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C. MEMORANDUM OF AGREEMENT AND BENCH MARK DOCUMENTS
F. FINANCIAL REPORTING REQUIREMENTS
H. OTHER
A1) What is the federal statute that authorized the Empowerment Zone and Enterprise Community Program?
The statute that created the program is the Omnibus Budget Reconciliation Act of 1993 ("OBRA 1993"). Authorizing language is found in Title XIII, Subchapter C, and Part I of OBRA 1993.
Portions of the statute that directly address the EZ/EC SSBG grants are codified in the United States Code at 42 USC 1397 et.seq. (The citation for the Social Services Block Grant program).
A2) What federal agencies are directly involved in implementing this program?
OBRA 1993 authorized the U.S. Department of Health and Human Services (HHS) to grant funds to states for the Empowerment Zones (EZ) and Enterprise Communities (EC), and the U.S. Departments of Agriculture (USDA) and Housing and Urban Development (HUD) to designate the EZs and ECs. In addition, many other federal agencies are assisting the EZs and ECs in various ways.
A3) Which federal regulations directly concern the Empowerment Zone and Enterprise Community Program?
USDA and HUD published individual regulations for this program. The USDA regulation is contained within the Code of Federal Regulations at 7 CFR Part 25 (published in the Federal Register on Monday, February 6, 1995, starting on page 6945). The HUD version is at 25 CFR Part 597 (published in the Federal Register on Thursday, January 12, 1995, starting on page 3034).
HHS has not promulgated a new regulation for the Empowerment Zone and Enterprise Community program. Given that the HHS-managed Social Services Block Grant program is the vehicle for the EZ/EC SSBG grants, many portions of the existing HHS block grant regulations apply to this program. Those regulations are codified at 45 CFR Part 96. The terms and conditions of the grants for this program specify that the following sections of the HHS block grant regulations apply: 45 CFR parts 96.11; 96.12; 96.15; 96.30; 96.31; 96.32; 96.33; 96.50; 96.51; and 96.52.
A5) What are EZ/EC SSBG funds?
Congress appropriated $1 billion to the HHS Social Services Block Grant (SSBG) program for special funding for EZ and EC activities. EZ/EC SSBG funds are also referred to as "Title XX" funds. This is a reference to the fact that the authority for the Social Services Block Grant, the vehicle for the EZ/EC SSBG grants, is based in Title XX of the Social Security Act.
A6) What are the statutory "goals" for the use of the EZ/EC SSBG funds?
OBRA 1993 specifies that each EZ and EC shall use the EZ/EC SSBG grant to provide services directed at achieving one or more of three broad goals. These goals are listed on page 30 of the EZ/EC Application Guide and in the answer to question B4 below.
A7) What are the statutory "program options" for the use of EZ/EC SSBG funds?
OBRA 1993 lists several "program options" that identify and suggest the types of activities which an EZ or EC should consider financing with EZ/EC SSBG funds in order to achieve one or more of the three broad statutory goals. The program options are listed on page 30 of the EZ/EC Application Guide and in the answer to question B5 below.
A8) What is a grantor?
A grantor is the entity that awards a grant. In the EZ/EC program, HHS is the grantor of the EZ/EC SSBG funds.
A9) What is a grantee?
A grantee is the entity that receives a grant from a grantor. In the EZ/EC program, the State agency that received the award of EZ/EC SSBG funds from HHS is the grantee.
A10) What is a subgrantee?
A subgrantee is the entity to which a grantee gives authority for undertaking a specific part of the work for a grantee. In the EZ/EC program, the subgrantee is the entity or entities to which the state agency obligates the EZ/EC SSBG funds. Typically, the subgrantee is the organization that will manage the EZ or EC activities.
A11) What is a lead entity?
A lead entity is the local organization that will manage the individual EZ's or EC's activities. Typically, these are either local governments or not-for-profit organizations.
A12) What is the definition of "draw down"?
A draw down is the action by which the grantee (the state) accesses federal funds granted to it. In this program, the state will draw down the EZ/EC SSBG funds from the federal government in keeping with the EZ or EC strategic plan.
A13) What is an EZ/EC strategic plan?
