[Federal Register: December 10, 2002 (Volume 67, Number 237)]
[Rules and Regulations]
[Page 76095-76102]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10de02-9]
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Part VIII
Department of Housing and Urban Development
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24 CFR Part 941
Public Housing Total Development Cost; Final Rule
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 941
[Docket No. FR-4489-F-02]
RIN 2577-AC05
Public Housing Total Development Cost
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, HUD.
ACTION: Final rule.
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SUMMARY: This final rule amends HUD's regulations governing the Total
Development Cost (TDC) limit for the development of public housing. The
amendments implement statutory changes made to the TDC limit previously
established by statute. Among other changes, this final rule limits the
amount of public housing capital assistance that a public housing
agency may use to pay for housing construction costs. The rule also
provides that demolition and environmental hazard remediation costs are
subject to the TDC limit only to the extent that such costs are
associated with the replacement of public housing units on the project
site. Further, the final rule provides that other extraordinary site
costs, as determined by HUD, are not subject to the TDC limit. This
rule follows publication of a January 4, 2001, proposed rule and takes
into consideration the public comments received on the proposed rule.
DATES: Effective Date: January 9, 2003.
FOR FURTHER INFORMATION CONTACT: William C. Thorson, Director, Office
of Capital Improvements, Office of Public and Indian Housing, Room
4134, U.S. Department of Housing and Urban Development, 451 Seventh
St., SW., Washington, DC 20410; telephone (202) 708-1640, extension
4999 (this is not a toll-free telephone number). Hearing- or speech-
impaired individuals may access this number via TTY by calling the
toll-free Federal Information Relay Service at 1-800-877-8339.
SUPPLEMENTARY INFORMATION:
I. Statutory Background
The United States Housing Act of 1937 (42 U.S.C. 1437 et seq.)
(1937 Act) establishes the statutory framework for HUD's public housing
and various other assisted housing programs. The 1937 Act authorizes
HUD to assist public housing agencies (PHAs) with the development and
operation of public housing projects, and sets forth several
requirements regarding public housing development. Two such statutory
requirements regarding the development of public housing are found in
sections 3(c)(1) and 6(b) of the 1937 Act.
Section 3(c)(1) of the 1937 Act (42 U.S.C. 1437a(c)(1)) defines the
terms ``development'' and ``development cost.'' Specifically, section
3(c)(1) defines ``development'' to mean any or all undertakings
necessary for planning, land acquisition, demolition, construction, or
equipment, in connection with a low-income housing project. The term
``low-income housing project'' includes public housing assisted under
the 1937 Act.
(a) Prior to the enactment of the Quality Housing and Work
Responsibility Act of 1998 (QHWRA) (Public Law 105-276, approved
October 21, 1998), section 3(c)(1) defined the term ``development
cost'' to mean:
The costs incurred by a [PHA] in such [development] undertakings
and their necessary financing (including the payment of carrying
charges), and in otherwise carrying out the development of such [low
income housing] project.
(b) Following the enactment of section 520(a) of QHWRA, the
definition of ``development cost'' was amended to exclude:
The costs associated with the demolition of or remediation of
environmental hazards associated with public housing units that will
not be replaced on the project site, or other extraordinary site costs
as determined by the Secretary.
This final rule amends the Department's public housing development
regulations at 24 CFR part 941 to implement section 520(a) of QHWRA.
Specifically, HUD has listed the excluded development costs referenced
above in a newly defined term called ``Additional Project Costs.'' The
rule then provides at Sec. 941.306(b)(3) that Additional Project Costs
are not subject to the TDC limit.
(a) Under section 6(b)(1) of the 1937 Act (42 U.S.C. 1437d(b)(1)),
loans or other contributions provided under the 1937 Act for the
development of public housing may not be used to pay a total
``development cost'' in excess of the amount calculated under section
6(b)(2), unless otherwise authorized by HUD. This amount determined
under section 6(b)(2) is referred to as the total development cost
(TDC) limit.
(b) Section 520(b) of QHWRA added a new section 6(b)(3) to the 1937
Act, which states that in calculating the TDC limit, HUD:
Shall consider only capital assistance provided by the Secretary to
a public housing agency that are [sic] authorized for use in connection
with the development of public housing, and shall exclude all other
amounts, including amounts provided under [the HOME or CDBG programs.]
HUD has implemented the above amendment by adding a definition of
the term ``public housing capital assistance'' to distinguish between
those funds that are subject to the TDC limit, and other funding
sources. HUD has defined the term ``public housing capital assistance''
to mean assistance provided by HUD under the 1937 Act or the HOPE VI
program in connection with the development of public housing under 24
CFR part 941, including Capital Funds provided under section 9(d) of
the 1937 Act, public housing development funds under section 5 of the
1937 Act, Operating Fund assistance used for capital purposes under
section 9(g)(1) or 9(g)(2) of the 1937 Act, and HOPE VI grant funds.
(c) Section 520(b) of QHWRA added a new section 6(b)(4) to the 1937
Act, which provides that HUD may restrict the amount of capital funds
that a PHA may use to pay for housing construction costs, including
``the actual hard costs for the construction of units, builders''
overhead and profit, utilities from the street, and finish
landscaping.''
