House Financial Services Committee Issues Report on Reforming Disaster Recovery Act

WASHINGTON, Jan. 2 -- The House Financial Services Committee issued a report (H.Rpt. 115-1107) on legislation (H.R. 4557) to authorize the secretary of Housing and Urban Development to provide disaster assistance to states and units of general government under a community development block grant disaster recovery program. The report was advanced by Rep. Jeb Hensarling, R-Texas, on Dec. 22.

Excerpts of the report follow:

Purpose and Summary

On December 5, 2017, Rep. Ann Wagner introduced H.R. 4557, the "Reforming Disaster Recovery Act of 2017," which authorizes the Department of Housing and Urban Development's (HUD) Community Development Block Grant Disaster Recovery (CDBG-DR) program. The Amendment in the Nature of a Substitute changed the bill to the "Reforming Disaster Recovery Act of 2018" and would amend Title I of the Housing and Community Development Act of 1974 to establish guidance and standards on how disaster funds may be distributed and accounted if Congress were to appropriate those funds to be distributed to states and localities.

Background and Need for Legislation

In addition to insurance payments made through the National Flood Insurance Program ("NFIP") and other federal assistance that may be automatically triggered with a disaster declaration, individuals in Presidentially-declared disaster areas may also access supplemental federal assistance that is not automatically triggered by such declarations. Since 2001, in some instances that are perceived as catastrophic events, Congress has opted to provide additional resources to states and local governments through the Department of Housing and Urban Development ("HUD") and its Community Development Block Grant Disaster Recovery Program ("CDBG-DR").

The CDBG-DR program is not a formal program. A disaster does not automatically trigger the release of funds. Instead, Congress has occasionally addressed unmet disaster needs by providing supplemental disaster-related appropriations on an ad hoc basis outside of the Federal Emergency Management Agency ("FEMA") through HUD's general CDBG program under the rubric of CDBG-DR. Consequently, CDBG-DR is not provided for all major disasters declared under the Stafford Act, but only provided by a specific Congressional appropriation.

The stated purpose of the CDBG-DR program is to start the recovery process and assist communities and neighborhoods with limited resources. Eligible grantees include states, units of local government, Indian tribes, and other areas designated by the President as disaster areas. Generally, CDBG-DR grantees must use at least 70 percent of the funds for activities that principally benefit low- and moderate-income persons or areas. Due to the nature of the program, local and state officials receiving block grants exercise a great deal of discretion in determining which combination of eligible activities to employ. This flexibility allows communities to use CDBG-DR funds to meet disaster-related needs, including short-term disaster relief, mitigation activities, and long term recovery activities.

In part because of the level of discretion afforded to state and local government in spending federal CDBG-DR funds, for the events that Congress has appropriated special CDBG-DR funds, the program has had repeated challenges associated with mismanagement of funds and wasteful and inefficient spending. Notably, the HUD Inspector General (HUD IG) has found that across a number of disasters receiving CDBG-DR appropriations, fund mismanagement has led to confusion, duplicative benefits, and poorly-prioritized expenditures. There have also been concerns related to procurement, such as lack of independent cost estimates and analyses to support the procurement method used. In some instances, the HUD IG found that grantees even lacked sufficient documentation to support the costs of projects. The HUD IG also determined that HUD provided inconsistent guidance to grantees and its employees regarding procurement requirements. Moreover, staff assigned to review disaster grantees' procurement processes do not specialize in procurement and may lack the expertise to determine whether grantees had proficient procurement processes.

Given these concerns, H.R. 4557 would establish guidance and standards on how disaster funds may be distributed and accounted for if those funds are appropriated by Congress and distributed through the CDBG-DR program. More importantly, this bill will ensure that the CDBG-DR grantees complete their projects in a timely manner and that they use the funds for their intended purposes.

A November 1, 2017 Oversight and Investigations subcommittee hearing served as the influence for the text of H.R. 4557 at which the HUD IG testified about HUD's lack of oversight on its CDBG-DR program. Helen Albert, Acting HUD IG, stated in her testimony that

"[t]he Department [HUD] faces significant challenges in monitoring disaster program funds provided to various grantees, including States, cities, and local governments under its purview. This challenge is particularly pressing for HUD because of the limited resources to directly perform oversight, the broad nature of HUD projects, the length of time needed to complete some of these projects, the ability of the Department to waive certain program requirements, and the lack of understanding of disaster assistance grants by the grantees."

