U. S. Department of Housing and Urban Development

Office of Public and Indian Housing

Special Attention of: Notice PIH 96-56(HA)

Field Office Public Housing

Directors; ONAP Administrators; Issued: July 29, 1996

Field Accounting Divisions; Expires: July 31, 1997

Public Housing Agencies;

Indian Housing Authorities Cross References:

Subject: Policies and Procedures for Using Modernization Funds for

Development Activities and Development Funds for Modernization

Activities, and Modernization and Development Funds for

Operations

SECTION 1. BACKGROUND

1-1. PURPOSE. This Notice is to transmit to Public Housing Agencies and

Indian Housing Authorities (herein referred to as Housing

Authorities (HAs), and to HUD Field Offices (FOs), including

Offices of Native American Programs, the policies and procedures

for using modernization (MOD) funds for development activities and

development (DEV) funds for modernization activities, as well as

using MOD and DEV funds for operations. MOD funds mean funds

approved under either the Comprehensive Improvement Assistance

Program (CIAP) or the Comprehensive Grant Program (CGP). DEV funds

mean funds approved under either the Public Housing Development

Program or the Indian Housing Development Program. Note: Lead-Based

Paint Risk Assessment funds may be used only for their originally

funded purpose and, therefore, may not be used for development or

operations.

1-2. STATUTORY AUTHORITY.

A. MOD Funds for development and Other Activities. Section 201 of

the Omnibus Consolidated Rescissions and Appropriations Act

(OCRA) of 1996 (P.L. 104-134), enacted April 26, 1996, amended

section 14 of the United States Housing Act of 1937 (Act) by

adding a new subsection (q), which expands the eligible

activities which may be funded with 1996 and prior year MOD

funds. MOD funds may be usedfor any eligible activity authorized

PT: Distribution: W-3-1, R-3-1(PIH), R-6, R-7, R-9, 138-2, 138-7

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by Section 14 of the Act, by Section 5 of the Act, or by applicable

Appropriations Acts, including the demolition, rehabilitation,

revitalization, and replacement of existing units and projects. In

addition, up to 10 percent of the MOD funds in any fiscal year may

be used for any operating subsidy purpose authorized in Section 9

of the Act (see Section 4 of this Notice). Among the expanded

eligible activities is the development of dwelling units

through either new construction or acquisition, with or

without rehabilitation. Such development may include

replacement housing, as well as incremental (nonreplacement)

units. Eligible development activities include:

1\. Additional Funding with No Increase in Units. MOD funds

may be used to provide additional funding for an already

funded development program (existing development number)

which has not yet reached Date of Full Availability

(DOFA), where such funding does not result in any

additional units. In this case, MOD funds generally serve

the same purpose as development amendment funds. The

Department has established DOFA as a cut-off date for

additional funding with no increase in units so as not to

delay the original development program from proceeding to

fiscal closeout.

2\. Additional Funding with Increase in Units. Subject to the

requirements in paragraph 1-3, MOD funds may be used to

provide additional funding for an already funded

development program (existing development number) where

the construction contract has not yet been awarded or

where the construction contract has been awarded and the

increase in units does not exceed 5 units or 10 percent

of the original units, whichever is less. The Department

believes that this relatively small number of additional

units may be added to the original development program

through a contract modification to the construction

contract. A larger increase in units would not meet the

intent of 24 CFR 85.36 regarding full and open

competition and would mandate a separate procurement,

which may result in the selection of a second contractor;

in such case, contract administration would be extremely

difficult if there were more than one general contractor

working on the same site at the same time. Note: If the

number of units is increased on a Mutual Help

development, the Mutual Help Contribution amount on the

development budget shall include \$1,500 for each

additional unit and shall be funded from the original

reservation amount.

3\. Funding to Build or Acquire Units. Subject to the

requirements in paragraph 1-3, MOD funds may be used to

build or acquire units, which are not part of an already

funded development program, under a new development

project number. Note: Instructions for Mutual Help units

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are provided in Attachment 1.

Note: For CGP formula purposes, units are not counted until

they reach DOFA and are under the Annual Contributions

Contract (ACC) as of October 1 of the Federal Fiscal Year in

which the formula is run.

