hud introduction to nsp webinar transcription · ~~~ noble transcription services - 714.335.1645...

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HUD Introduction to NSP Webinar Transcription 7/25/13

Marsha Tonkovich: Marsha Tonkovich at ICF, and glad to have everybody on this NSP webinar today. Our purpose for talking today is to do a basic overview of the NSP requirements. This section is specifically meant for folks who are new to NSP or for staff who are going to be training others who might be new to NSP, and to really do a good comprehensive overview of the basic NSP requirements but for those folks who are beginners. So if you're someone who is an NSP expert, if [inaudible] NSP a while, again, hopefully this will be useful to you. But we're going to try to keep it at that basic level. So a few things about myself. I think I've met many of you. I work with ICF. I have been doing NSP since its beginning and previously, of course, I've [inaudible] CDBG for many years. I'm going to introduce my co-trainers today. So John, you want to say a word about yourself? John Laswick: Hi. This is John Laswick, that team leader from the NSP program and HUD headquarters. And -- Marsha Tonkovich: Perfect. And Hunter? Hunter Kurtz: Hi. My name's Hunter Kurtz. I'm one of the NSP team members and I'm glad to have you all here today. Marsha Tonkovich: Terrific. And I'm going to ask my colleague Vinnie [ph] to give you a quick overview of how you ask questions. This something -- newer technology. We've been using this one for about a month. So it may be a different webinar format than you've seen before. So Vinnie, can you ask folks now how to ask questions? Vincent Grady: Sure. So we're using GoToWebinar now, which is slightly different than our Live Meeting. So you can ask questions by typing it into the questions box you see on your toolbar and we'll be fielding questions that way, reading them aloud, and discussing them. And if you dialed in on your phone today, you can raise your hand and we will unmute your line if you want to ask your question with the phone. So those are the two options for asking questions today. Marsha Tonkovich: Thanks. And Vinnie will be on the webinar throughout the time. So if you have any questions about how to ask a question, you can feel free to raise your hand, virtually speaking, and we can answer it, or you can also type it in and we can help with that. So with that, let me get us started here. And Vinnie, can you start the recording? Vincent Grady: Yes. It's started.

Introduction to NSP, 7/25/13

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Marsha Tonkovich: Great. So let's go over our agenda for today, and we have a lot to cover so we're going to try to move through it fairly quickly. So we're going to start with the quick overview -- what is NSP and why did it come about a couple of years ago? And then we're going to move into a step by step overview, and you'll see it as program management, sort of the life cycle of the NSP program, then of NSP projects. And we're going to walk you through those basic requirements, again, in a very elemental level, as an overview of the NSP program. And then we're going to talk about what does all this mean given that for many of these programs we are at or nearing closeout. And so how does all of this that we're talking about, how has it changed in a post-closeout world? And then we're going to share with you some very basic lessons learned from all -- from NSP 1, NSP 2, and NSP 3 that we've learned today. And then we'll take some questions. So we have a poll. We'd like to set up the poll. And Vinnie, can you pull up the poll for us? So what we'd like for you to do is let us know a little bit about yourself. So if you could click on one of these boxes and let us know which kind of an organization do you represent? Is your grantee already an NSP 1, NSP 2, or NSP 3 recipient? Or are you perhaps a subrecipient to a grantee or a subrecipient, whether you're a nonprofit and you're working for a state or local government or whether you're a state or a local government getting money from a state; or are you a nonprofit developer, whether you're for-profit or nonprofit who would receive NSP assistance; or you may have worked in NSP before but you're a CDBG entitlement, and you're interested in perhaps doing work on your NSP; and then finally, you have no NSP background; you're neither entitlement nor HOME PJ, but you're interested in NSP, a little more information. So if everybody could just click on whichever of the poll is most applicable to you. So then, have you seen any results yet? Are you seeing results? Vincent Grady: Sure. I'll share the results. There you go. Marsha Tonkovich: Thank you. So it looks like we have most folks who are with us today are an existing NSP grantee. And then we have a bunch who are new and who have never worked on NSP before. So that's terrific. We're glad to have the new folks here as well as the folks who are an existing grantee. And I assume that those of you who work for NSP grantee are perhaps new staff or have responsibility for training some new staff. Terrific. Well, we're glad to have you with us. So those two resources for everybody, just so we could get started here, that we want to make sure you know because there's a lot of great NSP resources out there. And all these resources, by the way, can be found on the OneCPD website, and you have the list of the locations here on this slide. And by the way, these slides also will be available on the OneCPD website. So if you want to use these slides to do a train-the-trainers for your staff and have them then train others, or to do a session for your subrecipients or your developers, please feel free to download these slides and use it for that purpose.



So as the slides, and we're going to give you a link, some information, about two key documents that we think you need to know well. One are official NSP notices that are published in the Federal Register and they give official guidance related to policy implementation of NSP, and those are in red. And then throughout, and more frequency, we will have reference to policy alerts. These are guidance documents that HUD episodically publishes. They focus on a fairly narrow topic and give us interpretation and then information about that topic, and those are in green. And you will later see at the end of the document a list of those, the top of those. There are many policy alerts and we'll give you the top 10 that if you're new to this, they're the ones you really want to know and read. And of course, the others are available for you as well. There are toolkits on the NSP website as well, on the OneCPD website, which go by program area. So there are toolkits related to homebuyer programs and homeowner rehabilitation programs and rental programs. And so they're really great resources that you, whether you're adapting your existing program or perhaps you're using your program income to do something new, the toolkits are a great resource for that. We of course want to reference your field office staff. So you should have a relationship with your HUD field office, and if you have questions, you should certainly be contacting them. They can also give you good advice about what other grantees in your region have done and what's working and what hasn't in your markets. And then finally, on the OneCPD website, and again we encourage you to use that, there's a TA request and ask a question system. On that system, you can ask for help on NSP. You can post a question that you're seeking information. There's also a frequently asked questions, which aggregates the ask a questions into common questions. So we encourage you to use those resources as well. John Laswick: Marsha, just let me throw in that, for those of you who are new and maybe kind of intimidated by how much information there is, don't be. I mean, that's the beauty of the website and the toolkits and all these things is that you don't have remember all this. God knows I don't remember all of it. So what we're trying to do today is give you the lay of the land and some ways to find more information, which we hope is written in a way that can be understood and without a lot of technical or legal background. So use those tools. We use them all the time. Marsha Tonkovich: Thanks, John. So let's kick off with a conversation about what is NSP and why does it exist. So NSP came about a little more than four years ago, and that would be NSP 1. And its original purpose was because we were in the midst of a foreclosure crisis that continued in many parts of our country. The purpose of NSP was to really put some of those units that were abandoned and foreclosed and vacant and in terrible shape, to get some of those units back into productive affordable use in



our community. And so the idea was to enable the rehabilitation, the reconstruction, the purchase, the rental of those units and really put them back into the stock and the productive stock for states and localities across the country. And so it was meant to be the local governments' participation and approach toward addressing the foreclosure crisis that was occurring. The original program was NSP 1 and there were numerous grantees -- as you can see below, a good number there, 250 grantees across the country. And NSP 1, I believe, was the biggest of the three programs. Then, along about, what John, a year and a half ago or -- after NSP 1 came along came NSP 2? Something like that? John Laswick: Correct. Yeah. It was actually just -- Hunter Kurtz: February 17th, 2009 is when they started. John Laswick: Yeah. We were just looking at the era. It was July 30th, 2008. So, I mean, it became operational about a year and a half later, but the legislation was actually passed only about eight months after the original bill. Marsha Tonkovich: Great. And so what NSP 2 did is it broadened the list of folks who were eligible to become grantees and it -- the NSP 2 was a competitor program that folks applied to HUD to receive NSP 2 assistance and had the same basic eligible activities, the same basic requirements, but it had a few tweaks, and we'll talk about those as we go through. There were a more limited number of grantees under NSP 2, including some folks who were nonprofit organizations and some of what we a consortia, which were groupings of local government and community organizations in a particular community or region. So that's NSP 2. And then NSP 3 came along afterwards and it also sought to do similar kinds of activities, similar eligible activities. It was available to a fewer number of grantees. It was a formula program similar to NSP 1. But it had a few quirks, a few differences from the other two programs. So in total, we have the three programs, each a separate planning source, and you'll see later that that matters. And in total, a couple hundred grantees and it was working across all 50 states. So NSP was designed to help those grantees through community partners, through homebuyers and rental landlords and developers to both finance and acquire foreclosed, abandoned, and vacant housing, but also do construction-related activities; rehab, reconstruction, all those sorts of things to, again, put those units back into productive use. The other thing that's important to know about NSP is that it explicitly has a purpose, which is to benefit low and moderate and middle income households, or LMMIs, which is used throughout the slides. Its exclusive purpose is to address the needs of those buyers, tenants, and so forth.



And you will see as we talk later this is actually another focus on even lower income people, and there's a set aside for that that we will talk about. So we're going to walk through, as I said, the life cycle of NSP and put that theory and that concept that Congress came up with into context for how you take a project and how you take a program from the very beginning all the way on through to closeout. So we're going to start with where can you locate activities? What kinds of activities have you planned for them? What kind of units? And then take up through to finishing construction, getting it occupied, and closing out the program. So the first step in the process has to do with which units are we talking about? Where are they located? And so one of the things that NSP has as a very strong overlay, I would say -- and I would like John and Hunter to jump in here -- is the idea of geographic targeting of resources. And so what you'll see in the NSP notices that you see listed here is discussion of where can be the NSP located? What are what is called, what has been called areas of greatest need? What are those areas within your community? So for most of us, our areas of greatest need is not the entirety of my city or the entirety of my county, or however big my grantee is. For most of us, our areas of greatest need are a subset of that, where we have the highest concentrations of foreclosed houses, subprime loans happening, foreclosures are increasing, other sorts of local facts that might be indicating to me that this is a community, this is a subset of my community, where I should be focusing my NSP resources. And so it really was meant to have the -- if you think about NSP being neighborhood stabilization, even revitalization, it really has that override that you're intending to be targeting your resources. And so what happens under all three programs is that grantees define those areas of greatest need in their action plan. An action plan is a overview, a summary, of what people intend to do with each of those NSP resources, NSP 1, NSP 2, and NSP 3, and in that action plan, the grantee describes what are those areas of greatest need where I'm going to focus my resources. And once you've done that in your action plan, that then becomes the neighborhood where you are allowed to work. So you're not supposed to be NSP acquisition, relocation, construction activity outside of those areas of greatest need. If, however, you find out that you've got an area in your plans, that circumstances have changed and policies have changed and neighborhoods have changed, and you need to change your focus areas, you can do that. You can go back and amend your plan, you can relook at the data, and you can change your housing areas to ones that are now applicable. And so for many of us now that the program has matured, and we're in this -- for the fifth year's program, it may be that you're operating on an old action plan and now may be the time because you're getting program income in and you're thinking about what you want to do next for your



program, take another look at this target area and make sure that those are the right places to be investing today. Is there anything you guys want to add about target area? John Laswick: Just one thing. I mean, when we've said we were echoing Congress' request to go into areas of greatest need, but it's not possible to treat all the need even in a smaller subset of your community, and I think originally a lot of folks thought they should go into the absolute worst areas, and that may not be a strategically good idea because you really don't have enough money to treat enough properties to turn it around. So think of areas of greatest need as the first cut. And then you still need to look within those areas to decide, well, where can I be most effective given the amount of money I have, the type of housing that I have, and the types of resources that I have. And so it's not an on or off switch, but it's one filter. And then once you've filtered it, you still have to kind of keep thinking about how you want to approach it within those areas of greatest need. Marsha Tonkovich: Yeah. John, it's actually right there. Many communities, many grantees across the country who have taken very narrow target neighborhoods that are relatively small, four, five, six blocks wide, and really focus their resources down in those kinds of neighborhoods, and pretty significant turnaround because of that. John Laswick: Yeah. Marsha Tonkovich: The only other thing I want to note to folks is that we know that your NSP action plans will end when you closeout your NSP grants. So people have asked the question. Well, where do I then describe my next -- what I do with my program income in those target areas? And that will be eventually in your consolidated plan for your grantee and then the action plans that go with that in your consolidated plans. So it's not that it's going to go away. You'll just have seen it in perhaps a different action plan than you currently have it in. Okay. So let's move on to the second major underpinning of NSP, and that has to do with how I administer my activity? So I've asked them where are they going to happen? What geographic areas? How am I going to oversee what happens if I'm a grantee or what is my delivery mechanism? And so there are many choices, and grantees all across the country made different choices for how they wanted to handle this. It can be handled by grantee staff or agency promulgating through staff, and that was done directly in many places. Other places have decided to run programs through subrecipients, and so they hire a nonprofit or another public agency to run the program on their behalf. Some grantees have decided to fund a range of developers who don't administer the program, but who do the activities on behalf of the grantee. And then finally, other grantees have procured -- and this would be your competitive procurement -- contractors who submit it to the program on their behalf, who are acting as agents for the agency.



