42488 Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Part 990

[Docket No. FR–4425–P–11]

RIN: 2577–AB88

Allocation of Operating Subsidies

Under the Operating Fund Formula

AGENCY: Office of the Assistant

Secretary for Public and Indian

Housing, HUD.

ACTION: Proposed rule.

SUMMARY: This proposed rule is the first

stage in HUD’s rulemaking process to

implement an interim Operating Fund

Formula for determining the payment of

operating subsidies to public housing

agencies (PHAs). As required by statute,

this proposed rule was developed

through negotiated rulemaking

procedures. The policies and

procedures described in this proposed

rule would govern the determination of

funding distributions to PHAs under the

Operating Fund until a final rule,

reflecting the results of a

congressionally requested public

housing cost study, is developed and

published. Pending the completion of

the cost study and the issuance of

superseding rules based on the study,

HUD will proceed to consider the public

comments received on this proposed

rule and to issue, in the next stage of

this rulemaking process, an interim rule

based on this proposed rule and the

public comments received on the

proposed rule.

DATES: Comments Due Date: August 9,

2000.

ADDRESSES: Interested persons are

invited to submit comments regarding

this proposed rule to the Rules Docket

Clerk, Room 10276, Office of General

Counsel, U.S. Department of Housing

and Urban Development, 451 Seventh

Street, SW, Washington, DC 20410.

Comments should refer to the above

docket number and title. A copy of each

comment submitted will be available for

public inspection and copying during

regular business hours at the above

address. Facsimile (FAX) comments are

not acceptable.

FOR FURTHER INFORMATION CONTACT:

Steve Sprague, Funding and Financial

Management Division, Office of Public

and Indian Housing, Room 4216, U.S.

Department of Housing and Urban

Development, 451 Seventh Street, SW,

Washington, DC 20410; telephone (202)

708–1872 (this telephone number is not

toll-free). Hearing or speech-impaired

individuals may access this number via

TTY by calling the toll-free Federal

Information Relay Service at 1–800–

877–8339.

SUPPLEMENTARY INFORMATION:

I. Background

A. The Performance Funding System

(PFS)

HUD currently uses a formula

approach called the Performance

Funding System (PFS) to distribute

operating subsidies to public housing

agencies (PHAs). HUD’s regulations

implementing the PFS can be found at

24 CFR part 990. Generally, the amount

of operating subsidy received by a PHA

is the difference between projected

expenses and projected income, with

the PFS regulations detailing how these

projections will be made. PHAs

calculate their PFS eligibility annually

and submit a request for funding as part

of their budget process. While the

amount varies, this subsidy represents a

substantial amount of revenue to a PHA.

For example, in 1999, HUD distributed

approximately $2.9 billion in operating

subsidies to PHAs.

The United States Housing Act of

1937 (42 U.S.C. 1437 et seq.) (referred to

as the ‘‘1937 Act’’) establishes the

statutory framework for HUD’s public

housing programs. The 1937 Act limits

eligibility to public housing to low

income families, and caps public

housing rents at 30 percent of a family’s

income. PHAs must therefore rely on

the HUD operating subsidies (rather

than rental income) to cover a

significant amount of the costs

associated with the operation of their

public housing units.

B. Public Housing Reform

On October 21, 1998, the Congress

enacted the Quality Housing and Work

Responsibility Act of 1998 (Public Law

105–276, approved October 21, 1998)

(referred to as the ‘‘Public Housing

Reform Act’’). The Public Housing

Reform Act makes sweeping changes to

HUD’s public and assisted housing

programs. Among other changes, section

519 of the Public Housing Reform Act

amended section 9 of the 1937 Act (42

U.S.C. 1437g). Amended section 9

establishes an Operating Fund for the

purpose of making assistance available

to PHAs for the operation and

management of public housing. Section

9(f) of the 1937 Act, as amended by the

Public Housing Reform Act, requires

that the assistance to be made available

from that fund be determined using a

formula developed through negotiated

rule-making procedures as set forth in

subchapter III of chapter 5 of title 5,

United States Code (5 U.S.C. 561 et.

seq.), commonly referred to as the

Negotiated Rulemaking Act of 1990.

II. Negotiated Rulemaking

A. The Convening Report

Negotiated rulemaking, or ‘‘neg-reg,’’

is a relatively new process for HUD. The

basic concept of neg-reg is to have the

agency that is considering drafting a

rule bring together representatives of

affected interests for face-to-face

negotiations that are open to the public.

The give-and-take of the negotiation

process is expected to foster

constructive, creative and acceptable

solutions to difficult problems.

In anticipation of possible

congressional action, HUD entered into

an interagency agreement in June 1998

with the Federal Mediation and

Conciliation Service (FMCS) for

convening and facilitation services

associated with a negotiated rulemaking

regarding a possible operating fund

proposed rule. FMCS submitted its

Convening Report in November 1998.

The report provided a list of individual

PHAs and organizations, representing a

wide range of interests, that were

willing and able to work within a

consensus framework on a new

Operating Fund formula.

B. HUD’s Negotiated Rulemaking

Committee on Operating Fund

Allocation

On February 3, 1999 (64 FR 5570),

HUD published a notice announcing its

intent to establish a negotiated

rulemaking committee for the Operating

Fund. This notice identified a list of

possible interested individuals and

organizations to serve on the negotiated

rulemaking committee. The list of

possible interested individuals and

organizations included PHAs, national

organizations representing PHAs,

residents organizations, advocates for

low-income housing, and other housing

experts.

On March 16, 1999 (64 FR 12920),

HUD published a notice announcing the

establishment of its Negotiated

Rulemaking Committee on Operating

Fund Allocation (the ‘‘Committee’’). The

notice also provided the list of

Committee members and announced its

first set of meetings. The members

participating in the negotiated

rulemaking procedure for the Operating

Fund are:

• Large Housing Authorities

1. Atlanta Housing Authority, Atlanta,

GA

2. Chicago Housing Authority,

Chicago, IL

3. New York City Housing Authority,

NYC, NY

Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules 42489

4. Pittsburgh Housing Authority,

Pittsburgh, PA

5. Seattle Housing Authority, Seattle,

WA

• Medium Housing Authorities

1. Akron Metro Housing Authority,

Akron, OH

2. Athens Housing Authority, Athens,

GA

3. Indianapolis Housing Agency,

Indianapolis, IN

4. Oakland Housing Authority,

Oakland, CA

5. Reno Housing Authority, Reno, NV

• Small Housing Authorities

1. Marble Falls Housing Authority,

Marble Falls, TX

2. Meade County Housing and

Redevelopment Commission,

Sturgis, SD

3. York Housing Authority, York, NE

• Non-PFS Housing Authority

1. Puerto Rico Public Housing

Administration, San Juan, PR

• Resident Organizations

1. Massachusetts Union of Public

Housing Tenants, Dorchester MA

2. New Jersey Association of Public

and Subsidized Housing Residents,

Inc., Newark, NJ

• Public Interest Groups

1. National Low Income Housing

Coalition, Washington, DC

2. Housing and Development Law

Institute, Washington, DC

3. Center for Community Change,

Washington, DC

4. National Organization of AfricanAmericans in Housing (NOAAH)

• National PHA Associations

1. Public Housing Authorities

Directors Association (PHADA)

2. National Association of Housing

and Redevelopment Officials

(NAHRO)

3. Council of Large Public Housing

Authorities (CLPHA)

• Federal Government

1. U.S. Department of Housing and

Urban Development

Additionally, two FMCS

representatives served as facilitators.

The Committee first convened on March

23–24, 1999. Additional Committee

meetings were held on April 13–14,

May 13–14, June 15–16, July 7–8,

September 14–15, November 30–

December 2, 1999; February 16–17,

2000; and March 7–8, 2000. All

Committee meetings were held in the

Washington, DC metro area. The

Committee meetings were announced in

the Federal Register. Members of the

public were invited to attend the

meetings and to submit their views and

recommendations.

III. This Proposed Rule

This proposed rule is the product of

the Committee’s successful negotiations,

and reflects the consensus decisions

reached over nearly a year’s worth of

deliberations. The proposed rule is the

first stage in the rulemaking process that

will establish an Operating Fund

formula, to replace the current PFS

regulations located in 24 CFR part 990.

The rule thus represents a partnership

among HUD, the PHAs, public housing

residents, and advocates of public

housing. The policies and procedures

described in this proposed rule would

govern the determination of funding

distributions to PHAs under the Interim

Operating Fund Formula until a final

rule, reflecting the results of a

Congressionally requested public

housing cost study, is developed and

published (see Section XIII. of this

preamble for further information

regarding the cost study).

It became apparent to the Committee

during its deliberations that sufficient

data were not available to either

establish the true costs of operating

public housing or to develop final

modifications to the existing PFS

regulations without an unacceptable

degree of unpredictability. The

Committee determined, therefore, to

recommend that a comprehensive cost

study be undertaken to provide data and

recommendations necessary for

finalizing an Operating Fund Formula.

A consensus also became apparent that,

pending the results of the housing cost

study, there exist urgent needs and

tangible benefits from implementing the

proposed Interim Operating Fund

Formula. Accordingly, the Interim

Operating Fund Formula that would be

established by this proposed rule is

largely based on the policies and

procedures that have heretofore

governed the PFS. The Committee has

decided to recommend several

important modifications to the existing

PFS regulations. These modifications

would address, to the extent feasible

under data presently available to the

public, five specific proposals

considered important by members of the

Committee.

The proposed rule would: (1) Modify

the method by which ‘‘small PHAs’’ are

funded in order to assure an adequate

minimum level funding, based on

nationally averaged operating costs for

multifamily housing projects insured by

the Federal Housing Administration

(FHA), adjusted for unit size differences

and locational cost differences; (2)

implement statutory changes permitting

PHAs to retain certain rental and nonrental income without offset against

operating subsidy; (3) retain the current

method of estimating utility expenses,

but would eliminate year-end

adjustments, for the costs of utilities,

reflecting the adjustments instead, in

the PHA’s operating subsidy calculation

for the second PHA fiscal year following

the year being adjusted, and in order to

encourage energy efficiency, it would

replace the current 50–50 split of

savings or increase in cost due to

changes in utilities consumption to a

75–25 split between PHAs and HUD,

respectively; (4) require each PHA to

include in its operating subsidy

calculation, $25 per occupied unit per

year for resident participation activities

as an add on expense component for

subsidy eligibility; and (5) include flood

insurance costs in the computation of

the Allowable Expense Level (AEL) by

permitting a one-time permanent

adjustment to reflect this cost. The

proposed rule would also make several

clarifying and technical changes to the

PFS regulations and would remove

several obsolete provisions.

The most significant amendments

made by this proposed rule to the

current part 990 regulations are

described in the following sections of

this preamble. For the convenience of

readers, this proposed rule republishes

the text of subpart A of the part 990

regulations in its entirety. Except for the

changes identified in this preamble, no

additional revisions would be made to

24 CFR part 990.

IV. FHA-Based AEL (FHAEL)

Adjustment for Small PHAs

(§ 990.105(e))

The proposed rule would modify how

non-utility Allowable Expense Levels

(AELs) are calculated. AELs were

initially set in 1975 for most PHAs and

have subsequently been updated only

for inflation. In 1992, PHAs with AELs

that fell significantly below a statistical

regression-based formula were allowed

to receive increases up to 85% of the

formula value. Many of those familiar

with public housing have argued that

the original AEL determinations had the

effect of freezing into place whatever

funding inequities then existed, and that

the 1992 revisions did little to correct

this problem because the formula was

based on an analysis of the existing

distribution of AELs. The most common

concerns relate to small PHAs.

The Committee sought a proxy

measure of the adequacy of small PHA

funding; one not based upon public

housing operating expense data since

such data fails to provide an objective

measure as to whether small PHA

funding is adequate, inadequate, or

excessive. The most readily accessible

proxy information comes from HUD’s

Real Estate Management data system.

This data system contains detailed timeseries financial statements and project

42490 Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules

characteristics for approximately 11,000

multifamily housing projects insured by

the FHA and/or assisted by HUD, of

which approximately 90% have some

form of housing subsidies.

In reviewing applications for

multifamily housing insurance, FHA

requires that an applicant submit

detailed budget estimates that

demonstrate that the proposed project is

financially feasible. Operating expense

levels are normally required to be close

to industry norms for similar projects in

the area. This is done to reduce FHA’s

insurance risk—under-estimating

operating expenses increases the risk

that a project will go into default.

Available data suggest that there is

limited variability in normal operating

expense levels for similar projects in

similar locations.

The Committee adopted an approach

that used a national FHA-based

operating cost average (referred to as the

‘‘FHAEL’’) for a two-bedroom public

housing unit based on line-item

expenses for non-utility operating costs

that excluded property taxes. This figure

was then used to calculate a PHAspecific equivalent factor by adjusting

for average unit size differences and for

locational cost differences. The unit size

differential was calculated using Fair

Market Rent (FMR) cost relationships

(e.g., a one-bedroom costs 85% of a twobedroom and a three-bedroom costs

125% of a two-bedroom). The location

differential was based on the R.S. Means

construction cost index, which

effectively measures wage and material

price differentials for a constant quality

product. The R.S. Means and bedroom

size adjustments had a high correlation

with actual FHA operating expense

differentials and a significant but lower

unit-weighted correlation (83%) with

PHA AELs.