The bill also eliminates the possibility that the Federal government would duplicate benefits among different agencies, which often occurs in the wake of the government response to a natural disaster. Duplication of benefits is an inherent risk to disaster recovery funding across the government. Benefits from multiple sources of Federal aid can result in citizens' receiving funds that exceed the need for a particular recovery purpose. In these cases, the bill would require grantees (States and local governments) to ensure that citizens are responsible for repaying any duplicate benefits.

H.R. 4557 highlights the HUD Inspector General's work and gives HUD the guidance it needs to review and implement proposals that would make the program more effective and cost efficient.

Hearings

The Committee on Financial Services, Subcommittee on Oversight and Investigations held two hearings examining matters relating to H.R. 4557 on November 1, 2017 and May 17, 2018.

Committee Consideration

The Committee on Financial Services met in open session on June 7, 2018, and ordered H.R. 4557 to be reported favorably to the House by a recorded vote of 53 yeas to 3 nays (recorded vote no. FC-185), a quorum being present. Before the motion to report was offered, the Committee adopted an amendment in the nature of a substitute offered by Mrs. Wagner by voice vote. The Committee subsequently adopted an amendment to the amendment in the nature of a substitute offered by Mrs. Wagner by voice vote.

Committee Votes

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion to report legislation and amendments thereto. The sole recorded vote was on a motion by Chairman Hensarling to report the bill favorably to the House, as amended. The motion was agreed to by a recorded vote of 53 yeas to 3 nays (Record vote no. FC-185), a quorum being present.

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Committee Oversight Findings

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

Performance Goals and Objectives

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House of Representatives, the Committee states that H.R. 4557 amends Title I of the Housing and Community Development Act of 1974 to establish guidance and standards on how disaster funds may be distributed and accounted for if those funds are appropriated by Congress and distributed to states and localities through the Community Development Block Grant program.

New Budget Authority, Entitlement Authority, and Tax Expenditures

In compliance with clause 3(c)(2) of rule XIII of the Rules of the House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.

Congressional Budget Office Estimates

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House of Representatives, the following is the cost estimate provided by the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974:

U.S. Congress, Congressional Budget Office, Washington, DC, July 9, 2018.

Hon. Jeb Hensarling, Chairman, Committee on Financial Services, House of Representatives, Washington, DC.

Dear Mr. Chairman: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 4557, the Reforming Disaster Recovery Act of 2018.

If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is Robert Reese.

Sincerely,

Mark P. Hadley (For Keith Hall, Director).

Enclosure.

H.R. 4557--Reforming Disaster Recovery Act of 2018

H.R. 4557 would codify several practices currently used by the Department of Housing and Urban Development (HUD) to administer the Community Development Block Grant Disaster Recovery program (CDBG-DR), which provides grants to help cities, counties, and states recover from presidentially declared disasters. The bill also would create some new requirements for the program that aim to make the allocation of appropriated disaster relief funds more efficient.

The new requirements under H.R. 4557 would:

Direct HUD, the Federal Emergency Management Agency, and the Small Business Administration (SBA) to coordinate benefits and reduce duplication of benefits by sharing information on disaster recovery needs;

Prohibit the use of CDBG-DR grants to repay SBA disaster loans;

Ensure that states and localities plan to equitably allocate grants between infrastructure projects and individual assistance to people harmed by disasters; and Create a process for localities to pre- certify eligible grantees for CDBG-DR assistance.

Using information from HUD, CBO estimates that implementing the bill would cost about $2 million over the 2019-2023 period for three additional employees, at an annual cost of around $100,000 per employee, to pre-certify eligible grantees and coordinate other activities with local governments. Such spending would be subject to the availability of appropriated funds.

CBO does not expect that implementing H.R. 4557 would alter the amount of appropriations that will be needed for the CDBG- DR program to adequately respond to future disasters. However, it could change the purposes for which those funds would be used and the proportion of those funds that could be allocated to different types of projects.

Enacting H.R. 4557 would not affect direct spending or revenues; therefore, pay-as-you-go procedures do not apply.

CBO estimates that enacting H.R. 4557 would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2029.

H.R. 4557 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act. Any costs incurred by state, local, or tribal governments, including matching contributions, would result from complying with conditions of assistance.

The CBO staff contact for this estimate is Robert Reese. The estimate was reviewed by H. Samuel Papenfuss, Deputy Assistant Director for Budget Analysis.

Federal Mandates Statement

This information is provided in accordance with section 423 of the Unfunded Mandates Reform Act of 1995.

The Committee has determined that the bill does not contain Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental mandate on State, local, or tribal governments.

