Lesson 7: Ineligible activities and the two caps

Two different kinds of limits sit on top of the eligible activities from the last lesson. 570.207 lists things CDBG generally cannot pay for at all, each with a narrow exception carved out. Separately, two spending caps limit how much of a grant can go toward planning and administration on one hand, and public services on the other, even when the underlying activities are fully eligible. As in the last lesson, 570.201 through 570.208 are the Entitlement citations. TxCDBG runs under Subpart I (570.480 says other subparts do not apply to the State program unless expressly stated), so the State-side rules are noted where they differ.

Generally prohibited, 570.207(a)

Three categories are prohibited outright, each with one narrow exception:

1. Buildings for the general conduct of government. Exception: removing architectural barriers, and the land portion of an acquisition that includes an existing building, where the acquisition itself meets a national objective.
2. General government expenses. Exception: expenses specifically authorized elsewhere in the regulations.
3. Political activities. Exception: incidental use of a CDBG-assisted facility, as long as all parties have equal access and are assessed equal charges.

Prohibited unless an exception applies, 570.207(b)

A second, longer list is prohibited by default but opens up under specific conditions:

1. Equipment purchase. Exceptions: lease or depreciation of equipment used in an eligible activity; fire protection equipment; construction equipment used for solid waste disposal facilities; equipment and furnishings needed to administer CDBG-assisted activities; and personal property that is part of a public service.
2. Operating and maintenance expenses. Exceptions: public service activities; interim assistance; and office space for CDBG program staff.
3. New housing construction. Exceptions: last resort housing under 24 CFR Part 42; housing construction under Section 17 of the 1937 Act (570.201(m)); direct homeownership assistance (570.201(n)); and activities carried out by a CBDO under 570.204(a). Clearance, site work, public improvements and the pre-construction costs in 570.206(g) that support housing are not treated as subsidizing new construction.
4. Income payments. Exception: emergency grant payments, limited to up to three consecutive months, and paid directly to the provider of the food, housing or utilities rather than to the person or family assisted.

The pattern across both lists is the same: a category that would, if left wide open, let CDBG dollars substitute for ordinary local government operating budgets or basic income support, closed off by default, with a narrow and specific door left open for the situations where the exception genuinely serves a CDBG purpose.

The planning and administration cap, 570.200(g): 20 percent

For origin year 2015 grants and later, no more than 20 percent of any origin year grant can be expended on planning and administrative costs (570.205 and 570.206), and expenditures of program income are excluded from that calculation. Under the program year obligation test, the amount obligated is limited to 20 percent of that program year's grant plus the program income received in that year. This is the cap that 570.205 and 570.206 spending count against, covered in the last lesson.

570.200(g) is the entitlement grantee's citation, sitting in Subpart C. TxCDBG runs under Subpart I, where the parallel rule is 24 CFR 570.489(a)(3): the combined planning, management and administrative spending by the State and its funded units of general local government may not exceed 20 percent of any annual grant (excluding program income) for origin year 2015 and later. Same percentage, but it is measured against the State's and the local governments' spending together, not against one entitlement grantee's own grant alone.

The State's own administration has a separate limit at 570.489(a)(1): it may use CDBG funds for up to $100,000 plus 50 percent of administrative expenses above $100,000 (the State pays the other half from its own funds). The CDBG amount above $100,000, together with State technical assistance costs, is capped at 3 percent of the annual grant plus 3 percent of program income and of reallocated funds.

The public services cap, 570.201(e): 15 percent

This cap is more complicated than the planning and administration cap, because the base it is measured against is not the same for every grantee.

• Standard rule: 15 percent of each grant.
• Entitlement grants, Hawaii non-entitlement, and insular areas: 15 percent of the grant plus 15 percent of program income.
• Timing for entitlement grantees: compliance is measured on funds obligated in each program year, tested against 15 percent of that year's entitlement grant plus 15 percent of the program income received in the immediately preceding program year. There is a one-year lag built into the program income half of that calculation, and it is easy to apply the wrong year's program income figure if that lag is overlooked.
• Grandfathered grantees: a recipient that obligated more than 15 percent of its 1982 or 1983 grant for public services may exceed the cap, within limits tied to its 1982 or 1983 level (570.201(e)(2)).
• New or increased service: a public service is eligible only as a new service or a quantifiable increase in the level of an existing service above what the local government funded in the 12 calendar months before the action plan was submitted.

One activity sits outside this cap entirely. Microenterprise assistance under 570.201(o) is exempt from the public services cap (570.201(o)(2); 570.482(c)(2) for States). A grantee funding microenterprise assistance does not have to count that spending against the 15 percent limit, which makes it a genuine escape hatch worth knowing when a public services budget is getting tight.

570.201(e) itself sits in Subpart C and speaks directly to entitlement grantees. Subpart I, which governs TxCDBG, does not restate the test in those terms. The limit comes from section 105(a)(8) of the Act, which for non-entitlement funds distributed by a State is 15 percent statewide, and 570.482(c)(2) lists services that are outside it. A State may also impose stricter rules on the local governments it funds (570.480(f)). Treat the base-and-lag rules here as the entitlement program's, and confirm what applies to a TxCDBG award against the current TxCDBG Project Implementation Manual.

Why two separate caps, not one

The planning and administration cap and the public services cap answer different questions. The 20 percent cap limits how much of a grant goes to running the program itself rather than to activities that serve the community directly. The 15 percent cap limits how much goes to public services, which are direct services but not bricks-and-mortar activities like rehabilitation or public facilities. A grantee tracking only one of the two caps can still be non-compliant on the other, since they are measured separately against separate spending categories.

What this means in practice for GCHS

GCHS's rehabilitation work is not public services and is not planning and administration, so most of GCHS's direct project spending does not count against either cap. Where these caps become directly relevant is in how a partner jurisdiction structures its own program year budget, and in how GCHS, if it ever administers grant funds on behalf of another entity or takes on a public-service-adjacent activity like housing counseling, tracks that spending separately from its rehabilitation budget. The microenterprise exemption is worth remembering specifically because GCHS's broader community development conversations sometimes touch small business support in the same breath as housing rehabilitation, and knowing that one of those categories does not compete with the public services cap for the same 15 percent is a useful planning fact.