B. DEV Funds for Modernization Activities. Section 201 of the

OCRA also permits the use of DEV funds for modernization

activities, except DEV funds provided for priority replacement

housing. All outstanding DEV funds that were provided for

replacement housing or for litigation shall be used for their

originally approved purpose. DEV funds provided for MROP may

be used for modernization activities, unless previously

approved for replacement housing.

1-3. REQUIREMENTS ON USE OF MOD FUNDS FOR DEVELOPMENT.

A. Public Housing. Where MOD funds provide incremental units,

such units shall be developed under Section 5 of the Act and

placed under the ACC. Accordingly, such units shall be counted

for purposes of determining operating subsidy and the CGP

formula share.

1\. Section 5(i) Requirements. Under Section 5(j) of the Act,

the Field Office shall approve the use of MOD funds for

development activities only if the PHA certifies to HUD

regarding one of the following five conditions (a, b, c,

d or e):

a\. Eighty-five percent of its public housing units:

\(1\) are maintained in substantial compliance with

the housing quality standards established by

HUD; or

\(2\) will be so maintained upon completion of

modernization for which funding has been

awarded; or

\(3\) will be so maintained upon completion of

modernization for which applications are

pending that have been submitted in good faith

under Section 14 of the Act (or a comparable

State or local government program) and that

there is a reasonable expectation, as

determined by HUD in writing, that the

applications would be approved.

b\. Such development will replace dwelling units that

are disposed of or demolished by the PA, including

dwelling units disposed of or lost through sale to

tenants or through units redesign; or

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c\. Such development is required to comply with court

orders or directions of the Secretary; or

d\. It has demands for family housing not satisfied by

Section 8 for which it plans to construct or

acquire projects of not more than 100 units; or

e\. In the case of an elderly development, the use of

MOD funds for development will assist in expanding

the housing available for eligible persons.

2\. Capital Investment Requirement.

a\. Section 9(a)(2) of the Act permits the Department

to make operating assistance available only for

public housing units that have been \"developed\"

under an ACC authorized by Section 5 of the Act.

Section 5 authorizes the Department to make

financial contributions to HAs for the development

of public housing. Pursuant to Section 201(a) of

the OCRA, an HA may now also use Section 14

modernization funds for Section 5 development

activities. Thus, under the Act, the Department\'s

contribution of operating assistance to an HA is

predicated on the Department\'s contribution of

funds for development, regardless of whether such

funds were allocated to the HA under authority of

Section 5 or Section 14.

b\. By the same reasoning, a PHA may not use a nominal

amount of Federal capital assistance simply to

trigger operating assistance eligibility for

incremental (i.e., other than replacement) units.

As set forth in subparagraph 2a, only units

\"developed\" under Section 5 are eligible for

operating assistance under Section 9. Thus, it

would subvert the intent of the statute and the

structure of the program to commit public housing

operating assistance in a manner that is

essentially independent of public housing capital

assistance.

c\. The Department does not intend, at this time, to

set firm rules as to the level or nature of capital

investment that a PHA must make in order for

housing units to be eligible for public housing

operating assistance. Rather, the critical test for

determining operating subsidy eligibility should be

whether such units could have been developed but

for the HA\'s investment of Federal capital funds.

In general, the Department will consider this test

to have been met, without further scrutiny, if the

HA contributes Federal funds to the new

construction or acquisition with or without

rehabilitation amounting to at least 50% of the

computed total development cost (TDC) for a new

development with the same structure type and number

and size of units in the market area. A PHA may

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meet this test in all other cases (i.e., where it

contributes less than 50% of computed TDC), only

where it demonstrates to HUD\'s satisfaction that

the PHA\'s investment of Federal capital funds is

necessary to leverage other nonFederal capital

funds, and will not be used merely to trigger

eligibility for Federal operating assistance.

d\. The Department is aware that these restrictions

preclude a PHA from receiving Federal public

housing operating subsidies for incremental housing

units that would be donated to the PHA, or for

which the PHA would contribute a nominal amount of

capital funds. However, the Department believes

that this result is required by existing law and

that a different outcome would require further

Congressional action.