Advisory Committee Statement

No advisory committees within the meaning of section 5(b) of the Federal Advisory Committee Act were created by this legislation.

Applicability to Legislative Branch

The Committee finds that the legislation does not relate to the terms and conditions of employment or access to public services or accommodations within the meaning of the section 102(b)(3) of the Congressional Accountability Act.

Earmark Identification

With respect to clause 9 of rule XXI of the Rules of the House of Representatives, the Committee has carefully reviewed the provisions of the bill and states that the provisions of the bill do not contain any congressional earmarks, limited tax benefits, or limited tariff benefits within the meaning of the rule.

Duplication of Federal Programs

In compliance with clause 3(c)(5) of rule XIII of the Rules of the House of Representatives, the Committee states that no provision of the bill establishes or reauthorizes: (1) a program of the Federal Government known to be duplicative of another Federal program; (2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111-139; or (3) a program related to a program identified in the most recent Catalog of Federal Domestic Assistance, published pursuant to the Federal Program Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 98-169).

Disclosure of Directed Rulemaking

Pursuant to section 3(i) of H. Res. 5, (115th Congress), the following statement is made concerning directed rule makings: The Committee estimates that the bill requires no directed rule makings within the meaning of such section.

Section-by-Section Analysis of the Legislation

Section 1. Short title

This section cites H.R. 4557 as the "Reforming Disaster Recovery Act of 2018."

Section 2. Community Development Block Grant Disaster Recovery program

This section authorizes the Secretary of Housing and Urban Development (HUD) to provide Community Development Block Grant--Disaster Recover (CDBG-DR) assistance to States, units of general local government, and Indian tribes related to disaster relief, resiliency, long-term recovery, restoration of infrastructure and housing, mitigation, and economic revitalization for areas affected by Presidentially-declared disasters.

The HUD Secretary must disburse at least one third of appropriated CDBG-DR funds within 60 days of the enactment of the appropriating legislation, and the remaining unallocated funds must be disbursed to grantees within 180 days of such date of enactment. The deadline for allocation of CDBG-DR funds shall not apply if the Federal Emergency Management Agency (FEMA) has not made sufficient information available to HUD regarding relevant unmet recovery needs.

This section requires the HUD Secretary to coordinate with FEMA and the Small Business Administration (SBA) to share data and coordinate disaster benefits. The section would prohibit CDBG-DR funds from repaying SBA loans and limits eligibility for families having an income exceeding 120 percent of the area median income unless the family has applied for an SBA loan or SBA loans were not available at the time of application for CDBG-DR funds. The HUD Secretary may establish an income ceiling higher or lower than 120 percent of the median for the area because of unusually high or low family incomes.

The HUD Secretary shall consult and coordinate with SBA to ensure applicants for SBA disaster loans are provided clear written notice regarding their potential eligibility for CDBG- DR assistance and how acceptance of such loan would impact eligibility for CDBG-DR funds. In any case in which a CDBG-DR grantee provides assistance that duplicates benefits, the grantee shall collect any duplicative assistance and return that amount to the grantee's account, or to the HUD Secretary, or be subject to remedies for noncompliance under Section 111 of the Housing and Community Development Act of 1974. In carrying out this subsection, the HUD Secretary shall protect personally identifiable information.

No later than 120 days after the allocation of funds are made available by an appropriations act, the grantee must submit a plan to the HUD Secretary for approval detailing the proposed use of all funds, which shall include how the funds will be used to address disaster relief, identification of officials administering the disaster funds, an agreement to share data with Federal agencies, and a plan for ensuring compliance with the Fair Housing Act. The section requires the HUD Secretary to specify criteria for approval of a grantees disaster assistance plan. The HUD Secretary shall disapprove a plan if (1) the Secretary determines that the plan does not meet the approval criteria, (2) the Secretary determines that the plan does not provide equitable allocation of resources between infrastructure and housing projects or between homeowners, rents and persons experiencing homelessness, (3) the Secretary determines that the plan does not provide a credible plan for ensuring compliance with the Fair Housing Act, or (4) the Secretary determines that the plan does not prioritize the one-for-one replacement of federally subsidized affordable housing. In the event of a disapproved plan, the HUD Secretary shall permit a grantee to revise and resubmit its plan.

This section requires the HUD Secretary to develop a system to ensure that each grantee has an approved process for financial controls and procurement to control and prevent duplication of benefits and to detect waste, fraud and abuse. As a condition of making any grant, the HUD Secretary shall certify in advance that the grantee has the proper financial processes and procedures in place.

