52710 Federal Register / Vol. 71, No. 172 / Wednesday, September 6, 2006 / Notices 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

[Docket Number FR–5099–N–01] 

Public Housing Operating Fund 

Program; Guidance on Implementation 

of Asset Management 

AGENCY: Office of the Assistant 

Secretary for Public and Indian 

Housing; HUD. 

ACTION: Notice. 

SUMMARY: On September 19, 2005, HUD 

published a final rule entitled, 

‘‘Revisions to the Public Housing 

Operating Fund Program,’’ which 

established a new formula for 

determining operating subsidies for 

public housing agencies (PHAs) and 

requiring that PHAs with 250 or more 

units convert to asset management. This 

notice clarifies and provides interim 

guidance pertaining to various aspects 

of public housing’s conversion to asset 

management. The interim guidance 

provided in this notice is intended to 

assist all PHAs that operate federal 

public housing. Special provisions are 

included in the notice to assist small 

PHAs with less than 250 public housing 

units that are not subject to asset 

management conversion. HUD is 

soliciting public comment on this 

interim guidance and, based on the 

comments received, will issue final 

guidance and commence rulemaking, as 

appropriate, on the asset-based 

management requirements. Until such 

time as final guidance is issued or 

rulemaking commenced, PHAs should 

refer to the interim guidance provided 

by this notice to assist in their 

conversion to asset-based management. 

DATES: Effective Date: This notice is 

effective upon publication. 

Comment Due Date: November 6, 

2006. 

ADDRESSES: Interested persons are 

invited to submit comments regarding 

this notice to the Office of the General 

Counsel, Rules Docket Clerk, 

Department of Housing and Urban 

Development, 451 Seventh Street, SW., 

Room 10276, Washington, DC 20410– 

0001. Communications should refer to 

the above docket number and title and 

should contain the information 

specified in the ‘‘Request for 

Comments’’ section. 

Electronic Submission of Comments. 

Interested persons may submit 

comments electronically through the 

Federal eRulemaking Portal at http:// 

www.regulations.gov. HUD strongly 

encourages commenters to submit 

comments electronically. Electronic 

submission of comments allows the 

commenter maximum time to prepare 

and submit a comment, ensures timely 

receipt by HUD, and enables HUD to 

make them immediately available to the 

public. Comments submitted 

electronically through the http:// 

www.regulations.gov Web site can be 

viewed by other commenters and 

interested members of the public. 

Commenters should follow the 

instructions provided on that site to 

submit comments electronically. 

No Facsimile Comments. Facsimile 

(FAX) comments are not acceptable. In 

all cases, communications must refer to 

the docket number and title. 

Public Inspection of Public 

Comments. All comments and 

communications submitted to HUD will 

be available, without charge, for public 

inspection and copying between 8 a.m. 

and 5 p.m. weekdays at the above 

address. Due to security measures at the 

HUD Headquarters building, an advance 

appointment to review the public 

comments must be scheduled by calling 

the Regulations Division at (202) 708– 

3055 (this is not a toll-free number). 

Individuals with speech or hearing 

impairments may access this number 

through TTY by calling the toll-free 

Federal Information Relay Service at 

800–877–8339. Copies of all comments 

submitted are available for inspection 

and downloading at http:// 

www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Elizabeth Hanson, Deputy Assistant 

Secretary, Departmental Real Estate 

Assessment Center, Office of Public and 

Indian Housing, Department of Housing 

and Urban Development, 451 Seventh 

Street, SW., Room 2000, Washington, 

DC 20410; telephone 202–475–7949 

(this is not a toll-free number). 

Individuals with speech or hearing 

impairments may access this number 

through TTY by calling the toll-free 

Federal Information Relay Service at 

800–877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On September 19, 2005, (70 FR 

54983), HUD published a final rule 

amending the regulations of the Public 

Housing Operating Fund Program at 24 

CFR part 990, to provide a new formula 

for distributing operating subsidy to 

public housing agencies (PHAs) and to 

establish requirements for PHAs to 

convert to asset management. On 

October 24, 2005 (70 FR 61366), HUD 

published a correction to the September 

19, 2005, final rule to clarify that the 

revised allocation formula will be 

implemented for calendar year 2007, 

and adjusting the related dates specified 

in the final rule to reflect the corrected 

implementation date. The final rule, 

developed through negotiated 

rulemaking conducted in 2004, became 

effective on November 18, 2005. 

