greatest hits - program income - hud exchange

U.S. Department of Housing and Urban Development

Program IncomeAugust 23, 2011

HUD Community Planning and Development

Speakers and Q and A Format• Speakers

– David Noguera, HUD– Marsha Tonkovich, ICF– Janine Cuneo, ICF– Vincent Grady, ICF

• How to ask questions

– Change status in Live Meeting from green to purple

– Press *1 to ask a question through Premiere Conference

Provide Name and OrganizationIf question already answered, press *2 to remove from

queue– Change status back to green after question answered

2U.S. Department of Housing and Urban Development • Community Planning and Development

Agenda• Presentation on key topics:

– What is program income?– Tracking program income in DRGR

• Open session to take your questions!

• Per past attendee feedback, will do entire presentation (approximately 75 minutes) & then take questions (approximately 45 minutes)


Resources on Program Income

• Policy Alert dated 7/13/11• NSP 10/19/10 combined program notice• NSP AAQ (search on program income)• CDBG regulations at 24 CFR 570.504


Definition of Program Income• Program income (PI) = gross income received by the

grantee or subrecipient from the use of program funds:

– Proceeds from sale/lease of property acquired, rehabbed, redeveloped with NSP

– Principal and interest on NSP loans– Recapture of home sales under affordability

agreements– Interest on program income pending use– Repayments of liens placed on privately owned

property that was demolished using NSP money


Definition of Program Income (cont)• PI is income received by grantee or subrecipient (cont):

– Net operating income (NOI) from rental properties NOI from rehabilitation projects (eligible under

570.202) or new construction carried out by developers (both for-profit and nonprofit) is NOT considered program income

– Nonprofit is not subrecipient (unless designated by grantee)

Refer to HUD’s “Guidance on NSP-Eligible Acquisition and Rehab Activities” dated 4/23/09 for more information


Definition of Program Income (cont)– Net operating income (NOI) from rental properties owned

by grantees or subrecipients (cont):NOI is calculated prior to debt service – example:

Rental income: $40,000Operating expenses (including deposits to operating and capital reserve accounts): ($30,000)NOI (program income): $10,000

Private loan debt service: ($8,000)PI remaining after debt service: $2,000


Definition of Program Income (cont)– Net operating income (NOI) from rental properties

owned by grantees or subrecipients (cont):PI can be used to pay debt service on private loan if:

– Private loan was used solely to finance costs of approved project;

– Private loan proceeds were used in accordance with all NSP applicable requirements (e.g., Davis-Bacon);

– Private loan was made from an external lender (grantee/subrecipient cannot lend itself the funds); and

– Use of program income for debt service payment was contemplated when project was approved.


Definition of Program Income (cont)• What isn’t PI?

– Income in a single year to grantee and all subs not exceeding $25,000 in total

Must add together all PI earned by grantee and subs to determine if under thresholdRisky to assume will be under cap and spend

income on ineligible items unless absolutely certain income will not exceed $25k threshold for year

– Proceeds of subrecipient fundraising

– Funds collected through special assessment

Definition of Program Income (cont)• What isn’t PI?

– Interest earned on:

Cash advances from grantee

Funds held in revolving loan fund account (except for funds in approved lump-sum drawdown accounts)

– This interest is returned to HUD for transmittal to U.S. Treasury

Definition of Program Income (cont)• What isn’t PI (cont)?

– Subrecipients’ proceeds from disposition of real property five years or more after grant close-out

– Proceeds earned and retained by a community based development organization (CBDO) under an eligible 105(a)(15) activityNeed to tie to affordable housing

– Funds earned and retained by entities that are not grantee or subrecipient (developers, owners, contractors etc)

U.S. Department of Housing and Urban Development • Community Planning and Development

Income Earned by Households & Developers• Grantee not required to get funds back from

private individuals & developers (non subrecipients) – Individuals & developers considered as end

users under CDBG– Avoid undue enrichment– HUD suggests structure assistance as loan

not grant– May also wish to share in excess cash flow or

sales proceeds12U.S. Department of Housing and Urban Development • Community Planning and Development

Applicable Credits• Receipts that offset or reduce expense items

allocable to direct or indirect NSP costs • Examples: check for overpayment on closing

costs; insurance payments; purchase rebates or discounts

• Works like PI except:– 10% admin not allowed– Low income set-aside does not apply

• In some cases may be netted out from expense rather than received as cash to grantee/subrecipient


Program Income & Low Income Set Aside (LH25)

• HUD wants to remind grantees of change in October 19, 2010 combined NSP Notice– NSP1 Notice was not clear about applicability

of low-income set-aside to PI– 25% set-aside for families below 50% of AMI

applies to the grant plus any PI– Became effective October 19, 2010 and

applies to all PI received after that date


Program Income & Low Income Set Aside (cont)• Policy ensures consistency with Congressional intent