There are a number of policy alerts that really help guide you through this because there's a lot of nuance -- and we won't get into it in this webinar -- but there's a lot of nuance across each of these programs; how a subrecipient is different than a developer and in turn is different from a contractor. And I encourage you to read the policy alerts, particularly the one from November of 2011, which really gives you a lot of good compare and contrast about how these roles are different and what it means to be in each bucket. So I encourage you if you're new to read those. The other thing you should know is that these roles aren't exclusive in the sense that if I'm a grantee, I can run my program in a mix of different ways. I could have my rental program directly run by the agency and I could have a subrecipient running my homebuyer program. So I can combine these roles overall in order to run my broad NSP program. Obviously, if we a particular entity we're assisting, we need to make sure that we are clear of their role at any one point in time and what their agreement, what they're being asked to do in their agreement. As I mentioned, if you are hiring contractors specifically, and we're not talking here about subrecipients or developers, you will have to go through a process of competitively procuring those contractors following the federal procurement role. Once you've decided how you want to administer all of this, you do have to execute a grant agreement between yourselves, the subrecipient agreement that's applicable, and those entities who are going to help you to administer the program. So how am I going to pay for that? Because obviously all those folks who are working for you want to get paid for that time. And this has been actually a large set of questions in NSP that folks have really worked through. So I am a grantee, meaning I'm a public agency or I am one of the lead entities or consortium, and I am managing the NSP grant -- so I am the grantee, I'm the one overseeing the grant -- I am allowed to charge administrative costs. In other words, what I would call overhead or back office expenses, specifically tied to NSP -- so not in general, not across the board, but specifically tied to my administration of NSP -- I can charge my time. And we'll talk in a moment about a cap on that. So I can charge my staff time, my other clients' expenses related to my administration of NSP. In addition, if I fund a subrecipient, if I have choose to have those partners administer a program on my behalf, they too are allowed to charge those kind of back office overhead administrative expenses. The amount that I'm allowed to charge is like a cap and that cap is 10 percent of my grant amount, plus 10 percent of my program income. So if my grant amount is $1 million, I can have $100,000 in total for my administrative expenses, and that $100,000 can be divided up between the grantee and the subrecipients, or it could all go to the grantee. That decision is left to the grantee. The grantee gets to decide how that admin allocation gets shared.



Now, what about my costs if I'm the grantee or a subrecipient that are not related to back office, but rather, are related to working directly on projects? So that might be underwriting a project. It might be doing inspections of sites. It might be selecting homeowners or rental project developers. It might be setting property standards. So those costs that are not back office, not overhead, but directly related to doing deals, those are called activity delivery or program delivery costs. Those two terms are synonymous. And those are also eligible. So grantees and subrecipients can charge program or activity delivery costs for their staff time and there might be some expenses related to their delivering of project activities. Now, we have to tie it out to the delivery of activities, not necessarily site by site, but to that delivery of activities. It's not just that kind of back office expense. So we can pay for those costs, and those costs are not capped. There's no cap on activity delivery costs except that they have to be cost-reasonable. We not allowed to charge more than what would be reasonable to spend on that kind of an activity as a proportion of the total cost of the project. On the flip side, however, because I get to charge all of my activity delivery costs that are reasonable, I don't get to earn a profit. So as a grantee or a subrecipient, I can't earn a profit on the work that I do -- or a fee on the work that I do -- related to NSP. So let's compare and contrast that to folks to are developers or contractors. So developers who are doing deals, doing projects, that are the owners of projects; they have an ownership interest in a project, or I'm a contractor that you have competitively procured to do a service for you, I can charge for my actual soft costs. So if I'm a developer, I can bill you for the cost of my appraisal and I can bill you for the cost to hire the architect. And I can also earn a fee; I can earn a developer's fee as is cost-reasonable. So what I can't do as a developer or as a contractor is charge activity delivery costs because I'm not overseeing an activity. What I'm doing is deal. And so I can charge you the cost of the deal, but I can't charge you those sorts of administrative and/or delivery costs that grantees and subrecipients can get. Finally, all these costs that we've been talking about, in addition to having the admin cost capped at the 10 percent, all of them have to be eligible and reasonable and tied back to NSP. So eligible means it's the client's expense that would be eligible under CDBG, which is the underpinning of NSP. Reasonable means it's what a reasonable person would pay; so the normal, common costs for that item would be. And the tie to NSP is I can't charge back costs for other federal programs, like HOME program or tax credit program, back to NSP. In order to back this up, I do have to have documentation. If it's a hard cost, it's invoices and things like that. And if it's a labor cost, it's time sheets. John or Hunter, anything you want to add to activity admin? John Laswick: No. That's good.



Marsha Tonkovich: Okay. So let's do our next poll, and this one we're not actually going to have you vote, but rather I'm going to put the question out to you guys to ponder and then John and Hunter and I will go through the answers. So I have a nonprofit who's running my downpayment assistance program and they want to charge a fee to administer that downpayment assistance program for me. So again, nonprofit running a program; that's the key here. And they want to charge me a fee for running that program on my behalf. So let's think about what whether or not that is an admin expense, an activity delivery expense, or ineligible expense. So let's parse this out. So we're talking about the nonprofit. So we know that they're a nonprofit and the key is they're running a program on our behalf. So that makes them sound like a subrecipient because they are running a program. They're not doing deals. If it's a homebuyer downpayment program, they're not owning those houses because they're not a developer. So they're a subrecipient on our behalf. So if they're a subrecipient working on our behalf, they can't charge a fee for that work. They can't charge a profit for administering that program on my behalf. But they can charge all of their costs that are reasonable and necessary for running the program. For the staff time and the mileage and whatever they might have in order to run that homebuyer program. So are all eligible expenses that can be passed on. John or Hunter, anything to add on that example? John Laswick: No. So what you're saying is a fixed fee or something. Like, well, we're going to charge you $400 per unit or whatever, as opposed to one of these might cost us $200 in direct costs and another one might cost $300; those direct costs are the ones you can charge. Marsha Tonkovich: Exactly right. And what they can't do, and what I mean by fees here, really was they can't build a profit in. So they can't say it's going to cost me $500 for me to process John's homebuyer application, but I'm going to charge you $600, so I've got $100 profit built in there. That's not allowed for a subrecipient. John Laswick: Right. And I think when you think about subrecipients, the thing to keep in mind is that they are in the place of a recipient. So if you are a city or a county or a state, you're not going to be able to charge a fee or make a profit. And the same thing is going to be true for any profit or other federal or other public agency that is working on your behalf. Marsha Tonkovich: Exactly right. So the next one is that you have a grantee staff, so these folks will say they work for the public agency, and they are monitoring the payroll for Davis-Bacon, which is labor standards, compliance, during the development of a project. Let's call it a rental project. So they've triggered Davis-Bacon and they're overseeing that compliance during the development process. So John and Hunter, want to jump in with the answer on that one?



John Laswick: Well, that sounds like activity delivery to me. Marsha Tonkovich: It is. Absolutely. Because what they're doing is they're helping with the delivery of that rental project, let's say. Okay. The next one is we're going to amend our action plan because we decided we want to add a brand new NSP activity. And if we want to do activity, of course we would have to amend our action plan, as we've previously discussed. So that one would be an administrative expense because it's overhead. It's about my administration of the program. So that would be an admin expense. And the last one is the cost of office space for the NSP grantee staff. So this one is a little bit of a trick question, and I'll ask John or Hunter to jump in as well. But the answer is, it depends upon how you account for that office space. It typically would be an eligible administrative expense that could be charged back, but you do have to be able to attribute that expense to NSP. You can't just prorate it or guesstimate what part of your CDBG office space is NSP. You would have to have a way of severing it and showing that this is space exclusively for my NSP staff. And secondly, you may have that office space included within an indirect cost allocation plan, which is a plan the grantee can have to charge back overhead costs of the city or the county overall. And if it's in there, you can't obviously double charge it. So I won't get into the details of it, but just know that there are issues around charging back office space that would be important to know. John or Hunter, anything you want to add on that? John Laswick: No. That's fine. Marsha Tonkovich: Okay. So let's move on to the next topic, then, which has to do with timeliness. And I know many folks think that this is kind of over and it's done, but it's important to focus on it because there's a couple of reasons. So when NSP was first enacted, all three programs had timeliness requirements. So originally having to do is the commitments or obligation of money for NSP 1, and then down the road having to do with the expenditure of funds for NSP 1, NSP 2, and NSP 3. For NSP 1 and NSP 2, those expenditures, and of course the obligation deadline, has now been passed. They were for the most part last winter, this February of this year. Most of the fall grantees made it, and I'll ask John and Hunter to jump in with any date on that they might want to provide. NSP 3 is still open. That's an important reason to talk about this. NSP 3 had its initial deadline this past winter, but its final 100 percent deadline doesn't occur until next year. And so we still have to continue to push in getting those NSP expenditures done in time. The other thing to know is that even though the deadline might have passed, there is still a big push to get the money sent in a rapid fashion and to manage it effectively. Even though you've gotten beyond the deadline, you have program income coming in, you want to be using that in an effective way, and we'll talk more about that later.



One last thing to know. So looking at your NSP 3 program and you're worried about the three-year deadline, if you are earning program income, which is money coming back because you spent NSP funds, the expenditure of that program income counts towards meeting your target. So if you have a $1 million NSP grant, and let's say you were really great and you had another $1 million of NSP program income, that NSP program income, NSP 3 program income, that came in would count when you spent it. Not when you earned it, when you spent it, would count for meeting your original $1 million goal. So it's the sum of your expenditure of your grant funds and the expenditure of your program income, which count toward your original grant goal. John or Hunter, anything you want to add about how folks did on meeting the timeliness deadline? John Laswick: Well, I wish I could agree with "virtually all grantees met these deadlines," but I won't go into details. Hunter Kurtz: Well, for NSP 1 and NSP 2, that's an accurate statement. John Laswick: Well, yeah. I guess. But I would say that in addition to the fact that Congress required these funds to be spent in this way, there is just the practical value of keeping up the momentum and moving into neighborhoods that are under stress from abandonment and foreclosure and so forth and doing things in a way that's kind of quick and organized and so that it really, I believe, makes your program more effective. You know, we don't want you to move so fast that you're making mistakes, but there is a value in keeping that program moving and keeping the momentum going so that you get the results that you're looking for. Marsha Tonkovich: That's absolutely true. And I will say, guys, and we'll talk more about this when we get to the end, NSP has been tremendously successful. And so for those of you who are on the phones or perhaps new to the program, NSP has really, I think, far and away exceeded its original goal. And I think people who have worked so hard on it for the last five years should be very proud of what they've been able to achieve. I'll show you a couple of pictures in a moment. So the next thing we need to worry about as we're implementing our programs has to do with the property type. So as I mentioned earlier, when NSP 1, NSP 2, and NSP 3 were enacted, the explicit statutory purposes had to do with addressing that glut in many communities of foreclosed, abandoned, and vacant units, getting those units back into productive use. And so because of that statutory purpose, you're only allowed to use NSP funds to address the needs, to address the issues, in three types of units: abandoned, foreclosed, and vacant. And we have here a definition of what each of those mean. I won't go through the entirety of that definition; there's a lot of guidance in the policy alerts that you see listed there from December of '09. But needless to say, these definitions are quite flexible. They were made more flexible as the program went along. And you'll see that a number of units really will fit under these definitions of the three different unit types.



