Section 5.2 Triggers & Advice to Start Environmental Review

Grant Administration: Section 5.2 Triggers & Advice to Start Environmental Review

Actions Triggering Environmental Review and Limitations Pending Clearance
All HUD‐assisted activities must have some level of environmental compliance review completed for them. Compliance with the Part 58 requirements is initiated with the submission of an application from the grantee for CDBG funds.

NOTE: Do not be confused by the language of environmental review procedures, even exempt activities cannot be undertaken until HUD environmental review criteria are checked and they have been formally determined to be exempt.

Activities that have physical impacts or which limit the choice of alternatives cannot be undertaken, even with the grantee or other project participant’s own funds, prior to obtaining environmental clearance. If prohibited activities are undertaken after submission of an application but prior to completing the environmental review and, if applicable, receiving environmental review approval from the state (a.k.a. environmental clearance), the applicant is at risk for the denial of CDBG assistance. The reason is that these actions interfere with the grantee’s and the state’s ability to comply with NEPA and Part 58. If prohibited actions are taken prior to environmental clearance, then environmental impacts may have occurred in violation of the federal laws and authorities and the standard review procedures that ensure compliance.

There are certain kinds of activities that may be undertaken requiring minimal effort to fulfill Part 58 compliance requirements. For example, the act of either hiring a consultant to prepare a Phase I Environmental Site Assessment (an investigative study for environmental hazards) or hiring a consultant to complete an engineering design study or plan, or a study of soil and geological conditions. Environmental compliance reviews for these activities may be completed early on, and even prior to the grantee’s execution of a grant agreement with the state.

Limitations Pending Environmental Clearance
According to the NEPA and Part 58, the RE is required to ensure that environmental information is available before decisions are made and before actions are taken. In order to achieve this objective, Part 58 prohibits the commitment or expenditure of CDBG funds until the environmental review process has been completed and, if required, the grantee receives a release of funds from the state. This means that the grantee may not spend either public or private funds (CDBG, other federal or non‐federal funds), or execute a legally binding agreement for property acquisition, rehabilitation, conversion, repair or construction pertaining to a specific site until environmental clearance has been achieved. In other words, grantees must avoid any and all actions that would preclude the selection of alternative choices before a final decision is made, that decision being based upon an understanding of the environmental consequences and actions that can protect, restore and enhance the human environment (i.e., the natural, physical, social, and economic environment). 24 CFR §58.22

NOTE: If any CDBG or federal funds will ultimately be used in a project, environmental review process must be observed even if the initial activities are funded by private or local sources. Start the environmental review process before expending any funds from any source or making any choice limiting decisions about the project.

Until the grantee has completed the environmental review process, these same restrictions apply to all sub-recipients, as well. It is the responsibility of the grantee to ensure sub-recipients and any other entity participating in this project (developers, homeowners, etc.) adhere to these restrictions.
For the purposes of the environmental review process, “commitment of funds” includes:

• Execution of a legally binding agreement (such as a property purchase or construction contract);
• Expenditure of CDBG funds (e.g., hiring a consultant to prepare a preliminary design and engineering specifications or a Phase I Environmental Site Assessment);
• Use of any non‐CDBG funds on actions that would have an adverse impact—e.g., demolition, dredging, filling, excavating; and
• Use of non‐CDBG funds on actions that would be “choice limiting.” This also includes the bidding on any work.

It is acceptable for grantees to execute legal agreements that do not financially bind the grantee prior to completion of the environmental review process and receiving CDFA approval. A non‐financially binding agreement contains stipulations that ensure the sub-recipient does not have a legal claim to any amount of CDBG funds to be used for the specific project or site until the environmental review process is satisfactorily completed. It is also acceptable to execute an option agreement for the acquisition of property when the following requirements are met:

• The option agreement is subject to a determination by the grantee on the desirability of the property for the project as a result of the completion of the environmental review in accordance with Part 58; and
• The cost of the option is a nominal portion of the purchase price.

The use of option contracts and conditional contracts prior to completing an environmental review in acquisitions of existing single family and multifamily properties was clarified in a memo issued by HUD on August 26, 2011. A conditional contract for the purchase of property is a legal agreement between the potential buyer of a real estate property and the owner of the property. The conditional contract includes conditions that must be met for the obligation to purchase to become binding. Conditional contracts can be used in more limited circumstances than option contracts. As already mentioned, conditional contracts are allowed only for residential property acquisition. HUD Memo: Conditional Contracts and Environmental Review.

Secondly, for single family properties (one to four units), the purchase contract must include the appropriate language for a conditional contract; and

• No transfer of title to the purchaser or removal of the environmental conditions in the purchase contract occurs unless and until the grantee determines, on the basis of the environmental review, that the transfer to the buyer should go forward and the grantee has received release of funds and environmental clearance; and
• The deposit must be refundable or, if a deposit is non‐refundable, it must be in an amount of $1,000 or less.

Finally, for multi‐family properties:

• The structure may not be located in a Special Flood Hazard Area (100‐year floodplain or certain activities in the 500‐year floodplain);
• The purchase contract must include the appropriate language for a conditional contract found in the August 26, 2011 HUD memo on Conditional Contracts;
• No transfer of title to the purchaser or removal of the environmental conditions in the purchase contract occurs unless and until the grantee determines, on the basis of the environmental review, that the transfer to the buyer should go forward and the grantee has received release of funds and environmental clearance; and
• The deposit must be refundable or, if a deposit is non‐refundable, it must be a nominal amount of three percent of the purchase price or less.