HUD’s administration and planning activities in support of CDBG-DR and MIT

When running CDBG-DR/MIT programs, one of the first things you need to complete is your Action Plan. All the work needed to gather data for the unmet needs assessment and the mitigation assessment and have consultations with stakeholders in the recovery can be categorized as planning. This is a slight change from the prior HUD guidance that nearly all Action Plan activities—including the creation of programs, conducting public outreach, and translating the document—could be also categorized as planning. Notice CPD-23-06 updated and clarified what portion of your Action Plan development costs can be classified as planning and which parts must be classified as administration.

You may also consider reimbursing a specific project’s design costs or the environmental assessment needed to comply with 24 CFR part 58. These costs are eligible planning costs. But if the activity advances into a project with a final cost objective and eligible activity, all costs should be charged against the project rather than planning.

Planning funds (Section 105(a)(12) of the Housing and Community Development Act of 1974 and 24 CFR 570.489a for States and 24 CFR 570.205 for entitlement grantees), can be used to develop comprehensive development plans, publish studies for the purpose of understanding how to spend CDBG-DR/MIT funds, gather data not tied to specific programs, updates to codes and standards, or for strategic initiatives and capacity building activities.

Administrative costs (24 CFR 570.489a for States and 24 CFR 570.206 for entitlement grantees) are incurred for the management, oversight, and coordination of the CDBG-DR/MIT grant award. These costs are for activities that cannot be tied directly to the delivery of a single program or project. As long as the underlying cost is eligible for CDBG-DR/MIT, a grantee or subrecipient can use federal funding to pay for staff or contractors preparing budgets and schedules, monitoring program activities, or providing legal or accounting services tied to the administration of the overall grant.

The basic review of CDBG-DR/MIT costs for eligibility and compliance still applies. Any cost charged to the CDBG-DR/MIT grant must be allocable, allowable, necessary, reasonable, and adequately documented.

When combined, both the planning and administrative activity budgets are capped at 20% of the sum of the grant plus any program income that is received during the grant lifecycle.

Within this 20%, no more than 5% of the budget allocation can be used for administration and the remainder (up to 20% in the unlikely scenario of zero admin) can be used for planning activities

If you, as a grantee, subaward some portion of this planning or admin budget to subrecipients, you are responsible for making sure that the total of all administrative expenditures do not exceed this 5% cap and that all planning and administrative expenditures do not exceed the 20% cap.

If a subrecipient is incurring planning or administrative costs, the amount and use of the funds must be clearly established in the grant agreement. As a grantee, it is often prudent to initially set aside the maximum administration and planning funding in your grant: planning (15%), administration (5%), and program (80%). You can later amend your Action Plan to fund your CDBG-DR/MIT programs at more than 80% by cutting back the allocation to planning and administrative activities. But it is much more difficult to pull funding from programs to fund administration, in particular, later in the grant term without risking objections from the public.

Clarification on PACs vs. ADCs

When trying to understand what administrative costs are, it is important to differentiate two different types of costs: Program Administration Costs and Activity Delivery Costs. PACs refer to the administrative costs described in the previous section and ADCs refer to costs for services directly related to the delivery of a specific CDBG-DR/MIT program or project.

An example of ADCs would be developing application forms or guidelines for how to implement a program. Unlike PACs that are charged to the 5% administrative budget, ADCs should be charged directly to the program(s) they serve. Because there may be similarities in the type of costs charged to both ADCs and PACs, you want to check that costs paid for by the federal award are not paid more than once, that ADCs and PACs are not handled interchangeably, and that there is consistent treatment of similar costs. Costs that are related to program activities should not be paid out of the administrative bucket; when reviewing costs, you want to clearly document why costs are either administrative or program. Because of the program budget cap on administrative activities, separating program costs from administrative costs can be helpful for financial management.

For grantees managing subrecipients, a common question to ask is how to cover the costs needed to manage and deliver the project. As stated above, typically grantees would classify these costs as ADCs and include as part of the project budget and in the subrecipient agreement. However, there may be subrecipients who work across many programs or projects, creating a burden for allocating costs appropriately; in those cases, it may make more sense to allocate overhead funds from PACs. With a preference for charging costs as ADCs, grantees should think carefully about which pathway is reasonable for each subrecipient.

For some with experience with managing administrative funds, you may notice HUD using the term “Grant Administrative Costs” (or GACs) or other grantees use “Project Delivery.” These terms are the same as “Program Administration Costs” and do not appear to be discernibly different. You can look at this  2019 HUD presentation that references this term.

Allocating direct and indirect costs

Per 2 CFR 200.405, a cost may require a proration when it is associated with multiple programs and administrative activities. Consider an individual’s payroll where a person may charge their hours to various programs and management functions under the CDBG-DR/MIT grant. By using available timesheets (labor allocation) or a documented cost allocation methodology (percentage distribution based on workload), the person’s salary can be charged to the correct activity. Understanding the true nature of a cost allows you to determine how that cost is charged to the grant and ensure the right amounts are charged to program vs. administrative activities.