The FHA operating cost data used in

the comparisons of FHA and public

housing operating costs consisted of all

FHA multifamily insured or subsidized

projects for which audited operating

expense data for fiscal year (FY) 1996

were available. Data for 1996 were

selected because they had been

extensively tested and used for other

purposes (e.g., to develop operating cost

standards and factors for FHA-managed

properties). Comparisons with other

years were made to eliminate projects

which appeared to have atypical annual

expenditures. A total of 8,651 projects

were used for most analyses. Most of the

projects for which all needed variables

were available were assisted by some

form of HUD subsidy.

In practice, it was found that the AEL/

FHA cost ratio was 101% for the public

housing program as a whole, but that

many small PHAs had AELs

significantly below estimated FHAbased operating cost averages.

Conceptually, there is no reason to

expect a PHA to be able to provide

maintenance levels typical of private

market projects with significantly less

funding. Therefore, this proposed rule

would establish a one-time adjustment

to AELs for certain PHAs with less than

500 units.

AELs for small PHAs would be set at

the higher of a small PHA’s current AEL

or 70% of the FHAEL, and the AEL

would be increased to the higher of their

current AEL or 85% of the FHAEL for

PHAs under 250 units. The cost of these

increases would be achieved by

reducing the AELs of PHAs with more

than 500 units. The proposed rule

would provide an exception to this

determination for small PHAs with

AELs that are greater than 120% of the

FHAEL, in which case the small PHAs

will use an AEL equivalent to 120% of

the FHAEL.

PHAs with more than 500 units and

AELs in excess of 85% of their FHAEL

will use 98.64% of the FY 2000 AEL

(which represents a 1.36% reduction in

the FY 2000 AEL value) for purposes of

calculating their FY 2001 subsidy

determinations. This reduction offsets

the cost of establishing minimum AELs

for PHAs with less than 250 units at

85% of the value of the FHAEL, and of

establishing minimum AELs for PHAs

with 250–499 units at 70% of their

FHAEL values.

V. Treatment of Revenues (§§ 990.102,

990.109, 990.110, and 990.116)

A. Treatment of Non-Rental Income—

Exclusion of Investment Income and

Revised Definition of ‘‘Other Income’’

(§§ 990.102, 990.109 and 990.110)

As noted above, the amount of

operating subsidy received by a PHA is

generally calculated by determining the

difference between projected expenses

and projected income. Projected income

is categorized as being either dwelling

rental income, investment income, or

‘‘other income.’’ This proposed rule

would revise the definition of other

income (for purposes of calculating

subsidy) to only include income from:

(1) Rents billed for dwelling units

rented for non-dwelling purposes; and

(2) charges to residents for excess utility

consumption of PHA supplied utilities.

Under the proposed definition,

investment income would not be used

to determine operating subsidy

eligibility. Accordingly, the proposed

rule would make a conforming

amendment to § 990.109, which governs

the calculation of projected operating

income levels. Specifically, the

proposed rule would remove paragraph

(e)(1) of that section, which regards a

PHA’s estimate of investment income

for purposes of the operating subsidy

calculation. The proposed rule would

also remove the provisions dealing with

adjustments for investment income

located at § 990.110(b). This regulatory

change would codify HUD’s revised

policy regarding the treatment of nonrental income for FY 2000 and beyond,

which was announced through an

earlier issued Public and Indian

Housing (PIH) Notice 2000–04 (HA),

issued on February 3, 2000.

B. Computation of Projected Monthly

Dwelling Rental Income (§ 990.109)

The proposed rule would amend

§ 990.109 to revise the method for

calculating projected monthly dwelling

rental income. Under the proposed rule,

a PHA would determine its average

monthly dwelling charge for the month

that is six months before the start of its

budget year (the ‘‘current year average’’)

as well as the average monthly charge

for the comparable month of its two

previous years. An average would be

computed for these three amounts (the

‘‘three year average’’) and compared

with the current year average.

If the current year average is not

higher than the three year average,

rental income has not increased and the

current year average will be used to

calculate projected rental income.

If the current year average is higher

than the three year average, the PHA

shall be allowed to retain 50% of any

increases in dwelling rental income, so

long as the PHA uses the increased

revenue for the provision of residentrelated improvements and services as

described in new § 990.116 (see Section

V.C. of this preamble below). The

retained income will not be recognized

in the PHA’s calculation under the

Interim Operating Fund Formula. The

projected dwelling rental income for

PHAs with increased rental income will

be based on the three year average plus

50% of the increase.

A change factor of 3% will then be

applied. HUD intends to revise the 3%

adjustment factor, for the duration of the

interim rule, beginning in FY 2002, to

more accurately reflect the inflationary

pressure on the projection of monthly

dwelling rental income. In determining

such a factor for FY 2002, HUD will also

take into consideration any negative

impacts on incentives for PHAs to

increase resident earned income,

relevant and available indices of rental

income inflation, historical trends in

rental income changes, and the

proportion and amount of increased

Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules 42491

income retained by PHAs using the

rolling base method. There will be

consultation with the appropriate

stakeholders regarding the methodology

for determining change factors to be

used by HUD followed by publication of

written notice and an opportunity for

public comment.

The PHA must adjust the rent rolls

used for purposes of these calculations

to reflect any change from PHA-paid

utilities to resident-paid utilities, or vice

versa, between the rent roll date and the

projected budget year.

C. Use of Increases in Dwelling Rental

Income (§ 990.116)

The proposed rule would replace the

current § 990.116 (which concerns three

year incentive adjustments) with a new

section concerning the eligible uses of

increases in dwelling rental income, as

calculated under § 990.109 (see Section

V.B. of this preamble above). The uses

of the retained income must be

described in the PHA’s Plan

submissions under 24 CFR part 903. The

uses for the retained income must be

developed with front end resident

participation and ongoing input, and

shall be made part of the PHA Plan

submission. The proposed rule provides

several examples of eligible uses for the

retained income, including, but not

limited to:

1. Physical and management

improvements that benefit residents;

2. Resident self-sufficiency services;

3. Maintenance operations;

4. Resident employment and training

services;

5. Resident safety and security

improvements and services; and

6. Optional earned income exclusions.

VI. Utility Adjustments (§§ 990.107 and

990.110)

After consideration of various options

for the treatment of utilities, the

Committee decided to retain the current

methodology for estimating utility

expenses (located in § 990.107).

However, the proposed rule would

make several changes to the regulations

concerning utility adjustments (located

in § 990.110).

First, the proposed rule would

eliminate the so-called ‘‘year-end

adjustments.’’ Under the current PFS

regulations, a PHA must conduct a

comparison of the differences between

the actual costs and consumption of

utilities during the immediate preceding

year with the estimates used to

determine the allowable utilities

expense level for that year. The

comparison of actual and estimated

utility costs is to be reported to HUD

within 45 days after the end of a PHA’s

fiscal year. Under the proposed rule, a

PHA will continue to report its

comparison of actual and estimated

utility costs within 45 days after the end

of the PHA’s fiscal year. The adjustment

would normally be made in the

operating subsidy calculation for the

second PHA fiscal year following the

year being adjusted. These adjustments

would be applicable to PHA fiscal years

beginning on or after January 1, 1999.

In order to strengthen the regulatory

incentives to conserve energy, the

current ‘‘50–50’’ sharing of additional

costs or savings resulting from changes

in consumption levels would be revised

to a ‘‘75–25’’ split. Under the proposed

rule, if actual consumption levels are

lower than estimated, PHAs would

retain 75% of the savings resulting from

decreased consumption. The remaining

25% of the savings would be deducted

by HUD when determining future

subsidy eligibility. Conversely, if actual

consumption levels are higher than

anticipated, HUD would allow 25% of

the resulting cost. The remaining 75%

of the increased consumption cost

would be absorbed by the PHA.

The risks associated with utility rates

increasing after the estimate of utility

costs has been approved will continue

to be absorbed by HUD. In return,

savings in utility costs due to decreases

in rates that occur after the estimate of

utility costs has been approved will

accrue to HUD.

By permitting PHAs to retain a greater

share of the savings from decreased

utilities consumption, the Committee

expects to encourage energy

conservation. PHAs are urged to

implement policies and procedures that

foster conservation and to reduce energy

costs. The savings resulting from such

cost reductions can more appropriately

be used to improve existing living

conditions in public housing. The

Committee strongly recommends that

energy conservation become a central

component of each PHA’s Annual and

Five Year Plans.

VII. Resident Participation

(§ 990.108(e))

In its development of the proposed

rule, the Committee discussed at

substantial length the importance of

resident participation to the success of

public housing, including the Interim

Operating Fund formula. The

Committee noted that the Public

Housing Reform Act places value on

resident participation by requiring, with

certain exceptions, at least one resident

on the PHA Board of Commissioners,

resident involvement in the PHA Plan

process (through Resident Advisory

Boards) and additional involvement as

reflected in HUD’s resident

participation regulations (24 CFR part

964). Accordingly, the proposed rule

would require each PHA to include, in

its operating subsidy eligibility

calculation, $25 per occupied unit per

year for resident participation activities.

These activities include (but are not

limited to) those described in 24 CFR

part 964. For purposes of this section, a

unit may be occupied by a public

housing resident, a PHA employee, or a

police officer.

The proposed rule would also

authorize HUD to approve the use of

vacant rental units for resident

participation purposes and allow PHAs

to receive subsidy support for those

units. HUD will approve the use of

vacant units for such purposes only if

the PHA can demonstrate that safe and

suitable space for the resident

participation activities is not otherwise

readily available. Only one site per

public housing development, involving

one or more contiguous units, may be

used for resident participation activities.

Further, the number of units must be the

minimum necessary to support the

resident participation activities. Any

rental income generated as a result of

the activity must be reported as income

in the operating subsidy calculation.

HUD is also taking various steps to

promote resident involvement in

creating and maintaining a positive

living environment. For example, HUD

is developing a proposed rule that will

revise the part 964 regulations in their

entirety. HUD is committed to

developing 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

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.

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 Public

Housing Reform Act.

VIII. Flood Insurance Adjustment to

AEL (§ 990.105(f))

To simplify the calculation of

operating subsidy, this proposed rule

42492 Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules

would include flood insurance costs in

the AEL computation. Specifically, the

proposed rule would require that the

AEL be adjusted by adding the flood

insurance charge per unit month, as

reflected in the last HUD approved

subsidy calculation for FY 2000. This

adjustment would be a one-time

permanent adjustment made only in FY

2001. However, if the flood map is

changed at a future date, HUD will

adjust the AEL for the affected PHAs to

reflect the revised flood insurance

charges.

IX. Removal of Obsolete Provisions and

Other Streamlining Changes

In addition to the changes discussed

above, this proposed rule would make

several clarifying and technical changes

to part 990. For example, the proposed

rule would replace all outdated

reference to the PFS with references to

the Interim Operating Fund Formula.

The proposed rule would also remove

several obsolete provisions, which

continue to be unnecessarily codified.

HUD has also taken this opportunity to

re-format or clarify certain other

provisions. These proposed changes are

not substantive, and do not alter or

modify existing requirements. Rather,

these changes are designed to make the

part 990 regulations easier to

comprehend.

X. Treatment of Utility and Waste

Management Savings

Amended section 9 of the 1937 Act

requires that ‘‘the treatment of utility

and waste management costs under the

[Operating Fund] formula shall provide

that a public housing agency shall

receive the full financial benefit from

any reduction in the cost of utilities or

waste management resulting from any

contract with a third party to undertake

energy conservation improvements in

one or more of its public housing

projects’’ (42 U.S.C. 1437g(e)(2)(C)).

The proposed rule would address this

statutory requirement by retaining the

current PFS provisions at § 990.107(f),

which describes PHA incentives for

non-HUD financed energy conservation

improvements. Under this provision, a

PHA, whose energy conservation

measures have been approved by HUD

as satisfying certain regulatory

requirements, may retain 100% of the

savings from decreased energy

consumption after payment of the

amount due the contractor until the

term of the financing agreement is

completed.

With regard to waste management,

these costs are treated as a maintenance

expense (not a utilities expense) under

the PFS and this proposed rule. The

Allowable Expense Level (AEL) covers

non-utility costs and is not adjusted

when costs are reduced. Should a PHA

be able to reduce its waste management

costs below the amount assumed in its

AEL, the PHA would retain all of the

savings. This is true under the existing

PFS, and would continue to apply

under this proposed rule.

XI. Moving To Work PHAs

Moving To Work (MTW) PHAs will

continue to be funded under the

provisions of their existing MTW

agreements. These agreements may be

renegotiated in view of the new Interim

Operating Fund Formula, as requested

by MTW PHAs and as agreed to by

HUD. If MTW PHAs choose to be

included under the new Interim

Operating Fund Formula, then both the

redistribution and funding benefits will

apply. (See § 990.104(d) of this

proposed rule.)

