U.S. Department of Housing and Urban Development

**Office of Public and Indian Housing**

**Notice**: PIIH 2003-19 (PHA)

**Special Attention of**:

Public Housing Agencies;

All Public Housing Directors;

HUD Field Offices; HOPE VI

Coordinators

> **Issued: July 23, 2003**
>
> **Expires: July 31, 2004**
>
> **Cross References: Notices: PIH 2003-10 (HA), PIH-2001-26 (HA)**

**SUBJECT:** Fiscal Year 2003 Capital Fund Grants Processing Notice

1.  **Purpose**: The purpose of the Notice is to provide public housing
    agencies (PHAs) information and guidance on the Fiscal Year (FY)
    2003 Capital Fund. It also provides other program information
    regarding the Capital Fund.

2.  **Appropriations**. President Bush signed the HUD Appropriations Act
    for FY 2003 on February 20, 2003. The Act provided \$2,730,000,000
    for the Capital Fund. The Act also contains a rescission provision
    that reduces the total amount available for the Capital Fund to
    \$2,712,255,000. All references to amounts provided under the
    Appropriations Act in this Notice will reflect the amount available
    after applying the rescission.

> The Act also contained a number of set-asides for items such as
> technical assistance, Neighborhood Networks, working capital fund,
> supportive services, emergencies and natural disasters. Further, the
> Appropriations Act also required that \$ 444,094,500 be set-aside from
> the \$ 2.712 billion for PHAs that obligated 90 percent of their
> Capital Fund grants by the statutory deadlines for FYs 1998, FY 1999,
> FY 2000 and
>
> FY 2001.
>
> Both the 3 percent bonus for High Performers in PHAS and the \$444
> million set-aside, along with the other set-asides, are deducted from
> the \$2.712 billon appropriated by Congress.
>
> As noted above, the FY 2003 Appropriations Act requires that \$444
> million be set-aside only for PHAs that have obligated in a timely
> manner in fiscal years FYs 1998, FY 1999, FY 2000 and FY 2001.
> Consequently, a PHA that fails to obligate its Capital Fund grants in
> a timely manner in any one of the four fiscal years is ineligible for
> a portion of the \$444 million set-aside.
>
> The obligation deadlines for FY 2001 Capital Fund grants were
> established in Notice PIH 2001-26 (HA). Pursuant to Notice PIH
> 2001-26, if a PHA's fiscal year began on January 1, April 1 or July 1,
> the obligation deadline was ***June 30, 2003***. If a PHA's fiscal
> year began on October 1, its obligation deadline is ***September 30,
> 2003***. Therefore, in order to fully implement the provisions of the
> FY 2003 Appropriations Act, the Department will not distribute the
> \$444 million set-aside until after the ***September 30, 2003***
> obligation deadline has passed. It is estimated that the Department
> will provide grants from the \$444 million set-aside in November
> ***2003*** or sometime thereafter.
>
> The table below shows the appropriated amount, the carryover funds
> from prior years and the Congressionally mandated set-asides to be
> funded from the Capital Fund appropriation.

  ----------------------------------------------- -----------------------
  **Total Set-asides**                            **\$ 188,864,350**

  ----------------------------------------------- -----------------------

> ^1/^ Includes emergency/disaster and modernization grant carryover.
>
> ^2/^ Includes modernization grant recaptures.

