[Federal Register Volume 70, Number 180 (Monday, September 19, 2005)]
[Rules and Regulations]
[Pages 54984-55008]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-18624]
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Part II
Department of Housing and Urban Development
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24 CFR Part 990
Revisions to the Public Housing Operating Fund Program; Final Rule
Federal Register / Vol. 79, No. 180 / Monday, September 19, 2005 /
Rules and Regulations
[[Page 54984]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 990
[Docket No. FR-4874-F-08]
RIN 2577-AC51
Revisions to the Public Housing Operating Fund Program
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, HUD.
ACTION: Final rule.
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SUMMARY: This rule amends the regulations of the Public Housing
Operating Fund Program (Operating Fund Program) to provide a new
formula for distributing operating subsidy to public housing agencies
(PHAs) and to establish requirements for PHAs to convert to asset
management. HUD developed the final rule with the active participation
of PHAs, public housing residents, and other relevant parties using the
procedures of the Negotiated Rulemaking Act of 1990. These regulatory
changes improve and clarify the current regulations governing the
Operating Fund Program and take into consideration the recommendations
of the congressionally funded study by the Harvard University Graduate
School of Design on the cost of operating well-run public housing. The
final rule follows publication of an April 14, 2005, proposed rule, and
takes into consideration the public comments received.
DATES: Effective Date: November 18, 2005.
FOR FURTHER INFORMATION CONTACT: Elizabeth Hanson, Public Housing
Financial Management Division, Office of Public and Indian Housing,
Department of Housing and Urban Development, 550 12th Street SW., Suite
100, Washington, DC 20410; telephone (202) 475-7949 (this telephone
number is not toll-free). Individuals with speech or hearing
impairments may access this number through TTY by calling the toll-free
Federal Information Relay Service at 1-800-877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
Section 519 of the Quality Housing and Work Responsibility Act of
1998 (Pub. L. 105-276, approved October 21, 1998) amended section 9 of
the United States Housing Act of 1937 (42 U.S.C. 1437 et seq.) (1937
Act). As amended, section 9 of the 1937 Act established an Operating
Fund to make assistance available to PHAs to operate and manage public
housing. Section 9 of the 1937 Act also required that the amount of the
assistance to be made available to a PHA from that fund be determined
using a formula developed through negotiated rulemaking procedures as
provided in subchapter III of chapter 5 of title 5, United States Code,
commonly referred to as the Negotiated Rulemaking Act of 1990 (5 U.S.C.
561 et seq.).
Negotiated rulemaking on the Operating Fund Program was initiated
in March 1999, and the negotiated rulemaking committee consisted of 25
members representing PHAs, tenant organizations, community-based
organizations, and the three national organizations representing PHAs--
the Public Housing Authorities Directors Association (PHADA), Council
of Large Public Housing Authorities (CLPHA), and National Association
of Housing and Redevelopment Officials (NAHRO). Based on the
recommendations made by the negotiated rulemaking committee, HUD
published a proposed rule on July 10, 2000 (65 FR 42488), which was
followed by an interim rule published on March 29, 2001 (66 FR 17276).
The March 29, 2001, interim rule established the Operating Fund Program
regulations that are currently in effect. These regulations are located
in part 990 of HUD's regulations in title 24 of the Code of Federal
Regulations.
During the negotiated rulemaking for the Operating Fund Formula,
Congress directed that HUD contract with the Harvard University
Graduate School of Design (Harvard GSD) to conduct a study on the costs
incurred in operating well-run public housing (Cost Study). This
congressional direction was contained in the Conference Report (H.R.
Rep. No. 106-379 at 91 (1999)) accompanying HUD's Fiscal Year (FY) 2000
Appropriations Act (Pub. L. 106-74, approved October 20, 1999).
Congress further directed that HUD make the results of the Cost Study
available to the negotiated rulemaking committee and appropriate
congressional committees.
The Harvard GSD performed extensive research on the question of
what the expense level of managing well-run public housing should be.
HUD, consistent with congressional direction, made the results of the
Cost Study available to the members of the negotiated rulemaking
committee who developed the current Operating Fund Program regulations,
and also invited the committee members to be active participants in the
Harvard GSD's research for and development of the Cost Study. The
Harvard GSD also conducted several public meetings to allow for an
exchange of views and expectations with the public housing industry,
beyond those industry members who were part of the negotiated
rulemaking committee. The Cost Study was completed and officially
released in July 2003.
II. The Negotiated Rulemaking Advisory Committee on the Operating Fund
The FY 2004 Consolidated Appropriations Act (Pub. L. 108-199,
approved January 23, 2004) required HUD to undertake further negotiated
rulemaking to make changes to the Operating Fund formula.
In response to this statutory language, HUD convened a negotiated
rulemaking advisory committee (Committee) for the purposes of
developing possible changes to the Operating Fund Program in response
to the Cost Study. The Committee consisted of 28 members, including
representatives of PHAs, public housing tenant organizations, public
housing advocacy groups, the three national PHA organizations (CLPHA,
NAHRO, and PHADA), the National Organization of African Americans in
Housing (NOAAH), multifamily housing providers, and HUD. The Committee
held four meetings. The meetings were held on March 30-April 1, 2004,
in Washington, DC; April 13-15, 2004, also in Washington, DC; May 11-
12, 2004, in Atlanta, Georgia; and June 8-9, 2004, in Potomac,
Maryland. Committee sessions were announced in the Federal Register and
were open to the public. Members of the public were permitted to make
statements during the meetings at designated times and to file written
statements with the Committee for its consideration.
The Committee developed a report containing several recommendations
for revising the current Operating Fund Program regulations (Committee
Recommendations). HUD developed a draft proposed rule based on these
recommendations. Consistent with HUD's obligations under Executive
Order 12866 (entitled ``Regulatory Planning and Review'') and other
rulemaking authorities, the draft rule underwent further HUD and
executive branch review prior to publication.
On April 14, 2005 (70 FR 19858), HUD published its proposed rule to
revise the Operating Fund Program in the Federal Register. As a result
of the pre-publication review processes, ten substantive modifications
were made to the Committee Recommendations. Specifically, the April 14,
2005, proposed rule did not include seven of
[[Page 54985]]
the changes recommended by the Committee. In addition, the proposed
rule contained three modifications to the Operating Fund Program that
were not part of the Committee Recommendations. Additional information
regarding the proposed regulatory changes to the Operating Fund
Program, and the modifications made to the Committee Recommendations,
can be found in the preamble to the April 14, 2005, proposed rule.
III. Differences Between This Final Rule and the April 14, 2005,
Proposed Rule
This final rule follows publication of the April 14, 2005, proposed
rule and takes into consideration the public comments received on the
proposed rule. Sections IV, V, and VI of this preamble provide a
summary of the significant issues raised by the public commenters on
the proposed rule and HUD's responses to the comments. After reviewing
the public comments, HUD has made the following changes to the April
14, 2005, proposed rule.
Adoption of Five Committee Recommendations
HUD has adopted five of the seven Committee Recommendations that
were omitted from the April 14, 2005, proposed rule. These are:
1. The ten percent non-profit coefficient.
2. The three percent vacancy allowance.
3. The phase-in of operating subsidy gains over two years.
4. The provision regarding the discontinuation of subsidy reduction
through demonstration of successful conversion to asset management
(i.e., ``stop-loss provision'').
5. The language requiring use of an advisory committee to review
the Project Expense Level (PEL) methodology and utility benchmarking,
convened in accordance with the Federal Advisory Committee Act (FACA).
With respect to the remaining two Committee Recommendations not
adopted in the April 14, 2005, proposed rule (i.e., the change in
methodology for inflating PELs and the elimination of the $2 per unit
per month public entity fee), the final rule remains unchanged.
Removal of Provisions Not Contained in the Committee Recommendations
Additionally, HUD has removed the three proposed rule provisions
that were not part of the Committee Recommendations. These are:
1. The adjustment in Sec. 990.190(i) based on the Committee
Recommendations for certain PHAs.
2. The two-year limit on a higher subsidy for vacant units due to
changing market conditions, and the related requirements that PHAs
requesting such subsidy submit a plan for ending the higher subsidy
within the two-year period.
3. The provision authorizing sanctions on PHAs that fail to comply
with the asset management requirements or that do not submit accurate
and timely data.
Energy Loan Amortization Expenses
In response to comments, HUD has also added language relating to
the eligible expenses that can be funded under the ``add-on'' for
energy loan amortization. This language was included in the Committee
Recommendations, but was inadvertently omitted in the April 14, 2005,
proposed rule.
Technical Non-Substantive Changes
In addition to the changes described above, HUD has also made
several technical non-substantive corrections to the April 14, 2005,
proposed rule, such as correcting cross-references and making other
grammatical and editorial changes.
IV. Public Comments Received on the April 14, 2005, Proposed Rule
The public comment period for the proposed rule closed on June 13,
2005. The proposed rule was of significant interest to the public. HUD
received 573 public comments on the April 14, 2005, proposed rule.
Comments were submitted by PHAs, PHA industry groups, resident
organizations, advocates for low-income housing, housing experts, and
other organizations and individuals. Many of the comments were part of
a letter-writing campaign consisting of several form letters that were
similar in substance. In some instances, individual commenters
submitted multiple comments consisting of different form letters. In
general, the comments objected to the modifications made to the
Committee Recommendations and urged that HUD issue a rule adopting the
recommendations.
The next two sections of the preamble present a summary of the
significant issues raised by the public comments, and HUD's responses
to the comments. Comments are organized in two categories. Section V of
the preamble discusses the public comments regarding the changes to the
Committee Recommendations. Section VI of the preamble discusses
additional topics that were raised by the commenters. Within each
category of comments, the headings present the issue or question,
followed by a brief description of the comment and HUD's response to
the comment.
V. Public Comments Regarding the Changes to Committee Recommendations
General Comments
Comment: Support for proposed rule. Four commenters supported
implementation of the April 14, 2005, proposed rule. The commenters
wrote that although the proposed rule contained changes to the
Committee Recommendations and did not fulfill every resident's and
PHA's needs, the rule maintained ``some of the more prevailing themes
of the negotiated rulemaking agreement,'' such as the conversion to the
PEL, which will ``lead to more efficient property-based management.''
The commenters wrote that with the resulting increase in subsidy, PHAs
will be able to provide additional services to their residents and
urged HUD to quickly implement the April 14, 2005, proposed rule.
HUD Response. HUD agrees that this final rule will result in
better-managed PHAs and improved services to residents.
Comment: HUD should fully implement the Committee Recommendations.
As noted above, the majority of the public commenters objected to the
changes made to the Committee Recommendations and urged that HUD either
fully implement the regulatory proposals developed during the
negotiated rulemaking process or reconvene the Committee for new
negotiations. Several of the commenters expressed concern that the
``proposed rule modification of the funding methodology will have a
long term negative impact on PHAs in order to achieve a short-term
solution for this budget year'' and that ``budget constraints should
more appropriately be handled by prorating the budget based on the
level of congressional appropriations.''
HUD Response. While it is true that the Committee Recommendations
were developed as part of a formal process, the completion of the
Committee's work did not conclude the rulemaking process. HUD indicated
throughout the negotiated rulemaking sessions that the Committee
Recommendations, like all significant rulemakings, would undergo
further HUD and Executive Order 12866 review prior to publication and
that the recommendations might be revised as a
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result of those review processes. The changes made to the Committee
Recommendations were designed to further the goals of the Operating
Fund program and the Administration policies and budgetary priorities,
while also advancing the goals of the Committee to implement an
improved and more accurate Operating Fund formula.
HUD recognizes that, as part of a negotiated rulemaking process,
concessions were made by all parties to arrive at the proposed
regulatory changes recommended by the Committee. In light of the issues
raised by the public commenters, HUD has reconsidered the changes to
the Committee Recommendations, and this final rule adopts all but two
of the provisions recommended by the Committee. HUD believes that the
final rule furthers the implementation of the recommendations of the
Cost Study, the policy and budgetary goals of the Administration, and
the consensus decisions reached during the negotiated rulemaking
process.
Comment: HUD should initiate new rulemaking on the Operating Fund.
Several commenters wrote that HUD should discard both the April 14,
2005, proposed rule and the Committee Recommendations, and start the
rulemaking process again to produce a rule that would be more
reflective of the costs associated with well-managed public housing.
The commenters wrote that the cuts recommended by the Cost Study would
impair the ability of PHAs to carry out necessary functions to maintain
decent, safe, and sanitary housing.
HUD Response. While the Committee Recommendations and the April 14,
2005, proposed rule may not meet with the complete satisfaction of all
parties, both reflect the results of extensive deliberations based on
the sound and thorough Cost Study. As HUD has previously indicated, it
believes that the Cost Study's methodology is an interim solution, with
the ultimate goal to establish funding levels based on actual and
reasonable cost data by property, which is to be achieved with the
implementation of asset management. However, HUD has acknowledged that
PHAs that face a reduction under the new formula will need some time to
align their resources with the new funding. Accordingly, HUD has
provided a 5-year transition period.
Comments on Specific Regulatory Provisions
Comment: The non-profit coefficient should be increased to ten
percent. The Cost Study and the Committee had recommended a non-profit
coefficient of ten percent based on estimated differences in operating
costs between for-profit and non-profit entities according to the
Federal Housing Administration (FHA) database of properties that was
used for the Cost Study. The April 14, 2005, proposed rule reduced the
non-profit coefficient from ten percent to four percent, reflecting the
belief that the difference in costs between for-profit and non-profit
entities represented inefficiencies that should not be supported in the
formula.
Many comments objected to HUD's reduction of the non-profit
coefficient from ten to four percent on the grounds that it was
contrary to the recommendations of both the Committee and the Cost
Study, and that it would not provide PHAs with sufficient funding to
support their specific non-profit operating functions.
HUD Response. As noted above, HUD has adopted the suggestion made
by the commenters and has adopted the non-profit coefficient as
contained in the Committee Recommendations.
Comment: Support for a $2 Per Unit Per Month (PUM) Public Entity
Fee. The Committee recommended that a public entity fee of $2 PUM be
added to the initial PELs. The public entity fee was intended to
reimburse PHAs for additional services (above and beyond the non-profit
coefficient) that are unique to PHAs as public entities. The April 14,
2005, proposed rule did not adopt this additional fee. HUD's position
was that these expenses were addressed through other means in the
proposed rule.
Many commenters recommended adoption of the $2 PUM public entity
fee. Several of the commenters asked where in the April 14, 2005,
proposed rule such expenses were covered, especially given the fact
that the non-profit coefficient had been reduced.
HUD Response. HUD has not revised the rule in response to these
comments. The FHA portfolio, which was the basis for the new Project
Expense Level (PEL) calculation, contains a high percentage of assisted
properties, which are also subject to HUD regulations. Thus, the
expenses associated with the public entity fee are reflected in the
PEL's percent-assisted coefficient and the non-profit coefficient.
Furthermore, the final rule adopts the Cost Study's recommendation of a
ten percent non-profit coefficient, which HUD believes adequately
covers the additional services unique to PHAs.
Comment: Support for the three percent allowance for vacant units.
Under the Committee Recommendations, PHAs would receive a subsidy for
occupied dwelling units and dwelling units with an approved vacancy.
PHAs would also receive an operating subsidy for a limited number of
vacancies if the annualized rate is less than or equal to three
percent, or for up to five units if the PHA has 100 or fewer units. The
April 14, 2005, proposed rule did not adopt these recommendations.
Many commenters recommended that HUD adopt the vacancy allowance,
indicating that it would be unrealistic to expect any housing operator
to maintain 100 percent occupancy at all times. Several commenters
mentioned that the three percent vacancy allowance is the industry
standard and that the monthly rent charge in FHA's multifamily housing
program also reflects assumptions on occupancy loss.
HUD Response. HUD has revised the rule in response to the
suggestion made by the commenters. The final rule adopts the
recommendation of the Committee with regard to vacancies. Hence, PHAs
will receive an operating subsidy for a limited number of vacancies if
the annualized rate is less than or equal to three percent, or for up
to five units if the PHA has 100 or fewer units.
Comment: Support for Committee recommendation regarding the PEL
inflation factor. The annual inflation factors used to adjust the
current Allowable Expense Level (AEL) are based on a 60 percent wage
factor and a 40 percent non-wage factor. Under the Committee
Recommendations, the weights would have remained the same, but the
methodology for calculating the inflation factor would have changed.
For the wage component, the factor would have been based on the
Employment Cost Index (ECI) instead of the current formula's Bureau of
Labor Statistics (BLS) 202 Local Government Wage series. For the non-
wage component, this factor would have been based on the Consumer Price
Index (CPI) instead of the current formula's Producer Price Index
(PPI). The April 14, 2005, proposed rule retained the current formula's
inflation factor methodology for adjusting annually the PEL.
Many commenters urged that HUD adopt the methodology recommended by
the Committee for calculating the PEL inflation factor. The commenters
wrote that the recommended methodology is a more accurate measure of
inflation. The commenters wrote that the current wage factor does not
keep pace with health care costs, which was addressed by the Committee
with the recommended use of the ECI. In
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addition, several commenters wrote that because PHAs are not producers,
but, instead, purchasers of goods and services, the more appropriate
index for non-wage inflation would be the CPI.