XII. Applicability of the Interim

Operating Fund Formula to Non-PFS

PHAs

This proposed rule would revise

§ 990.103 (which concerns the

applicability of the Interim Operating

Fund Formula) to provide that the

amendments described in sections IV.

through X. of this preamble would be

applicable to housing owned by the

PHAs of the Virgin Islands, Puerto Rico,

Guam and Alaska (the ‘‘non-PFS

PHAs’’). Otherwise, the Interim

Operating Fund Formula would not be

applicable to these PHAs. Operating

subsidy payments to these PHAs would

continue to be made in accordance with

subpart B of 24 CFR part 990. The nonPFS PHAs would not be subject to the

AEL reductions necessary to offset the

cost of establishing minimum AELs for

small PHAs (see Section IV. of this

preamble).

XIII. The Operating Fund Cost Study

The Conference Report to the FY 2000

HUD Appropriations Act (Public Law

106–74, approved October 20, 1999)

states, in part, that ‘‘. . . before a

proposed rule is published in the

Federal Register, the conferees direct

HUD to contract with the Harvard

University Graduate School of Design

(‘‘Harvard’’) to conduct a study of the

cost incurred in operating well-run

public housing and provide the results

to the negotiated rulemaking committee

and the appropriate congressional

committees. . . .’’ (Congressional

Record of October 13, 1999, H10007).

HUD has contracted for the study.

HUD has also directed Harvard, as the

cost-study contractor, to provide public

opportunities (such as periodic forums,

status reports, and other means) for

interested persons and organizations to

be informed of the study’s research

design, methodologies, and progress,

and to provide input and feedback for

consideration in the development of the

study. Harvard, as the contractor for the

cost study, will consult with interested

individuals and organizations in

developing the cost study findings and

recommendations.

During the period that the cost study

is underway, HUD will proceed to

consider the public comments received

on this proposed rule and to issue an

interim rule based on this proposed rule

and the public comments received on

the proposed rule. As part of the

rulemaking process, HUD will submit

the rule to the Office of Management

and Budget (OMB) for review and

clearance (as required under Executive

Order 12866), and to HUD’s

Congressional committees for 15-day

pre-publication review (as required

under section 7(o) of the Department of

Housing and Urban Development Act

(42 U.S.C. 3531 et seq.)).

XIV. Development of Final Rule

Following and based upon the

findings and recommendations of the

completed cost study and the Public

Housing Reform Act, HUD will develop

the additional rulemaking to finalize the

Operating Fund Formula, using the

procedures of the Negotiated

Rulemaking Act of 1990, subject to

compliance with applicable legal

requirements prerequisite to the

establishment of a negotiated

rulemaking committee for such

purposes and to the appropriate

approvals of any proposed or final rule

as referenced in Section XII of this

preamble above.

XV. Justification for Reduced Public

Comment Period

It is the general practice of the

Department to provide a 60-day public

comment period on all proposed rules.

The Department, however, is reducing

its usual 60-day public comment period

to 30 days for this proposed rule. In an

effort to have an interim Operating Fund

Formula in place as close to beginning

of FY 2001, and given that the formula

was developed through the negotiated

rulemaking process, in which

representatives of all affected parties

participated, the Department believes

that a 30-day public comment period is

justified under these circumstances.

Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules 42493

XVI. Findings and Certifications

Information Collection Requirements

The information collection

requirements contained in 24 CFR part

990 have been approved by the Office of

Management (OMB) under the

Paperwork Reduction Act of 1995 (44

U.S.C. 3501–3520). While this proposed

rule would make several modifications

to the existing regulatory requirements

(described above), the rule would not

increase the total reporting and

recordkeeping burden related to the

payment of operating subsidies to PHAs.

The information collection requirements

contained in §§ 990.104, 990.105,

990.107, 990.108, 990.110, 990.111, and

990.117 of this proposed rule

correspond to information collections

contained in HUD’s current part 990

regulations. These information

collection requirements have been

assigned OMB control numbers 2577–

0029 (expiration date May 31, 2001),

2577–0026 (expiration date June 30,

2001), and 2577–0066 (expiration date

September 30, 2002). In accordance

with the Paperwork Reduction Act, an

agency may not conduct or sponsor, and

a person is not required to respond to,

a collection of information unless the

collection displays a currently valid

OMB control number.

Environmental Impact

A Finding of No Significant Impact

with respect to the environment has

been made 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). The Finding of

No Significant Impact 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 Planning and Review

The Office of Management and Budget

has reviewed this proposed 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. 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.

Regulatory Flexibility Act

The Secretary has reviewed this

proposed rule before publication and by

approving it certifies, in accordance

with the Regulatory Flexibility Act (5

U.S.C. 605(b)), that this proposed rule

would not have a significant economic

impact on a substantial number of small

entities. The proposed rule would

implement a new system for formula

allocation of funds to PHAs for their

operating needs. The new system is

established to provide minimum impact

on all PHAs, small and large.

Accordingly, the formula will not have

a significant economic impact on any

PHA. Notwithstanding HUD’s

determination that this proposed rule

would not have a significant economic

impact on small entities, HUD

specifically invites comments regarding

alternatives to this proposed rule that

would meet HUD’s objectives as

described in this preamble.

Federalism Impact

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

proposed rule would not have

federalism implications and would not

impose substantial direct compliance

costs on State and local governments or

preempt State law within the meaning

of the Executive Order.

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 proposed rule does not impose,

within the meaning of the UMRA, any

Federal mandates on any State, local, or

tribal governments or on the private

sector.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic

Assistance Number for this program is

14.850.

List of Subjects in 24 CFR Part 990

Grant programs—housing and

community development, Public

housing, Reporting and recordkeeping

requirements.

For the reasons discussed in the

preamble, HUD proposes to amend 24

CFR part 990 as follows:

PART 990—THE PUBLIC HOUSING

OPERATING FUND PROGRAM

1. Revise the heading of part 990 to

read as set forth above.

2. The authority citation for part 990

is revised to read as follows:

Authority: 42 U.S.C. 1437g and 3535(d).

3. Subpart A is revised to read as

follows:

Subpart A—The Operating Fund

Formula

Sec.

990.101 Purpose.

990.102 Definitions.

990.103 Applicability of the Operating

Fund Formula.

990.104 Determination of amount of

operating subsidy under the Operating

Fund Formula.

990.105 Computation of allowable expense

level.

990.106 Transition funding for excessively

high-cost PHAs.

990.107 Computation of utilities expense

level.

990.108 Other costs.

990.109 Projected operating income level.

990.110 Adjustments.

990.111 Submission and approval of

operating subsidy calculations and

budgets.

990.112 Payments procedure for operating

subsidy under the Operating Fund

Formula.

990.113 Payments of operating subsidy

conditioned upon reexamination of

income of families in occupancy.

990.114 Phase-down of subsidy for units

approved for demolition.

990.116 Increases in dwelling rental

income.

990.117 Determining actual and requested

budget year occupancy percentages.

990.120 Audits.

990.121 Effect of recission.

§ 990.101 Purpose.

This subpart implements section 9(f)

of the United States Housing Act of

1937 (42 U.S.C. 1437g) (referred to as

‘‘the 1937 Act’’). Section 9(f) establishes

an Operating Fund for the purposes of

making assistance available to public

housing agencies (PHAs) for the

operation and management of public

housing. The assistance made available

from the Operating Fund is determined

using a formula developed through

negotiated rulemaking procedures. This

subpart describes the policies and

procedures for operating subsidy

calculations under the Operating Fund

Formula.

§ 990.102 Definitions.

Allowable Expense Level (AEL). The

per unit per month dollar amount of

42494 Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules

expenses (excluding Utilities and

expenses allowed under § 990.108)

computed in accordance with § 990.105,

which is used to compute the amount of

operating subsidy.

Allowable Utilities Consumption

Level (AUCL). The amount of utilities

expected to be consumed per unit per

month by the PHA during the Requested

Budget Year, which is equal to the

average amount consumed per unit per

month during the Rolling Base Period.

Base Year. The PHA’s fiscal year

immediately preceding its first fiscal

year of receipt of operating subsidy

under this part (either under the

Operating Fund Formula or its

predecessor, the Performance Funding

System (PFS)).

Base Year Expense Level. The

expense level (excluding utilities, audits

and certain other items) for the Base

Year, computed as provided in

§ 990.105.

Current Budget Year. The fiscal year

in which the PHA is currently

operating.

Dwelling rent. The amount charged

monthly for a dwelling unit occupied by

a resident or family eligible for public

housing as determined in § 960.253 of

this title. For purposes of determining

subsidy eligibility, the dwelling rent

will not reflect decreases resulting from

the PHA’s implementation of any

optional earned income exclusions.

Formula. The revised formula derived

from the actual expenses of the sample

group of PHAs receiving assistance

under the Operating Fund Formula,

which is used to determine the Formula

Expense Level and the Range of each

PHA (see § 990.105(c)).

FHA-based operating expense level

(FHAEL). The per unit per month dollar

amount of expenses (excluding utilities

and expenses allowed under § 990.108)

computed in accordance with

§ 990.105(e), which is used on a onetime basis to adjust the AEL for selected

PHAs.

Formula Expense Level. The per unit

per month dollar amount of expenses

(excluding utilities and audits)

computed under the Formula, in

accordance with § 990.105.

HUD Field Office. The HUD Field

Office that has been delegated authority

under the U.S. Housing Act of 1937 to

perform functions pertaining to this

subpart for the area in which the PHA

is located.

Local Inflation Factor. The HUDsupplied weighted average percentage

increase in local government wages and

salaries for the area in which the PHA

is located and non-wage expenses.

Long-term vacancy. This term means

the same as it is used in the definition

of ‘‘Unit Months Available’’ in this

section.

Nondwelling rent. The amount

charged monthly, including utility and

equipment charges, to a lessee for a

dwelling unit that is being used for

nondwelling purposes. For purposes of

determining operating subsidy:

(1) If the nondwelling unit has been

approved for subsidy (e.g., the unit is

being used for economic self-sufficiency

services or anti-drug activities) at the

rate of the PHA’s AEL, the PHA will

include all charges as nondwelling rent;

(2) If the nondwelling unit has not

been approved for subsidy, a PHA will

include as nondwelling rent only that

portion of the charge that exceeds the

rate of the PHA’s AEL.

Operating budget. The PHA’s

operating budget and all related

documents, as required by HUD,

approved by the PHA Board of

Commissioners.

Other income. Income from rent

billed to lessees of dwelling units rented

for nondwelling purposes, and from

charges to residents for excess utility

consumption for PHA supplied utilities.

Project. Each project under an Annual

Contributions Contract to which the

Operating Fund Formula is applicable,

as provided in § 990.103.

Project Units. All dwelling units of a

PHA’s Projects.

Projected Operating Income Level.

The per unit per month dollar amount

of dwelling rental income plus other

income, computed as provided in

§ 990.109.

Requested Budget Year. The budget

year (fiscal year) of a PHA following the

Current Budget Year.

Rolling Base Period. The 36-month

period that ends 12 months before the

beginning of the PHA Requested Budget

Year, which is used to determine the

Allowable Utilities Consumption Level

used to compute the Utilities Expense

Level.

Top of Range. Formula Expense Level

multiplied by 1.15.

Transition funding. Funding for

excessively high-cost PHAs, as provided

in § 990.106.

Unit Approved for Deprogramming.

(1) A dwelling unit for which HUD has

approved the PHA’s formal request to

remove the dwelling unit from the

PHA’s inventory and the Annual

Contributions Contract but for which

removal, i.e., deprogramming, has not

yet been completed; or

(2) A nondwelling structure or a

dwelling unit used for nondwelling

purposes which the PHA has

determined will no longer be used for

PHA purposes and which HUD has

approved for removal from the PHA’s

inventory and Annual Contributions

Contract.

Unit months available. Project Units

multiplied by the number of months the

Project Units are available for

occupancy during a given PHA fiscal

year. For purposes of this part, a unit is

considered available for occupancy from

the date established as the End of the

Initial Operating Period for the Project

until the time the unit is approved by

HUD for deprogramming and is vacated

or is approved for nondwelling use. In

the case of a PHA development

involving the acquisition of scattered

site housing, see also § 990.104(b). A

unit will be considered a long-term

vacancy and will not be considered

available for occupancy in any given

PHA Requested Budget Year if the PHA

determines that:

(1) The unit has been vacant for more

than 12 months at the time the PHA

determines its Actual Occupancy

Percentage;

(2) The unit is not either:

(i) A vacant unit undergoing

modernization; or

(ii) A unit vacant for circumstances

and actions beyond the PHA’s control,

as these terms are defined in this

section; and

(3) The PHA determines that it will

have a vacancy percentage of more than

3% and will have more than five vacant

units, for its Requested Budget Year,

even after adjusting for vacant units

undergoing modernization and units

that are vacant for circumstances and

actions beyond the PHA’s control, as

defined in this section. (Reference in

this part to ‘‘more than five units’’ or

‘‘fewer than five units’’ shall refer to a

circumstance in which five units equals

or exceeds 3% of the number of units

to which the 3% threshold is

applicable.)

Units vacant due to circumstances

and actions beyond the PHA’s control.