So in foreclosed, and we have abandoned and we have vacant, and you'll see later on why we care about those three definitions. Now, one of the things we want to make sure that folks know is they're oftentimes -- and if you look at these definitions, you can see where this would be true -- there will be units that are both abandoned and foreclosed. So I haven't made a mortgage payment in 90 days or I've had a code inspection that said that the unit is not habitable and that no one is living there anymore and they're slipping backwards, and it's actually delinquent under the mortgage banker's definition and perhaps the foreclosure proceedings have been initiated. So it's both foreclosed and abandoned and that could happen quite often. And if that's the case, then later on to talking about eligible activities, you have to treat it as a foreclosed property and you will see that there are reasons why that matters, having to do with the purchase price of the property and having to do with some other rules that flow on down. So just know that the unit counts as foreclosed and something else, you got to treat it as foreclosed. John or Hunter, anything you want to add about unit site? John Laswick: No. Except to point out that you can only demolish blighted properties, too. But that's a sort of different category. Marsha Tonkovich: Yeah. And that's actually our next slide. So let's jump into that. Thank you for the transition. Hunter Kurtz: Also, for the vacant property, you can't make a property vacant. Marsha Tonkovich: Oh, yes. Thank you. John Laswick: One of Hunter's grantees tried to do it. So we had to relocate all the people after. Does it count as vacant? We said no. We used that -- [talking over each other] John Laswick: Every property in America could potentially be eligible. Hunter Kurtz: My house is vacant right now. Marsha Tonkovich: Yeah. That was absolutely a proponent of the NSP statutory language, that you are supposed to be minimizing displacement. You should not be using NSP funds to create displacement by way of making units vacant. So absolutely do not do that -- or making them abandoned or whatever you might do. So let's jump on this point that John was just making, which is, so when can I do demolition? And the answer really depends upon how you're going to use this demolished property. So if you're doing demolition as an end use unto itself, in other words it was an abandoned property or a vacant property, and it's blighted and it's no longer something that can be rehabilitated or should be rehabilitated or there's no demand for it in your marketplace, if you want to demolish



that property, it must be blighted. Because you're not going to have anything else but the end use, which is demolition. In other words, you're going to demolish it and leave it as green space or leave it as vacant land for now. If that is the case and there's no redevelopment or rebuilding of housing on that site, it has to be blighted. The law is very clear about that. You can't just tear down units because "I don't think I need any more but they're in decent shape." If what you're going to do, however, is take that property and you're going to demolish and then you're going to rebuild, so think of it as reconstruction or new construction back on the site, if you're going to redevelop that site and rebuild housing on that site, then you can call it a redevelopment activity or rehabilitation or new construction or a reconstruction activity. And in that case, it is eligible to do demolition. But what's clear here is you're not doing demolition. When NSP says that's demolition, you're not really doing demolition. What you're really doing is redevelopment or reconstruction or new construction, whatever it might be, and demolition happens to be one of the line items in the cost of that redevelopment of that site. And again, there's a policy alert that I think quite clearly goes through this. John, did you want to add anything to that? John Laswick: Just to mention that you really need to be doing that demolition as close to the reconstruction as possible in order for that to be true, in order to include those costs as part of the rehab or new construction. Marsha Tonkovich: Yeah. See, you don't want to obviously say that I tore it down three years ago or 10 years ago or whatever it might be down the road here, and now all of a sudden it's reconstruction. So we just wanted to share with you some of the pictures of what some of the units that we were all dealing with in terms of dilapidated properties prior to when NSP came along, and this is just a sampling from across the country. Some of these properties probably got redeveloped. Some of them were probably demolished. But you will see here that many of the units in that community that we were dealing with were in pretty terrible shape. And later, we're going to show you some of the really beautiful units that people did as they went about redeveloping. So let's now talk about eligible uses. So eligible uses are the eligible activities or eligible types of things that you can do with the funds. And there's a very good policy alert, the one from December of '09, which really, I think, gives a lot of great guidance about which bucket do I put the eligible activity in. And they're known as activities A through E, which relates back to the notice or the fellow register notice, which also policies out. And in your action plan, you will have described which of these eligible uses you're going to use. And so if you're new to NSP, I encourage you to go back and look at your action plan and see which activities get actually called out.



So let's go through each of them. So let's start with eligible use A. So eligible use A, or financing mechanisms, is meant to be rarely used, and it's been a bit of a confusion area. Financing mechanisms are meant to be used when you're doing an innovative financing technique that doesn't fit someplace else. So it's been used for things like low-mod reserve and loan guarantees and complicated loan financing structures. So what you're doing is investing in that financing mechanism and not necessarily in the construction or acquisition or rehabilitation of the unit. So it's really a very narrow category and limits use. And under that category, you may only use foreclosed properties. So you'll notice that abandoned and vacant are not listed here. They are a very limited subset of when this is used. Contrast that with use B. So use B is where the vast majority of the money goes and this is purchase rehabilitation. And really, when we say rehabilitation here, reconstruction is a component that can be an aspect of rehabilitation. And it can be abandoned or foreclosed. So it's not just foreclosed here. And the idea is to then use those properties for homeownership or for rental. So it's homeowner or rental, abandoned or foreclosed, and a long list of things that you can do. So one important point that I want to make here is people have thought that if they were doing a downpayment or a closing costs financial assistance kind of a program, they had to put it under use A. That's not correct. If you're doing a downpayment or closing costs or other kind of homebuyer assistance program, you can put that under eligible -- it properly goes under eligible use B because it gives you the broader range of units, abandoned and foreclosed, and it properly sits under here because it's related to the selling of such properties. So that's use B and, again, the most common of the uses. The next one is use C. So use C has to do with the acquisition of property where what you're doing is you're acquiring that property and you are going to hold it in a land bank, so homes or residential properties that you're going to hold in a land bank for up to a 10-year period. And we'll talk about that reuse plan in just a moment. The idea that you're going to hold that property that you've acquired because you don't have some other use for it right now. You know, you don't have a way of putting it back into productive use in your community but you have a plan -- you will have a plan for when you're going to do that. Now, the key thing on land banks is that they have to have been foreclosed properties. So again, abandoned and vacant are not here. So foreclosed properties, you acquire them and you hold them. And there are ways in which you can help to maintain those properties while you're holding them in your land bank. Now, there is a requirement, and we'll talk a little bit later about the notice that covers this, but there is a requirement that you have a plan for pulling those units or those properties that could be other kinds of residential properties, into productive use within a 10-year period. So you need to have a plan -- you can't just hold these forever -- to get those back into productive use. John, do you want to say a word about that 10-year plan?



John Laswick: Yeah. I think it's less daunting maybe than you think. But basically, what we're looking for is a strategy to put these properties to a use that stabilizes the neighborhood in one way or another. It's not going to be a 500 page document, I don't think. Marsha Tonkovich: But I think it takes some thought and we want to encourage people to really think about I've got these 600 units in my land bank and they might be scattered around the neighborhood or in a couple of different neighborhoods. How am I going to use them in a way that contributes to the revitalization of that neighborhood? Okay. So now we get to use D, which is the demolition, and we talked about that earlier, that it can only be for blighted structures when demolition is the end unto itself. When you're just demolishing. So be very careful about having a definition of blight and making sure that you're only touching those units. Now, because there was a little bit of controversy around demolition, and because, again, the purpose of NSP is to really get units back into production and you get people housed by those units, NSP 2 and NSP 3 contain a limit that basically says that you can't use any more than 10 percent of your funds for this demolition only. Again, we're not talking about development here, but demolition-only activities, unless you get a waiver from HUD. You can go back to HUD and you could ask for permission to use more than 10 percent, but you have to get that in writing. So that's use D. Use E is a broad category, which says if you have demolished your vacant property, so it's previously been demolished or it's currently vacant, and you want to redevelop that property, so you're doing a new construction on that site, you're going to do a reconstruction on that site, you're going to convert something that was an abandoned hotel into affordable housing. This redevelopment category allows you to do that as long as the site was demolished or vacant. So when we say vacant, it doesn't necessarily mean vacant land, although it could. It could also mean an existing structure, which had a use in the past and is now not used for that purpose. So a vacant rental property, a vacant office building, a vacant hotel, whatever it might be. The key, however, is when you go back to redevelop that site, you have to be turning it into housing. So the end result of redevelopment activities must be housing under NSP 2 and NSP 3. NSP 1 has a little more flexibility to do things like public facilities and other sorts of activities. Under NSP 2 and NSP 3, have to tie it back to housing. So a couple of things you can't do, and there was a lot of discussion about this at the beginning of NSP. You will notice here that there's nothing in these requirements, or these eligibilities, that allow you to do foreclosure preventions, which is keeping people who are currently in foreclosure in those homes. There's no services component here that is related to that. We're also down to the fact that you can't demolish nonblighted structures unless it's tied to the redevelopment of that site. And finally, we talked about the fact that the program is only tied to vacant, abandoned, or foreclosed units. We're not allowed to go out and acquired other kinds of units.



Hunter or John, anything you'd like to add on eligible uses? John Laswick: Well, I would just say to go to your notices on this, there's the little table in all of them. The October 19th, 2010, notices we call the unified notice, and each of these uses then matches up with some CDBG eligible activities. We've tried to translate what Congress said as eligible uses into something that's compatible with the CDBG regulations. So there's a kind of crossover there that you can follow. Marsha Tonkovich: Terrific. So again, here's an example. I'm going to show you one of a really terrific redevelopment that St. Petersburg did, and you can see that it was not all attractive of a rental housing before and now it's quite attractive. And I think I remember hearing about this project and that it has had some very positive spinoff benefits from the surrounding neighborhood that have come out of having really revitalized this development. So we're going to do another poll, and this one's an actual poll, where we want you to vote. So the example is, you're using NSP 3 funds for downpayment and closing costs, for buying foreclosed units. We're not in the foreclosed units. We're not doing any construction or rehabilitation or anything like that. And so the question is, what's the eligible activity? So Vinnie, can you pull up the close-ups? The vote, is that a financing mechanism; is it use B, purchasing, rehab of homes; a land bank; demolition; or redevelopment? I'll give you a moment. So you'll see that it looks like most folks got it right. The right answer is actually eligible use B, purchase and rehabilitation of homes. So as I mentioned earlier, financing mechanisms under use A is really only used when you're using one of those more innovative loan loss reserve/loan guarantee kinds of things. If we were doing a purchase and rehab of foreclosed homes, it most properly goes under use B. I agree. Okay. National objectives. So under CDBG, there's a concept, and it's done through NSP, which is that all activities have to both be eligible and meet a national objective. So the national objective says, who are the beneficiaries? What is the outcome of this thing that I have just funded? And so we have a broader definition of the national objective than CDBG has. Under CDBG, we can only help people who are up to 80 percent of AIM in order to count as a low-mod target. Under NSP, it's up to 120 percent. So low-moderate-middle income, LMMI, getting it to 100 percent of AIM. And so we have -- predominantly, we are going to use that national objective that we're going to -- for NSP units, and it's the assisted units, everything is going to be under that national objective, which is low-mod-middle income of 120 percent. We are not allowed under NSP to use what CDBG uses, which is form and blight or urgent need. So neither of those are eligible national objectives for NSP.



