42512 Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Rules and Regulations

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Part 964

[Docket No. FR–4501–F–02]

RIN 2577–AC12

Direct Funding of Public Housing

Resident Management Corporations

AGENCY: Office of the Assistant

Secretary for Public and Indian

Housing, HUD.

ACTION: Final rule.

SUMMARY: On October 21, 1999, HUD

published a proposed rule to revise its

regulations regarding resident

participation and resident opportunities

in public housing. The rule proposed

that a resident management corporation

(RMC) may receive capital and

operating funds from HUD if the RMC

has primary management responsibility

for the public housing project and HUD

determines that the RMC has the

capacity to effectively discharge such

responsibility. This rule makes final the

policies and procedures contained in

the October 21, 1999 proposed rule, and

takes into consideration the public

comments received on the proposed

rule. After careful consideration of all

the public comments received on the

October 21, 1999 proposed rule, HUD

has decided to adopt the proposed rule

without change.

DATES: Effective Date: August 9, 2000.

FOR FURTHER INFORMATION CONTACT:

Paula Blunt, Associate Deputy Assistant

Secretary, Department of Housing and

Urban Development, Office of Public

and Indian Housing, 451 Seventh Street,

SW, Room 4226, Washington, DC 20410;

telephone (202) 619–8201 (this is not a

toll-free telephone number). Persons

with hearing or speech disabilities may

access this number via TTY by calling

the free Federal Information Relay

Service at 1–800–877–8339.

SUPPLEMENTARY INFORMATION

I. Statutory Background

A. Resident Management of Public

Housing

Section 20 of the United States

Housing Act of 1937 (42 U.S.C. 1437 et

seq.) (referred to as the ‘‘1937 Act’’)

encourages resident management of

public housing projects as a means of

improving existing living conditions in

public housing. HUD has implemented

section 20 in its regulations at 24 CFR

part 964 (entitled ‘‘Tenant Participation

and Tenant Opportunities in Public

Housing’’).

Under section 20, and 24 CFR part

964, public housing residents may form

resident management corporations

(RMCs) for the purposes of managing

public housing. The RMC enters into a

management contract with the public

housing agency (PHA) establishing the

respective management rights and

responsibilities of the RMC and the

PHA. The contract may provide for the

RMC to perform any or all of the

management functions for which the

PHA is responsible to HUD. The

performance of the RMC is subject to

periodic review by the PHA to ensure

that the RMC complies with all

applicable requirements and standards

of performance.

B. Public Housing Reform

On October 21, 1998, President

Clinton signed into law the Quality

Housing and Work Responsibility Act of

1998 (Title V of the Fiscal Year 1999

HUD Appropriations Act; Public Law

105–276; 112 Stat. 2461, 2522) (referred

to as the ‘‘Public Housing Reform Act’’).

The Public Housing Reform Act

constitutes a substantial overhaul of

HUD’s public housing and Section 8

assistance programs. The changes made

by the Public Housing Reform Act are

directed at revitalizing and improving

HUD’s public housing and Section 8

tenant-based programs. These changes

are also designed to provide for more

resident involvement, and to increase

resident participation and awareness in

creating and maintaining a positive

living environment.

II. The October 21, 1999 Proposed Rule

On October 21, 1999 (64 FR 56890),

HUD published a proposed rule to

amend 24 CFR part 964. The purpose of

the proposed rule was to implement the

statutory changes made to section 20 of

the 1937 Act made by section 532 of the

Public Housing Reform Act. Section 532

of the Public Housing Reform Act

provides for the direct provision of

capital and operating assistance to an

RMC if: (1) The RMC petitions HUD for

the release of the funds; (2) the

management contract between the RMC

and the PHA provides for the RMC to

assume the primary management

responsibilities of the PHA; and (3)

HUD determines that the RMC has the

capability to effectively discharge such

responsibilities.

The proposed rule provided that HUD

would consider this third requirement

to be satisfied if the RMC is designated

at least a ‘‘standard performer’’ under

the Public Housing Assessment System

(PHAS) (see 24 CFR part 902); and the

RMC is not in violation of any financial,

accounting, procurement, civil rights,

fair housing, or other program

requirements that HUD determines call

into question the capability of the RMC

to effectively discharge its

responsibilities under the contract.

