Housing and Urban Development:

Use and Oversight of the Economic Development Loan Fund

RCED-97-195: Published: Aug 20, 1997. Publicly Released: Aug 27, 1997.

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Pursuant to a congressional request, GAO examined how changes to the Department of Housing and Urban Development's (HUD) Economic Development Loan Fund have affected the program, focusing on: (1) the extent to which communities are using the loan fund; (2) factors affecting communities' willingness to use the fund; (3) the types of projects being financed with loan proceeds; and (4) HUD's procedures for overseeing the program.

GAO noted that: (1) from the loan program's inception through fiscal year (FY) 1996, HUD made 930 loan commitments totaling $4.4 billion; (2) about 38 percent of the Community Development Block Grant (CDBG) entitlement communities have received one or more loan commitments; 16 states, on behalf of their nonentitlement communities, have also received loans; (3) although communities' and states' use of the loan program has fluctuated--generally, 50 or fewer loans were approved each year--program activity increased sharply in FY 1994 through 1996, when the Department approved about 400 loans and nearly 60 percent of the dollars loaned since the program's inception; (4) according to HUD and associations representing community development officials, the key factor responsible for communities' and states' increased willingness to use the loan program has been the availability of Economic Development Initiative (EDI) grants to loan recipients; (5) in 1994, when the Department provided $19 million in grants, loan activity doubled--88 loans compared with 43 the previous year; in 1995, when the Department awarded $350 million in grants, the number of loans jumped to 218; however, in 1996, when no EDI grants were awarded, the number of loans dropped to 89; (6) the officials attributed any unwillingness to use the loan program to communities' concerns over collateral requirements and their reluctance to pledge future CDBGs as collateral for loans; (7) communities and states reported to HUD that they have used about 73 percent of their loans to finance economic development activities; (8) other eligible CDBG activities for which loans were reported to be used included acquisition of real property, housing rehabilitation, and public property rehabilitation; (9) the Department requires an annual review of grantees to determine, among other things, whether the activities funded by CDBGs are being carried out in a timely manner and in accordance with Department-approved plans; and (10) however, according to officials in 5 of the 30 field offices responsible for the loans in GAO's sample, they did not routinely include the loans in their annual reviews because they: (a) did not believe they had guidance on how to monitor the program; (b) did not believe they had a responsibility to monitor the loans; (c) had other priorities; or (d) lacked loan-specific information.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To ensure that HUD's field offices have accurate and timely information for monitoring loan fund activities and that loan fund activities are routinely reviewed, the Secretary of Housing and Urban Development should develop procedures to ensure that the information necessary to monitor program performance and compliance with program requirements is promptly provided to the cognizant field offices.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: HUD officials said that they sent complete loan documentation for all outstanding loans to the field offices so that they will have this information for oversight purposes. They said that HUD plans to continue to send documentation for newly made loans to the appropriate field offices as soon as the documentation becomes available. In addition, HUD has provided training sessions for field staff that included components on reviewing loan fund activities.

    Recommendation: To ensure that HUD's field offices have accurate and timely information for monitoring loan fund activities and that loan fund activities are routinely reviewed, the Secretary of Housing and Urban Development should direct field offices to include a review of loan fund activities when they review CDBG communities and states.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: In fiscal years 1999 and 2000, HUD field offices performed reviews of selected grantees' Section 108 loan guarantee projects using existing guidelines. These reviews were undertaken as part of monitoring goals established in the Office of Community Planning and Development's business operating plans. HUD also provided two field training sessions in September 2000, in part, to provide additional guidance to field staff to assist in the performance of loan guarantee reviews.

    Recommendation: To determine the extent to which communities and states are using CDBG allotments to repay loans, the Secretary of Housing and Urban Development should implement procedures for tracking loan payments made from communities' or states' CDBG allocations.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: HUD modified the Integrated Disbursement and Information System (IDIS) to allow grantees to report separately on both planned and unplanned repayments of Section 108 loans. However, HUD expects that few states and communities will report unless the process for using the information system is simplified. Because HUD anticipates replacing its current information system with the Departmental Grants Management System, HUD is only funding maintenance on the existing system. However, HUD's development of the Departmental Grants Management System is not very far along and HUD expects that it will be several more years before GAO would be able to determine whether of not HUD's new system will track loan payments made from CDBG allocations.

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