Box 8, Folder 16, Document 46

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DRAFT :McLean:ez 12/1/69

Attention: Assistant Regional Administrator
for Model Cities
FROM : Robert H. Baida, Deputy Assistant Secretary (MCGR)

SUBJECT ; Establishing the Start of the Second Action Year

I. 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 review loads

might be spaced out.

II. Considerations.
Among considerations in setting the start of second action years
are the following:

1. Necessity of spacing review loads. if every first round city
had exactly a 12-month first action year, aboat one-half the 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 presentiy funded first year package.
Shift to the second year may give the city an opportunity to kill a

few doubtful programs before they start. On the other hand, some


other 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 programming--perhaps 15 or 16 months 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
second year planning can be reviewed. At this point, however, it
appears very doubtful that any first round cities are going to be

out of funds 12 months after their contract signing.

TII. Carry-over of unspent funds.
An important factor of entering the second action year is the dis-~
position 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 program. A city that may have started

Slowly but has steadily increased prcegram momentum during the first
yenr should not be punished in the second year. However, the
national purpose of the Model Cities Program may not iH well served
by allocating a full second round target figure to cities whic:
have shown little or no promise in getting good programs started
in the first year.

Even for good cities, there may be a problem in building up a
spending rate in the second year which cannot be saintainea 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 mil-
lion. 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,


preferably local or State, to carry out the excess 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 the 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 parti-
cular, when it will result in a better second year program,
B. The city may be renewed without stretch-out, but the allowable
second year spending level will be held to the second year
target figure without the carry-over, or without that part
of the carry-over not covered by paragraphs 1 to 3 immediately
Example: City 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
spending guideline for the second year would be $5 million.
The city would not be permitted to carry forward $1 million
of its first year funds.
Where a city, because of application of the above, it not allowed
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

remaining increase during the second year .if it can come up with

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 local funds will be available in the

third year. It may start this project on supplemental funds in
advance of its other funding.

Given these operating considerations and policies, we now
request that ARA's recommend a specific starting date for the second
action year of each first round city. This date should be not less
than 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 total 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 dis-

cuss them with the cities before final decision.

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