Accessing Funds: Section 6.6 Program IncomeOverview
Any repayment of funds or proceeds generated from a CDBG activity will fall into one of two categories; 1) program income, or 2) miscellaneous revenue. Different rules apply for each of these categories. The following section defines each of these types of funds and the rules that will apply.
Under the CDBG Program, funds received back to the municipality as a result of a CDBG-funded activity are generally referred to as program income. Program income funds retain their federal identity in perpetuity and are subject to all federal requirements. Program income is defined in detail below. Funds not considered program income will be covered in the next section.
It is important to note that accounting for program income is conducted on a municipal basis rather than a project basis because a grantee has the ability to generate income from more than a single project or over more than one grant year. NOTE: The regulations and requirements discussed in this chapter apply to all types of income generating activities, not just economic development.
What Is Program Income?
Program income is defined as gross income received by a unit of general local government (municipality) or a sub-recipient of a municipality that was generated from the repayment of CDBG funds regardless of when the funds were appropriated and whether the activity has been closed out. Program income includes, but is not limited to, the following:
- Proceeds from the disposition by sale or long-term lease of real property purchased or improved with CDBG funds; 24 CFR Part 570.489(e)(1)
- Proceeds from the disposition of equipment purchased with CDBG funds;
- Gross income from the use or rental of real or personal property acquired by the municipality or a sub-recipient of a municipality with CDBG funds, less the costs incidental to the generation of the income;
- Gross income from the use or rental of real property owned by the municipality or a sub-recipient of a municipality, that was constructed or improved with CDBG funds, less the costs incidental to the generation of the income;
- Payments of principal and interest on loans made using CDBG funds;
- Proceeds from the sale of loans made with CDBG funds;
- Proceeds from the sale of obligations secured by loans made with CDBG funds;
- Interest earned on funds held in a Revolving Loan Fund (RLF) account (this would include any past or present Housing Rehabilitation Program);
- Interest earned on program income pending disposition of the income;
- Funds collected through special assessments made against non-residential properties and properties owned and occupied by households that are not low and moderate income if the special assessments are used to recover all or part of the CDBG portion of public improvements; and
- Gross income paid to a municipality or sub-recipient from the ownership interest in a for-profit entity acquired in return for the provision of CDBG assistance.
Program income does not include the following:
- The total amount of funds which does not exceed $35,000 received in a single year from activities other than Revolving Loan Funds that is retained by the unit of local government and its sub-recipients; these funds are considered miscellaneous revenue;
- Amounts generated by activities eligible under Section 105(a)(15) of the Act and carried out by an entity under the authority of Section 105(a)(15) of the Act (non-profit organizations and local development organizations, when undertaking community economic development, neighborhood revitalization, or energy conservation projects); Payments of principal and interest made by a sub-recipient carrying out an activity on behalf of the unit of local government towards a loan from the local government to the sub-recipient to the extent that program income is used for the repayment;
- Certain types of interest income as outlined in 24 CFR 570.489(e)(2)(iv);
- Proceeds from the sale of real property purchased or improved with CDBG funds if the proceeds are received more than five years after expiration of the grant agreement between the state and the unit of local government.
Funds not considered program income will be identified as miscellaneous revenue. These funds do not retain their federal identity and federal requirements such as environmental review, procurement, and labor standards do not apply to the reuse of these funds. However, CFDA does require that grantees or sub-recipients generating miscellaneous revenue adopt guidelines related to the reuse of and reporting on those funds.
Pro-Rating Program Income
When income is generated by an activity that is only partially assisted by CDBG funds, the income shall be pro-rated to reflect the percentage of CDBG funds used. For example, if a parcel of land were purchased with 50 percent CDBG funds and 50 percent other funds, 50 percent of any program income from the sale or long-term lease of that property would be considered CDBG program income subject to CDBG rules and requirements. 24 CFR Part 570.489(e)(1)(ix)
Program Income Funds and Close-Out
The State CDBG regulations as revised in April 2012 stipulate that program income received by the grantee or a sub-recipient both before and after close-out of the grant that generated such income is treated as additional CDBG funds and is subject to all applicable Title I and other federal regulations and state policies governing the state CDBG program. Any program income received before full programmatic close-out must be substantially expended, to the extent practical, before drawing additional CDBG funds from the state for any activity in any CDBG project that the grantee has open. The only exception is when program income is placed in a Revolving Loan Fund (RLF) in accordance with the requirements outlined later in this chapter, in which case it is not required to be expended for non-Revolving Loan Fund activities.
If the grant that generated the program income is closed, any program income permitted to be retained, will be considered part of the unit of local government’s most recently awarded open grant.
Use of Program Income
The accounting provisions and use of funds as described later in this chapter are applicable as long as funds are received or distributed. Appropriate documentation regarding the use of funds must be maintained along with the appropriate accounting documents (see ” Reporting Program Income ” later in this chapter for more information).
Program income must be used for eligible CDBG activities as listed in Title I, Section 5305(a) and this implementation guide. Program income is subject to all of the rules and regulations governing CDBG funds including, but not limited to, compliance with: national objective, procurement, equal opportunity, environmental, labor standards, lead-based paint hazard treatment, etc.
Program Income (PI) retained by the municipality must be substantially expended by the end of the Program Year (PY). A municipality cannot accumulate excessive amounts of PI, accordingly, this department will consider a PI balance of $25,000 or less at the end of the PY to be substantially expended.