Now, within low-mod-middle income, there are different choices. There are different types of national objectives, and we'll get into those very quickly. But those include area benefit, limited clientele, and most likely the housing national objective. Now, I do want to draw your attention for those of you who have been doing NSP for a little bit that there has very recently been a change, which allows for the job creation and retention national objective. If you happen to be doing an activity which will create jobs, and it might be happening with your program income down the road, you can now use that national objective as well. So all four of the low-mod national objectives are now possible. So let's do a little look at them. So look at some of the most common, which is low-middle-mod housing. So this is the one that you're really going to use almost exclusively on NSP, and this is having to do with the occupancy of the houses that you are developing. So the single unit structure is occupied by an LMMI household. If it's a duplex it's one of the two units. And if it's a three or more units, it's 51 percent of those units. So we're looking at the occupancy of those housing units. And again, because of the agency having eligible activities work, that will be what you'll use virtually all of the time. So we have a couple of other options. If you're doing demolition or if you are doing under NSP 1 a public facility or public improvement, then you can use the low-mod-middle area activity. And what that means is you are benefitting an area of a neighborhood. You are benefitting a community of folks rather than an individual household. So the idea here is I'm doing an activity which everyone in the neighborhood can partake of. So you can see this demolition benefits everybody because that blighted structure is gone, or it's a public facility, public improvement, that I, as a member of that neighborhood, can partake of. Limited clientele, or LMMC -- John Laswick: Yeah. We just wanted to go back to the housing and point out that there's one little variation on the benefit that you can put in less than -- you can have under 51 percent of the units available to low, moderate, or middle income people as long as it matches up with the percentage of NSP funds that you put in. So if you put in 40 percent of the funding for a project, then you can have 40 percent of the units benefiting low, moderate, and middle income people. And so that's another way to meet that objective. And unlike the CDBG program, there is no lower limit on that and there is no type of housing. In CDBG, it has to be family housing above 20 percent occupied by income-eligible people. We've matched ours up with more like how HOME looks at it. Marsha Tonkovich: So it's proportional? John Laswick: Right.



Marsha Tonkovich: So the idea is that you put 10 percent of the money in, you get 10 percent of the units. So what that lets you do, and many grantees have taken advantage of this and I want to encourage folks to really look at this, is it lets you do mixed income housing because you could say that the NSP-assisted units are 10 percent of the units in this 100-unit structure and I want to pay 10 percent of the cost. So it's a great way of getting mixed income housing to occur. John Laswick: Right. And one of the original places it came up was in Los Angeles where they said, well, geez, we have some buildings we want to acquire and they still have some residents in them and some of those residents are above income and they didn't want to kick them out for the program. So you can do it backwards and forwards. Marsha Tonkovich: Absolutely. For the one, limited clientele, LMMC, is specifically used in you're doing a special needs housing project, meaning housing is only open to persons with disabilities. And there you're going to focus on that type of clientele, and it's going to have some flexibility that we won't get into the details and if you're trying one of these for the project, I encourage you to go back and read the notice and also look at some of the CDBG guidance, which is particularly helpful on this. You might be doing a transitional housing development. You might be doing a group home. And so you want to be looking at those. Okay. So related to the national objective, another thing, is that the statute, as I mentioned earlier, NSP -- all three statutes have a requirement that says you are required to have a subset of your money, not just 120 percent of AIM, but actually serving people who are 50 percent of AIM. And so it's a requirement that we use called LH25, which has to do with 25 percent of the money going to this purpose and the way that it's set up in DRGR or the financial tracking system. So what the official requirement says is that -- what LH25 says is that 25 percent of your award must be used to benefit or to create housing for persons who are 50 percent of AIM and below, or low income or in fund high programs, very low income households. So that 25 percent is 25 percent of your money, not 25 percent of your people or 25 percent of your units, but 25 percent of your money. And when we say money, we mean both your original grant, and this is an important clarification a couple of years ago, 25 percent of your program income as well. The 25 percent is both your original award and any money that comes back to the grantee, 25 percent of it has to be benefiting folks at 50 percent of AIM and below, and it's calculated across your entire program. So next requirement. And then John, maybe we want to stop and take a couple of questions or let me know if you want to keep going. The next requirement has to do with when I go out to acquire property and I am going to use them for my NSP program, we have some specific requirements. And I mentioned earlier that we know if a unit is foreclosed because it applies to foreclosed units only. And so if you're doing the foreclosed unit, you are required to do an appraisal. You can't just guesstimate what the value of that property is. And then you have 60 days to do that appraisal.



And after you've done that appraisal, when you go to then acquire the property and execute the sales contract, that purchase price for that foreclosed property must be at at least a one percent discount, and if you can get it cheaper, great. But at least at a one percent discount from that value. So it's important to know which properties count as foreclosed and then what is the value of it in order to be able to document this. And you do have to document that you did it -- that you did the appraisal and that you got this discount. This requirement only is for foreclosed units, not vacant or abandoned. We also have some other requirements related to the acquisition having to do with the existing tenants who live there, including if we had a tenant in play that they are protected from being displaced, and I talked about the minimizing displacement earlier. And if we do have an existing property owner, we have some protections for them as well, having to do with this a voluntary transaction. The government buys your property, it's a voluntary transaction. Okay. So John, before we move on to the next one, would you like to take some questions or should we keep going? John or Hunter? John Laswick: Yeah. Let's take some questions. Marsha Tonkovich: Take some questions. Okay. So Vinnie, do we have any questions written in or any audio questions coming? Vincent Grady: We do have questions in the queue. [talking over each other] Vincent Grady: And if you want to ask questions via the phone, just raise your hand and we'll take you off mute. Marsha Tonkovich: Okay. Terrific. So why don't you read aloud our questions, Vinnie. Vincent Grady: Sure. First question is, "Our PJs is to engage residents living in greatest need area in the AP planning process?" Marsha Tonkovich: Okay. Let's me try this differently. So PJ is a HOME term, so in NSP, we use it for grantee. Is the grantee required to engage residents of the community in the planning process? Is that the question, Vinnie? Vincent Grady: Yes. Marsha Tonkovich: Okay. So yes. So as you do your action plan, there is a requirement that you seek public input and public comment as part of the planning process. And if you were to amend your plan, you would have to also get public comment. To do a substantial amendment, you have to get public comment.



And so a part of the public comment is doing outreach to community residents and seeking their input and their comment on what you have planned to do in their community. That process of public consultation isn't dictated in terms of how it happens or when it happens or what method you use to do it in its broadest sense. Obviously, there are postings and things you have to do, but in general, you could have lots of different innovative ways that you reach out to the community. But there is a requirement that you do that. John or Hunter, anything you would add to that? John Laswick: Just two things. One is that we did shorten up some of the periods for comments and that sort of thing, but it was to keep the program going, not to curtail public involvement. And in fact, I think what we've seen over the last five years is that communities, the grantees that have really engaged their neighborhoods tend to have more successful programs because if you got your neighbors working for you, they're going to help you find people to buy the houses that you're fixing up and so forth. So we strongly encourage you to work closely with the areas that you're active in. Marsha Tonkovich: Terrific. Vinnie, what's our next question? Vincent Grady:: Sure. The next question is, I have a housing counseling agency. How do I find the grantees in my area to partner with? Marsha Tonkovich: Terrific. That's a great question. So if you are housing counseling agency, you will see that there are some requirements related to actually having eight hours of counseling for folks who are homebuyers in order to show that they're ready to become homebuyers. And so counseling agencies have an important role in the NSP program for homebuyers. If you're interested in getting involved, I would go onto the OneCPD website, and in an earlier slide there was that link, and again, it's posted on the website. Go onto the OneCPD website and you will see that there's a list of -- and go to the NSP component of the website, and you will see there that there is a list of NSP grantees. I believe it's a map that you can click on to get the listing of grantees by state. So I encourage you to go in and do that and you'll see there's contact information in there, and then you can reach out to the grantees in the area that you serve. Vinnie, let's take one more written in question and then if we have any audio questions. Vincent Grady: Okay. The next question is about eligible properties. "What about short sale properties? Are they eligible for this program?" Marsha Tonkovich: Great question. So what about short sale properties? So when we first started NSP, it was not eligible, but with the new definition of what is foreclosed, they became eligible. So you'll notice under the definition of what is a foreclosed unit, it's quite flexible. If the



short sale property met that definition of foreclosed that we've previously talked about, yes. It would be eligible. John, anything you want to add on that? John Laswick: No. I would just say, though, that it's still difficult to get short sales. I mean, it takes longer and it's less predictable. But sometimes it's your only option. Marsha Tonkovich: Yeah. Vinnie, do we have any audio questions? And if so, how do we -- can you unmute their line? Vincent Grady: Sure. We actually don't have any hands raised for audio questions. But if you want to keep typing them in, you can do so at any time and we'll get to it. Marsha Tonkovich: And if you do want to raise your hand, you'll see there's a little hand symbol on your screen. So you can click on that and we'll get you in our next break. All right. So let's keep going. Let's talk about underwriting. So one of the things we get a lot of questions about under NSP is what are the underwriting standards? And then we said we're going to serve homeowners. Do we have a credit ratio and back end ratio and those sorts of underwriting standards? And the answer is no. NSP does not impose any specific limits and criteria that have to be used. However, obviously, as a good steward of federal funds, you have to make sure that what you're investing makes sense and it's a good reasonable use of money. And so what we have counseled everybody to do is to develop local underwriting standards which will guide your decisions about which units you're going to invest in and make sure those projects are actually going to be viable, whether it's a homebuyer unit that they can -- the homebuyer can afford to maintain or whether it's a rental unit that can be maintained or with the affordability period that we'll talk about. There are lots of great resources out there to help you to decide what those parameters should be locally. HOME has a ton of them again on the OneCPD website. Those NSP toolkits that I referenced also on the OneCPD website also has some great criteria that you could choose to adopt. And if you're an existing grantee, I encourage you to go back and take a new look at the underwriting criteria that you established and make sure they're still working for you in your current marketplace. Okay. So our next major topic is when we draw the life cycle of our project, has to do with -- so I know what kind of properties I can buy and I know who has to occupy them. But what are the standards? When I go to do my rehab or my reconstruction or a new construction, what code do I use? And so it's pretty much the same across the three programs, except that NSP 2 and NSP 3 have a slightly higher center on green. So NSP 1, NSP 2, and NSP 3, all of them have to comply with state and local code. So whatever your construction standards are, if you're doing new



