Interchangeability Provisions for CDBG-DR and CDBG-MIT Funds
Can funding from one disaster help address needs from another? If your agency manages multiple CDBG-DR or CDBG-MIT grants, the answer may be yes. HUD's interchangeability guidance gives grantees more flexibility to use certain funds across qualifying disasters, helping agencies simplify administration and make the most of available resources.
HUD's Policy Bulletin 2023-02 introduced interchangeability provisions that allow certain CDBG-DR and CDBG-MIT funds to be used across qualifying disasters under specific conditions.
This guidance offers flexibility in two key areas:
- Using program funds for eligible activities in overlapping disaster areas
- Managing administrative costs across grants
Understanding these provisions can help grantees make the most of available funding, simplify administration, and better address recovery and mitigation needs.
Key Concepts of Interchangeability
The Rules Follow the Money
Regardless of which disaster the funds are used for, the original rules and requirements for those funds still apply. For example, if a grantee uses funding from a 2017 CDBG-DR grant to help address needs related to a 2020 disaster, the requirements tied to the 2017 grant still dictate how those dollars are to be used and reported. This is extremely important to keep in mind when designing programs, tracking expenditures, and documenting compliance activities.
Use Funding Across Eligible Disasters
Overlapping MID Areas
Grant funds may be used for the same activities across multiple qualified disasters, provided that the Most Impacted and Distressed (MID) identified for each qualified disaster overlap. For instance, if unmet housing needs remain in a MID area impacted by both a 2018 and a 2021 disaster, funds from both grants can be used to address those unmet needs.
This flexibility may support activities such as:
- Planning
- Housing programs
- Infrastructure projects
- Activity delivery costs
- Environmental reviews
This approach can help grantees address recovery needs more strategically when multiple disasters affect the same area.
Update Action Plans
If grantees choose to use funds interchangeably, they must update their action plans to reflect how the funds will be used. For example, expanding eligible beneficiaries to include areas impacted from both disasters will require a substantial amendment to the action plans.
HUD will evaluate whether the proposed interchangeable use of funds is in overlapping MID areas and whether the grantee is using the funds to address unmet recovery needs of both major disasters.
Program Administrative Costs (PAC) Interchangeability
HUD allows grantees to use CDBG-DR and CDBG-MIT funds for administrative costs across multiple grants, regardless of the disaster that the grant was originally allocated to.
This flexibility can help streamline grant management activities such as:
- Financial reporting
- Program oversight
- Compliance monitoring
- Staff time related to administration
When implementing PAC interchangeability, grantees should evaluate several factors.
Understand Applicable Appropriations
PAC interchangeability applies to grants awarded after 2015 and differs based on the public laws associated with each allocation. The table below provides a summary of the allowable use of PAC interchangeability from grants awarded prior to 2015 through 2024.
Disaster Year Use of PAC Interchangeability Public Law Reference Prior 2015 N/A Refer to individual public laws for each allocation 2015-2019 CDBG-DR or CDBG-MIT grants for 2015, 2016, 2017, 2018, 2019, and future CDBG-DR grant that may be received Pub. L. 114-113, 114-223, 114-254, 115-31, 115-56, 115-123, 115-254, 116-20 2020-2024 For any CDBG-DR or CDBG-MIT grant, including pre-2015 grants and any future CDBG-DR grant that may be received Pub. L. 117-43, 117-180, 117-328, 118-158 Administrative Cost Caps
CDBG-DR appropriations cap CDBG-DR and CDBG-MIT administrative costs at five percent of the total grant amount plus five percent of any program income generated. These caps still apply when PAC interchangeability is used, so grantees should have processes in place to track administrative costs and maintain compliance.
Correct Categorization of Costs
As with all CDBG-DR funds, when using interchangeability, it is critically important that grantees correctly categorize costs, e.g., distinguishing between administrative and activity delivery costs. Misclassification of these costs could lead to compliance issues and affect overall program integrity.
What Grantees Should Do Next
Establish Clear Policies and Procedures
Grantees should have comprehensive program and financial management policies to track and allocate funds correctly. This includes timekeeping processes for administrative costs and regular quality assurance reviews to maintain compliance.
Train Staff and Subrecipients
Grantees should ensure all staff, subrecipients, and partners are well-versed in the rules and regulations governing the interchangeability of funds. This includes understanding which rules apply to each grant and how to classify costs appropriately.
Utilize HUD Resources
HUD has developed several tools to assist grantees in managing these flexibilities, including checklists for both PAC and grant funds interchangeability, as well as CPD Notice 23-06, which offers detailed guidance on cost allocation.
These resources can help organizations strengthen compliance processes and support informed decision-making throughout program implementation.
How BDO Government Services Supports Grantees
BDO Government Services helps state and local agencies navigate the complexities of CDBG-DR and CDBG-MIT funding. Our team supports policy development, action plan amendments, grant administration, cost allocation, compliance, and program implementation.
We have worked alongside housing and community development agencies to develop financial management policies, cost allocation methodologies, and processes for managing disaster recovery and mitigation funding. This experience gives us a practical understanding of the challenges agencies face when implementing HUD requirements and new funding flexibilities.
We help grantees evaluate funding options, strengthen internal processes, update action plans, and support compliance as they administer recovery and mitigation programs.