The EZ or EC strategic plan is the document that the local government and other organizations submitted to USDA or HUD in June 1994 in their quest to have census tracts in their areas designated an Empowerment Zone or Enterprise Community. The Secretaries of HUD and USDA designated areas as an EZ or EC based on these strategic plan documents.
A14) What local organization will manage the EZ or EC implementation activities?
The activities must be managed in accordance with the EZ or EC strategic plan submitted in June 1994, or modifications made to it since that time. Many strategic plans explicitly state that either the area's local government or a not-for-profit organization will manage the implementation activities. This local organization is referred to as the "lead entity".
A15) What is an EZ or EC benchmark document?
Early in the implementation phase of the initiative, HUD and USDA asked each EZ and EC to use the information in its strategic plan to create a "benchmark" document including time lines and specific projects and services which the EZ or EC lead entities will undertake over the first two years of the implementation of the EZ/EC program. Where the strategic plans indicates generally what a locality has proposed to do, the benchmark documents explain, with some detail, exactly how the locality intends to achieve the goals.
A16) What is the definition of "obligate" for this program?
An "obligation" is a legal agreement between the state (as the grantee) and a designated EZ or EC lead entity (as the subgrantee) that makes monies available to the EZ or EC to use in accordance with statutory and regulatory requirements.
A17) What is the definition of a "Memorandum of Agreement"(MOA) in the context of this program?
HUD and USDA asked that each lead entity sign a memorialization of an agreement with HUD or USDA and their state government that outlines the roles and responsibilities of the EZ or EC, HUD or USDA, and the state government. This is referred to as the Memorandum of Agreement or "MOA."
The MOA does not affect the fiscal rules of the grants awarded by HHS to the state. These rules and responsibilities are explained in the terms and conditions of the grants awarded by HHS to the state in December 1994.
A18) What is a "qualified plan"?
OBRA 1993 authorized the Secretary of HHS to award EZ/EC SSBG funds to states for local EZs and ECs. That statute stipulates that the Secretary of HHS shall make these grants to fund activities outlined in "qualified" EZ or EC strategic plans, and it defined a "qualified plan" as one which:
The Secretary of HHS awarded the EZ/EC SSBG funds on December 21, 1994, after determining that the EZ and EC plans submitted by the localities designated by HUD and USDA were "qualified."
A19) What does the term "increased flexibility" for the use of EZ/EC SSBG funds really mean?
Increased flexibility refers to the expanded range of programmatic activities that can be financed with EZ/EC SSBG monies, as opposed to the more limited options for typical Title XX Social Services Block Grant funds. Flexibility does not imply a relaxation of the fundamental financial management principles specified in state or federal law and regulations.
B1) What is the amount of the EZ/EC SSBG grant for each EZ and EC?
$40 million for each rural Empowerment Zone; $100 million for each urban Empowerment Zone; and $2,947,368 for each Enterprise Community.
B2) What federal agency awards these grants?
The U.S. Department of Health and Human Services (HHS).
B3) When will HHS award the grants?
OBRA 1993 includes a timetable for when HHS must award the EZ/EC SSBG grants.
The statute stipulates that HHS must award, to the appropriate states, grants for the Enterprise Communities on the date of designation. HHS awarded these grants to the states on December 21, 1994.
OBRA 1993 specifies that HHS must award the grants to the states for the Empowerment Zones in two equal installments, one-half on the date of designation and the second one-half on the first day of the following federal fiscal year. Accordingly, HHS awarded one-half of each Zone's grant to the state on December 21, 1994, and the second half on October 1, 1995.
B4) Does the authorizing statute restrict how an EZ or EC may use the EZ/EC SSBG grant?
Yes. OBRA 1993 specifies that an EZ or EC shall use the grant funds to benefit residents of the designated EZ or EC by providing services directed at one or more of the following three goals:
These goals are outlined on page 30 of the EZ/EC Application Guide. They allow for broader uses than those that apply to the "regular" Social Services Block Grant (Title XX) program. An EZ or EC may use EZ/EC SSBG funds for economic and community development activities, as well as social services activities which are typical to the Title XX program.
Within these broad goals, OBRA 1993 lists seven program options (see question B5).
B5) What are the program options described in the statute that created the Empowerment Zone and Enterprise Community program?