HUD Response. HUD has not revised the rule in response to these
public comments. During negotiated rulemaking, HUD sought to devise a
more accurate and transparent inflation factor methodology than the one
used under the current regulations, one that PHAs could calculate by
accessing the BLS Web site. After further review, HUD believes that the
inflation factors recommended by the Committee are less accurate and no
more transparent than the current methodology. Specifically, for the
wage component, the current BLS-202 local government wage series is
more accurate than the BLS--Employment Cost Index (ECI) contemplated by
the Committee for the following reasons:
1. The current methodology measures wages of local government
employees, which are more similar to PHAs, whereas the ECI data
includes State and local government employees.
2. The current methodology includes data that is available at the
county level, summed to either state metropolitan and nonmetropolitan
level, whereas the methodology recommended by the Committee (i.e., ECI)
is available at only a national level and, for private sector wages, at
the regional level. Local wage patterns can vary significantly from
national averages.
For the non-wage component, the current methodology uses the
Producer Price Index (PPI), which excludes the cost of food and energy
and measures national average cost changes in finished goods used by
businesses. The Committee recommended using the overall CPI, which
primarily measures changes in the costs of food, housing, apparel,
recreation, transportation, medical expenses, utilities, and other
services. HUD believes the PPI is a more appropriate measure of the
type of goods and services purchased by PHAs, and that the overall CPI
has little relevance to the costs of PHA purchases. In addition,
utility costs are covered in the Operating Fund formula under a
separate component than the PEL and should be excluded from the PEL
inflation factor.
All factors considered, the current methodology for the inflation
factor is considerably more appropriate than the methodology
recommended by the Committee.
Comment: Support for two-year phase-in of operating subsidy gains.
Under the Committee Recommendations, PHAs that experience a gain in
their operating subsidy would have those gains phased in over a two-
year period. The April 14, 2005, proposed rule would have phased in
those gains over a four-year period to more closely align the gains
with the five-year phase-in period for those PHAs that would have their
subsidy decreased.
Many commenters objected to the change in phase-in for PHAs gaining
operating subsidy. The commenters indicated that the four-year phase-in
period would be too long and that, for PHAs that have been historically
underfunded, increases in subsidy should be distributed expeditiously.
HUD Response. HUD has adopted the suggestion of the commenters to
adopt the language of the Committee Recommendations so that gains in
subsidy will be phased in over two years.
Comment: Support for adoption of ``stop-loss'' provision. The
Committee Recommendations allowed PHAs to discontinue their subsidy
reduction (stop-loss) by demonstrating successful conversion to asset
management. The April 14, 2005, proposed rule did not adopt this stop-
loss provision on the grounds that the Cost Study's results should be
equally applied to all PHAs and that this stop-loss would weaken the
implementation of the Cost Study. Further, PHAs that feel that their
formula is not correctly calculated have remedies under the appeals
provision.
Many commenters supported adoption of the stop-loss provision. The
commenters indicated that such a provision is necessary to prevent PHAs
from experiencing reductions in their subsidy amounts that impact their
staffing and PHA services. In addition, commenters wrote that the stop-
loss provision would provide PHAs with an incentive to convert to asset
management in order to limit their decrease in subsidy.
HUD Response. HUD has revised the rule in response to these
comments. The final rule adopts the stop-loss provision recommended by
the Committee, which allows PHAs to discontinue their subsidy reduction
by demonstrating successful conversion to asset management.
Comment: Opposition to the adjustment for certain PHAs. The April
14, 2005, proposed rule would have established an ``add on'' for
certain PHAs that would have gained subsidy under the Committee
Recommendations, but would have had their subsidy decreased under the
proposed rule. These PHAs would receive additional funding at the
formula amount recommended by the Committee.
Many of the public commenters objected to this special add-on. Most
believed that this adjustment created a special class of agencies and
essentially a two-tier, inequitable funding system.
HUD Response. HUD agrees with the public commenters and has removed
the adjustment for certain PHAs. All PHAs will be funded under the same
Operating Fund formula and provisions.
Comment: Opposition to the two-year time limit and plan
requirements on subsidies for vacant units due to changing market
conditions. The April 14, 2005, proposed rule included a provision that
would have required PHAs that appeal to receive subsidy on vacant units
due to changing market conditions. The provision would have required
such PHAs to submit, along with their appeal, a plan to lease the units
within two years, and imposed a two-year limit on receipt of such
subsidy. The Committee Recommendations did not include a similar
provision for a plan or a two-year time limit.
Many commenters objected to the two-year time limit on subsidies
for units vacant due to changing market conditions and the related
requirement for submission of a plan for leasing those units within
that time period. Many commenters also noted that HUD's regulations
governing the mandatory and voluntary conversion of public housing
developments to tenant-based voucher assistance (see 24 CFR part 972)
already provide PHAs with guidelines for addressing vacancies based on
market conditions.
HUD Response. HUD has adopted the suggestion of the commenters and
has removed both the two-year limit on receipt of subsidy and the
related plan requirement.
Comment: Opposition to sanctions for failure to convert to asset
management and to submit accurate and timely data. The April 14, 2005,
proposed rule included two provisions authorizing sanctions, as deemed
necessary and otherwise provided by law, for those PHAs not in
compliance with asset management by FY 2011 and that fail to submit
accurate and timely data as required by the regulations. These
sanctions might include the imposition of a daily monetary fine until
the PHA converted to asset management.
Many commenters objected to the new sanction provisions. The
commenters wrote that the provisions are unnecessary, since HUD already
has numerous remedies if PHAs are not in compliance with applicable
requirements. In addition, the
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commenters wrote that the imposition of a daily monetary fine is
inappropriate and will harm the people the program is designed to
assist. Some commenters also wrote that the conversion to asset
management is a complex task and that, even with good faith and best
efforts, a PHA could be subject to fines for noncompliance.
HUD Response. HUD has adopted the suggestion of the commenters and
removed the sanction language that was found in proposed Sec. Sec.
990.200(d) and 990.290(e). HUD agrees with the commenters that it
already has the authority to impose a broad range of sanctions for non-
compliance with program rules.
Comment: The 2009 review of PEL methodology should be conducted in
accordance with the procedures of the Federal Advisory Committee Act
(FACA). The Committee Recommendations provided that in 2009, HUD will
convene a meeting with representatives of appropriate stakeholders to
review the methodology to evaluate the PEL based on actual cost data
and to establish utility benchmarking for the PEL. The provision stated
that the meetings shall be convened in accordance with FACA procedures.
The April 14, 2005, proposed rule modified that language to state that
the meetings would be convened in accordance with ``FACA or such other
authority or protocol determined appropriate.''
Several commenters objected to the new FACA language included in
the proposed rule. The commenters wrote that the issues to address in
2009 as part of the discussions of the PEL methodology and utility
benchmarking are inherently complex and that the April 14, 2005,
proposed rule language does not provide sufficient assurances that
interested stakeholders will have an official role in the 2009
discussions.
HUD Response. As noted above, HUD has adopted the language
recommended by the Committee. Specifically, this final rule provides
that HUD will convene a FACA committee to review the methodology to
evaluate the PEL based on actual cost data and establish utility
benchmarking.
VI. Discussion of Additional Public Comments Received on the April 14,
2005, Proposed Rule
General Comments
This section of the preamble discusses general comments received on
the April 14, 2005, proposed rule not related to a specific regulatory
provision.
Comment: HUD should provide updated calculations by property and by
PHA so that the impact of the rule can be understood. One commenter
wrote that, in response to a request during the negotiations, HUD did
not provide updated calculations modeling the impact of the rule on
individual PHAs. Another commenter wrote that the April 14, 2005,
proposed rule does not provide sufficient information for each PHA to
determine the extent of the gains or losses under the formula and that
HUD should provide this information in an easy to understand way that
shows the percent of change and the dollar amount of the change.
HUD Response. HUD agrees that all PHAs should understand the
formula for calculating operating subsidy under the final rule. Data
was presented to the Committee and later made available to the public
housing community on the projected impact of the rule based on the
Committee Recommendations. Similarly, HUD provided data modeling on the
projected impact of the April 14, 2005, proposed rule on individual
PHAs. This data was shared with representatives of the public housing
industry groups and other stakeholders. Finally, HUD has posted a
complete report showing the operating subsidy amounts for all PHAs and
the methodology documents on the HUD Web site at http://www.hud.gov.
Comment: HUD should clarify what the rule means when it refers to
``fiscal year.'' Several commenters suggested that HUD clarify in the
rule whether references to ``fiscal year'' mean a PHA's fiscal year or
the federal fiscal year.
HUD Response. HUD has revised references to the term ``fiscal
year'' in the regulatory text of this final rule to clarify whether the
terms refer to a federal or PHA fiscal year.
Comment: HUD should make permanent Moving to Work Agreements. One
commenter suggested that HUD give PHAs participating in the Moving to
Work program the option of making their current agreement permanent.
HUD Response. The suggestion made by the commenter is outside the
scope of this rulemaking, which is concerned with implementation of the
new Operating Fund formula.
Comment: Concerns regarding implementation of future deregulatory
changes. One commenter expressed concern about the language in the
preamble indicating that HUD and its negotiating partners on the
Committee may contemplate additional organizational and regulatory
changes beyond those included in the Operating Fund in order to
implement asset management. The commenter wrote that this language
appears to indicate that HUD seeks deregulation, which is beyond the
mandate of the Committee, and that HUD may try to implement significant
policy changes by circumventing the normal regulatory process. Another
commenter cautioned that HUD should concentrate first on implementing
the new formula and, once implemented, then turn to these other
regulatory items.
HUD Response. Deregulation was part of the Cost Study's
recommendations and, although the subject of deregulation was not
directly before the Committee, it is an important aspect of the
implementation of asset management. Therefore, the Committee discussed
deregulation during the negotiated rulemaking sessions. However, any
changes to other HUD regulations would be completed through the
appropriate regulatory or administrative processes, which would provide
opportunities for public comments, as appropriate. Additionally, HUD is
sensitive to the timing of the related changes and will take that into
consideration as it proceeds on these other elements.
Comment: Concerns regarding reduced funding for the Operating Fund
program. Several commenters wrote that the Operating Fund should be
fully funded in order for PHAs that have historically been underfunded
to realize the full gains under the new formula. Several commenters
wrote that, with the expected decrease in funding for this program in
2006, PHAs would have to cut critical services to residents including
anti-crime and job training activities.
HUD Response. The suggestion made by the commenters addresses the
annual federal budget process and is outside the scope of this
rulemaking, which is concerned with the implementation of the new
Operating Fund formula.
Comment: Rule should consider the needs of small PHAs. One
commenter wrote that the final rule should consider the needs and
issues facing small PHAs.
HUD Response. HUD agrees that there are special considerations for
smaller PHAs. The final rule authorizes small PHAs (those with under
250 units) to treat all of their units as one project. Small PHAs are
provided the flexibility of either maintaining their current management
practices or converting to asset management.
Comment: HUD should provide additional funding for PHAs to
transition to asset management if additional regulatory relief is not
achieved. One commenter referred to language in Sec. 990.255(b) that
provides that ``HUD recognizes that appropriate changes in its
regulatory and monitoring programs will be needed to support
[[Page 54989]]
PHAs'' to undertake asset management. The commenter recommended that a
provision be added to the rule that would provide additional funding to
transition to asset management systems should HUD fail to timely
implement needed regulatory and monitoring changes. The commenter also
recommended that this transition funding be based on actual costs data
presented through the appeal process for higher project cost data under
Sec. 990.245(e).
HUD Response. HUD has not adopted the suggestion made by the
commenter. Transition costs were discussed by the Committee, but were
not part of the Committee Recommendations. The phase-in provisions, as
well as the current level of PHA reserves, factored heavily in the
decision not to include special transition funding.
Comment: PHA data requirements. One commenter asked what additional
data PHAs will be required to maintain, other than the current data, at
a property level instead of at a PHA-level.
HUD Response. In general, PHAs will be asked to submit additional
data to HUD with respect to asset management and utility data as
referenced under Sec. 990.170(f). Further information on the data
submission requirements will be provided in subsequent HUD guidance.
Comment: The rule imposes an unfunded mandate on PHAs. Two
commenters wrote that the April 14, 2005, proposed rule does not meet
the requirements of the Unfunded Mandates Reform Act of 1995 because it
fails to take into consideration the significant budgetary impact on
PHAs to meet the requirements of the regulation.
HUD Response. HUD, in the development of the proposed rule,
reviewed the regulatory proposals for compliance with all legal
rulemaking requirements, including the requirements contained in title
II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
(UMRA). The UMRA establishes specific thresholds and other requirements
for determining whether a rule would impose an unfunded federal
mandate. Neither the April 14, 2005, proposed rule, nor this final
rule, impose any federal mandates on any State, local, or tribal
government, nor on the private sector, within the meaning of the UMRA.
Comments Regarding Subpart A--Purpose, Applicability, Formula, and
Definitions
Comment: Disagrees with HUD issuing non-codified guidance. One
commenter objected to the language in Sec. 990.110(c), which provides
that, for certain secondary elements that will be used in the formula,
HUD will provide information in various forms of non-codified guidance
HUD deems appropriate. The commenter wrote that, without notice and
comment procedures, errors in the guidance cannot be challenged and
adjusted except through appeals, which may not fit the appeal
categories. The commenter suggested that HUD implement secondary
formula elements by interim rulemaking, thereby allowing comments and
requests for modification.
HUD Response. HUD has not revised the rule in response to this
comment. HUD will use notice and comment rulemaking procedures when
such procedures are appropriate or necessary (for example, when a
policy change would require the revision of regulatory language
codified by this final rule). In other instances, where rulemaking is
neither appropriate nor required, but where HUD has determined that
clarification of existing regulatory requirements is needed, HUD will
issue such guidance through non-regulatory means. Rulemaking can be a
time-consuming process and use of such procedures where not required
might unnecessarily delay the issuance of needed guidance. Non-
regulatory guidance can be amended or updated in a more expeditious
manner. In addition, non-codified guidance provides greater flexibility
to make changes, if necessary, in a more expeditious manner. As
appropriate, HUD will consult with stakeholders and other interested
parties in the development of non-regulatory guidance on the Operating
Fund.
Comment: HUD should establish a definition for the term ``asset
repositioning fee.'' One commenter made this suggestion.
HUD Response. HUD has not added a definition for the term ``asset
repositioning fee.'' During the negotiated rulemaking it was agreed
that the definitions would be limited to essential terms. Because the
asset-repositioning fee is described in detail in Sec. 990.190(h), it
has not been added to the definitions section at Sec. 990.115. The
asset repositioning fee established in this final rule is the
counterpart to the phase-down funding fee in the current part 990
regulations and, in accordance with the provisions in Sec. 990.190,
will be paid to PHAs that transition projects or buildings out of their
inventory.
Comment: The definition of ``rolling base consumption level''
should state that the 36-month period ends on June 30th. One commenter
made this suggestion.
HUD Response. HUD agrees with this suggestion and has revised the
rule accordingly.
Comments Regarding Subpart B--Eligibility for Operating Subsidy
Subpart B of the rule describes the requirements and procedures
governing the computation of eligible unit months. A public housing
unit may receive operating subsidy for each unit month that it
qualifies as an occupied dwelling unit or a dwelling unit with an
approved vacancy. The total number of eligible unit months for each PHA
will be calculated from July 1st to June 30th prior to the first day of
the applicable funding period and will consist of eligible units as
defined in this rule. The rule reserves to HUD the right to determine
the status of any public housing units based on information in HUD's
information systems. In addition, the rule provides for a change in a
PHA's formula within each one-year funding period based on the addition
and deletion of units in a PHA's inventory.
Comment: HUD should provide operating subsidy for new units. One
commenter, citing Sec. 990.150, asked how HUD expects PHAs to operate
new units without operating subsidy funds. The commenter wrote that the
rule requires PHAs to report new units periodically, but does not
provide funding until the next funding cycle.
HUD Response. The commenter has misinterpreted Sec. 990.150, which
requires that PHAs report the addition of new units and deletion of
units on a quarterly basis. This section goes on to state that once the
PHA has reported that the new unit is online, HUD will assume that the
unit is fully occupied for the balance of the funding period, and HUD
will provide funds from the current funding cycle. However, in the
following year, once actual data is available, HUD will make an
adjustment to the PHA's funding amount that would take into account the
actual occupancy of the new unit(s).
Comment: HUD should clarify the definition of ``occupied unit.''
One commenter, citing Sec. 990.140, requested that HUD clarify when a
unit is considered occupied. Two examples provided were: (1) When a
tenant is hospitalized and (2) When a PHA refuses to renew a lease for
failure to comply with the community service requirements. The
commenter suggested that HUD define ``occupied'' as a unit with an
occupant or where the occupant is paying rent.
HUD Response. Consistent with Sec. 990.140 of this final rule, a
unit that is under lease to a public housing-eligible family is
considered to be occupied.
[[Page 54990]]
Comment: Units with approved vacancies under the current
regulations should be included in the final rule. Several commenters
requested that all of the units for which PHAs may receive subsidy
under the current part 990 regulations be included in this final rule,
stating that changes would result in decreases in their operating
subsidy eligibility. One commenter asked for subsidy for units vacant
due to federal and state laws and regulations and another asked for
subsidy for units vacant due to HUD approved desegregation plans.
