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able timetable and plan through which such operations may be phased-out without halting publication. CSA will help grantees determine a reasonable cost for their newsletter and will assist them in working the cost of the newsletter into their administrative budget.

PART 1076-ECONOMIC DEVELOPMENT PROGRAMS

Subpart 1076.60-Community Development Credit Union Loan Program 1076.60–1 Applicability. 1076.60-2 Purpose and scope. 1076.60-3 Definitions. 1076.604 Purpose of program. 1076.605 Eligible applicants. 1076.60-6 Program activities. 1076.60–7 Application for chartering. 1076.608 CDCU field of membership. 1076.60-9 Community Development Commit

tee. 1076.60-10 Loans to CDCU'S. 1076.60-11 State chartered credit unions. 1076.60–12 Application for participation in

the CDCU loan program. CROSS REFERENCE: For policy governing the Community Development Credit Union Program, see 12 CFR part 705 issued jointly by the Community Services Administration and the National Credit Union Administra

Subpart 1076.10-Composition and Selec

tion of CDC Boards of Directors (CSA Instruction 6402-2)

Sec. 1076.10–1 Applicability. 1076.10-2 Policy. 1076.103 Composition of CDC Boards. 1076.10-4 Selection of CDC Board Members. 1076.10-5 Compliance Procedures and Waiv

tion.

ers.

Subpart 1076.20—Non-Equity Business Pro

grams Funded by CDCS (CSA InstrucHon 6158-2)

Subpart 1076.10-Composition

and Selection of CDC Boards of Directors (CSA Instruction 6402-2)

1076.20-1 Applicability. 1076.20-2 Definitions. 1076.203 Policy. 1076.20-4 Procedures, requirements, and lim

itations.

Subpart 1076.41-Walver of Non-Federal

Share of Program Costs for Certain Title

VII Programs (CSA Instruction 7641-1) 1076.41–1 Applicability. 1076.41-2 Effective date. 1076.41-3 Purpose. 1076.41 4 Background. 1076.41-5 Policy. 1076.41-6 Valuation of non-Federal share.

AUTHORITY: Sec. 602, 78 Stat. 530; 42 U.S.C. 2942.

SOURCE: 40 FR 44818, Sept. 30, 1975, unless otherwise noted. 81076.10–1 Applicability.

This subpart applies to all community development corporations (CDCs) financially assisted by CSA under sections 712 and 747 of the Community Services Act of 1974, subject to the provisions of $ 1076.10-5.

Subpart 1076.50-Rural Development Loan

Fund

1076.50-1 Applicability. 1076.50-2 Definitions. 1076.50-3 Purpose of the RDLF. 1076.50 4. Organizations eligible for financial

assistance under this program. 1076.50-5 Eligible activities. 1076.50-6 Priorities. 1076.50_7 Terms of loans/guarantees. 1076.50-8 Interest on loans; allowable costs. 1076.50-9 Security. 1076.50-10 Post award requirements. 1076.50-11 Liquidation; default. 1076.50–12 Conflict of interest. 1076.50-13 Application procedures.

8 1076.10-2 Policy.

(a) It is the clear intent of title VII that CDCs be self-help organizations controlled by and responsible to low-income residents. It is also the intent of title VII that CDCs mobilize other community resources and carry out their self-help efforts in partnership with the business and financial community. The governing policy for CDC boards is therefore that they be composed primarily of low-income residents or their representatives, chosen through a direct or indirect election process to assure their legitimacy as spokesman for the target area residents, with additional representation from local businesses and financial institutions to strengthen the board's

technical skills and involvement with there will seldom be a need to have the larger community.

non-residents on the board even to rep(b) Section 1076.10-3 provides the spe- resent the business sector. In urban cific requirements for the composition CDCs, where the special impact area is of CDC boards. Section 1076.10-3 out- usually a low-income neighborhood of a lines the representation requirements large city, effective spokesmen for the for the two basic categories of board business and financial community may members. Section 1076.10 4 provides the not reside within the special impact specific requirements for selecting area, even if their businesses or finanboard members, including a discussion cial institutions are located there. In of the two different methods direct most urban CDCs it will be necessary and indirect-for electing representa to reach out to the larger community tives of target area residents.