In this final rule, HUD has included definitions of the terms
``Housing Construction Cost'' (HCC) and ``Community Renewal Cost''
(CRC) to clarify the relationship between these two separate
subcategories of costs that are subject to the TDC limit. The
definitions of HCC and CRC should also clarify the relationship between
these costs and Additional Project Costs which, as noted earlier, are
not subject to the TDC limit. Substantively, the definitions of Housing
Construction Cost and Community Renewal Cost are almost identical to
those previously subsumed under the definition of ``Total Development
Cost'', as set forth in HUD's January 4, 2001, proposed rule (66 FR
1008).
The Department also has included a definition of the term ``Total
Development Cost (TDC) limit'' rather than ``Total Development Cost''
as provided in the proposed rule. The TDC limit is defined to mean the
maximum amount of public housing capital assistance that can be used to
pay for Housing Construction Costs and Community Renewal Costs in
connection with the development of a public housing project, as
determined under Sec. 941.306(b)(2). The rule also provides that the
TDC limit does not apply to Additional Project Costs. These
modifications are intended merely to clarify the Department's existing
policies with respect to the TDC limit, rather than to establish new
policies.
[[Page 76097]]
II. This Final Rule
As previously discussed, HUD published a proposed TDC rule on
January 4, 2001 (66 FR 1008), that sought to amend the Department's
public housing development regulations at 24 CFR part 941 relating to
the calculation of TDC limits, in accordance with section 520 of QHWRA.
This final rule implements section 520 of QHWRA after giving due
consideration to comments received during the 60-day public comment
period.
The preamble of the proposed rule summarized the major amendments
that would be made to part 941 by this final rule. The most significant
changes made by this final rule to the January 4, 2001, proposed rule
are discussed above in Section I of this preamble. The Department has
also made the following changes in this final rule:
1. Revision of the definition of Community Renewal Cost (CRC). This
final rule includes on-site street improvements as a Community Renewal
Cost, rather than as a Housing Construction Cost (HCC). It was a
mistake in the proposed rule because site improvements are in the
community renewal part of the TDC limit.
2. Revision to HCC applicability. This final rule provides that
acquisition with/without rehabilitation of existing homes is not
subject to the HCC, although it is subject to the TDC limit. When a
unit is acquired it is completely developed. There is no way to
breakdown the HCC from the TDC limit.
3. Revision to example of extraordinary site costs. This final rule
removes construction of extensive street and other public improvements
as an example of extraordinary site costs that are not subject to the
TDC limit. These costs are included in the Community Renewal part of
the TDC limit under site improvements.
4. Clarification of HUD notification to changes to cost indices.
This final rule also clarifies that any changes HUD makes to the cost
indices as listed in Sec. 941.306 will be announced through a notice
published in the Federal Register.
5. Exceptions to TDC. This final rule clarifies that PHAs are
eligible to request a TDC exception for public housing and HOPE VI
funds awarded to HOPE VI grantees in FY 1996 and prior years. However,
there will be no exceptions granted for the HCC component within the
TDC limits. Also, HUD will not grant any exceptions to the TDC limits
for public housing and HOPE VI funds awarded in FY 1997 and afterwards.
III. Public Comments Generally
The public comment period for the proposed rule closed on March 5,
2001. HUD received five comments. Three of the commenters expressed
concern regarding the proposed changes to the TDC limit and that the
changes may affect PHAs' ability to meet the supportive service needs
of public housing households. All five commenters offered suggestions
to further clarify and strengthen the rule in order to better serve the
community. Supportive services are not a development cost that would be
covered by the TDC in any case. The 15% cap on community and supportive
services for the HOPE VI program is mandated by statute, and does not
apply to non-HOPE VI programs, i.e., public housing development.
IV. Discussion of Public Comments Received on the January 4, 2001,
Proposed Rule
Comment: (a) The TDC cap should only apply to relocation costs
associated with a pro-rata share of the units to be developed on site.
(b) The rule should define fair housing-related relocation costs as
extraordinary costs, subject to exclusion from the TDC under the
definition of ``Total Development Cost'' in the proposed 24 CFR
941.103. The commenter stated that the language of section 3(c)(1)
gives considerable discretion to HUD to fashion such a rule. Another
commenter stated that such a rule is well within the grant of statutory
authority.
HUD Response: Relocation costs are covered under the Community
Renewal Cost subcategory. This is not a policy change because
relocation costs have always been subject to the TDC limit. However,
the statute mandates that HUD use a construction cost guideline based
on the average of at least two nationally recognized construction cost
indices for publicly bid construction of a good and sound quality.
These cost guidelines (which take into account local adjustment
factors), are then multiplied by a factor of 1.6 or 1.75 for elevator
and non-elevator structures, respectively. The Department believes that
these statutory multipliers are adequate to cover relocation costs.
Therefore, HUD did not change how relocation costs are treated and
these costs remain subject to the TDC limit. HUD also did not change
the regulation to include fair housing-related relocation costs as
extraordinary site costs and thus exclude them from the TDC limit.
Unusual site conditions, such as extensive rock removal, are listed as
an Additional Project Cost and, thus, are not subject to the TDC limit.
