7485.3 G

CHAPTER 3. ALLOCATION OF FUNDS

3.1. OBJECTIVE. The objective of this Chapter is to set forth the

process used to allocate modernization funds to the aggregate of

HAs with fewer than 250 units which remain under the competitive

CIAP (known as CIAP agencies) and to individual HAs with 250 or

more units which are entitled to receive an individual formula

grant of funds under the CGP (known as CGP agencies). It also

describes the special procedures established for determining

funds to be made available by formula for CGP agencies which are

designated as Modernization (Mod) Troubled under the Public

Housing Management Assessment Program (PHMAP). \[Sec. 14(k);

\'968.103(a) or \'950.604(a)\]

3-2. GENERAL OVERVIEW.

A. Each FFY, once the amount of funds available for the

Modernization Program is known, HUD shall set aside funds

for two reserves: (1) the reserve for natural and other

disasters and for emergencies (see paragraph 3-8); and (2)

if applicable, a reserve to repay credits earned by CGP

agencies during the time they were designated as Mod

Troubled under the PHMAP (see paragraph 3-9). \[\'968.103(b)

and (c) or \'950.604(b) and (c)\]

B. After the funds for the two reserves have been set aside,

the remaining funds shall be allocated between CIAP and CGP

agencies on the basis of the formula described in paragraph

3-3.

3-3. DIVISION OF FUNDS BETWEEN BACKLOG AND ACCRUAL NEEDS. Once HUD

has determined the amount of funds to be allocated to the two

reserves described in paragraph 3-2, HUD shall allocate the

remaining funds based on the relative need among HAs for funds to

do modernization work. HUD shall divide these funds into two

equal \"pots\" of funds. One \"pot\" shall be allocated on the basis

of the backlog need for modernization work; the other \"pot\"\' on

the basis of the accrual need for modernization work. \[\'968-103(d) or
\'950-604(d)\]

A. Backlog Need. For purposes of fund allocation under the

Modernization Program, the backlog of modernization need is

defined as:

1\. Backlog of needed repairs and replacements of existing

physical systems in public housing developments;

2\. Items that must be added to developments to meet the

modernization and energy conservation standards under

\'968.115 or \'950.610, and

3-1

7485.3 G

State and local/tribal codes; and

3\. Items that are necessary or highly desirable for the

long-term viability of a development, in accordance

with HUD\'s modernization standards.

Note: Data for determining backlog need are derived from

1985 inspections of a sample of public housing developments.

These data were analyzed and reported in the \"Study of the

Modernization Needs of the Public and Indian Housing Stock:

National, Regional and Field Office Estimates: Backlog of

Modernization Needs,\" prepared by Abt Associates, Inc. of

Cambridge, Massachusetts, published in 1988 (the Abt study).

These data were edited by ICF, Inc.

B. Accrual Need. For purposes of fund allocation under the

Modernization Program, modernization needs accrue (arise

over time) and relate to the following categories of need:

1\. Backlog of needed repairs and replacements of existing

physical systems in public housing developments; and

2\. Items that must be added to developments to meet HUD\'s

modernization and energy conservation standards under

\'968.115 or \'950.610, and State and local/tribal codes.

Note: The amount of accrual need that arises over time is

estimated through a model of accrual of physical needs

developed by ICF, Inc., under contract to HUD, and described

in \"Future Accrual of Capital Repair and Replacement Needs

of Public Housing,\" published in 1989.

3-4. ALLOCATION FOR BACKLOG NEEDS. \[\'968.103(e) or \'950.604(e)\]

A. Determine Estimated Backlog Needs. HUD shall determine the

estimated backlog needs of all CIAP agencies taken as a

whole and the New York City Housing Authority (NYCHA) based

on direct estimates of backlog needs taken from the Abt

study. HUD then shall determine the estimated backlog needs

of the remaining CGP agencies on the basis of the formula

described in \'968.103(e) or \'950.604(e).

