Lesson 15: Timeliness, program income, records, monitoring, closeout

This lesson covers the back half of grant administration: the test for whether a grantee is spending money fast enough, what happens to money that comes back as program income, what a grantee owes in records and responsibility regardless of who it delegates work to, and what has to be true before a grant can close. None of this changes what an activity is or who it serves. It governs the mechanics of running the grant, and a grantee that gets the mechanics wrong can lose access to its own money even while doing good work.

Timeliness for the State program: 24 CFR 570.494

TxCDBG is a State-administered program under Subpart I, and its timeliness rule is 24 CFR 570.494, not the entitlement test below. The State must obligate and announce to units of general local government all of its annual grant, excluding funds kept for state administration, within 15 months of the date the state signs its grant agreement with HUD. The state is also encouraged, though not strictly required, to reach 95 percent of that obligation and announcement within 12 months. Recaptured funds and program income the state receives must be obligated and announced to local governments expeditiously as well.

Timeliness for entitlement grantees: 24 CFR 570.902

Entitlement grantees are tested differently, at a fixed point: 60 days before the end of the current program year. At that point, HUD checks whether the grantee's undisbursed entitlement funds exceed 1.5 times the current program year's entitlement grant. The numerator is entitlement funds available under grant agreements but not yet disbursed by the Treasury. The denominator is the current year's entitlement grant itself. Over 1.5, the grantee is untimely.

The consequence is real: HUD may withhold the grantee's next annual grant. A grantee can avoid a finding by showing the delay resulted from factors beyond its reasonable control, but that has to be demonstrated, not assumed. A separate provision lets HUD find a grantee untimely where program income plus line-of-credit funds together exceed the 1.5 threshold, even where the line of credit balance alone looks acceptable. A large pool of unspent program income is not invisible to the timeliness test.

Notice that this test is written entirely in terms of an "entitlement grant." A Texas non-entitlement community running a TxCDBG-funded program is not an entitlement grantee, so this 1.5 ratio does not govern that community's spending pace; the 570.494 test above, measured at the State level, is the one that applies to TxCDBG.

Program income: 24 CFR 570.504 (Entitlement) and 570.489(e) (State)

Under the Entitlement rule, program income is not free money outside the grant. It is treated as additional CDBG funds and is subject to all applicable requirements governing the use of CDBG funds. Same eligibility rules, same national objective requirement, no shortcuts because the dollars came back from a loan repayment instead of from the Treasury.

Two disbursement rules come before further draws from the Treasury:

• Repayments and interest sitting in a revolving fund must be substantially disbursed from the fund before additional cash is drawn from the Treasury for the same activity.
• Substantially all other program income must be disbursed for eligible activities before further draws.

At the end of each program year, balances above one-twelfth of the most recent grant are returned to HUD, counting cash held by the grantee and its subrecipients. Revolving loan fund balances, lump sum drawdown balances and cash needed immediately are left out of that test. A grantee cannot simply let program income accumulate indefinitely as a cushion.

The State program is different. TxCDBG runs under Subpart I, where 24 CFR 570.489(e) defines program income. In any single year, total funds of up to $35,000 from activities other than revolving loan funds are not counted as program income (all revolving loan fund income counts, whatever the amount). The State may let a local government keep program income or require it to be paid to the State, but must let the local government keep it if it will continue the activity that produced it. A TxCDBG grantee follows the program income terms of its TDA contract.

For a subrecipient generating program income, the written subrecipient agreement has to say explicitly whether that income comes back to the recipient or is retained by the subrecipient. If it is retained, the agreement has to spell out what will be done with it. Silence in the agreement is itself a compliance gap.

Program income does not stop mattering at closeout. If the recipient has another ongoing CDBG grant received directly from HUD, income received after closeout is treated as program income of that grant. If there is no such grant, income from property disposition or outstanding loans must still meet a national objective, but it is not governed by most other program requirements at that point.

Grant administration: 24 CFR Part 570 Subpart J

570.501, responsibility. The recipient is responsible for compliance no matter what it delegates. A designated public agency is held to the same requirements as a subrecipient. A grantee can contract out the work of running an activity. It cannot contract out the liability for whether that activity is run correctly.

570.502, uniform administrative requirements. 2 CFR Part 200 applies to CDBG, with specific substitutions: payment under 200.305 is modified for lump sum drawdown under 570.513; 200.306 cost sharing does not apply; program income under 200.307 is replaced by 570.504; real property under 200.311 is replaced by 570.505; and equipment under 200.313 applies, with sale proceeds treated as program income. The audit rules in Part 200 apply too: a non-Federal entity that expends $1,000,000 or more in Federal awards in its fiscal year needs a single audit (2 CFR 200.501, the threshold after the 2024 revision, effective October 1, 2024). TxCDBG money is a Federal award passed through the State, so a local government counts its TxCDBG spending along with its other federal awards when it tests that line.

