We completed an audit of the operations of the City of Binghamton, NY (City), pertaining to its administration of its Community Development Block Grant (CDBG) Section 108 Loan Guarantee program. Our audit objectives were to determine whether the City (1) administered its Section 108 loan program effectively, efficiently, and economically in accordance with applicable rules and regulations; (2) used Section 108 loan proceeds on eligible activities that met a national objective of the program; and (3) expended additional CDBG funds for subsequent Section 108 loan repayments and other related costs that were necessary, reasonable, and in accordance with all applicable contracts, agreements and Federal regulations.

The City did not ensure that its Section 108 loans and related activities were administered effectively, efficiently, and economically in accordance with applicable rules and regulations and that loan proceeds were expended on eligible activities that met a national objective of the program. In addition, the City did not ensure that additional expenditures of CDBG funds for subsequent Section 108 loan repayments and other related costs were necessary, reasonable, and in accordance with all applicable contracts, agreements, and Federal regulations. Consequently, significant CDBG funds were disbursed for Section 108 debt repayments, and future CDBG funds will be required until the Section 108 debts have been fully paid. Therefore, the ability to provide program benefit to low- and moderate-income residents of the City has been diminished.

We recommend that the Director of HUD’s Buffalo Office of Community Planning and Development instruct the City to (1) establish a Section 108 repayment account and repay more than $1.5 million in hotel sales proceeds that were used for City expenses from non-Federal funds; (2) transfer the $81,561 in hotel sales proceeds that remains in the City’s trust account to the established Section 108 repayment account; (3) submit documentation to justify the use of more than $2.4 million in CDBG funds to pay for Regency Hotel Section 108 debt so that HUD can make an eligibility determination; and (4) establish controls to ensure that Section 108 loan proceeds are at all times adequately safeguarded, collateral for Section 108 loans is continually protected until all loan funds have been repaid, the provisions of all Section 108 loan contracts and agreements are followed and promptly enforced, and Section 108 loan activities meet a national objective of the program.