Section 112 of HUD Reform Act of 1989

Legal Opinion: GMP-0071

Index: 6.666

Subject: Section 112 of HUD Reform Act of 1989

April 7, 1992

Ms. Rosemarie Sabatino

Mr. Larry Volk

National Council of State Housing Agencies

444 North Capitol Street, N.W.

Suite 412

Washington, D.C. 20001

RE: Section 112 of the HUD Reform Act of 1989

Dear Ms. Sabatino and Mr. Volk:

This letter is a follow-up to your January 10, 1992 meeting

with Judy Keeler of my staff and Ed Murphy, Associate General

Counsel for Legislation and Regulations, and your subsequent

conversations with Ms. Keeler. At the meeting, and previously

with the Office of Ethics, your organization and representatives

from State Housing Finance Agencies raised several concerns

concerning the impact of the Section 112 requirements on the

operation of the HFAs. Since that meeting, you arranged to have

informational material illustrating the organization and

functions of an HFA forwarded to Ms. Keeler by one of the

representatives at the meeting, J. Judson McKellar, Jr., General

Counsel of the Virginia Housing Development Authority.

Ms. Keeler also has had brief discussions with you and David

Rawle of the Maryland Attorney General\'s Office and has reviewed

prior correspondence from Rebecca Peace of the Pennsylvania

Housing Finance Agency.

Recently, by letter of March 23, 1992, you raised similar

concerns about the impact of Section 112, as well as three other

HUD regulations, in response to the Department\'s request for

comments published in the February 20, 1992 Federal Register.

Your comments will be reviewed in the very near future by the

Regulation Review Committee. The Committee may decide on the

basis of your letter to make modifications to the regulations

implementing Section 112. This letter does not affect any action

which the Committee may take as a result of your comments.

You have raised the possibility of including HFAs within the

exemptions of State and local government officials contained in

24 CFR 86.20 (f) and 24 CFR 86.25 (f). This is one of the

issues that you raised that will be addressed by the Regulatory

Review Committee. Based upon our review, it is our opinion that

some HFA officials already are covered by the exemptions.

Pursuant to subsections (f)(3) of both 86.20 and 86.25, the

exemptions apply to: \"Full-time, appointed officials of a State

and local government who serve in policy-level positions. These

individuals include cabinet officials of a State and local

government, Community Development and Housing Directors, and

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Public Housing Authority Directors.\" Although HFAs are not

specifically mentioned in the Rule, they may be covered by the

exemption. For example, the Maryland program is operated through

a State Department. The Virginia Housing Development Authority

is a political subdivision of the State. It is our understanding

that other HFAs are similarly established and organized.

If an official of a covered HFA otherwise meets the

definition in the exemption, then that official would be exempt

from the Rule. However, the \"State and local government

exemption\" does not apply to all employees of the covered entity.

The Rule states:

To qualify for the exception, the individual

must occupy a position that is responsible

for setting policy for the organization, or

for participating in the development of that

policy with the organization head. The

exception does not include positions in which

the incumbent simply executes policy set by

others.

It is our understanding that the HFAs are primarily concerned

with the paperwork burden and impact on communications that you

perceive the requirements of the Rule implementing Section 112

may have on HFA employees. Because the exemptions are limited to

only official policy-making positions, they may not address this

concern.

As we have discussed, it is difficult to draw any rigid

distinctions between what communications by an HFA employee

represent an intent to influence a funding decision or management

action (and, therefore, are subject to the registration and

recordkeeping requirements of the Rule), and what communications

consist of efforts to comply with HUD conditions, requirements or

procedures (and, therefore, are not subject to those requirements

of the Rule). From the descriptions that you have provided to

us, it appears doubtful that the vast majority of communications

of HFA employees would constitute \"lobbying.\" In general, if the

communication is in response to a written HUD requirement, and is

made within established channels for receiving the communication,

then it is not a covered communication. The fact that the

communication may be designed to persuade HUD to take some action

is not dispositive.