If you are managing multiple CDBG-DR/MIT grants, you want to document your cost allocation methodology that allocates administrative costs to the appropriate disaster. Without a methodology, you would not know how to accurately charge for the use of shared services or office space that may be used for the purpose of more than grants.

When managing an administrative activity, direct costs serve the objective of that singular grant objective (CDBG-DR/MIT) and indirect costs can serve the objectives of more than one grant program (CDBG-DR/MIT vs. FEMA vs. other local source). For example, you may have “indirect” staff who are indirectly supporting the operations of the CDBG-DR/MIT grant (executives, purchasing operations, HR staff, etc.) or you may incur costs that serve more than one cost objective (rent for office space that can be associated with more than one grant award). You must always be consistent when billing costs for the same purpose as direct or indirect. To charge these costs as indirect, grantees or subrecipients will either need to follow the method outlined in their internal cost allocation plan, use a de minimis rate, or develop what is called an indirect cost rate (ICR) that is applied to a pool of costs (e.g., administrative payroll, administrative costs, or combination of both).

Documenting costs

To effectively reimburse any cost to the CDBG-DR/MIT grant, grantees must understand what to charge, what not to charge, and how to document the costs. HUD documentation needs to include vendor invoices, receipts, timesheets, and any other applicable supporting documentation. Documentation should show who is submitting the invoice, what the goods or services are, the level of service, the period of service, the amount to be paid, and any applicable credits.

All costs—whether for administrative, planning, activity delivery, or project cost—must be tied to the qualifying disaster event. If CDBG-DR/MIT funding is used to pay for ineligible items, the funds will need to be repaid to HUD from non-federal sources. One caveat: For planning and administrative activities, you don’t need to meet a National Objective, so costs do not need to be included in the calculation of the overall LMI benefit requirement.

When dealing with subrecipient costs, it is best practice to:

1. Be particularly diligent in understanding why a subrecipient is billing for specific types of work and how that work relates to the grant.

2. Request documentation for the costs associated with prorated rent calculations, staff timesheets, indirect cost rates, and reimbursable costs.

Maximizing planning and administrative funds

We have talked about defining, allocating, and documenting the costs. One question you may have now is how to use this information to maximize the benefit from planning and administrative funds. What do successful grantees do that we can learn for ourselves? Below are some useful tips you may want to consider:

1. Planning and administrative activities can easily be perceived as a catch-all bucket for costs that do not fit within the program parameters. But that is not the case. There are specific types of costs that can be considered eligible under each activity. It is good guidance to question the purpose of a specific cost and how it furthers the objective of a planning activity or meets the definition of a grant management scope. Asking questions about a cost may reveal that it can be appropriately charged to a program instead.

2. If you are thoughtful at the start of the grant about what you charge to your planning and administrative buckets, this will provide options for you later in the grant when you may want to consider moving eligible costs from the program to the administrative bucket. Available grant funding will also allow you to process more Action Plan amendments, hold public hearings, and procure outside expertise for various needs that may come up during the grant until closeout.

3. Some grantees may notice how quickly costs can add up for administrative activities. Depending on the allocation received, the 5% for administration may seem large but will start to fill up quickly and will be needed for long-term obligations like monitoring and closeout. Owing to that, it is good practice to reserve the maximum allocation possible for administrative activities from the start. If not, grantees may find it harder to reallocate funds from program to administrative activities once those funds have been committed publicly to a certain program. Another tip is to determine at the start of the grant what costs have been or will be assigned to the administrative bucket, what are their functions, and what is the expected burn rate through the end of the grant to determine how quickly you will exhaust your funds. Updating this analysis will help you in keeping track of any risks to funding as you move forward.

4. Things can get complicated whether you are developing a cost allocation methodology, determining how much to charge as indirect costs, or allocating costs. Make sure you have a process in place to review on the invoice, contract, or DRGR voucher and how your planning and administrative funds are being affected. This limits the chance of going above your budget but, more importantly, will help track the pace of spending against your activities.

5. This last tip depends on the applicable Federal Register Notice (FRN), but usually 70% of funds must meet a National Objective and 80% of funds must address needs within the HUD-identified Most Impacted and Distressed (MID) areas. Administration and planning activities are the only CDBG-DR/MIT activities that do not need to meet a National Objective, such that the 70% only applies to the grant amount after deducting administrative and planning funds. For the MID requirement, HUD allows planning and administrative funds to count towards the percentage required but will require justification in the Action Plan for how the funds are used. Refer to the applicable FRN or your local HUD representative for questions you make have on meeting these requirements.

For more on this topic, refer to the recent guidance in Notice CPD-23-06 on Allocating Costs Between Program Administration, Activity Delivery, and Planning for CDBG-DR, CDBG-MIT, and CDBG-NDR Grantees published in August 2023. The notice is an update of the original guidance in Notice CPD-13-07: Allocating Staff Costs Between Program Administration Costs vs. Activity Delivery Costs in CDBG.

Also, check out these helpful presentations (2018 Admin & Planning, 2019 Admin & Planning, 2019 CDBG-DR Basics, 2023 Admin Funds, 2024 CDBG-DR Basics and additional tools (Guidance on CDBG-DR Costs) provided from HUD on the HUD Exchange.