Record retention. Recipients keep records for 4 years from execution of the closeout agreement. Subrecipients keep records for the longer of 3 years after the agreement expires or 3 years after final reporting on the activity. Records on any outstanding balance are kept until that balance is satisfied. Records for an activity subject to a reversion or change-of-use provision are kept for 3 years after those provisions stop applying, which can run well past closeout.

State program records. Those Subpart J periods are written for Entitlement recipients. Under the State program that TxCDBG runs on, 24 CFR 570.490(d) requires the State and each local government grantee to keep records for the greater of three years from closeout of the grant to the State, or the period any other applicable law requires. TDA's 2026 Implementation Manual (Section 1.2.1) goes further and tells grantees to keep all records for the greater of four years from closeout of the grant to the State or the period other federal and state laws require. Because that clock starts at the State's closeout of the HUD grant, not the local contract's, a TxCDBG grantee should follow the manual and its TDA contract rather than counting from its own closeout date.

570.503, subrecipient agreements must cover the statement of work with schedule and budget, records and reports, program income, compliance with the uniform requirements, other applicable federal law, suspension and termination, and reversion of assets. Where a subrecipient acquires or improves real property with more than $25,000 of CDBG funds, that property must keep meeting a national objective until five years after the agreement expires, or the subrecipient pays the recipient the current market value less any non-CDBG share, which becomes program income. 570.505 applies that same $25,000 and five-year test to property the recipient itself controls, running from the date CDBG funds are first spent on the property until five years after closeout, and changing its use requires either that the new use meets a national objective or reimbursement at fair market value less the non-CDBG portion.

570.506, records to be maintained, requires, per activity, a full description with location, budget, obligation and expenditure and the eligibility provision relied on, national objective evidence, income limits and when benefit was determined, service area boundaries and demographics, housing details including rents and affordability, job documentation, slum and blight evidence, citizen participation, fair housing and equal opportunity data, and financial records with source documentation, tied to a specific grant origin year or program income year, not just to the program as a whole.

570.508, public access. Citizens get reasonable access to records on the past use of CDBG funds, subject to state and local privacy law.

Closeout: 24 CFR 570.509

Section 570.509 is how HUD closes a grant with a direct recipient. A TxCDBG grantee closes out with TDA instead, following the closeout chapter of the current Implementation Manual, but the HUD criteria show what closeout is checking. Six criteria must all be met before a HUD grant closes:

1. All costs expended and drawn down, except closeout costs and contingent liabilities.
2. All activities physically complete, eligible, meeting a national objective, with accomplishments reported.
3. The final performance and expenditure report submitted under 24 CFR 91.520.
4. Program income expended, or identified in the current Action Plan.
5. Planning and administrative costs within 20 percent, for origin year 2015 grants and later.
6. Other responsibilities carried out satisfactorily.

Once those are met, HUD prepares a closeout agreement, cancels unused funds, and the recipient refunds any excess. Closeout does not end everything: real property obligations under 570.503(b)(7) and 570.505 continue past closeout, and property disposition or outstanding loan income keeps being treated as program income as described above.

Monitoring: what the rules do and do not fix

Under the State program, HUD reviews the State at least annually (24 CFR 570.493(a)), and the State makes reviews and audits of local governments, including on-site reviews, as necessary or appropriate (570.492(a)). Neither section sets a fixed on-site schedule for a local grantee, so do not assume an annual or biennial visit applies to your grant. TDA's 2026 Implementation Manual describes its own risk based approach, with lower risk agreements handled by self-monitoring or desk review and higher risk ones reviewed on site, plus a phased interim monitoring of early compliance areas such as environmental review, procurement and labor standards for newer grants. Check the current manual chapter and your contract for the process that actually applies.

What this means in practice for a small grantee doing single family housing rehabilitation

Three habits matter more than any single number. Know where spending sits relative to the applicable timeliness test before the 60-day checkpoint, and if State CDBG timing rules apply instead of the entitlement 1.5 ratio, confirm which rule actually governs rather than assuming. Treat rehabilitation loan repayments and any other program income exactly like grant funds from the day they come in, tracking the rule that applies to you (the one-twelfth balance test for Entitlement recipients, the State rule at 570.489(e) and your TDA contract for TxCDBG) and, if a subrecipient is involved, confirming the written agreement says what happens to that income. Build a record retention calendar around the real anchor points: for a TxCDBG grantee, the retention period in the TDA contract and the Implementation Manual, which sit on top of the State rule at 570.490(d); for an Entitlement recipient, the closeout agreement date that starts its four-year clock; and for a subrecipient, the longer of agreement expiration or final reporting, and remember that real property a recipient or subrecipient acquires or improves and controls with more than $25,000 in CDBG funds can carry a national objective obligation for five years. That test is about property in the grantee's control, not a privately owned home that a homeowner keeps. None of that disappears the day a grant closes out.