B. Calibrating Estimates of Backlog Needs. HUD shall adjust

upward the estimated backlog needs determined under

subparagraph A by multiplying the estimates by 50% to update

the costs of addressing this backlog need for developments

constructed before 1985. This adjustment, which updates for

inflation, accrued

3-2

7485.3 G

needs, and pipeline funding, brings the dollar amount of

modernization need in 1986 to the equivalent dollar amount

of unfunded modernization need as of 1991. It provides a

current base from which to deduct past modernization funding

for purposes of determining relative shares of unfunded

modernization needs, as set forth in subparagraph C.

C. Determining Fund Allocations. Once the estimated backlog

needs has been determined and calibrated, HUD shall

undertake the following adjustments to arrive at the

unfunded backlog of modernization needs at each HA.

1\. There is a deduction for prior CIAP and MROP funding.

Since such funding met some modernization needs other

than those estimated in the formula, HUD shall

determine the relative shares of modernization needs by

deducting 60% of CIAP funds made available for FFYs

1984-1991 on an HA-wide basis from each HA\'s estimate

of need. HUD also shall deduct 40% of MROP funding

provided to a PHA on a development-specific basis.

This deduction shall not exceed the estimated

calibrated backlog attributable to that development.

These deductions of prior CIAP and MROP funding shall

not reduce the HA\'s estimated calibrated backlog needs

by more than 50%.

Note: These percentages were determined on the basis of

estimated CIAP and MROP funds respectively that are assumed

to have actually been used for the types of modernization

needs identified in the Abt study.

2\. Additionally, newly constructed or acquired units with

a DOFA date of October 1, 1991 or thereafter will be

considered to have a zero backlog.

3\. This methodology will result in the determination of

each HA\'s share of unfunded backlog needs. HUD then

shall use this information to allocate modernization

funds on the basis of relative shares of unfunded

backlog needs to each CGP agency.

Example 1: Development B is an older development for which

\$8 million in MROP funds have been provided. Since it is an

MROP project, 40% of the MROP funds or \$3.2 million will be

deducted from the estimated backlog need for this property.

This deduction may not exceed the estimated need for the

development which received the MROP funding. The calibrated

formula estimate of backlog need for Development B is \$1.5

million. Since \$3.2 million is greater than the \$1.5

million estimate of

3-3

7485.3 G

backlog need for the development, the MROP deduction is

capped at \$1.5 million.

Example 2: The HA of Anytown, USA, has an estimated

calibrated backlog need of \$4.5 million. In FFYs 1984-1991,

it received \$3 million in CIAP funds, of which 60% or \$1.8

million will be deducted from its estimated backlog need.

Since \$1.8 million is less than 50% of the backlog estimate

of \$4.5 million, the full \$1.8 million is deducted from the

PHA\'s estimated backlog need, leaving a final unfunded

backlog need for formula allocation purposes of \$2.7

million.

Example 3: The HA of Largetown, USA, has an estimated

calibrated backlog need of \$20 million. In FFYs 1984-1991,

it received \$15 million in CIAP funds, of which 60% or \$9

million would be deducted from its estimated backlog need,

and \$10 million in MROP funds, of which 40% or \$4 million

would be deducted from its estimated backlog need. This

would provide a total deduction of \$13 million from the

estimated backlog need. However, since the estimated

backlog need will be reduced by no more than 50%, and \$13

million is more than \$10 million (50% of the estimated

backlog need for the PHA), the HA\'s final unfunded backlog

need for formula allocation purposes is \$10 million, 50% of

the original calibrated estimate.

D. Formula Characteristics and Weights. Refer to Appendix 3-1

for a summary explanation of the formula characteristics and

weights for backlog need. This appendix is derived from

Appendix B, HUD Report to Congress on Alternative Methods

for Funding Public Housing Modernization, dated April 1990.

3-5. ALLOCATION FOR ACCRUAL NEEDS. \[\'968.103(f) or \'950.604(f)\]

A. Determining Estimated Accrual Needs. HUD shall determine

the relative shares of accrual needs of all CIAP agencies

taken as a whole and the NYCHA based on direct estimates of

accrual need derived from the ICF study, since statistically

reliable data are available for the CIAP agencies and the

NYCHA. The ICF accrual model shall be applied to these

direct estimates of accrual to develop the estimate of

relative shares of accrual need. HUD then shall determine

the accrual needs of the remaining CGP agencies on the basis

of the formula described in \'968.103(f) or \'950.604(f).