construction, if you're doing rehab, at the end of the day your unit must comply with those requirements. So we have had a list of questions from folks asking about the HUD housing quality standards, which is a occupancy and habitability standard that HUD issues, and whether that could be the standard to which we rehab. And the answer is no. It really needs to meet your local code, whatever is applicable in your community for construction. If you're doing NSP 2 or NSP 3, there's an overlay of green standards, which has to do with making sure that you're meeting Energy Star in those units, and there are some other suggested kinds of things that you could build them and making units green. And I won't get into all those details, but there's a lot of terrific resources, again, on the OneCPD website. Lots of ideas about how you can build green standards, Energy Star standards, into your construction standards. Many grantees chose to impose a higher standard. So they might have set standards about the functionality of the unit or the occupancy of the unit in terms of how many people can live there or what kind of insulation they want to see and other sorts of things. So grantees could impose additional standards above and beyond just minimal local codes and the minimum of Energy Star when that is applicable. Again, you're have to be able to justify this, that you've actually met these property standards. You do have to have actually have an inspection and specification process. One of the things that some grantees are having trouble with is they might have had these standards but they never actually inspected the units at the end of the day, when construction was done, to make sure that they met what they said they were going to meet. So you need to make sure that in addition to have the standards, you actually inspected the standard to make sure that at the end of the day my units have met my program standards. So here we have an example from Columbus. And this is, I think, a terrific example of the before and after. This is the exact same property. You can tell -- one's a little closer up than the other -- but you can see that Columbus did a really terrific job of taking what was a boarded-up older building and really revitalizing it into something that's quite attractive. So there's a terrific example of the kinds of things we're seeing under NSP. So next topic we need to talk about, and this will be a very broad overview. But these are requirements that come along with getting the NSP money. They're called other federal or cross-cutting federal. You'll hear it called those. These are federal laws that are not necessarily specific to HUD -- although some of them are -- that come with getting HUD's funding. And so whether you are doing NSP or you are doing HOME or CDBG or [inaudible], whatever it may be, these kinds of federal funds can be triggered. And so that's why they're called cross-cutting. And there's a whole list of them. You only see a subset here that have to do with the way in which you develop the units and making sure that certain federal laws are met. So I'm just going to hit on the big one, but please know that there's many others. There's lots of terrific resources out there, including -- if you go onto the HUD website or the OneCPD website, you will see that there's a toolkit called cross-cutting program requirements or cross-cutting



requirements. That toolkit goes through each of these as well as numerous other cost-cutting requirements and gives you a lot of great details about how these are applied and when they're applied, and so forth. So environmental review is the requirement that before you commit NSP funds to a project, and before you commit, not spend, fully commit NSP funds to a project where you're going to be doing any kind of construction activity, you must have done an environmental review and you must have passed an environmental review before you commit. And there's obviously a lot more detail to that. The Uniform Relocation Act, or URA, has to do with making sure that we are not displacing people. And if we do have to do temporary relocation or if we happen to be causing a displacement, that there are benefits and payments that are happening to those households in order to ensure that they can afford to move or they can afford to come back due to that relocation. Davis-Bacon and other labor standard requirements have to do with prevailing wage. And when you are doing construction-related activities, and again it's not all activities, it's only certain construction activities, that you are paying the prevailing wage across various labor categories. So there's, again, a lot more to Davis-Bacon and it's not always triggered. So it's important to get more feedback on that. Lead-based paint or a series of requirements having to do with pre-1978 housing, and if you are doing anything that will affect that lead-based paint in the units, there's a series of noticing requirements and requirements related to testing of that lead paint, and then some standards related to how you must abate or remediate or address that lead-based paint. And again, lots more details depending on the level of rehabilitation that you're doing. Part of the next big chunk that we want to highlight here is fair housing equal opportunity, which includes a broad range of laws having to do with nondiscrimination and affirmative outreach to make units available to all types of households. It also has to do with ensuring that units are handicap-accessible for folks who need it, so whether it's a single-family home where you've got a person with a disability who needs that access or whether you're building rental housing and you need to, depending on the size of the project, make a certain number of units accessible for persons with disabilities. So I won't go into any more details into these except to say that there's a lot more to know about these and we encourage you to go out and learn more about them. There is a set of requirements called Section 3, and it's related to these affinity [inaudible] requirements that NSP 3, which have to do with affirmatively trying to make employment opportunities or considering contracting opportunities for persons who live in the communities in the target neighborhoods where you are reaching. And so there's a requirement that you do that outreach to offer those opportunities and I'll, again, encourage folks to do more reading on that.



So moving onto our next type of requirement that will come up, has to do with financial management. So this is all about a couple of few things. Our the costs that you're paying for reasonable and are they eligible? Is your program operated correctly? And is it compliant, the auditing? And then do you have good financial management systems, including procurement? So 87 has to do with those cost issues. 81.33 has to do with auditing of your program if it's triggered. And part 85 and part 84, depending on what kind of organization you are is where you'll find procurement as well as those financial management systems. So your financial folks in your organization have to make sure that you comply with all of these and track these issues. One of the most important subsets of financial management that we're going to spend a few moments on is program income. So program income is money that you earn that comes back to a grantee or back to a subrecipient because you have invested NSP money in a project. So we have a very good policy alert from July of 2011 that gives you a lot more details. So I'm just going to hit the major points on program income, but I encourage you to read more about it. So program income is, again, that money coming back into a grantee or a subrecipient. It is not money that is retained or earned by a developer or by a homebuyer. It is, again, only money coming back because you spent NSP money to a grantee or subrecipient. And typically, it's going to come from one of two sources. The proceeds of the sale of a home. So I acquire, I rehabilitate a house, and then I go and sell it, and those proceeds come back to the grantee or a subrecipient; or, secondarily, I make a loan with NSP funds and I get principal plus interest coming back on that NSP loan. Those are the two big ways. You'll see a lot of other ones. I won't get into these other ones, but those are the big ways in which you might be earning program income. And the reason why this is important today is because even with NSP closing out, or we're at the end of the funding cycle, many grantees are earning -- we've had millions and millions of dollars of NSP program income, which will mean that NSP will continue into the future as these funds revolve. John or Hunter, anything you want to say about those -- program income? John Laswick: It can be a complicated topic. So I really encourage you to ask us questions if you're not sure how it works. Marsha Tonkovich: Terrific. So let's talk a little bit more about the program income. So people have asked us lots of questions about, well, how long is the program income? You know, if I make a loan and the money comes back 10 years from now, or maybe it's a 30-year loan and they're still paying me, is that still program income? And the answer is yes. So for money that's still coming back, principle plus interest, coming back to a grantee, regardless of when it comes back, and regardless of how many times it cycles. You know, it could have been out and back again and out and back again. Been there; it's still program income.



Generally speaking, even if it's after closeout this is true. If you closeout your program and you are now getting program income coming back in, whenever that happens, if you're a grantee or a subrecipient, it is typically program income and it must follow the NSP rules. We have a couple of exceptions that we'll talk about later, and then the closeout information we're going to cover in just a moment we'll tell you more about. Now, I mentioned this money coming back into the grantee or subrecipient. The grantee gets to decide whether or not they're going to get the program income coming back to them or whether they're going to let the subrecipients keep it and continue to reuse it for an eligible purpose. So it's the grantee's decision as to whether they want it back or let a subrecipient keep it. So how do I use program income? So program income has to meet all the same NSP rules, just as if it were an NSP dollar, must meet a national objective, still has to meet all of the other requirements, Davis-Bacon, environmental. All of that is still applicable. And you still have to have the low-mod targeting or the LH25 in most instances, and we'll talk a little bit later about some exceptions to it. But generally speaking, I still have to have the 25 percent set aside. On the flip side, I do get to take 10 percent of that money, as we mentioned earlier, towards covering my admin expenses for administering the program income. Now, one of the things that we've had, because we had these layers of programs, NSP 1, NSP 2, and NSP 3, is well, what if I'm getting program income under a bunch of different programs? How do I deal with that? Can I get just mush it all together into one big NSP pot? And the answer is no. Because there are slight differences in variations between the three programs, and we've talked about some of them so far, we are required to track the program income program by program, so NSP 1 program income, NSP 2 program income, and NSP 3 program income. And if I have combined them all together in a project where I've had NSP 1, NSP 2, and NSP 3, or NSP 1 and NSP 3, or whatever it is, in a joint project, I have to prorate that program income according to each project. So you have to use the program income by program according to the rules of that program. So NSP 1 program income for NSP 1 use. If it's NSP 3 program, then that's for NSP 3 uses, and so forth. You are required to let HUD know that you have earned that program income and then how you've used it. So the way that you currently do that is in DRGR, and DRGR is the IT system that you use to draw down money for NSP and it is the way in which you report your expenditures in NSP. So you're going to report the receipt of program income and then the use of program income. Down the road, once we're closed out and DRGR fades into the sunset for this particular program, you will begin reporting the same information in IDIS, which is the standard program, the standard software, that all grantees use for CDBG.



So I think in the interest of time, if it's okay with you guys, I will skip this poll, but we'll commit to doing when we post these slides in file is that we will include answers within this poll. So that that way, folks can see which of these were program income and which were not. But I encourage you to look at these and use it as a self-quiz, and compare it to the notices as you're thinking these through. Hunter Kurtz: Could you just go back and just quickly point out what is not program income on that list for everybody? Marsha Tonkovich: Sure. So let's go through this and talk about which ones are not program income. So let's do the first one, funds earned and retained by a developer. So we mentioned earlier that funds that are not held by a subrecipient or the grantee, funds that came back to them, so funds that a developer gets to keep, are not program income. Now, we do need to make sure that the amount we let them keep is reasonable. We can't over-subsidize them. So assuming what we let them keep is reasonable, that's not program income. Let's see. These payments made to a nonprofit who owns an NSP-assisted rental unit. So we talked earlier about developers. So the answer here depends, and this is a trick one, depends upon whether or not the nonprofit has been designated a subrecipient or designated as a developer. In most cases, most grantees would have called a nonprofit who got assistance to develop and own a property within NSP, a rental property, and who is getting rental payments coming back in, a developer. And so when that nonprofit was a developer, therefore the lease payments they're getting back in is not program income if they get to keep it. If, however, the nonprofit was designated as a subrecipient by the grantee, then the next money that they earned, so net of their expenses, would be program income. So it depends upon what they've been called. Next one. If the homebuyers sold the home and they earn proceeds from that sale, homebuyer is not a subrecipient. So homeowner, homebuyer; the profit that they make -- and the key -- is not program income. Let's see what else. The last one, interest earned on a revolving loan fund while sitting at the bank. So I have NSP program income; I deposit the NSP program income in a revolving loan fund. That revolving loan fund is sitting in an account and that account is earning interest pending when it revolves back out again. That interest is actually not program income. The one paid by the bank while sitting in my bank account. And the reason why that's not program income is because we don't want you have money just sitting in the bank. You're supposed to be revolving it. So to be extent that it's sitting there earning interest in this bank account, that money gets remitted back to the U.S. Treasury. It's actually not program income because it's not yours. You're supposed to be revolving this stuff. So that one would also not be program income, but it would be remitted back to the Treasury on a periodic basis.