Dwelling units that are vacant due to

circumstances and actions that prohibit

the PHA from occupying, selling,

demolishing, rehabilitating,

reconstructing, consolidating or

modernizing vacant units and are

beyond the PHA’s control. For purposes

of this definition, circumstances and

actions beyond the PHA’s control are

limited to:

(1) Litigation. The effect of court

litigation such as a court order or

settlement agreement that is legally

enforceable. An example would be units

that are being held vacant as part of a

court-ordered or HUD-approved

desegregation plan.

(2) Laws. Federal or State laws of

general applicability, or their

implementing regulations. Units vacant

Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules 42495

only because they do not meet

minimum standards pertaining to

construction or habitability under

Federal, State, or local laws or

regulations will not be considered

vacant due to circumstances and actions

beyond the PHA’s control.

(3) Changing market conditions. For

example, small PHAs that are located in

areas experiencing population loss or

economic dislocations may face a lack

of demand in the foreseeable future,

even after the PHA has taken aggressive

marketing and outreach measures.

(4) Natural disasters.

(5) RMC Funding. The failure of a

PHA to fund an otherwise approvable

RMC request for Federal modernization

funding.

(6) Casualty Losses. Delays in

repairing damage to vacant units due to

the time needed for settlement of

insurance claims.

Utilities. Electricity, gas, heating fuel,

water and sewerage service.

Utilities expense level. The per unit

per month dollar amount of utilities

expense, computed as provided in

§ 990.107.

Vacant unit undergoing

modernization. A vacant unit in a

project not considered to be obsolete (as

determined using the indicia in § 970.6

of this chapter), when the project is

undergoing modernization that includes

work that is necessary to reoccupy the

vacant unit, and in which one of the

following conditions is met:

(1) The unit is under construction (.e.,

the construction contract has been

awarded or force account work has

started); or

(2) The treatment of the vacant unit is

included in a HUD-approved

modernization budget (or its successor

under the public housing Capital Fund

program), but the time period for

placing the vacant unit under

construction has not yet expired. The

PHA must place the vacant unit under

construction within two Federal Fiscal

Years (FFYs) after the FFY in which the

modernization funds are approved.

§ 990.103 Applicability of the Operating

Fund Formula.

(a) General. The Operating Fund

Formula will be used in determining the

amounts of operating subsidy payable to

PHAs.

(b) Applicability of the Operating

Fund Formula. The Operating Fund

Formula is applicable to all PHA rental

units under Annual Contributions

Contracts. The Operating Fund Formula

applies to PHAs that have not received

operating subsidy payments previously,

but are eligible for such payments under

the Operating Fund Formula.

(c) Inapplicability of the Operating

Fund Formula. The Operating Fund

Formula, as described in this part, is not

applicable to Indian Housing, the

Section 23 Leased Housing Program, the

Section 23 Housing Assistance

Payments Program, the Section 8

Housing Assistance Payments Program,

the Mutual Help Program, or the

Turnkey III or Turnkey IV

Homeownership Opportunity Programs.

(d) Applicability of the Operating

Fund Formula to the PHAs of the Virgin

Islands, Puerto Rico, Guam, and Alaska.

(1) The following provisions of this

subpart A are applicable to housing

owned by the PHAs of the Virgin

Islands, Puerto Rico, Guam, and Alaska:

(i) The definition of ‘‘other income’’ at

§ 990.102;

(ii) Section 990.105 (Computation of

allowable expense level). However,

§ 990.105(e) (Computation of FHA-based

operating expense level for application

in FY 2001) does not apply to these

PHAs;

(iii) Section 990.105(f) (Flood

insurance adjustment for FY 2001);

(iv) Section 990.108(e) (Funding for

resident participation activities);

(v) Section 990.109(b) (Computation

of projected average monthly dwelling

rental income);

(vi) Section 990.110(b) (Adjustments

to utilities expense level); and

(vii) Section 990.116 (Increases in

dwelling rental income).

(2) With the exception of the

provisions listed in paragraph (d)(1) of

this section, the Operating Fund

Formula is not applicable to the PHAs

of the Virgin Islands, Puerto Rico, Guam

and Alaska. Operating subsidy

payments to these PHAs are made in

accordance with subpart B of this part.

(e) Financial management, monitoring

and reporting. The financial

management system, monitoring and

reporting on program performance and

financial reporting will be in

compliance with 24 CFR 85.20, 85.40

and 85.41 except to the extent that HUD

requirements provide for additional

specialized procedures which are

determined by HUD to be necessary for

the proper management of the program

in accordance with the requirements of

the U.S. Housing Act of 1937 and the

Annual Contributions Contracts

between the PHAs and HUD.

§ 990.104 Determination of amount of

operating subsidy under the Operating

Fund Formula.

(a) The amount of operating subsidy

for which each PHA is eligible shall be

determined as follows: The Projected

Operating Income Level is subtracted

from the total expense level (Allowable

Expense Level plus Utilities Expense

Level). These amounts are per unit per

month dollar amounts, and must be

multiplied by the Unit Months

Available. Transition Funding, if

applicable, and other costs as specified

in § 990.108 are then added to this total

in order to determine the total amount

of operating subsidy for the Requested

Budget Year, exclusive of consideration

of the cost of an independent audit. As

an independent operating subsidy

eligibility factor, a PHA may receive

operating subsidy in an amount,

approved by HUD, equal to the actual

cost of an independent audit to be

prorated to operations of the PHAowned rental housing. See § 990.110

regarding adjustments.

(b) In the case of a PHA development

involving the acquisition of scattered

site housing, the PHA may submit, and

HUD shall review and approve, a

revised Development Cost Budget (or its

successor under the public housing

Capital Fund program) reflecting the

number of units that were occupied

during the previous six months, and the

Unit Months Available used in the

calculation of operating subsidy

eligibility shall be revised to include the

number of months the new/acquired

units are actually occupied.

(c) A special phase-down of subsidy

to PHAs is applicable when demolition

of units is approved by HUD. See

§ 990.114.

(d) The calculation of operating

subsidy for a PHA in the Moving to

Work demonstration program shall be

made in accordance with the applicable

Moving to Work Agreement, and any

amendments to such agreements, as may

be approved by HUD.

§ 990.105 Computation of allowable

expense level.

The PHA shall compute its Allowable

Expense Level using forms prescribed

by HUD, as follows:

(a) Computation of Base Year Expense

Level. The Base Year Expense Level

includes Payments in Lieu of Taxes

(PILOT) required by a Cooperation

Agreement even if PILOT is not

included in the Operating Budget for the

Base Year because of a waiver of the

requirements by the local taxing

jurisdiction(s). The Base Year Expense

Level includes all other operating

expenditures as reflected in the PHA’s

Operating Budget for the Base Year

except the following:

(1) Utilities expense;

(2) Cost of an independent audit;

(3) Adjustments applicable to budget

years before the Base Year;

(4) Expenditures supported by

supplemental subsidy payments

42496 Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules

applicable to budget years before the

Base Year;

(5) All other expenditures which are

not normal fiscal year expenditures as to

amount or as to the purpose for which

expended; and

(6) Expenditures which were funded

from a nonrecurring source of income.

(b) Adjustment. In compliance with

the above six exclusions, the PHA shall

adjust the AEL by excluding any of

these items from the Base Year Expense

Level if this has not already been

accomplished. If such adjustment is

made in the second or some subsequent

fiscal year of receipt of operating

subsidy under this part, the AEL shall

be adjusted in the year in which the

adjustment is made, but the adjustment

shall not be applied retroactively. If the

PHA does not make these adjustments,

the HUD Field Office shall compute the

adjustments.

(c) Computation of Formula Expense

Level. The PHA shall compute its

Formula Expense Level in accordance

with a HUD-prescribed formula that

estimates the cost of operating an

average unit in a particular PHA’s

inventory. It uses weights and a Local

Inflation Factor assigned each year to

derive a Formula Expense Level for the

current year and the requested budget

year. The formula is the sum of the

following six numbers and the weights

of the formula and the formula are

subject to updating by HUD:

(1) The number of pre-1940 rental

units occupied by poor households in

1980 as a percentage of the 1980

population of the community multiplied

by a weight of 7.954. This census-based

statistic applies to the county of the

PHA, except that, if the PHA has 80%

or more of its units in an incorporated

city of more than 10,000 persons, it uses

city-specific data. County data will

exclude data for any incorporated cities

of more than 10,000 persons within its

boundaries.

(2) The Local Government Wage Rate

multiplied by a weight of 116.496. The

wage rate used is a figure determined by

the Bureau of Labor Statistics. It is a

county-based statistic, calibrated to a

unit-weighted PHA standard of 1.0. For

multi-county PHAs, the local

government wage is unit-weighted. For

this formula, the local government wage

index for a specific county cannot be

less than 85% or more than 115% of the

average local government wage for

counties of comparable population and

metro/non-metro status, on a state-bystate basis. In addition, for counties of

more than 150,000 population in 1980,

the local government wage cannot be

less than 85% or more than 115% of the

wage index of private employment

determined by the Bureau of Labor

Statistics and the rehabilitation cost

index of labor and materials determined

by the R.S. Means Construction Cost

Index.

(3) The lesser of the current number

of the PHA’s two or more bedroom units

available for occupancy, or 15,000 units,

multiplied by a weight of .002896.

(4) The current ratio of the number of

the PHA’s two or more bedroom units

available for occupancy in high-rise

family projects to the number of all the

PHA’s units available for occupancy

multiplied by a weight of 37.294. For

this indicator, a high-rise family project

is defined as averaging 1.5 or more

bedrooms per unit available for

occupancy and averaging 35 or more

units available for occupancy per

building and containing at least one

building with units available for

occupancy that is 5 or more stories high.

(5) The current ratio of the number of

the PHA’s three or more bedroom units

available for occupancy to the number

of all the PHA’s units available for

occupancy multiplied by a weight of

22.303.

(6) An equation calibration constant

of ¥.2344.

(d) Computation of Allowable

Expense Level (AEL). The PHA shall

compute its Allowable Expense Level as

follows:

(1) AEL for first budget year of

operating subsidy under this part where

Base Year Expense Level does not

exceed the top of the range. Every PHA

whose Base Year Expense Level is less

than the top of the range shall compute

its AEL for the first budget year of

operating subsidy under this part by

adding the following to its Base Year

Expense Level (before adjustments

under § 990.110):

(i) Any increase approved by HUD in

accordance with § 990.110;

(ii) The increase (decrease) between

the Formula Expense Level for the Base

Year and the Formula Expense Level for

the first budget year of operating

subsidy under this part; and

(iii) The sum of the Base Year

Expense Level, and any amounts

described in paragraphs (d)(1) (i) and (ii)

of this section multiplied by the Local

Inflation Factor.

(2) AEL for first budget year of

operating subsidy under this part where

Base Year Expense Level exceeds the

top of the range. Every PHA whose Base

Year Expense Level exceeds the top of

the range shall compute its AEL for the

first budget year of operating subsidy

under this part by adding the following

to the top of the range (not to its Base

Year Expense Level, as in paragraph

(d)(1) of this section):

(i) The increase (decrease) between

the Formula Expense Level for the Base

Year and the Formula Expense Level for

the first budget year of operating

subsidy under this part;

(ii) The sum of the figure equal to the

top of the range and the increase

(decrease) described in paragraph

(d)(2)(i) of this section, multiplied by

the Local Inflation Factor. (If the Base

Year Expense Level is above the AEL,

computed as provided above, the PHA

may be eligible for Transition Funding

under § 990.106.)

(3) AEL for first budget year of

operating subsidy under this part for a

new project. A new project of a new

PHA or a new project of an existing

PHA that the PHA decides to place

under a separate ACC, which did not

have a sufficient number of units

available for occupancy in the Base Year

to have a level of operations

representative of a full fiscal year of

operation is considered to be a ‘‘new

project.’’ The AEL for the first budget

year of operating subsidy under this part

for a ‘‘new project’’ will be based on the

AEL for a comparable project, as

determined by the HUD Field Office.

The PHA may suggest a project or

projects it believes to be comparable. In

determining what constitutes a ‘‘new

project’’ under this paragraph, HUD will

be guided by its public housing

development regulations at 24 CFR part

941.

(4) Adjustment of AEL for budget

years after the first budget year of

operating subsidy under this part. HUD

may adjust the AEL of budget years after

the first year of operating subsidy under

this part, in accordance with the

provisions of § 990.105(b) or

§ 990.108(c).

(5) Allowable Expense Level for

budget years after the first budget year

of operating subsidy under this part. For

each budget year after the first budget

year of operating subsidy under this

part, the AEL shall be computed as

follows:

(i) The AEL shall be increased by any

increase to the AEL approved by HUD

under § 990.108(c).

(ii) The AEL for the Current Budget

Year also shall be adjusted as follows:

(A) Increased by one-half of one

percent (.5%); and

(B) If the PHA has experienced a

change in the number of units in excess

of 5% or 1,000 units, whichever is less,

since the last adjustment to the AEL

based on this paragraph, it shall use the

increase (decrease) between the Formula

Expense Level calculated using the

PHA’s characteristics that applied to the

Requested Year when the last

adjustment to the AEL was made based

Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules 42497

on this paragraph and the Formula

Expense Level calculated using the

PHA’s characteristics for the Requested

Budget Year.