3\. Other Requirements. In addition to the requirements under

subparagraphs A1 and A2, the Field Office will approve

the use of MOD funds for incremental development

activities (i.e., other than replacement housing) only

if:

a\. The PHA has no unfunded emergencies or work

required to comply with Federal laws (e.g.,

accessibility for the disabled, lead-based paint

testing) or court-ordered settlements at existing

developments; and

b\. The CGP agency\'s proposed use of MOD funds for

development activities is not plainly inappropriate

to meeting the modernization needs identified in

the Comprehensive Plan; e.g., where the PHA has

substantial bacKlog modernization needs, unfunded

emergency work, or work required to comply with

Federal laws or court-ordered settlements at

existing developments; or

c\. The CIAP agency is using leftover CIAP funds; i.e.,

has completed the originally approved modernization

work. See paragraph 2-2A regarding use of leftover

CIAP funds.

4\. Exceptions. The requirements of subparagraphs A1, A2 and

A3 do not apply to the use of MOD funds for the following

development activities:

a\. Replacement units for HUD-approved demolition or

disposition where replacement units were not

provided through either the Public Housing or

Section 8 Programs; or

b\. Incremental units required to fulfill court-ordered

settlements.

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B. Indian Housing.

1\. General. The Area Office of Native American Programs

shall approve the use of MOD funds for development

activities only if:

a\. The IHA has no unfunded emergencies or work

required to comply with Federal laws (e.g.,

accessibility for the disabled, lead-based paint

testing) or court-ordered settlements at existing

developments; and

b\. The CGP agency\'s proposed use of MOD funds for

development activities is not plainly inappropriate

to meeting the modernization needs identified in

the Comprehensive Plan; e.g., where the IHA has

substantial backlog modernization needs, unfunded

emergency work, or work required to comply with

Federal laws or court-ordered settlements at

existing developments; or

c\. The CIAP agency is using leftover CIAP funds; i.e.,

has completed the originally approved modernization

work. See paragraph 2-2A regarding use of leftover

CIAP funds.

2\. Exceptions. The requirements of subparagraph B1 do not

apply to the following development activities:

a\. Replacement units for HUD-approved demolition or

disposition where replacement units were not

provided through either the Indian Housing or

Section 8 Programs; or

b\. Incremental units required to fulfill court-ordered

settlements.

1-4. LINE OF CREDIT CONTROL SYSTEM (LOCCS).

A. Program Areas. In LOCCS, the Modernization and Development

Programs are identified by the following program area

identifications, which are used in this Notice:

Program LOCCS Program Area Identification

CIAP CIAP

CGP COMP

Public Housing Development Program PDEV

Indian Housing Development Program TIHD

B. Expanded Access for Field Office (FO) and HA Staff. Where

appropriate, FO and HA staff should obtain expanded LOCCS

access authorization to both the Development and Modernization

program areas.

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SECTION 2. USE OF MOD FUNDS FOR DEVELOPMENT ACTIVITIES

2-1. GENERAL. Refer to paragraph 1-3 for policy requirements.

A. Minimum Amount. The minimum amount of MOD funds from each

modernization budget which may be used for development

activities is \$5,000. If the amount of MOD funds available is

less than \$5,000, the MOD funds should be reprogrammed for

other modernization activities; or, in the case of CIAP

agencies, the modernization program should be terminated and

proceed to audit and closeout, with recapture of the leftover

funds; or, in the case of CGP agencies, the MOD funds should

be placed into the replacement reserve, where appropriate.

B. New Account/BLI 1498. A new Account and LOCCS Budget Line Item

(BLI) 1498 have been created to identify, within the

modernization budget, MOD funds used for development. The HA

shall use Account 1498 to record, as part of the modernization

project cost, costs which are incurred for development

activities, but are funded by modernization. The HA shall

include development costs recorded in Account 1498 in the AMCC

for the modernization project which provided the funding.

