1. (a) Purpose. The Governing Board and the Department seek to facilitate the use of public funds to provide for safe decent and affordable housing for Texans in a timely manner. From time-to-time, it becomes necessary to make changes to previously awarded funds to either expedite the delivery of the funds, meet state or federal guidelines or statutes, or to meet unexpected needs like disaster relief or leveraging of additional funds. To best achieve these goals, the Department has determined that a policy is necessary to provide the public with clear and consistent rules as to how Deobligated Funds occur, the reporting of Deobligated Funds and how the Department will treat Deobligated Funds after an initial award has been made. The funds covered by this section are previously awarded funds under a program administered by the Department, or funds that become available to the Department through program income. The purposes of this section are:

   1. (1) To establish procedures and Board policy on the events creating Deobligated Funds for applicable Department programs;
   2. (2) To identify standards for reporting and maintaining Deobligated Fund balances; and
   3. (3) To provide guidance for the reprogramming and reobligation of Deobligated or otherwise unexpended funds and program income.

2. (b) Definitions.

   1. (1) Administrator--A unit of government, non-profit entity or other party who has a written signed Agreement with the Department committing the Department to provide funds upon the completion of certain actions called for in the Agreement.
   2. (2) Agreement--A written executed agreement between the Department and an Administrator or Contractor outlining the obligations of all parties involved in the related transaction.
   3. (3) Contract--A written executed contract between the Department and an Administrator or Contractor outlining the obligations of all parties involved in the related transaction.
   4. (4) Contractor--A party who has a Contract with the Department to administer a program using funds provided under explicit terms and conditions in a written Contract with the Department.
   5. (5) Deobligated Funds--The funds released by an Administrator or Contractor or recovered by the Department canceling a contract or award involving some or all of a contractual financial obligation between the Department and an Administrator or Contractor.
   6. (6) Department--The Texas Department of Housing and Community Affairs as authorized in Chapter 2306 of the Texas Government Code.
   7. (7) Expenditure--Approved expense evidenced by documentation submitted by the Administrator or Contractor to the Department for purposes of drawing funds from HUD's Integrated Disbursement and Information System (IDIS) for work completed, inspected and certified as complete, and as otherwise required by the Department.
   8. (8) Executive Director--The person hired by the Governing Board with administrative duties to manage the affairs of the Department as provided under Texas Government Code §2306.036.
   9. (9) Governing Board--The Governing Board of the Department.
   10. (10) HOME--The HOME Investment Partnership Program at 42 United States Code §§12701-12839 and the regulations promulgated thereafter at 24 CFR Part 92 and governed by the Rules in 10 TAC §53.50.
   11. (11) Housing Trust Fund--The fund created under Texas Government Code §2306.201 and governed by the Rules found at 10 TAC §51.1.
   12. (12) HUD--United States Department of Housing and Urban Development.
   13. (13) Program Income--Funds generated through the activities related to a program that are made available to the Department for use in funding authorized actions of the Department.
   14. (14) Neighborhood Stabilization Program or "NSP" as authorized by the Housing and Economic Recovery Act of 2008 as an adjunct to the Community Development Block Grant Program. Housing and Economic Recovery Act of 2008, Pub. L. 110-289, 112 STAT 2850. It also refers to funds provided under §1497 of the Wall Street Reform and Consumer Protection Act of 2010 (Pub. L. 111-203, approved July 21, 2010) ("Dodd-Frank Act") and to future allocations from HUD.

3. (c) Events Creating Deobligated Funds.

   1. (1) The Department reserves the right to release their commitment to any Administrator or Contractor resulting in Deobligated Funds in the event of any one of the following circumstances:

      1. (A) Department has notified Administrator or Contractor of any outstanding compliance issues and the Administrator or Contractor has failed to either resolve the issue or take sufficient action to correct the compliance matter;
      2. (B) Department has notified Administrator or Contractor that they have failed to meet the required timelines and/or commitment deadlines, including Expenditure of funds, per the Agreement or Contract and Administrator or Contractor has not sufficiently corrected the deficiency;
      3. (C) The Department provides notice of default to Administrator or Contractor on any Agreement or Contract by and between Administrator and Contractor and the default has not been cured within the required time frame;
      4. (D) Applicant materially misrepresents facts to the Department during an application process, award of contract, request for amendment, or administration of any contract;
      5. (E) Department has notified Administrator or Contractor of their inability to provide adequate financial support to administer the contract as called for in the Agreement or Contract or meet any other material conditions and the Administrator or Contractor has failed to sufficiently correct the matter;
      6. (F) Department has notified Administrator or Contractor of their inadequate or insufficient management controls and the Administrator or Contractor has failed to sufficiently correct the matter;
      7. (G) Administrator or Contractor declines funds;
      8. (H) Administrator or Contractor fails to expend all funds awarded and voluntarily releases the funds;
      9. (I) Program income received by the Department that is used in lieu of awarded contract funds; or
      10. (J) Other circumstances approved by the Board as warranting Deobligation.
   2. (2) The Department shall have the sole discretion to determine whether sufficient progress or cure has been made under paragraph (1)(A) - (C) of this subsection and the sole discretion to determine what constitutes materiality in paragraph (1)(D) of this subsection, subject to appeal under 10 TAC §1.7.
   3. (3) During the pendency of a challenge of an event described under paragraph (1) of this subsection by Administrator or Contractor, the Department shall not take any action resulting in Deobligated Funds until an appeal as provided for under 10 TAC §1.7 has been completed. The Department may suspend reimbursement of funds during the appeal. If an appeal has not been requested, the Department may take action as allowed under this policy.