HUD Response. HUD has not made any changes to the rule in response
to these comments. The provisions on subsidy eligibility for vacant
units, which were discussed extensively during the negotiated
rulemaking sessions, have been clarified and streamlined. Under Sec.
990.145, units undergoing modernization and units used for special
uses, such as resident services or anticrime activities, are eligible
for subsidy. On a project-by-project basis, units that are vacant due
to litigation (which includes units vacant due to desegregation plans),
disasters, and casualties are eligible for subsidy. PHAs may appeal to
HUD to receive operating subsidy for units that are vacant due to
changing market conditions. While the final rule no longer expressly
provides subsidy eligibility for units vacant due to laws (Federal or
State laws of general applicability, or their implementing
regulations), the final rule does provide subsidy eligibility for units
if they are undergoing modernization, including those undergoing
modernization in order to meet construction or habitability standards.
Comment: Add community and management spaces to approved vacancies.
One commenter wrote that the final rule should include a vacancy
allowance for units converted to community and management spaces and
for units that are reconfigured to comply with litigation and legal
requirements.
HUD Response. As noted above in this preamble, this final rule has
adopted the Committee Recommendation under which PHAs are eligible to
receive subsidy for three percent of their vacancies, or up to five
units if the PHA has less than 100 units. PHAs also are eligible to
receive subsidy for special use units, which are described in Sec.
990.145(b) as units approved and used for resident services, resident
organization offices, and related activities such as self sufficiency
and anti-crime activities. With regard to unit reconfiguration due to
litigation or a legal requirement, if a unit has to be vacant during
this reconfiguration, then the unit may be eligible for subsidy under
Sec. 990.145(c), which provides subsidy eligibility for units vacant
due to litigation.
Comments Regarding Subpart C--PEL
Subpart C describes how formula expenses will be calculated under
the revised Operating Fund formula. Specifically, the rule provides a
detailed description with respect to the computation of the PEL. The
PEL is calculated in terms of PUM costs and represents the costs
associated with the project except for utilities and add-ons. HUD will
calculate the PEL using the ten variables from the Cost Study and their
associated coefficients (i.e., values that are expressed in percentage
terms).
Comment: HUD should make further adjustments to the Cost Study
methodology for calculating the PEL. Several commenters suggested
changes in the Cost Study's methodology for developing the PEL.
Suggestions provided by the commenters included: (1) Eliminating
ceilings; (2) providing additional funding to take into account costs
associated with older properties; (3) removing the four percent
reduction for PELs greater than $325; and (4) modifying statistical
techniques.
HUD Response. HUD has not adopted the suggestions made by the
commenters for changes in the Cost Study methodology for calculating
the PEL. All of the suggested changes to the PEL methodology were
discussed by the Committee during the negotiated rulemaking sessions.
HUD believes that the Cost Study methodology is sound and should be
preserved. The final rule provides certain add-ons that went beyond the
Cost Study's recommendations (for example, the information technology
(IT) fee) and provides additional financial incentives (for example,
the freezing of rental income for three years).
Comment: HUD should clarify application of the rule to mixed-
finance projects. Referring to Sec. 990.165(g), which grandfathers
existing mixed-finance agreements for purposes of funding, one
commenter raised technical and implementation issues regarding the
applicability of the rule and, in particular, the asset management
provisions, including project-based budgeting and accounting, and the
calculation of operating subsidy for mixed-finance developments. The
commenter asked about the treatment of the development-wide replacement
reserves in the determination of the PEL for mixed-finance developments
and the use of the non-profit coefficient when determining the PEL for
mixed-finance developments. The commenter also inquired about the
requirements for project-based budgeting and accounting, as well as
about determination of compliance with asset management for mixed-
finance developments that are owned and managed by entities other than
PHAs and for which the owner and manager handle all management and
provide information and financial reports to PHAs for review and
monitoring.
HUD Response. HUD views all public housing units under an Annual
Contributions Contract (ACC) as public housing assets, regardless of
where they are located or whether they are part of a mixed-finance
development or a public housing development. As such, the non-profit
coefficient will be applied to the PEL for public housing units in
mixed-finance developments. However, there will be no separate add-on
to cover the cost of replacement reserves that are established in
mixed-finance developments, which are not operating costs, per se. With
regard to how the requirements for project-based budgeting and
accounting and how the determination of compliance with asset
management will apply to mixed-finance developments, HUD will issue
this information in future guidance on these matters.
Comment: Mixed-finance developments should not receive different
subsidy amounts. One commenter wrote that Sec. 990.165(g) allows PHAs
with certain mixed developments to receive a higher PEL immediately,
rather than requiring the higher PEL to be phased in, and that this is
contradictory to the provisions of Sec. 990.235.
HUD Response. The provision in Sec. 990.165(g) regarding the level
of funding that PHAs would receive for certain mixed-finance projects
was included in the regulation for the express purpose of honoring the
structure of those mixed-finance agreements. Because the financing and
approval in mixed-finance agreements is tied to a specific level of
funding, the Committee agreed that future funding should continue at
that level, subject to appropriations.
Comments Regarding Subpart C--Utilities
Subpart C describes the Utilities Expense Level (UEL) component of
the Operating Fund formula. The UEL includes the computation of the
current consumption level and the rolling base consumption level. In
addition, a PHA that undertakes energy conservation measures financed
by an entity other than HUD may qualify under this rule
[[Page 54991]]
for financial incentives with HUD approval.
Comment: HUD should clarify that ``other direct costs'' are also
eligible for additional operating subsidy as part of an energy
conservation contract and define what constitutes ``direct costs.''
Several commenters wrote that proposed Sec. 990.185(a)(3)
inadvertently omitted language agreed to by the Committee which
provided that the PHA is eligible for additional operating subsidy for
the cost of amortizing the loan and ``other direct costs related to the
energy project under the contract.'' In addition, the commenter
suggested that HUD define the type of costs that are eligible for
additional operating subsidy.
HUD Response. The language regarding the ``other direct costs'' was
inadvertently omitted from the April 14, 2005, proposed rule. As noted
above in this preamble, HUD has adopted the suggestion of the
commenters and has inserted the suggested language in Sec.
990.185(a)(3) of this final rule. HUD will provide additional
clarification in subsequent guidance as to the types of direct costs
that will be eligible for the additional operating subsidy.
Comment: HUD should modify the definition of ``utility rate'' from
``actual average rate'' to ``actual weighted average.'' The April 14,
2005, proposed rule at Sec. 990.115 defined ``utility rate'' as ``the
actual average rate for any given utility for the most recent 12-month
period that ended the June 30th prior to the beginning of the
applicable funding period.'' One commenter requested that the
definition be modified to provide for an ``actual weighted average''
rather than an ``actual average weight.'' The commenter wrote that a
simple average may understate the true utility rate because natural gas
and heating oil prices tend to be higher during winter when usage is
higher, and lower in the summer when usage is reduced. Conversely,
electricity prices will tend to be lower in winter and higher in
summer. Thus, in order to capture the true rate over a 12-month period,
a weighted average would more accurately take into account seasonal
usage and rates in use at that time.
HUD Response. HUD has not adopted the suggestion made by the
commenters. The Committee discussed various ways to calculate the UEL
and it was determined that an actual average rate, not a weighted
average, was the most appropriate means to capture utility rates for
the past year. The final rule states that funding for utility expenses
will be based on the most recent 12-month period, which includes both a
heating and cooling season and will include an inflation/deflation
factor. Furthermore, by shifting the funding to a calendar cycle and
standardizing the rolling base to a July 1st to June 30th cycle, all
PHAs will be funded for utilities on the same cycle.
Comment: HUD should not prorate the incentives for energy
conservation improvements. One commenter wrote that PHAs may be
reluctant to undertake energy conservation measures because the
incentives are subject to proration, and PHAs will be unable to realize
the full amount of the subsidy associated with the incentives. The
commenter suggested that the incentives for energy conservation
improvements not be subject to proration.
HUD Response. HUD has not adopted the suggestion made by the
commenters. The Department believes that it would be inequitable to the
approximately 3,200 PHAs nationwide to provide special treatment for
any one component of the formula. Because HUD regards all components of
the Operating Fund formula to be of equal importance, HUD believes that
it is more equitable when there is a proration to uniformly prorate
operating subsidy eligibility based on all components.
Comment: HUD should allow PHAs to substitute ``future approved
rates'' as the basis for calculating a PHA's utility subsidy. One
commenter wrote that basing utility subsidy on the ``most recent 12-
month period that ended the June 30th prior to the beginning of the
applicable funding period'' may not adequately address near-term
changes in utility costs. Specifically, the commenter wrote that rates
used in the utility subsidy calculation may be at least nine months old
at the time of calculation and over 12 months old at the beginning of
the new fiscal year. The commenter suggested that language applicable
to the current Operating Fund formula be added. The current formula
language allows ``future approved rates'' to be used as the basis for
utility subsidy calculation when these rate changes have been approved
and published prior to the due date of the operating subsidy
eligibility calculation to HUD.
HUD Response. HUD has not adopted the suggestion made by the
commenter. During the negotiated rulemaking sessions, the Committee
recognized that the utility subsidy calculation time frame as specified
in the rule might not adequately address near-term changes in utility
rates. To address this concern, the Committee provided for the
inclusion of an inflation/deflation factor in each PHA utility
calculation.
Comment: HUD should provide for large utility rate increases. One
commenter requested that the PHAs that experience large utility rate
increases that are greater than the inflation factor be given
consideration in the calculation of the utility subsidy.
HUD Response. In the negotiations, the Committee acknowledged and
discussed that utility rate spikes above the rate of inflation have
occurred in past fiscal years and could occur again. However, the
Committee agreed that since year-end adjustments to the utility funding
could no longer be processed due to congressional appropriation
language, the new system of funding utilities under this final rule
(based on the actual average rate from the last twelve months that
ended on June 30 of the year prior to the funding year to be adjusted
by an inflation/deflation factor) was the most reasonable and
consistent way to fund utilities for all PHAs. If utility rates spike
during the course of a PHA's fiscal year, that increase will be picked
up in the calculation of the UEL during the next fiscal year.
Comment: Increases in utility costs lower rental income to PHAs
with resident-paid utilities. One commenter wrote that when utility
costs increase, PHAs with resident-paid utilities must increase utility
allowances, thus lowering rental income to the PHA. The commenter wrote
that since formula income will be frozen at the 2004 level, the PHA
will have no recourse but to request a waiver for an adjustment to
rental income.
HUD Response. Section 990.170(e) addresses this issue in providing
that, with regard to resident-paid utilities, increases/decreases in
tenant utility allowances shall result in a commensurate increase/
decrease in operating subsidy. HUD will issue guidance regarding the
implementation of this language.
Comment: HUD should provide incentives for PHAs that achieve energy
efficiency programs. One commenter made this suggestion.
HUD Response: HUD has retained the current incentives for energy
efficiency programs, which are contained in Sec. 990.185.
Comments Regarding Subpart C--Add-ons
Comment: HUD should clarify which ``coordinators'' are funded under
the self-sufficiency add-on. Several commenters asked for clarification
as to which program coordinators are included under Sec. 990.190(a)
and also whether additional coordinators could be funded.
HUD Response. Section 990.190(a) provides that the self-sufficiency
add-on will be ``in accordance with HUD's self-
[[Page 54992]]
sufficiency program regulations and notices.'' HUD has issued guidance
indicating that the Operating Fund will provide subsidy for elderly and
disabled service coordinators for those PHAs that previously received
funding under the Resident Opportunities and Self Sufficiency (ROSS)
program, and at the levels they received funding under the ROSS
program. This guidance may change to reflect program objectives;
however, at present, there is no additional funding for these
activities.
Comment: HUD should provide PHAs with additional operating subsidy
for Family Self-Sufficiency (FSS) coordinators. One commenter wrote
that in FY 2004, HUD began to fund the cost of the FSS Coordinator
program from the ROSS program, which led to the loss of FSS funding for
many PHAs because ROSS is a competitive grant program. To compensate
for this loss, the commenter recommended that every PHA with at least
25 public housing FSS slots approved in its FSS action plan receive
operating subsidy for the full cost of one coordinator. Costs for other
coordinators would fall outside the Operating Fund Program.
HUD Response. At this time, in accordance with recent HUD guidance,
funding for FSS coordinators is available only through the ROSS
program. However, funding self-sufficiency coordinators is an eligible
activity under the Operating Fund and, although no additional funds
will be provided, PHAs can spend their operating subsidy on this type
of activity.
Comment: HUD should exclude FSS escrow deposits from calculation of
formula income. One commenter wrote that under HUD's current
procedures, a PHA excludes FSS escrow deposits from the tenant income
that are reported to HUD. The commenter expressed concern that under
the new formula, which would freeze tenant income based on data from
the audited financial statements for the purposes of determining
operating subsidy, that FSS escrow deposits would no longer continue to
be excluded from the formula income calculation.
HUD Response. The rental income amount collected on PHA's financial
statements already excludes amounts from FSS escrow deposits. Thus, HUD
will continue to exclude FSS escrow deposits when calculating the
formula income component.
Comment: HUD should provide PHAs with operating subsidy for
contributions to FSS escrow accounts. One commenter wrote that the cost
of contributions to the FSS escrow accounts should be included as an
add-on to operating subsidy. The commenter indicated that HUD had in
the past paid for the costs of the FSS escrow accounts by allowing PHAs
to deduct contributions to the FSS escrow account from the rent roll
reported to HUD for calculating operating subsidy.
HUD Response. HUD has not adopted the suggestion made by the
commenter to provide an add-on for PHA contributions to the FSS escrow
account. HUD does not believe that a separate add-on is needed. As
stated above, HUD will continue to exclude the FSS escrow deposits in
the calculation of the formula income component.
Comment: Other HUD grant programs for self-sufficiency activities
should not be eliminated. One commenter asked if, with implementation
of this final rule, other grant programs will be eliminated and whether
PHAs will have to request and fund program coordinators through the use
of operating subsidy.
HUD Response. This final rule applies only to the Operating Fund
Program. The final rule does not establish a new requirement, or remove
or alter any existing requirement for the ROSS Program.
Comment: HUD should provide additional funding through the
Operating Fund formula to well-managed PHAs for resident services. One
commenter made this suggestion.
HUD Response. HUD has not adopted the suggestion of the commenter.
While operating subsidy may be used to provide resident services (i.e.,
that is an eligible use of funds), HUD disagrees that additional
funding should be provided outside the add-ons that already exist for
self-sufficiency, as described in Sec. 990.190(a), and resident
participation, as described in Sec. 990.190(e).
Comment: HUD should clarify whether PHAs will receive the add-on
for payment in lieu of taxes (PILOT) in circumstances when the PILOT
payment to the local municipality is waived. One commenter posed this
question regarding the PILOT add-on described in Sec. 990.190(i).
HUD Response. The final rule provides that the add-on is based on a
PHA's ``cooperation agreement or latest actual PILOT payment.''
Providing that a cooperation agreement is in place, HUD will provide
funding for PILOT regardless of whether the local government waives
payment.
Comment: HUD should clarify which activities can be funded with the
add-on for resident participation. One commenter posed this question
regarding the add-on described in Sec. 990.190(e).
HUD Response. The final rule provides that the add-on is for the
funding of ``resident participation activities, including but not
limited to those described in 24 CFR part 964.'' The intent of this
language was to allow resident participation funds to be used for a
broader range of activities than outlined in 24 CFR part 964, including
resident services.
Comment: There may be an error in the example on the repositioning
fee in Sec. 990.190(h)(4). One commenter submitted this observation.
HUD Response. The language in Sec. 990.190(h)(4) should have
referenced a PHA with a 1,000 unit inventory, not a 1,000 EUM
inventory. The language in this rule has been changed accordingly, and
the calculation is now correct.
Comment: HUD should provide an add-on to cover the cost of employee
benefits. Several commenters wrote that because their PHA is part of
the state retirement system and because much of their work force is
unionized, the costs associated with employee benefits including
retirement, health, and dental benefits have increased dramatically.
The commenters wrote that these costs are not reflected in the FHA cost
structure or in other PHAs. The commenters suggested that HUD provide
an add-on to cover the costs associated with employee benefits.
HUD Response. HUD has not adopted the suggestion made by the
commenters. As the commenters acknowledged, their PHAs may be somewhat
unique in that they belong to a state pension system, which is not the
case for most PHAs. To provide such an add-on would be unfair to other
PHAs. The new Operating Fund formula takes a ``benchmark'' approach. It
represents what essentially other non-profit operators would spend on
housing in the same market with similar characteristics. The model does
not attempt to reimburse PHAs for requirements imposed uniquely on them
by state or local governments. Rather, the formula represents a
reasonable amount that other housing operators would incur to run the
properties.
Comment: HUD should use interim rulemaking to issue procedures for
changes in subsidy due to changes in laws, regulations, or the economy.
Section 990.190(i) provides that in the event that HUD determines that
enactment of a Federal law or revision in HUD or other Federal
regulations has caused or will cause a significant change in
expenditures of a continuing nature above the PEL and UEL, HUD may, at
its sole discretion, decide to prescribe a procedure under which the
PHA may apply for or may receive an
[[Page 54993]]
adjustment in operating subsidy. One commenter suggested that HUD
should use interim rulemaking to establish such procedures. The
commenter wrote that this would ensure that the relevant factors have
been considered and that adequate procedures are provided.