to find adequate representation of the

business sector. 8 1076.10-3 Composition of CDC

(2) Nevertheless, as provided in paraBoards.

graph (c) below, representatives of the (a) Size of Board. CDCs are free to de special impact area residents must altermine the size of their boards of di- ways constitute a controlling interest rectors. In doing so, CDCs must strike on the CDC board. Accordingly, even in a balance between various, sometimes a CDC where every representative of conflicting, considerations. On the one the business and financial community hand, they must be of a sufficient size is a non-resident, a clear majority of as to provide adequate representation the board members will be residents of to both the target area residents and the area served. the business community (see paragraph (c) Representation Requirements. There (c) below), to permit the formation of are two categories of members on CDC working committees without requiring boards of directors: representatives of the same individuals to serve on more the low-income community to be than one or two, and to insure that served and representatives of the busieven a minimum quorum is still large ness, financial, and general commuenough to represent the community nity. and legitimately reach basic policy and (1) Low-Income Community. (1) In program decisions. On the other hand, order to comply with the policy rethe board must be small enough to per quirements that CDCs be responsive to mit business to be conducted in an effi the low-income residents of the special cient and expeditious way. It has been impact area, representatives of the the experience of OED that the ideal low-income community must have a size for a CDC board is between 15 and controlling interest on any CDC board 30 members. Generally, anything larger of directors. This means that at a minitends to become unwieldly, while any- mum representatives of the low-income thing smaller overtaxes the capacity of community shall hold more than half individual members and limits the of the seats on the board of directors. board's representativeness. Where a OED experience has indicated that an CDC chooses to have a board larger even larger proportion, generally than 30 or smaller than 15 members, it around two-thirds, is preferable, since shall explain its choice to OED.

a bare majority is often not enough, (b) Residency Requirements. (1) Mem- given the relative inexperience of some bers of CDC boards of directors should community representatives, for repbe residents of the special impact area, resentatives of the low-income commuexcept in those instances where it is nity to maintain effective control. necessary to choose non-residents to (ii) Often, the total size of the board insure effective representation of the will determine the proportion of combusiness and financial community. In munity representatives. The smaller almost all rural CDCs (with the pos- the board, the greater the likelihood sible exception of Indian reservations) that community representatives will where the special impact area is a siz- constitute less than the preferable twoable land mass including middle class thirds, so that a sufficient number of and affluent residential areas as well as business sector representatives may be high levels of low-income population, included on the board. On the other

hand, on a larger board of, for example, or senior officials of public agencies or 25 members, there is no reason why of related private non-profit agencies community representatives could not (e.g. local housing agencies, commuconstitute at least two-thirds of the nity action agencies, employment servboard and still allow sufficient seats ices, foundations, etc.). for effective representation of the busi (iii) To the extent the duly selected ness sector.

representatives of the low-income com(iii) Representatives of the low-in- munity may possess some of these come community need not themselves skills, the effectiveness of the entire be low-income, provided they have board will be improved. However, it is been selected in a democratic fashion highly unlikely the community repin accordance with $ 1076.10 4. If appro- resentatives will themselves bring to priate selection procedures have been the board the total range and depth of followed, however, it would normally business and leadership expertise needbe anticipated that many of the rep ed to carry out an effective CDC proresentatives of the low-income commu- gram. Representatives of the business nity will themselves be low-income. If and financial community must be seonly a small proportion of the commu- lected specifically because of their spenity representatives are themselves cialized skills. low-income the CDC must demonstrate why this is not an indication of inad- 81076.10-4 Selection of CDC Board equate representation of the commu

Members. nity to be served.