(iii) The amount computed in

accordance with paragraphs (d)(5)(i) and

(ii) of this section shall be multiplied by

the Local Inflation Factor.

(6) Adjustment of AEL for budget

years after the first budget year of

operating subsidy under this part. HUD

may adjust the AEL of budget years after

the first year of operating subsidy under

this part, in accordance with the

provisions of § 990.105(b) or

§ 990.108(c).

(e) Computation of FHA-based

operating expense level (FHAEL) for

application in FY 2001. (1) HUD

calculation of FHAEL. For every PHA

that is eligible to receive operating

subsidy under the Operating Fund

Formula, HUD will calculate an FHAEL

(based upon FY 2000 data and for

application in FY 2001) as follows:

(i) Step 1: Calculation of average

national operating cost. HUD will

calculate an FHA-based national average

cost of operating a two-bedroom public

housing unit, exclusive of utility costs

and property taxes. The average national

cost will be calculated using privately

managed (FHA multifamily insured

and/or assisted) rental housing financial

data available to HUD for the most

recent year of full reporting and

adjusted to reflect a two-bedroom size

by using Section 8 Fair Market Rent

(FMR) relationships (i.e., increase or

decrease the national average cost

depending on whether the average costweighted bedroom size is greater or less

than 2.0 bedrooms per unit). (See 24

CFR part 888 for additional information

regarding FMRs.)

(ii) Step 2: Adjustment of average

national two-bedroom operating cost for

local cost differences. HUD will adjust

the average national two-bedroom

operating cost for local cost differences

using the location adjustment factors

provided in the R.S. Means Residential

Construction Costs Index.

(iii) Step 3: Adjustment of average

national operating cost for PHA-specific

bedroom-size distribution. For each

PHA, HUD will further adjust the

average national operating cost for the

bedroom size distribution of the PHA

using Section 8 FMR cost relationships

(i.e., increase or decrease the average

national cost depending on whether the

average cost-weighted bedroom size for

the PHA’s inventory is greater or less

than 2.0 bedrooms per unit).

(iv) Step 4: Update of PHA-specific

average operating cost to reflect FY 2000

costs. HUD will update this PHAspecific operating cost to reflect

increased FY 2000 operating costs by

using the Public Housing AEL inflation

factor.

(2) Availability of FHAEL to PHA.

HUD will make the following

information available to each PHA:

(i) FHAEL. The FHAEL for the PHA;

(ii) PHA bedroom distribution. The

PHA bedroom distribution used to make

the PHA-specific bedroom adjustment

under paragraph (e)(1)(iii) of this

section; and

(iii) Base average national cost. The

two-bedroom base average national cost

calculated under paragraph (e)(1)(i) of

this section.

(3) Use of FHAEL for FY 2000 for

PHAs with less than 500 units under

contract. Each PHA with less than 500

units shall review the FHAEL and

bedroom distribution provided by HUD,

and do the following:

(i) The PHA will determine if the

bedroom size distribution used by HUD

was appropriate. (A) Mandatory

recalculation. If the bedroom size

distribution calculated by the PHA

produces a weighted average bedroom

size that differs by more than .02 from

the weighted average used by HUD, the

PHA shall recalculate its FY 2000

FHAEL using the two-bedroom base

average national operating cost provided

by HUD.

(B) Discretionary recalculation. If the

bedroom size distribution calculated by

the PHA produces a weighted average

bedroom size that differs by less than

.02 from the weighted average used by

HUD, the PHA may recalculate its FY

2000 FHAEL using the two-bedroom

base average national operating cost

provided by HUD.

(ii) Comparison of FHAEL to AEL. The

PHA shall compare its FHAEL with its

approved FY 2000 AEL.

(iii) If the PHA has less than 250

units. PHAs with less than 250 units

shall use the higher of their current AEL

or 85% of the FHAEL. However, in no

case will the PHA use an amount that

exceeds 120% of its FHAEL for

purposes of FY 2001 subsidy

determinations under the Operating

Fund Formula (see paragraph (e)(3)(v) of

this section).

(iv) If the PHA has 250–499 units.

PHAs with 250–499 units shall use the

higher of their current AEL, or 70% of

FHAEL. However, in no case will the

PHA use an amount that exceeds 120%

of its FHAEL for purposes of FY 2001

subsidy determinations under the

Operating Fund Formula (see paragraph

(e)(3)(v) of this section).

(v) If the PHA with less than 500 units

has an AEL greater than 120% of its

FHAEL. If a PHA with less than 500

units has an FY 2000 AEL that is greater

than 120% of its FHAEL, the PHA shall

use 120% of its FHAEL in place of its

actual FY 2000 AEL for purposes of FY

2001 subsidy determinations under the

Operating Fund Formula.

(4) Use of FHAEL for FY 2000 for

PHAs with more than 500 units under

contract. Each PHA with more than 500

units shall review the FHAEL and

bedroom distribution provided by HUD

and do the following:

(i) The PHA shall determine if the

bedroom size distribution used by HUD

was appropriate. (A) Mandatory

recalculation. If the bedroom size

distribution calculated by the PHA

produces a weighted average bedroom

size that differs by more than .02 from

the weighted average used by HUD, the

PHA shall recalculate its FY 2000

FHAEL using the two-bedroom base

average national operating cost provided

by HUD.

(B) Discretionary recalculation. If the

bedroom size distribution calculated by

the PHA produces a weighted average

bedroom size that differs by less than

.02 from the weighted average used by

HUD, the PHA may recalculate its FY

2000 FHAEL using the two-bedroom

base average national operating cost

provided by HUD.

(ii) Comparison of FHAEL to AEL. The

PHA shall compare its FHAEL with its

approved FY 2000 AEL.

(iii) If the PHA’s FY 2000 AEL is less

than or equal to 85% of its FHAEL. If

the PHA’s FY 2000 AEL is less than or

equal to 85% of its FHAEL, the PHA

shall use its FY 2000 AEL for purposes

of FY 2001 subsidy determinations

under the Operating Fund Formula.

(iv) If the PHA’s FY 2000 AEL is

greater than 85% of its FHAEL. If the

PHA’s FY 2000 AEL is greater than 85%

of its FHAEL, the PHA shall use 98.64%

of its FY 2000 AEL for purposes of

calculating its FY 2001 subsidy

determinations under the Operating

Fund Formula.

(v) Inapplicability of AEL reduction to

certain PHAs. The AEL reduction

described in paragraph (e)(4)(iv) of this

section does not apply to the PHAs of

the Virgin Islands, Puerto Rico, Guam

and Alaska. These PHAs will use their

FY 2000 AELs for purposes of FY 2001

subsidy determinations, regardless of

whether the PHA’s AEL is greater than

85% of its FHAEL.

(vi) Cap on AEL value reduction. In

no instance shall a PHA subject to an

AEL reduction, reduce the FY 2000 AEL

value used in calculating its FY 2001

AEL for purposes of operating subsidy

determinations to a value less than 85%

of its FHAEL.

(f) Flood insurance adjustment for FY

2001. To simplify the calculation of

42498 Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules

operating subsidy, the AEL computation

for the PHA’s fiscal year beginning in

2001 will include an additional step

following the determination made in

accordance with paragraphs (a) through

(e) of this section: the AEL per unit

month derived in accordance with those

paragraphs is to be adjusted by adding

the flood insurance charge per unit

month, as reflected in the last HUD

approved subsidy calculation for FY

2000. This adjustment is a one-time

permanent adjustment made only in FY

2001. However, if the flood map is

revised at a future date, HUD will adjust

the AEL for the affected PHAs in

accordance with this paragraph.

§ 990.106 Transition funding for

excessively high-cost PHAs.

(1) Eligibility. If a PHA’s Base Year

Expense Level exceeds its AEL for any

budget year under the Operating Fund

Formula, the PHA may be eligible for

Transition Funding.

(2) Amounts. Transition Funding

shall be an amount not to exceed the

difference between the Base Year

Expense Level and the AEL for the

Requested Budget Year, multiplied by

the number of Unit Months Available.

(3) Reduction in transition funding.

HUD shall have the right to discontinue

payment of all or part of the Transition

Funding in the event HUD at any time

determines that the PHA has not

achieved a satisfactory level of

management efficiency, or is not making

efforts satisfactory to HUD to improve

its management performance.

§ 990.107 Computation of utilities expense

level.

(a) Computation of the utilities

expense level. The PHA’s Utilities

Expense Level for the requested Budget

Year shall be computed by multiplying

the Allowable Utilities Consumption

Level (AUCL) per unit per month for

each utility, determined as provided in

paragraph (c) of this section, by the

projected utility rate determined as

provided in paragraph (b) of this

section.

(b) Utilities rates. (1) The current

applicable rates, with consideration of

adjustments and pass-throughs, in effect

at the time the Operating Budget is

submitted to HUD will be used as the

utilities rates for the Requested Budget

Year, except that, when the appropriate

utility commission has, prior to the date

of submission of the Operating Budget

to HUD, approved and published rate

changes to be applicable during the

Requested Budget Year, the future

approved rates may be used as the

utilities rates for the entire Requested

Budget Year.

(2) If a PHA takes action, such as

wellhead purchase of natural gas, or

administrative appeals or legal action

beyond normal public participation in

rate-making proceedings to reduce the

rate it pays for utilities (including water,

fuel oil, electricity, and gas), then the

PHA will be permitted to retain one-half

of the cost savings during the first 12

months attributable to its actions. Upon

determination that the action was costeffective in the first year, the PHA may

be permitted to retain one-half the

annual cost savings, if the actions

continue to be cost-effective. See also

paragraph (e) of this section and

§ 990.110(b).

(c) Computation of Allowable Utilities

Consumption Level. The Allowable

Utilities Consumption Level used to

compute the Utilities Expense Level of

PHAs for the Requested Budget Year

generally will be based on the

availability of consumption data. For

project utilities where consumption data

are available for the entire Rolling Base

Period, the computation will be in

accordance with paragraph (c)(1) of this

section. Where data are not available for

the entire period, the computation will

be in accordance with paragraph (c)(2)

of this section, unless the project is a

new project, in which case the

computation will be in accordance with

paragraph (c)(3) of this section. For a

project where the PHA has taken special

energy conservation measures that

qualify for special treatment in

accordance with paragraph (f)(1) of this

section, the computation of the

Allowable Utilities Consumption Level

may be made in accordance with

paragraph (c)(4) of this section. The

AUCL for all of a PHA’s projects is the

sum of the amounts determined using

all of these subparagraphs, as

appropriate.

(1) Rolling Base Period System. (i) For

project utilities with consumption data

for the entire Rolling Base Period, the

AUCL is the average amount consumed

per unit per month during the Rolling

Base Period adjusted in accordance with

paragraph (d) of this section. The PHA

shall determine the average amount of

each of the utilities consumed during

the Rolling Base period (i.e., the 36-

month period ending 12 months prior to

the first day of the Requested Budget

Year).

(ii) An example of a rolling base is as

follows:

PHA Fiscal Year (affected fiscal year) Rolling base period

Beginning Ending Begins Ends

1–1–01 ..... 12–31–01 (1st year) ............................................................................................................................. 1–1–97 12–31–99

1–1–02 ..... 12–31–02 (2nd year) ............................................................................................................................ 1–1–98 12–31–00

(2) Alternative method where data is

not available for the entire Rolling Base

Period. (i) If the PHA has not

maintained or cannot recapture

consumption data regarding a particular

utility from its records for the whole

Rolling Base Period mentioned in

paragraph (c)(1) of this section, it shall

submit consumption data for that utility

for the last 24 months of its Rolling Base

Period to the HUD Field Office for

approval. If this is not possible, it shall

submit consumption data for the last 12

months of its Rolling Base Period. The

PHA also shall submit a written

explanation of the reasons that data for

the whole Rolling Base Period is

unavailable.

(ii) In those cases where a PHA has

not maintained or cannot recapture

consumption data for a utility for the

entire Rolling Base Period, comparable

consumption for the greatest of either

36, 24, or 12 months, as needed, shall

be used for the utility for which the data

is lacking. The comparable consumption

shall be estimated based upon the

consumption experienced during the

Rolling Base Period of comparable

project(s) with comparable utility

delivery systems and occupancy. The

use of actual and comparable

consumption by each PHA, other than

those PHAs defined as New Projects in

paragraph (c)(3) of this section, will be

determined by the availability of

complete data for the entire 36-month

Rolling Base Period. Appropriate utility

consumption records, satisfactory to

HUD, shall be developed and

maintained by all PHAs so that a 36-

month rolling average utility

consumption per unit per month under

paragraph (c)(1) of this section can be

determined.

(iii) If a PHA cannot develop the

consumption data for the Rolling Base

Period or for 12 or 24 months of the

Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules 42499

Rolling Base Period, either from its own

project(s) data, or by using comparable

consumption data the actual per unit

per month (PUM) utility expenses stated

in paragraph (d) of this section shall be

used as the Utilities Expense Level.