Comment: (a) Although permitted by statute, HUD has decided to
prohibit requests to exceed the TDC limits. HUD is using an arbitrary
number, the statutory multipliers, to calculate the Community Renewal
Cost. (b) HUD should retain provisions of existing rules that allow
exceptions to the TDC limit, and use exception authority to approve a
higher TDC limit for extraordinary fair housing-related relocation
costs on a case-by-case basis. The commenter stated that HUD must be
flexible towards housing authorities that have, for example,
extraordinary costs for demolition and site remediation as a result of
mandatory conversion, or extraordinary relocation costs. Another
commenter suggested to review the current 24 CFR 941.306(a) and retain
those provisions that allow exceptions to the TDC limit.
HUD Response: In 1997-1998 HUD had undertaken an intensive process
of analysis and consultation with construction industry groups. The
participating groups consisted of the National Association of Housing
and Redevelopment Officials (NAHRO), Public Housing Authorities
Director Association (PHADA), and Council of Large Public Housing
Authorities (CLPHA), to establish appropriate cost limits. This TDC
limit represents true construction costs and, therefore, does not
foresee circumstances under which an exception would be warranted.
The rule does implement section 520 of QHWRA by revising the
definition of the TDC limit to exclude the costs of demolition, or of
remediation of environmental hazards associated with public housing
units that will not be replaced on the project site, or other
extraordinary site costs as determined by HUD. For example, if a PHA is
demolishing a 300-unit public housing project and putting only 100 new
public housing units back on site, only one-third of the costs of
demolition and site remediation will be used in calculating whether the
development costs of the public housing units are within the TDC limit.
Extraordinary site costs, such as removal of extensive underground
utility systems, which have been verified by an independent engineer,
are not included in the TDC. Also, the rule permits exceptions to be
granted by the Secretary for HOPE VI grantees in Fiscal Year 1996 and
earlier years. However, exceptions to the HCC limit within the TDC will
not be granted.
Comment: HUD should establish mechanisms for vigorous oversight of
relocation requirements, including civil rights-related requirements,
for all
[[Page 76098]]
public housing developments, including HOPE VI and non-HOPE VI
development. The commenter wrote that the TDC limit might have
important consequences in other contexts related to relocation. The
commenter additionally stated that the formula potentially masks the
actual costs of relocation, and it may result in a loss of hard units
where the actual costs of conversion, including relocation, exceed the
cost of keeping the public housing.
HUD Response: The oversight of HUD relocation requirements is not
part of this rulemaking. HUD does not believe an adjustment is merited
for relocation. As noted, the Department believes that the statutory
multipliers are adequate to cover relocation costs and, therefore,
relocation costs remain subject to the TDC limit.
Comment: (a) The broad wording of the proposed rule may have the
unintended effect of subjecting two (if not more) important sources of
supportive services and relocation funds to the TDC limit: grants
received by PHAs from the Resident Opportunities and Self Sufficiency
(ROSS) program, and Section 8 rental assistance. (b) HUD should amend
the definition of ``Total Development Cost'' to state that the TDC does
not include community and supportive services. The commenter noted that
both programs use funds provided by HUD under the Act. Further, such a
result conflicts with previous HUD practice. Additionally, if Section 8
allocations and ROSS grants were subject to the TDC, the community
renewal portion of the cap would be rapidly expended, leaving PHAs with
few tools to adequately accomplish relocation or provide supportive
services. Another commenter stated that examples of such services
should include (a) job training activities, (b) day care, (c)
transportation, (d) educational activities, (e) case management, (f)
Section 8 counseling, (g) after school programs, and (f) health
programs.
HUD Response: HUD agrees with the commenter. The TDC limit, as
stated in the proposed rule and in this final rule, does not include
community and supportive services. The Department has clarified in this
final rule that only public housing capital assistance (as defined at
Sec. 941.103) is subject to the TDC limit. HOPE VI funds used for
community and supportive services are capped at a percentage or amount
as stated in the NOFA of the HOPE VI grant. This is the result of
statutory requirements in the HOPE VI program and not this TDC
rulemaking. Section 8 allocations and ROSS funds are not subject to the
TDC limit.
Comment: Section 6(b) of the U.S. Housing Act states that, ``[i]n
calculating the total development cost of a project * * * the Secretary
shall consider only capital assistance * * *'' 42 U.S.C. 1437d(b)(3).
No funds for capital assistance provided by HUD under the Act or the
HOPE VI program should be used to pay development costs in excess of
the TDC. The commenter stated that the proposed rule is far broader,
stating that any funds provided under the Act may not be expended in
excess of the TDC limit. The commenter stated that this provision
should be added as an amendment to 24 CFR 941.306(d). The only sources
of financial support specifically exempted from the TDC limit involve
funds not provided under the Act: Community Development Block Grants
(CDBG), HOME funds, low-income housing tax credits, private donations
and private funding. See, proposed 24 CFR 941.306(d).
HUD Response: HUD agrees with the commenter that section 6(b)(1) of
the 1937 Act extends the TDC limit to capital assistance under the Act
provided by HUD in connection with the development of public housing.
Accordingly, in this final rule, the Department defines the term
``public housing capital assistance'' to mean assistance provided by
HUD under the Act or the HOPE VI program in connection with the
development of public housing under this part, including Capital Fund
assistance provided under section 9(d) of the 1937 Act, public housing
development assistance provided under section 5 of the 1937 Act,
Operating Fund assistance used for capital purposes under section
9(g)(1) or 9(g)(2) of the 1937 Act, and HOPE VI grant assistance.
