Proper Treatment of Activity Delivery Costs That Can't Be Tied to a Final Cost Objective

In the disaster recovery world, costs incurred as a result of implementing and executing allowable CDBG activities are known “Activity Delivery Costs.” These costs are directly attributable to a CDBG project or activity.  These costs are not governed by 24 CFR 570.205-.206 and, therefore, aren’t subject to the 20% cap. According to CPD Notice 13-07, Activity Delivery Costs are treated as part of the total cost for delivering a Final Cost Objective under a CDBG program.

CDBG Grantees should be cognizant that costs properly classified as Activity Delivery Costs should be revisited when activities do not result in a Final Cost Objective

Normally, when a planned program or activity doesn’t materialize, all costs associated, including Activity Delivery Costs, should be reallocated to program administration costs or repaid from non-Federal sources. This is because they can’t be associated with achieving a Final Cost Objective and, therefore, do not meet a CDBG National Objective. Costs allocated as program administration costs are generally capped at 20% of program funding.

HUD designed its disaster recovery programs with much more flexibility than traditional CDBG programs. Consequently, there’s an exception to the previously stated general rule. HUD has recently provided specific guidance to CDBG grantees that housing rehabilitation projects are excluded from this requirement. This includes costs incurred to conduct intake and perform eligibility assessments on applications ultimately deemed ineligible. CPD Notice 13-07 clearly states housing rehabilitation programs are exempt from program administration costs, so all costs associated should be classified as Activity Delivery Costs.  The spirit of this exception is likely traced to the fact that, even though a particular applicant may be deemed ineligible to participate, a Final Cost Objective is still achieved by the housing units ultimately placed into service under the program. As long as those units benefit a low-to-moderate income recipient, a CDBG National Objective has also been met. 

As all costs are associated with the Final Cost Objective under housing rehabilitation programs, grantees should monitor the total cost of the activity. If the total cost approaches unacceptable levels, the grantee should reassess its eligibility process. For grantees administering housing rehabilitation programs, it’s highly critical to maintain adequate records to support appropriate cost allocations between housing rehabilitation programs and other program-type activities. Grantees are encouraged to consult with their HUD Field Representative regarding exceptions granted to housing rehabilitation programs.

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Topics: Disaster Recovery, CDBG

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