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August 5, 1987

The City of Kansas City, Missouri, Plaintiff,
United States Department of Housing and Urban Development, et al., Defendants

The opinion of the court was delivered by: SPORKIN


 This is a case concerning the Community Development Block Grant ("CDBG") funds paid by the United States Department of Housing and Urban Development ("HUD" or "the Department") to Kansas City pursuant to the Housing and Community Development Act of 1974, codified at 42 U.S.C. § 5301, et seq., as amended. Plaintiff has received funds from that program since 1975. During a portion of that time period, there have been two specific disputes about Kansas City's compliance with certain requirements for receipt of CDBG funds. *fn1" The defendant, not being satisfied with various actions of the plaintiffs in the program and not being able to resolve these disputes informally, simply took the matter into its own hands and conditioned Kansas City's receipt of 1987 CDBG monies on Kansas City's compliance with HUD's wishes in the underlying disputes. *fn2" The case is before me on plaintiff's motion for summary judgment which presents the single issue of whether the plaintiff, in these circumstances, was entitled to a formal hearing at the agency level before HUD could condition its receipt of 1987 CDBG monies.

 Although the issue can be simply articulated, it grows out of a complex statutory framework. Specifically, in the CDBG statute, there are two provisions which provide the Secretary with certain authority to regulate the dispersing of CDBG grants. One of those sections, Section 104(d), codified at 42 U.S.C. § 5304(d), gives the Secretary authority to adjust a recipient's grant after an audit but without any formal hearing. *fn3" The defendants contend this section gives the Secretary the authority to condition Kansas City's grant in this case without the Secretary having to give Kansas City a formal hearing. Kansas City, for its part, points to a second section in the statute, Section 111, codified at 42 U.S.C. § 5311, which requires that when the Secretary finds that a recipient has "failed to comply substantially" with the statute, he can terminate, reduce, or limit the availability of CDBG funds, but only "after a reasonable notice and opportunity for hearing." 42 U.S.C. § 5311. *fn4"

 I find that, in the circumstances presented by this case, the plaintiff is entitled to the process guaranteed by Section 111. This is so because, when viewed within the framework of the entire statutory structure, it becomes apparent that Section 111 and not Section 104(d) applies to the facts at issue here.


 First, as to Section 104(d): Section 104(d) is a subsection of Section 104 and the powers granted to the Secretary in Section 104(d) must be read in the context of the entire section. That section, 42 U.S.C. § 5304, is designed to define the application procedures for grants and it sets forth the procedures a city must comply with to be entitled to monies.

 For instance, Section 104(a) requires cities to submit to HUD a "statement of community development objectives and projected use of funds," 42 U.S.C. § 5304(a)(1). The following subsection requires that the grantee's plans be examined by the public and that public hearings be held "to obtain the views of citizens on community development and housing needs." 42 U.S.C. § 5304(a)(2)(C). The Secretary then must certify that the applicant has complied with the application criteria, 42 U.S.C. § 5304(b), and in certain instances, with special application criteria. 42 U.S.C. § 5304(c).

 Finally, the subsection at issue here, Section 104(d), requires the grantee to submit to the Secretary, "a performance and evaluation report concerning the use of funds made available . . . together with an assessment by the grantee of the relationship of such use to the objectives identified in the grantee's statement under subsection (a) of this section . . ." 42 U.S.C. § 5304(d). The grantee's report "shall indicate its programmatic accomplishments, the nature of and reasons for changes in the grantee's program objectives, indications of how the grantee would change its programs as a result of its experiences, and an evaluation of the extent to which its funds were used for activities that benefitted low- and moderate-income persons." Id. The Secretary then must audit these reports submitted by grantees to determine "whether the grantee has carried out [its] activities and its certifications in accordance with the requirements and the primary objectives of this chapter and with other applicable laws, and whether the grantee has a continuing capacity to carry out those activities in a timely manner." 42 U.S.C. § 5304(d)(1).

 Thus Section 104 has a somewhat forward-looking tilt: it deals with application requirements and lodges in the Secretary the discretion to determine whether grantees will be able to carry forth under the program in the coming year. Although Section 104(d) contemplates audits and allows the Secretary to make adjustments resulting from those audits, the Section is not designed to be a dispute resolution mechanism.


 By contrast, Section 111 most closely captures what the Secretary is attempting to accomplish in this case. Section 111 contemplates that there will be instances in which a grantee and the Secretary disagree about whether the grantee has substantially complied with community development requirements. *fn5" This Section establishes a mechanism for resolving these types of disputes -- to wit, by submitting them to a hearing officer who can make findings and a determination in accordance with an administrative record which can then be judicially reviewed, if necessary.

 This reading of the statute gives meaning to both Section 104 and Section 111. By contrast, to read the statute as the defendants would have me do, would be to make Section 111 a nullity. Indeed, the Secretary does not seem adverse to making Section 111 a nullity -- in the 13 years this statute has been in existence, the Secretary has never initiated Section 111 procedures against any grant recipient. See Deposition of Vincent Landau, HUD Asst. General Counsel, at 90-91. When desiring to compel compliance with its interpretation of the statute, the Department has always proceeded through the Section 104(d) adjustment mechanism. Interpreting the statute as the Department has -- that is, giving the Secretary the unilateral ability to reach a Section 111 result through Section 104 -- means there is simply no incentive for the Secretary to utilize the Section 111 procedure.

 While that may make pragmatic sense for the Secretary, I do not believe the law is written that way and I am not prepared to interpret the statute in a manner which renders one portion of it a nullity. See Mountain States Tel. & Tel. v. Pueblo of Santa Ana, 472 U.S. 237, 105 S. Ct. 2587, 2595, 86 L. Ed. 2d 168 (1985). Rather, as the plaintiff has noted, "if two sections potentially conflict, the Court must reconcile the discordant provisions, if at all possible." Pl. Br. at 29, citing Don't Tear It Down v. Pennsylvania Ave. Dev. Corp., 206 U.S. App. D.C. 122, 642 F.2d 527, 533 (D.C. Cir. 1980). In this instance, the two sections can best be reconciled by placing them in their proper contexts and reading them accordingly. Section 104(d), falling as it does within the grant application section of the statute (Section 104) must be read to give the Secretary the authority to ...

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