For example, an employee\'s communication of problems in a

program to the appropriate Department representative comes within

the \"compliance with HUD requirements\" exception, if, as is most

often the case, such notification is provided for in the written

program guidance. Even if the communication is not required in

written program guidance, it would not be covered if the HFA was

responding to a request from a Department employee. Assisting in

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the preparation of an application for funds and advocating for

approval of the application would not constitute covered lobbying

as long as these activities were conducted within the framework

of established Department procedures. Participation in audits or

investigations would not be covered since they do not involve

either a funding decision or \"management action\" as defined in

the Rule. When a lender responds at HUD\'s request to a review of

its servicing activities, this communication is made in

compliance with HUD activities.

The HFA may wish to exercise control over which employees

would be covered by the Section 112 recordkeeping or registration

requirements by specifying which employees are authorized to make

lobbying contacts with the Department. The Rule focuses on

expenditures and agreements to make expenditures to influence a

funding decision or management action. As the response to

comment 64 in the Rule states: \"\... communications are

important, for purposes of this Rule, only if they are made as a

result of an expenditure or agreement to influence a departmental

decision.\" If lobbying is not intended to be part of an

employee\'s employment agreement or duties and responsibilities,

then the HFA may want to make that clear in some written

communication. We believe that the Pennsylvania Housing Finance

Agency has taken that action. However, note that the failure to

specifically direct an employee to engage in lobbying activity

would not, in and of itself, exclude the HFA from coverage under

the Rule. See the discussion in Section IV, number one of the

Appendix to the Rule at page 22951 of the May 17, 1991 Federal

Register.

We understand that, because of the relationship between the

HFA and the project owners and sponsors, it is sometimes

difficult to determine whether covered lobbying activity falls

within 86.20 (requirements for persons making expenditures to

obtain lobbying services) or 86.25 (requirements for persons

engaged to provide lobbying services). Based upon the

information available to us, it appears that most of the covered

activity comes within 86.20 (a)(i) or (a)(ii). Those

subsections include both lobbying on behalf of the HFA itself and

lobbying on behalf of another \"person,\" i.e., the project owner

or sponsor, where the HFA has a financial or other interest in

the project. Only in rare instances, none of which we are

presently aware, would the project owner or sponsor make an

expenditure to the HFA to conduct lobbying, thus subjecting the

HFA to the requirements of 86.25.

Under 86.20, the HFA is required to keep records of all

expenditures for lobbying activity. If the expenditures to

persons other than regularly employed personnel of the HFA total

more than \$10,000 in one year, then the HFA must report all such

expenditures. Compensation to regular employees of the HFA who

may be engaged in lobbying does not have to be reported under

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86.25. However, as we have discussed, the HFA employee who

engages in lobbying must comply with the registration provisions

of 86.25 within fourteen days of the date on which the

expectation that the employee will conduct lobbying arises.

We have considered your suggestion that the HFA be permitted

to submit one registration form for all employees, or one form

listing all employees who will be conducting lobbying with

respect to one project or Federal action number. This is also a

comment that you previously made to the Regulation Review

Committee. It will be reviewed and independently considered by

the Committee. In our opinion, this accommodation may be

precluded by the present language of the statute. Section 112

(c)(1) provides that any person who conducts lobbying of the

Department must register in writing. The registration must

include a statement whether the registrant has been employed by

the federal government within the two years preceding the

registration and, if so, in what capacity. Because of this

latter certification requirement, we believe that it is necessary

that each registrant fill out a separate registration form.

We hope that this information is helpful to you. We are

happy to continue our dialogue with you to assure that the

implementation of Section 112 does not have a deleterious effect

on the important function that Housing Finance Agencies have in

the Department\'s mission. If you, or your member organizations,

have specific questions about covered communications or

registration, reporting, or recordkeeping requirements, please

feel free to continue to address them to either to me or Judith

Keeler, Deputy Assistant General Counsel for Personnel and Ethics

Law.

Very truly yours,

Carole W. Wilson

Associate General Counsel

for Equal Opportunity and

Administrative Law