As listed on page 30 of the EZ/EC Application Guide, the OBRA 1993 statutory program options are as follows:
These program options are found in the HUD and USDA regulations for the program as well as in OBRA 1993.
B6) May an EZ or EC locality purchase or improve land and facilities using EZ/EC SSBG funds?
An EZ or EC may finance any portion of a purchase or improvement of land, or the purchase, construction, or permanent improvement of any building or other facility with EZ/EC SSBG funds only if the purchase or substantial improvement:
a) the purchase or improvement is an activity undertaken to accomplish one of the authorizing statute's program options; or
b) the locality has formally requested and received a waiver from HHS for this activity.
B7) What must an EZ or EC do to apply for the above-mentioned waiver from HHS?
An EZ or EC may request such a waiver by writing a letter outlining the request to:
Margaret Washnitzer
Office of Community Services
Administration for Children and Families
U.S. Department of Health and Human Services
370 L'Enfant Promenade, S.W. -- 5th floor West
Washington, DC 20447
B8) How much EZ/EC SSBG funding may an EZ or EC use between December 21, 1994, and December 21, 1995?
The locality may use whatever amount is stipulated in its plan for any given period, which will vary in each EZ and EC. Each EZ or EC should refer to its strategic plan to determine how much of the EZ/EC SSBG funds may be used during any time period. The locality may use whatever amount is stipulated in its plan for any given period.
B9) May an EZ or EC amend its strategic plan?
Yes. Any EZ or EC that wishes to amend its strategic plan should consult with HUD and USDA about the preferred process for making such changes.
B10) Will HHS review amendments to EZ or EC strategic plans or benchmark documents to assure that the amended activities may be financed with EZ/EC SSBG funds?
No. HHS will not review amendments to the EZ or EC strategic plans or benchmark documents.
If the EZ or EC lead entities, or the state agencies responsible for the EZ/EC SSBG grant, have general questions or concerns about a proposed use of funds, they should consult the broad goals and program options outlined in OBRA 1993. As an alternative, they should consult with their HUD or USDA contact, or the HHS Office of Community Services at 202/401-5284.
B11) May an EZ or EC use EZ/EC SSBG funds to finance activities located outside the census tracts that make up the EZ or EC?
Yes. However, all projects and services financed in any way with EZ/EC SSBG funds must benefit residents of the designated census tracts.
B12) What is the time frame for when a state must "obligate" the EZ/EC SSBG funds?
States must obligate the funds within two years of the date HHS awarded the grant to them. That is, a state must obligate all the funds awarded to it for an EC, and one-half of the total awarded for an EZ by December 20, 1996. The remaining half of the amount awarded for an EZ must be obligated by the state by September 30, 1997. (See question A16 for a definition of "obligate.")
There are no federal requirements concerning when a lead entity may obligate the funds.
B13) Who will decide what activities an EZ or EC may fund with the EZ/EC SSBG grant?
The lead entity, through its community-based governance process, should decide what activities would be financed with EZ/EC SSBG funds. The local EZ or EC strategic plan, as submitted by the local entity seeking designation as an EZ or EC, indicates how the locality will use the EZ/EC SSBG money. The plan was part of the local entity's general application for designation as an EZ or EC and may have been amended and augmented since the date that application was submitted to HUD or USDA.
B14) May an EZ or EC undertake projects or provide services financed partially with EZ/EC SSBG funds and partially with funds from other sources?
Yes. An EZ or EC may use the EZ/EC SSBG funds in concert with funds from other sources, as long as the funds are spent in accordance with the EZ or EC strategic plan and the statutory requirements included in Title XIII, Subchapter C, Part I of OBRA 1993.
B15) May an EZ or EC use EZ/EC SSBG funds to replace existing public and private funding?
No. OBRA 1993 stipulates that an EZ or EC may not use EZ/EC SSBG funds to supplant federal or non-federal funds for services and activities that promote the purposes of the program. The underlying philosophy of this requirement is that states or localities should not use the fact that a neighborhood will be receiving EZ/EC SSBG funds as a rationale for reducing the amount of state or local resources devoted to that area.
B16) May an EZ or EC use EZ/EC SSBG funds to finance an income-producing activity?
