ESG Deskguide Section 3: Eligible Activities under the ESG Program

As described in Section One of this Guide, the ESG program aims to supplement State, local, and private efforts to improve the quality and number of emergency shelters and transitional facilities for homeless people. More specifically, States and local governments use ESG funds to help operate these facilities, to provide essential support services to residents, and to help prevent at-risk families or individuals from becoming homeless.

Designed as a first step in a continuum of care plan of assistance, the ESG program strives to address the immediate needs of persons residing on the street and needing emergency shelter and transitional housing, as well as assisting their movement to independent living.

ESG serves a variety of homeless persons and families, with no restrictions or further targeting. Any targeting of ESG funds results from local service and shelter providers design of programs to address the specific needs of various homeless subpopulations, such as victims of domestic violence, youth, mentally ill, veterans, families with children, or others. A portion of ESG funds may be used to serve persons at imminent risk of losing their permanent housing and becoming homeless.

While flexible in terms of serving all homeless subpopulations and preventing persons from becoming homeless, the ESG program legislation and implementing regulations do limit the types of activities and amounts of funds that can be spent on different activities. The following five major categories of eligible activities and applicable limitations are discussed in this section of the Guide:

  • Rehabilitation
  • EssentialServices
  • Operational Costs
  • Homeless Prevention Activities
  • Administrative Costs

3.1 Emergency Shelter Renovation, Rehabilitation or Conversion

The quality and quantity of emergency shelters and transitional housing may be increased with ESG funds through conversion or major rehabilitation or renovation of existing buildings.

Legislation and Regulation
The legislation mentions three types of shelter improvement activities.

Eligible Activities 42 U.S.C. 11374

  1. In General. Assistance provided under this subtitle may be used for the following activities relating to emergency shelter for homeless individuals:
    1. the renovation, major rehabilitation, or conversion of buildings to be used as emergency shelters

Definitions

The regulation differentiates the three types of improvements and bases continued use restrictions for the shelter on the level of improvement.

Renovation, Rehabilitation and Conversion 24 CFR 576.3

Conversion means a change in the use of building to an emergency shelter for the homeless under this part, where the cost of conversion and any rehabilitation costs exceed 75 percent of the value of the building after conversion.

Major rehabilitation means rehabilitation costs in excess of 75 percent of the value of the building before rehabilitation.

Renovation means rehabilitation that involves costs of 75 percent or less of the value of the building before renovation.

Value of the building means the monetary value assigned to a building by an independent real estate appraiser, or as otherwise reasonably established by the grantee or the State recipient.

Use Restrictions on Renovation, Major Rehabilitation, and Conversion

The statute and regulation require certain continued use standards for shelters receiving ESG funds for improvement based upon the amount of the improvement.

Certifications on Use of Assistance 42 U.S.C. 11375 (c)

Each recipient shall certify to the Secretary that

  1. it will -
    1. in the case of assistance involving major rehabilitation or conversion, maintain any building for which assistance is used under this part as a shelter for homeless individuals and families for not less than a 10-year period; or
    2. in the case of assistance involving rehabilitation (other than major rehabilitation or conversion), maintain any building for which assistance is used under this part as a shelter for homeless individuals and families for not less than a 3-year period;
  2. any renovation carried out with assistance under this subtitle shall be sufficient to ensure that the building involved is safe and sanitary
  • Major rehabilitation and conversion are defined as the costs of improvement that are more than 75 percent of the value of the building before rehabilitation. A shelter receiving this level of improvement must be used as a shelter for at least 10 years.
  • Renovation is defined as the costs of improvements that are less than 75 percent of the value of the building before rehabilitation. A shelter receiving this level of improvement must be used as a shelter for at least 3 years.

Timing of Three or Ten Year Use Requirement

The regulation specifies the dates for determining when the 3- and 10-year use requirements begin.

Use as an Emergency Shelter 24 CFR 576.63

  1. Calculating the applicable period. The 3- and 10- year periods applicable under paragraph (a) of this section begin to run:
    1. In the case of a building that was not operated as an emergency shelter for the homeless before receipt of grant amounts under this part, on the date of initial occupancy as an emergency shelter for the homeless.
    2. In the case of a building that was operated as an emergency shelter before receipt of grant amounts under this part, on the date that grant amounts are first obligated for the shelter.