(3) Computation of Allowable Utilities

Consumption Levels for New Projects. (i)

A New Project, for the purpose of

establishing the Rolling Base Period and

the Utilities Expense Level, is defined as

either:

(A) A project which had not been in

operation during at least 12 months of

the Rolling Base Period, or a project

which enters management after the

Rolling Base Period and prior to the end

of the Requested Budget Year; or

(B) A project which during or after the

Rolling Base Period, has experienced

conversion from one energy source to

another; interruptable service;

deprogrammed units; a switch from

resident-purchased to PHA-supplied

utilities; or a switch from PHA-supplied

to resident-purchased utilities.

(ii) The actual consumption for New

Projects shall be determined so as not to

distort the Rolling Base Period in

accordance with a method prescribed by

HUD.

(4) Freezing the Allowable Utilities

Consumption Level. (i) Notwithstanding

the provisions of paragraphs (c)(1) and

(c)(2) of this section, if a PHA

undertakes energy conservation

measures that are approved by HUD

under paragraph (f) of this section, the

Allowable Utilities Consumption Level

for the project and the utilities involved

may be frozen during the contract

period. Before the AUCL is frozen, it

must be adjusted to reflect any energy

savings resulting from the use of any

HUD funding. The AUCL is then frozen

at the level calculated for the year

during which the conservation measures

initially will be implemented, as

determined in accordance with

paragraph (f) of this section.

(ii) If the AUCL is frozen during the

contract period, the annual three-year

rolling base procedures for computing

the AUCL shall be reactivated after the

PHA satisfies the conditions of the

contract. The three years of

consumption data to be used in

calculating the AUCL after the end of

the contract period will be as follows:

(A) First year: The energy

consumption during the year before the

year in which the contract ended and

the energy consumption for each of the

two years before installation of the

energy conservation improvements;

(B) Second year: The energy

consumption during the year the

contract ended, energy consumption

during the year before the contract

ended, and energy consumption during

the year before installation of the energy

conservation improvements;

(C) Third year: The energy

consumption during the year after the

contract ended, energy consumption

during the year the contract ended, and

energy consumption during the year

before the contract ended.

(d) Utilities expense level where

consumption data for the full Rolling

Base Period is unavailable. If a PHA

does not obtain the consumption data

for the entire Rolling Base Period, or for

12 or 24 months of the Rolling Base

Period, either for its own project(s) or by

using comparable consumption data as

required in paragraph (c)(2) of this

section, it shall request HUD Field

Office approval to use actual PUM

utility expenses. These expenses shall

exclude Utilities Labor and Other

Utilities Expenses. The actual PUM

utility expenses shall be taken from the

year-end Statement of Operating

Receipts and Expenditures, Form HUD–

52599, (Office of Management and

Budget approval number 2577–0067)

prepared for the PHA fiscal year which

ended 12 months prior to the beginning

of the PHA Requested Budget Year (e.g.,

for a PHA fiscal year beginning January

1, 2001, the PHA would use data from

the fiscal year ended December 31,

1999). Subsequent adjustments will not

be approved for a budget year for which

the utility expense level is established

based upon actual PUM utility

expenses.

(e) Adjustments. PHAs shall request

adjustments of Utilities Expense Levels

in accordance with § 990.110(b), which

requires an adjustment based upon a

comparison between actual experience

and estimates of consumption and of

utility rates.

(f) Incentives for energy conservation

improvements. If a PHA undertakes

energy conservation measures

(including those covering water, fuel oil,

electricity, and gas) that are financed by

an entity other than the Secretary, such

as physical improvements financed by a

loan from a utility or governmental

entity, management of costs under a

performance contract, or a shared

savings agreement with a private energy

service company, the PHA may qualify

for one of the two possible incentives

under this part. For a PHA to qualify for

these incentives, HUD approval must be

obtained. Approval will be based upon

a determination that payments under

the contract can be funded from the

reasonably anticipated energy cost

savings, and the contract period does

not exceed 12 years.

(1) If the contract allows the PHA’s

payments to be dependent on the cost

savings it realizes, the PHA must use at

least 50% of the cost savings to pay the

contractor. With this type of contract,

the PHA may take advantage of a frozen

AUCL under paragraph (c)(4) of this

section, and it may use the full amount

of the cost savings, as described in

§ 990.110(b)(2)(ii).

(2) If the contract does not allow the

PHA’s payments to be dependent on the

cost savings it realizes, then the AUCL

will continue to be calculated in

accordance with paragraphs (c)(1)

through (c)(3) of this section, as

appropriate; the PHA will be able to

retain part of the cost savings, in

accordance with § 990.110(b)(2)(i); and

the PHA will qualify for additional

operating subsidy eligibility (above the

amount based on the allowable expense

level) to cover the cost of amortizing the

cost of the energy conservation

measures during the term of the

contract, in accordance with

§ 990.110(c).

§ 990.108 Other costs.

(a) Cost of independent audits. (1)

Eligibility to receive operating subsidy

for independent audits is considered

separately from the Operating Fund

Formula. However, the PHA shall not

request, nor will HUD approve, an

operating subsidy for the cost of an

independent audit if the audit has

already been funded by subsidy in a

prior year.

(2) A PHA that is required by the

Single Audit Act (31 U.S.C. 7501–7507)

(see 24 CFR part 85) to conduct a regular

independent audit may receive

operating subsidy to cover the cost of

the audit. The actual cost of an

independent audit, applicable to the

operations of PHA-owned rental

housing, is not included in the

Allowable Expense Level, but it is

allowed in full in computing the

amount of operating subsidy under

§ 990.104, above.

(3) A PHA that is exempt from the

audit requirements under the Single

Audit Act (24 CFR part 85) may receive

operating subsidy to offset the actual

cost of an independent audit chargeable

to operations (after the End of the Initial

Operating Period) if the PHA chooses to

have an audit.

(b)(1) Costs attributable to units that

are approved for deprogramming and

vacant may be eligible for inclusion, but

must be limited to the minimum

services and protection necessary to

protect and preserve the units until the

units are deprogrammed. Costs

attributable to units temporarily

unavailable for occupancy because the

units are utilized for PHA-related

activities are not eligible for inclusion.

42500 Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules

In determining operating subsidy

calculations under the Operating Fund

Formula, these units shall not be

included in the calculation of Unit

Months Available. Units approved for

deprogramming shall be listed by the

PHA, and supporting documentation

regarding direct costs attributable to

such units shall be included as a part of

the Operating Fund Formula calculation

in which the PHA requests operating

subsidy for these units. If the PHA

requires assistance in this matter, the

PHA should contact the HUD Field

Office.

(2) Units approved for nondwelling

use to promote economic selfsufficiency services and anti-drug

activities are eligible for operating

subsidy under the conditions provided

in this paragraph (b)(2), and the costs

attributable to these units are to be

included in the operating budget. If a

unit satisfies the conditions stated

below, it will be eligible for subsidy at

the rate of the AEL for the number of

months the unit is devoted to such use.

Approval will be given for a period of

no more than 3 years. HUD may renew

the approval to allow payments after

that period only if the PHA can

demonstrate that no other sources for

paying the non-utility operating costs of

the unit are available. The conditions

the unit must satisfy are:

(i) The unit must be used for either

economic self-sufficiency activities

directly related to maximizing the

number of employed residents or for

anti-drug programs directly related to

ridding the development of illegal drugs

and drug-related crime. The activities

must be directed toward and for the

benefit of residents of the development.

(ii) The PHA must demonstrate that

space for the service or program is not

available elsewhere in the locality and

that the space used is safe and suitable

for its intended use or that the resources

are committed to make the space safe

and suitable.

(iii) The PHA must demonstrate

satisfactorily that other funding is not

available to pay for the non-utility

operating costs. All rental income

generated as a result of the activity must

be reported as income in the operating

subsidy calculation.

(iv) Operating subsidy may be

approved for only one site (involving

one or more contiguous units) per

public housing development for

economic self-sufficiency services or

anti-drug programs, and the number of

units involved should be the minimum

necessary to support the service or

program. Operating subsidy for any

additional sites per development can

only be approved by HUD Headquarters.

(v) The PHA must submit a

certification with its Operating Fund

Formula Calculation that the units are

being used for the purpose for which

they were approved and that any rental

income generated as a result of the

activity is reported as income in the

operating subsidy calculation. The PHA

must maintain specific documentation

of the units covered. Such

documentation should include a listing

of the units, the street addresses, and

project/management control numbers.

(3) Long-term vacant units that are not

included in the calculation of Unit

Months Available are eligible for

operating subsidy in the Requested

Budget Year at the rate of 20% of the

AEL. Allowable utility costs for long

term vacant units will continue to be

funded in accordance with § 990.107.

(c) Costs attributable to changes in

Federal law or regulation. In the event

that HUD determines that enactment of

a Federal law or revision in HUD or

other Federal regulation has caused or

will cause a significant increase in

expenditures of a continuing nature

above the Allowable Expense Level and

Utilities Expense Level, HUD may in

HUD’s sole discretion decide to

prescribe a procedure under which the

PHA may apply for or may receive an

increase in operating subsidy.

(d)(1) Costs resulting from

combination of two or more units. When

a PHA redesigns or rehabilitates a

project and combines two or more units

into one larger unit and the combination

of units results in a unit that houses at

least the same number of people as were

previously served, the AEL for the

requested year shall be multiplied by

the number of unit months not included

in the requested year’s unit months

available as a result of these

combinations that have occurred since

the Base Year. The number of people

served in a unit will be based on the

formula ((2 x No. of Bedrooms) minus

1), which yields the average number of

people that would be served. An

efficiency unit will be counted as a one

bedroom unit for purposes of this

calculation.

(2) An exception to paragraph (d)(1) of

this section is made when a PHA

combines two efficiency units into a

one-bedroom unit. In these cases, the

AEL for the requested year shall be

multiplied by the number of unit

months not included in the requested

year’s unit months available as a result

of these combinations that have

occurred since the Base Year.

(e) Funding for resident participation

activities—(1) Funding amount. Each

PHA shall include in the operating

subsidy eligibility calculation, $25 per

occupied unit per year for resident

participation activities, including (but

not limited to) those described in part

964 of this title. For purposes of this

section, a unit may be occupied by a

public housing resident, a PHA

employee, or a police officer. If, in any

fiscal year, appropriations are not

sufficient to meet all funding

requirements under this part, then the

$25 will be subject to pro-ration.

(2) Use of vacant rental units. If there

is no community or rental space

available for providing resident

participation activities, HUD may

approve, at the request of the PHA, the

use of one or more vacant rental units

for resident participation purposes. A

unit that satisfies the following

conditions will be eligible for operating

subsidy at the rate of the AEL for the

number of months the unit is devoted to

such use:

(i) The PHA must demonstrate that

safe and suitable space for the resident

participation activities is not otherwise

readily available;

(ii) One or more contiguous units may

be used for resident participation

activities. However, the units must be

located on a single site per public

housing development. Further, the

number of units involved must be the

minimum necessary to support the

resident participation activities;

(iii) The PHA must submit a

certification with its Operating Fund

Formula calculation that the units are

being used for the purpose for which

they were approved and that any rental

income generated as a result of the

activity is reported as income in the

operating subsidy calculation; and

(iv) The PHA must maintain specific

documentation of the units covered.

Such documentation must include a

listing of the units, the street addresses,

and project/management control

numbers.

§ 990.109 Projected operating income

level.

(a) Policy. The Operating Fund

Formula determines the amount of

operating subsidy for a particular PHA

based in part upon a projection of the

actual dwelling rental income and other

income for the particular PHA. The

projection of dwelling rental income is

obtained by computing the average

monthly dwelling rental charge per unit

for the PHA, and applying an upward

trend factor (subject to updating). This

amount is then multiplied by the

Projected Occupancy Percentage for the

Requested Budget Year. There are

special provisions for projection of

dwelling rental income for new projects.

Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules 42501

(b) Computation of projected average

monthly dwelling rental income—(1)

General. The projected average monthly

dwelling rental income per unit for the

PHA is calculated as follows:

(i) Step 1: Calculation of the current

year and three year averages. The PHA

calculates:

(A) The average monthly dwelling

rental charge per unit for the current

budget year (the ‘‘current year average’’

calculated in accordance with paragraph

(b)(2) of this section); and

(B) The average monthly dwelling

rental charge per unit for the current

budget year and the immediate past two

budget years (the ‘‘three year average’’

calculated in accordance with paragraph

(b)(3) of this section).

(ii) Step 2: Adjustment for any

increase in dwelling rental income. If

the current year average is greater than

the three year average, the PHA has

increased dwelling rental income. If a

PHA has increased dwelling rental

income, it shall perform the following

calculation. The PHA shall:

(A) Subtract the three year average

from the current year average;

(B) Divide the result by 2; and

(C) Add this sum to the three year

average.

(iii) Step 3: Calculating the amount of

increased rental revenue that may be

retained. PHAs shall be allowed to

retain 50% of any increases in dwelling

rental income, so long as the PHA uses

the increased revenue for the provision

of resident-related improvements and

services as described in § 990.116. The

retained income will not be recognized

in the PHA’s calculation under the

Operating Fund Formula. The annual

amount of increased revenue retained

by the PHA is calculated by subtracting

the three year average from the current

year average and multiplying the result

by the projected occupancy percentage

(see § 990.109(b)(6)), and the unit

months available (see § 990.102).