HUD Response. HUD has not revised the rule in response to this
comment. The language referred to by the commenter, which was agreed to
by the Committee, grants HUD the necessary authority to determine the
process under which PHAs may apply for subsidy adjustments. Where
appropriate, HUD will issue an interim rule to establish these
procedures. However, interim rulemaking may not be the best choice in
all circumstances, and HUD does not believe it would be appropriate to
limit the available options as suggested by the commenter.
Comments Regarding Subpart D--Formula Income
Comment: HUD should provide for regulatory review in determining
changes to the formula income component after FY 2008. Several
commenters objected to the preamble language of the April 14, 2005,
proposed rule indicating that HUD, after FY 2008, will determine how
PHA income is to be treated through non-regulatory means. The commenter
suggested that HUD clarify that the determination of changes to PHA
income post-FY 2008 be accomplished through regulatory means so that
the public can comment.
HUD Response. HUD has not revised the rule in response to these
comments. However, HUD does agree that residents, organizations
representing residents, and other interested parties should have an
opportunity to submit comments. To that end, the preamble to the April
14, 2005, proposed rule explicitly stated that the public will have an
opportunity to comment before HUD makes the post-2008 policy
determination on the income component of the formula (see 70 FR 19858
at 19862, first column).
Comments Regarding Subpart E--Determination and Payment of Operating
Subsidy
Comment: Clarify the phrase ``two funding levels.'' One commenter
wrote that it is not clear what is meant by the phrase ``two funding
levels'' in Sec. 990.230(a). The commenter wrote that neither funding
level is explained clearly or referenced.
HUD Response. The phrase ``two funding levels'' refers to the
funding level under the current formula and the funding level under the
new formula established by this final rule, as explained in Sec.
990.225, which describes how HUD will determine the amount of a PHA's
increase or decrease in subsidy.
Comment: The application of the inflation factor each year will
result in a higher PEL during the phase-in of subsidy reductions. One
commenter wrote that the application of the inflation factor each year
will result in an increase in the PEL, thereby changing the dollar
amounts of the subsidy reductions that will occur each year during the
five-year phase-in of reductions.
HUD Response. As provided in Sec. 990.225, HUD will calculate the
amount of a PHA's reduction or gain in operating subsidy only one time
after the effective date of the final rule. The calculation will be
made in terms of 2004 dollars. The resulting dollar amount of the loss
or gain is the amount that all reductions or gains will be built on
during the respective phase-in periods. Thus, the inflation factor will
not impact the calculation of the PEL each year for purposes of the
amount of loss or gain.
Comment: Objection to calendar funding when PHAs have different
fiscal year ends. One commenter wrote that HUD should consider the
impact that calendar year funding will have on PHAs whose fiscal years
are not calendar years. The commenter wrote that, when PHAs receive
subsidy from two different federal fiscal years, they would experience
operating budget and reporting issues that HUD should address.
HUD Response. Congress directed HUD to change from funding the
operating subsidy on a fiscal year basis to funding it on a calendar
year basis in HUD's 2005 appropriations. HUD has implemented this
change without requiring PHAs to change their fiscal year ends and will
issue guidance to assist PHAs in this change in the funding cycle. When
completing operating budgets and financial reports, PHAs will use
procedures similar to those that they currently use for capital fund,
ROSS, and Section 8, which HUD does not fund on a PHA fiscal year
basis.
Comments Regarding Subpart F--Transition Policy and Transition Funding
Comment: When calculating transition funding, HUD should take into
account changes in a PHA's inventory. One commenter wrote that the rule
does not address how transition funding is calculated if a PHA's
property inventory changes during the transition period, which would
result in a different subsidy calculation. The commenter suggested that
this section be rewritten to take into account changes in a PHA's
property inventory during the transition period.
HUD Response. HUD has not adopted the suggestion made by the
commenter. The Committee addressed this matter during the negotiated
rulemaking sessions. The Committee decided that, overall, it would be
unnecessarily complicated and administratively burdensome to
recalculate the five-year transition funding for ``decliners'' and two-
year transition funding for ``gainers'' on an annual basis. Instead,
the rule provides that the transition funding will be calculated in the
first year based on FY 2004 data and is unchanged during the transition
funding period. That said, the commenter's suggestion is addressed
through the PEL calculation, which provides that as properties leave or
enter the PHA's inventory, these changes will be reflected in the
annual PEL calculation.
Comment: The reductions in subsidy should be phased in differently.
One commenter recommended that the reductions in subsidy be phased in
differently, with more of the reductions occurring in the later years.
Rather than phasing in reductions over five years at 24 percent the
first year, 43 percent the second year, 62 percent the third year, 81
percent the fourth year, and with the full amount of the reduction
being realized in the fifth year, the commenter suggested that the
reduction would be managed more prudently by PHAs over five years at 18
percent the first year, 37 percent the second year, 56 percent the
third year, 76 percent the fourth year, and with the full amount of the
reduction being realized in the fifth year.
HUD Response. HUD has not adopted this approach to phasing in the
reductions to subsidy. The final rule at Sec. 990.230 retains the
five-year phase in schedule that was set forth in the April 14, 2005,
proposed rule and agreed to by the Committee. The Committee discussed
the phase in of reductions at length and agreed on this schedule as
reasonable.
Comments Regarding Subpart G--Appeals
Comment: The Operating Fund formula does not provide adequate
funding. A number of commenters wrote that the Operating Fund formula
did not provide PHAs with sufficient funding to maintain well-run
public housing.
HUD Response. HUD has not revised the rule in response to these
comments. Subpart G of the final rule provides five
[[Page 54994]]
types of appeals for PHAs that feel that their formula amount is
inadequate.
Comment: HUD should allow for appeals of individual property PELs.
Two commenters inquired about the permissibility of PHAs appealing on
an individual property PEL rather than on a portfolio basis.
HUD Response. HUD has not adopted the suggestion of the commenters.
As discussed by the Committee during negotiations, Sec. 990.240(b)
provides that appeals must cover an entire portfolio, not single
projects, with the exception that the Assistant Secretary for Public
and Indian Housing may accept appeals for less than an entire portfolio
for PHAs with more than 5,000 public housing units.
Comment: For appeals under Sec. 990.245(e), HUD should accept
information other than actual expenses. One commenter stated that other
information beyond actual expenses should be accepted as part of an
appeal, because actual expenses are constrained by actual funding and,
therefore, the costs of a PHA that has been underfunded will be
understated.
HUD Response. HUD has not revised the rule in response to this
comment. However, HUD will provide subsequent guidance to clarify the
type of data that is indicative of actual project costs and that will
be accepted as part of an appeal.
Comment: PEL calculation does not reflect the unique circumstances
of certain PHAs. Several commenters wrote that the PEL calculations for
their PHAs are incorrect. Several commenters wrote that the geographic
coefficient applied to their PHA does not take into account the unique
geographical location of the PHA and the location of its properties.
Higher transportation costs, therefore, translate into higher costs for
goods and services.
HUD Response. During the negotiated rulemaking sessions, the
Committee recognized that it was important that accurate data be used
in the new formula calculations. As a result, the Committee determined
that it would be appropriate to provide PHAs with the opportunity to
appeal subsidy amounts under five different categories. Therefore, PHAs
that believe that an Operating Fund formula component has a ``blatant
and objective flaw'' and/or that the model's predictions are not
accurate because of ``specific local conditions'' can appeal their
operating subsidy amount.
Comment: A PHA cannot determine whether there is variance of ten
percent or greater without knowing the factors or variables that can
vary or be challenged. One commenter requested clarification on the
sentence in Sec. 990.245(c) that reads: ``To be eligible, the affected
PHA must demonstrate a variance of ten percent or greater in its PEL.''
The commenter wrote that a PHA cannot know if there is a variance of
ten percent or more in order to appeal without knowing the factors or
variable that can vary or be challenged.
HUD Response. This ground of appeal covers the appeals of specific
variables in the formula model that are not reliable for a particular
PHA. Thus, any of the ten variables in the PEL calculation may be
challenged. While HUD will be issuing more guidance on appeals, an
example of an appeal under this paragraph would be when a PHA is
physically located in a non-city central metropolitan area, but
actually has all of the characteristics of a location in a city central
metropolitan area.
Comment: The independent assessors should be familiar with PHAs.
One commenter urged that the professional who will conduct the
independent assessments for appeals and determinations of compliance
with asset management be familiar with PHAs, their mission, and how HUD
requirements affect their structure and operations.
HUD Response. The primary purpose of the appeals is to determine if
the cost estimate produced by the formula is valid. Because the Harvard
Cost Study was based on a benchmark model, so too will the appeals be
based on what other non-profit operators of federally subsidized
housing would spend to run the subject properties. Similarly, the asset
management assessments would be based on basic principles of asset
management for owners of subsidized housing.
Comments Regarding Subpart H--Asset Management
Comment: HUD should reconsider the requirement that PHAs with 250
units or more implement project-based budgeting and accounting. A
number of commenters submitted comments on the requirement for project-
based accounting and project-based accounting. Some of the commenters
wrote that the requirement is unnecessary and a financial and
administrative burden, particularly on smaller PHAs. Others commenters
proposed different thresholds for applicability of the asset management
requirements, such as 500 units and 1,249 units. Another commenter
wrote that, based on the number of units in its portfolio and their
locations, it would be impossible to be an asset manager.
HUD Response. HUD has not adopted the suggestion of the commenters.
PHAs with less than 250 units can treat their entire public housing
portfolio as one ``project.'' Implementation of project-based budgeting
and accounting, as well as project-based management, were fundamental
elements of both the Cost Study and the Committee Recommendations. HUD
remains committed to their implementation.
Comment: HUD should phase in the implementation of asset
management. A number of commenters suggested that, because of the
organizational and other changes required of a PHA to move to asset
management, there should be a phase-in approach. One commenter
suggested that that phase in be based on PHA size.
HUD Response. HUD has not adopted the suggestion of the commenter.
The implementation dates in the rule were considered and adopted by the
Committee. Different phase-in dates would not only treat different
classes of PHAs in a disparate manner, but would also create an
administrative burden on HUD and its systems.
Comment: Central office cost centers are unnecessary. Many
commenters wrote that the establishment of a central office cost center
is an unneeded level of accounting. Several commenters wrote that PHAs
should be allowed to develop alternative methods of allocating central
office costs, consistent with OMB Circular A-87. One commenter proposed
distributing the actual costs between the projects based on size or
utility consumption or any other method. Another commenter wrote that
the fee-for-service system may work for some functions like centralized
maintenance, but it may not work for others where it is difficult to
determine a fee. Thus, PHAs should be allowed in some instances to
allocate their costs, which will result in less cumbersome
recordkeeping systems.
HUD Response. HUD has not revised the rule in response to these
comments. The use of a fee-for-service approach for the treatment of
overhead and centrally provided services will ensure that such costs
are reasonable and that projects are charged only for services
received. These procedures are standard in the multifamily housing
industry. As necessary, HUD will provide guidance on the use of a fee-
for-service approach consistent with the accounting and management
practices of the multifamily housing industry.
Comment: The requirement to apportion assets, liabilities, and
equity is unrealistic. One commenter wrote that because accounting has
previously been maintained only at the ``program'' level and not at the
``property'' level, PHAs do not now segregate assets,
[[Page 54995]]
liabilities, and equity by project. Hence, efforts to break out these
amounts by project will be prone to error. HUD should require only the
preparation of project operating statements and therefore not require
project balance sheets.
HUD Response. HUD has not revised the rule in response to the
commenter. However, HUD recognizes that the transition to a project-
based accounting system will raise questions and pose certain
challenges for PHAs. To assist PHAs in making the transition, HUD will
issue guidance, as necessary, on the apportionment of assets,
liabilities, and equity. HUD believes that balance sheets will provide
important information on each project's financial position, increase
PHAs' access to debt financing, and improve monitoring of property
performance.
Comment: The 2007 deadline for implementation of project-based
budgeting and accounting should be delayed. Commenters were
particularly concerned that guidance has not been provided for PHAs to
move forward with the changes they will need to make to their systems
as well as other organizational arrangements. One commenter suggested
that HUD provide PHAs with a minimum of 24 months to implement project-
based systems after the requirement takes effect.
HUD Response. HUD has not revised the rule in response to these
comments. HUD believes that the change to project-based accounting is
feasible within the FY 2007 time frame. HUD plans to make the changes
to project-based accounting through the current Financial Assessment
Subsystem (FASS-PH), where PHAs already have had experience submitting
PHA-level financial data to HUD. As noted above, HUD intends to issue
guidance that will assist PHAs in making the transition to project-
based budgeting within the targeted time frames.
Comment: PHAs require financial assistance to implement the new
accounting, budgeting, and management changes. Many commenters wrote
that HUD should provide PHAs with special transition funds to address
the costly changes in technology and other areas required by the rule.
HUD Response. The Committee discussed, but did not adopt in the
Committee Recommendations, special transition funds. The final rule
contains two operating subsidy add-ons that can be used by PHAs toward
converting to and maintaining technology to facilitate asset
management. The first is the asset management fee described in Sec.
990.190(f) that provides an additional $4 PUM to PHAs with 250 or more
units and a $2 PUM to PHAs with less than 250 units that choose to
convert (PHAs can charge an even higher asset management fee, provided
that the fee is ``reasonable'' and if the project generates excess cash
flow). The second is the information technology fee described in Sec.
990.190(g) that provides an additional $2 PUM to all PHAs.
Comment: HUD should consult PHAs when establishing guidance. HUD
should establish guidance on converting to asset management in an open
manner and consult with PHAs in doing so.
HUD Response. As indicated in previous responses to the commenters,
HUD will be issuing a variety of guidance and, where appropriate,
intends to consult with its constituents in the development of the
guidance.
Comment: HUD should provide training on these new asset management
requirements. One commenter asked about the type and quality of
training that HUD plans to provide for PHAs, auditors, and field staff
to transition to asset management.
HUD Response. HUD intends to conduct training shortly following
publication of this final rule. This training, in addition to the
guidance that will be issued, should assist PHAs, auditors, and field
staff in this transition.
Comment: Although other regulatory changes (outside of the
Operating Fund Program) are required to complete the conversion to
asset management, HUD should take care not to abandon the segment of
the population public housing serves. One commenter wrote that, if
asset management is to take advantage of cost savings in the private
market, then certain regulations unique to public housing should be
removed that restrict PHA movement in that direction. However, these
changes should not cause PHAs to abandon the segment of the population
that public housing is intended to serve.
HUD Response. The Cost Study showed that, while generally similar,
there were certain statutory and regulatory requirements that, if
modified, would align public housing more closely to the regulatory
environment of other multifamily-assisted housing programs. As stated
in the preamble to the April 14, 2005, proposed rule, the Committee
recognized that, with the conversion to asset management, other changes
were necessary. These changes, including deregulation efforts to
continue to lessen burdens on PHAs, will be implemented separately and
HUD will provide opportunity for input by stakeholders, as appropriate.
Comment: In some cases, centralized services are more efficient.
Several commenters wrote that asset management was not a cost-effective
way to run public housing, especially for PHAs that have small to
moderate-sized projects for whom centralized or quasi project-based
management is superior. Forcing PHAs to decentralize will increase
costs, duplicate efforts, and decrease ability to respond to resident
needs.
HUD Response. Section 990.275 expressly provides that PHAs can
continue to maintain centralized property management services. However,
consistent with practices in multifamily housing, this section further
provides that services must be arranged in accordance with the best
interests of the property and that the cost for any centralized service
must be reasonable.
Comment: PHAs already run more efficiently than FHA properties and,
therefore, asset management is unnecessary. Several commenters wrote
that there was no compelling reason for PHAs to convert to asset
management since there is no evidence that conversion will improve
efficiency and effectiveness. The Cost Study recommended an increase in
subsidy to PHAs based on a comparison between AELs and the FHA
benchmark, thereby showing that PHAs administer their properties more
efficiently than FHA.
HUD Response. The fact that the Cost Study recommended increased
funding levels, based on costs in other federally subsidized housing,
does not necessarily mean that PHAs operate efficiently. Indeed, the
Cost Study's recommendations to move to asset management were related
to concerns that program effectiveness could be greatly improved.
Comment: Other institutions similar to PHAs do not perform asset
management. One commenter wrote that, although project-based management
is the norm for the multifamily housing industry, it is not the norm
for other institutions that are similar to PHAs. Universities,
municipal governments, school systems, and hospitals manage multiple
properties and do so more similarly to PHAs than the multifamily
housing industry.
HUD Response. HUD believes that the appropriate peer group in this
situation is, indeed, the multifamily housing industry and not entities
such as universities, schools, or hospitals. In the multifamily housing
industry, project-based budgeting, accounting, and management is the
norm.
Comment: HUD should require PHAs to distribute reports to resident
organizations and other entities with
[[Page 54996]]
oversight and monitoring responsibilities. Several commenters suggested
that HUD add language to Sec. 990.285(b) and Sec. 990.315(a)
requiring that PHAs provide project-based budgets, year-end statements,
and operating budgets to resident organizations and other entities.
HUD Response. HUD has not adopted the suggestion of the commenters.
While HUD does encourage PHAs to discuss these documents with resident
organizations and other entities, HUD believes that this decision
should be left to individual PHAs and their PHA Board of Commissioners.