The Department has included all HOPE VI grant funds in the
definition of ``public housing capital assistance,'' regardless of
whether the funds are authorized and appropriated under the 1937 or
under annual appropriations acts. Thus, all HOPE VI funds will be
subject to the TDC limit. This position is consistent with HUD's policy
that public housing units developed with HOPE VI funds--regardless of
whether the funds are authorized and appropriated under the 1937 Act or
under annual appropriations acts--must be developed in accordance with
the requirements of the 1937 Act.
However, in accordance with section 6(b)(3) of the 1937 Act (as
added by section 520(b) of QHWRA), all other funds are excluded from
the TDC limit, including funds from CDBG, HOME, low-income tax credits,
private donations, and private financing. The Department implements
this requirement at Sec. 941.306(b)(4) of this final rule.
Comment: A PHA may use funding sources not subject to the TDC limit
to cover project costs that exceed the Housing Construction Cost limit
or the TDC limit. A commenter suggested this language as a clarifying
revision to the proposed 24 CFR 941.306(d).
HUD Response: HUD agrees with the commenter that a PHA may use
funding sources not subject to the TDC limit (such as CDBG funds, HOME
funds, low-income tax credits, private donations, and private
financing) to cover project costs that exceed the Housing Construction
Cost limit or the TDC limit. The rule at Sec. 941.306(b)(4) already
states this.
Comment: (a) HUD has not updated the current TDC limits in two
years. (b) HUD should update its TDC at least annually based on
appropriate cost indexes. The commenter stated that without more
frequent updates PHAs are forced to comply with outdated TDC
construction indices without the benefit of the previous method of
adjusting for inflation by ``trending.'' Another commenter noted that
the documents published in the Federal Register show figures from 1999
or earlier. The commenter stated that agencies need up-to-date,
competitive figures to develop projects with other public or private
sectors partners. Another commenter wrote that the Department should
also make available by advance notice the construction cost guidelines
it will use each year to recalculate the TDC limits.
HUD Response: HUD agrees that the schedule of unit TDC limits
should be recalculated annually and it intends to do so based on
revisions to the national indices. HUD will issue such updates through
PIH notice, or other appropriate means.
In a Senate colloquy before passage of the QHWRA Senator Mack noted
that HUD ``should interpret (section 6(b)(2) of the 1937 Act) as
requiring the use of indices such as the R.S. Means cost index for
construction of ``average'' quality and the Marshall & Swift cost index
for construction of ``good'' quality'' (Congressional Record of October
8, 1998, S 11840). The rule specifies that HUD will be using these two
indices to calculate the TDC limits. HUD expects to rely on these
indices but will notify the public in advance through Federal Register
notice if it changes the cost indices to other such indices that
reflect comparable housing construction quality.
Comment: HUD has not included in its policy a provision for
acquisition of
[[Page 76099]]
units for public housing, with or without rehabilitation. The commenter
asked how HUD would fit these activities into its TDC policy, as
proposed.
HUD Response: Acquisition of units of public housing is a
development method that is covered under this rule (see Sec. 941.102)
and, accordingly, is subject to the standard TDC limits set forth in
this rule. However, as noted earlier, the Department has decided not to
extend the Housing Construction Cost limit to such units, since these
units have already been developed at the time of acquisition.
Comment: HUD states it will be able to better understand and
control the actual costs of the development if the TDC is divided into
the Housing Construction Cost limit (HCC) and the Community Renewal
Cost (CRC) limit. The commenter wrote that this suggests that HUD will
be performing analysis of construction costs in some manner. The
commenter further suggested that these studies be made available to
housing agencies and other interested parties to ensure that the TDC
policy remains a fair and equitable methodology, and that there is an
opportunity for input into HUD's decision making.
HUD Response: HUD believes that it will have better control of the
actual costs of development by dividing the TDC into two components,
i.e., the HCC and the CRC, and that by doing so housing construction
costs can be monitored more closely. There is less chance of inflated
construction costs if there is a check to limit the construction costs
to the average quality of construction. HUD will be able to detect any
cost inflation due to extraordinary structure design or amenities. HUD
does not plan to do any analysis at this time but if it decides to do
so at a later date the results will be made available to PHAs and other
interested parties.
Comment: (a) A workable TDC formula must be comprehensive,
realistic, and flexible. The TDC must also be constructed to reflect
the real context and environment in which capital construction and
development occurs. (b) HUD's rule must incorporate the means to
respond to the inherent differences and fluctuations that impact
construction and development costs. The commenter wrote that in order
to accommodate the wide spectrum of activities covered by the rule, the
formula has to account for the full range of cost factors that are
intrinsic to such activities, whether carried out by PHAs or private
development entities. Another commenter wrote that the fluctuations
should be considered given the breadth of the rule in terms of the
activities covered and the various construction markets it covers.