Thus, for either the 3- or 10-year period of use, the use requirement starts on the date of initial occupancy for a building that had not previously been operated as a shelter. The date the ESG funds are obligated to a shelter starts the applicable use requirement where the building was previously operated as a shelter.

Ineligible Activities

Ineligible rehabilitation or renovation costs include:

  • Acquisition of real property
  • New construction
  • Property clearance or demolition
  • Rehabilitation administration
  • Staff training or fund raising activities associated with rehabilitation
  • Building maintenance and repairs (See Operations)

[Please note that acquisition and new construction are not eligible ESG-funded activities, and Davis-Bacon requirements do not apply to ESG-funded renovation, major rehabilitation or conversion activities.]

Lead-Based Paint Requirements

The application of lead-based paint regulations to facilities receiving ESG funds is discussed in detail in Section Eight.

3.2 Essential Services

ESG funds can be used to provide essential services to address the needs of homeless persons living on the street, in emergency shelter or in transitional housing. Essential services can address the immediate needs of the homeless, and can help enable homeless persons become more independent and to secure permanent housing.

Legislation and Regulation

The legislation describes several types of essential service activities:

Eligible Activities 42 U.S.C. 11374

  1. In General. Assistance provided under this subtitle may be used for the following activities relating to emergency shelter for homeless individuals:
    1. The provision of essential services, including services concerned with employment, health, drug abuse or education.

The law specifies a broad array of services available to serve homeless persons who are residing in emergency and transitional shelters. In addition, essential services for homeless persons may be funded in day shelters or soup kitchens that are designed to serve predominantly homeless persons. Finally, services provided by shelters or day shelters that address the needs of persons residing on the street may be funded by ESG.

Definitions

Essential Services 24 CFR 576.3

Essential services includes services concerned with employment, health, drug abuse, and education and may include (but are not limited to):

  1. Assistancein obtaining permanent housing;
  2. Medical and psychological counseling and supervision;
  3. Employmentcounseling;
  4. Nutritional counseling;
  5. Substance abuse treatment and counseling;
  6. Assistance in obtaining other Federal, State and local assistance including mental health benefits; employment counseling; medical assistance; Veteran's benefits; and income support assistance such as supplemental Security Income benefits, Aid to Families with Dependent Children, General Assistance, and Food Stamps;
  7. Other services such as child care, transportation, job placement and job training; and
  8. Staff salaries necessary to provide the above services.

Limitations on Funding Essential Services

The legislation and the regulations both limit the amount of ESG funds that may be spent on essential services (30 percent subject to waiver) and restrict funding to new services or a quantifiable increase in services above the level previously funded.

Eligible Activities 42 U.S.C. 11374 (a) (2)

  1. The provision of essential services, including services concerned with employment, health, drug abuse, or education, if -
    1. such services have not been provided by the local government during any part of the immediately preceding 12-month period; or the use of assistance under this subtitle would complement those services; and
    2. not more than 30 percent of the aggregate amount of all assistance to a State or local government under this subtitle is used for activities under this paragraph.

Limitation on provision of essential services 24 CFR 576.21 (b)

  1. Grant amounts provided by HUD to units of general local government, or territories and grant amounts provided by a State to State recipients, may be used to provide an essential service….only if the service is a new service, or is a quantifiable increase in the level of a service above that which the unit of general local government (or, in the case of a nonprofit organization, the unit of general local government in which the proposed activities are to be located), or territory as applicable, provided with local funds during the 12 calendar months immediately before the grantee or State recipient received initial grant amounts.
  2. Limits on the use of assistance for essential services…are applicable even when the unit of local government, or territory provides some or all of its grant funds to a nonprofit recipient. This limitation may be waived in accordance with 42 U.S.C. 11374.

New Service or Quantifiable Increase in Service

ESG funds can be used by grantees or their recipients for a new service or a quantifiable increase in the level of service above that provided during the immediately previous 12-month period. This provision in the legislation prohibits using ESG funds to replace existing government or non-profit funding of services. However, once a new or increased level of service meets the above standards, then ESG funds may be used to continue funding that service in subsequent years. Examples of essential services meeting these standards are:

  • A city grantee funded a recipient organization for outreach to the Hispanic homeless population in the community. Funds were used to support Spanish-speaking service staff, and translation of written materials into Spanish. This was a new service as this population had not been directly provided these services before and no other organization was providing these services at the time.
  • A city grantee funded a local food rescue/soup kitchen organization to purchase an additional vehicle to be used to transport rescued foods from restaurants to area shelters and feeding programs. This activity represented a quantifiable increase in the level of service as it increased the organizations' transport fleet by one additional vehicle and allowed for a substantial increase in the number of organizations served by the program. In this case, no other area organization was providing this service.
  • A city grantee funded a new staff position to provide housing search services for transitional shelter residents. The services provided by this new position were new, and enhanced (or increased) the ability of local shelters to assist residents to move from temporary shelter to permanent housing.