In all other cases where direct funding

to an RMC is not provided, operating

and capital funding would be provided

to the RMC by the PHA. If HUD

provides direct funding to an RMC, the

PHA would not be responsible for the

actions of the RMC.

In addition to implementing section

532 of the Public Housing Reform Act,

the October 21, 1999 proposed rule also

proposed to make one clarifying change

to 24 CFR part 964. Specifically, the rule

proposed to revise § 964.225 (entitled

‘‘Resident management requirements’’)

to clarify that an RMC must be in

compliance with any local licensing

requirement, or other local requirement

governing the qualifications or

operations of a property manager.

The preamble to the October 21, 1999

proposed rule provides additional

information regarding the changes to 24

CFR part 964.

III. This Final Rule

This final rule makes effective the

policies and procedures contained in

the October 21, 1999 proposed rule. The

public comment period for the proposed

rule closed on December 20, 1999. HUD

received three public comments on the

proposed rule. Comments were

submitted by a national RMC

organization, a law firm representing

several RMCs, and a public housing

resident council. HUD appreciates the

suggestions offered by the commenters

and carefully considered the issues

raised by them. For the reasons

discussed below, however, HUD has

chosen not to implement their

suggestions. After careful consideration

of the public comments, HUD has

decided to adopt the October 21, 1999

proposed rule without change. This

following section of the preamble

presents a discussion of the significant

issues raised by the public commenters

and HUD’s responses to their comments.

IV. Discussion of the Public Comments

Received on the October 21, 1999

Proposed Rule

A. Support for Proposed Rule

One of the commenters expressed

support for the proposed rule. The

commenter wrote that it ‘‘strongly

support[s] the regulations to permit

direct funding of resident management

corporations by HUD.’’ The commenter

also wrote that the ‘‘direct funding of

resident management corporations is

essential.’’

Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Rules and Regulations 42513

B. Comments Beyond Scope of Proposed

Rule

As discussed above, the purpose of

the October 21, 1999 proposed rule was

to implement section 532 of the Public

Housing Reform Act. Several of the

commenters submitted comments that

did not concern the direct funding of

RMCs and, therefore, were beyond the

scope of the proposed rule. For

example, one of the commenters

recommended that HUD should clarify

what comprises a duly constituted RMC.

Two commenters suggested that the

final rule should provide for RMC

participation on the PHA’s board of

commissioners, or similar governing

body. Another commenter suggested

that public housing management

contracts should be developed with the

full participation of RMCs and their

national organizations. There were also

several other public comments that,

although suggesting general changes to

HUD’s resident participation regulations

at 24 CFR part 964, did not concern the

proposed regulatory amendments

described in the October 21, 1999

proposed rule.

HUD thanks these commenters for

their helpful comments and

recommendations. However, since these

comments do not concern the direct

funding of RMCs, HUD has not revised

the proposed rule to incorporate the

suggestions made by the commenters.

These comments will be taken into

consideration during HUD’s

development of a future proposed rule

that will implement the other resident

related amendments made by the Public

Housing Reform Act.

In addition to providing for the direct

funding of RMCs, the Public Housing

Reform Act makes various other

amendments to the statutory

requirements regarding resident

participation and resident opportunities

in public housing. For example, the

Public Housing Reform Act requires the

participation of residents on the

governing board of a PHA (section 505

of the Act) and provides for grant

funding of services for public housing

residents (section 538 of the Act).

The resident board membership

requirements established by section 505

of the Act have been implemented

through a separate final rule published

on October 21, 1999 (64 FR 56870). The

other changes made by the Public

Housing Reform Act affecting the part

964 requirements will be the subject of

a separate proposed rulemaking. HUD is

committed to the development of this

proposed rule with the active

participation of public housing

residents. HUD will solicit resident

input through the scheduling of public

forums, solicitations for written

comments, and/or other appropriate

means.