HUD Response: The TDC limits are developed in accordance with the
statute. The statute mandates that HUD use a construction cost
guideline based on the average of at least two nationally recognized
residential construction cost indices for publicly bid construction of
good and sound quality. Then, this construction cost guideline (which
already takes into account local market and other adjustment factors)
is multiplied by a factor of 1.6 or 1.75 for elevator and non-elevator
structures, respectively, to establish the TDC limit. HUD has
established 403 market areas nationwide for purposes of calculating the
TDC limits. The use of multiple market areas ensures that local market,
environment and other adjustment factors are reflected in the TDC
limits for the particular area in which the units are to be
constructed.
Comment: The TDC calculation must be formulated in a manner that
permits PHAs to be fairly compared to other affordable housing
producers. The commenter wrote that this factor has been increasingly
important, as the criticism of PHA housing costs have escalated over
the past several years.
HUD Response: The TDC limit is required by statute to be based on
``not less than two nationally recognized residential construction cost
indices, for publicly bid construction of a good and sound quality''.
HUD will use the R. S. Means cost index for construction of ``average''
quality and the Marshall & Swift cost index for construction of
``good'' quality to calculate the construction cost guideline. (HUD has
the discretion to change the cost indices to other such indices that
reflect comparable housing construction quality through Federal
Register notice.) These indices will permit PHAs to be fairly compared
to other affordable housing producers.
Comment: The inclusion of planning costs in TDC is not appropriate.
The commenter wrote that generally, owners do not include such
predevelopment costs in their development costs pro formas. The
commenter further noted that if the intent is to manage the cost of
planning activities, which in some cases apparently have become
exorbitant, then HUD should address this matter more directly.
HUD Response: The Department disagrees with this comment, since it
is inconsistent with the statutory definition of ``development'' in
section 3(c)(1) of the 1937 Act, which expressly includes ``* * * all
undertakings necessary for planning * * * [the public housing]
project.'' In this final rule, such costs are covered as part of the
Community Renewal Cost subcategory. Community Renewal Costs represent
the difference between the Housing Construction Cost limit and the TDC
limit.
Comment: (a) The TDC formula does not take into consideration
several significant and essential costs of capital improvement and/or
redevelopment projects. (b) Dividing the TDC into ``housing
construction costs'' and ``community renewal costs'' would restrict the
ability to do development with HUD funding. The commenter wrote that
the discussion of the elements included in ``housing construction'' or
``community renewal'' costs include design fees, accounting and legal
fees, financing fees, or marketing/lease-up costs. Additionally, absent
from the list of costs is the reserve generally required due to the
appropriation risk of the public housing operating subsidy. Another
commenter wrote that its experience has been that the full TDC has not
been adequate to cover all of development costs. If only a fraction of
the TDC can be used in the future, then new development may not be
possible.
HUD Response: The TDC limit is a statutory cap on the amount of
public housing capital assistance (as defined in this rule) that can be
spent on identified development costs related to a public housing
project. It is not intended to address operating costs, reserves, or
other line items relating to the management phase of the project. The
one exception to this relates to the funding of initial operating
deficits incurred while the project is still in the development phase.
These costs are considered to be a development cost and, as a result,
are subject to the TDC limit (under the CRC subcategory). However,
there is no limit on funds such as CDBG, HOME, low-income tax credits,
private donations, and private financing to cover project costs that
exceed the housing cost cap or the maximum TDC limit, or to fund costs
related to the management phase of the project, e.g., funding of
operating reserves.
Comment: The language permitting waivers should not be deleted. The
commenter wrote that HUD's failure to acknowledge that waivers may be
necessary to accommodate the varying facts and circumstances of PHAs is
extremely shortsighted.
HUD Response: HUD disagrees with the commenter. HUD will not grant
any exceptions to the TDC limits for public housing and HOPE VI funds
awarded in FY 1997 and afterwards. By allowing exceptions or waivers,
HUD will not
[[Page 76100]]
succeed in its mission of providing affordable housing to the maximum
number of low-income families. A PHA can (under the circumstances
stated in the rule) use non-public housing sources of funding to cover
costs that exceed the TDC limit. Further, a PHA will be eligible to
request a TDC exception for Public Housing and HOPE VI funds awarded to
HOPE VI grantees in Fiscal Year 1996 and prior years. However, no
exceptions to the HCC limits within TDC will be granted.
Comment: In the proposed rule, HUD is decreasing the already-
insufficient amount of public housing funding that can be used for
construction. The commenter wrote that HUD has arbitrarily divided the
TDC amount into ``housing construction costs'' allocation and the
``community renewal'' allocation. The costs for housing construction
cannot exceed the average R.S. Means and Marshall & Swift estimated
construction costs. The commenter noted that the community renewal
allocation could not be used for construction.
HUD Response: HUD disagrees with the commenter that it has
arbitrarily divided the TDC limit into a HCC subcategory and a CRC
subcategory. On the contrary, the Housing Construction Cost subcategory
limit is derived by multiplying the construction cost guideline (which
itself is determined by averaging two nationally recognized residential
construction cost indices, as required by section 6(b)(2) of the 1937
Act) by the number of public housing units for each bedroom size and
structure type in the project and adding the resulting figures.
The TDC limit is established by multiplying the Housing
Construction Cost limit by the applicable multiplier (i.e., 1.6 or 1.75
depending on whether the project is an elevator or non-elevator
structure), as mandated by the statute. As previously noted, the CRC
limit represents the difference between the HCC limit and the TDC
limit. Community renewal allocations can be used for the construction
of maintenance or management facilities for the project.