+---------------------------------------------+------------------------+
| **Fiscal Year 2003 Capital Fund             |                        |
| Appropriation With**                        |                        |
|                                             |                        |
| **Carryover and Recaptures**                |                        |
+---------------------------------------------+------------------------+
| Basic Formula Grant                         | \$2,149,096,885        |
+---------------------------------------------+------------------------+
| Timely Obligations Set-aside                | \$ 444,094,500         |
+---------------------------------------------+------------------------+
| Recaptures for High Performers              | \$ 9,989,436           |
+---------------------------------------------+------------------------+
| **Total Available for Capital Fund**        | \$2,603,089,821        |
+---------------------------------------------+------------------------+
|                                             |                        |
+---------------------------------------------+------------------------+

3.  **Formula Calculation**. The Capital Fund formula regulation gives
    the Department the authority to establish a date for reporting PHA
    building and unit data for the purpose of calculating the formula.
    24 CFR Section 905(f)(4) states as follows: ***"For developments
    losing units as a result of demolition and disposition, the number
    of units on which capital funding is based will be the number of
    units reported as eligible for capital funding as of the reporting
    date."***

> In a letter dated May 31, 2002, HUD requested that all PHAs update the
> Public Housing Information Center (PIC) database in preparation for
> running the Capital Fund formula. The letter requested that certain
> PHAs update their agency's data on actual demolition or disposition of
> public housing units no later than June 15, 2002. PHAs were notified
> at that time that if they failed to provide the requested information
> by the deadline, the Department would use the total number of units
> approved for demolition or disposition as the basis for calculating
> the formula rather than the actual number of demolished or disposed
> units.
>
> Where the Department used the actual number of units approved for
> demolition or disposition because the PHA failed to report in a timely
> manner, the PHA's formula grant was calculated based on a reduced
> number of units and therefore, the formula grant amount was likewise
> reduced. The FY 2003 Capital Fund formula was computed based on
> building and unit data under management in PIC (adjusted for
> demolition or disposition) as of June 30, 2002.

4.  **Capital Fund Funding Sheet**. The Funding Sheet identifies up to
    two Capital Fund grants for 2003.

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A.  [Formula Grant]{.underline}.

> The primary grant identified is the PHA's annual formula allocation.
> Components of the annual formula grant include:

-   The total funding (includes all components).

-   As applicable, the Public Housing Assessment System (PHAS) bonus (3
    percent for High Performers).

-   As applicable, a portion of the Capital Fund Recaptures, for PHAS
    High Performers and identified Moving to Work (MTW) participants
    only.

> There are currently eight PHAs with MTW Agreements that exempt the
> PHAs from HUD's Performance Assessment System but requires that they
> be entitled to any and all incentives, including bonus points which
> may be applicable to competitive proposals. These eight MTW PHAs will
> receive the 3 percent PHAS bonus.
>
> The FY 2003 Appropriations Act requires that recaptured Capital Funds
> be reallocated only to PHAS High Performers. Consequently, these PHAs
> will receive a portion of \$9.8 million in recaptured Capital Funds.
> In prior years, recaptured Capital Funds were added to the carryover
> and included in the total amount of funds available for the formula in
> the following fiscal year.

B.  [Replacement Housing Factor (RHF) Grant]{.underline}.

> The second grant that may be identified on the Funding Sheet is the
> RHF grant.
>
> A RHF grant may be identified where the PHA has reported demolition or
> disposition of public housing units for the prior year. If the PHA is
> eligible for a RHF grant, it will have a separate Annual Contributions
> Contract (ACC) Amendment for the RHF grant. A detailed description and
> requirements of RHF grants can be found in Notice PIH 2003-10 (HA) and
> 24 CFR Part 905. RHF grants due for a second increment of funding in
> FY 2003 will be distributed after the RHF Plans are approved. The
> Department expects all reviews to be completed within 90 days from the
> date of this Notice.

5.  **Data Errors.** Capital Fund grants are calculated based on data
    available at a certain point in time. HUD is not authorized by the
    FY 2003 Appropriations Act to make adjustments to prior year
    obligations with FY 2003 funds. As such, there will be no additional
    funding to correct data errors from prior year Capital Fund grants.
    This includes data errors in building/unit characteristics. As noted
    above, HUD notified PHAs of their responsibility to ensure that the
    data in the Public Housing Information Center (PIC) is accurate. In
    this regard, PHAs must ensure that their PIC data is updated no
    later than **September 30, 2003**, in anticipation of calculating
    the FY 2004 Capital Fund formula.