HUD’s goal in undertaking this future

rulemaking is to develop a set of easyto-understand regulations that reflect

the meaningful contributions of public

housing residents. Accordingly, the

proposed rule will not only implement

statutory amendments made by the

Public Housing Reform Act, but will

also streamline and reorganize 24 CFR

part 964 to simplify and improve the

clarity of HUD’s resident participation

requirements.

In addition to rulemaking, HUD is

also taking several other steps to

promote effective resident participation

in public housing (see Section V. of this

preamble, below).

C. Comments on the October 21, 1999

Proposed Rule

Comment: Standards for determining

RMC eligibility for direct funding should

be revised to allow for innovative

changes and concepts. Two commenters

objected to the eligibility standards

described in the proposed rule. The

commenters suggested that the final rule

should provide greater flexibility in

determining RMC eligibility for direct

funding.

HUD Response. As noted above,

section 532 of the Public Housing

Reform Act establishes the conditions

that an RMC must satisfy in order to

receive direct funding. Specifically, the

statute provides that an RMC may

directly receive capital and operating

assistance, if: (1) The RMC petitions

HUD for the release of the funds; (2) the

management contract between the RMC

and the PHA provides for the RMC to

assume the primary management

responsibilities of the PHA; and (3)

HUD determines that the RMC has the

capability to effectively discharge such

responsibilities. The language of the

October 21, 1999 proposed rule, and

this final rule, merely track the statutory

language of section 532.

Only the third requirement described

above provides HUD with discretion in

determining whether an RMC is eligible

to receive direct funding. This final rule

provides that HUD will consider this

third requirement to be satisfied if the

RMC is designated at least a ‘‘standard

performer’’ under the PHAS, and the

RMC is not in violation of any financial,

accounting, procurement, civil rights,

fair housing, or other program

requirements that HUD determines call

into question the capability of the RMC

to effectively discharge its

responsibilities under the contract.

This third requirement will not

impose any new requirements on RMCs.

The final rule reflects existing

performance measures and program

requirements that RMCs must already

comply with. For example, RMCs are

already subject to the PHAS

performance measures described in 24

CFR part 902. Further, RMCs are

currently required to comply with all

applicable program, civil rights, and

financial requirements as a condition of

assistance under HUD’s public housing

programs.

Although HUD welcomes ‘‘innovative

changes and concepts’’ in the

development of its regulations, the

commenters did not provide specific

recommendations for HUD’s

consideration. Further, HUD believes

that the use of the existing measures

described above will allow HUD to

accurately determine RMC management

capability, while minimizing the

burdens imposed on RMCs.

Accordingly, the proposed rule has not

been revised.

Comment: Determination of eligibility

for direct funding should be made in

consultation with RMCs. One

commenter suggested that HUD should

be required to consult with RMCs

currently receiving direct funding, or

with an RMC national organization,

before making a determination on an

RMC’s request to receive direct funding.

HUD Response. Section 532 of the

Public Housing Reform Act provides

that an RMC is eligible for direct

funding if (among other requirements)

‘‘the Secretary determines that the

[RMC] has the capability to effectively

discharge’’ the primary management

responsibilities of the PHA. This

statutory language makes clear that the

responsibility for determining whether

an RMC is eligible to receive direct

capital and operating assistance rests

with the Secretary.

Further, as noted in the response to

the preceding comment, section 532

establishes very specific criteria that

HUD must use in determining whether

an RMC is eligible for direct funding.

Where the statute provides HUD with

discretion, HUD has chosen to rely on

current and familiar requirements (such

as compliance with the PHAS and

applicable civil rights requirements).

The use of already existing measures

will allow HUD to accurately and

expeditiously determine whether an

RMC has the required management

capability to directly receive funding.

The establishment of an additional

consultation procedure has the potential

to unnecessarily delay HUD eligibility

determinations. Accordingly, HUD has

42514 Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Rules and Regulations

not adopted the suggestion made by the

commenter.

Comment: Final rule should establish

time frame for HUD approval of direct

funding requests. Two commenters

suggested that the final rule should

provide a time frame ‘‘under which

HUD must respond to a RMC’s request

for direct funding.’’ One of the

commenters recommended that the time

period not be longer than thirty (30)

days.