Yes. The local strategic plan may call for the EZ or EC to use EZ/EC SSBG funds to finance activities that produce income. (For example, an EZ or EC may establish a job training activity in which trainees actually produce and sell products.)
B17) May an EZ or EC invest EZ/EC SSBG funds for the sole purpose of earning interest income?
No. Neither an EZ nor EC nor a state may use the EZ/EC SSBG funds solely to earn interest income.
B18) Are the EZ/EC SSBG funds subject to the same programmatic restrictions as regular Social Services Block Grant funds?
No. The EZ/EC SSBG funds are subject to substantially fewer restrictions on the programmatic uses than the "regular" Social Services Block Grant (Title XX) funds.
B19) May an EZ or EC use EZ/EC SSBG funds to capitalize a revolving loan fund?
Yes. When implementing such a fund, the EZ or EC should meet the following requirements:
B20) May an EZ or EC include in its benchmark document plans to immediately draw down a portion of the EZ/EC SSBG fund and use it to capitalize a revolving loan fund?
An EZ or EC may include in its benchmark document a strategy to draw down the full amount of the EZ/EC SSBG grant to capitalize a revolving loan fund if it expects to actually loan that amount within a reasonable period of time. The EZ or EC should exercise prudent fiscal procedures when establishing revolving loan mechanisms with the EZ/EC SSBG funds.
B21) May an EZ or EC transfer EZ/EC SSBG monies from a revolving loan fund, including any interest earned by the fund, to enable it to use the monies for activities other than the revolving loan fund?
Yes, but only under certain circumstances:
EZs or ECs should be careful when implementing such a change. They should ensure that the EZ/EC SSBG funds removed from the revolving loan fund are quickly applied to a new activity. Certain fiscal management principles and aspects of the Cash Management Improvement Act apply in this situation. (See Question B26.)
B22) May an EZ or EC use EZ/EC SSBG funds to increase the loan pool of a previously capitalized revolving loan fund?
Yes, as long as the locality meets the requirements listed in question B19.
B23) The HUD and USDA regulations specify that an EZ or EC may use the EZ/EC SSBG funds to capitalize revolving loan funds "for low income individuals." How should an EZ/EC locality determine whether or not a person is "low income"?
There are no explicit income requirements for the use of EZ/EC SSBG funds. The HUD and USDA regulations include these words to underscore the importance of using activities such as revolving loan funds to assist needy residents of the EZ or EC.
B24) The HUD and USDA regulations specify that an EZ or EC may use the EZ/EC SSBG funds only to assist "residents" of the census tracts that make up the EZ or EC. What are the requirements for determining who is a resident?
There are no federal requirements concerning how an EZ or EC may define the term "resident" for this program. Each EZ and EC should establish a reasonable definition for this term.
B25) Must an EZ or EC submit a budget to HHS outlining the activities it plans to finance with EZ/EC SSBG funds?
No. HHS will not require EZs or ECs to submit budgets of any sort.
HUD and USDA require the EZs and ECs to establish benchmark documents and MOAs that specify their planned activities, including those to be financed with EZ/EC SSBG funds. The lead entity should confer with HUD or USDA about their requirements for budgetary information.
It is possible that the grantee state agency may require EZs and ECs to prepare detailed budgets outlining activities to be financed with EZ/EC SSBG funds.
B26) Does the federal Cash Management Improvement Act (CMIA) apply to the federal funds awarded for the EZs and ECs?
Yes. The Cash Management Improvement Act and related OMB Circulars (A-133 and A-128) apply to the EZ/EC SSBG awards. Guidance is provided in 31 CFR Part 205 ("Rules and Regulations for Funds Transfer") and by 31 CFR Part 205.20 ("Cash Advances").
The CMIA stipulates that federal grant funds may not be drawn down until a reasonable time before they are needed for an actual expenditure. Specifically, advances must be limited to the minimum amounts needed and timed in accordance with actual, immediate cash requirements in implementing a program or project.
B27) Is it possible to waive Cash Management Improvement Act requirements?
No. It is not possible to waive the CMIA requirements without congressional action.
C1) Must an EZ or EC provide a list of activities for the entire ten-year designation period?