**6. Obligation and Expenditure Deadlines for 2003**. In FY 2003, HUD
will make Capital Funds available to all PHAs at the same time and have
a single commencement date for obligation and expenditure deadlines.
This date will be reflected as the effective date on the ACC. The single
commencement date enables PHAs to address unmet housing needs in a
timely manner and without delaying availability based upon the start of
a PHA's fiscal year. It will also enable PHAs and HUD Field Offices to
more easily monitor the 2-year obligation and 4-year expenditure
deadlines.

> The following timeline will be followed to establish a single
> commencement date for **ALL** PHAs, regardless of whether their FY
> 2003 Annual PHA Plan is approved.

+--------------------------------------------+-------------------------+
| ## Activity                                | ## Action Date(s)       |
+--------------------------------------------+-------------------------+
| HUD sends Capital Fund formula ACC         | August 14, 2003         |
| Amendments to PHAs                         |                         |
+--------------------------------------------+-------------------------+
| PHAs sign ACC amendments and return with   | September 12, 2003      |
| copies to Field Offices                    |                         |
+--------------------------------------------+-------------------------+
| Field Offices: Execute ACC amendments      | September 17, 2003      |
+--------------------------------------------+-------------------------+
| Forward ACCs to Ft. Worth Spread PHA's     | September 30, 2003      |
| BLIs in LOCCS Web                          |                         |
+--------------------------------------------+-------------------------+
| Funds Available for obligation and         | September 17, 2003      |
| expenditure for ALL PHAs[^1] (start date)  |                         |
+--------------------------------------------+-------------------------+

> The FY 2003 Capital Funds will be available to all PHAs that have a
> Capital Fund Five-Year Action Plan. The PHA can, therefore, obligate
> Capital Funds for any activity in its Capital Fund Five-Year Action
> Plan. In some instances, the PHA will have an approved Capital Fund
> Five-Year Action Plan but not an approved Annual PHA Plan for the
> current fiscal year. We strongly encourage PHAs to continue to work
> with the Field Offices to get their Annual PHA Plan approved.
>
> For PHA's that have an approved FY 2003 Annual PHA Plan and budget,
> the Field Office can proceed to spread the approved budget in Line of
> Credit Control System (LOCCS) Web. In cases where the PHA does not
> have an approved Annual PHA Plan for FY 2003, the Field Office is to
> spread the entire authorized amount, which is the amount identified on
> the ACC for that PHA, into three BLIs as follows:

+-----------------------------------------------------------------------+
| **Business Rules for Spreading Entire Budget in**                     |
|                                                                       |
| **LOCCS Web -- PHAs without Approved PHA Plan**                       |
+-----------------------------------------------------------------------+
| []{.mark}                                                             |
|                                                                       |
| -   BLI 1408 Management Improvement -- up to 20% of the grant         |
|     authorized amount                                                 |
|                                                                       |
| -   BLI 1410 Administration -- up to 10% of the grant authorized      |
|     amount                                                            |
|                                                                       |
| -   BLI 0110 Initial Budget - input remainder of grant authorized     |
|     amount                                                            |
+-----------------------------------------------------------------------+

> For PHAs with fiscal year end of September 30, 2003, LOCCS has been
> programmed to automatically spread the budget in accordance with the
> business rules described above.
>
> BLI 0110 is a new account established in FY 2002 as a general location
> to put the balance of the funding. When a PHA reports obligation and
> expenditures the items or activity must be entered into LOCCS using
> the appropriate BLI e.g., a signed contract for demolition of a
> portion of the development is to be entered under BLI 1485 pursuant to
> the Comprehensive Grant Guidebook, 7485.3. Once an agency's FY 2003
> Annual PHA Plan and Capital Fund budget are approved, the Field Office
> can spread the PHA's grant in accordance with the budget in the Annual
> PHA Plan. PHAs may exercise fungibility between work items but will be
> required to reflect these work items in their FY 2003 Annual Plan
> submissions.
>
> Since the Department anticipates using this approach in future years,
> PHAs should include as many work items in its 5-Year Action Plan as
> necessary so that they will be able to proceed fully on approved work
> items when their Capital Fund grant is made available.