B. Formula Characteristics and Weights. Refer to Appendix 3-1

for a summary explanation of the formula characteristics and

weights for accrual need. This appendix is derived from

Appendix B, HUD Report to Congress on Alternative Methods

for Funding Public Housing Modernization, dated April 1990.

3-4

7485.3 G

3-6. ALLOCATION FOR CIAP. After HUD determines the share of the total

funds available for the Modernization Program to be used for CIAP

agencies, as described in paragraphs 3-4 and 3-5, HUD shall

allocate CIAP funds to the FOs based on their relative shares of

backlog and accrual needs for CIAP agencies. \[\'968.103(g) or

\'950.604(g)\]

3-7. ALLOCATION FOR CGP. \[\'968.103(h) or \'950.604(h)\]

A. General.

1\. Allocations of modernization funds under the CGP are

determined on the basis of HA, project and community

characteristics. These characteristics are used as

formula elements in the backlog and accrual formulas

described in the CGP regulation. These formulas result

in allocations on a per unit basis. Therefore, the

total allocation to a CGP agency is the per unit amount

determined on the basis of HA, development, and

community characteristics, times the number of units

eligible for funding under the CGP. However, any

amounts allocated to a CGP agency may be used for any

eligible activity under Chapter 2, notwithstanding that

the allocation amount is determined by allocating half

based on the relative backlog needs and half based on

the relative accrual needs of HAs. \[\'968.103(i) or

\'950.604(i)\]

2\. HUD strongly encourages the HA to explore with State or

local/tribal governments the possibility of obtaining

additional funding to supplement CGP funds to meet

modernization needs. HUD shall not reduce the HA\'s

formula amount as a result of State, local/tribal or

other contributions to the HA.

3\. HUD\'s current database system which contains relevant

information on HA characteristics is the Integrated

Business System (IBS).

B. Formula Characteristics Report (FCR). \[\'968310(a) or

\'950.650(a)\]

1\. Before the start of each FFY, HUD shall transmit to

each HA the FCR, produced from the data contained in

the IBS. The data shall include the amounts previously

funded under the CIAP and MROP, on which the deductions

from the HA\'s share of need for funding for the backlog

of modernization will be based.

3-5

7485.3 G

2\. The HA shall verify, correct and provide additional

data, as necessary, on the FCR and return it to HUD.

The HA shall ensure that all existing units are

counted, including the actual number of Turnkey III

units. Units decreases due to demolition, disposition,

conversion or conveyance shall be reflected on the FCR.

The HA is encouraged to contact the FO as discrepancies

are noted to facilitate subsequent HUD review and

minimize the need for appeal actions. For example, if

there is a discrepancy regarding the unit count, the HA

should contact the FO to discuss the source of the data

and reasons for the discrepancy. If the FCR is

correct, the HA shall so notify HUD. If the HA fails

to submit the FCR by the prescribed deadline or to

notify HUD that the FCR is correct as is, HUD shall use

the data which it has available concerning HA and

development characteristics for the purpose of

calculating the HA\'s annual formula share and the HA

has no appeal rights based on error in the data (see

subparagraph E2). However, if HUD has information that

the data are incorrect because the HA has failed to

update the FCR, HUD shall contact the HA regarding the

error(s) and correct the database before running the

formula.

3\. The FO shall review the FCR and any corrections made by

the HA. If there are data elements that are

questionable, the FO shall discuss these areas with the

HA and attempt to resolve any discrepancies. Where

discrepancies can be resolved or where the FO agrees

with the corrections, the FO shall enter the

corrections into the database. Where discrepancies

cannot be resolved, the FO shall not enter the

corrections into the database; the HA may subsequently

appeal based on error (see subparagraph E2).

