SUMMARY OF BUDGET ESTIMATES 1. SUMMARY OF BUDGET REQUEST The 1999 Budget does not propose any additional commitment authority for the Church Arson Loan Guaranty Recovery Fund. The Church Arson Prevention Act of 1996 (P.L. 104-155), enacted on July 3, 1996, stiffened criminal penalties on those who commit acts of arson and terrorism against places of worship. The Act also established the Church Arson Loan Guarantee Recovery Fund administered by HUD, which guarantees loans made by financial institutions to nonprofit organizations (including churches) that have been damaged as a result of acts of arson or terrorism. The Act also provided $10 million in loan guarantee commitment authority, and $5 million from the Federal Housing Administration's General Insurance/Special Risk Insurance Fund for credit subsidy budget authority. Both the credit subsidy and commitment authority will be available until expended. 2. CHANGES FROM 1997 ESTIMATES INCLUDED IN 1998 BUDGET While it had originally been anticipated that all $10 million in authority would be committed in 1997, this did not occur. This is primarily due to an internal analysis of a stricter test for "hate crimes" imposed on this program which would have made it much more difficult for potential borrowers to meet the requirements for loan guarantee approval. The study concluded without a recommendation to impose the "hate crime" criteria. An additional consequence is that outlays, which occur when the loan is actually disbursed, were also less than anticipated. Outlays of $3.75 million, originally estimated for 1997, have been shifted to 1998, and reduced to $3.4 million. 3. CHANGES FROM ORIGINAL 1998 BUDGET ESTIMATES The Current Estimate reflects the expectation that the available commitment authority will be used in 1998. EXPLANATION OF INCREASES AND DECREASES Because it is anticipated that the commitment authority will be used in 1998, the 1999 Estimate assumes no additional activity. Budget outlays are expected to decrease by $1.8 million reflecting the lack of new activity. Finally, it is anticipated that the full amount for loan guarantee credit subsidy will be expended by the end of 1999. PROGRAM DESCRIPTION AND ACTIVITY 1. Legislative Authority. The Loan Guarantee Recovery Fund is authorized by Section 4 of the Church Arson Prevention Act of 1996 (P.L. 104-155). 2. Program Area Organization. The Church Arson Prevention Act of 1996 authorizes certain Federal departments to implement procedures to address the destructive consequences of acts of arson and terrorism carried out against places of worship. Section 4 of the Act directs HUD to guarantee loans to assist nonprofit organizations (as described in section 501(c)(3) of the Internal Revenue Code of 1986, as amended) in financing activities designed to rebuild and rehabilitate structures, to replace and restore personal property, and to finance other eligible activities. In response to a sharp increase in the incidents of arsons at places of worship in 1996 and the related passage of the Church Arson Prevention Act of 1996, the President established the National Church Arson Task Force, consisting of the Departments of Justice, Treasury, and HUD, to focus on three areas: prevention, enforcement and rebuilding. HUD leads the efforts on rebuilding, and established the National Rebuilding Initiative (NRI) in partnership with the National Council of Churches (NCC) and the Congress of National Black Churches (CNBC). HUD has been an active participant in the NRI, forging a strong coalition with these and other organizations to assess the overall damage and to target resources to churches in need of assistance. HUD's primary role in this effort is to guarantee loans made by financial institutions to nonprofit groups, including places of worship, affected by arson. In providing loans to places of worship, financial institutions use their underwriting standards, taking into account the borrower's collateral, ability to repay the loan and other relevant underwriting factors. HUD, along with certain nonprofit organizations, have been working with eligible organizations on their loan guarantee applications to provide information and technical assistance with regard to the loan program. This technical assistance informs eligible organizations of the existence of the program and how the program functions. HUD's efforts have been to promote the security of a Federally guaranteed loan as the basis for lenders making loans at below-market interest rates to those entities that qualify for assistance. In addition, HUD is actively working with the financial community to match potential borrowers with lenders. Eligible Recipients. Eligible recipients are financial institutions and 501(c)(3) nonprofit organizations, as defined by regulation (24 CFR Section 573.2). Allocation of Funds. Resource packages granted to approved organizations are determined by assessment interviews and on-site visits by NRI members. General factors for consideration in the allocation of funds include estimated rebuilding cost, estimated grant assistance from NCC or CNBC, existing insurance coverage, if any, and potential local donations. During the first round of funding, the NRI plans to provide more than $14 million in rebuilding assistance, consisting of $10 million in Federal loan guarantees and approximately $4 million in grant funds raised by the NCC. In addition, the CNBC plans to provide $12 million for the rebuilding initiative. Eligible Activities. Guaranteed loan funds may be used for a variety of activities, when these are certified as necessary to address damage caused by arson or terrorism at places of worship, as defined in 24 CFR Section 573.6. These include: acquisition of improved or unimproved real property; acquisition and installation of personal property; rehabilitation of owned, acquired, or leased real property; construction, reconstruction or replacement of real property improvement; clearance, demolition, and removal, including movement of structures to other sites, of buildings, fixtures and improvements on real property; site preparation related to authorized activities; architectural, engineering and similar services necessary to develop plans in connection with authorized activities; acquisition, installation and restoration of security systems; loans for refinancing existing indebtedness secured by a property which has been or will be acquired, constructed, rehabilitated, or reconstructed; and other necessary project costs such as insurance, bonding, legal fees, appraisals, surveys, relocation, closing costs, etc., paid or incurred in connection with the completion of authorized activities.