The examples provided above are in no way exhaustive, but simply provide three illustrations of how ESG funding was used in the essential services category. As is demonstrated, salaries for supportive services provider staff are an eligible cost under this category.

Essential Services 30 Percent Limitation

Grantees may use only thirty (30) percent of the entire ESG grant for essential services. For example, a jurisdiction receiving a $200,000 ESG grant may only use $60,000 (or 30 percent) for essential services. The 30 percent limitation applies to the grant as a whole. Thus, individual recipients of ESG funds for essential services are each not limited to 30 percent of their grant, just as long as the overall 30 percent limit is not exceeded.

Waiver of Statutory 30 Percent Essential Services Limitation

The legislation provides for a waiver of the statutory 30 percent limitation.

Waiver Authority 42 U.S.C. 11374 (b)

The Secretary may waive the 30 percent limitation on the use of assistance for essential services contained in subsection (a)(2)(B) of this section, if the local government receiving the assistance demonstrates that the other eligible activities under the program are already being carried out in the locality with other resources.

The jurisdiction requesting a waiver of the 30 percent limitation must document to the satisfaction of HUD that other ESG-eligible activities (renovation, major rehabilitation, conversion, operational costs, and homeless prevention) are being carried out in the locality with other resources or there is no demand for those activities.

Ineligible Activities

Ineligible essential services costs include:

  • Existing services and staff (services must be new or provided to more persons)
  • Salary of case management supervisor when not working directly on participant issues
  • Advocacy, planning, and organizational capacity building
  • Staff recruitment/training
  • Transportation costs not directly associated with service delivery

3.3 Operational Costs

ESG funds can cover a broad array of emergency shelter and transitional housing operating costs.

Legislation and Regulations

The legislation and regulations specify various eligible operating costs related to the provision of emergency and transitional housing.

Eligible Activities 42 U.S.C. 11374 (a)

  1. Maintenance, operation, insurance, utilities and furnishings, except that not more than 10 percent of the amount of any grant received under this subtitle may be used for costs of staff.

Definitions 42 U.S.C. 11371

  1. The term "operating costs" means expenses incurred by a recipient operating a facility assisted under this subtitle with respect to -
    1. the administration, maintenance, repair, and security of such housing; and
    2. utilities, fuels, furnishings, and equipment for such housing.

Eligible Activities 24 CFR 576.21 (a) (3)

  1. Payment for shelter maintenance, operation, rent, repairs, security, fuel, equipment, insurance, utilities, food and furnishings. Not more than 10 percent of the grant amount may be used for costs of staff.

Limitations on Funding Operational Costs

Staff salaries (including fringe benefits) paid under the operating costs category are limited to 10 percent of the grant. Maintenance and security salary costs are not subject to the 10 percent standard. For example, a grantee receiving a $75,000 ESG grant would be able to pay only $7,500 (or 10 percent of that amount) for operational staff costs.

Ineligible Activities

Ineligible operating or maintenance costs include:

  • Recruitment or on-going training of staff
  • Depreciation
  • Costs associated with the organization rather than the supportive housing project (advertisements, pamphlets about organization, surveys, etc.)
  • Staff training, entertainment, conferences, or retreats
  • Public relations or fund raising
  • Bad debts/late fees
  • Mortgage payments

3.4 Homeless Prevention Activities

The legislation and the regulations specify a broad array of financial assistance and supportive services that may be provided to help prevent persons from becoming homeless.

Legislation and Regulation

Eligible Activities 42 U.S.C. 11374 (a)

  1. Efforts to prevent homelessness such as financial assistance to families who have received eviction notices or notices of termination of utility services if -
    1. the inability of the family to make the required payments is due to a sudden reduction in income;
    2. the assistance is necessary to avoid the eviction or termination of services;
    3. there is a reasonable prospect that the family will be able to resume payments within a reasonable period of time; and
    4. the assistance will not supplant funding for preexisting homelessness prevention activities from other sources.