C. Calculating the Number of Units.

1\. General. For purposes of determining the number of

units owned or operated by the HA, and the relative

modernization needs of HAs, the formula shall value as

one unit each existing rental, Section 23 Leased

Housing Bond-Financed, and Mutual Help unit under the

ACC. The formula also shall value as one-fourth of a

unit each existing unit under the Turnkey III program

to take into account the homebuyer responsibility for

the costs of certain maintenance and repair.

\[\'968.103(j) or \'950.604(j)\]

2\. Adding Units. New units which are added to the HA\'s

inventory (or increases resulting from the conversion

of existing units) shall be added to the overall unit

count so long as they are under ACC amendment and have

reached DOFA

3-6

7485.3 G

as of the first day in the FFY (October 1) in which the

formula is being run. Any increase in units (reaching

DOFA and under ACC amendment) as of the beginning of

the FFY shall result in an adjustment upwards in the

number of units under the formula. New units added

after this date will be counted for formula purposes as

of the following FFY. \[\'968.103(j) or \'950.604(j)\]

3\. Reducing Units. \[\'968.103(k) or \'950.604(k)\]

a\. Where an existing unit under the ACC is

demolished, disposed of, or converted into a

larger unit, HUD shall not adjust the amount the

HA receives under the formula, unless more than

one percent of the overall unit count is reduced

on a cumulative basis. Where the reduction in

units is greater than one percent, HUD shall phase

out the number of units counted for formula

purposes over a three-year period.

b\. In implementing this provision, HUD shall compare

the units identified in the FCR in the initial

year under formula funding with the number of

units identified in the FCR in the current year.

If the change is less than one percent, HUD shall

fund the HA as though no change had occurred. If

the change is greater than one percent, the

formula will calculate the HA\'s formula share on

the basis of the number of units identified in the

FCR in the current year, plus two thirds of the

difference between the initial year and the

current year in the first year, plus one third of

the difference in the second year, and at the

level of the current year in the third year.

c\. After the third year, the formula funding will

reflect the full reduction in the HA\'s unit count.

This reduced number of units shall serve as the

new base for purposes of calculating in the future

whether there has been another one percent

reduction in the overall unit count on a

cumulative basis. If so, HUD shall phase out the

number of units counted for formula purposes over

a three-year period.

d\. Units which are lost as a result of demolition,

disposition, conversion, or conveyance shall not

be offset against units subsequently added to the

HA\'s inventory. Additions to and reductions from

the unit inventory are separate actions that shall

be reflected on the FCR and computed in accordance

with the

3-7

7485.3 G

provisions of this paragraph.

e\. Mutual Help and Turnkey III units which are paid

off, but not conveyed shall not result in a

reduction in the unit count until they are

conveyed. When conveyed, Mutual Help units,

Turnkey III units, and rental units under HOPE I,

HOPE III and Section 5(a) shall result in an

immediate, rather than a phased-in, reduction in

the unit count.

4\. Database Corrections. To ensure that the IBS accurately

reflects the HA\'s unit count, the FO shall correct the

number of units in the IBS within 30 calendar days after

any of the following events occur or by September 30 of

the FFY in which the event occurs.

a\. Completion of approved work to convert units to

different sizes, resulting in an increase or

decrease in the number of units;

b\. Execution of a sales contract for a disposition;

c\. Start of approved work for a demolition; or

d\. Conveyance of a Mutual Help, Turnkey III or rental

unit.

D. HUD Notification of Formula Amount. HUD shall notify the HA

of its formula amount, as well as provide a copy of the FCR

used. in the formula database. \[\'968.310(b) or \'950.650(b)\]

In addition, HUD shall notify the PHAs designated as Mod

Troubled, under the Public Housing Management Assessment

Program (PHMAP) at 24 CFR Part 901, of their reduced formula

amounts. HUD shall calculate the reduced funding level as

follows: \[\'\'968.103(c) and 968310(c)\]

1\. The average of the amount that the Mod Troubled PHA

received for modernization activities under the CGP, CIAP

and MROP, for each of the preceding three FFYs, which

average shall be adjusted to take into account changes in

the cost of rehabilitating property based upon the Means

Construction Cost Index; plus

2\. 25% of the difference between the amount determined

under subparagraph D1, and the amount that would have

been allocated to the PHA for the FFY if it were not

designated as Mod Troubled.

