CoC FAQ
Q

According to 578.55(b)(3), an eligible operating cost is scheduled payments to a reserve fund for the future replacement of major building systems (e.g., a roof or HVAC system). If I have this cost in my grant, am I supposed to draw down money regularly or leave it in LOCCS and are there any limits to how much of my grant funds I can put towards the reserve fund?

Date Published: September 2019

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A

Scheduled payments to a reserve fund for the repair of major building systems are an eligible cost for recipients of transitional or permanent supportive housing projects where the recipient or subrecipient owns or operates the building(s). The repayment schedule, the total amount to be placed in reserve over the grant term and the scheduled payment amount, the system or systems to be replaced and the useful life/lives of the system(s) must be submitted as part of your project application and must be approved by HUD. The HUD-approved amount is the limit on how much of your grant funds can be put in reserve. The total amount to be deposited in the reserve and the scheduled payments must be based on the remaining useful life of the system the recipient that will be replaced and the expected replacement cost of that system, reduced by the interest income expected to be earned on the reserve account before the end of the useful life of the system (taking into account expected future deposits and cash disbursements).

Recipients must draw down these funds from LOCCS in accordance with the HUD-approved repayment schedule included in the application. Payments must be scheduled no less frequently than quarterly, as required by 24 CFR 578.85(c)(3). A recipient must maintain separate accounting records for the reserve (e.g., an accounting “fund”) that will segregate the accounting for deposit of grant funds and expenditure of amounts held in the reserve for replacement of the asset). When the major system for which the reserve was created must be replaced (e.g., the HVAC system), the recipient may use funds in the reserve account to pay for the replacement without prior approval from HUD, but must maintain documentation to support the expenditure of funds and the replacement of the system.


Tags: CoC Program Requirements - Eligible Costs

FAQ ID:

3678