Comment: HUD should include responsibilities to resident
organizations in the responsibilities of asset management. One
commenter suggested that Sec. 990.270 be amended to include language
regarding a PHA's responsibility to resident organizations. The
commenter suggested that ``responding to and supporting independent
resident organizations, consulting with residents and the Resident
Advisory Board (RAB) in the development of and any amendments to the
PHA's annual and five year plans'' be added to the sentence at the end
of the section.
HUD Response. HUD has not adopted this suggestion. The requirement
regarding PHA annual and five-year plans are codified in 24 CFR part
903, including all of the requirements for resident participation and
meetings.
VII. Findings and Certifications
Information Collection Requirements
The revised information collection requirements contained in this
final rule have been submitted to the Office of Management and Budget
(OMB) for review under the Paperwork Reduction Act of 1995 (44 U.S.C.
3501-3520). In accordance with the Paperwork Reduction Act, an agency
may not conduct or sponsor, and a person is not required to respond to,
a collection of information unless the collection displays a valid
control number. The information collection requirements for the
Operating Fund program have been approved by OMB and assigned OMB
Control Number 2577-0029. The revised public reporting burden for this
collection of information is estimated to include the time for
reviewing the instructions, searching existing data sources, gathering
and maintaining the data needed, and completing and reviewing the
collection of information. Information on the revised estimated public
reporting burden is provided in the following table:
----------------------------------------------------------------------------------------------------------------
Number of Responses per Total annual Hours per
HUD form number respondents respondents responses response Total hours
----------------------------------------------------------------------------------------------------------------
HUD-52722....................... 3,141 1 1 .75 2,355.75
HUD-52723....................... 3,141 1 1 .75 2,355.75
HUD-53087....................... 24 1 1 .75 18.00
-----------------
Total....................... .............. .............. .............. .............. 4,729.50
----------------------------------------------------------------------------------------------------------------
Environmental Impact
A Finding of No Significant Impact with respect to the environment
for this rule was made at the proposed rule stage in accordance with
HUD regulations at 24 CFR part 50, which implement section 102(2)(C) of
the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.).
The Finding of No Significant Impact remains applicable to this final
rule and is available for public inspection between 8 a.m. and 5 p.m.
weekdays in the Regulations Division, Office of the General Counsel,
Department of Housing and Urban Development, 451 Seventh Street, SW.,
Room 10276, Washington, DC 20410-5000.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.),
generally requires an agency to conduct a regulatory flexibility
analysis of any rule subject to notice and comment rulemaking
requirements unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
The entities that would be subject to this rule are public housing
agencies that administer public housing. Under the definition of
``small governmental jurisdiction'' in section 601(5) of the RFA, the
provisions of the RFA are applicable only to those public housing
agencies that are part of a political jurisdiction with a population of
under 50,000 persons. The number of entities potentially affected by
this rule is therefore not substantial. Further, the proposed
regulatory changes were developed using negotiated rulemaking
procedures and with the active participation of PHAs that will be
affected by the revised Operating Fund requirements. The membership of
the negotiated rulemaking committee included representatives of smaller
PHAs, which expressed the views and concerns of these PHAs during
development of the proposed regulatory changes.
Accordingly, the undersigned certifies that this rule will not have
a significant economic impact on a substantial number of small
entities.
Executive Order 13132, Federalism
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 rule does not have federalism
implications and will not impose substantial direct compliance costs on
State and local governments nor preempt State law within the meaning of
the executive order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) (UMRA) establishes requirements for Federal agencies to
assess the effects of their regulatory actions on State, local, and
tribal governments, and on the private sector. This rule does not
impose any Federal mandates on any State, local, or tribal government,
nor on the private sector, within the meaning of UMRA.
Executive Order 12866, Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this rule under
Executive Order 12866 (``entitled Regulatory Planning and Review'').
This rule was determined to be economically significant under E.O.
12866. The docket file is available for public inspection in the
Regulations Division, Office of General Counsel, Department of Housing
and Urban Development, 451 Seventh Street, SW., Room 10276, Washington,
DC 20410-0500. Due to
[[Page 54997]]
security measures at the HUD Headquarters building, please schedule an
appointment to review the docket file by calling the Regulations
Division at (202) 708-3055 (this is not a toll-free number). The
Economic Analysis prepared for this rule is also available for public
inspection at the same location and on HUD's Web site at http://www.hud.gov.
Congressional Review of Major Proposed Rules
This rule is a ``major rule'' as defined in Chapter 8 of 5 U.S.C.
The final rule has been submitted for congressional review in
accordance with this chapter.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance (CFDA) program number is
14.850.
List of Subjects in 24 CFR Part 990
Accounting, Grant programs-housing and community development,
Public housing, Reporting and recordkeeping requirements.
0
Accordingly, for the reasons described in the preamble, HUD revises 24
CFR part 990 to read as follows:
PART 990--THE PUBLIC HOUSING OPERATING FUND PROGRAM
Subpart A--Purpose, Applicability, Formula, and Definitions
Sec.
990.100 Purpose.
990.105 Applicability.
990.110 Operating fund formula.
990.115 Definitions.
990.116 Environmental review requirements.
Subpart B--Eligibility for Operating Subsidy; Computation of Eligible
Unit Months
990.120 Unit months.
990.125 Eligible units.
990.130 Ineligible units.
990.135 Eligible unit months (EUMs).
990.140 Occupied dwelling units.
990.145 Dwelling units with approved vacancies.
990.150 Limited vacancies.
990.155 Addition and deletion of units.
Subpart C--Calculating Formula Expenses
990.160 Overview of calculating formula expenses.
990.165 Computation of project expense level (PEL).
990.170 Computation of utilities expense level (UEL): Overview.
990.175 Utilities expense level: Computation of the current
consumption level.
990.180 Utilities expense level: Computation of the rolling base
consumption level.
990.185 Utilities expense level: Incentives for energy conservation/
rate reduction.
990.190 Other formula expenses (add-ons).
Subpart D--Calculating Formula Income
990.195 Calculation of formula income.
Subpart E--Determination and Payment of Operating Subsidy
990.200 Determination of formula amount.
990.205 Fungibility of operating subsidy between projects.
990.210 Payment of operating subsidy.
990.215 Payments of operating subsidy conditioned upon reexamination
of income of families in occupancy.
Subpart F--Transition Policy and Transition Funding
990.220 Purpose.
990.225 Transition determination.
990.230 PHAs that will experience a subsidy reduction.
990.235 PHAs that will experience a subsidy increase.
Subpart G--Appeals
990.240 General.
990.245 Types of appeals.
990.250 Requirements for certain appeals.
Subpart H--Asset Management
990.255 Overview.
990.260 Applicability.
990.265 Identification of projects.
990.270 Asset management.
990.275 Project-based management (PBM).
990.280 Project-based budgeting and accounting.
990.285 Records and reports.
990.290 Compliance with asset management requirements.
Subpart I--Operating Subsidy for Properties Managed by Resident
Management Corporations (RMCs)
990.295 Resident Management Corporation operating subsidy.
990.300 Preparation of operating budget.
990.305 Retention of excess revenues.
Subpart J--Financial Management Systems, Monitoring, and Reporting
990.310 Purpose--General policy on financial management, monitoring,
and reporting.
990.315 Submission and approval of operating budgets.
990.320 Audits.
990.325 Record retention requirements.
Authority: 42 U.S.C. 1437g; 42 U.S.C. 3535(d).
Subpart A--Purpose, Applicability, Formula, and Definitions
Sec. 990.100 Purpose.
This part implements section 9(f) of the United States Housing Act
of 1937 (1937 Act), (42 U.S.C. 1437g). Section 9(f) establishes an
Operating Fund for the purposes of making assistance available to
public housing agencies (PHAs) for the operation and management of
public housing. In the case of unsubsidized housing, the total expenses
of operating rental housing should be covered by the operating income,
which primarily consists of rental income and, to some degree,
investment and non-rental income. In the case of public housing, the
Operating Fund provides operating subsidy to assist PHAs to serve low,
very low, and extremely low-income families. This part describes the
policies and procedures for Operating Fund formula calculations and
management under the Operating Fund Program.
Sec. 990.105 Applicability.
(a) Applicability of this part. (1) With the exception of subpart I
of this part, this part is applicable to all PHA rental units under an
Annual Contributions Contract (ACC). This includes PHAs that have not
received operating subsidy previously, but are eligible for operating
subsidy under the Operating Fund Formula.
(2) This part is applicable to all rental units managed by a
resident management corporation (RMC), including a direct-funded RMC.
(b) Inapplicability of this part. (1) This part is not applicable
to Indian Housing, section 5(h) and section 32 homeownership projects,
the Housing Choice Voucher Program, the section 23 Leased Housing
Program, or the section 8 Housing Assistance Payments Programs.
(2) With the exception of subpart J of this part, this part is not
applicable to the Mutual Help Program or the Turnkey III Homeownership
Opportunity Program.
Sec. 990.110 Operating fund formula.
(a) General formula. (1) The amount of annual contributions
(operating subsidy) each PHA is eligible to receive under this part
shall be determined by a formula.
(2) In general, operating subsidy shall be the difference between
formula expense and formula income. If a PHA's formula expense is
greater than its formula income, then the PHA is eligible for an
operating subsidy.
(3) Formula expense is an estimate of a PHA's operating expense and
is determined by the following three components: Project Expense Level
(PEL), Utility Expense Level (UEL), and other formula expenses (add-
ons). Formula expense and its three components are further described in
subpart C of this part. Formula income is an estimate for a PHA's non-
operating subsidy revenue and is further described in subpart D of this
part.
(4) Certain portions of the operating fund formula (e.g., PEL) are
calculated in terms of per unit per month (PUM) amounts and are
converted into whole
[[Page 54998]]
dollars by multiplying the PUM amount by the number of eligible unit
months (EUMs). EUMs are further described in subpart B of this part.
(b) Specific formula. (1) A PHA's formula amount shall be the sum
of the three formula expense components calculated as follows: {[(PEL
multiplied by EUM) plus (UEL multiplied by EUM) plus add-ons] minus
(formula income multiplied by EUM){time} .
(2) A PHA whose formula amount is equal to or less than zero is
still eligible to receive operating subsidy equal to its most recent
actual audit cost for its Operating Fund Program.
(3) Operating subsidy payments will be limited to the availability
of funds as described in Sec. 990.210(c).
(c) Non-codified formula elements. This part defines the major
components of the Operating Fund Formula and describes the
relationships of these various components. However, this part does not
codify certain secondary elements that will be used in the revised
Operating Fund Formula. HUD will more appropriately provide this
information in non-codified guidance, such as a Handbook, Federal
Register notice, or other non-regulatory means that HUD determines
appropriate.
Sec. 990.115 Definitions.
The following definitions apply to the Operating Fund program:
1937 Act means the United States Housing Act of 1937 (42 U.S.C.
1437 et seq.).
Annual contributions contract (ACC) is a contract prescribed by HUD
for loans and contributions, which may be in the form of operating
subsidy, whereby HUD agrees to provide financial assistance and the PHA
agrees to comply with HUD requirements for the development and
operation of its public housing projects.
Asset management is a management model that emphasizes project-
based management, as well as long-term and strategic planning.
Current consumption level is the amount of each utility consumed at
a project during the 12-month period that ended the June 30th prior to
the beginning of the applicable funding period.
Eligible unit months (EUM) are the actual number of PHA units in
eligible categories expressed in months for a specified time frame and
for which a PHA receives operating subsidy.
Formula amount is the amount of operating subsidy a PHA is eligible
to receive, expressed in whole dollars, as determined by the Operating
Fund Formula.
Formula expense is an estimate of a PHA's operating expense used in
the Operating Fund Formula.
Formula income is an estimate of a PHA's non-operating subsidy
revenue used in the Operating Fund Formula.
Funding period is the calendar year for which HUD will distribute
operating subsidy according to the Operating Fund Formula.
Operating Fund is the account/program authorized by section 9 of
the 1937 Act for making operating subsidy available to PHAs for the
operation and management of public housing.
Operating Fund Formula (or Formula) means the data and calculations
used under this part to determine a PHA's amount of operating subsidy
for a given period.
Operating subsidy is the amount of annual contributions for
operations a PHA receives each funding period under section 9 of the
1937 Act as determined by the Operating Fund Formula in this part.
Other operating costs (add-ons) means PHA expenses that are
recognized as formula expenses but are not included either in the
project expense level or in the utility expense level.
Payable consumption level is the amount for all utilities consumed
at a project that the Formula recognizes in the computation of a PHA's
utility expense level at that project.
Per unit per month (PUM) describes a dollar amount on a monthly
basis per unit, such as Project Expense Level, Utility Expense Level,
and formula income.
Project means each PHA project under an ACC to which the Operating
Fund Formula is applicable. However, for purposes of asset management,
as described in subpart H of this part, projects may be as identified
under the ACC or may be a reasonable grouping of projects or portions
of a project or projects under the ACC.
Project-based management is the provision of property management
services that is tailored to the unique needs of each property, given
the resources available to that property.
Project expense level (PEL) is the amount of estimated expenses for
each project (excluding utilities and add-ons) expressed as a PUM cost.
Project units means all dwelling units in all of a PHA's projects
under an ACC.
Rolling base consumption level (RBCL) is the average of the yearly
consumption levels for the 36-month period ending on the June 30th that
is 18 months prior to the beginning of the applicable funding period.
Transition funding is the timing and amount by which a PHA will
realize increases and reductions in operating subsidy based on the new
funding levels of the Operating Fund Formula.
Unit months are the total number of project units in a PHA's
inventory expressed in months for a specified time frame.
Utilities means electricity, gas, heating fuel, water, and sewerage
service.
Utilities expense level (UEL) is a product of the utility rate
multiplied by the payable consumption level multiplied by the utilities
inflation factor expressed as a PUM dollar amount.
Utility rate (rate) means the actual average rate for any given
utility for the most recent 12-month period that ended the June 30th
prior to the beginning of the applicable funding period.
Yearly consumption level is the actual amount of each utility
consumed at a project during a 12-month period ending June 30th.
Sec. 990.116 Environmental review requirements.
The environmental review procedures of the National Environmental
Policy Act of 1969 (42 U.S.C. 4332(2)(C)) and the implementing
regulations at 24 CFR parts 50 and 58 are applicable to the Operating
Fund Program.
Subpart B--Eligibility for Operating Subsidy; Computation of
Eligible Unit Months
Sec. 990.120 Unit months.
(a) Some of the components of HUD's Operating Fund Formula are
based on a measure known as unit months. Unit months represent a PHA's
public housing inventory during a specified period of time. The unit
months eligible for operating subsidy in a 12-month period are equal to
the number of months that the units are in an operating subsidy-
eligible category, adjusted for changes in inventory (e.g., units added
or removed), as described below.
(b) A PHA is eligible to receive operating subsidy for a unit on
the date it is both placed under the ACC and occupied. The date a unit
is eligible for operating subsidy does not change the Date of Full
Availability (DOFA) or the date of the End of Initial Operating Period
(EIOP), nor does this provision place a project into management status.
Sec. 990.125 Eligible units.
A PHA is eligible to receive operating subsidy for public housing
units under an ACC for:
[[Page 54999]]
(a) Occupied dwelling units as defined in Sec. 990.140;
(b) A dwelling unit with an approved vacancy (as defined in Sec.
990.145); and
(c) A limited number of vacancies (as defined in Sec. 990.150).
Sec. 990.130 Ineligible units.
(a) Vacant units that do not fall within the definition of Sec.
990.145 or Sec. 990.150 are not eligible for operating subsidy under
this part.
(b) Units that are eligible to receive an asset-repositioning fee,
as described in Sec. 990.190(h), are not eligible to receive operating
subsidy under this subpart.
Sec. 990.135 Eligible unit months (EUMs).
(a) A PHA's total number of EUMs will be calculated for the 12-
month period from July 1st to June 30th that is prior to the first day
of the applicable funding period, and will consist of eligible units as
defined in Sec. 990.140, Sec. 990.145, or Sec. 990.150.
(b)(1) The determination of whether a public housing unit satisfies
the requirements of Sec. 990.140, Sec. 990.145, or Sec. 990.150 for
any unit month shall be based on the unit's status as of either the
first or last day of the month, as determined by the PHA.
(2) HUD reserves the right to determine the status of any and all
public housing units based on information in its information systems.
(c) The PHA shall maintain and, at HUD's request, shall make
available to HUD, specific documentation of the status of all units,
including, but not limited to, a listing of the units, street addresses
or physical address, and project/management control numbers.
(d) Any unit months that do not meet the requirements of this
subpart are not eligible for operating subsidy, and will not be
subsidized by the Operating Fund.
Sec. 990.140 Occupied dwelling units.
A PHA is eligible to receive operating subsidy for public housing
units for each unit month that those units are under an ACC and
occupied by a public housing-eligible family under lease.
Sec. 990.145 Dwelling units with approved vacancies.