E. Appeal Rights. The HA may appeal in writing to the FO HUD\'s

determination of its formula amount on the basis that: (1)

there

3-8

7485.3 G

are unique circumstances applicable to the HA; (2) there has

been an error with respect to the HA, development and

community characteristics used by HUD to determine the HA\'s

formula amount, including an error in HUD\'s determination of

the amount of past CIAP and MROP funding; and/or (3) the

PHA\'s reduced formula amount because of its Mod Troubled

designation should be increased. Any successful appeal on

the basis of data error will result in a permanent change to

the HAs formula share. However, the HA that fails to submit

either the FCR or its appeal to the FO by the prescribed

deadline forfeits the right to appeal its formula amount for

the current FFY. \[\'968.310(b) or \'950.650(b)\]

1\. Appeal Based on Unique Circumstances.

a\. HA Appeal. The HA may appeal in writing HUD\'s

determination of its formula amount within 60

calendar days of the date of HUD\'s determination

on the basis of unique circumstances. The HA

shall indicate how it is unique, specify the

manner in which it is different from all other CGP

agencies, and provide any necessary supporting

documentation. HUD wishes to emphasize that it

considers approvable grounds for appeals based

upon unique circumstances to be difficult to

obtain and that approval of an appeal for a given

HA means that other CGP agencies will receive less

funding. An example of what may be an approvable

unique circumstance is a development which is

located in close proximity to an Environmental

Protection Agency Superfund site and requires

extraordinary modernization to ensure the health

and safety of residents. Examples of non-approvable

appeals based on unique circumstances

are family high-rises, developments in high crime

areas, and developments spread over a large

geographic area.

b\. FO Review/Recommendation. The FO shall review the

HA\'s written appeal and forward it with comments

and recommendations for approval or disapproval,

within 30 calendar days after receipt of the HA\'s

appeal, to Headquarters.

c\. Headquarters Decision. After reviewing the HA\'s

written appeal and the FO\'s comments and

recommendations, Headquarters shall render a

written decision on the HA\'s appeal within 30

calendar days (60 calendar days after FO receipt

of the HA\'s appeal). Headquarters shall publish

in the Federal Register a description of the facts

supporting any successful appeal based upon unique

circumstances.

3-9

7485.3 G

d\. Provision of Funds. Any additional funds

resulting from a successful appeal based on unique

circumstances shall be provided from subsequent

FFYs allocation of CGP funds.

2\. Appeal Based Upon Error.

a\. HA Appeal. The HA may appeal in writing HUD\'s

determination of its formula amount within 60

calendar days after the date of HUD\'s

determination on the basis of an error in the FCR

data. The HA shall describe the nature of the

error and provide any necessary supporting

documentation.

b\. FO Review/Decision. The FO shall review the HA\'s

written appeal and render a written decision on

the this appeal within 60 calendar days after

receipt.

c\. Notification to Headquarters. The FO shall

immediately inform Headquarters in writing of the

results of any successful appeals based on error.

d\. Adjustment to Formula. Any adjustment to the

formula allocation resulting from a successful

appeal on the basis of error shall be made from

subsequent FFYs allocation of CGP funds.

3\. Appeal of Reduced Formula Allocation for PHAs

Designated as Mod Troubled under PHMAP (Not Applicable

to IHAs).

a\. HA Appeal. After the PHA is designated Mod

Troubled under PHMAP (24 CFR Part 901), HUD shall

inform the PHA that its CGP funding may be limited

because of its designation. The PHA may petition

HUD within 30 calendar days after the receipt of

HUD\'s notification for an increase in the amount

of its fund allocation. (Note: The procedures for

appeal of the Mod Troubled designation are set

forth under the PHMAP.) The PHA shall describe

the circumstances that warrant an increase in its

reduced formula amount. For example, the PHA may

have a new Executive Director who is improving the

PHA\'s performance, and it can be demonstrated that

the PHA\'s plan for improvement requires more funds

than those provided by the reduced allocation.

The PHA shall specify how it is achieving or

making progress toward achieving the goals and

targets set forth in its Memorandum of Agreement

(MOA).