So anything else you want to add on those, Hunter? John Laswick: I don't. Hunter Kurtz: No. That's it. John Laswick: Yeah. No. Marsha Tonkovich: Thanks. Okay. Project completion. So we've now gotten through our projects. We're at the point where we're ready to sell the house or rent out the house. There are a couple of things we have to do at project completion. If it's a homebuyer project, and we have acquired a rehab or have acquired and built a homebuyer unit, and now I'm going to sell that homebuyer unit to an individual household, the price that I sell the home at must be affordable to that purchaser. And the way we define that affordable price has to do with our cost to acquire redevelop. So we can't charge the household any more than it cost us to acquire, rehabilitate, redevelop that home, and that cost can include my delivery cost, my staff cost to do this. But it's my cost to develop that unit is what I'm tapping on. So I, as the grantee, am not earning a profit. I'm selling the homebuyer unit. Now, the same term limitations doesn't apply to rental units. There is still a requirement that the rental units be affordable. I'm going to talk about affordability in just a moment. In addition to that completion, I have to make sure, as I mentioned earlier, that I'm inspecting those units to make sure that they are in fact meeting my health and quality standards that I've established and that I've met the occupancy requirements under the national objective. And we've talked about the low-mod income and I talked about the fact that you have to record what you've done in DRGR and on a quarterly basis on policy in what's called a QPR. So one of the things that have to happen then -- and we talked about this, it will continue after the completion of the project -- is the affordability period. So if you are assisting, whether it's homeowner or rental housing, you have a requirement that those units remain affordable for a specified period of time. And the period of that time typically depends upon how much money you put in the house. So the more money, the longer the period of affordability. And it's a little different for homebuyers than it is for rental, and I won't get into the details. But there's a great notice on it that can give you all of that. What most grantees did in the interest of simplicity is they adapted the home program rules as the way of dealing with affordability. And so for homebuyer activities, that means using a resale provision, meaning I will resell the property at an affordable price for the low income households; low-mod-middle income households. Or, I did a recapture provision, which says that if the homebuyer goes to sell their home during the affordability period, I'll get some of that money back. And there's different ways that you can do that. And again, I encourage you to read the notices. They'll give you all the details.



Key thing to know is that you got to pick one or the other for homebuyers. So in each contract that you're going to have with your assisted homebuyers, that contract has to spell out whether they're subject to a resale restriction or a recapture provision. And it will call out the conditions of those criteria. They got to have one or the other. For rental properties, it's a little more complicated. For rental properties, we will have an affordability period, and based upon the level of investment and whether it's reconstruction or whether it is rehabilitation, and what that's going to say is that for that affordability period, NSP is going to constrain what rents can be charged on those units and in your action plan the grantee will have defined what an affordable rent is. And so you're going to make sure that during the affordability period, no more than that rent is being charged. Most grantees chose to use either the HOME rent or the tax credit rent, but you could had a different rent. We're also going to look at the income and occupancy. So we will have NSP-assisted units that we have designated as the beginning of the project. And so let's say we have 10 of the 100 units that are NSP-assisted, we will have requirements for the income levels of the people who can live in those NSP-assisted units. And so in most cases, those rental units are set aside for persons at less than 50 percent AMI in order to have counted those units toward the low income targeting, or the LH25. But in some cases, we also had units that went to 120 percent. So however we designated those units, whatever mix we had of very low and low-middle-moderate income units, we're going to maintain that mix during the affordability period. When we have tenant turnover and we have move out and somebody else moving in, we have to document the income or the owner has to document and report the income of the new tenant moving in. So just as an aside, unlike HOME or tax credits, where you have to do it every year or on a periodic schedule depending on projects, in this case for NSP, the policy is at unit turnover. If the owner goes to sell that rental project during the affordability period, those same restrictions that we just talked about have to continue for the new owner. So getting to the final end, so now we're at closeout. We've got all of our projects. We've got our affordability periods in place. And we're ready to report our progress and closeout our program. So we are going to have a quarterly report, as I mentioned, called the QPR. It is due periodically depending on whether it's NSP 1, NSP 2, or NSP 3. It has a due date after the end of the quarter. And it's done through DRGR, through the Disaster Recovery Grant tracking system, which is both a financial system and a recording system as I mentioned. In addition to this QPR, you are required to have good quality files to back up what you've funded and how you've funded, and all of these requirements that we've been talking about. And HUD will come out. We've obviously seen a lot of HUD monitoring and there will be more yet to come, where they're going to pull your files and they will look to see that what you said you did in your QPR is what you actually did and that you got all the backup documentation of the things we've been talking about.



If you want to check yourself, and we recommend that you do, do a self-assessment, I recommend that you pull the HUD monitoring checklist for NSP and also for CDBG, which kind of overlay, and you can find those on the OneCPD website if you search on HUD monitoring checklist or HUD CPD monitoring checklist. You'll see that those have some very detailed questions that HUD will ask when they come to visit you and HUD will use those checklists. You should use them too to check your own files and see how you're doing. Now, one of the important requirements that we want to talk about a little bit has to do with if I've already -- I've finished the project, it's already done, but now something's come along and I want to change the way that property is being used. What are the requirements related to that? That concept is called change of use and it only applies to projects that are owned by or under the control of the grantee or a subrecipient. So we're not talking about projects owned by developers or landlords. We're not talking about individual homebuyer projects here. We're talking about projects that are owned by the grantee, owned by a subrecipient, where you use NSP funds to develop that project and particularly that you spent more than $25,000 to do that. And now down the road somewhere, you want to turn it into something else. And so you have two options if that happens. One is to continue to meet a national objective. So instead of whatever national objective you were meeting, you go ahead and do the new eligible use, but you meet a new national objective or a different national objective; and that's fine. Alternately, if you can't meet a national objective and you're not going to reuse it for an eligible activity, then you go back to your program. You reimburse your NSP program with the current fair market value, and notice I'm saying current fair market value, of the property at the time you're going to dispose of it for this new use. So you go to sell it for whatever this new purpose is. You're going to get back the fair market value and you're going to send it back to your program. So you can't earn a profit, basically, on having done this and flipping these properties. This applies, again, [inaudible] the grantee or subrecipient uses. You either have to continue to meet a national objective or you have to reimburse the program. So again, there's more information about his in the policy alert that I have mentioned. Okay. So one last topic we want to cover and then we'll take some more questions has to do with closing out the NSP grant. So now, we're not talking about -- we've now finished all my projects. I'm not talking about a specific activity closeout; we've already covered that. So I'm now talking specifically about closing out your program. In other words, you're all done with NSP 1, NSP 2, or NSP 3, and you'll have closeouts for each one, and you're ready to tell HUD that they're complete, but for the program income that you're continue to earn. So that's trigger point will be happening when you've paid everything you're going to pay out of your NSP grant, be it NSP 1, NSP 2, or NSP 3. And again, it'll happen for each program. You've finished all the work you said you all -- whatever you said you were going to do on that project,



you're done. You have completely and fully met the 25 percent set asides for your entire allocation and any of the other requirements, like the national objective, has been met. You've documented your compliance with your housing, whatever it might be. You've got all the other requirements that have to happen. So if you have met all of those criteria, and these are "ands," not "ors," so you've met all of these criteria, you're now ready to closeout that NSP 1 grant, let's say. And so when you're ready to closeout your NSP 1 grant, you're going to submit to HUD your final QPR for that allocation, for your NSP 1 allocation. HUD will look at it. HUD will make sure that you are ready to do closeout, that there aren't any outside issues as to why that should be the case that you can't closeout. And if you are ready to close, they will issue you a closeout agreement, which specifies all the conditions of the closeout. So those are the criteria and when you're allowed to closeout. John or Hunter, anything you want to add to that before I keep going? John Laswick: No. Marsha Tonkovich: Okay. So what happens after closeout? So I've now closed out my grant. Let's say it's NSP 1, but again, it could be NSP 2 or NSP 3, and I'm still getting program income coming back in. So I am still earning loan payments and I'm selling off properties and whatever else that might be happening and money is coming back in. If that is the case, then you will continue to operate an NSP program. So there's the policy notice that I mentioned previously that was in the previous slide talks about what are the conditions and happens if you continue to have program income coming back in. So we need to separate what kind of a grantee you are to decide how you're going to treat that program income after closeout. So if you are an existing CDBG state or entitlement grantee, you get CDBG funds on an annual basis, then the NSP program's going to go on just as it has. So you are going to continue to operate the NSP program using your program income for all the eligible activities, same property requirements, be it federal requirements. So like the 25 percent set aside still applies. You can still take 10 percent for admin. Nothing changes. You continue to operate the NSP program. The only thing that will be different is you will, as I mentioned earlier, you will describe your NSP programs in your annual action plan and your consolidated plans that you do for your other CPD programs. Otherwise, you're going to continue to undertake your activities and continue to report on your NSP results. That's if you're a state or entitlement grantee. If, however, you were a nonprofit, so you were an NSP 2 recipient. So we're not talking here about a subrecipient nonprofit where you're getting your money under NSP 1 or NSP 3 from the local government. If you are a nonprofit who gets your money through a local government, you're going to be subject to all the rules that we just talked about. So the local government is still subject to it.



If however you are an NSP 2 nonprofit, or you are a member of one of those consortia that I mentioned, and you are a local government, but you're not entitlement, you're a small local government because not yet a direct CDBG allocation, then you're going to have some alternate rules. If you get money before closeout, so if you've earned program income before closeout, it's just like NSP money. It's program income. You got to follow all the rules. If however you earned money after program income, after closeout, because you have to closeout, and you don't have any other HUD grant, this is the only HUD grant that you have, then during the five years after closeout, the only tools that you have to meet are that it's eligible and that it meets a national objective. All the other stuff that we talked about does not apply. Anything after the five years is not program income and not subject to the NSP requirements. Now, I think there's also another criteria that's an exception to this, and we'll talk about that in just a moment. And I'd encourage John or Hunter to jump in here, which is for projects that if I'm a nonprofit, and I get program income and I fund that project, it's a brand spanking new project, after closeout, it is my understanding, John and Hunter, that program income from those newly funded projects after closeout is not program income; is that correct? Hunter Kurtz: Well, it's during the first five years after closeout, those projects would -- any program income received would be program income. John Laswick: It really is driven by when you receive the money, not when you fund the project or what source of funds the project's from. Marsha Tonkovich: Okay. So anything during the first five years is eligible and meets a national objective and after that it's free and clear. John Laswick: Right. Marsha Tonkovich: Terrific. Okay. Great. Okay. Now, there are a couple of exceptions to this rule, which is if you have annual -- you're a grantee or subrecipient and the sum of that program income, so the sum of the program income for the grantee and all of its subrecipients, so it's not for each subrecipient, but the sum of all of that program income, is less than $25,000, then typically what people will use that money for is to administer your NSP funds. But if it's less than that, you could treat it as CDBG program income. In other words, you don't have to follow -- because it's sort of a diminutive amount of money. So you don't have to follow the NSP rules, that less than $25,000 receipt. If you have more than $25,000, but less than $250,000, then it is in fact NSP program income. Follow all the other NSP rules, except that you don't have to spend 25 percent of it on the low-income set aside, the LH25. And that's because, again, a diminutive amount of money and it



would be a burden to manage it that way. Again, this is all going to be applying to grantees who, in fact, have the potential to be earning program income. Now, when do I do look at the affordability period? So we talk about the fact that if you have an ongoing affordability period that will continue post-closeout, and so the issue is how do I oversee that affordability period that we've previously talked about, which could be for five, 10, 15, 20 years after my closeout, or going on beyond that with my program income. You do have an obligation to ensure that those affordability restrictions are met, and it applies to all units, whether it's homebuyer units or rental units. The way you do it will differ, but the key thing is that you're required to make sure that if you have a sale of a homebuyer unit that you have either recaptured the funds or that you have resold it to an eligible buyer, depending whichever one you chose, and if you have a rental property, that you have continued to receive reporting from that rental owner having to do with the occupancy of the unit and making sure that at turnover you have kept the right proportion of low-mod-middle income or variable income depending on how you set up those units of NSP occupants. So you have a required ongoing tracking of that and you have to make sure that for those rental projects that you look at that every year and make sure that you've got the right NSP units and the right households at the right time. How do you pay for your time to do that oversight once NSP is closed out? This is where the admin funds come into play. And if you're getting program income, it's where you can take that 10 percent of your program income to use that 10 percent to manage this affordability process. John Laswick: Yeah. Marsha, one thing on that is some grantees have asked, well, we didn't use all of our 10 percent early on in the program and we banked that to use it later for program administration. And the answer is yes. You can. Your 10 percent covers all of your grant and program income, and it doesn't have to be spent proportionally along the line. So chances are you're going to have that budget capacity that would be funded through program income. And I don't know how far it's going to take you, but it will take you a little bit farther down the line after most of your activities are finished. Hunter Kurtz: But's it's important to note for you NSP 3 grantees that haven't met your expenditure deadline, that does not mean that you only need to expend 90 percent of the grant. That means you need to spend 100 percent. It's just that 10 percent cap out of that 100 percent you did not -- you still spent an amount equal to 100 percent. You just don't lack room in your admin 10 percent. John Laswick: More of a budget capacity. Hunter Kurtz: Right. John Laswick: But in other words, if you have some money left from NSP 1 that you didn't use for admin, you can still spend that amount of money if you have the revenues some place in the future.