This section stipulates that a grantee may not use more than 10 percent of its grant funds for administrative fees. The HUD Secretary may establish a series of percentage limitations on a grantee's administrative fees, but only if such limitations are based on the amount of grant funds received, such series limitations is lower for grantees receiving a greater amount of grant funds and higher for grantees receiving a lesser amount of grant funds, and in no case may a grantee use more than 10 percent of grant funds for administrative fees. Amounts under this section may not be used for activities reimbursable by FEMA or the Army Corps of Engineers.

The HUD Secretary may use 0.5 percent of CDBG-DR appropriated amounts exceeding $1 billion for administrative costs, of which 10 percent of that amount shall be transferred to the HUD IG for audits, reviews, oversight, evaluation, and investigations relating to amounts made available for use under this section. This section authorizes the lesser of 0.1 percent or $15 million for capacity building and technical assistance and all funds must use flood risk mitigation standards and must comply with storm water protections.

In administering any CDBG-DR funds, the HUD Secretary may not allow a grantee to use its funds outside the scope of its original application, may not permit a grantee to amend a plan to retroactively approve a beneficiary's use of funds other than for approved activities, and shall prohibit a grantee from delegating the responsibility for inherent government functions. The Secretary shall require each grantee to provide ongoing training to its staff and sub-grantees regarding grant management.

In procuring property or services paid for with CDBG-DR funds, a State shall follow its own procurement processes and procedures or must comply with such processes or procedures established through regulation by the HUD Secretary. A State's processes and procedures must (1) provide for a full and open competition and require cost or price analysis, (2) include requirements for sub-grantees, (3) specify methods of procurement and their applicability, (4) include standards of conduct for employees, and (5) ensure that all purchase orders and contracts include any clause required by Federal Statute, Executive Order, or implementing regulation. If the HUD Secretary finds that a State's procurement processes and procedures do not comply with this section, the Secretary shall provide the State with specific written notice of the elements of noncompliance, provide the State a reasonable period of time to come into compliance, and (3) allow the State to proceed with procuring property and services only if the Secretary determines the State is making a good faith effort to effectuate compliance with this section.

Except for those statutes that relate to fair housing, nondiscrimination, labor standards and the environment, this section authorizes the HUD Secretary to waive any statute or regulation when there is good cause that the waiver or the alternative requirement would be consistent with the overall goal of CDBG-DR. Any waiver shall not take effect before the expiration of the 5-day period beginning upon the publication of notice in the Federal Register of such waiver. The HUD Secretary shall not reduce the percentage of CDBG-DR funds that must be used for activities that benefit persons of low and moderate income to less than 70 percent, unless the Secretary specifies that there is compelling need. Grantees may adopt, without review or public comment, any environment review approved by a Federal agency.

For each major disaster for which CDBG-DR assistance is made available under this section, the HUD Secretary shall collect information regarding all recovery efforts and shall make the information available to the public, while ensuring personally identifiable information is not made publicly available. The HUD Secretary shall establish a program under this subsection to pre-certify eligible grantees for assistance. To be eligible for pre-certification, a locality shall demonstrate compliance with the requirement of this section and shall have previously received CDBG-DR assistance in connection with two or more Presidentially-declared disasters. The pre-certification shall be effective for a term of 10 years.

The HUD Secretary shall recapture any unused CDBG-DR funds if the grantee notifies the Secretary that it has completed all activities provided under the grant or the grantee has not spent all or part of the appropriated funds within 6 years. The HUD Secretary shall extend the time period by not more than 3 years if the Director of the Office of Management and Budget waives the six year time requirement and submits a written justification to the House and Senate Committees on Appropriations.

The section establishes in the Treasury of the United States a CDBG-DR Reserve Fund, which shall consist of amounts appropriated to the Reserve Fund or recaptured funds as specified under this section.

Changes in Existing Law Made by the Bill, as Reported

In compliance with clause 3(e) of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, and existing law in which no change is proposed is shown in roman):

Changes in Existing Law Made by the Bill, as Reported

In compliance with clause 3(e) of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, and existing law in which no change is proposed is shown in roman):

HOUSING AND COMMUNITY DEVELOPMENT ACT OF 1974

The full text of the report is found at: https://www.congress.gov/congressional-report/115th-congress/house-report/1107/1?s=1&r=1

TARGETED NEWS SERVICE, Harwood Place, Springfield, Virginia, USA: Myron Struck, editor; 703/304-1897; [email protected]; https://targetednews.com