Section U: Spending & Recaptures

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HUD can deobligate funds that are under contract. According to the regulations and grant agreements, entire grants or portions of grants can be deobligated for various reasons as described below. Deobligated funds can be used to fund additional projects in the most recent competition or in next year's competition. (They cannot remain in the local Continuum of Care.) See the regulations at 24 CFR 583.410(c) for information on the basis for deobligating unexpended funds and using that money in subsequent competitions.

Lack of Site Control

In the SHP program, regulations at 24 CFR 583.320(c) stipulate, "HUD will recapture or deobligate any award.... If the recipient is not in control of a suitable site before expiration of one year after initial notification of the award.” This regulation is based upon a statutory requirement found in the McKinney-Vento Act and, therefore, cannot be waived. The only time a recipient can continue past one year without having site control is in the rare instance when the recipient had control of a suitable site before the end of the year, but the site control was lost and the recipient had to find a new site.

For more information on site control, see Section H Site Control and Environmental Review.

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Slow Expenditure of Grant Funds

HUD regulations provide for possible deobligation if projects do not begin in a timely manner. The SHP regulation at 24 CFR 583.410(c)(1)(ii) states that funds for acquisition, rehabilitation or new construction may be deobligated if the proposed activities do not begin within three months or residents do not begin to occupy the facility within nine months after grant execution. In addition, 24 CFR 583.410(c)(2) states that amounts for leasing, operating or supportive service costs may be deobligated if the proposed supportive housing operations are not begun within three months after the units are available for occupancy.

HUD regularly monitors the spending history of a grantee. If Fit appears that a grantee is not making drawdowns or exhibits a slow expenditure pattern, HUD should contact the grantee to determine the viability of the project. If there are issues that cannot be readily resolved, HUD may have to deobligate the funds. If the project is progressing and the grantee has failed to make regular drawdowns, HUD encourages the grantee to do so. Operating, supportive services and leasing funds should be drawn down monthly. Grantees should reference the payment requirements at CFR 84.22 and 85.21 for more guidance.

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Noncompliance with Grant Agreement

The grant agreement identifies types of defaults that may result in deobligation of all or a portion of the grant. This could include not carrying out the proposal, or too few persons being served.

In making a decision on deobligation in the above instances, HUD considers whether the delay was due to factors beyond the grantee's control. All decisions regarding deobligation or recapture for slow spending will be coordinated between Headquarters and the field office in an effort to ensure that grantees are treated equally.

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Partial Deobligation - Unspent Funds During the Grant Term

SHP regulations allow HUD to deobligate parts of grants for acquisition, rehabilitation, or new construction if the total cost of these activities is less than the total cost anticipated in the application. However, before deobligating these funds, HUD ensures that the grantee does not plan to shift the funds into another activity as allowed in section 583.405(a) . In addition, funds may also be deobligated if the actual leasing costs, operating costs, or supportive services for that year are less than the total cost anticipated in the application (see 24 CFR 583.410(c)(1)(i) and (2)(i)). These funds are not considered surplus until the grant expires, as grantees may roll operating and supportive service funding into subsequent years of the grant term.

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Leftover or Surplus Funds

Upon expiration of SHP project grants, unspent funds remaining in the project account of the expired grants are deobligated. Before proceeding with the recapture of any funds, HUD ensures that the grantee has not received a term extension and has made its final draw down for costs incurred during the grant period.

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