Subpart H of the revised part 990 

regulations (§§ 990.255 to 990.290) 

establishes the requirements regarding 

asset management. Under § 990.260(a), 

PHAs that own and operate 250 or more 

dwelling rental units must operate using 

an asset management model consistent 

with the subpart H regulations. PHAs 

with fewer than 250 dwelling rental 

units may elect to transition to asset 

management, but are not required to do 

so. PHAs are required to implement 

property-based management, propertybased budgeting, and property-based 

accounting, which are all defined in the 

subpart H regulations, which are 

essential components of asset 

management. 

Additionally, to facilitate and clarify 

the process of conversion to asset 

management, the office of Public and 

Indian Housing (PIH) will be issuing a 

notice that contains more detailed 

financial reporting information and 

guidance to assist PHAs in the near 

future. 

II. This Notice 

This notice clarifies and provides 

interim guidance pertaining to various 

aspects of public housing’s conversion 

to asset management. The interim 

guidance provided in this notice is 

intended to assist all PHAs that operate 

public housing. Special provisions are 

included in the notice to assist small 

PHAs with less than 250 public housing 

units that are not subject to asset 

management conversion. Specifically, 

the notice provides elaboration on the 

collection and use of fees in the 

operation and management of 

properties, the effect of transitioning to 

asset management on the Public 

Housing Assessment System (PHAS), 

property identification, and the 

connection between asset management 

and the Capital Fund. 

As part of the requirement to convert 

to asset management, PHAs of 250 or 

more units must charge a property 

management fee for the operation of the 

central office. In addition, PHAs may 

charge a ‘‘fee-for-service’’ for certain 

centralized property management 

services and must prepare propertylevel financial statements. These and 

other requirements introduce new 

financial reporting models; affect the 

scoring under the PHAS; and raise 

issues regarding treatment of such fees 

as ‘‘program income.’’ This notice 

clarifies and provides guidance on key 


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business decisions related to the 

implementation of asset management. 

HUD is soliciting comments on this 

notice. Based upon the comments that 

are received and the experience of PHAs 

as they begin the conversion to asset 

management, HUD will issue final 

guidance and may initiate rulemaking, 

as may be necessary, to establish more 

specific requirements. The rulemaking 

will provide PHAs and the public with 

an opportunity to comment on any 

proposed requirements prior to their 

issuance for effect. Until such time, this 

notice serves as interim guidance, 

providing PHAs with an operational 

framework to assist with their 

conversion to asset management. 

III. Treatment of Fee Income as NonProgram Income 

HUD wishes to clarify that reasonable 

fees charged to properties and programs, 

as part of the fee-for-service approach, 

are not considered federal program 

income for the purposes of 24 CFR part 

85. Rather, this fee income is considered 

local revenue and control over its use is 

subject only to state or local 

requirements imposed on individual 

PHAs. 

IV. Excess Cash 

The Operating Fund program 

regulations at § 990.280 establish certain 

limitations, as well as certain freedoms, 

on the use of property revenues by 

PHAs depending on whether a property 

generates ‘‘excess cash.’’ Section 

990.255(a) provides that PHAs must 

manage their properties using an asset 

management model consistent with 

management norms of the multifamily 

management industry. As such, excess 

cash should be computed using 

essentially the same method as 

performed under HUD’s multifamily 

housing programs. The determination of 

excess cash is based on year-end 

financial statements using a balance 

sheet approach. 

However, solely for the purposes of 

the provisions affecting property 

fungibility (see § 990.280(b)(5)(i)) and 

payment of an asset management fee 

(see § 990.280(b)(5)(ii)), a property’s 

excess cash should not be less than one 

month’s operating expenses. 

V. Restrictions on Use of Excess Cash 

for Payment of Central Office Costs 

The part 990 regulations establish 

certain parameters around the use of a 

property’s excess cash (beyond the 

minimum levels described above). 

Consistent with § 990.280(c), excess 

cash may not be used to pay for the 

operations of the central office cost 

center. To allow excess cash to fund the 

operations of the central office cost 

center would be inconsistent with 

§ 990.280(c), which states that ‘‘central 

office cost centers shall be funded from 

the property-management fees received 

from each project, and from the asset 

management fees to the extent that they 

are available.’’ It would also contravene 

a goal of the September 19, 2005, 

Operating Fund final rule that PHAs 

should only be permitted to charge a 

reasonable fee for the operations of the 

central office. 

