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Derosa v. United States Department of Housing and Urban Development

April 11, 1986

GUERINO R. DEROSA, R. DAVID DUNCAN, LILLIAN LANGLIE, AND OPPORTUNITIES FOR BROOME, INC., APPELLANTS,
v.
UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; SAMUEL PIERCE, IN HIS OFFICIAL CAPACITY AS SECRETARY OF THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; JOSEPH LYNCH, IN HIS OFFICIAL CAPACITY AS AREA MANAGER OF THE BUFFALO AREA OFFICE OF THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; CITY OF BINGHAMTON, A MUNICIPAL CORPORATION; AND JUANITA M. CRABB, IN HER OFFICIAL CAPACITY AS MAYOR OF THE CITY OF BINGHAMTON, APPELLEES



Hotel project built with use of Urban Development Action Grant to City and loaned by City to developer met citizen participation and leverage requirements of regulations. Section 108 Community Development Block Grant loan guarantee used by City to finance purchase of completed hotel not improperly used to finance new construction. United States District Court for the Western District of New York, Michael A. Telesca, Judge, affirmed.

Author: Oakes

OAKES, Circuit Judge:

A hotel of over 200 rooms, to be operated under a Sheraton franchise, is being built in Binghamton, New York (City), by a private developer with $1.8 million of private equity investment and with the assistance of $3.3 million granted by the federal government to the City on the $12.4 million project. The grant to the City was made under the Urban Development Action Grant (UDAG) program, 42 U.S.C. § 5318 (1982); 24 C.F.R. §§ 570.450-570.466 (1982),*fn1 and was in turn loaned by the City to the private developer. Also involved is a $7.3 million federal loan guarantee to the City under the Community Development Block Grant (CDBG) program authorized under Section 108 of the Housing and Community Development Act of 1974, as amended, 42 U.S.C. § 5308 (1982); 24 C.F.R. §§ 570.700-570.705 (1982). Under section 108 and the corresponding regulations, the Federal Financing Bank Loans funds to a municipality and the United States Department of Housing and Urban Development (HUD) guarantees that repayment will be made. The developer obtained from a local bank $7.3 million in construction financing and personally guaranteed repayment. Initially, the plan called for the City to purchase the hotel from the developer and convey it back to the same developer, taking back a purchase money mortgage, but as the project evolved the City is to purchase the completed hotel and lease it to a limited partnership in which the developer is a general partner. The Section 108 loan will be used by the City to acquire the hotel and land from the developer. In the original plan, the developer pledged the proceeds to be received from the City on sale as collateral for the loan, but we were advised by the City's brief that the construction loan as ultimately obtained was not conditioned, as initially envisaged, upon the developer's pledge of sale proceed (including the City's Section 108 funds) as collateral. The City's brief also informs us that the hotel is nearing structural completion.

Plaintiffs, individual low- and moderate-income residents of the City and a community action agency, brought suit in the United States District Court for the Western District of New York, Michael A. Telesca, Judge, challenging the funding of the project and seeking declaratory judgment and injunctive relief.*fn2 Judge Telesca granted summary judgment for defendant. Three of the original plaintiffs-R. David Duncan, Lillian Langlie, and Opportunities for Broome, Inc.-appeal.

Appellants contend that HUD acted arbitrarily in approving the UDAG and Section 108 funding for the hotel project for three reasons: first, because the City failed to comport with the citizen participation requirements for the those programs; second, because HUD's requirement that every public dollar leverage at least 2.5 private dollars was not met; and third, because Section 108 loan was improperly used to finance new construction. We agree, however, with Magistrate David G. Larimer and the district judge that none of the claims mentioned for declaratory or injunctive relief are availing.

Discussion

I. Citizen Participation

Municipalities seeking UDAG grants or Section 108 loans are required to hold public hearing to obtain the views of citizens. 42 U.S.C. § 5318(c)(3)(A) (1982); 24 C.F.R. § 570.454(a) (1982), and section 570.303, incorporated by reference in section 570.702. The City's Community Development Department did hold a public hearing on July 27, 1982, in connection with the UDAG application at which the project (then a Marriott Hotel to be funded at which the project (then a Marriott hotel to be funded in part by Industrial Development Agency (IDA) bonds rather than with any utilization of Section 108 loan guarantees) was discussed. Information packets were given to those attending, and the major features of the plan-a 220-room hotel, banquet facilities, meeting rooms, retail shops, a high quality restaurant and lounge, recreation facilities, access to the handicapped, and parking for 240 cars-were pointed out. The project, the hearing attendees were told, would be funded by a UDAG grant in the sum of $3 million, IDA bonds in the sum of $7.2 million, and developer cash funding of $1.8 million. City benefits would include a grant to Binghamton, an increase in the City tax base, progress in a deteriorated, vacant area, 200 to 250 new jobs, possible new convention business and good pedestrian access to downtown facilities. The only people speaking against the project at the July 27 meeting were affiliated with, or speaking on behalf of, the Holiday Inn, Howard Johnson's, and the Ramada Inn, other hotels in the vicinity, and were essentially objecting to the competition being financed out of public funds.

