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DRAFT:MoLean:ez 12/1/69 TO Attention: ~JJL REGIONAL ADMINISTRATORS FROM Robert H. Baida, Deputy Assistant Secretary (MCGR) SUBJECT I.

Assistant Regional Administrator for Model Cities Establishing the Start of the Second Action Year Purpose. This memorandum sets forth the procedure for establishing the start of the second action year for each first round Model City. It follows discussion at the July and October meetings of Assistant Regional Administrators and response of ARA's in September to a memorandum dated July 28, 1969, asking how Regional re-v iew loads might be spaced out. I I. Considerations . Among considerations in setting the start of s econd action year s are t h e fo llowing: 1. Nec e ssity of spacing r eview loa ds. If every f ir st r ound city had exactly a 1 2-month first a ction year, abo~t one - h alf t h e first round cities and perhaps one-half the second round cities would come up for review at the same time. 2. Effect on the cities. In some cities, it appears from results so far, there is an advantage in entering the second action year as soon as possible. Continued planning efforts point to a better second year program mix than the presently funded first year package. Shift to the ·s econd year may give the city an opportunity to kill a few doubtful programs before they start. On the other hand, some �-2other cities have started a lot of promising projects but have not kept pace with their monitoring and evaluation efforts. A later shift to second year programrning--perhaps 15 or 16 montbs after the start of the first year--may give evaluation a better chance to impact the second year decisions. 3. Adjustment to local calendars. Some cities will want to fit their Model Cities program year to the city fiscal year • . others may prefer not to do this. Some cities may wish to avoid making program decisions at the time of municipal elections. There may be other local reasons for preferring one renewal time over another. 4. Effect on quality of review. Because of changing conditions in the cities--new leadership, a later start of projects, etc.--there may be some cities which the RICC and the HUD staff feel will be easier to review at a later time than others. 5. Funds available to the cities. Obviously a city that is running out of money must be reviewed promptly, or perhaps given a few months' money to finance a first year continuation until the seco nd year planning can be reviewed. At this point, however, it appears very doubtful that any first round cities are going to be out df funds 12 months after their contract signing. III. carry-over of unspent funds. An important factor of entering the second action year is the disposition of funds obligated to the city for the first action year but not spent. In various ways· we have promised the cities that such funds may be carried over into succeeding years, providing the city is performing well in the programo A city that may have started �-3- sl,:)·.-;ly but has steadily increased program momentum during the first y-s::. rr should not be punished in the second year. However, i:.he national purpose of the Model Cities Program may not ris i·. rall ser v,~d by allocating a full second round target figure to cities whict have shown little or no promise in getting good programs started in the fir.st year. Even for good cities, there may be a problem in building up a spending rate in the second year which cannot be maintained in the third year. For example: City A has a first round target figure of $4 million and a second round figure of the same. During the first year, while projects were starting up, it spent only $2 million. With carry-over, it then has $6 million for the second year. If the city's supplemental spending consists entirely of on-going staff or other expenses, as compared to one-time capital expenses, for which there is no take-over source in the third year, it cannot establish a $6 million spending rate in the second year without facing a likely cut of $2 million for the third year. The tendency of all projects to get more expensive without increasing their scope (because of pay raises, more utilization of services and other reasons) heightens this risk. Therefore, cities shall not be allowed to use their remaining first round funds to increase their second year spending rate except to the extent that: 1. An amount equal to the first round carry-over is applied to capital or other projects which, by their nature, will not require renewal in the third year, or 2. The city can demonstrate a commitment from other sources, �-4- preferably local or State , to carry out the exce·ss on-going projects in year three, or 3. A combination of #1 and #2. In cases where the city has carry-over but cannot meet the above conditions for spending the carry-over in year two, either of t h e fol lowing steps may be taken : A. The city's first year may be stretched out to use all or part of the carry-over. This technique should be used when a stretch-out is desirable for other reasons--in particular, when it will result in a better s.e cond year program, or B. The c i ty may be renewed without stret ch- out, but the allowab l e s.e cond year spending level wil l be held to the second year tar get f igure without the carr y- over , or without that part of the carry - over not covered by paragr aphs 1 t o 3 i mmed iately above. Example: Ci t y A, cited above, shows that $1 million of its projected second year programming represents one- time expenditure, either as capital projects or as projects for which other funding is secure for the third year. It's s pending guideline for the second year would be $5 million. Th e city would not be per mitt ed to carry f or ward $1 million of i ts fir st year f unds . Where a city , because of a pplication of the above, it not a l lowed to add all or part of its carry-over to its second year spending level, it should be indicated to the city that it may get the ~emaining increase during the seqond year.if it can come up with �-5- one-time projects as described above. Example: Half-way through its second action year, City A identifies a new adult education project for which State or loo~~ funds will be available in the third year. It may start t~is project on supplemental funds in advance of its other fundi,.ng. Given these operating considerations and policies, we now request that ARA's recommend a specific starting date fo~ the second action year of each first round city. This date should be not less thaµ ten months nor more that 18 months after start of the first action year. It will be the Central Office intention to follow the ARA's recommendations providing the tqtal pattern of recommendations is consistent with obligation and spending patterns. If recommen- dations have to be changed . to meet these considerations, it is hoped that the changes will affect only a few cities. Proposed changes will be discussed with the ARA's, and time will be allowed to discuss them with the citi~s before final decision. �