(iv) Step 4: Applying the rental

income adjustment factor. The lower of

the amount calculated under paragraph

(b)(i)(A) or (b)(ii) of this section is then

adjusted by the dwelling rental income

adjustment factor described in

paragraph (b)(5) of this section.

(2) Average monthly dwelling rental

charge per unit. (i) The average monthly

dwelling rental charge per unit shall be

computed using the total dwelling

rental charges for all Project Units, as

shown on the Tenant Rent Rolls which

the PHA is required to maintain, for the

first day of the month which is six

months before the first day of the

Requested Budget Year. However, if a

change in the total of the Rent Rolls has

occurred in a subsequent month which

is before the beginning of the Requested

Budget Year, and before the submission

of the Requested Budget Year

calculation of operating subsidy

eligibility, the PHA may use the latest

changed Rent Roll for the purpose of the

computation.

(ii) This aggregate dollar amount shall

be divided by the number of occupied

dwelling units as of the same date.

(iii) The Rent Roll used for calculating

the projected operating income level

will not reflect decreases resulting from

the PHA’s implementation of an

optional earned income exclusion

authorized by the explanation of

‘‘annual income’’ in 24 CFR 5.609.

(3) Three year average monthly

dwelling rental charge per unit. The

three year average monthly dwelling

rental charge shall be computed by

averaging the amounts calculated under

paragraph (b)(2) of this section for the

current budget year and the immediate

past two budget years.

(4) Changes in supply of utilities. The

PHA must adjust the rent rolls used for

purposes of the calculations described

in paragraphs (b)(2) and (b)(3) of this

section to reflect any change from PHApaid utilities to resident-paid utilities,

or vice versa, between the rent roll date

and the projected budget year.

(5) Dwelling rental income adjustment

factor. An adjustment factor will be

applied to the calculations described in

paragraphs (b)(2) and (b)(3) of this

section. In FY 2001, the inflation factor

will be 3%. In subsequent years, the

average monthly dwelling rental charge

per unit will be increased for inflation

using a HUD supplied adjustment factor

for the requested budget year to obtain

the projected average monthly dwelling

rental charge per unit of the PHA for the

Requested Budget Year.

(6) Projected occupancy percentage.

The PHA shall determine its projected

percentage of occupancy for all Project

Units (Projected Occupancy Percentage),

as follows:

(i) General. Using actual occupancy

data collected before the start of the

budget year as a beginning point, the

PHA will develop estimates for its

Requested Budget Year (RBY) of: how

many units the PHA will have available

for occupancy; how many of the

available units will be occupied and

how many will be vacant, and what the

average occupancy percentage will be

for the RBY. The conditions under

which the RBY occupancy percentage

will be used as the projected occupancy

percentage for purposes of determining

operating subsidy eligibility are

described below.

(ii) High Occupancy PHA—No

adjustments necessary. If the PHA’s

RBY Occupancy Percentage, calculated

in accordance with § 990.117, is equal to

or greater than 97%, the PHA’s

Projected Occupancy Percentage is 97%.

If the PHA’s RBY Occupancy Percentage

is less than 97%, but the PHA

demonstrates that it will have an

average of five or fewer vacant units in

the requested budget year, the PHA will

use its RBY Occupancy Percentage as its

projected occupancy percentage.

(iii) Adjustments in determining

occupancy. If the PHA’s RBY

Occupancy Percentage is less than 97%

and the PHA has more than 5 vacant

units, the PHA will adjust its estimate

of vacant units to exclude vacant units

undergoing modernization and units

that are vacant due to circumstances

and actions beyond the PHA’s control.

After making this adjustment, the PHA

will recalculate its estimated vacancy

percentage for the RBY.

(A) High Occupancy PHA after

adjustment. If the recalculated vacancy

percentage is 3% or less (or the PHA

would have five or fewer vacant units),

the PHA will use its RBY Occupancy

Percentage as its projected occupancy

percentage.

(B) Low Occupancy PHA—adjustment

for long-term vacancies. If the

recalculated vacancy percentage is

greater than 3% (or the PHA would have

more than 5 vacant units), the PHA will

then further adjust its RBY Occupancy

Percentage by excluding from its

calculation of Unit Months Available

(UMAs), those unit months attributable

to units that have been vacant for longer

than 12 months that are not vacant units

undergoing modernization or are not

units vacant due to circumstances and

actions beyond the PHA’s control.

(iv) Low Occupancy PHA after all

adjustments. A PHA that has

determined its RBY Occupancy

Percentage in accordance with

paragraph (b)(6)(iii)(B) of this section

will be eligible for operating subsidy as

follows:

(A) Long-term vacancies removed

from the calculation of UMAs will be

eligible to receive a reduced operating

subsidy calculated at 20% of the PHA’s

AEL.

(B) If the recalculated RBY Occupancy

Percentage is 97% or higher, the PHA

will use 97%.

(C) If the recalculated RBY Occupancy

Percentage is less than 97%, but the

vacancy rate after adjusting for vacant

units undergoing modernization and

units that are vacant due to

circumstances and actions beyond the

PHA’s control is 3% or less (or the PHA

has five or fewer vacant units), the PHA

may use its recalculated RBY

42502 Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules

Occupancy Percentage as its projected

occupancy percentage.

(D) If the recalculated RBY

Occupancy Percentage is less than 97%

and the vacancy percentage is greater

than 3% (or the PHA has more than five

vacant units) after adjusting for vacant

units undergoing modernization and

units that are vacant due to

circumstances and actions beyond the

PHA’s control, the PHA will use 97% as

its projected occupancy percentage, but

will be allowed to adjust the 97% by the

number of vacant units undergoing

modernization and units that are vacant

due to circumstances and actions

beyond the PHA’s control. For a small

PHA using five vacant units as its

occupancy objective for the RBY, the

PHA will determine what percentage

five units represents as a portion of its

units available for occupancy and

subtract that percentage from 100%. The

result will be used as the PHA’s

projected occupancy percentage, but the

PHA will be allowed to adjust the

projected occupancy percentage by

vacant units undergoing modernization

and units that are vacant for

circumstances and actions beyond the

PHA’s control.

(c) Projected average monthly

dwelling rental charge per unit for new

Projects. The projected average monthly

dwelling rental charge for new Projects

which were not available for occupancy

during the budget year prior to the

Requested Budget Year and which will

reach the End of the Initial Operating

Period (EIOP) within the first nine

months of the Requested Budget Year,

shall be calculated as follows:

(1) If the PHA has another Project or

Projects under management which are

comparable in terms of elderly and

nonelderly resident composition, the

PHA shall use the projected average

monthly dwelling rental charge for such

Project or Projects.

(2) If the PHA has no other Projects

which are comparable in terms of

elderly and nonelderly resident

composition, the HUD Field Office will

provide the projected average monthly

dwelling rental charge for such Project

or Projects, based on comparable

Projects located in the area.

(d) Estimate of additional dwelling

rental income. After implementation of

the provisions of any legislation enacted

or any HUD administrative action taken

subsequent to the effective date of these

regulations, which affects rents paid by

residents of Projects, HUD may adjust

the projected average monthly dwelling

rental charge per unit to reflect such

change. HUD also shall have complete

discretion to reduce or increase the

operating subsidy approved for the PHA

current fiscal year in an amount

equivalent to the change in the rental

income.

(e) PHA’s estimate of other income.

All PHAs shall estimate Other Income

based on past experience and a

reasonable projection for the Requested

Budget Year, which estimate shall be

subject to HUD approval. The estimated

total amount of Other Income, as

approved, shall be divided by the

number of Unit Months Available to

obtain a per unit per month amount.

(f) Projected operating income level.

The projected average dwelling rental

income per unit (calculated under

paragraphs (b), (c), and (d) of this

section) shall be added to the estimated

Other Income (calculated under

paragraph (e) of this section) to obtain

the Projected Operating Income Level.

This amount shall not be subject to the

provisions regarding program income in

24 CFR 85.25.

§ 990.110 Adjustments.

Adjustment information submitted to

HUD under this section must be

accompanied by an original or revised

calculation of operating subsidy

eligibility.

(a) Adjustment of base year expense

level—(1) Eligibility. A PHA with

projects that have been in management

for at least one full fiscal year, for which

operating subsidy is being requested

under the Operating Fund Formula for

the first time, may, during its first

budget year under the Operating Fund

Formula, request HUD to increase its

Base Year Expense Level. Included in

this category are existing PHAs

requesting subsidy for a project or

projects in operation at least one full

fiscal year under separate ACC, for

which operating subsidy has never been

paid, except for independent audit

costs. This request may be granted by

HUD, in its discretion, only where the

PHA establishes to HUD’s satisfaction

that the Base Year Expense Level

computed under § 990.105(a) will result

in operating subsidy at a level

insufficient to support a reasonable

level of essential services. The approved

increase cannot exceed the lesser of the

per unit per month amount by which

the top of the Range exceeds the Base

Year Expense Level.

(2) Procedure. A PHA that is eligible

for an adjustment under paragraph (a)(1)

of this section may only make a request

for such adjustment once for projects

under a particular ACC, at the time it

submits the calculation of operating

subsidy eligibility for the first budget

year under the Operating Fund Formula.

Such request shall be submitted to the

HUD Field Office, which will review,

modify as necessary, and approve or

disapprove the request. A request under

this paragraph must include a

calculation of the amount per unit per

month of requested increase in the Base

Year Expense Level, and must show the

requested increase as a percentage of the

Base Year Expense Level.

(b) Adjustments to Utilities Expense

Level. A PHA receiving operating

subsidy under § 990.104, excluding

those PHAs that receive operating

subsidy solely for independent audit

(§90.108(a)), must submit an adjustment

regarding the Utility Expense Level

approved for operating subsidy

eligibility purposes. This adjustment,

which will compare the actual utility

expense and consumption for the PHA

fiscal year to the estimates used for

subsidy eligibility purposes, shall be

submitted on forms prescribed by HUD.

This adjustment, applicable to PHA

fiscal years beginning on or after

January 1, 1999, shall be submitted to

the HUD Field Office within 45 days

after the close of the PHA fiscal year

that is being adjusted. Failure to submit

the required adjustment of the Utilities

Expense Level by the due date may, in

the discretion of HUD, result in the

withholding of approval of future

obligation of operating subsidies and/or

a delay in the recognition of the

adjustment. Adjustments under this

section normally will be made in the

operating subsidy calculation for the

second PHA fiscal year following the

year being adjusted, unless a repayment

plan is necessary as noted in paragraph

(d) of this section.

(1) Rates. A change in the Utilities

Expense Level because of changes in

utility rates-to the extent funded by the

operating subsidy-will result in an

adjustment of future operating subsidy

payments. However, where the rate

reduction covering utilities, such as

water, fuel oil, electricity, and gas, is

directly attributable to action by the

PHA, such as wellhead purchase of

natural gas, or administrative appeals or

legal action beyond normal public

participation in rate-making

proceedings, then the PHA will be

permitted to retain one-half of the cost

savings attributable to its actions for the

first year and, upon determination that

the action was cost-effective in the first

year, for as long as the actions continue

to be cost-effective, and the other onehalf of the cost savings will be deducted

from operating subsidy otherwise

payable.

(2) Consumption. (i) Generally, 75%

of any decrease in the Utilities Expense

Level attributable to decreased

consumption after adjustment for any

utility rate change, will be retained by

Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules 42503

the PHA; 25% will be offset by HUD

against subsequent payment of

operating subsidy.

(ii) However, in the case of a PHA

whose energy conservation measures

have been approved by HUD as

satisfying the requirements of

§ 990.107(f)(1) (regarding non-HUD

financed incentives for energy

conservation improvements), the PHA

operating fund eligibility shall reflect

the retention of 100% of the savings

from decreased consumption after

payment of the amount due the

contractor until the term of the

financing agreement is completed. The

decreased consumption is to be

determined by adjusting for any utility

rate changes and may be adjusted,

subject to HUD approval, using a

heating degree day adjustment for space

heating utilities. The savings realized

must be applied in the following order:

(A) Retention of up to 50% of the total

savings from decreased consumption to

cover training of PHA employees,

counseling of residents, PHA

management of the cost reduction

program and any other eligible costs;

and

(B) Prepayment of the amount due the

contractor under the contract.

(iii) 25% of an increase in the Utilities

Expense Level attributable to increased

consumption, after adjustment for any

utility rate change, will be reflected in

the operating subsidy eligibility for the

second PHA fiscal year following the

year being adjusted, in accordance with

§ 990.111.

(iv) PHAs are encouraged to:

(A) Provide conservation incentives

and training to residents in order to

realize increased utility savings;

(B) Share information with residents

regarding changes in utility costs related

to rate changes and to changes in

consumption; and

(C) Explain to residents conservation

benefits and impacts of excess

consumption on the operating budget.

(3) Documentation. Supporting

documentation substantiating the

requested adjustments shall be retained

by the PHA pending HUD audit.