Comment: The proposed rule removes what little flexibility was in
the TDC process, by revoking HUD's authority to approve costs 5-10%
above the TDC. The commenter noted that under the old regulations HUD
allowed trending to adjust the TDC construction indices to compensate
for inflation and allowed the TDCs to be exceeded by 5% at the field
office level or exceed by up to 10% at the Secretary's level. The
commenter further noted that flexibility is needed to adjust TDCs for
inflation between the time of TDC publication and the initial fund
reservation and the actual start of construction, and to compensate for
unforeseen and unavoidable extra costs.
HUD Response: HUD intends to transmit an updated schedule of unit
TDC limits every year, thus there is no need for trending adjustments.
A PHA is required to use the TDC limits in effect at the time of
closing.
Comment: The proposed rule does not clearly address and may prevent
future development through direct acquisition of existing homes. One
commenter wrote that the ``housing construction costs'' allocation of
the TDC is too low to allow the purchase of existing homes in the Twin
Cities housing market. The commenter noted further that even the full
TDC is very hard to work with in this market.
HUD Response: HUD agrees with the commenter that the HCC
subcategory of the TDC limit should not be applicable to the
acquisition of existing homes because items included in the sale of an
existing home, like cost of land and other development costs, are
included in the CRC subcategory limit. Therefore, HUD has amended the
final rule at Sec. 941.306(c)(3) to state that for acquisition with or
without rehabilitation of existing homes, only the overall TDC is
applicable and not the HCC cost limit.
Comment: The proposed rule would further concentrate low-income
housing in impacted areas. The commenter wrote that the low funding
levels provided by these TDC regulations would mean that the only
vacant sites and existing homes that will be affordable for development
would be in lower income census tracts.
HUD Response: HUD disagrees. Based on the Department's experience
with the HOPE VI program and other public housing development activity,
units have been constructed in mixed-income communities since it first
revised the TDC policy in 1999 through a HUD Notice.
Comment: The Housing Construction Cost (HCC) subcategory of the TDC
limit includes finish landscaping (trees, grass, fencing, walkways,
etc.) in the per-unit cost equation; conversely, the two indices used
to derive the HCC (RS Means and Marshall & Swift) exclude finish
landscaping from the per unit cost equation. The commenter wrote that
there should be categorizations of costs associated with finish
landscaping as a Community Renewal Cost.
HUD Response: HUD disagrees with the commenter because national
construction cost indices include landscaping around the structure.
Additional landscaping is included under the Community Renewal Cost
subcategory of the TDC limit.
Comment: The HCC subcategory of the TDC limit includes utilities
from the street in the per-unit cost equation; conversely, the two
indices used to derive the HCC (RS Means and Marshall & Swift) exclude
utility tap fees from the per unit cost equation. The commenter wrote
that there should be categorizations of the utility tap fees as a
Community Renewal Cost or an extraordinary site cost.
HUD Response: HUD disagrees with the commenter because the
Community Renewal Cost subcategory of the TDC limit includes the cost
of bringing the utilities from the street to the site, which covers
utility tap fees. Therefore, no separate categorization of this item is
necessary.
Comment: The two indices used to derive the HCC (RS Means and
Marshall & Swift) exclude the cost of on-site streets, driveways, and
garages from the per-unit cost equation, yet many local jurisdictions
require the provision of off-street parking. The commenter wrote that
there should be categorization of any costs associated with the
provision of jurisdictional mandated off-street parking as a Community
Renewal Cost.
HUD Response: The Community Renewal Cost subcategory of the TDC
limit includes site improvements that cover site streets, driveways,
curb and gutters, off-street parking and landscaping. Therefore, there
is no need for separate categorization of these items as suggested by
the commenter.
Comment: The two indices used to derive the HCC (RS Means and
Marshall & Swift) exclude any allowances for the extra cost associated
with Americans with Disabilities Act (ADA) accessible and ADA adaptable
units. The commenter suggested establishing an allowance for the added
cost associated with ADA accessible and ADA adaptable units.
HUD Response: Generally, only five percent of public housing units
must meet accessibility and adaptable unit standards. Costs to meet
these requirements generally fall within the TDC limit. For this
reason, the Department has not modified the rule in response to this
comment.
Comment: The two indices used to derive the HCC (RS Means and
Marshall & Swift) exclude any allowances for energy efficient windows,
insulating building materials, and energy efficient mechanical systems.
Additionally, the Marshall and Swift moderate climate energy package
includes a ``weighting of single and double glazing.'' The use of
single glazing and less efficient mechanical systems is in direct
[[Page 76101]]
opposition to Energy Conservation Measures outlined in 24 CFR 965.301.
The commenter suggested including an allowance of between 5-10% of the
HCC for the installation of energy efficient glazing, insulating
building materials, and high-efficiency mechanical systems.
HUD Response: HUD disagrees with the commenter because the national
construction cost indices consider the National Building Codes, Fire
and Safety codes, and Energy Codes in their construction cost
determination. For this reason, the Department has not modified the
rule in response to this comment.