VI. Reasonableness of Property 

Management Fees and Asset 

Management Fees 

Section 990.280 provides for the 

establishment of ‘‘reasonable’’ property 

management and asset management 

fees. Accordingly, fees must be 

reasonable to be considered as excess 

cash and not treated as program income. 

Property management fees, which may 

include a bookkeeping fee, are to be 

earned monthly for each occupied unit 

or approved vacancy, as per 24 CFR 

990.140 and 990.145, respectively. In 

accordance with § 990.140, asset 

management fees are to be earned based 

on the total number of units under the 

Annual Contributions Contract (ACC) 

for each project. 

The following guidelines are offered 

to assist PHAs in determining whether 

their fees are reasonable. However, 

PHAs may establish higher fees other 

than those provided in these guidelines, 

as provided in section IX of this notice. 

A. Property Management Fee 

A PHA may charge a reasonable 

property management fee based on any 

of the following: 

1. The property management fee 

schedules established for each HUD 

Multifamily Field Office. Generally, the 

Office of Multifamily Housing 

establishes fee ranges for federally 

subsidized properties that reflect 120 

percent of the mean property 

management fee for profit-motivated 

properties that are well managed, in 

good physical condition, and are 

managed by independent agents with no 

identity of interest with the owners; or 

2. The 80th percentile property 

management fee paid by all for-profit 

and unlimited dividend Federal 

Housing Administration (FHA) 

properties, by HUD Field Office, 

excluding such programs as 

cooperatives and nursing homes. 

The property management fee may 

include a reasonable bookkeeping fee 

for the property accounting function. 

The average bookkeeping fee in HUD’s 

multifamily housing programs is about 

$3.50 per unit per month (PUM) (2004 

data). Generally, HUD will consider 

$7.50 PUM to be a reasonable fee. A 

higher bookkeeping fee for PHAs 

reflects higher centralized information 

technology and human resource costs 

present in public housing. For financial 

reporting purposes, this bookkeeping 

fee, as is standard business practice, is 

to be presented separately from the 

property management fee on the PHA’s 

financial statements. 

B. Asset Management Fee 

HUD will generally consider an asset 

management fee charged to each 

property of $10 PUM as reasonable. 

Asset management fees are based on all 

units under an ACC. In multifamily 

housing, the asset management 

functions of owners are primarily 

funded through cash flows. This fee 

amount was determined based on an 

examination of cash flows in HUD’s 

multifamily properties and the 

consideration that certain asset 

management activities in public housing 

are also recovered through the Capital 

Fund management fee. 

VII. Assignment of Assets to the Central 

Office Cost Center and Determination of 

Initial Working Capital 

Section 990.280(b) of the final rule 

requires PHAs to separate all assets and 

liabilities between the properties and 

the central office cost center. 

A PHA’s central office cost center will 

operate off of fees and other allowable 

charge-backs (as well as other revenue 

sources outside the public housing 

program). Like any other business area, 

the PHA’s central office cost center will 

need a reasonable amount of working 

capital in order to perform its functions 

properly. As such, PHAs, when 

assigning assets between properties and 

the central office cost center, may assign 

to the central office cost center an 

amount equal to six months of property 

management fees, including 

bookkeeping fees, and asset 

management fees based on all units 

under ACC, regardless of unit status. 

This assignment may take place at the 

time the PHA assigns its initial balance 

sheet data, when first converting to 

property-based accounting. To the 

extent that a PHA does not have 

sufficient reserves to make such an 

assignment, a PHA may accrue these 

amounts. This working capital, like the 

fees themselves, will not be considered 

program income. 

VIII. Management Fees for Capital 

Fund, Housing Choice Voucher and 

Other Public Housing Grant Programs 

In programs where it applies, OMB 

Circular A–87 allows PHAs to use a feeVerDate Aug<31>2005 20:21 Sep 05, 2006 Jkt 208001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4703 E:\FR\FM\06SEN2.SGM 06SEN2

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for-service in lieu of allocation systems 

for the reimbursement of overhead 

costs. HUD encourages this approach for 

several reasons. First, it simplifies a 

PHA’s accounting systems. Second, it 

relieves HUD from the requirement to 

review overhead allocations and to 

monitor the spending of such funds. 