2-2. REQUIRED MODERNIZATION DOCUMENTS. The HA shall request prior FO

approval to use MOD (CIAP or COMP) funds for development

activities, as follows:

A. CIAP Agencies. CIAP agencies may apply for new CIAP funds to

carry out development activities. Where CIAP agencies have

already been funded under the CIAP, it is expected that they

will carry out the modernization work as originally approved

in the CIAP Budgets since the CIAP funds were placed under the

ACC on the basis of specific needs. However, leftover funds

may be used to fund additional eligible work, including

development activities. In either case, the CIAP agency shall

submit to the FO the following modernization documents:

1\. Revised Form HUD-52825. CIAP Budget, for use of leftover

CIAP funds, including: Part I, showing the MOD funds to

be used for development activities in Account 1498; Part

II, providing the development project number (new or

existing) on which the MOD funds will be used; and Part

III, showing any necessary revisions to the

implementation schedule.

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Note: For use of new CIAP funds, the HA shall submit

a new CIAP Budget, where selected for funding by the FO;

2\. Form HUD-52820, HA Board Resolution, approving revised or

new CIAP Budget; and

3\. Evidence of resident/homebuyer and local/tribal

government consultation.

B. CGP Agencies. Since CGP agencies do not compete for CGP funds,

but receive an annual formula grant, CGP agencies may, with

prior FO approval, revise previously approved Forms HUD-52825,

CIAP Budget, or Forms HUD-52837, \[CGP\] Annual Statement, to

use CIAP or CGP funds to fund development activities. The CGP

agency shall submit to the FO the following modernization

documents:

1\. Revised Form HUD-52832. Physical Needs Assessment, to add

the new work category of development;

2\. Form HUD-52825, CIAP Budget (revised), or Form HUD-52837,

Annual Statement (revised or original) including: Part I,

showing the MOD funds to be used for development

activities in Account 1498; Part II, providing the

development project number (new or existing) on which the

MOD funds will be used; and Part III, showing any

necessary revisions to the implementation schedule;

3\. Form HUD-52836, PHA/IHA Board Resolution, approving

revised or original CIAP Budget or \[CGP\] Annual

Statement; and

4\. Evidence of resident/homebuyer and local/tribal

government consultation. Resident/homebuyer consultation

includes consultation with residents and duly elected

resident organizations of the developments covered by the

Comprehensive Plan; however, no public hearing is

required.

2-3. REQUIRED DEVELOPMENT DOCUMENTS. Concurrently with submitting

revisions to previously approved modernization documents, the HA

shall submit to the FO the following development documents:

A. Where additional funding is being provided for an existing

development:

1\. Revised development budget, as follows:

a\. Form HUD-52484, Development Cost Budget/Cost

Statement, on a blank line below line 52, entering

Account 1498, Mod Funds for Development, and on an

attachment, describing the development activities

to be carried out with MOD funds; or

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b\. Form HUD-53045A, Development Cost Budget, on line

49, Donations, entering Account 1498, Mod Funds for

Development. Account 1498 will share line 49,

Donations, solely because there are currently no

unused lines on Form HUD-53045A. Where actual

donations have previously been entered on line 49,

the HA shall enter the total donations and MOD

funds on line 49 and itemize the source of funds on

page 4, Subpart IV, Detail of Donations (Not MH

Contributions) - Itemized. The HA shall describe

the development activities to be carried out with

MOD funds on the lower portion of page 2. Note: MOD

funds for development are not considered local

contributions or donations and, therefore, are

included in the computation of Total Development

Cost (TDC). Although in the TDC computation, the

MOD funds (Account 1498) are charged to the

modernization program and not to the development

program.

2\. HA statement regarding the effect of the MOD funds, when

added to previously provided DEV funds, on the TDC of the

development. The additional MOD funds provided will be

included in the TDC calculation for the development.

3\. If the MOD funds will increase the number of units in an

already funded development program, HA evidence that the

additional units are covered by a Cooperation Agreement

between the HA and the local governing body. Note: The FO

shall initiate an ACC amendment to increase the number of

units being funded. The FO also shall require the HA to

execute and file for record the Declaration of Trust and

to provide HUD Counsel with a copy as soon as it has been

recorded.