Because of the different purposes of (2) Business and Financial Community. the two categories of board member(1) The purpose of this category of ship, the selection process for each board membership is twofold: to bring must necessarily be different. to the board individuals with special- (a) Low-Income Community. (1) Two ized skills and experience which are methods of selecting representatives of crucial if the board is to be able to ef- the low-income community are genfectively make policy on business and erally used by CDCs and are acceptable community development programs; to OED: direct election by the members and to provide effective bridges be- (if the CDC is a non-profit corporation) tween the CDC and other private finan- or stockholders (if the CDC is a forcial and leadership resources in the profit corporation) of the CDC; or indilarger community. While such rep rect election by constituent commuresentatives must be willing to make a nity organizations within the special personal commitment to the CDC pro- impact area which themselves use an gram and its basic objectives, their se acceptable democratic selection proclection to the board may not be based ess. Often a mix of the two methods is primarily on their prior interest and used, with some, or most, community involvement in the problems of the representatives chosen by direct eleclow-income community, but rather on tion, and others by indirect election. their technical expertise and institu- While both methods are acceptable to tional contacts.

OED, the direct election method is (ii) This category of board members preferable. Even where it is demnormally includes businesspeople, ac- onstrated that the indirect election countants, officials of banks and other method is justified, it is preferred that financial institutions, management a mix of the two methods be used so representatives of local industrial that at least some representatives are firms, attorneys, and others exhibiting elected directly. a positive interest in the Special Im- (2) The selection method used will depact Program and the concept of com- pend primarily on whether or not the munity controlled economic develop CDC has a broad membership base. ment. This category might also include Where the CDC has a large membership individuals who are not technically the direct election method is normally businesspeople but who hold leadership used. Where the CDC does not have a positions of prominence in the commu- large membership the indirect method nity, including public elected officials is often the only alternative. A broad or their representatives, and directors well-informed, and active membership

base is an important ingredient in building an effective and responsive CDC. Such a membership base-provided it is truly representative of the low-income residents and not only of one segment or faction is concrete evidence of the CDC's legitimacy and support in the community to be served. A broad-based membership also helps to define who the program's beneficiaries are. Moreover, it is a way to insure that the CDC does not become an expression of a small group of selfappointed spokesmen, however well intentioned they might be.

(3) On the other hand, there may be circumstances where it would not be feasible to establish a broad-based membership, particularly in a large and diverse community where it would be hard to determine basic eligibility for membership. In such cases, where there are other well-established organi. zations which are clearly legitimate and effective spokesmen for the low-income residents, and which themselves have broad-based memberships, it may be preferable to have such organizations in turn select representatives to the CDC board. The burden is on the CDC, however, to demonstrate to OED why a direct membership base is not practical or advantageous and why the indirect election method would more effectively meet the community rep resentation objectives of the Special Impact Program.

(4) Where the direct election method is used, the representatives of the lowincome community may be elected by the CDC membership at an annual meeting or at a series of area meetings of members, preceded by some acceptably democratic nomination procedure. The actual procedure should be one that is adapted to the specific CDC. It should be spelled out in the CDC's bylaws. All representatives of the low-income community may be elected at large. However, many CDCs, particularly rural CDCs serving multicounty target areas, prefer to divide their community representative board seats on an area basis (for example, in a sixcounty program, to apportion two seats to each county), with the members from each area electing their own representatives. In some instances, a combination of these methods is used

with some representatives elected on an area basis and some on an at-large basis (or some by indirect election).

(5) Where the indirect election method is used, the CDC must first identify the organizations which will elect representatives to the board, justifying to OED why those organizations are rep resentative of all or portions of the community and why the number of seats allocated to each organization is appropriate. The CDC must then establish procedures to insure that the constituent organizations elect their rep resentatives to the CDC board through democratic means.

(b) Business and Financial Community. (1) Normally, the most effective selection procedure is for the community representatives on the CDC board, once themselves elected, to meet and select the remaining members of the board. This provides for a process whereby the representatives of the business sector will not be self-appointed individuals unwelcomed by the community representatives, but properly motivated representatives who come to the board at the invitation of the target area residents to be served.