(a) A PHA is eligible to receive operating subsidy for vacant
public housing units for each unit month the units are under an ACC and
meet one of the following HUD-approved vacancies:
(1) Units undergoing modernization. Vacancies resulting from
project modernization or unit modernization (such as work necessary to
reoccupy vacant units) provided that one of the following conditions is
met:
(i) The unit is undergoing modernization (i.e., the modernization
contract has been awarded or force account work has started) and must
be vacant to perform the work, and the construction is on schedule
according to a HUD-approved PHA Annual Plan; or
(ii) The unit must be vacant to perform the work and the treatment
of the vacant unit is included in a HUD-approved PHA Annual Plan, but
the time period for placing the vacant unit under construction has not
yet expired. The PHA shall place the vacant unit under construction
within two federal fiscal years (FFYs) after the FFY in which the
capital funds are approved.
(2) Special use units. Units approved and used for resident
services, resident organization offices, and related activities, such
as self-sufficiency and anti-crime initiatives.
(b) On a project-by-project basis, subject to prior HUD approval
and for the time period agreed to by HUD, a PHA shall receive operating
subsidy for the units affected by the following events that are outside
the control of the PHA:
(1) Litigation. Units that are vacant due to litigation, such as a
court order or settlement agreement that is legally enforceable; units
that are vacant in order to meet regulatory and statutory requirements
to avoid potential litigation (as covered in a HUD-approved PHA Annual
Plan); and units under voluntary compliance agreements with HUD or
other voluntary compliance agreements acceptable to HUD (e.g., units
that are being held vacant as part of a court-order, HUD-approved
desegregation plan, or voluntary compliance agreement requiring
modifications to the units to make them accessible pursuant to 24 CFR
part 8).
(2) Disasters. Units that are vacant due to a federally declared,
state-declared, or other declared disaster.
(3) Casualty losses. Damaged units that remain vacant due to delays
in settling insurance claims.
(c) A PHA may appeal to HUD to receive operating subsidy for units
that are vacant due to changing market conditions (see subpart G of
this part--Appeals).
Sec. 990.150 Limited vacancies.
(a) Operating subsidy for a limited number of vacancies. HUD shall
pay operating subsidy for a limited number of vacant units under an ACC
if the annualized vacancy rate is less than or equal to:
(1) Three percent of the PHA's total unit inventory (not to exceed
100 percent of the unit months under an ACC) for the period July 1,
2004, to June 30, 2005, and
(2) Three percent of the total units on a project-by-project basis
based on the definition of a project under subpart H of this part,
beginning July 1, 2005.
(b) Exception for PHAs with 100 or fewer units. Notwithstanding
paragraph (a) of this section, a PHA with 100 or fewer units will be
paid operating subsidy for up to five vacant units not to exceed 100
percent of the unit months under an ACC. For example, a PHA with an
inventory of 100 units and four vacancies during its fiscal year will
be eligible for operating subsidy for all 100 units. A PHA with an
inventory of 50 units with seven vacancies during its fiscal year will
be eligible for operating subsidy for 48 units.
Sec. 990.155 Addition and deletion of units.
(a) Changes in public housing unit inventory. To generate a change
to its formula amount within each one-year funding period, PHAs shall
periodically (e.g., quarterly) report the following information to HUD,
during the funding period:
(1) New units that were added to the ACC, and occupied by a public
housing-eligible family during the prior reporting period for the one-
year funding period, but have not been included in the previous EUMs'
data; and
(2) Projects, or entire buildings in a project, that are eligible
to receive an asset repositioning fee in accordance with the provisions
in Sec. 990.190(h).
(b) Revised EUM calculation. (1) For new units, the revised
calculation shall assume that all such units will be fully occupied for
the balance of that funding period. The actual occupancy/vacancy status
of these units will be included to calculate the PHA's operating
subsidy in the subsequent funding period after these units have one
full year of a reporting cycle.
(2) Projects, or entire buildings in a project, that are eligible
to receive an asset repositioning fee in accordance with Sec.
990.190(h) are not to be included in the calculation of EUMs. Funding
for these units is provided under the conditions described in Sec.
990.190(h).
Subpart C--Calculating Formula Expenses
Sec. 990.160 Overview of calculating formula expenses.
(a) General. Formula expenses represent the costs of services and
materials needed by a well-run PHA to sustain the project. These costs
include items such as administration, maintenance, and utilities. HUD
also
[[Page 55000]]
determines a PHA's formula expenses at a project level. HUD uses the
following three factors to determine the overall formula expense level
for each project:
(1)The project expense level (PEL) (calculated in accordance with
Sec. 990.165);
(2) The utilities expense level (UEL) (calculated in accordance
with Sec. Sec. 990.170, 990.175, 990.180, and 990.185); and
(3)Other formula expenses (add-ons) (calculated in accordance with
Sec. 990.190).
(b) PEL, UEL, and Add-ons. Each project of a PHA has a unique PEL
and UEL. The PEL for each project is based on ten characteristics and
certain adjustments described in Sec. 990.165. The PEL represents the
normal expenses of operating public housing projects, such as
maintenance and administration costs. The UEL for each project
represents utility expenses. Utility expense levels are based on an
incentive system aimed at reducing utility expenses. Both the PEL and
UEL are expressed in PUM costs. The expenses not included in these
expense levels and which are unique to PHAs are titled ``other formula
expenses (add-ons)'' and are expressed in a dollar amount.
(c) Calculating project formula expense. The formula expense of any
one project is the sum of the project's PEL and the UEL, multiplied by
the total EUMs specific to the project, plus the add-ons.
Sec. 990.165 Computation of project expense level (PEL).
(a) Computation of PEL. The PEL is calculated in terms of PUM cost
and represents the costs associated with the project, except for
utility and add-on costs. Costs associated with the PEL are
administration, management fees, maintenance, protective services,
leasing, occupancy, staffing, and other expenses, such as project
insurance. HUD will calculate the PEL using regression analysis and
benchmarking for the actual costs of Federal Housing Administration
(FHA) projects to estimate costs for public housing projects. HUD will
use the ten variables described in paragraph (b) of this section and
their associated coefficient (i.e., values that are expressed in
percentage terms) to produce a PEL.
(b) Variables. The ten variables are:
(1) Size of project (number of units);
(2) Age of property (Date of Full Availability (DOFA));
(3) Bedroom mix;
(4) Building type;
(5) Occupancy type (family or senior);
(6) Location (an indicator of the type of community in which a
property is located; location types include rural, city central
metropolitan, and non-city central metropolitan (suburban) areas);
(7) Neighborhood poverty rate;
(8) Percent of households assisted;
(9) Ownership type (profit, non-profit, or limited dividend); and
(10) Geographic.
(c) Cost adjustments. HUD will apply four adjustments to the PEL.
The adjustments are:
(1) Application of a $200 PUM floor for any senior property and a
$215 PUM floor for any family property;
(2) Application of a $420 PUM ceiling for any property except for
New York City Housing Authority projects, which have a $480 PUM
ceiling;
(3) Application of a four percent reduction for any PEL calculated
over $325 PUM, with the reduction limited so that a PEL will not be
reduced to less than $325; and
(4) The reduction of audit costs as reported for FFY 2003 in a PUM
amount.
(d) Annual inflation factor. The PEL for each project shall be
adjusted annually, beginning in 2005, by the local inflation factor.
The local inflation factor shall be the HUD-determined weighted average
percentage increase in local government wages and salaries for the area
in which the PHA is located, and non-wage expenses.
(e) Calculating a PEL. To calculate a specific PEL for a given
property, the sum of the coefficients for nine variables (all variables
except ownership type) shall be added to a formula constant. The
exponent of that sum shall be multiplied by a percentage to reflect the
non-profit ownership type, which will produce an unadjusted PEL. For
the calculation of the initial PEL, the cost adjustments described in
paragraphs (c)(1), (c)(2), and (c)(3) of this section will be applied.
After these initial adjustments are applied, the audit adjustment
described in paragraph (c)(4) of this section will be applied to arrive
at the PEL in year 2000 dollars. After the PEL in year 2000 dollars is
created, the annual inflation factor as described in paragraph (d) of
this section will be applied cumulatively to this number through 2004
to yield an initial PEL in terms of current dollars.
(f) Calculation of the PEL for Moving to Work PHAs. PHAs
participating in the Moving to Work (MTW) Demonstration authorized
under section 204 of the Omnibus Consolidated Rescissions and
Appropriations Act of 1996 (Pub. L. 104-134, approved April 26, 1996)
shall receive an operating subsidy as provided in Attachment A of their
MTW Agreements executed prior to November 18, 2005. PHAs with an MTW
Agreement will continue to have the right to request extensions of or
modifications to their MTW Agreements.
(g) Calculation of the PELs for mixed-finance developments. If,
prior to November 18, 2005, a PHA has either a mixed-finance
arrangement that has closed or has filed documents in accordance with
24 CFR 941.606 for a mixed-finance transaction, then the project
covered by the mixed-finance transaction will receive funding based on
the higher of its former Allowable Expense Level or the new computed
PEL.
(h) Calculation of PELs when data are inadequate or unavailable.
When sufficient data are unavailable for the calculation of a PEL, HUD
may calculate a PEL using an alternative methodology. The
characteristics may be used from similarly situated properties.
(i) Review of PEL methodology by advisory committee. In 2009, HUD
will convene a meeting with representation of appropriate stakeholders,
to review the methodology to evaluate the PEL based on actual cost
data. The meeting shall be convened in accordance with the Federal
Advisory Committee Act (5 U.S.C. Appendix) (FACA). HUD may determine
appropriate funding levels for each project to be effective in FY 2011
after following appropriate rulemaking procedures.
Sec. 990.170 Computation of utilities expense level (UEL): Overview.
(a) General. The UEL for each PHA is based on its consumption for
each utility, the applicable rates for each utility, and an applicable
inflation factor. The UEL for a given funding period is the product of
the utility rate multiplied by the payable consumption level multiplied
by the inflation factor. The UEL is expressed in terms of PUM costs.
(b) Utility rate. The utility rate for each type of utility will be
the actual average rate from the most recent 12-month period that ended
June 30th prior to the beginning of the applicable funding period. The
rate will be calculated by dividing the actual utility cost by the
actual utility consumption, with consideration for pass-through costs
(e.g., state and local utility taxes, tariffs) for the time period
specified in this paragraph.
(c) Payable consumption level. The payable consumption level is
based on the current consumption level adjusted by a utility
consumption incentive. The incentive shall be computed by comparing
current consumption levels of each utility to the rolling base
consumption level. If the comparison
[[Page 55001]]
reflects a decrease in the consumption of a utility, the PHA shall
retain 75 percent of this decrease. Alternately, if the comparison
reflects an increase in the consumption of a utility, the PHA shall
absorb 75 percent of this increase.
(d) Inflation factor for utilities. The UEL shall be adjusted
annually by an inflation/deflation factor based upon the fuels and
utilities component of the United States Department of Labor, Bureau of
Labor Statistics (BLS) Consumer Price Index for All Urban Consumers
(CPI-U). The annual adjustment to the UEL shall reflect the most
recently published and localized data available from BLS at the time
the annual adjustment is calculated.
(e) Increases in tenant utility allowances. Increases in tenant
utility allowances, as a component of the formula income, as described
in Sec. 990.195, shall result in a commensurate increase of operating
subsidy. Decreases in such utility allowances shall result in a
commensurate decrease in operating subsidy.
(f) Records and reporting. (1) Appropriate utility records,
satisfactory to HUD, shall be developed and maintained, so that
consumption and rate data can be determined.
(2) All records shall be kept by utility and by project for each
12-month period ending June 30th.
(3) HUD will notify each PHA when HUD has the automated systems
capacity to receive such information. Each PHA then will be obligated
to provide consumption and cost data to HUD for all utilities for each
project.
(4) If a PHA has not maintained or cannot recapture utility data
from its records for a particular utility, the PHA shall compute the
UEL by:
(i) Using actual consumption data for the last complete year(s) of
available data or data of comparable project(s) that have comparable
utility delivery systems and occupancy, in accordance with a method
prescribed by HUD; or
(ii) Requesting field office approval to use actual PUM utility
expenses for its UEL in accordance with a method prescribed by HUD when
the PHA cannot obtain necessary data to calculate the UEL in accordance
with paragraph (f)(4)(i) of this section.
Sec. 990.175 Utilities expense level: Computation of the current
consumption level.
The current consumption level shall be the actual amount of each
utility consumed during the 12-month period ending June 30th that is 6
months prior to the first day of the applicable funding period.
Sec. 990.180 Utilities expense level: Computation of the rolling base
consumption level.
(a) General. (1) The rolling base consumption level (RBCL) shall be
equal to the average of yearly consumption levels for the 36-month
period ending on the June 30th that is 18 months prior to the first day
of the applicable funding period.
(2) The yearly consumption level is the actual amount of each
utility consumed during a 12-month period ending June 30th. For
example, for the funding period January 1, 2006, through December 31,
2006, the RBCL will be the average of the following yearly consumption
levels:
(i) Year 1 = July 1, 2001, through June 30, 2002.
(ii) Year 2 = July 1, 2002, through June 30, 2003.
(iii) Year 3 = July 1, 2003, through June 30, 2004.
Note to paragraph (a)(2): In this example, the current year's
consumption level will be July 1, 2004, through June 30, 2005.
(b) Distortions to rolling base consumption level. The PHA shall
have its RBCL determined so as not to distort the rolling base period
in accordance with a method prescribed by HUD if:
(1) A project has not been in operation during at least 12 months
of the rolling base period;
(2) A project enters or exits management after the rolling base
period and prior to the end of the applicable funding period; or
(3) A project has experienced a conversion from one energy source
to another, switched from PHA-supplied to resident-purchased utilities
during or after the rolling base period, or for any other reason that
would cause the RBCL not to be comparable to the current year's
consumption level.
(c) Financial incentives. The three-year rolling base for all
relevant utilities will be adjusted to reflect any financial incentives
to the PHA to reduce consumption as described in Sec. 990.185.
Sec. 990.185 Utilities expense level: Incentives for energy
conservation/rate reduction.
(a) General/consumption reduction. If a PHA undertakes energy
conservation measures that are financed by an entity other than HUD,
the PHA may qualify for the incentives available under this section.
For a PHA to qualify for these incentives, the PHA must obtain HUD
approval. Approval shall be based on a determination that payments
under the contract can be funded from the reasonably anticipated energy
cost savings. The contract period shall not exceed 12 years. The energy
conservation measures may include, but are not limited to: Physical
improvements financed by a loan from a bank, utility, or governmental
entity; management of costs under a performance contract; or a shared
savings agreement with a private energy service company.
(1) Frozen rolling base. (i) If a PHA undertakes energy
conservation measures that are approved by HUD, the RBCL for the
project and the utilities involved may be frozen during the contract
period. Before the RBCL is frozen, it must be adjusted to reflect any
energy savings resulting from the use of any HUD funding. The RBCL also
may be adjusted to reflect systems repaired to meet applicable building
and safety codes as well as to reflect adjustments for occupancy rates
increased by rehabilitation. The RBCL shall be frozen at the level
calculated for the year during which the conservation measures
initially shall be implemented.
(ii) The PHA operating subsidy eligibility shall reflect the
retention of 100 percent of the savings from decreased consumption
until the term of the financing agreement is complete. The PHA must use
at least 75 percent of the cost savings to pay off the debt, e.g., pay
off the contractor or bank loan. If less than 75 percent of the cost
savings is used for debt payment, however, HUD shall retain the
difference between the actual percentage of cost savings used to pay
off the debt and 75 percent of the cost savings. If at least 75 percent
of the cost savings is paid to the contractor or bank, the PHA may use
the full amount of the remaining cost savings for any eligible
operating expense.
(iii) The annual three-year rolling base procedures for computing
the RBCL shall be reactivated after the PHA satisfies the conditions of
the contract. The three years of consumption data to be used in
calculating the RBCL after the end of the contract period shall be the
yearly consumption levels for the final three years of the contract.
(2) PHAs undertaking energy conservation measures that are financed
by an entity other than HUD may include resident-paid utilities under
the consumption reduction incentive, using the following methodology:
(i) The PHA reviews and updates all utility allowances to ascertain
that residents are receiving the proper allowances before energy
savings measures are begun;
(ii) The PHA makes future calculations of rental income for
purposes of the calculation of operating subsidy eligibility based on
these
[[Page 55002]]
baseline allowances. In effect, HUD will freeze the baseline allowances
for the duration of the contract;
(iii) After implementation of the energy conservation measures, the
PHA updates the utility allowances in accordance with provisions in 24
CFR part 965, subpart E. The new allowance should be lower than
baseline allowances;
(iv) The PHA uses at least 75 percent of the savings for paying the
cost of the improvement (the PHA will be permitted to retain 100
percent of the difference between the baseline allowances and revised
allowances);
(v) After the completion of the contract period, the PHA begins
using the revised allowances in calculating its operating subsidy
eligibility; and
(vi) The PHA may exclude from its calculation of rental income the
increased rental income due to the difference between the baseline
allowances and the revised allowances of the projects involved, for the
duration of the contract period.
(3) Subsidy add-on. (i) If a PHA qualifies for this incentive
(i.e., the subsidy add-on, in accordance with the provisions of
paragraph (a) of this section), then the PHA is eligible for additional
operating subsidy each year of the contract to amortize the cost of the
loan for the energy conservation measures and other direct costs
related to the energy project under the contract during the term of the
contract subject to the provisions of this paragraph (a)(3) of this
section. The PHA's operating subsidy for the current funding year will
continue to be calculated in accordance with paragraphs (a), (b), and
(c) of Sec. 990.170 (i.e., the rolling base is not frozen). The PHA
will be able to retain part of the cost savings in accordance with
Sec. 990.170(c).