B. Where funding is being provided for a new development, the HA

shall comply with all requirements set forth in 24 CFR Part

941 for Public Housing or 24 CFR Part 950, Subpart C, for

Indian Housing, including coverage of the units under the

Cooperation Agreement and an ACC amendment. The ACC amendment

will designate the new development project number, but will

not obligate any funds.

2-4. FO REVIEW AND APPROVAL. The FO shall review the submission and

approve unless:

A. The policy requirements in paragraph 1-3 have not been met; or

B. The HA has failed to submit all required documents or has

submitted incomplete documents; or

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C. The FO has evidence which tends to challenge, in a substantial

manner, the HA Board Resolution or any certifications or

statements.

2-5. FO ENTRY OF BLI 1498 IN LOCCS. The following example explains the

procedures for FO entry of BLI 1498 and for HA drawdowns against

BLI 1498:

A. Example #1: The USA HA has been approved to use \$6,000 of

COMP-A grant funds for an existing development that is already

funded by the PDEV-A grant.

1\. The FO accesses the COMP program area and the F01 screen

and enters the full 13-digit grant number of COMP-A (e.g,

US40P03670393). A menu is then displayed regarding

whether the FO wants to (1) redistribute existing MOD

funds or (2) use MOD funds for development. When the FO

selects (2), LOCCS asks for entry of the 11-digit

development grant number (e.g., PDEV-A, US40P036008) and

the number of additional units being funded (a number or

zero). LOCCS checks that the grant number entered has not

yet reached DOFA. The FO then enters an amount into BLI

1498 and revises other BLIs downward so that all the BLIs

continue to add up to the total funds originally approved

for the COMP-A grant.

2\. LOCCS then generates the appropriate Program Accounting

System (PAS) transaction to link funds from the existing

grant program code to a \"new\" PAS program code to

represent BLI 1498 in PAS. Since PAS requires an

overnight update, the funds in BLI 1498 are \"pending\" PAS

confirmation in LOCCS, and are unavailable for

disbursement until PAS confirmation is received by LOCCS

on the next business day.

3\. LOCCS maintains a MOD/DEV grant cross-reference for query

and reporting purposes. Queries are enhanced to show the

PDEV-A grant when querying COMP-A, and the additional

funding from the COMP-A grant when querying PDEV-A.

B. Example #2: The USA HA also has been approved to use \$10,000

of CIAP-A grant funds for an existing development that is

already funded by the PDEV-A grant. The FO follows the same

sequence as in Example #1. The FO accesses the CIAP program

area and the F01 screen and enters the full 13-digit grant

number of CIAP-A (e.g., US40P03691491). The FO selects the

PDEV-A grant and enters zero additional units. The PAS

transactions are generated and clear PAS by the next business

day.

C. Example #3:

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1\. The USA HA also has been approved to use \$100,000 of

COMP-B grant funds to acquire scattered site units for a

new development project, PDEV-C. The FO follows the same

sequence as in Examples #1 and #2. The FO accesses the

COMP program area and the F01 screen and enters the full

13-digit grant number of COMP-B grant (e.g.,

US40P03670494). The FO enters the 11-digit development

grant number for PDEV-C and the number of additional

units being funded. The PAS transactions are generated

and clear PAS by the next business day. Through Examples

#1, #2 and #3, funding for the USA HA is now represented

as follows:

Grant Example/Number Amount of Mod Funds Used

for

Original Funding Development

Activities

PDEV-A US40P036008 \$1,600,000 COMP-A \$

6,000

CIAP-A \$

10,000

PDEV-B US40P036009 \$1,500,000

PDEV-C US40P036010 -0- COMP-B

\$100,000

CIAP-A US40P03691491 \$ 400,000

PDEV-A (BLI 1498) \$

10,000

Other BLIs

\$390,000

COMP-A US40P03670393 \$ 600,000

PDEV-A (BLI 1498) \$

6,000

Other BLIs

\$594,000

COMP-B US40P03670494 \$ 700,000

PDEV-C (BLI 1498)

\$100,000

Other BLIs

\$600,000

COMP-C US40P03670595 \$ 500,000

2\. Where an entire modernization grant is being used for one

or more development grants, the FO shall first spread the

MOD funds to an existing modernization BLI. Then, in a

second step, the FO shall move all the funds to BLI 1498.