3-10

7485.3 G

b\. FO Review/Decision. The FO shall review the PHA\'s

written appeal and render a written decision on

the HA\'s appeal within 60 calendar days after

receipt. The FO shall determine whether to

increase the amount of assistance to provide the

Mod Troubled PHA based upon the PHA\'s demonstrated

progress in meeting goals and targets set forth in

the PHA\'s MOA under the PHMAP, and toward

achieving satisfactory performance under the PHMAP

modernization indicator.

c\. Notification to Headquarters. The FO shall

immediately inform Headquarters in writing of the

results of any successful appeals of the reduced

formula amount so that Headquarters can

immediately provide up to the full formula amount

in the same FFY.

d\. Maximum Allowable Allocation. The maximum amount

that HUD may provide to a PHA under this

subparagraph is the amount that it would have been

allocated if it had not been designated as Mod

Troubled. Where the full formula allocation is

less than the average of funding received by the

PHA under the CGP, CIAP and MROP for each of the

preceding three FFYs, the PHA shall receive its

full formula amount, plus 25% of the difference

between that figure and its full formula amount.

Note: The PHA that has successfully appealed its

reduction in formula allocation continues to be a

Mod Troubled PHA until such time as the

designation is formally removed in accordance with

procedures prescribed under the PHMAP.

Note: Where the PHA is no longer designated as

Mod Troubled, the PHA is entitled to receive a

portion of its credits under paragraph 3-9E, in

addition to its full formula allocation.

e\. Reallocation of Funds Withheld from Mod Troubled

PHAs. Any amounts which are not provided to the

PHA under subparagraph D3 because of its Mod

Troubled designation, shall be reallocated by HUD

to other CGP agencies that are not designated as

either Troubled or Mod Troubled under the PHMAP,

and to CGP IHAs that have not been determined to

be high risk for modernization in accordance with

\'950.135, at the time the formula was originally

run for that FFY. Such funds shall be reallocated

in the next FFY based upon the

3-11

7485.3 G

relative needs of these PHAs and IHAs, as

determined under the formula.

3-8. RESERVE FOR DISASTERS AND EMERGENCIES. \[\'968.104 or \'950.606\]

A. Funding of Reserve. For each FFY, HUD shall reserve from

amounts approved in the Appropriations Act for the

Modernization Program, an amount not to exceed \$75 million

which shall include unused reserve amounts carried over from

previous FFYs and which shall be made available to both CGP

and CIAP agencies for modernization needs resulting from

natural and other disasters, and from emergencies. HUD

shall replenish this reserve at the beginning of each FFY.

B. Emergencies.

1\. Definition. As defined in paragraph 1-6, an emergency

is a physical need of an emergency nature, posing an

immediate threat to the health or safety of residents,

which must be corrected within one year of funding.

2\. Eligibility for Funds.

a\. The HA (including a designated Mod Troubled PHA)

is eligible to apply for and receive funds from

the reserve to the extent that there are not

adequate funds to address the emergency condition

from: its annual formula allocation of CGP funds;

other unobligated CGP or CIAP funds; or its

replacement reserve under paragraph 2-7.

b\. The HA is not required to have an approved

Comprehensive Plan before it can request emergency

assistance from the reserve.

3\. Repayment. The HA that receives assistance from the

reserve to correct emergency conditions shall repay

such assistance from its future formula allocations,

where available, since they are the type of work which

is included in the formula. HUD shall deduct 50% of

the HA\'s succeeding year\'s formula allocation until the

amount provided for emergencies from the reserve is

repaid, unless a different repayment schedule is

approved by the FO. The annual notification of the

formula amount shall contain the amount of this

deduction, and the balance remaining to be paid, if

any.

3-12

7485.3 G

C. Natural and Other Disasters.

1\. Definition. A natural or other disaster is an

extraordinary event, such as a hurricane or earthquake,

affecting only one or a few HAs and includes any

disaster declared by the President or any event which

HUD determines would qualify for a Presidential

declaration if it were on a larger scale.

2\. Eligibility for Funds.

a\. The HA (including a designated Mod Troubled PHA)

is eligible to apply for and receive funds from

the reserve regardless of the availability of

other modernization funds or reserves, but only to

the extent that its needs are in excess of its

expected reimbursement from insurance and other

sources, such as the Federal Emergency Management

Administration (FEMA).

b\. The HA is not required to have an approved

Comprehensive Plan to obtain funds from the

reserve to address modernization needs caused by

natural and other disasters.

3\. Repayment. Funds received from the reserve to repair

damages resulting from a disaster are not to be repaid

by the HA since they are the result of events which

could not be forecasted and, therefore, could not be

included in the formula.