– Low-income families have been hit especially hard in housing crisis and need help

• Most communities can adjust to this change, since PI still being received

• PI received by date will be available on spreadsheet– Nationwide Oct. 18, 2010: $102,567,532– August 22, 2011: $315,292,204– Difference: $212,724,672– 25% of Difference: $ 53,181,168


Program Income & Low Income Set Aside (cont)

• Example:– Grantee XYZ total NSP1 grant: $10,000,00

– Grantee XYZ plus all subrecipient PI at end of grant:$1,000,0000

– Minimum threshold for LH25: $2,750,000 ($10,000,000 + $1,000,000 X 25%)


Program Income & Low Income Set Aside (cont)• Requirement must be met by closeout, so time

and more PI will facilitate planning• Amount matters - not whether grant or PI pays

for eligible activity -- Amount = 25% of grant +PI received

• HUD will work with each grantee to ensure that it can meet requirement

• Grantee can receive technical assistance on request to NSP Resource Exchange


Timing of Program Income

• PI is earned in perpetuity

– Number of revolutions does not matter

– Date of receipt does not matter – PI received after end of NSP in 2013 remains PI

– Use of PI at NSP grant closeout has not yet been decided -- HUD will issue a notice

Under current notices and CDBG regs, funds turn into CDBG PI


First In – First Out (FIFO)• Must use PI prior to drawing new NSP funds from DRGR

– PI cannot be held for specific projects– PI cannot be banked, except while waiting to use it,

and without earning interest

• Example:

– A. PI on hand in grantee/subrecipient account received from sale of completed NSP home: $35,000

– B. Funds currently needed for ongoing demolition and land bank projects: $85,000

– Request for funds from DRGR (B minus A): $50,00019U.S. Department of Housing and Urban Development • Community Planning and Development

First In – First Out (cont)

• PI obligated or spent counts toward deadlines for baseline obligation and expenditure requirements– Example:

Total NSP1 grant: $10,000,000Total PI earned and spent: $1,000,000Minimum of $9,000,000 grant funds must be spent

by February 2013 deadline

• FIFO Exception: Revolving loan funds


Revolving Loan Funds• Cannot draw down NSP grant funds to capitalize RLF

– Exception for lump sum draw down for rehab fundsCannot exceed grant amount needed for specific

programCannot be used solely for investmentAdmin costs not eligibleWork with HUD if want to do this

• Can deposit PI into RLF for specific eligible purpose– Example: homebuyer lending, rental housing

acquisition/rehab21U.S. Department of Housing and Urban Development • Community Planning and Development

Revolving Loan Funds (cont)• Funds in RLF are exempted from FIFO rule but

RLF must actually revolve – cannot just park funds– Must use funds in RLF for next activity with

same purpose as RLF• Must be in an interest bearing account

– Interest on fund remitted to HUD– Interest paid by borrowers is PI

• Set up RLF in DRGR as separate project– Each activity must meet national objective


Tracking and Using Program Income• Must re-use PI for eligible NSP use, as

applicable– NSP PI must be used for NSP eligible uses

meeting a national objective

– Must also meet all applicable cross cutting other federal requirements (Davis Bacon, environmental, LBP etc)

– 10% can be used for program administration and planning


Tracking and Using Program Income (cont)• PI from each program – NSP1, NSP2, NSP3 – must be

tracked separately

– Must use each according to its program rules

– NSP1, NSP2, NSP3 program income can be combined in a project IF project meets rules of all applicable programs


Tracking and Using Program Income (cont)• Income from projects with multiple financing courses is

prorated in proportion to investment

– Example:

Total development cost: $100,000NSP Investment: $60,000HOME Investment: $10,000Local money: $30,000House is sold for $90,00060% is NSP PI ($54,000); HOME PI is

10%($9,000); and non PI is 30% ($27,000)25U.S. Department of Housing and Urban Development • Community Planning and Development

Tracking and Using Program Income (cont)• Incorporate requirements within subrecipient agreements

– Grantee must determine whether allow subs to keep PI

– If allow subs to keep PI, must dictate its eligible use

– If subs keep PI, grantee can continue to draw funds for other activities but sub must use on-hand PI before requesting additional funds

• Document receipt and use of PI

• At end of agreement, PI on hand or subsequently received by subrecipient must be returned to grantee unless otherwise specified in agreement


Options for Using Program Income

• Conduct more of same program that generated PI

• Expand into new/different eligible activity– Make sure activity is described in approved

Action Plan and activity occurs in identified area of greatest need

• Could re-fund existing partners or choose new subs, developers etc.