LOCCS generates the PAS transactions for 100 percent of

the MOD funds.

2-6. DRAWDOWN PROCEDURES IN LOCCS.

A. Example #1: To draw down MOD funds from the COMP-A grant for

the PDEV-A grant, the HA specifies the COMP program area and

the Voice Response System (VRS) number for the COMP-A grant.

When asked for a BLI, the HA enters 1498. VRS responds with:

\"THESE MOD FUNDS ARE

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TO BE USED ON BEHALF OF THE DEVELOPMENT GRANT PDEV-A.\" If the

COMP-A grant has multiple 1498 funding for multiple

development grants, the HA is asked to specify the particular

development grant for which the drawdown is being made.

B. Example #2. If the HA also needs to draw down funds from the

CIAP-A grant for the PDEV-A grant, the HA specifies the CIAP

program area and the VRS number for the CIAP-A grant.

C. Order of Drawdowns. There is no system edit in LOCCS regarding

the order of drawdowns where a development grant is being

funded by both DEV and MOD funds. However, the PHA may wish to

draw down MOD funds first because of the adverse impact which

unexpended MOD funds may have on the PHA\'s score on component

#1 of the Modernization Indicator under the Public Housing

Management Assessment Program (PHMAP).

D. LOCCS Functionality. Since MOD funds being used for

development remain in the modernization grant, they are

subject to all the LOCCS edits and requirements for the

applicable Modernization program area (e.g., CIAP or COMP),

including the requirement to update quarterly obligation and

expenditure information. Any suspensions or automatic review

of a modernization grant also affects any portion of that

grant which is being used for development.

2-7. IMPLEMENTATION AND CLOSEOUT. MOD funds being used for development

stay in the modernization grant and are not \"transferred\" to the

Development program area. Although such MOD funds are subject to

development programmatic requirements, they are included on the

AMCC, not the Actual Development Cost Certificate (ADCC), at

program closeout.

2-8. ADDING NEW DEVELOPMENT UNITS.

A. When the new development units reach the End of Initial

Operating Period (EIOP), the FO shall include the units in the

calculation of operating subsidy eligibility. The new units

are included in the Unit Months Available (UMAs) in the

Regional Operating Budgets and Obligations Tracking System

(ROBOTS).

B. At DOFA, the FO shall update the Project Master module in the

Integrated Business System (IBS).

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SECTION 3. USE OF DEV FUNDS FOR MODERNIZATION ACTIVITIES

3-1. GENERAL.

A. Minimum Amount. The minimum amount of DEV funds from each

development budget which may be used for modernization

activities is \$5,000. If the amount of DEV funds available is

less than \$5,000, the development program should be terminated

and proceed to audit and closeout, with recapture of the

leftover funds.

B. New Account/BLI 1499. A new Account and BLI 1499 have been

created to identify, within the development budget, DEV funds

used for modernization. The HA shall use Account 1499 to

record, as part of the development project cost, costs which

are incurred for modernization activities, but are funded by

development. The HA shall include modernization costs recorded

in Account 1499 in the ADCC for the development project which

provided the funding.

3-2. REQUIRED DEVELOPMENT DOCUMENTS. The HA shall request prior FO

approval to use DEV funds for modernization activities by

submitting to the FO the following development documents:

A. Revised development budget, as follows:

1\. Form HUD-52484, Development Cost Budget/Cost Statement,

entering Account 1499, DEV Funds for Modernization, on a

blank line below line 52; or

2\. Form HUD-53045A, Development Cost Budget, entering

Account 1499, DEV Funds for Modernization, on line 49,

Donations.

B. HA Board Resolution approving use of DEV funds for

modernization activities; and

C. Evidence of resident/homebuyer and local/tribal government

consultation. Resident/homebuyer consultation includes, for a

CGP agency, consultation with residents and duly elected

resident organizations of the developments covered by the

Comprehensive Plan or for a CIAP agency, consultation with

residents and duly elected resident organizations of the

developments affected by the modernization.