D. Application. Refer to paragraph 6-9 for instructions on

applying for funds from the reserve.

3-9 RESERVE FOR CREDITS. This paragraph does not apply to IHAs.

\[\'968.103(c) and \'968.310(c)\]

A. General. After deducting amounts for the reserve for

natural and other disasters and for emergencies under

paragraph 3-8, HUD shall set aside no more than 5% of the

remaining amount for the purpose of providing credits to

PHAS, excluding IHAs, that were formerly designated as Mod

Troubled. The purpose of this set-aside is to compensate

these PHAs for amounts not allocated by HUD because of their

prior designation as Mod Troubled.

B. Non-Applicability to IHAs. Since the PHMAP performance

indicators under 24 CFR Part 901 do not apply to IHAs, they

cannot be deemed \"Mod Troubled\" for purposes of the CGP.

Hence, IHAs are not subject to any reduction in funding

under section

3-13

7485.3 G

14(k)(5)(a) of the Act and do not participate in the reserve

for credits established under subparagraph A.

C. Accrual of Credits. The PHA that has received a reduced

formula allocation because it was designated as Mod Troubled

may accrue credits for up to three consecutive FFYS,

representing the difference between:

1\. The amount the PHA would have been allocated for the

FFY if it were not designated as Mod Troubled; and

2\. The reduced funding amount actually provided to the PHA

because it was designated as Mod Troubled.

D. Failure to Remove Mod Troubled Designation. After a three-year

period during which the Mod Troubled PHA has accrued

credits under subparagraph C, the credits accrued by the PHA

shall be:

1\. Decreased by 10% of the total accumulated credits if

the PHA\'s designation as Mod Troubled is not removed

before the end of the first FFY following the three-year

accrual period;

2\. Decreased by an additional 20% of the original total

accumulated credits if the PHA\'s designation as Mod

Troubled is not removed before the end of the second FFY

following the three-year accrual period;

3\. Decreased by an additional 30% of the original total

accumulated credits if the PHA\'s designation as Mod

Troubled is not removed before the end of the third FFY

following the three-year accrual period; and

4\. Eliminated if the PHA\'s designation as Mod Troubled is

not removed before the end of the fourth FFY following

the three-year accrual period.

E. Obtaining Credits.

1\. Determining CGP Agency No Longer Mod Troubled. HUD

shall make the determination that a PHA is no longer

Mod Troubled based upon its achieving satisfactory

performance under the PHMAP modernization indicator.

3-14

7485.3 G

2\. Determining Amount of Accrued Credits. The additional

assistance under this subparagraph shall be provided to

the formerly Mod Troubled PHA beginning in the FFY in

which the PHA is no longer Mod Troubled at the time the

formula is run. HUD will notify the PHA of the

prorated amount of the accrued credits which it will

receive in the current FFY, with the notification of

its formula amount, so that the PHA may include the

additional assistance when developing its Annual

Statement. Such assistance shall be provided to the

PHA in addition to the PHA\'s regular formula allocation

and shall consist of:

a\. The prorated amount of credits accumulated by the

PHA under subparagraph C; minus

b\. Any reductions under subparagraph D to the total

accumulated credits, based upon the length of time

that the PHA has taken to remove its Mod Troubled

designation; and

c\. Adjusted by HUD to take into account the PHA\'s

ability to expend expeditiously the accrued credit

amounts. HUD shall consult with the PHA to

determine the rate at which the PHA shall be

provided access to its credits. In general, HUD

intends to provide the PHA with 10% of its accrued

credits in the first year; an additional 20% of

its accrued credits in the second year; an

additional 30% of its accrued credits in the third

year; and the remaining 40% of its accrued credits

in the fourth year.

3\. Pro Rata Reduction in Assistance. In any FFY where

formerly Mod Troubled PHAs are entitled to credits

exceeding the 5% reserve, HUD shall apply a pro rata

reduction for each formerly Mod Troubled PHA for such

FFY. The PHA shall remain entitled to receive its

outstanding balance of credits, including any credits

not actually received because of such pro rata

reduction, in future FFYs, depending upon the

availability of funds in the set-aside under

subparagraph A.

3-15