Date Published: October 2018
Yes, the new use must meet a national objective or the program must be repaid. If a subrecipient is involved, the subrecipient agreement must specify the terms under which a national objective must be met. The CDBG regulations state that the project must meet a national objective until five years after expiration of the subrecipient agreement, or longer as required by the grantee. If the property ceases to meet a national objective during that term, it must be treated as a change of use. (If there is no subrecipient agreement between the grantee and subrecipient concerning the activity, or if the subrecipient agreement contains no expiration date, the activity must continue to meet a national objective in perpetuity.) If the grantee holds title to the property, it must continue to meet a national objective in perpetuity or be sold for current market value, with the proceeds being CDBG program income.
If the new use can meet a national objective, no repayment would be required. For example, converting a community center to a daycare facility for low- to moderate-income (LMI) families would meet a national objective, so reimbursement is unnecessary. If the use changes and the subsequent use does not meet a national objective, then the property may be taken out of the program. The CDBG program must be reimbursed at current market value, regardless of the original purchase price. If the property never met a national objective, all costs must be reimbursed; the activity is ineligible. If CDBG paid only a portion of the costs, a proportional share of the proceeds should be reimbursed to the program.
If the fair market value is less than the original CDBG investment, a determination must be made as to why the value change occurred and the grantee must document the files. See also FAQ 3458 and FAQ 3459.