Toward the end of 2023, the U.S. Department of Housing and Urban Development (HUD) introduced important guidance for the interchangeable use of Community Development Block Grant Disaster Recovery (CDBG-DR) and CDBG Mitigation (CDBG-MIT) funds. The provisions in HUD’s Policy Bulletin 2023-02: Interchangeability Provisions and Other Flexibilities allow grantees to use funds flexibly, easing administrative burdens and streamlining recovery efforts for communities affected by disasters. This article highlights the key points of the bulletin, and offers important guidance for grantees on how to navigate these flexibilities effectively.
Key Concepts of Interchangeability
1
Program Administrative Costs (PAC) Interchangeability:
This provision allows grantees to use CDBG-DR and CDBG-MIT funds for administrative costs across multiple grants, regardless of the specific disaster that the grant was allocated by HUD to address. This can significantly ease the burden of managing multiple grants by consolidating administrative functions such as staff time for grant management or financial reporting.
2
Grant Funds Interchangeability:
Under this provision, grantees may use grant funds interchangeably for activities in overlapping “Most Impacted and Distressed” (MID) areas, as long as the activities address unmet needs from both of the qualifying disasters. This interchangeability provision applies to any eligible costs, including planning, eligible activity costs, and associated activity delivery costs (such as environmental reviews). This flexibility could be critical for funding projects like housing rehabilitation or infrastructure improvements that address unmet needs arising from different disasters.
Key Considerations for Grantees
Program Administrative Costs (PAC) Flexibility
- Appropriations Limitations: PAC interchangeability applies to grants awarded after 2015, with broader flexibility granted under laws such as Public Law 117-43 and Public Law 117-180, which cover disasters from 2020 to 2022. Grantees should ensure they are familiar with the specific provisions of the applicable Public Law for each grant. The table below provides a summary of the allowable use of PAC interchangeability from grants awarded prior to 2015 through 2022.
| Disaster Year | Use of PAC Interchangeability | Public Law Reference |
|---|---|---|
| Prior 2015 | N/A | Refer to individual public laws for each allocation |
| 2015-2019 | CDBG-DR or CDBG-MIT grants for 2015, 2016, 2017, 2018, 2019, and future CDBG-DR grant that may be received | Pub. L. 114-113, 114-223, 114-254, 115-31, 115-56, 115-123, 115-254, 116-20 |
| 2020-2022 | For any CDBG-DR or CDBG-MIT grant, including prior to 2015 grants and any future CDBG-DR grant that may be received | Pub. L. 117-43, 117-180, 117-328 |
- Administrative Cost Caps: CDBG-DR appropriations cap CDBG-DR and CDBG-MIT administrative costs at five percent of the total grant amount plus five percent of any program income generated. These caps remain in place when PAC interchangeability is used, and grantees must develop robust financial management systems to track administrative costs and ensure continued compliance with these caps.
- Correct Categorization of Costs: As with all CDBG-DR funds, when using interchangeability, it is critically important that grantees correctly categorize costs, e.g., distinguishing between administrative and activity delivery costs. Misclassification of these costs could lead to non-compliance and affect overall program integrity.
Grant Funds Interchangeability Flexibility
- Overlapping MID Areas: Grant funds may be used for the same activities across multiple qualified disasters, provided that the most impacted and distressed areas identified for each qualified disaster overlap. For instance, if housing rehabilitation is needed in areas affected by both a 2018 and a 2021 disaster, funds from both grants can be used to address those needs.
- Action Plan Amendments: Grantees must amend their CDBG-DR and/or CDBG-MIT action plans to reflect any changes in program benefits or eligibility criteria when using funds interchangeably. For instance, expanding the universe of eligible beneficiaries to include impacted areas from both disasters will require a substantial amendment to the applicable action plans.
HUD will evaluate whether the proposed interchangeable use of funds in overlapping MID areas and whether the grantee is using the funds to address unmet recovery needs of both major disasters, at the highest reasonable level.
Best Practices for Implementation
1
Develop or Update Policies and Procedures:
Establish comprehensive program and financial management policies to track and allocate funds correctly. This includes timekeeping processes for administrative costs and regular quality assurance reviews to maintain compliance.
2
Train Staff and Subrecipients:
Grantees should ensure all staff, subrecipients, and partners are well-versed in the rules and regulations governing the interchangeability of funds. This includes understanding which rules apply to each grant and how to classify costs appropriately.
3
Utilize HUD Resources:
HUD has developed several tools to assist grantees in managing these flexibilities, including checklists for both PAC and grant funds interchangeability, as well as CPD Notice 23-06, which offers detailed guidance on cost allocation.
The interchangeability provisions offered by HUD provide significant flexibility for grantees to address disaster recovery and mitigation needs more efficiently. By understanding and leveraging these provisions, CDBG-DR and CDBG-MIT grantees can streamline their recovery processes, reduce administrative burdens, and better serve the most impacted communities. Grantees should ensure they follow HUD’s guidelines carefully, develop clear internal processes, and utilize available resources to implement these flexibilities effectively.
As with all CDBG-DR and CDBG-MIT requirements, when using interchangeability, it is important for grantees to remember that the “rules follow the money.” The requirements for a specific CDBG-DR grant continue to apply to those grant funds, regardless of whether those funds are used interchangeably to address a recovery need of a different qualified disaster.
HORNE
Experience
For assistance with analyzing the technical details of the HUD Interchangeability Provisions policy bulletin, and how the flexibility HUD has afforded grantees can be leveraged to allow for the most effective use of your organization’s CDBG-DR and -MIT funds, please contact us.
HORNE’s team of subject matter experts possess substantial expertise in policy analysis and grant administration, particularly in the context of long-term disaster recovery, mitigation and community development programs.
Our record of accomplishments includes supporting Puerto Rico in securing HUD’s initial certification of the Commonwealth’s CDBG-DR financial policies and procedures, and has continued in our work with the Puerto Rico Department of Housing to develop new tools and processes to ensure that cost allocations in Puerto Rico’s CDBG-DR and -MIT grants are accurately and efficiently being managed between program administration and activity delivery costs.
The HORNE team’s experience with grant administration, program design and policy analysis will allow HORNE to work with you to draft substantial amendments to your organization’s action plans that will align with the Interchangeability provisions of the recent HUD policy bulletin and to secure HUD approval of the amendments that will allow for the interchangeable use of recovery and mitigation funds.