HUD Response. HUD has not adopted

the revision recommended by these

commenters. HUD will endeavor to

process all RMC petitions for direct

funding as expeditiously as possible. As

noted above, HUD will rely on current

and well-known measures in

determining whether an RMC is eligible

for the direct receipt of capital and

operating assistance. The use of these

existing requirements will facilitate

HUD’s processing of RMC petitions, and

help to ensure that HUD’s eligibility

determinations are made on a timely

basis. Therefore, HUD believes that the

establishment of the suggested deadline

is unnecessary.

Comment: The final rule should

provide mechanism for an RMC to

appeal a HUD denial of request for

direct funding. Two commenters made

this suggestion.

HUD Response. HUD has not adopted

the revision recommended by these

commenters. HUD would prefer to

solicit public comment before

establishing the suggested appeals

process, or any other similar procedural

remedy available to an RMC that has

been denied direct assistance. Rather

than delay the effectiveness of this final

rule in order to solicit additional public

comment, HUD is proceeding to finalize

the October 21, 1999 proposed rule

without incorporating the commenter’s

recommendation. HUD will more fully

consider the suggested appeals

mechanism during its development of

the future proposed rule amending 24

CFR part 964 in its entirety.

V. HUD’s Ongoing Efforts To Promote

Effective Resident Participation

To further promote effective resident

participation in public housing, HUD is

taking various steps to promote resident

involvement in creating and

maintaining a positive living

environment. As discussed above, HUD

is developing a proposed rule that will

implement the resident related

amendments made by the Public

Housing Reform Act. HUD is committed

to developing this proposed rule with

the active participation of public

housing residents. HUD is taking several

other steps to increase resident

participation in public housing. For

example, HUD will conduct training for

resident organizations and PHAs on the

new Public Housing Reform Act.

VI. Findings and Certifications

Environmental Impact

A Finding of No Significant Impact

with respect to the environment was

made at the proposed rule stage in

accordance with HUD regulations at 24

CFR part 50, which implement section

102(2)(C) of the National Environmental

Policy Act of 1969 (42 U.S.C. 4223).

That Finding remains applicable to this

final rule and is available for public

inspection between the hours of 7:30

a.m. and 5:30 p.m. weekdays in the

Office of the Rules Docket Clerk, Office

of General Counsel, Room 10276,

Department of Housing and Urban

Development, 451 Seventh Street, SW,

Washington, DC.

Regulatory Flexibility Act

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)) (the RFA), has reviewed and

approved this final rule and in so doing

certifies that this rule will not have a

significant economic impact on a

substantial number of small entities.

The reasons for HUD’s determination

are as follows:

(1) A Substantial Number of Small

Entities Will Not be Affected. The final

rule is exclusively concerned with

public housing agencies that contract

with RMCs for the management and

operation of specific public housing

projects. Specifically, the rule would

make various conforming amendments

to 24 CFR part 964 (captioned ‘‘Tenant

Participation and Tenant Opportunities

in Public Housing’’) to reflect statutory

changes made by the Public Housing

Reform Act. Under the definition of

‘‘Small governmental jurisdiction’’ in

section 601(5) of the RFA, the

provisions of the RFA are applicable

only to those few public housing

agencies that are part of a political

jurisdiction with a population of under

50,000 persons. The number of entities

potentially affected by this rule is

therefore not substantial.

(2) No Significant Economic Impact.

The Public Housing Reform Act

improves and simplifies the way in

which PHAs and RMCs are funded.

Specifically, section 519 of the Public

Housing Reform replaces funding under

the existing Performance Funding

System (PFS) with formula funding

under the new Operating Fund and the

Capital Improvement Assistance

Program (CIAP) and the Comprehensive

Grant Program with formula allocations

under the new Capital Fund. The

implementation of section 519 is

beyond the scope of this proposed rule.

Accordingly, the economic impact of

this final rule is not significant, and it

will not affect a substantial number of

small entities.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates

Reform Act of 1995 (2 U.S.C. 1531–

1538) (UMRA) requires Federal agencies

to assess the effects of their regulatory

actions on State, local, and tribal

governments and on the private sector.