(ii) The actual cost of energy (of the type affected by the energy
conservation measure) after implementation of the energy conservation
measure will be subtracted from the expected energy cost, to produce
the energy cost savings for the year.
(iii) If the cost savings for any year during the contract period
are less than the amount of operating subsidy to be made available
under this paragraph to pay for the energy conservation measure in that
year, the deficiency will be offset against the PHA's operating subsidy
eligibility for the PHA's next fiscal year.
(iv) If energy cost savings are less than the amount necessary to
meet amortization payments specified in a contract, the contract term
may be extended (up to the 12-year limit) if HUD determines that the
shortfall is the result of changed circumstances rather than a
miscalculation or misrepresentation of projected energy savings by the
contractor or PHA. The contract term may be extended only to
accommodate payment to the contractor and associated direct costs.
(b) Rate reduction. If a PHA takes action beyond normal public
participation in rate-making proceedings, such as well-head purchase of
natural gas, administrative appeals, or legal action to reduce the rate
it pays for utilities, then the PHA will be permitted to retain one-
half the annual savings realized from these actions.
(c) Utility benchmarking. HUD will pursue benchmarking utility
consumption at the project level as part of the transition to asset
management. HUD intends to establish benchmarks by collecting utility
consumption and cost information on a project-by-project basis. In
2009, after conducting a feasibility study, HUD will convene a meeting
with representation of appropriate stakeholders to review utility
benchmarking options so that HUD may determine whether or how to
implement utility benchmarking to be effective in FY 2011. The meeting
shall be convened in accordance with the Federal Advisory Committee Act
(5 U.S.C. Appendix) (FACA). The HUD study shall take into account
typical levels of utilities consumption at public housing developments
based upon factors such as building and unit type and size, temperature
zones, age and construction of building, and other relevant factors.
Sec. 990.190 Other formula expenses (add-ons).
In addition to calculating operating subsidy based on the PEL and
UEL, a PHA's eligible formula expenses shall be increased by add-ons.
The allowed add-ons are:
(a) Self-sufficiency. A PHA may request operating subsidy for the
reasonable cost of program coordinator(s) and associated costs in
accordance with HUD's self-sufficiency program regulations and notices.
(b) Energy loan amortization. A PHA may qualify for operating
subsidy for payments of principal and interest cost for energy
conservation measures described in Sec. 990.185(a)(3).
(c) Payments in lieu of taxes (PILOT). Each PHA will receive an
amount for PILOT in accordance with section 6(d) of the 1937 Act, based
on its cooperation agreement or its latest actual PILOT payment.
(d) Cost of independent audits. A PHA is eligible to receive
operating subsidy equal to its most recent actual audit costs for the
Operating Fund Program when an audit is required by the Single Audit
Act (31 U.S.C. 7501-7507) (see 24 CFR part 85) or when a PHA elects to
prepare and submit such an audit to HUD. For the purpose of this rule,
the most recent actual audit costs include the associated costs of an
audit for the Operating Fund Program only. A PHA whose operating
subsidy is determined to be zero based on the formula is still eligible
to receive operating subsidy equal to its most recent actual audit
costs. The most recent actual audit costs are used as a proxy to cover
the cost of the next audit. If a PHA does not have a recent actual
audit cost, the PHA working with HUD may establish an audit cost. A PHA
that requests funding for an audit shall complete an audit. The results
of the audit shall be transmitted in a time and manner prescribed by
HUD.
(e) Funding for resident participation activities. Each PHA's
operating subsidy calculation shall include $25 per occupied unit per
year for resident participation activities, including, but not limited
to, those described in 24 CFR part 964. For purposes of this section, a
unit is eligible to receive resident participation funding if it is
occupied by a public housing resident or it is occupied by a PHA
employee, or a police officer or other security personnel who is not
otherwise eligible for public housing. In any fiscal year, if
appropriations are not sufficient to meet all funding requirements
under this part, then the resident participation component of the
formula will be adjusted accordingly.
(f) Asset management fee. Each PHA with at least 250 units shall
receive a $4 PUM asset management fee. PHAs with fewer than 250 units
that elect to transition to asset management shall receive an asset
management fee of $2 PUM. PHAs with fewer than 250 units that elect to
have their entire portfolio treated and considered as a single project
as described in Sec. 990.260(b) or PHAs with only one project will not
be eligible for an asset management fee. For all PHAs eligible to
receive the asset management fee, the fee will be based on the total
number of ACC units. PHAs that are not in compliance with asset
management as described in subpart H of this part by FY 2011 will
forfeit this fee.
(g) Information technology fee. Each PHA's operating subsidy
calculation shall include $2 PUM for costs attributable to information
technology. For all PHAs, this fee will be based on the total number of
ACC units.
(h) Asset repositioning fee. (1) A PHA that transitions projects or
entire
[[Page 55003]]
buildings of a project out of its inventory is eligible for an asset-
repositioning fee. This fee supplements the costs associated with
administration and management of demolition or disposition, tenant
relocation, and minimum protection and service associated with such
efforts. The asset-repositioning fee is not intended for individual
units within a multi-unit building undergoing similar activities.
(2) Projects covered by applications approved for demolition or
disposition shall be eligible for an asset repositioning fee on the
first day of the next quarter six months after the date the first unit
becomes vacant after the relocation date included in the approved
relocation plan. When this condition is met, the project and all
associated units are no longer considered an EUM as described in Sec.
990.155. Each PHA is responsible for accurately applying and
maintaining supporting documentation on the start date of this
transition period or is subject to forfeiture of this add-on.
(3) Units categorized for demolition and which are eligible for an
asset repositioning fee are eligible for operating subsidy at the rate
of 75 percent PEL per unit for the first twelve months, 50 percent PEL
per unit for the next twelve months, and 25 percent PEL per unit for
the next twelve months.
(4) Units categorized for disposition and which are eligible for an
asset repositioning fee are eligible for operating subsidy at the rate
of 75 percent PEL per unit for the first twelve months and 50 percent
PEL per unit for the next twelve months.
(5) The following is an example of how eligibility for an asset-
repositioning fee is determined:
(i) A PHA has HUD's approval to demolish (or dispose of) a 100-unit
project from its 1,000 unit inventory. On January 12th, in conjunction
with the PHA's approved Relocation Plan, a unit in that project becomes
vacant. Accordingly, the demolition/disposition-approved project is
eligible for an asset-repositioning fee on October 1st. (This date is
calculated as follows: January 12th + six months = July 12th. The first
day of the next quarter is October 1st.)
(ii) Although payment of the asset-repositioning fee will not begin
until October 1st, the PHA will receive its full operating subsidy
based on the 1,000 units through September 30th. On October 1st the PHA
will begin to receive the 36-month asset-repositioning fee in
accordance with paragraph (h)(3) of this section for the 100 units
approved for demolition. (Asset repositioning fee requirements for
projects approved for disposition are found in paragraph (h)(4) of this
section.) On October 1st, the PHA's units will be 900.
(i) Costs attributable to changes in Federal law, regulation, or
economy. In the event that HUD determines that enactment of a Federal
law or revision in HUD or other Federal regulations has caused or will
cause a significant change in expenditures of a continuing nature above
the PEL and UEL, HUD may, at HUD's sole discretion, decide to prescribe
a procedure under which the PHA may apply for or may receive an
adjustment in operating subsidy.
Subpart D--Calculating Formula Income
Sec. 990.195 Calculation of formula income.
(a) General. For the purpose of the formula, formula income is
equal to the amount of rent charged to tenants divided by the
respective unit months leased, and is therefore expressed as a PUM.
Formula income will be derived from a PHA's year-end financial
information. The financial information used in the formula income
computation will be the audited information provided by the PHA through
HUD's information systems. The information will be calculated using the
following PHA fiscal year-end information:
(1) April 1, 2003, through March 31, 2004;
(2) July 1, 2003, through June 30, 2004;
(3) October 1, 2003, through September 30, 2004; and
(4) January 1, 2004, through December 31, 2004.
(b) Calculation of formula income. To calculate formula income in
whole dollars, the PUM amount will be multiplied by the EUMs as
described in subpart B of this part.
(c) Frozen at 2004 level. After a PHA's formula income is
calculated as described in paragraph (a) of this section, it will not
be recalculated or inflated for fiscal years 2006 through 2008, unless
a PHA can show a severe local economic hardship that is impacting the
PHA's ability to maintain some semblance of its formula income (see
subpart G of this part--Appeals). A PHA's formula income may be
recalculated if the PHA appeals to HUD for an adjustment in its
formula.
(d) Calculation of formula income when data are inadequate or
unavailable. When audited data are unavailable in HUD's information
systems for the calculation of formula income, HUD may use an
alternative methodology, including, but not limited to, certifications,
hard copy reports, and communications with the respective PHAs.
(e) Inapplicability of 24 CFR 85.25. Formula income is not subject
to the provisions regarding program income in 24 CFR 85.25.
Subpart E--Determination and Payment of Operating Subsidy
Sec. 990.200 Determination of formula amount.
(a) General. The amount of operating subsidy that a PHA is eligible
for is the difference between its formula expenses (as calculated under
subpart C of this part) and its formula income (as calculated under
subpart D of this part).
(b) Use of HUD databases to calculate formula amount. HUD shall
utilize its databases to make the formula calculations. HUD's databases
are intended to be employed to provide information on all primary
factors in determining the operating subsidy amount. Each PHA is
responsible for supplying accurate information on the status of each of
its units in HUD's databases.
(c) PHA responsibility to submit timely data. PHAs shall submit
data used in the formula on a regular and timely basis to ensure
accurate calculation under the formula. If a PHA fails to provide
accurate data, HUD will make a determination as to the PHA's inventory,
occupancy, and financial information using available or verified data,
which may result in a lower operating subsidy. HUD has the right to
adjust any or all formula amounts based on clerical, mathematical, and
information system errors that affect any of the data elements used in
the calculation of the formula.
Sec. 990.205 Fungibility of operating subsidy between projects.
(a) General. Operating subsidy shall remain fully fungible between
ACC projects until operating subsidy is calculated by HUD at a project
level. After subsidy is calculated at a project level, operating
subsidy can be transferred as the PHA determines during the PHA's
fiscal year to another ACC project(s) if a project's financial
information, as described more fully in Sec. 990.280, produces excess
cash flow, and only in the amount up to those excess cash flows.
(b) Notwithstanding the provisions of paragraph (a) of this section
and subject to all of the other provisions of this part, the New York
City Housing Authority's Development Grant Project Amendment Number
180, dated July 13, 1995, to Consolidated Annual Contributions Contract
NY-333, remains in effect.
[[Page 55004]]
Sec. 990.210 Payment of operating subsidy.
(a) Payments of operating subsidy under the formula. HUD shall make
monthly payments equal to \1/12\ of a PHA's total annual operating
subsidy under the formula by electronic funds transfers through HUD's
automated disbursement system. HUD shall establish thresholds that
permit PHAs to request monthly installments. Requests by PHAs that
exceed these thresholds will be subject to HUD review. HUD approvals of
requests that exceed these thresholds are limited to PHAs that have an
unanticipated and immediate need for disbursement.
(b) Payments procedure. In the event that the amount of operating
subsidy has not been determined by HUD as of the beginning of the
funding period, operating subsidy shall be provided monthly, quarterly,
or annually based on the amount of the PHA's previous year's formula or
another amount that HUD may determine to be appropriate.
(c) Availability of funds. In the event that insufficient funds are
available, HUD shall have discretion to revise, on a pro rata basis,
the amounts of operating subsidy to be paid to PHAs.
Sec. 990.215 Payments of operating subsidy conditioned upon
reexamination of income of families in occupancy.
(a) General. Each PHA is required to reexamine the income of each
family in accordance with the provisions of the ACC, the 1937 Act, and
HUD regulations. Income reexaminations shall be performed annually,
except as provided in the 1937 Act, in HUD regulations, or in the MTW
agreements. A PHA must be in compliance with all reexamination
requirements in order to be eligible to receive full operating subsidy.
A PHA's calculations of rent and utility allowances shall be accurate
and timely.
(b) A PHA in compliance. A PHA shall submit a certification that
states that the PHA is in compliance with the annual income
reexamination requirements and its rent and utility allowance
calculations have been or will be adjusted in accordance with current
HUD requirements and regulations.
(c) A PHA not in compliance. Any PHA not in compliance with annual
income reexamination requirements at the time of the submission of the
calculation of operating subsidy shall furnish to the responsible HUD
field office a copy of the procedures it is using to achieve compliance
and a statement of the number of families that have undergone
reexamination during the 12 months preceding the current funding cycle.
If, on the basis of this submission or any other information, HUD
determines that the PHA is not substantially in compliance with all of
the annual income reexamination requirements, HUD shall withhold
payments to which the PHA may be entitled under this part. Payment may
be withheld in an amount equal to HUD's estimate of the loss of rental
income to the PHA resulting from its failure to comply with the
requirements.
Subpart F--Transition Policy and Transition Funding
Sec. 990.220 Purpose.
This policy is aimed at assisting all PHAs in transitioning to the
new funding levels as determined by the formula set forth in this rule.
PHAs will be subject to a transition funding policy that will either
increase or reduce their total operating subsidy for a given year.
Sec. 990.225 Transition determination.
The determination of the amount and period of the transition
funding shall be based on the difference in subsidy levels between the
formula set forth in this part and the formula in effect prior to
November 18, 2005. The difference in subsidy levels will be calculated
using FY 2004 data. When actual data are not available for one of the
formula components needed to calculate the formula of this part for FY
2004, HUD will use alternate data as a substitute (e.g., unit months
available for eligible unit months, etc.) If the difference between
these formulas indicates that a PHA shall have its operating subsidy
reduced as a result of this formula, the PHA will be subject to a
transition policy as indicated in Sec. 990.230. If the difference
between these formulas indicates that a PHA will have its operating
subsidy increased as a result of this formula, the PHA will be subject
to the transition policy as indicated in Sec. 990.235.
Sec. 990.230 PHAs that will experience a subsidy reduction.
(a) For PHAs that will experience a reduction in their operating
subsidy, as determined in Sec. 990.225, such reductions will have a
limit of:
(1) 24 percent of the difference between the two funding levels in
the first year following November 18, 2005;
(2) 43 percent of the difference between the two funding levels in
the second year following November 18, 2005;
(3) 62 percent of the difference between the two levels in the
third year following November 18, 2005; and
(4) 81 percent of the difference between the two levels in the
fourth year following November 18, 2005.
(b) The full amount of the reduction in the operating subsidy level
shall be realized in the fifth year following November 18, 2005.
(c) For example, a PHA has a subsidy reduction from $1 million
under the formula in effect prior to November 18, 2005 to $900,000
under the formula used for calculating operating subsidy under this
part using FY 2004 data. The difference would be calculated at $100,000
($1 million-$900,000 = $100,000). In the first year, the subsidy
reduction would be limited to $24,000 (24 percent of the difference).
Thus, the PHA will receive an operating subsidy amount of this rule
plus a transition-funding amount of $76,000 (the $100,000 difference
between the two subsidy amounts minus the $24,000 reduction limit).
(d) If a PHA can demonstrate a successful conversion to the asset
management requirements of subpart H of this part, as determined under
paragraph (f) of this section, HUD will discontinue the reduction at
the PHA's next subsidy calculation following such demonstration, as
reflected in the schedule in paragraph (e) of this section,
notwithstanding Sec. 990.290(c).
(e) The schedule of reductions for a PHA that will experience a
reduction in subsidy is reflected in the table below.
----------------------------------------------------------------------------------------------------------------
Funding period Demonstration date by Reduction limited to
----------------------------------------------------------------------------------------------------------------
Prior to year 1....................... October 1, 2005.......................... 5 percent of the difference
between the two funding
levels.
Year 1................................ October 1, 2006.......................... 24 percent of the difference.
Year 2................................ October 1, 2007.......................... 43 percent of the difference.
Year 3................................ October 1, 2008.......................... 62 percent of the difference.
Year 4................................ October 1, 2009.......................... 81 percent of the difference.
Year 5................................ October 1, 2010.......................... Full reduction reached.
----------------------------------------------------------------------------------------------------------------
[[Page 55005]]
(f)(1) For purposes of this section, compliance with the asset
management requirements of subpart H of this part will be based on an
independent assessment conducted by a HUD-approved professional
familiar with property management practices in the region or state in
which the PHA is located.
(2) A PHA must select from a list of HUD-approved professionals to
conduct the independent assessment. The professional review and
recommendation will then be forwarded to the Assistant Secretary for
Public and Indian Housing (or designee) for final determination of
compliance with the asset management requirements of subpart H of this
part.
(3) Upon completion of the independent assessment, the assessor
shall conduct an exit conference with the PHA. In response to the exit
conference, the PHA may submit a management response and other
pertinent information (including, but not limited to, an additional
assessment procured at the PHAs' own expense) within ten working days
of the exit conference to be included in the report submitted to HUD.
(4) In the event that HUD is unable to produce a list of
independent assessors on a timely basis, the PHA may submit its own
demonstration of a successful conversion to asset management directly
to HUD for determination of compliance.