Program Income Examples• Acquisition and construction costs of $120,000

– NSP construction loan paid $70,000 – Private construction loan paid $50,000

• At closing, house is sold for $90,000 (its market value)– Private loan for $50,000 is paid off and

$40,000 is repaid to NSP grantee

• How much is considered NSP PI in this case? – $40,000


Program Income Examples (cont)• Assume that NSP-assisted homebuyer project

has 5 year affordability period. – Home is sold by assisted homeowner in year

7 and $40,000 NSP soft second loan is repaid to grantee

• How much is PI? – $40,000


Program Income Examples (cont)

• In 2012, assume two homebuyers sold their units and each repaid $10,000 (total $20,000) to subrecipient A. Three homebuyers sold and repaid subrecipient C $10,000 each (total $30,000)

• How much is PI? – $50,000


Program Income Examples (cont)• Grantee provides $80,000 in NSP funds to

developer to assist them to acquire and rehabilitate unit. At sale, developer receives $40,000 of sale proceeds

• Must $40,000 program income be repaid grantee? – No

• If developer keeps $40,000, is it PI?– No but caution on over-subsidy


Program Income Examples (cont)• Total development costs: $160,000

– $90,000 is private loan – $70,000 is NSP loan

• House sells for $130,000– $100,000 is private mortgage– $30,000 is soft second loan left in deal by grantee– Of $100,000 in private loan proceeds, $90,000 goes

into paying back private construction loan and $10,000 comes back to grantee

• What would be the NSP PI? $10,00032


Program Income Examples (cont)• Total development costs: $120,000

– $40,000 is private loan – $80,000 is NSP loan

• House sells for $90,000 and there are $5,000 in closing costs– $40,000 construction loan is repaid with sales

proceeds, leaving $50,000 – Of that $50,000, $5,000 is left in deal to pay closing

costs; $45,000 comes back to grantee

• What is PI? $45,000


Program Income and DRGR

• DRGR does not track first in, first out for program income– Grantee must have a system for tracking

• Program income received – Tracked in grantee’s quarterly reports on

activity that generated it

• Program income disbursed – Tracked in draw-down module on activity for

which it was used34U.S. Department of Housing and Urban Development • Community Planning and Development

Program Income: Tracking in DRGR• Program Income should be reported in the QPR in the

quarter in which it was received. Grantees should enter program income received in the activity it was received under. Once this information is saved in the QPR, grantees will be able to draw down on it when creating a voucher

• Program Income is drawn down on through the Drawdown module. The protocol is no different than what is done with NSP grant funds

• Available Program Income is the sum of ALL PI a grantee has generated. The same amount of money will show as being available for every activity in a voucher


FinReport: Program Income – Activity Level


DrawdownQPR

Program Income Received: QPR Level

In-Quarter Estimate of Program Income Received

Save (not submit) QPR In-Quarter.


Enter Most Current


Program Income Disbursed:Drawdown Module

Program Income Disbursements

Enter amount of Program Income Disbursed

PI Shows in Fund Type

Program Income Disbursed: Drawdown Module


Drawdown Math Rules: Vouchers

• Program FundAvailable Amount = (Obligated Amount – (Drawn Amount + Draw Pending Amount)

• Program IncomeAvailable Amount = Sum of All Program Income Received – Drawn Program Income{Reported in the QPR}


Case Study = Voucher Math

• Program Income Received = $304,426• Program Income Drawn = $100,000


Continually increase Program Income Received as it comes into the grantee.

Available Amount (in TOTAL) = Program Income Received – Drawn Program Income

Available Amount to Draw = ($304,426 – $100,000) = $204,426

Activity #1: - $154,426Activity #2: - $ 50,000

In-depth Case Studies on how to common problems

with PI in DRGR at the March 29th Webinar

Program Income Common Problems• Question 1. How do I demonstrate a Revolving

Loan Fund in DRGR?– Enter new Activity with $0 Budget.

• Question 2. I received program income from a Acquisition/Rehabilitation Activity but my next draw is 50% for that Acquisition/Rehabilitation Activity and 50% for Redevelopment. What do I need to do in DRGR?

• Question 3. My next drawdown is for an Activity that has a capped budget. What do I need to do in DRGR?


PI Common Problems. Q2FinReport: Program Income – Activity Level


DrawdownQPR

PI Common Problem: Q3

• First In. First Out. • Must disburse funds.• Decrease Activity Budget for which the PI was

received and Increase the Activity Budget in which the PI is designated for.

**Remember:Activity Drawdown + PI Drawdown = Total Activity Draws



45

•EHabitatLH25 Draws: $169,001.35 + $35,985.24 = 204,986.59•Decrease EhabitatLH25 Activity Budget $824,000 by PI Draws {$35,985.24}•Increase BEDCLMMI by $35,985.24



$788,014.76

$4,58,839.24


Please Give Us Your Feedback

• Answer a few short questions• Link:

http://www.surveymonkey.com/s/GreatestHits_PI


http://www.surveymonkey.com/s/GreatestHits_PI�

greatest hits - program income - hud exchange

Documents