Not more than 30 percent of the aggregate amount of all assistance to a State or local government under this subtitle may be used for activities under this paragraph.

Definitions 24 CFR 576.3

Homeless prevention means activities or programs designed to prevent the incidence of homelessness, including (but not limited to):

  1. Short-term subsidies to defray rent and utility arrearages for families that have received eviction or utility termination notices;
  2. Security deposits or first month's rent to permit a homeless family to move into its own apartment;
  3. Mediation programs for landlord-tenant disputes;
  4. Legal services programs for the representation of indigent tenants in eviction proceedings;
  5. Payments to prevent foreclosure on a home; and
  6. Other innovative programs and activities designed to prevent the incidence of homelessness.

Eligible Activities 24 CFR 576.21 (a) (4)

Developing and implementing homeless prevention activities, subject to the limitations in 42 U.S.C. 11374(a)(4) and paragraph (c) of this section. Grant funds may be used under this paragraph to assist families that have received eviction notices or notices of termination of utility services only if the conditions stated in 42 U.S.C. 11374(a)(4) are met.

Limitations on Funding Homeless Prevention Activities

The grantee may not use more than thirty (30) percent of their grant amount for homeless prevention activities. The statutory limitation is not waivable. The limitation is based on the overall grant to the jurisdiction. An individual recipient's homeless prevention activities are not limited, as long as the total of all recipients' homeless prevention activities does not exceed the 30 percent standard.

Prevention Limitations 24 CFR 576.21

(c) Limitation on homeless prevention activities. Limits on the use of assistance for homeless prevention activities established in 42 U.S.C. 11374(a)(4) are applicable even when the unit of local government or territory provides some or all of its grant funds to a nonprofit recipient.

Ineligible Activities

Ineligible homeless prevention costs include:

  • Housing/services to homeless persons
  • Direct payments to individuals
  • Long-term assistance beyond several months
  • Application for Federal Funds or Unprogrammed Funds

3.5 Administrative Costs

The legislation and regulations provide that up to five (5) percent of a grantee's funds may be spent for administering the grant.

Legislation and Regulation

Administrative Costs 42 U.S.C. 11378

A recipient may use up to 5 percent of any annual grant received under this part for administrative purposes. A recipient State shall share the amount available for administrative purposes pursuant to the preceding sentence with local governments funded by the State.

Eligible Activities 24 CFR 576.21 (a) (5)

  1. Administrative costs in accordance with 42 U.S.C. 11378.

Eligible administrative costs include staff to operate the program, preparation of progress reports, audits, and monitoring of recipients.

Sharing of Administrative Funds

The legislation directs that a State share its administrative funds with local governments who receive grants from the State.

Ineligible Activities

Ineligible administrative costs include:

  • Preparation of Consolidated Plan and other application submissions
  • Conferences or training in professional fields such as accounting and financial management
  • Salary of organization's executive director (except to the extent involved in carrying out eligible administrative functions)


3.6 Summary of Eligible ESG-Funded Activities and Limits on Use

Eligible Activity Limitation/Restriction on Use
Renovation, Major Rehabilitation and Conversion Renovation: Continue use as shelter for 3 years Major Rehab/Conversion: Continue use as a shelter for 10 years
Essential Services Up to 30% of ESG funding
Operational Costs Staff costs included in this category up to 10% of ESG funding
Homeless Prevention Activities Up to 30% of ESG funding
Administrative Costs Up to 5% of ESG funding

While the ESG federal regulation at 24 CFR 576.21 does not list all of the possible eligible activity costs under the program, there is a statutory requirement that ESG funds must benefit either homeless persons, or persons at imminent risk of becoming homeless in the case of homeless prevention activities. An additional requirement exists that costs be provided at a reasonable price and be directly related to an ESG eligible expenditure category.

In addition, grantees and recipients should use ESG funds as originally planned in the Consolidated Plan. If it is necessary to make a change in planned activities, then the grantee should notify the HUD Field Office staff of the change. Based on the magnitude of the proposed changes, grantees may also need to amend their Consolidated Plan, alter their project or activities in IDIS, and modify any inaccurate report.