HHS is not requiring any EZ or EC to provide a list of activities beyond that included in the strategic plan. However, HUD and USDA are requesting localities to produce benchmark documents listing planned activities for the initial two years of implementation, and annually thereafter. States may require similar documentation.
C2) May an EZ or EC use a portion of the EZ/EC SSBG funds before it signs a MOA?
Yes. EZs and ECs should contact HUD or USDA for recommended approaches.
C3) May an EZ or EC use EZ/EC SSBG funds to finance administrative or programmatic activities undertaken prior to the date of the MOA?
Yes. An EZ or EC may be reimbursed for expenses incurred prior to the signing of the MOA as long as the activity:
This includes many activities typically defined as "administrative" and "programmatic."
C4) May an EZ or EC request its state to draw down the EZ/EC SSBG grant in advance of the time it actually will expend the funds?
No. The EZ or EC should request its state to draw down the EZ/EC SSBG funds only when it is ready to use the money to finance a strategic plan activity.
C5) Who or what agency will approve a change in an EZ or EC strategic plan?
The initial review of proposed changes should be at the local level. The EZ or EC lead entity or governing body should follow its own process for such amendments, as outlined in its plan. Once the locality has determined that a change is warranted, either HUD (urban) or USDA (rural) will review that decision.
C6) Who determines whether a proposed activity is eligible to be financed with EZ/EC SSBG funds?
Each EZ and EC must ensure that its use of EZ/EC SSBG funds is within the OBRA 1993 requirements. The locality should be able to reasonably identify the connection between each activity to be funded with the EZ/EC SSBG funds and the broad statutory goals contained in OBRA 1993. (See question B4 for a listing of the statutory goals.) The local expenditures of EZ/EC SSBG funds are subject to the review through the annual Single Audit Act process.
C7) Does HUD or USDA approval of an EZ's or EC's Benchmark document mean that any or all activities included in that document meet the requirements of the authorizing statute?
No. It is each EZ's and EC's responsibility to abide by OBRA 1993 requirements when using EZ/EC SSBG funds to finance programs and activities. EZs and ECs should not consider the HUD or USDA endorsement to be the federal government approval of statutory conformity of the locality's proposed uses of EZ/EC SSBG funds.
D1) Must the EZ or EC indicate how much state, local, and private funds are being directed to the EZ/EC census tracts to establish a basis for determining that the EZ/EC SSBG funds are not being used to supplant existing resources?
No, there is no need for a state or locality to catalogue existing resources. Assurances provided by each state as a signatory to the certifications in the nomination and application forms constitute the state's assurance that the requirements will be met. HHS does not require further information, documentation, or justifications concerning these assurances.
E1) Are the states required to abide by the same fiscal requirements as they are for the "regular" SSBG grants?
No. The states are subject to substantially fewer fiscal requirements for the EZ/EC SSBG grant(s) than they are for the "regular" Social Services Block Grant (Title XX) grant. States must comply with the requirements listed in the Terms and Conditions of the EZ/EC SSBG grants HHS awarded on December 21, 1994.
E2) What is the HHS policy regarding state administrative costs?
HHS encourages states to minimize the use of EZ/EC SSBG funds to finance the state administration of the grants. It is the federal intent that the states have a limited role with the EZ/EC SSBG grants and should not incur large expenses when administering them.
In any case, the local EZ or EC strategic plan must include a provision allowing for such an expenditure before an EZ or EC may allow the state to use the funds for such a purpose.
E3) When does the federal government consider funds to be obligated?
An "obligation" is a legal agreement between the state (as the grantee of the EZ/EC SSBG funds) and a designated EZ or EC (as the subgrantee) that makes the EZ/EC SSBG monies available to the locality, in accordance with EZ/EC statutory and administrative requirements.
Under the HHS block grant regulations (45 CFR Part 96) defining the specific form of that legal obligation agreement is the responsibility of each individual state, depending on the particular laws and procedures of that state. Therefore, HHS considers the EZ/EC SSBG funds to be obligated by the state when the state concludes that the obligation has been made for its own purposes.
E4) Will the federal government award separate funds to the states for their costs of administering these grants?
No.
E5) If a state incurs costs in administering this program, may it be reimbursed from the locality's EZ/EC SSBG grant?