7.  **Annual Contributions Contract (ACC) Amendment(s).** The Capital
    Fund ACC amendment(s) must be signed by the PHA and **received** by
    the local HUD Field Office no later than ***September 12, 2003***.
    The PHA should send the original signed ACC(s), and the three copies
    to the local HUD Field Office. All HUD Field Offices (FOs) **must
    execute all Capital Fund Amendments for formula grants**[^2] **on
    *September 17, 2003*.** The FY 2003 funds are available for
    obligation by the PHA on, ***September 17, 2003*,** which is the
    commencement date for obligation and expenditure for all PHAs. The
    obligation deadline for the FY2003 grants is ***September 16,
    2005***. The expenditure deadline for FY 2003 formula grants is
    ***September 16, 2007***. The FOs should forward the executed
    ACC (s) to the Ft. Worth Accounting Center. Subsequently, the FOs
    are to spread the budget for the grant in LOCCS web. The FOs have
    until ***September 30, 2003*** to complete this task.

**8. PHAs That Fail to Submit an ACC Amendment or Refuse the Capital
Fund.** If a PHA chooses not to participate in the Capital Fund Program
this fiscal year, the PHA is to advise its local HUD Field Office in
writing no later than ***September 12, 2003***. Any PHA, regardless of
its intent, that does not submit a signed FY 2003 Capital Fund ACC by
***September 12, 2003*** will not receive its FY 2003 Capital Fund
grant. These funds are [not held]{.underline} for the PHA. A PHA will
still be eligible to receive Capital Funds in subsequent fiscal years
following submission and approval of all required documents.

# 9. Obligations and Expenditures for Deadlines FY 2002 and Prior Years, Recaptures and Extensions:

> A. [Recapture for failure to meet 1999 and 2000
> deadlines]{.underline}. Section 9(j) of the U.S. Housing Act of 1937
> (the Act) requires that Capital Fund grants be obligated within
> 2-years and expended within 4-years from the date the funds were made
> available. Section 9(j) permits PHAs to continue to obligate funds
> after the deadline, but imposes a penalty that reduces the PHA's
> Capital Fund grant for the year by **1/12^th^** for each month the PHA
> was in noncompliance. The Act does not allow exceptions to the 4-year
> expenditure deadline, unless Headquarters extended the obligation
> deadline for the grant. Therefore, if a PHA does not expend its entire
> grant by the 4-year deadline and the obligation deadline was not
> extended, the unexpended funds must be recaptured.
>
> The HUD FY 2003 Appropriations Act was signed on February 20, 2003.
> The Appropriations Act provides new requirements with regard to funds
> not obligated by the deadline. Specifically, the Appropriations Act
> provides that:
>
> *"any amounts made available under the public housing Capital Fund for
> fiscal years 1999, 2000, 2001, 2002 or 2003 that remain unobligated in
> violation of paragraphs (1) of such section 9(j) or unexpended in
> violation of paragraph (5)(A) of such section 9(j), the Secretary
> shall recapture any such amounts...."*
>
> Headquarters reviewed the 1999 Capital Fund grants last year to
> determine those in non-compliance and required those funds that failed
> to meet the obligation deadline to be recaptured. That recapture has
> been completed.
>
> Recently, the Department identified a FY 1999 Capital Fund grant that
> was not in compliance. This PHA did not appear in LOCCS because it did
> not have an approved ACC Amendment. These funds will be taken back by
> HUD and added to funds to be distributed to PHAs in the future. There
> also are a number of PHAs with FY 2000 grants that did not meet the
> obligation deadline. Pursuant to Section 9(j), those PHAs proceeded to
> obligate funds after the deadline. However, the Appropriations Act
> **requires** HUD to recapture any amounts not obligated or expended by
> the deadline. Since this change is statutory, the Department has no
> authority to waive the implementation of this provision.

