Community Housing Development Organizations (CHDOs)

Community Housing Development Organizations (CHDOs)

INTRODUCTION

The National Affordable Housing Act of 1990 which created the HOME Investment Partnerships Program (HOME) requires "maximum participation" by nonprofits. This mandate is backed by the requirement that 15 percent of HOME funds be spent on housing owned, developed, or sponsored by Community Housing Development Organizations (CHDOs). Congress believes that because CHDOs are community-based and nonprofits,1 they will be dedicated to developing the type of affordable housing required by low- and very low-income persons in their areas.

PROGRAM BASICS

Eligibility:

In order to be eligible for HOME funds, a CHDO must meet the parameters established in the HOME regulations (24 CFR Section 92.2). There a CHDO is defined as an organization that:

  • Is organized under state or local laws;
  • Has no part of its net earnings inuring to the benefit of any member, founder, contributor, or individual;
  • Is not controlled by entities seeking to derive profit or gain from the organization;
  • Has tax exempt status under section 501(c)(3) or (4) of the Internal Revenue Code;
  • Does not include a public body like a legislature or the participating jurisdiction (PJ),2 and does not have more than one-third of its governing board appointed by a state or local government;
  • Has standards of financial accountability that conform to 24 CFR 84.21, "Standards for Financial Management Systems";
  • Maintains accountability to the low-income community by reserving at least one-third of its governing board for their representation and implementing a process for low- income persons to review projects;
  • Has demonstrated capacity (experienced staff or consultants) for the activities associated with HOME funds; and
  • Can show at least one year of serving the community, or can show that its parent organization has been providing community service for at least one year.

An organization interested in being designated as a CHDO should note that it will need to file with the state government in order to officially organize under state or local laws and with the IRS to obtain section 501(c) exemption. These filing procedures can take anywhere from three months to two years.

The PJ determines whether an organization meets the HUD requirements, and officially certifies it as a CHDO eligible for the 15 percent set-aside of HOME funds. When reviewing HOME project applications, PJs consider the conformance of a CHDO's potential projects to the priorities and objectives listed in the PJ's Consolidated Plan.3 A potential CHDO should study the Consolidated Plan and note in its application how the projects it plans to undertake will fulfill the Plan's goals.

Terms:

In order for a project to count toward the 15 percent minimum set-aside, a CHDO must use HOME funds as owner, developer, or sponsor of an affordable housing project. As owner, a CHDO has valid legal title or a long-term (longer than 99 years) lease for the project. A CHDO plays the second role, developer, when it owns property or has the contractual obligation to a property owner to construct, maintain, rehabilitate or obtain funding for affordable housing. Lastly, as a sponsor a CHDO develops an affordable housing project that it solely or partially owns, and agrees to transfer ownership to a second nonprofit or a HOME-qualified homebuyer at a predetermined time.

Because many CHDOs have advanced skills in housing provision, PJs also designate them as subrecipients of HOME funds, but this does not help the PJ meet the 15 percent CHDO set-aside requirement. A subrecipient is selected by the PJ to administer aspects of a HOME program like project screening, review and certification of tenant income, and potential homebuyer counseling; or a subrecipient administers an entire HOME activity like management of a tenant-based rental assistance program or review of requests for the rental housing production set-aside. If a CHDO plays the role of subrecipient for a project, it cannot also act as owner, developer, or sponsor.

Financial and Technical Assistance:

The HOME program allows PJs and other qualified groups to assist CHDOs in a variety of ways. First, PJs that have difficulty in identifying viable CHDOs may use up to 20 percent of the 15 percent CHDO set-aside for capacity building. Second, a PJ may use up to 5 percent of its total HOME allocation for the operating expenses of CHDOs, as long as the funds given to a CHDO do not exceed 50 percent of the group's annual budget or $50,000 (whichever is greater), and are not used to pay operating costs incurred while acting as a HOME subrecipient. Third, a PJ may use up to 10 percent of the CHDO set-aside to provide technical assistance, site control loans, and project-specific seed money loans for preconstruction costs to eligible CHDOs in the early stages of project site development. These loans must be repaid to the PJ from project income unless development is halted for reasons beyond the control of the CHDO. Finally, there is a special set-aside of each year's total HOME appropriation for qualified intermediary organizations that are contracted to provide technical assistance to CHDOs. In 1995, HAC was awarded a cooperative agreement to provide technical assistance, training, and pass-through funds to CHDOs in 19 states. For more information on HAC's CHDO Project, contact Mary Stover at HAC (202-842-8600).

Comments:

In general, CHDOs in rural areas can operate in the same manner as urban ones, but they may face certain barriers. Towns in rural areas are too small to qualify as PJs, so a rural CHDO may have to work with the state PJ which might not recognize the special housing needs of rural areas. In addition, some poorer rural states have difficulty coming up with the funds to match the HOME grant. In these cases, the state PJ might require the CHDOs to raise the matching funds.

Additional Information

Additional information on HOME and CHDOs is available on HUD's website.

Footnotes

1The HOME Investment Partnerships Program provides block grant funding to states, metropolitan cities, urban counties, and consortia of jurisdictions for affordable housing development for low- and very low-income persons and families. Participants in the program must match the HOME funds with "non-federal" funds. For more information on the HOME program, see the HAC Information Sheet on this topic.

2Participating jurisdiction is the term given to any state or local government that HUD has designated to receive an annual HOME allocation.

3The Consolidated Plan contains the planning and application requirements of the Community Development Block Grant, Emergency Shelter Grant, Housing Opportunities for Persons with AIDS, and HOME Investment Partnerships programs. For more information on the Consolidated Plan, see the HAC Information Sheet on this topic.

This information sheet was prepared by the Housing Assistance Council in 1999. The work that provided the basis for this publication was supported with funding from the Ford Foundation.