(c) Energy conservation financing. If

HUD has approved an energy

conservation contract under

§ 990.107(f)(2), then the PHA is eligible

for additional operating subsidy each

year of the contract to amortize the cost

of the energy conservation measures

under the contract, subject to a

maximum annual limit equal to the cost

savings for that year and a maximum

contract period of 12 years.

(1) Each year, the energy cost savings

would be determined as follows:

(i) The consumption level that would

have been expected if the energy

conservation measure had not been

undertaken would be adjusted for any

change in utility rate and may be

adjusted, subject to HUD approval,

using a heating degree day adjustment

for space heating utilities;

(ii) The actual cost of energy (of the

type affected by the energy conservation

measure) after implementation of the

energy conservation measure would be

subtracted from the expected energy

cost, to produce the energy cost savings

for the year. (See also paragraph (b)(2)(i)

of this section for retention of

consumption savings.)

(2) If the cost savings for any year

during the contract period is less than

the amount of operating subsidy to be

made available under this paragraph (c)

to pay for the energy conservation

measure in that year, the deficiency will

be offset against the PHA’s operating

subsidy eligibility for the PHA’s next

fiscal year.

(3) If energy cost savings are less than

the amount necessary to meet

amortization payments specified in a

contract, the contract term may be

extended (up to the 12-year limit) if

HUD determines that the shortfall is the

result of changed circumstances rather

than a miscalculation or

misrepresentation of projected energy

savings by the contractor or PHA. The

contract term may only be extended to

accommodate payment to the contractor

and associated direct costs.

(d) Additional HUD-initiated

adjustments. Notwithstanding any other

provisions of this subpart, HUD may at

any time make an upward or downward

adjustment in the amount of the PHA’s

operating subsidy as a result of data

subsequently available to HUD which

alters projections upon which the

approved operating subsidy was based.

If a downward adjustment would cause

a severe financial hardship on the PHA,

the HUD Field Office may establish a

recovery schedule which represents the

minimum number of years needed for

repayment.

§ 990.111 Submission and approval of

operating subsidy calculations and

budgets.

(a) Required documentation. (1) Prior

to the beginning of its fiscal year, the

PHA shall prepare an operating budget

in a manner prescribed by HUD. The

Board of Commissioners shall review

and approve the budget by resolution.

Each fiscal year, the PHA shall submit

to the HUD Field Office, in a time and

manner prescribed by HUD, the

approved board resolution and the

required operating subsidy eligibility

calculation forms. The PHA shall

submit revised calculations in support

of any adjustments based on procedures

prescribed by HUD.

(2) HUD may direct the PHA to

submit its complete operating budget if

the PHA has failed to achieve certain

specified operating standards, or for

other reasons which in HUD’s

determination threaten the PHA’s future

serviceability, efficiency, economy, or

stability.

(b) HUD operating budget review. (1)

The HUD Field Office will perform a

detailed review on operating budgets

that are subject to HUD review and

approval. If the HUD Field Office finds

that an operating budget is incomplete,

includes illegal or ineligible

expenditures, mathematical errors,

errors in the application of accounting

procedures, or is otherwise

unacceptable, the HUD Field Office may

at any time require the submission by

the PHA of further information

regarding an operating budget or

operating budget revision.

(2) When the PHA no longer is

operating in a manner that threatens the

future serviceability, efficiency,

economy, or stability of the housing it

operates, HUD will notify the PHA that

it no longer is required to submit a

complete operating budget to HUD for

review and approval.

(c) Compliance with environmental

review requirements—(1) General.

Operating subsidy funds made available

to a PHA to support the operation and

management of public housing are

generally for activities that are not

subject to environmental review

requirements. A PHA, however, may use

public housing program resources

(including operating subsidy funds,

rental and nonrental income, and

operating reserves) to carry out nonroutine maintenance and capital

expenditure activities that may require

an environmental review, as those

activities are defined in HUD’s

prescribed Chart of Accounts.

(2) Initial operating budget. The ACC

requires that operating expenditures

may not be incurred except pursuant to

an approved operating budget. Before

the funding of non-routine maintenance

and capital expenditure activities may

be incorporated into the PHA’s initial

operating budget, and before the PHA

may commit any funds to such

activities, the PHA must obtain either:

(i) An environmental review from the

Responsible Entity and submit and

receive HUD approval of a Request for

Release of Funds under part 58 of this

title, or, in cases where HUD has

determined to do an environmental

review under part 50 of this title, the

42504 Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules

PHA must obtain an environmental

approval from HUD; or

(ii) A determination from the

Responsible Entity under part 58 of this

title that the PHA’s proposed nonroutine maintenance and capital

expenditure activities are exempt from

environmental review in accordance

with § 58.34(a)(12) of this title.

(3) Revisions to operating budget. If

subsequent to adoption of its initial

operating budget, a PHA determines to

undertake a new non-routine

maintenance or capital expenditure

activity, the PHA must obtain an

environmental review and release of

funds, HUD environmental approval, or

an exemption from such review, as

described in paragraph (c)(2) of this

section, before the funding of the

activity may be incorporated into a

revised operating budget and before the

PHA may commit any funds to such

activities.

(4) Determination of exempt activities.

If the Responsible Entity documents that

a proposed non-routine maintenance or

capital expenditure activity is an

exempt activity, as described in (c)(2)(ii)

of this section, no further action is

required from the PHA and the activity

may be incorporated into the PHA’s

initial or revised operating budget, as

appropriate.

§ 990.112 Payments procedure for

operating subsidy under the Operating

Fund Formula.

(a) General. Subject to the availability

of funds, payments of operating subsidy

under the Operating Fund Formula shall

be made generally by electronic funds

transfers, based on a schedule submitted

by the PHA and approved by HUD. The

schedule may provide for several

payments per month. If a PHA has an

unanticipated, immediate need for

disbursement of approved operating

subsidy, it may make an informal

request to HUD to revise the approved

schedule. (Requests by telephone are

acceptable.)

(b) Payments procedure. In the event

that the amount of operating subsidy

has not been determined by HUD as of

the beginning of a PHA’s budget year

under this part, annual or monthly or

quarterly payments of operating subsidy

shall be made, as provided in paragraph

(a) of this section, based upon the

amount of the PHA’s operating subsidy

for the previous budget year or such

other amount as HUD may determine to

be appropriate.

(c) Availability of funds. In the event

that insufficient funds are available to

make payments approvable under the

Operating Fund Formula for operating

subsidy payable by HUD, HUD shall

have complete discretion to revise, on a

pro rata basis or other basis established

by HUD, the amounts of operating

subsidy to be paid to PHAs.

§ 990.113 Payments of operating subsidy

conditioned upon reexamination of income

of families in occupancy.

(a) Policy. The income of each family

must be reexamined at least annually.

PHAs must be in compliance with this

reexamination requirement to be eligible

to receive full operating subsidy

payments.

(b) PHAs in compliance with

requirements. Each submission of the

original calculation of operating subsidy

eligibility for a fiscal year shall be

accompanied by a certification by the

PHA that it is in compliance with the

annual income reexamination

requirements and that rents have been

or will be adjusted in accordance with

current HUD requirements.

(c) PHAs not in compliance with

requirements. Any PHA not in

compliance with annual income

reexamination requirement at the time

of the submission of the calculation of

operating subsidy eligibility shall

furnish to the HUD Field Office a copy

of the procedure it is using to attain

compliance and a statement of the

number of families that have undergone

reexamination during the twelve

months preceding the date of the

Operating Budget submission, or the

revision thereof. If, on the basis of such

submission, or any other information,

the Field Office Director determines that

the PHA is not substantially in

compliance with the annual income

reexamination requirement, he or she

shall withhold payments to which the

PHA might otherwise be entitled under

this part, equal to his or her estimate of

the loss of rental income to the PHA

resulting from its failure to comply with

those requirements.

§ 990.114 Phase-down of subsidy for units

approved for demolition.

(a) General. Units that have both been

approved by HUD for demolition and

been vacated in FY 1995 and after will

be excluded from a PHA’s

determination of Unit Months Available

when vacated, but they will remain

eligible for subsidy in the following

way:

(1) For the first twelve months

beginning with the month that a unit

meets both conditions of being

approved for demolition and vacant, the

full AEL will be allowed for the unit.

(2) During the second twelve-month

period after meeting both conditions,

66% of the AEL will be allowed for the

unit.

(3) During the third twelve-month

period after meeting both conditions,

33% of the AEL will be allowed for the

unit.

(b) Special case for long-term vacant

units. Units that have been vacant for

longer than 12 months when they are

approved for demolition are eligible for

funding equal to 20% of the AEL for a

12-month period.

(c) Treatment of units replaced with

Section 8 Certificates or Vouchers. Units

that are replaced with Section 8

Certificates or Vouchers are not subject

to the provisions of this section.

(d) Treatment of units replaced with

public housing units. When replacement

conventional public housing units

become eligible for operating subsidy,

the demolished unit is no longer eligible

for any funding under this section.

(e) Determination of what units are

‘‘replaced.’’For purposes of this section,

replacements are applied first against

units that otherwise would fall in

paragraph (a) of this section; any

remaining replacements should be used

to reduce the number of units qualifying

under paragraph (b) of this section.

(f) Treatment of units combined with

other units. Units that are removed from

the inventory as a result of being

combined with other units are not

considered to be demolished units for

this purpose.

§ 990.116 Increases in dwelling rental

income.

(a) General. As described in

§ 990.109(b)(1), PHAs shall be allowed

to retain 50% of any increases in

dwelling rental income, so long as the

PHA uses the increased income for the

provision of resident-related

improvements and services. The

retained income will not be recognized

in the PHA’s calculation under the

Operating Fund Formula.

(b) Eligible uses for increased rental

revenue. The uses for the retained

income must be developed with front

end resident participation and ongoing

input and shall be made part of the PHA

plan submission. (See 24 CFR part 903).

Examples of eligible uses for the

retained income include, but are not

limited to:

(1) Physical and management

improvements that benefit residents;

(2) Resident self-sufficiency services;

(3) Maintenance operations;

(4) Resident employment and training

services;

(5) Resident safety and security

improvements and services; and

(6) Optional earned income

exclusions.

Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Proposed Rules 42505

§ 990.117 Determining actual and

requested budget year occupancy

percentages.

(a) Actual occupancy percentage.

When submitting Operating Fund

Formula calculations for Requested

Budget Years, the PHA shall determine

an Actual Occupancy Percentage for all

Project Units included in the Unit

Months Available. The PHA shall have

the option of basing this option on

either:

(1) The number of units occupied on

the last day of the month that ends 6

months before the beginning of the

Requested Budget Year; or

(2) The average occupancy during the

month ending 6 months before the

beginning of the Requested Budget Year.

If the PHA elects to use an average

occupancy under this paragraph (a)(2),

the PHA shall maintain a record of its

computation of its Actual Occupancy

Percentage.

(b) Requested budget year occupancy

percentage. The PHA will develop a

Requested Budget Year Occupancy

Percentage by taking the Actual

Occupancy Percentage and adjusting it

to reflect changes up or down in

occupancy during the Requested Budget

Year due to HUD-approved activities

such as units undergoing

modernization, new development,

demolition, or disposition. If after the

submission and approval of the

Operating Fund Formula calculations

for the Requested Budget Year, there are

changes up or down in occupancy

because of modernization, new

development, demolition or disposition

that are not reflected in the Requested

Budget Year Occupancy Percentage, the

PHA may submit a revision to reflect the

actual change in occupancy due to these

activities.

(c) Documentation required to be

maintained. The PHA must maintain

and, upon HUD’s request, make

available to HUD specific

documentation of the occupancy status

of all units, including long-term

vacancies, vacant units undergoing

modernization, and units vacant due to

circumstances and actions beyond the

PHA’s control. This documentation

shall include a listing of the units, street

addresses, and project/management

control numbers.

§ 990.120 Audit.

PHAs that receive financial assistance

under this part shall comply with the

audit requirements in 24 CFR part

85.26. If a PHA has failed to submit an

acceptable audit on a timely basis in

accordance with that part, HUD may

arrange for, and pay the costs of, the

audit. In such circumstances, HUD may

withhold, from assistance otherwise

payable to the PHA under this part,

amounts sufficient to pay for the

reasonable costs of conducting an

acceptable audit, including, when

appropriate, the reasonable costs of

accounting services necessary to place

the PHA’s books and records into

auditable condition. The costs to place

the PHA’s books and records into

auditable condition do not generate

additional subsidy eligibility under this

part.

§ 990.121 Effect of rescission.

If there is a rescission of appropriated

funds that reduces the level of funding

under the Public Housing Capital Fund

program, to the extent that the PHA can

document that it is not possible to

complete all the vacant unit

rehabilitation in the PHA’s approved

Annual Statement, the PHA may seek

and HUD may grant a waiver for 1 fiscal

year to permit full eligibility under the

Operating Fund Formula for those units

approved but not funded. (See part 905

of this title for additional information

regarding the Capital Fund program.)

Dated: June 7, 2000.

Harold Lucas,

Assistant Secretary for Public and Indian

Housing.

[FR Doc. 00–17026 Filed 7–7–00; 8:45 am]

BILLING CODE 4210–33–P