This final rule will not impose, within

the meaning of the UMRA, any Federal

mandates on any State, local, or tribal

governments or on the private sector.

Executive Order 13132, Federalism

Executive Order 13132 (entitled

‘‘Federalism’’) prohibits an agency from

publishing any rule that has federalism

implications if the rule either imposes

substantial direct compliance costs on

State and local governments and is not

required by statute, or the rule preempts

State law, unless the agency meets the

consultation and funding requirements

of section 6 of the Executive Order. This

final rule will not have federalism

implications and will not impose

substantial direct compliance costs on

State and local governments or preempt

State law within the meaning of the

Executive Order.

Regulatory Planning and Review

The Office of Management and Budget

has reviewed this rule under Executive

Order 12866 (captioned ‘‘Regulatory

Planning and Review’’) and determined

that this rule is a ‘‘significant regulatory

action’’ as defined in section 3(f) of the

Order (although not an economically

significant regulatory action under the

Order). Any changes made to this rule

as a result of that review are identified

in the docket file, which is available for

public inspection during regular

business hours (7:30 a.m. to 5:30 p.m.)

at the Office of the General Counsel,

Rules Docket Clerk, Room 10276, U.S.

Department of Housing and Urban

Development, 451 Seventh Street, SW,

Washington, DC 20410–0500.

List of Subjects in 24 CFR Part 964

Grant programs—housing and

community development, Public

housing, Reporting and recordkeeping

requirements.

Accordingly, for the reasons described

in the preamble, HUD amends 24 CFR

part 964 as follows:

Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Rules and Regulations 42515

PART 964—TENANT PARTICIPATION

AND TENANT OPPORTUNITIES IN

PUBLIC HOUSING

1. The authority citation for part 964

is revised to read as follows:

Authority: 42 U.S.C. 1437d, 1437g, 1437r,

3535(d).

2. Amend § 964.225 as follows:

a. Redesignate paragraphs (h), (i), (j),

and (k) as paragraphs (i), (j), (k), and (l),

respectively;

b. Add new paragraph (h); and

c. Revise newly designated paragraph

(j).

The addition and revisions to

§ 964.225 read as follows:

§ 964.225 Resident management

requirements.

* * * * *

(h) Direct provision of operating and

capital assistance to RMC. (1) Direct

provision of assistance to RMC. The

ACC shall provide for the direct

provision of operating and capital

assistance by HUD to an RMC if:

(i) The RMC petitions HUD for the

release of funds;

(ii) The contract provides for the RMC

to assume the primary management

responsibilities of the PHA;

(iii) The RMC has been designated as

at least a ‘‘standard performer’’ under

the Public Housing Assessment System

(PHAS) (see 24 CFR part 902); and

(iv) The RMC is not in violation of

any financial, accounting, procurement,

civil rights, fair housing or other

program requirements that HUD

determines call into question the

capability of the RMC to effectively

discharge its responsibilities under the

contract.

(2) Use of assistance. Any direct

capital or operating assistance provided

to the RMC must be used for purposes

of performing eligible activities with

respect to public housing as may be

provided under the contract.

(3) Responsibilities of PHA. If HUD

provides direct funding to a RMC under

paragraph (h)(1) of this section, the PHA

is not responsible for the actions of the

RMC.

* * * * *

(j) Bonding, insurance, and licensing.

(1) Bonding and insurance. Before

assuming any management

responsibility under its contract, the

RMC must provide fidelity bonding and

insurance, or equivalent protection that

is adequate (as determined by HUD and

the PHA) to protect HUD and the PHA

against loss, theft, embezzlement, or

fraudulent acts on the part of the RMC

or its employees.

(2) Licensing and other local

requirements. An RMC must be in

compliance with any local licensing, or

other local requirement, governing the

qualifications or operations of a

property manager.

* * * * *

Dated: May 8, 2000.

Harold Lucas,

Assistant Secretary for Public and Indian

Housing.

[FR Doc. 00–17025 Filed 7–7–00; 8:45 am]

BILLING CODE 4210–33–P