Yes, if the local strategic plan includes such a provision.
E6) What are the federal guidelines concerning the amount of overhead an individual service provider may charge for carrying out an activity outlined in an EZ's or EC's strategic plan?
There are no federal guidelines specifically on this point. However, the HHS regulations for the "regular" SSBG stipulate that state administrative procedures and statutes apply to service providers' uses of the funds that come through the SSBG. Therefore, the answer to this question will vary from state to state. Localities should look to their state SSBG administrative requirements for an answer to this question.
E7) Do the states have access to the EZ/EC SSBG funds now?
Yes. The funds are in a federal account waiting to be drawn down by the states for the EZ or EC. HHS awarded the EZ/EC SSBG grants to the states for the ECs on December 21, 1994, and for the EZs on December 21, 1994, and October 1, 1995, but the states may not draw down the funds until the EZ or EC requests them. This procedure for retaining funds in a federal account until the grantee or subgrantee is ready to expend them is the normal procedure for most federal grants.
E8) What are the state's options for renegotiating or modifying an EZ or EC strategic plan?
States that have suggestions for modifying a locality’s strategic plan should take their concerns to the EZ or EC.
F1) What are the HHS financial reporting requirements for the EZ/EC SSBG funds?
There are minimal financial reporting requirements included as terms and conditions in the HHS grant awarded to the states:
These state reports should be submitted on the standard federal financial reporting form, "SF-269."
G1) How will grantees and subgrantees be audited for fiscal issues?
Audits are financial examinations. They are a part of the fiscal responsibilities of the recipients of the EZ/EC SSBG grants.
The EZ/EC SSBG grants are included in the states' annual "Single State Audits" that cover all federal funding received and used by each state. Under the Single State Audit requirement, states must provide the federal government with one audit report that includes information on all federal funding received and used by the state that year.
State requirements for subgrantees vary, but most states require subgrantees, or entities which receive federal money through the state, to contract with an accountant to perform an audit of the organization that is actually spending the funds. Reports of these subgrantee audits are then submitted to the state, which hires its own auditor to consolidate the reports and reconcile any "findings" or issues.
Most states also perform some sort of random "sampling" of their subgrantees, which involves sending an auditor from the state to examine records and visit programs. It is possible that states will send representatives to visit the EZs and ECs for such purposes at some point during the program.
G2) May an EZ or EC contract with a private firm to conduct the audit of its fiscal practices?
The answer to this question may vary from state to state. Therefore, the locality should consult with its state on this issue.
G3) Who or what agency will monitor the effort?
HHS will monitor the fiscal aspects of the EZ/EC SSBG grants; USDA and HUD will oversee the programmatic dimensions of the overall EZ/EC program. It is unlikely that there will be any joint fiscal and programmatic reports required for this program.
G4) How often will financial audits be performed?
The federal government requires the states to perform annual Single State financial audits of federal programs. Individual states may require audits on a more frequent basis.
H1) Does the HHS "Common Rule" apply to the EZ/EC SSBG grants?
No. The HHS Common Rule (45 CFR Part 92) does not apply to block grants. The EZ/EC SSBG funds are distributed through the HHS Social Services Block Grant program. Therefore, states are not required to apply the Common Rule in their management of the EZ/EC SSBG awards.
H2) Does the federal Davis-Bacon Act apply to projects financed with EZ/EC SSBG funds?
The Davis-Bacon Act generally requires that all individuals working on a federally contracted project must be paid at least the prevailing wage for similar work in the locality where the contracted project is performed.
EZs and ECs that use the EZ/EC SSBG grant are not federal contractors. Therefore, an EZ’s or EC’s use of EZ/EC SSBG funds to finance a specific project does not make it subject to the David-Bacon Act requirements.
However, there are several federal programs -- including, among many others, Community Health Center grants, Job Training Partnership Act work, and Low-Income Housing projects -- that require recipients of their funds to abide by the Davis-Bacon Act requirements. This could be an issue for an EZ or EC if it uses EZ/EC SSBG funds to finance a project funded in part with resources from these other federal programs. EZs and ECs should consult with an attorney to determine whether or not their specific EZ/EC SSBG activities are subject to the Davis-Bacon Act requirements.
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