4. (d) Maintenance of Deobligated Funds.

   1. (1) The Department will produce a report for the Executive Director and the Board related to Deobligated Funds separate from original balances and program income, including fees earned and loan repayments, as part of the accounting of program funds at both the program and Department level.
   2. (2) The Department will ensure that HOME Deobligated Fund balances are reconciled at least monthly against the unexpended fund balances maintained by HUD. The Department shall confirm balances with HUD prior to recommendation to the Board for the use of any Deobligated Funds.
   3. (3) Housing Trust Fund Deobligated Funds, or any other Deobligated Funds deriving from a state general revenue source, will be included in the report in paragraph (1) of this subsection, but shall not be used to establish reserve balances. The Department will initiate efforts to reprogram and reassign Deobligated Funds from the Housing Trust Fund or any other state general revenue source within three months of Deobligation upon reaching a cumulative amount of Deobligated Funds that facilitates reprogramming.
   4. (4) The Department shall not retain Deobligated Funds from any program in any amount that exceeds 15% of the most current annual allocation for three consecutive months and must initiate efforts to reprogram or reassign funds in excess of that standard within 90 days of the figure reaching the 15% threshold. For purposes of determining the 15% threshold, funds that are subject to disbursement under a Notice of Federal Funding, but are not yet committed are not included in the 15% threshold. Submitting a proposal for reprogramming or reassigning Funds to the Board for approval shall constitute an initiation of efforts.

5. (e) Reassignment of Funds. Under this policy, the Governing Board and the Department, intend to create a policy to direct staff and the public on the uses of funds that are either characterized as Deobligated Funds under this policy or Program funds.

   1. (1) The Department shall not recommend to reprogram or reassign Deobligated Funds from the HOME Program or other programs with Deobligated Funds other than state general revenue funds described in subsection (d)(3) of this section for purposes other than disaster relief unless the remaining Deobligated Fund balance after reprogramming of funds is an amount equivalent to or greater than 5% of the most current annual allocation of such funds, for example the annual allocation of HOME funds from HUD.
   2. (2) NSP funds may be partially or wholly Deobligated from contracts and must be reassigned to NSP-eligible uses as determined by HUD.

   3. (3) It is the policy of the Department that funds not reserved for disaster relief may be used for any of the activities listed below as needed in the Department's discretion subject to the approval of the Governing Board:

      1. (A) Successful appeals related directly to the program funds available as allowable under program rules and regulations;
      2. (B) Leveraging of funds with other local, state or federal resources for applications made to the Department for any one or more of the programs operated by the Department;
      3. (C) Funding of projects identified as beneficial by the Department and identified in a Notice of Funding Availability approved by the Board;
      4. (D) Disaster relief including but not limited to disaster declarations or documented extenuating circumstances such as imminent threat to health and safety;
      5. (E) Funding of applications for program funds on existing Department waiting lists or reservation systems;
      6. (F) Funding to existing previously awarded eligible contracts in need of additional resources for circumstances considered unique or extenuating by the Department's Board;
      7. (G) Funding of applications or programs that serve individuals with special needs;
      8. (H) Settlement of litigation or HUD compliance matters;
      9. (I) Use in Asset Resolution/Enforcement Rule activities;
      10. (J) Funding applications or programs that serve Colonias; or
      11. (K) Other projects/uses as determined by the Executive Director and/or Board including the next year's funding cycle for each respective program.
6. (f) After adoption in final form and publication in the Texas Register, this policy shall supersede any other rule or policy governing the use of Deobligated Funds for the Department regardless of where published, unless any portion of this rule conflicts with statutory language or Federal rules, in which case those shall be controlling.
7. (g) Any portion of this rule may be waived for good cause by the Governing Board of the Department.

Source Note:The provisions of this §1.19 adopted to be effective May 6, 2007, 32 TexReg 2353; amended to be effective July 21, 2011, 36 TexReg 4558.