Therefore, if your PHA did not obligate its FY 1999 or FY 2000 Capital
Funds by the obligation deadline and did not receive an extension of the
obligation deadline approved by the Secretary or the Deputy Secretary,
you must immediately cease obligating funds for those grants. HUD will
contact you in the near future to recapture funds not obligated by the
deadline.

> The expenditure deadline for FY 1998 and FY 1999 Capital Fund grants
> is September 30, 2003. If your PHA does not meet the expenditure
> deadline, it must immediately cease all expenditures. Your local HUD
> Field Office will contact you after each deadline to recapture funds
> not expended by the deadline.
>
> B. [Obligation deadline for FY 2001 grants]{.underline}. Pursuant to
> Notice PIH 2001-26, if your PHA's fiscal year began on January 1,
> April 1 or July 1, the obligation deadline is ***June 30, 2003*.** If
> your PHA's fiscal year began on October 1, its obligation deadline is
> ***September 30, 2003***. If you do not obligate 90 percent of your
> grant funds by those deadlines, you must cease obligating funding.
> Your local HUD Field Office will contact you after each deadline to
> recapture funds not obligated by the deadline.

C.  [Requests for Extensions.]{.underline} Only the Secretary or Deputy
    Secretary can approve extensions of the obligation deadline for
    Capital Fund grants. Extensions of the obligation deadlines shall
    only be justified based on the criteria in section 9(j) of the U.S.
    Housing Act of 1937, as amended. Specifically, extensions may be
    granted if failure of the agency to obligate in a timely manner is
    attributable to the following:

    -   Litigation;

    -   Obtaining approvals of the Federal Government or a State or
        local government;

    -   Complying with environmental assessment and abatement
        requirements;

    -   Relocating residents;

    -   An event beyond the control of the public housing agency; and

    -   Any other reason established by the Secretary by Notice in the
        [*Federal Register*.]{.underline}

> All requests, regardless of fiscal year, for extensions of the
> deadlines must be received in Headquarters no later than 30 days prior
> to the deadline. Requests submitted after that date will be denied.
> Requests are to be submitted to William C. Thorson, Director, Office
> of Capital Improvements, 451 7^th^ Street SW, Room 4146, Washington,
> DC 20410. Requests may be faxed to (202) 401-3997.

**10. Recapture Procedures.** Recapture of FY 1999[^3] and FY 2000
Capital Fund grants where the PHAs failed to obligate 90 percent of the
authorized amount by the obligation deadline date or fully expend by the
expenditure deadline date will be performed by HUD Headquarters. HUD
Headquarters will notify PHAs and Field Offices of the recapture and the
reduction in the grant amount.

> The following procedures are to be used by Field Offices for all FY
> 2001 and 2002 grants that do not meet the obligation or expenditure
> deadlines.

A.  Upon the occurrence of the obligation deadline, if the PHA failed to
    obligated 90 percent or more of the total grant, LOCCS will prevent
    further obligations and disbursements beyond he amount obligated as
    of the deadline. LOCCS puts an automatic review on disbursements
    after the expiration of the expenditure deadline.

B.  The Field Office should monitor LOCCS to identify potential data
    entry errors.

C.  The Field Office is to send a letter to each PHA that:

-   Advises them of Appropriations Act requirements.

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-   If any funds have been disbursed in excess of the amount obligated
    on the deadline, they are to wire transfer the excess funds back to
    HUD for that specific grant within 5 business days of receipt of the
    letter. See the wire transfer instructions attached.

-   Transmits an ACC amendment, if applicable, reducing the total grant
    to the amount obligated as of the deadline, which the PHA is to
    execute and return to the Field Office within 30 days. If no ACC was
    executed, notification that the grant has been recaptured.