Marsha Tonkovich: Terrific. So one more quick -- we want to talk about that closeout and then I do want to get to some more questions. So the closeout notice -- and I'm sorry, the demolition [inaudible] notice as well -- talks about land banked properties. And we talked about the fact that you have to have a plan, a 10-year plan for what's going to happen with those land banked properties. And what that basically says is within 10 years of when you closeout your grant, you have to have those properties obligated or committed, not necessarily expended, but obligated or committed for some specific use. And that reuse of the property doesn't necessarily have to be affordable housing, although it certainly could be. But it does have to be related to neighborhood revitalization, to community revitalization. So you could have some of those reuse properties going to public facilities if it's perhaps an NSP activity, that you want activities. Some of them could be -- I think, John, you guys have even contemplated some of them could end up being economic development, as long as that reuse of the property is part of the community revitalization. John, you want to say anything else about land banked properties? John Laswick: No. Let's just keep moving. Marsha Tonkovich: Okay. All right. Well, in the interest of time here, guys, just a quick moment. "So just quickly, post-closeout, what are your options there for [inaudible] from coming in. What are your choices?" You could do more of the same. If that's working for you and your market's still the same, you could do more of the same. You amend your action plan or create a new action plan that does different activities. That now your market has changed and you want to try something different. You could use new partners and you could seek out new CHODOs, new CDFIs, other kinds of nonprofit or other kinds of partners. Or you could continue to refund those that may have been doing it [inaudible]. So you have a lot of options here about what your post-closeout world looks like. So with that, Vinnie, I'd like to take some new questions. So could you let us know the next person in the queue? Vincent Grady: Sure. Marsha Tonkovich: Do we have any audio questions? Vincent Grady: Let me check. I don't see any hands raised.



Marsha Tonkovich: Okay. Again, feel free to raise your hand if you want to ask an audio question. But do we have any written in questions, Vinnie? Vincent Grady: We do. We have quite a few. So the next question is, "If a blighted commercial structure is demolished for public safety with NSP funds, does housing have to be an end use?" Marsha Tonkovich: Okay. For the blighted commercial structure that use NSP to demolish, and so I think -- my question would be, are you going to put NSP money into the redevelopment of that site? If your end use is just the demolition and you simply want to leave it as open space, then I think it's blight, of course, in the first place. I think you're okay as is. If, however, what you want to do is put NSP money into the redevelopment of that property, then yes. It's going to have to meet -- it's going to have to be an affordable housing activity of some type or other. I guess, a third scenario could be that you demolish it. It's met the national objective as a demolition all by itself and now it's some other source, not NSP. You want to go ahead and redevelop it with some other source, John, I think you guys have said that that was okay; yes? John Laswick: Yeah. And I would just qualify your previous answer by saying that if it's NSP 1, you could redevelop it into something besides housing under eligible use B. Hunter Kurtz: NSP 2 and NSP 3, you can't. [talking over each other] John Laswick: NSP 2 and NSP 3, it has to be housing; right. But if it's NSP 1, you could develop a public facility, a homeless shelter or a park or something like that. Marsha Tonkovich: Right. Terrific. Okay. Next question, Vinnie. Vincent Grady: Okay. "Can you give an example in purchasing an appraised foreclosed home at $100,000, what is it worth in the 1 percent or what will that property cost at closing at one percent?" Marsha Tonkovich: So I think we need to make sure we separate the acquisition cost, where I -- this is [inaudible] as the grantee who's selling their property, but this could be a developer who's buying it -- we have to separate out the requirements related to my initial cost of that property and the 1 percent discount with what I then go to resell the property for, public rehabilitation or post-construction. So when I go to acquire the property, if I'm the developer or the grantee, and to me it's a foreclosed property, if the value is $100,000, that's what my appraisal tells me, then the most I can take to buy that property is $99,000. I can get it for cheaper; that would be great. But I can't pay any more than $99,000 because that would be your 1 percent discount.



So that's my initial acquisition of property. Then I do my rehab, I can do my construction or whatever's going to happen, and now I go to sell the home to an individual homebuyer, I'm going to turn it over and sell it to a homebuyer. When that's the case, the most that I can sell it to the homebuyer for is my total cost to development, my total development cost. So that would be my cost of acquisition, my cost of construction, my associated soft costs and so forth. That would have the most I can sell it for, although the market might not bear that and maybe I want to sell it cheaper. But the most I could sell it for is that total development cost. What I actually sell it for could be something less than that if I have an affordability goal and my market won't bear that price, whatever it might be. So you can't tell from all of these equation without more specifics, what the end sale price is, because it depends upon your program design and target market. So I think that answered the question. John, anything you'd add to that? John Laswick: Just to bring out something that I think was implicit in your comment, which is that the most you can sell it for is your total development cost, unless the appraised value is lower than that. In which case you can only sell it for the appraised value. And in most cases, in the NSP program, we are losing money. So the total development cost is higher than the appraised value and that is what's called a development subsidy, and that just gets written off. Marsha Tonkovich: Right. And it has to do with what the market will bear, because you can't be selling it for more than what the market will -- [talking over each other] John Laswick: Right. Marsha Tonkovich: Okay. Next question, Vinnie. Vincent Grady: Okay. Lois had her hand raised and she's put a few questions in the queue. So if you don't mind, I'm going to take her off mute so she can ask her questions. Marsha Tonkovich: Great. Let's talk to Lois. Vincent Grady: Okay. Hi, Lois. Q: Hi. [talking over each other] Q: Sorry, I had my hand raised, so then I just started typing them all in. It's kind of a book. Let me go back to what I was asking. Now, it's sort of left my brain. Okay.



So the area -- the LMMA that you talked about back on like slide eight, I was wondering if anyone could elaborate on -- we had to do a little bit of work in our last monitoring visit to document our area benefit. And we found all the instructions and got a lot of good resources from -- I forget the website, but it's a HUD website that you can download the data for census tracks and that sort of thing. But it's all already been calculated for the grantees, but it's based on the 80 percent AIM. And we need it up to the 120 percent. So most of our target areas would still qualify in the 80 percent, but a couple of them are probably more in the 90 percent AIM range for area. Do you follow what I'm talking about? Okay. Marsha Tonkovich: I do. So what you want to show is that 51 percent of the occupants of the area are the 120 percent of AIM and below? Q: Exactly. And we wrote in to a couple of different folks. I don't have it in front of me who it was or which exact website, but they told us to go back to the local HUD office. But those are the ones monitoring us and they wanted us to give them the source documentation. So I'm a little [inaudible]. Marsha Tonkovich: Got it. Okay. [talking over each other] Marsha Tonkovich: Vinnie, before we answer the questions, I just want to remind everybody on the phone that the low-mod area national objectives are only used for activities that benefit everybody in an area. So that public facility that we talked about under NSP 1 is an example. It's not for housing activities. So John, you have ideas about where she could go to get some of this data? John Laswick: Yeah. Just asking Hunter. I thought some of the mapping tools that we had for NSP 3 areas have been updated and really are valid for NSP 2 in Lois' case. I'm not positive, but I thought that those had been modified to look at 120 percent rather than the -- and those are on the HUD user site to our policy development and research group. Marsha Tonkovich: And that's huduser.org. Hunter Kurtz: Keep looking because there -- not everything is, but a lot of the maps and data and everything has the 120 percent option also. Q: Okay. Yeah. We looked pretty aggressively on there, but I'll go back and look for NSP 3 links and maybe it's in that. Because we were just going to the regular general area of -- it was that site we were definitely using. [talking over each other]



Q: -- specific name of the data set, because there's a lot of calculations because we don't have access to one piece of information because it's all aggregated for us when you guys -- I'm not explaining it very well, but I don't think we can do it manually with only -- just directly from the Census.gov [ph] site. [talking over each other] Marsha Tonkovich: The other place to try that you might want to look at is policy map. I think they might also have some tools that would help you. Q: Oh, right. If our subscription is still valid. Okay. John Laswick: Well, there's actually quite on the public site. Q: Okay. Good. John Laswick: But yeah. I'm not sure though, Lois, because, I mean, the stuff that was driving the mapping tool is the foreclosures and delinquencies and that kind of stuff. And I just don't -- I'm not positive that the 120 percent figure's in there. But there are lists of 120 percent -- let me see. Yeah. I thought they adjusted it, but it might just be sort of lists of census tracks and block groups rather than maps. Q: Well, if it went up to 120 percent, we can take those and we thankfully have capacity and house to make the map. But we just couldn't even find the data set to make the map. So I'll look closure. [talking over each other] Q: I thought maybe somebody else had had some more issues and maybe there would be a silver bullet. [talking over each other] Q: I have another question, if I can take more time. Hunter Kurtz: Wait. Can I just say one thing about your last question? Q: Oh, sure. Hunter Kurtz: If you can't find it, submit a question to the ask a question box and we'll see if there's something that we can find. Q: Okay. Thanks. Marsha Tonkovich: One more question, Lois?



Q: I do. Yeah. Do you have any thoughts or warnings about applying more than one eligible use to the same property? For example, we're a consortium. I'm part of the lead grantee and we have land banks operating as part of the consortium. They're acquiring foreclosed properties under eligible use C. Some of those properties have blighted structures on them. So our demolition partners, which are separate from the land bank, are demolishing under eligible use D the property and meeting the area objective in that activity, national objective. But then, later -- [talking over each other] Marsha Tonkovich: -- you have acquisition with demolition. Is that what you have? Q: Well, the acquisition is part of the land bank activity. Marsha Tonkovich: That's what I mean. You have acquisition under land bank and you have demolition as well. Q: And then we have demolition as well, which we're doing separate and applying and making -- it's -- not making it, but it's eligible under eligible use D just on its own. And it's a separate partner spending their allocation on that demolition. So it's meeting a national objective of LMMA, just in that activity, but it's separately meeting a national objective LMMA in the land bank activity, which later they have to redevelop within 10 years at which one we're going to be tracking it under eligible use B; right? [talking over each other] John Laswick: -- what your ultimate use is, what use you're going, I mean, if you're going to turn it into a park, for example -- well, you wouldn't be doing that, but -- well, you can use more than one letter on an activity is the way I like to think of it. So yes. I mean, you can acquire, and lots of places do acquire, a property through the land bank and then demolish it if it's blighted, assuming it's blighted, and then put it back into the land bank pending some subsequent use. We actually added acquisition to eligible use D so that you didn't have to run it -- Q: Through. Yeah. Sure. [talking over each other] John Laswick: -- the bank. So either way, you're covered. Q: Okay. And so I guess the part that I am a little bit gray on is so in the QPR and in the action -- or maybe not the action plan -- but something in our reporting, there will be duplicate addresses because they will be hitting different eligible uses.