Appellants argue that he information provided at the hearing was inadequate since the UDAG application itself was not made available. They claim the information was misleading: the packet indicated the UDAG would be $3 million, but the UDAG application sought $3,206,000 and the grant approved was $3.3 million; while $7.2 million in IDA bonds were contemplated at the July, 1982, hearing, $8 million in bonds were sought and eventually the SEction 108 loan proceeds in the amount of $7.3 million replaced the bonds altogether; the information packet referred to 200 to 250 new jobs but the UDAG application stated 280 jobs would be created and the Section 108 loan application ultimately referred to 200 new jobs. We agree with the magistrate that this potpourri of objections does not amount to significant abrogation of the citizen participation process.

Appellants complain that not economic benefit analysis, no affirmative action plan, and no information as to tax revenues, firm financial commitments or minority contractor participation was provided at the hearing. But we agree with the magistrate's conclusion in this case that, since citizen participation must take place "(p)rior to submission of a full application," 24 C.F.R. § 570.454(a) (1982), the applicant is not required to provide all this information at the public hearing.

Appellants also argue that changes in the UDAG application amounted to "significant revision(s)" requiring additional hearings pursuant to 24 C.F.R. § 570.463(a) (1982). Once such change was the use of the Section 108 loan instead of IDA bonds; a second was the substitution of a different developer. However, additional hearings are required under section 570.463(a) only when a revision "alters the scope, location, or scale of the project or changes the beneficiaries' population." None of these occurred here. Summary judgment as to the issue of citizen participation which respect to the UDAG was properly granted.

The City, appellants further contend, "compounded its error by failing to comply with even more explicit citizen participation requirements when it completely redesigned the project's financial underpinnings by substituting Section 108 funds for industrial revenue bonds." On January 14, 1983, a hearing as to that substitution was conducted. Appellants claim that he citizens were not provided with "adequate and timely information" within the meaning of 24 C.F.R. § 570.303(c)(4)(1982), "so as to enable them to be meaningfully involved in important decisions at various stages of the program." Id. However, the record indicates that the hearing was publicized and that the appellants were quite vociferous in objecting to the project. THe minutes reflect that one of the named plaintiffs voice the concern that "(o)ther projects will have to be sacrificed," referring to the fact that "(t)he amount of (Section) 108 funds the City plans to loan to the project is all that the City has." He also argued that the number of jobs that the project's proponents claimed would be created was exaggerated, pointing to past Binghamton projects where the jobs did not materialize. He wants only one of several who spoke against the use of Section 108 loan funds in connection with community development objectives. These comments suggest that the public had adequate information about the project to discuss it meaningfully. In our view, the City complied with the requirement of section 570.303, as incorporated in section 570.702, by "obtain(ing) views of citizens" on the project, 24 C.F.R. § 570.303(a) (1982).

II. Leveraging Requirements.

UDAG grants may be made "only where the Secretary determines that there is a strong probability that (1) he non-Federal investment in the project would not be made without the grant, and (2) the grant would not substitute for non-Federal funds which are otherwise available to the project." 42 U.S.C. § 5318(j) (1982). Thus, among other criteria to be considered in determining which communities will receive UDAGs, the Secretary should consider "the extent to which the grant will stimulate economic recovery by leveraging private investment," 42 U.S.C. § 5318(d)(1)(C) (1982). In furtherance of these policies, 24 C.F.R. § 570.459(b)(2) (1982) requires that "(e)ach project considered for selection for (UDAG) funding must have a leveraging ratio of at least 2.5 to 1.0." 24 C.F.R. § 570.451(l) defines "leveraging ratio" as "the total amount of firm private commitment generated by the project divided by the amount of action grant funds awarded to the project." Under 24 C.F.R. § 570.451(i) (1982), "firm ...


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