The grantee can expend up to 10% of the total program income received for general administration with approval from CFDA. Program activity costs are capped at 12% of total program income received.
The municipality has the option of retaining the PI and expending it in any of the following ways or returning the PI to this department.
Program Income Reuse Plan
A PI Reuse Plan governs the municipality’s ongoing use of PI. The PI Reuse Plan identifies all proposed uses of the PI and commits the municipality to comply with all CDBG program requirements. CDFA closes out its grants to municipalities upon satisfactory completion of the terms and conditions of the grant agreement. However, Federal statute requires CDFA to track PI beyond the closeout of the grant that generated the PI. To that end, the PI Reuse Plan satisfies the Federal requirement that local governments obtain advance State approval of a local plan governing PI. Essentially, the PI Reuse Plan fulfills the role of an ongoing contract with CDFA. Attachment 6-7: Sample PI Reuse Plan
The proposed reuses of the PI are disclosed in the PI Reuse Plan and a public hearing is held to allow for meaningful local citizen comments about the plan, prior to its adoption by the local governing body.
The PI Reuse Plan must also specify all revolving and non-revolving uses of funds, e.g., general administration, any grants, or any program activity costs. Only such costs that are associated with the specific activity of each RLF may be charged to a RLF.
If you choose to retain Program Income (PI) locally (instead of returning it to CDFA), then you must prepare and submit with your application for a CDBG grant a PI Reuse Plan that has already received local approval. The PI Reuse Plan may be amended at any time.
PI Expended on Activities Approved in the PI Reuse Plan
If you have an open CDBG grant, you may spend Program Income (PI) on the activity or activities specified in the open grant. CFDA’s approval of the expenditure of CDBG funds would not be required, if the activity or activities were specified in the Program Income Reuse Plan. Program Income expended on an open grant activity or activities must be spent first (i.e. substantially disbursed- the balance must be reduced to $25,000 or less), before drawing down the open grant funds. Prior approval is required from CDFA for expending PI on activities which were not approved or specified in the Program Income Reuse Plan.
For example, over the course of the program year (January 1 – December 31) a municipality receives $80,000 in Program Income from a Housing Rehabilitation program and is currently administering a $300,000 Public Facilities grant. At the end of the program year (December 31) or during the program year the municipality may expend $55,000 ($80,000 – $55,000 = $25,000 balance) on the open $300,000 Public Facilities grant. However, the $55,000 must be expended first before requesting additional funds from the $300,000 grant.
Spending Program Income on an Open Grant Activity
In order to spend PI on an open grant activity, the PI Reuse Plan should specify this option. It also must be stated if the grantee wants to spend PI on an activity that is different than the original activity. The PI Reuse Plan must be submitted and approved as part of your application for funding. Consequently, the municipality is required to allow for meaningful local citizen comments about the plan, prior to submitting it with the application to CDFA for approval. The minutes of the public hearing must disclose the intended use of any potential PI, which may be earned on the grant activity or activities.
Once the PI Reuse Plan has been approved as part of the grant application and the grantee has obtained CDFA approval (required if different from the activity which generated the PI) of any post-application PI commitment, it may proceed to spend PI on the grant activity.
Expending Program Income on a Future Grant
The third method of complying with the requirement of substantially disbursing program income by the end of the Program Year is to apply the program income to a future grant request. The Municipality may obtain the approval of CFDA to combine the program income with a future grant request. For example, the municipality receives $100,000 in program income during the program year (January 1 – December 31) and the municipality has identified a project, which it intends to submit an application for funding in the amount of $500,000. The municipality may obtain the approval of CFDA to apply $100,000 of program income to the future grant request. Accordingly, the municipality would request $400,000 in new funding from CFDA and not the $500,000 in future funding. Program Income expended on the future grant activity or activities must be spent first (i.e. substantially disbursed- the balance must be reduced to $25,000 or less), before drawing down the open grant funds.
Return the funds to CFDA
The final option is to return the program income to CFDA. The municipality may choose this option if it cannot comply with the requirement to substantially disburse program income by the end of the program year.
General Administrative Costs and Program Activity Costs
Up to 10 percent of the total PI expended during a Program Year (PY) may be used for CDBG general administrative costs (GAC’s). Program activity costs (PAC’s) may not exceed 12 percent of total program income expended in the PY.
Reporting Program Incomes
The grantee is required to report on the Program Income (PI) activities in the Semi-Annual Grantee Progress Report. The report contains semi-annual and annual PI forms. Both forms must be completed and submitted by all grantees even if the amount of Program Revenue (PR) received during the Program Year (January 1 – December 31) was zero or less than $35,000. In addition, the grantee is required to submit the Semi-Annual Grantee Progress Report whether or not the grantee has an existing open grant from CFDA.
At the end of each period, the grantee will report on all CDBG program revenue, PI actual expenditures, and PI account balances, regardless of whether or not your total program revenue exceeds the $35,000 annual threshold. If your municipality has either: 1) made any loans that will be repaid, or; 2) is receiving income that has been directly generated from the use of State CDBG funds, then it must submit Grantee Progress Reports. More information can be found in the Chapter 11: Reporting and Recordkeeping.
Transfer of Program Income
Due to a statutory provision mandating that CDBG funds benefit the eligible grantee that received the original funds, a grantee cannot transfer program income to another agency for use in other municipalities.