-   If the ACC is not executed and received by the Field Office within
    30 days, HUD will unilaterally execute the ACC and proceed with
    recapture.

-   Alerts PHAs that if 90 percent of the funds for their FY 2001 grants
    are not obligated by the (6/30/2003 or 9/30/2003, as applicable)
    deadline, they are to cease obligations as of the deadline. The
    Field Office will be sending them an ACC to recapture those
    unobligated funds.

    A.  Upon execution of the ACC, the Field Office will immediately
        process the recapture.

    B.  The Field Office must notify Headquarters that the above has
        been accomplished by the deadline.

**11. Regulatory Requirements.** HUD plans to issue a Capital Fund
program regulation in the near future. Until a final rule is published,
PHAs should proceed in accordance with 24 CFR Part 968 for modernization
activities, except where statutory requirements prevail. For example,
PHAs must comply with 24-month obligation and 48-month expenditure
requirements of section 9(j) of the U.S. Housing Act of 1937, as
amended. In addition, all development activities must be processed in
accordance with 24 CFR Part 941, which requires the submission of
Development Proposal (§941.304) and a Site Proposal (§941.303).

**12. Paperwork Reduction.** The information collection requirements
contained in this notice have been approved by the Office of Management
and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C.
3501-3520) and assigned OMB control numbers 2577-0226 and 2577-0033. In
accordance with the Paperwork Reduction Act, HUD may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless the collection displays a currently valid OMB control
number.

**13. Office of Capital Improvements Web Site and Important Dates.**

To enhance communication with the public housing agencies the Office of
Capital Improvements has established a web site. Please check the
website to ensure that you have received the latest communications.

The Office of Capital Improvements Web site:

**[http://www.hud.gov/offices/pih/programs/ph/capfund/index.cfm]{.underline}**

To enable the Office to sent messages via e:mail and send direct
mailing, PHAs must be responsible for maintaining an up-to-date e:mail
addresses and mailing address in PIC.

  --------------------------------- ------------------ ------------------
  **Action(s)**                     **Significant      **Citation in
                                    Date(s)**          Notice**

  FYs 1998 &1999 Grants Expenditure September 30, 2003 See Paragraph 9(A)
  Deadline                                             

  PHAs mail ACC Amendments for FY   September 12, 2003 See Paragraphs 6 &
  2003 to FOs                                          7

  PHAs that Refuse CF Grants Notify September 12, 2003 See Paragraph 8
  FOs                                                  

  Field Offices Execute FY 2003 ACC September 17, 2003 See Paragraphs 6 &
  amendments                                           7

  Obligation & Expenditure Start    September 17, 2003 See Paragraphs 6 &
  Date for FY 2003 Grants                              7

  FY 2001 Obligation End Dates      June 30, 2003 or   See Paragraph 9(B)
                                    September 30, 2003 

  Requests for Secretarial or DAS   30 days prior to   See Paragraph 9(C)
  Extension for Obligation for FYs  the Obligation     
  2001 and 2002                     Deadline Date      

  PHA Deadline to Update PIC for FY September 30, 2003 See Paragraph 5
  2004 Capital Fund formula                            
  --------------------------------- ------------------ ------------------

For program questions you may contact the Office of Capital Improvements
via e:mail:

**PIH <OCI@HUD.GOV>**

**\_\_\_\_\_\_/s/\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_**

Michael Liu, Assistant Secretary

For Public and Indian Housing

[^1]: See Notice PIH 2003-10(HA) for obligation start date of RHF
    grants.

[^2]: The start dates for a Replacement Housing Factor grants are
    described in Notice 2003-10 (HA)

[^3]: After the recapture of FY 1998 and FY 1999 grants last year, the
    Department identified several grants that were reserved in PAS but
    not identified in LOCCS because the PHA did not have a signed ACC
    Amendment. These grants should have been targeted for recapture last
    year and were inadvertently missed.