(5) The Assistant Secretary for Public and Indian Housing (or
designee) shall consider all information submitted and respond with a
final determination of compliance within 60 days of the independent
assessor's report being submitted to HUD.
Sec. 990.235 PHAs that will experience a subsidy increase.
(a) For PHAs that will experience a gain in their operating
subsidy, as determined in Sec. 990.225, such increases will have a
limit of 50 percent of the difference between the two funding levels in
the first year following November 18, 2005.
(b) The full amount of the increase in the operating subsidy level
shall be realized in the second year following November 18, 2005.
(c) For example, a PHA's subsidy increased from $900,000 under the
formula in effect prior to November 18, 2005 to $1 million under the
formula used to calculate operating subsidy under this part using FY
2004 data. The difference would be calculated at $100,000 ($1 million -
$900,000 = $100,000). In the first year, the subsidy increase would be
limited to $50,000 (50 percent of the difference). Thus, in this
example the PHA will receive the operating subsidy amount of this rule
minus a transition-funding amount of $50,000 (the $100,000 difference
between the two subsidy amounts minus the $50,000 transition amount).
(d) The schedule for a PHA whose subsidy would be increased is
reflected in the table below.
------------------------------------------------------------------------
Funding period Increase limited to
------------------------------------------------------------------------
Year 1........................ 50 percent of the difference.
Year 2........................ Full increase reached.
------------------------------------------------------------------------
Subpart G--Appeals
Sec. 990.240 General.
(a) PHAs will be provided opportunities for appeals. HUD will
provide up to a two percent hold-back of the Operating Fund
appropriation for FY 2006 and FY 2007. HUD will use the hold-back
amount to fund appeals that are filed during each of these fiscal
years. Hold-back funds not utilized will be added back to the formula
within each of the affected fiscal years.
(b) Appeals are voluntary and must cover an entire portfolio, not
single projects. However, the Assistant Secretary for Public and Indian
Housing (or designee) has the discretion to accept appeals of less than
an entire portfolio for PHAs with greater than 5,000 public housing
units.
Sec. 990.245 Types of appeals.
(a) Streamlined appeal. This appeal would demonstrate that the
application of a specific Operating Fund formula component has a
blatant and objective flaw.
(b) Appeal of formula income for economic hardship. After a PHA's
formula income has been frozen, the PHA can appeal to have its formula
income adjusted to reflect a severe local economic hardship that is
impacting the PHA's ability to maintain rental and other revenue.
(c) Appeal for specific local conditions. This appeal would be
based on demonstrations that the model's predictions are not reliable
because of specific local conditions. To be eligible, the affected PHA
must demonstrate a variance of ten percent or greater in its PEL.
(d) Appeal for changing market conditions. A PHA may appeal to
receive operating subsidy for vacant units due to changing market
conditions, after a PHA has taken aggressive marketing and outreach
measures to rent these units. For example, a PHA could appeal if it is
located in an area experiencing population loss or economic
dislocations that faces a lack of demand for housing in the foreseeable
future.
(e) Appeal to substitute actual project cost data. A PHA may appeal
its PEL if it can produce actual project cost data derived from actual
asset management, as outlined in subpart H of this part, for a period
of at least two years.
Sec. 990.250 Requirements for certain appeals.
(a) Appeals under Sec. 990.245 (a) and (c) must be submitted once
annually. Appeals under Sec. 990.245 (a) and (c) must be submitted for
new projects entering a PHA's inventory within one year of the
applicable Date of Full Availability (DOFA).
(b) Appeals under Sec. 990.245 (c) and (e) are subject to the
following requirements:
(1) The PHA is required to acquire an independent cost assessment
of its projects;
(2) The cost of services for the independent cost assessment is to
be paid by the appellant PHA;
(3) The assessment is to be reviewed by a professional familiar
with property management practices and costs in the region or state in
which the appealing PHA is located. This professional is to be procured
by HUD. The professional review and recommendation will then be
forwarded to the Assistant Secretary for Public and Indian Housing (or
designee) for final determination; and
(4) If the appeal is granted, the PHA agrees to be bound to the
independent cost assessment regardless of new funding levels.
Subpart H--Asset Management
Sec. 990.255 Overview.
(a) PHAs shall manage their properties according to an asset
management model, consistent with the management norms in the broader
multi-family management industry. PHAs shall also implement project-
based management, project-based budgeting, and project-based
accounting, which are essential components of asset management. The
goals of asset management are to:
(1) Improve the operational efficiency and effectiveness of
managing public housing assets;
(2) Better preserve and protect each asset;
(3) Provide appropriate mechanisms for monitoring performance at
the property level; and
(4) Facilitate future investment and reinvestment in public housing
by public and private sector entities.
[[Page 55006]]
(b) HUD recognizes that appropriate changes in its regulatory and
monitoring programs may be needed to support PHAs to undertake the
goals identified in paragraph (a) of this section.
Sec. 990.260 Applicability.
(a) PHAs that own and operate 250 or more dwelling rental units
under title I of the 1937 Act, including units managed by a third-party
entity (for example, a resident management corporation) but excluding
section 8 units, are required to operate using an asset management
model consistent with this subpart.
(b) PHAs that own and operate fewer than 250 dwelling rental units
may treat their entire portfolio as a single project. However, if a PHA
selects this option, it will not receive the add-on for the asset
management fee described in Sec. 990.190(f).
Sec. 990.265 Identification of projects.
For purposes of this subpart, project means a public housing
building or set of buildings grouped for the purpose of management. A
project may be as identified under the ACC or may be a reasonable
grouping of projects or portions of a project under the ACC. HUD shall
retain the right to disapprove of a PHA's designation of a project.
PHAs may group up to 250 scattered-site dwelling rental units into a
single project.
Sec. 990.270 Asset management.
As owners, PHAs have asset management responsibilities that are
above and beyond property management activities. These responsibilities
include decision-making on topics such as long-term capital planning
and allocation, the setting of ceiling or flat rents, review of
financial information and physical stock, property management
performance, long-term viability of properties, property repositioning
and replacement strategies, risk management responsibilities pertaining
to regulatory compliance, and those decisions otherwise consistent with
the PHA's ACC responsibilities, as appropriate.
Sec. 990.275 Project-based management (PBM).
PBM is the provision of property-based management services that is
tailored to the unique needs of each property, given the resources
available to that property. These property management services include,
but are not limited to, marketing, leasing, resident services, routine
and preventive maintenance, lease enforcement, protective services, and
other tasks associated with the day-to-day operation of rental housing
at the project level. Under PBM, these property management services are
arranged, coordinated, or overseen by management personnel who have
been assigned responsibility for the day-to-day operation of that
property and who are charged with direct oversight of operations of
that property. Property management services may be arranged or provided
centrally; however, in those cases in which property management
services are arranged or provided centrally, the arrangement or
provision of these services must be done in the best interests of the
property, considering such factors as cost and responsiveness.
Sec. 990.280 Project-based budgeting and accounting.
(a) All PHAs covered by this subpart shall develop and maintain a
system of budgeting and accounting for each project in a manner that
allows for analysis of the actual revenues and expenses associated with
each property. Project-based budgeting and accounting will be applied
to all programs and revenue sources that support projects under an ACC
(e.g., the Operating Fund, the Capital Fund, etc.).
(b)(1) Financial information to be budgeted and accounted for at a
project level shall include all data needed to complete project-based
financial statements in accordance with Accounting Principles Generally
Accepted in the United States of America (GAAP), including revenues,
expenses, assets, liabilities, and equity data. The PHA shall also
maintain all records to support those financial transactions. At the
time of conversion to project-based accounting, a PHA shall apportion
its assets, liabilities, and equity to its respective projects and HUD-
accepted central office cost centers.
(2) Provided that the PHA complies with GAAP and other associated
laws and regulations pertaining to financial management (e.g., OMB
Circulars), it shall have the maximum amount of responsibility and
flexibility in implementing project-based accounting.
(3) Project-specific operating income shall include, but is not
limited to, such items as project-specific operating subsidy, dwelling
and non-dwelling rental income, excess utilities income, and other PHA
or HUD-identified income that is project-specific for management
purposes.
(4) Project-specific operating expenses shall include, but are not
limited to, direct administrative costs, utilities costs, maintenance
costs, tenant services, protective services, general expenses, non-
routine or capital expenses, and other PHA or HUD-identified costs
which are project-specific for management purposes. Project-specific
operating costs also shall include a property management fee charged to
each project that is used to fund operations of the central office.
Amounts that can be charged to each project for the property management
fee must be reasonable. If the PHA contracts with a private management
company to manage a project, the PHA may use the difference between the
property management fee paid to the private management company and the
fee that is reasonable to fund operations of the central office and
other eligible purposes.
(5) If the project has excess cash flow available after meeting all
reasonable operating needs of the property, the PHA may use this excess
cash flow for the following purposes:
(i) Fungibility between projects as provided for in Sec. 990.205.
(ii) Charging each project a reasonable asset management fee that
may also be used to fund operations of the central office. However,
this asset management fee may be charged only if the PHA performs all
asset management activities described in this subpart (including
project-based management, budgeting, and accounting). Asset management
fees are considered a direct expense.
(iii) Other eligible purposes.
(c) In addition to project-specific records, PHAs may establish
central office cost centers to account for non-project specific costs
(e.g., human resources, Executive Director's office, etc.). These costs
shall be funded from the property-management fees received from each
property, and from the asset management fees to the extent these are
available.
(d) In the case where a PHA chooses to centralize functions that
directly support a project (e.g., central maintenance), it must charge
each project using a fee-for-service approach. Each project shall be
charged for the actual services received and only to the extent that
such amounts are reasonable.
Sec. 990.285 Records and reports.
(a) Each PHA shall maintain project-based budgets and fiscal year-
end financial statements prepared in accordance with GAAP and shall
make these budgets and financial statements available for review upon
request by interested members of the public.
(b) Each PHA shall distribute the project-based budgets and year-
end financial statements to the Chairman and to each member of the PHA
Board of Commissioners, and to such other
[[Page 55007]]
state and local public officials as HUD may specify.
(c) Some or all of the project-based budgets and financial
statements and information shall be required to be submitted to HUD in
a manner and time prescribed by HUD.
Sec. 990.290 Compliance with asset management requirements.
(a) A PHA is considered in compliance with asset management
requirements if it can demonstrate substantially, as described in
paragraph (b) of this section, that it is managing according to this
subpart.
(b) Demonstration of compliance with asset management will be based
on an independent assessment.
(1) The assessment is to be conducted by a professional familiar
with property management practices and costs in the region or state in
which the PHA is located. This professional is to be procured by HUD.
(2) The professional review and recommendation will then be
forwarded to the Assistant Secretary for Public and Indian Housing (or
designee) for final determination of compliance to asset management.
(c) Upon HUD's determination of successful compliance with asset
management, PHAs will then be funded based on this information pursuant
to Sec. 990.165(i).
(d) PHAs must be in compliance with the project-based accounting
and budgeting requirements in this subpart by FY 2007. PHAs must be in
compliance with the remainder of the components of asset management by
FY 2011.
Subpart I--Operating Subsidy for Properties Managed by Resident
Management Corporations (RMCs)
Sec. 990.295 Resident Management Corporation operating subsidy.
(a) General. This part applies to all projects managed by a
Resident Management Corporation (RMC), including a direct funded RMC.
(b) Operating subsidy. Subject to paragraphs (c) and (d) of this
section, the amount of operating subsidy that a PHA or HUD provides a
project managed by an RMC shall not be reduced during the three-year
period beginning on the date the RMC first assumes management
responsibility for the project.
(c) Change factors. The operating subsidy for an RMC-managed
project shall reflect changes in inflation, utility rates, and
consumption, as well as changes in the number of units in the resident
managed project.
(d) Exclusion of increased income. Any increased income directly
generated by activities by the RMC or facilities operated by the RMC
shall be excluded from the calculation of the operating subsidy.
(e) Exclusion of technical assistance. Any technical assistance the
PHA provides to the RMC will not be included for purposes of
determining the amount of funds provided to a project under paragraph
(b) of this section.
(f) The following conditions may not affect the amounts to be
provided under this part to a project managed by an RMC:
(1) Income reduction. Any reduction in the subsidy or total income
of a PHA that occurs as a result of fraud, waste, or mismanagement by
the PHA; and
(2) Change in total income. Any change in the total income of a PHA
that occurs as a result of project-specific characteristics when these
characteristics are not shared by the project managed by the RMC.
(g) Other project income. In addition to the operating subsidy
calculated in accordance with this part and the amount of income
derived from the project (from sources such as rents and charges), the
management contract between the PHA and the RMC may specify that income
be provided to the project from other legally available sources of PHA
income.
Sec. 990.300 Preparation of operating budget.
(a) The RMC and the PHA must submit operating budgets and
calculations of operating subsidy to HUD for approval in accordance
with Sec. 990.200. The budget will reflect all project expenditures
and will identify the expenditures related to the responsibilities of
the RMC and the expenditures that are related to the functions that the
PHA will continue to perform.
(b) For each project or part of a project that is operating in
accordance with the ACC amendment relating to this subpart and in
accordance with a contract vesting maintenance responsibilities in the
RMC, the PHA will transfer into a sub-account of the operating reserve
of the PHA an operating reserve for the RMC project. When all
maintenance responsibilities for a resident-managed project are the
responsibility of the RMC, the amount of the reserve made available to
a project under this subpart will be the per-unit cost amount available
to the PHA operating reserve, excluding all inventories, prepaids, and
receivables at the end of the PHA fiscal year preceding implementation,
multiplied by the number of units in the project operated. When some,
but not all, maintenance responsibilities are vested in the RMC, the
management contract between the PHA and RMC may provide for an
appropriately reduced portion of the operating reserve to be
transferred into the RMC's sub-account.
(c) The RMC's use of the operating reserve is subject to all
administrative procedures applicable to the conventionally owned public
housing program. Any expenditure of funds from the reserve must be for
eligible expenditures that are incorporated into an operating budget
subject to approval by HUD.
(d) Investment of funds held in the reserve will be in accordance
with HUD regulations and guidance.
Sec. 990.305 Retention of excess revenues.
(a) Any income generated by an RMC that exceeds the income
estimated for the income categories specified in the RMC's management
contract must be excluded in subsequent years in calculating:
(1) The operating subsidy provided to a PHA under this part; and
(2) The funds the PHA provides to the RMC.
(b) The RMC's management contract must specify the amount of income
that is expected to be derived from the project (from sources such as
rents and charges) and the amount of income to be provided to the
project from the other sources of income of the PHA (such as operating
subsidy under this part, interest income, administrative fees, and
rents). These income estimates must be calculated consistent with HUD's
administrative instructions. Income estimates may provide for
adjustment of anticipated project income between the RMC and the PHA,
based upon the management and other project-associated responsibilities
(if any) that are to be retained by the PHA under the management
contract.
(c) Any revenues retained by an RMC under this section may be used
only for purposes of improving the maintenance and operation of the
project, establishing business enterprises that employ residents of
public housing, or acquiring additional dwelling units for lower income
families. Units acquired by the RMC will not be eligible for payment of
operating subsidy.
Subpart J--Financial Management Systems, Monitoring, and Reporting
Sec. 990.310 Purpose--General policy on financial management,
monitoring and reporting.
All PHA financial management systems, reporting, and monitoring of
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program performance and financial reporting shall be in compliance with
the requirements of 24 CFR 85.20, 85.40, and 85.41. Certain HUD
requirements provide exceptions for additional specialized procedures
that are determined by HUD to be necessary for the proper management of
the program in accordance with the requirements of the 1937 Act and the
ACC between each PHA and HUD.
Sec. 990.315 Submission and approval of operating budgets.
(a) Required documentation:
(1) Prior to the beginning of its fiscal year, a PHA shall prepare
an operating budget in a manner prescribed by HUD. The PHA's Board of
Commissioners shall review and approve the budget by resolution. Each
fiscal year, the PHA shall submit to HUD, in a time and manner
prescribed by HUD, the approved Board resolution.
(2) HUD may direct the PHA to submit its complete operating budget
with detailed supporting information and the Board resolution if the
PHA has breached the ACC contract, or for other reasons, which, in
HUD's determination, threaten the PHA's future serviceability,
efficiency, economy, or stability. When the PHA no longer is operating
in a manner that threatens the future serviceability, efficiency,
economy, or stability of the housing it operates, HUD will notify the
PHA that it no longer is required to submit a complete operating budget
with detailed supporting information to HUD for review and approval.
(b) If HUD finds that an operating budget is incomplete,
inaccurate, includes illegal or ineligible expenditures, contains
mathematical errors or errors in the application of accounting
procedures, or is otherwise unacceptable, HUD may, at any time, require
the PHA to submit additional or revised information regarding the
budget or revised budget.
Sec. 990.320 Audits.
All PHAs that receive financial assistance under this part shall
submit an acceptable audit and comply with the audit requirements in 24
CFR 85.26.
Sec. 990.325 Record retention requirements.
The PHA shall retain all documents related to all financial
management and activities funded under the Operating Fund for a period
of five fiscal years after the fiscal year in which the funds were
received.
Dated: September 12, 2005.
Paula O. Blunt,
General Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. 05-18624 Filed 9-16-05; 8:45 am]
BILLING CODE 4210-33-P