John Laswick: Yeah. That's okay. Brian Flanery has created a process that he calls deduplication, and we go through all of our data and take out the -- it's because you will frequently be doing more than one -- [talking over each other] John Laswick: -- on a particular property. You know, and in this case, it's the same national objective and everything. It's just -- it gets reported in two places and we've just backed those out. Q: Okay. And so it doesn't matter to you that we may be claiming, say, 20 units affected by eligible use D, 30 units affected by eligible use C. So if you unduplicate those, you're not going to be able to tie it back to the 20 and the 30 because you're going to delete one of them? John Laswick: Right. Q: I guess you have a way to figure that out. Okay. John Laswick: We match up the addresses. Q: Okay. All right. Great. Thank you. I think -- oh, one other quick question. If our agreements with the developers specify program income, that's okay; right? [talking over each other] Q: -- can't generate program income, but we -- John Laswick: It's actually not program income, but you can require developers to pay money back. Q: Okay. Thanks. Marsha Tonkovich: Okay. Vinnie, do we have anybody else on the phone? [talking over each other] John Laswick: -- through loan agreements or something like that. Marsha. Great. Okay. Vinnie, do we have anybody else on the phone? Vincent Grady: No others on the phone, but we still have written in questions. Marsha Tonkovich: Okay. So let's take a couple more written in questions and then, since we are getting close to our timeline, we can also encourage people to write other questions into the ask a question box. So what's our next written in question?



Vincent Grady: Okay. The next one's pretty straightforward. It's "Appraisal cost, is that admin or project cost?" Marsha Tonkovich: Okay. The cost of paying for the appraisal is an activity delivery cost. John, would you agree? John Laswick: Yes. Marsha Tonkovich: Okay. The next one. Vincent Grady: "If NSP programs aren't meeting the needs of greatest need communities, should NSP equity advocates approach the PJ to amend their action plan?" Marsha Tonkovich: Okay. So the issue is that NSP is not hitting those areas of greatest need. How could advocates in community organizations work with their grantees? So what I would recommend is a couple of things. One is, certainly, you should reach out to the grantee and you can find on the HUD website who the contact person is for that grantee. And so you should absolutely have a conversation with them and provide your input and make recommendations for where you think the underserved needs are that are not being addressed. And then secondarily, to the extent that they amend their action plan, you could certainly comment on that. But more specifically, you could comment on their annual CDBG CPD action plan that is going out if you want to more formally make a recommendation about these sorts of things. So there's lots of avenues, but I would certainly encourage creating a partnership with the grantee to make those recommendations. HUD, anything you'd add to that? John Laswick: Yeah. Well, to follow up on an earlier comment, I mean, I would say there is no way that there's enough NSP money to treat all the properties in areas of greatest need. So where a grantee is active is a strategic choice and you could have any number of correct strategic choices and you're still not meeting all the needs. So I guess I'm just suggesting that it may not be a matter a right or wrong so much as, well, this is as far as we could get or we're going to get to that block after we get to this block because we have encouraged grantees to target as well. So sometimes you try to spread the money around so that every part of the areas of greatest need gets a little something, and then a year later, you come back and you can't see it all, and we don't want that either. So there's some judgment calls there and it's not an absolute black and white conversation. Marsha Tonkovich: Okay. And Vinnie, what's our next question?



Vincent Grady: Okay. The next one is a clarification question. "Developers can or cannot keep funds resulting from lease payments in the event a sale does not go through and the potential buyer moves out?" Marsha Tonkovich: Developer can or can't keep lease payments. So I'm not sure HUD would be a lessee, so I guess the idea is I've rented it out to someone before I sold it to them. I'm not quite sure I understand the question. John, do you understand it? John Laswick: I'm guessing it's a lease purchase. Yeah. [talking over each other] Marsha Tonkovich: Yeah. Maybe it's a lease purchase. So what would really happen in that case, and if we're right that what the question is asking is about repurchase, then yeah. The developer could keep or the owner could keep the lease purchase payments because you will have met a national objective because you had an eligible tenant living in that unit. But what would have to happen at whatever period was specified by the grantee in their program design is that that unit would turn into a rental unit and it would have to then follow the rental unit requirement. I could never -- was sold. So if we're right that you mean is it a lease purchase question or -- [talking over each other] John Laswick: -- lease purchase person in there. Marsha Tonkovich: Right. Or that's true. You could sell it and then you have a different occupant come in. So that's not what you meant, asker, feel free to write in to the ask a question box on the OneCPD website and further illuminate. Would you guys agree with that answer, John? John Laswick: Yes. Marsha Tonkovich: Okay. All right. Vinnie, let's take two more, then I think we'll be over our time slot. So anybody else written in? Vincent Grady: Yes. So this next question is, "How do we handle the affordability period for a single family home on a lease to purchase agreement?" John Laswick: Well, we just published a little note on that recently. And the answer is that if the original tenant who leased it for a couple of years ends up purchasing the home, then you count the entire period of occupancy as the affordability period.



However, if the person does not convert to ownership and you move another person in or sell to a third party, then the affordability period would start at the time that the second tenant or the purchaser buys the unit. You don't get credits for the time that the unit was rented to somebody else. Marsha Tonkovich: I think that's very clear. All right. Terrific. We'll take one more question, Vinnie. Vincent Grady: Certainly. "We have a rental property that we are using to meet the LH25 and in an earlier slide, I believe it said that income only has to be verified at unit turnover. Does the income not have to be verified on a yearly basis to confirm that the unit is still benefiting the LH25 household?" Marsha Tonkovich: That's a great question. So the answer is, you determine the benefit LH25 when the person initially moves in. We're not asking if they have to stay below 50 percent of a AIM throughout their tenure in the unit. So, in fact, the people get a better job and are doing better, that's terrific. So they are very low income at the point that they move in and they can change to whatever income they change to. We do not have to annually verify their income until they move out and the next person is going to move into that unit. John Laswick: But that is different than the way the HOME program works. Marsha Tonkovich: Right. John Laswick: So if you're coming from a HOME perspective, that's how you're thinking about it. But in NSP and CDBG, we just require to be -- the first -- they qualify the first time around and that's it. Hunter Kurtz: But we should point out that once you count a unit as LH25, that the next tenant must be at 50 percent AIM or less. John Laswick: Right. [talking over each other] Hunter Kurtz: That unit remains a LH25 unit for the affordability period. Marsha Tonkovich: Right. All right. So guys, since we're a little over 4:00 o'clock, should we call it a day or do you want to take a few more questions? John Laswick: Well, it's okay with me if you want to keep going. How many more -- [talking over each other]



John Laswick: Let's just keep going. Marsha Tonkovich: How many more do we have, Vinnie? Vincent Grady: We have I want to say five or six. Marsha Tonkovich: So why don't we take one or two more and then hopefully we -- why don't you pick up some that look like they cut across and then the rest of the folks who don't get their questions answered, I would encourage you to either write in your question or -- so also with these ongoing ask a question sessions, you can join into as well. So what's our next question, Vinnie? Vincent Grady: Okay. This is maybe the person just didn't see on the slides or -- "Could you clarify that prior to closeout, national objectives on all projects funded with NSP grant dollars, but not NSP PI dollars, need to be completed and recorded in DRGR; is that correct?" Hunter Kurtz: Yes. John Laswick: That's coming from Mr. Closeout. Marsha Tonkovich: Yeah. So you can't closeout until you've met the national objective; is that proper to say, Hunter? Hunter Kurtz: For every project that has even a dollar or a penny of grant funds, line of credit funds, you must meet a national objective. John Laswick: Before you close. You have to meet a national objective for all your expenditures, but if it's just with program income, you can satisfy that post-closeout. Marsha Tonkovich: Okay. All right. Let's take the next question, Vinnie. Vincent Grady: Okay. Another clarification question. "Will DRGR still be used to report program income when the NSP grant is closed out?" Hunter Kurtz: Initially yes. Later on in the process for entitlement communities and states, they may switch over to IDIS, but that is something way in the future. Marsha Tonkovich: Okay. Those were fast. So why don't we take a couple more. So Vinnie, what else do we have? Vincent Grady: Okay. "Can program income after a sale be used for admin costs?" Marsha Tonkovich: Again, for after a sale, the program income that comes back, you can take 10 percent of that program income for administrative costs.



Vincent Grady: Okay. And we really only have about two more, so we can keep going. "I found grantee information at the county level only. Does that mean there are no other grantees?" Marsha Tonkovich: No. You probably haven't -- I think you might have to scroll down through the list. There are county grantees, but there are also local units of government grantees, the municipalities. So I think just keep looking on the list if there's more there. Hunter Kurtz: And some of the folks, some communities that are not direct recipients of funds from HUD may be recipients from the state or from the county itself. So town X that's in county Y may not get money from HUD, but it may be getting it from the county. John Laswick: Or maybe getting it from both. Hunter Kurtz: Yeah. [talking over each other] John Laswick: Or it could be all three. Marsha Tonkovich: Okay. The last one, Vinnie? Vincent Grady: Last one. "The price of a property to a homeowner is less than appraised value. Can we use the difference as match to HOME if we use the HOME period of affordability?" Marsha Tonkovich: Okay. So you have a development subsidy where you have the cost of the project is more than the value and so you've got a delta. And so the question is whether you can then use that for HOME match? Vincent Grady: Mm-hmm. Marsha Tonkovich: That's federally subsidized, so I don't know that HUD would allow you to use that. I don't want to speak for the HOME program. I think that would be better of the HOME program folks. I would question it, but I don't want to give a definitive answer. So I would say that's really not a question for NSP. It's a question for HOME. So I would say, if you want to go on the OneCPD website, there is also a question desk for the HOME program. Go onto the HOME program desk and ask that question so you get an official answer from the HOME program. Hunter Kurtz: The one thing I think we've been talking about recently here, and that should be mentioned in this situation, is to make sure that you're not over-subsidizing the project. You can't pay -- if the home is 100 percent HOME funds or 100 percent NSP funds, you can't use another federal program to provide down payment assistance or permanent financing.



John Laswick: Once you've funded 100 percent with federal funds, any more federal funds is seen by OMB as duplication or unnecessary switching of funds. It's really just viewed as improper and subject to findings. Hunter Kurtz: As I like to say, think of Uncle Sam sitting across the table from you and giving you a stack of money to pay for a home. And then you're turning around and asking for another stack of money to put somebody in the home. He's paying for the home twice. All: Right. Marsha Tonkovich: But just be careful, and again, I think the question was around HOME match. So that's an alternate question, but similar kind of bits. Similar to the discussion of why this sort of double federal thing would be a problem. But again, talk to the HOME folks to be sure. So with that, I'm going to wrap this up. We have some slides that, again, will be available on the website that talk about some of the lessons that we've learned and we wanted to just share those with folks that they're there for your viewing pleasure. There's also -- and you can see it on the screen -- it's a list of those top 10 policy alerts. And again, I had mentioned early on that if you're new to NSP, I recommend you get the notices and really have them available to you because there are a lot of great resources that are in there. And then finally, I want to ask if you'd give us some feedback about these webinars and particularly whether this introductory webinar was helpful to you and what else you'd like to learn. Please let HUD know that we review everyone's evaluation, so we hope to hear from you. And with that, I'm going to wrap this up to let John and Hunter close us out. But I want to thank everybody for joining us and sticking with us. I think almost everybody stuck with us for the full two hours. So thank you again and enjoy your afternoon. John or Hunter? John Laswick: No. That's it. Go forth and do good things. Hunter Kurtz: Please, one thing. Make sure if you're going to ask us a question, a programmatic question, don't ask through the SurveyMonkey. We don't get those things for a month or two. So we won't see your question for a month or two. Go to the ask a question website and ask there. Marsha Tonkovich: Great. Thank you, Hunter. John Laswick: And -- Marsha Tonkovich: So I thank everybody. Good afternoon. Bye-bye.

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