3-3. REQUIRED MODERNIZATION DOCUMENTS. Where DEV funds are used for

modernization activities, no revision to any active modernization

program is required. CGP agencies shall ensure that the

modernization activities

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being funded with DEV funds are set forth on the Physical Needs

Assessment or Management Needs Assessment, as appropriate; if not,

CGP agencies shall submit revisions to their needs assessments.

3-4. FO REVIEW AND APPROVAL. The FO shall review the submission and

approve unless:

A. The statutory requirements in paragraph 1-2B have not been

met; Note: FO approval will be given with the stipulation that

no development amendment funds will be provided or additional

MOD funds will be allowed at a later date if the remaining

funds in the development reservation are insufficient to

complete the development program where the construction

contract has already been awarded; or

B. The general requirement in paragraph 3-1A has not been met; or

C. The HA has failed to submit all required documents or has

submitted incomplete documents; or

D. The FO has evidence which tends to challenge, in a substantial

manner, the HA Board Resolution or any certifications or

statements.

3-5. FO ENTRY OF BLI 1499 IN LOCCS. Example #4 below explains the

procedures for FO entry of BLI 1499 and for HA drawdowns against

BLI 1499. The County HA has been approved to use \$20,000 of PDEV-X

grant funds for modernization.

A. The FO accesses the PDEV program area and the F01 screen and

enters the full 11-digit development grant number of PDEV-X

(e.g, CY40P052012). A menu is then displayed regarding whether

the FO wants to (1) redistribute existing DEV funding or (2)

use DEV funds for modernization. Since DEV funds used for

modernization are not associated with a specific modernization

grant in LOCCS, the funds are simply tracked in BLI 1499, and

in PAS with the new PAS program code.

B. Since PAS requires an overnight update, the funds in BLI 1499

are \"pending\" PAS confirmation in LOCCS, and are unavailable

for disbursement until PAS confirmation is received by LOCCS

on the next business day. After PAS confirmation, funding for

the County HA is represented as follows:

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Grant Example/Number Amount of DEV Funds Used for

Original Funding Modernization

Activities

PDEV-X CY40P052012 \$1,000,000 MOD (BLI 1499) \$20,000

PDEV-Y CY40P052013 \$2,000,000

3-6. DRAWDOWN PROCEDURES IN LOCCS.

A. Example #4. To draw down DEV funds from the PDEV-X grant for

modernization, the HA specifies the PDEV program area and the

VRS number for the PDEV-X grant. When asked for a BLI, the HA

enters 1499.

B. Order of Drawdowns. There is no system edit in LOCCS regarding

the order of drawdowns where a modernization grant is being

funded by both MOD and DEV funds. However, the PHA may wish to

draw down MOD funds first because of the adverse impact which

unexpended MOD funds may have on the PHA\'s score on component

#1 of the Modernization Indicator under the PHMAP.

C. LOCCS Functionality. Since DEV funds being used for

modernization remain in the development grant, they are

subject to the all the LOCCS edits and requirements for the

applicable Development program area (e.g., PDEV or TIHD). Any

suspensions or automatic review of a development grant also

affects any portion of that grant which is being used for

modernization.

3-7. IMPLEMENTATION AND CLOSEOUT. DEV funds being used for modernization

stay in the development grant and are not \"transferred\" to the

Modernization program area. Although such DEV funds are subject to

modernization programmatic requirements, they are included on the

ADCC, not the AMCC, at program closeout.

SECTION 4. USE OF MOD AND DEV FUNDS FOR OPERATIONS

4-1. GENERAL. Section 201 of the OCRA permits an HA to use up to 10% of

its allocation of MOD or DEV funds in any fiscal year (1996 and

prior years) for any operating subsidy purpose authorized in

Section 9 of the Act.

A. To track this new use, HUD has added a new Account/BLI 1406,

Operations, to the Chart of Accounts/LOCCS. For COMP, CIAP,

PDEV and TIHD, there is a hard edit for BLI 1406 in LOCCS

which will not allow disbursements exceeding 10% of the grant

amount.