(2) In choosing representatives of the business and financial community, the other members of the board should seek the advice and counsel of CDC staff, community leaders, and the organizations or institutions to be represented. In doing so, it is essential that no one be unilaterally selected to represent an organization or institution without the blessing of that organization or institution and its willingness to commit the individual's time and services. It is also essential that the community representatives put aside personal preferences and seek to find individuals with the desired skills and institutional contacts, rather than simply choose individuals who share the same backgrounds and experiences of the community representatives themselves.

(3) CDCs should avoid identifying by name in their by-laws the specific community institutions from which they may select representatives for their boards, since often over time community interests may change and different institutions may become preferable sources of board representatives.

Where CDC by-laws already specify SOURCE: 44 FR 55012, Sept. 24, 1979, unless such institutions by name such by-laws otherwise noted. should be periodically reviewed for change to allow for the substitution or

8 1076.20–1 Applicability. addition of other institutions whose

This subpart applies to all non-equity participation may be more relevant to business programs financially assisted the CDC's goals.

by community development corpora

tions (CDCs) with CSA funds under sec$ 1076.10-5 Compliance Procedures tion 712 of the Economic Opportunity and Waivers.

Act of 1964, as amended. (a) All CDCs funded by OED for the first time in Fiscal Year 1975 or in suc

8 1076.20–2 Definitions. ceeding fiscal years must be in compli (a) Business and Commercial Developance with this Instruction as of the ef- ment Program. Any venture, organized fective date of their initial OED grant, for profit or on a cooperative basis, fiunless the conditions of their initial nanced in whole or in part by a CDC grant provide for a planned phase-in out of CSA section 712(a)(1) grant funds period for compliance during the ini- under budget cost category 2.5, Investtial grant period. All such CDCs, how- ment Capital. ever, must be in complete compliance (b) Non-Equity Business Program. A within a year of the effective date of business and commercial development their initial OED grant. In no case program which is not a venture operatshall any such CDC be granted a waivering on a cooperative basis and in which of any provisions of this subpart.

the CDC has no equity interest. (b) All CDCs funded by OED for the (c) Equity Interest. Current ownership, first time in Fiscal Year 1974 or in in whole or in part of a venture. Speprior fiscal years must be in compli cifically excluded from the meaning of ance with this subpart within one year this term are those forms of debt fiof the effective date of this subpart, nancing which involve an option or unless granted a waiver of certain pro right to purchase or convert to ownervisions of this subpart. Waivers will ship at some future time or upon some normally not be granted by OED, and future contingency. only upon a finding that (1) despite the noncompliance with particular provi- 81076.20-3 Policy. sions of this subpart the CDC's board (a) Financial assistance for business composition and selection procedures and commercial development programs have been demonstrated in actual prac under section 712(a)(1) shall be used tice to have substantially satisfied the

predominantly for equity investment intent to title VII, and (2) the disrup (either alone or in combination with tion and dislocation that would be other forms of financial assistance) and caused by changing long-established for cooperatives. This priority on eqCDC procedures would outweigh the ad- uity investment and support for covantages to be gained by such changes. operatives derives from two factors: (1) In no event will OED consider requests The emphasis in title VII on programs for waivers submitted (1) after one year which will promote community-based from the effective date of this subpart, ownership opportunities, an objective or (2) from CDCs now in compliance that can be best attained through eiwith this subpart who wish to change ther direct CDC investment in special their board composition and selection impact area businesses or in develop procedures in such a way as to not

ment of cooperatives; and (2) the availcomply with this subpart.

ability from other Federal funding

sources of financial assistance for techSubpart 1076.20-Non-Equity Busi- nical assistance, loans, or loan guaran

ness Programs Funded by tees, whereas title VII is the only FedCDC's (CSA Instruction 6158- eral funding authority for equity cap

ital.

(b) In addition, insofar as section 712 AUTHORITY: Sec. 602, 78 Stat. 530, 42 U.S.C. funds are used for financial assistance 2942.

to non-equity business programs, it is

2)

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