V. Findings and Certifications
Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this rule under
Executive Order 12866, Regulatory Planning and Review. OMB determined
that this rule is a ``significant regulatory action'' as defined in
section 3(f) of the Order (although not an economically significant
regulatory action under the Order). Any changes made to this rule as a
result of that review are identified in the docket file, which is
available for public inspection in the Office of the Rules Docket
Clerk, Office of General Counsel, Room 10276, Department of Housing and
Urban Development, 451 Seventh Street, SW., Washington, DC 20410-0500.
Environmental Impact
A Finding of No Significant Impact (FONSI) with respect to the
environment was made in accordance with HUD regulations in 24 CFR part
50 that implement section 102(2)(C) of the National Environmental
Policy Act of 1969 (42 U.S.C. 4332) at the proposed rule stage. That
Finding remains applicable and is available for public inspection
between 7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules
Docket Clerk, Office of General Counsel, Room 10276, Department of
Housing and Urban Development, 451 Seventh Street, SW., Washington, DC
20410-0500.
Federalism Impact
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial direct compliance costs on state and local
governments and is not required by statute, or the rule preempts state
law, unless the agency meets the consultation and funding requirements
of section 6 of the Executive Order. This final rule would not have
federalism implications and does not impose substantial direct
compliance costs on state and local governments or preempt state law
within the meaning of the Executive Order.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)) (the RFA), has reviewed and approved this final rule and
in so doing certifies that this rule will not have a significant
economic impact on a substantial number of small entities. The reasons
for HUD's determination are as follows:
(1) A Substantial Number of Small Entities Will Not be Affected.
The final rule is exclusively concerned with public housing agencies
that receive capital assistance provided by HUD for the development of
public housing. The final rule would update HUD's public housing
development regulations at 24 CFR part 941 to incorporate the statutory
amendments made by section 520 of the QHWRA. Under the definition of
``small governmental jurisdiction'' in section 601(5) of the RFA, the
provisions of the RFA are applicable only to those few public housing
agencies that are part of a political jurisdiction with a population of
fewer than 50,000 persons. The number of entities potentially affected
by this rule is therefore not substantial.
(2) No Significant Economic Impact. The final regulatory amendments
will not change the amount of capital funding available to public
housing agencies for the development of public housing. Accordingly,
the economic impact of this rule will not be significant, and it will
not affect a substantial number of small entities.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) establishes requirements for federal agencies to assess the
effects of their regulatory actions on state, local, and tribal
governments, and the private sector. This final rule does not impose
any federal mandates on any state, local, or tribal governments or the
private sector within the meaning of Unfunded Mandates Reform Act of
1995.
List of Subjects in 24 CFR Part 941
Grant programs--housing and community development, Loan programs--
housing and community development, Public housing, Reporting and
recordkeeping requirements.
Accordingly, for the reasons stated in the preamble, HUD amends 24
CFR part 941 as follows:
PART 941--PUBLIC HOUSING DEVELOPMENT
1. The authority citation for 24 CFR part 941 continues to read as
follows:
Authority: 42 U.S.C. 1437b, 1437c, 1437g, and 3535(d).
2. Revise Sec. 941.102(b)(3) to read as follows:
Sec. 941.102 Development methods and funding.
* * * * *
(b) * * *
(3) Funds available to it from any other source, consistent with
Sec. 941.306(e), or as may be otherwise approved by HUD.
* * * * *
3. In Sec. 941.103, add, in alphabetical order, definitions of the
terms ``Additional Project Costs (APC)'', ``Community Renewal Cost
(CRC)'', ``Housing Construction Cost (HCC)'', and ``Public housing
capital assistance'' and revise the definition of ``Total development
cost (TDC)'' to read as follows:
Sec. 941.103 Definitions.
* * * * *
Additional Project Costs (APC) means the sum of the following HUD-
approved costs related to the development of a public housing project,
which costs are not subject to the Total Development Cost limit but are
included in the maximum project cost, as described in Sec. 941.306:
(1) Demolition of, or remediation of environmental hazards
associated with, public housing units that will not be replaced on the
site; and
(2) Extraordinary site costs that have been verified by an
independent registered engineer (e.g., removal of underground utility
systems, and replacement of off-site underground utility systems,
extensive rock and/or soil removal and replacement, and amelioration of
unusual site conditions such as unusual slopes, terraces, water
catchments, lakes, etc.)
* * * * *
Community Renewal Cost (CRC) means the sum of the following HUD-
approved costs related to the development of a public housing project:
planning (including proposal preparation), administration, site
acquisition, relocation, demolition of, and site remediation of
environmental hazards associated with, public housing units that will
be replaced on the project site, interest and carrying charges, off-
site facilities, community buildings and non-dwelling facilities,
contingency allowance, insurance premiums, any
[[Page 76102]]
initial operating deficit, on-site streets, on-site utilities, and
other costs necessary to develop the project that are not covered under
APC or Housing Construction Cost.
* * * * *
Housing Construction Cost (HCC) means the sum of the following HUD-
approved costs related to the development of a public housing project:
dwelling unit hard costs (including construction and equipment);
builder's overhead and profit; the cost of extending utilities from the
street to the public housing project; finish landscaping; and the
payment of Davis-Bacon wage rates.
* * * * *
Public housing capital assistance means assistance provided by HUD
under the Act or the HOPE VI program in connection with the development
of public housing under this part, including: Capital Fund assistance
provided under section 9(d) of the Act, public housing development
assistance provided under section 5 of the Act, Operating Fund
assistance used for capital purposes under section 9(g)(1) or (g)(2) of
the Act, and HOPE VI grant assistance.
