.e. WF Lift funds (example in AZ) • Minimize Direct Subsidy
Questions?
• How to ask questions – Change status in Live Meeting from green to purple – Press *1 to ask a question through Premiere
Conference Provide Name and Organization If question already answered, press *2 to remove
from queue – Change status back to green after question answered – Can also ask question via Live Meeting
32 U.S. Department of Housing and Urban Development • Community Planning and Development
Resources on Program Income
• Policy Alert on PI dated 7/13/11 • Policy Alert on RLF dated 8/20/12 • NSP 10/19/10 combined program notice • NSP AAQ & webinars (search on program
income) • CDBG regulations at 24 CFR 570.504
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Please Give Us Your Feedback
• Answer a few short questions • Link: http://www.surveymonkey.com/s/NSP2PI
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