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B. After the FO spreads or respreads the BLIs in LOCCS to reflect

funds authorized for BLI 1406, the HA may draw down 100% of

the authorized amount for BLI 1406 and place those funds in

its Operating Fund. Such funds shall be included on the

approved Operating Budget as \"Other Income\" and may be used

for any eligible operating expenditure. Such funds are not

included in the operating subsidy calculation since they fall

under the exclusion of grants or gifts. For modernization and

development purposes, the funds budgeted for BLI 1406 shall be

considered obligated and expended at the point of drawdown.

C. The offsetting credit for the Account 1406 charged to MOD cost

is Account 3000/3690: Operating Income, Other.

4-2. USE OF MOD FUNDS.

A. CGP Agencies.

1\. The HA is not required to identify operating needs on its

Physical and Management Needs Assessments or to specify

actual activities funded from Account 1406 on its

Performance and Evaluation Report.

2\. For the 1996 Annual Statement, the HA may allocate up to

10% of its annual formula grant to Account 1406 to be

used for operating expenditures in the HA\'s approved

Operating Budget. Where the FO has already approved the

1996 Annual Statement, the HA may amend its Annual

Statement to use funds for this purpose, as set forth in

subparagraph A3.

3\. For 1995 and prior year Annual Statements, the HA may

amend the Annual Statement(s) to allocate up to 10% of

each annual formula grant for Account 1406, where up to

10% is not yet obligated, to be used for operating

expenditures in the HA\'s approved Operating Budget. The

HA shall submit to the FO the revised Annual Statement,

Parts I and II only, evidence of consultation with

local/tribal government officials and residents and duly

elected resident organizations of the developments

covered by the Comprehensive Plan, and the HA Board

Resolution approving the revision. No public hearing is

required. The HA also shall request the FO to respread

the existing BLIs, for each grant affected, to show funds

authorized for Account 1406.

B. CIAP Agencies.

1\. For the 1996 CIAP Budget, the 10% limit on the use of MOD

funds for operations is applied to each individual CIAP

grant.

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2\. For 1995 and prior year CIAP Budgets, the HA may request

prior HUD approval to use leftover CIAP funds for

operations so long as the percentage of the grant to be

used for operations does not exceed 10%.

4-3. USE OF DEV FUNDS. The 10% limit on the use of DEV funds for

operations is applied to the total amount provided for the

development project, regardless of fiscal year of funding.

Acting Assistant Secretary for

Public and Indian Housing

Attachment

1

USING MOD FUNDS TO BUILD OR ACQUIRE MUTUAL HELP UNITS NOT

PART OF AN ALREADY FUNDED DEVELOPMENT PROGRAM

In addition to being subject to the conditions and requirements of this

Notice, the development of Mutual Help (MH) units not part of an already

funded development program requires additional actions on the part of

the IHA.

1\. When MOD funds are used for MH development, funds cannot be set

aside in the MH Contribution account 1503 in LOCCS for drawdown;

therefore, other provisions must be established to allow for the

disbursement of this account.

2\. The instructions in this attachment in no way affect the purposes

for which MH Contributions may be used. Consult the Mutual Help and

Occupancy Agreement at 24 CFR 950.437 and 24 CFR 950.440(e)(4) for

eligible uses.

3\. For the purposes of this Notice, the entire MH Contribution amount

will be drawn down in LOCCS and held by the IHA in accordance with

the following instructions:

a\. Cash contributions are not included in this procedure.

b\. At the Date of Full Availability (DOFA), the IHA requests a

drawdown of the entire MH contribution.

c\. The accounting transactions to record the drawdown of MH

Contributions funds remain unchanged; only the timing of the

drawdown is affected.

d\. Upon receipt, the funds may be invested in securities selected

by the IHA and approved by HUD (see Notice PIH 96-33, Required

HA Cash Management and Investment Policies and Procedures).

e\. Interest accrued on MH contribution investments is considered

IHA other income and becomes part of the operating reserve.

Note: These procedures only apply to development projects created

solely with MOD funds. Projects created under normal TIHD

procedures are not eligible to draw down MH contributions in

accordance with these procedures.