* * * * *
Total Development Cost (TDC) limit. The maximum amount of public
housing capital assistance that can be used to pay for Housing
Construction Costs and Community Renewal Costs in connection with the
development of a public housing project, as determined under Sec.
941.306(b)(2). The TDC limit does not apply to Additional Project
Costs.
4. Revise Sec. 941.306 to read as follows:
Sec. 941.306 Maximum project cost.
(a) Calculation of maximum project cost. The maximum project cost
represents the total amount of public housing capital assistance used
in connection with the development of a public housing project, and
includes: (1) project costs that are subject to the TDC limit (i.e.,
Housing Construction Costs and Community Renewal Costs); and (2)
project costs that are not subject to the TDC limit (i.e., Additional
Project Costs). The total project cost to be funded with public housing
capital assistance, as set forth in the proposal and as approved by
HUD, becomes the maximum project cost stated in the ACC. Upon
completion of the project, the actual project cost is determined based
upon the amount of public housing capital assistance expended for the
project, and this becomes the maximum project cost for purposes of the
ACC.
(b) TDC limit. (1) Public housing capital assistance may not be
used to pay for Housing Construction Costs and Community Renewal Costs
in excess of the TDC limit, as determined under paragraph (b)(2) of
this section. However, HOPE VI grantees will be eligible to request a
TDC exception for public housing and HOPE VI funds awarded in Fiscal
Year 1996 and prior years. No exceptions to HCC limits will be granted
within the TDC limit.
(2) Determination of TDC limit. HUD will determine the TDC for a
public housing project as follows:
(i) Step 1: Unit construction cost guideline. HUD will first
determine the applicable ``construction cost guideline'' averaging the
current construction costs as listed in two nationally recognized
residential construction cost indices for publicly bid construction of
a good and sound quality for specific bedroom sizes and structure
types. The two indices HUD will use for this purpose are the R.S. Means
cost index for construction of ``average'' quality and the Marshal &
Swift cost index for construction of ``good'' quality. HUD has the
discretion to change the cost indices to other such indices that
reflect comparable housing construction quality through a notice
published in the Federal Register.
(ii) Step 2: Bedroom size and structure types. The construction
cost guideline is then multiplied by the number of units for each
bedroom size and structure type.
(iii) Step 3: Elevator and non-elevator type structures. HUD will
then multiply the resulting amounts from step 2 by 1.6 for elevator
type structures and by 1.75 for non-elevator type structures.
(iv) Step 4: TDC limit. The TDC limit for a project is calculated
by adding the resulting amounts from step 3 for all the public housing
units in the project.
(3) Costs not subject to the TDC limit. Additional Project Costs
are not subject to the TDC limit described in paragraph (b)(2) of this
section.
(4) Funds not subject to the TDC limit. A PHA may use funding
sources not subject to the TDC limit (e.g., CDBG funds, HOME funds,
low-income tax credits, private donations, private financing, etc.) to
cover project costs that exceed the TDC limit or the Housing
Construction Cost limit described in paragraph (c) of this section.
Such funds, however, may not be used for items that would result in
substantially increased operating, maintenance or replacement costs,
and must meet the requirements of section 102 of the HUD Reform Act (42
U.S.C. 3545). These funds must be included in the project development
cost budget and legally acceptable written commitments for such funds
must be provided by the PHA for HUD approval.
(c) Housing Construction Costs. (1) General. A PHA may not use
public housing capital assistance to pay for Housing Construction Costs
in excess of the amount determined under paragraph (c)(2) of this
section.
(2) Determination of Housing Construction Cost limit. HUD will
determine the Housing Construction Cost limit as listed in at least two
nationally recognized residential construction cost indices for
publicly bid construction of a good and sound quality for specific
bedroom sizes and structure types. The two indices HUD will use for
this purpose are the R.S. Means cost index for construction of
``average'' quality and the Marshal & Swift cost index for construction
of ``good'' quality. HUD has the discretion to change the cost indices
to other such indices that reflect comparable housing construction
quality through a notice published in the Federal Register. The
resulting construction cost guideline is then multiplied by the number
of public housing units in the project based upon bedroom size and
structure type. The Housing Construction Cost limit for a project is
calculated by adding the resulting amounts for all public housing units
in the project.
(3) The Housing Construction Cost limit is not applicable to the
acquisition of existing housing, whether or not such housing will be
rehabilitated. The Total Development Cost limit is applicable to such
acquisition.
(d) Community Renewal Costs. Public housing capital assistance may
be used to pay for Community Renewal Costs in an amount equivalent to
the difference between the Housing Construction Costs paid for with
public housing capital assistance and the TDC limit.
(e) Rehabilitation of existing public housing projects. The HCC
limit is not applicable and the TDC limit for modernization of existing
public housing is 90% of the TDC limit as determined under Sec.
941.306(b)(2). This limitation does not apply to the rehabilitation of
any property acquired pursuant to Sec. 941.102.
Dated: December 3, 2002.
Michael M. Liu,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 02-31080 Filed 12-9-02; 8:45 am]
BILLING CODE 4210-33-P