Third, it encourages PHAs to become 

more businesslike, in that any revenue 

in excess of expenses can be used to 

support the mission of the PHA (i.e., 

retained earnings of the central office 

cost center are not considered program 

income). The following guidelines are 

designed to assist PHAs intending to 

implement a fee-for-service approach in 

establishing appropriate management 

fees. 

A. Capital Fund Program 

A PHA may charge up to a maximum 

10 percent of the annual Capital Fund 

grant as a management fee. While 

current program rules (§ 968.112) allow 

PHAs to charge up to 10 percent of the 

Capital Fund grant for 

‘‘Administration,’’ these administrative 

costs must be specifically apportioned 

and/or documented. Under a fee-forservice system, the PHA may charge a 

management fee of 10 percent, 

regardless of actual costs. 

B. Housing Choice Voucher Program 

HUD encourages the adoption of a feefor-service methodology for the Housing 

Choice Voucher Program (HCV). 

Existing appropriations language 

restricts the use of administrative fees to 

activities related to the provision of 

tenant-based rental activity authorized 

under Section 8. Costs directly related 

to the day-to-day operations of the 

Section 8 program such as salaries of 

occupancy specialists or rented space 

for intake activities clearly qualify 

under this definition while overhead 

costs require more stringent 

documentation. For PHAs that elect to 

use a fee-for-service methodology for its 

HCV program, HUD will consider a 

management fee of up to 20% of the 

administrative fee or up to $12 PUM per 

voucher leased, whichever is higher, as 

meeting the requirements of the 

appropriations act. Under this 

methodology, PHAs can also charge the 

HCV program a $7.50 PUM bookkeeping 

fee for the program accounting function. 

PHAs that elect to maintain an 

allocation system for the recovery of 

overhead costs under the HCV program 

cannot charge the HCV program more 

than the allocated amount and must 

maintain auditable documentation to 

support its allocation of costs and their 

relationship to the provision of tenantbased rental activity authorized under 

section 8. 

C. PHA Administrative Fee for Mixed 

Finance Development 

A reasonable administrative fee 

amount paid with Public Housing 

Funds for the mixed finance 

development is 3% of the total property 

budget. This amount is intended to 

cover PHA administrative costs. 

Alternatively, an administrative fee of 

up to 6% is considered reasonable 

provided the housing authority is able 

to support that the fee is appropriate in 

accordance with section IX of this 

notice. 

D. Other Public and Indian Housing 

Grants 

If a fee rate has not been established 

for a grant, a PHA should charge no 

more than 15 percent of the grant 

amount as a management fee for other 

Public Housing grants. Where 

administrative cost are set through other 

notices, regulations and existing grant 

agreements, for example the ROSS 

program and the annual NOFA 

requirements, these policies and 

agreements are controlling. 

IX. Demonstrating Fee Reasonableness 

If a PHA considers the fees in this 

notice to be inadequate to address their 

individual circumstances, a PHA may 

use data that reflects conditions of the 

local or national market. HUD is aware 

that PHAs are diverse, having different 

resources and constraints. During this 

period of interim guidance and prior to 

any rulemaking that may be initiated on 

fees, PHAs may document, as support, 

that a fee charged is appropriate for the 

scope of work, specific circumstances of 

the property, and local or national 

market for the services provided. The 

data used may include fees paid by the 

PHA for private management of public 

housing through effective competition. 

PHAs should be ready to justify the 

departure from fees in these guidelines 

upon inquiry from HUD or other 

interested parties. 

In conformity with standard business 

practices, PHAs are encouraged to 

maintain supporting documentation 

explaining the basis of its fees. PHAs are 

also encouraged to consult with HUD on 

fees that may depart from this guidance 

prior to charging the fees. HUD will 

provide a PHA with it views on the 

reasonableness of the fees intended to 

be charged. 

X. PHAS Transition Rules 

The move to asset management will 

require HUD to revise the PHAS. 

Currently, PHAS is an entity-wide 

assessment system whereas asset 

management utilizes a property-specific 

focus. As a result, for the first year of 

compliance with property-based 

budgeting and accounting, during which 

time that PHAs are making 

organizational changes, the PHA will 

receive a transition score under the 

revised PHAS. Incentive awards under 

the Capital Fund during the time that 

PHAs receive transition PHAS scores 

will be based on the PHA’s latest PHAS 

score prior to conversion to asset 

management. 

All PHAs that are or will be classified 

as troubled will continue to be governed 

by their memorandum of agreements 

and other pertinent program rules. 

Moreover, although PHAs will only 

receive transition scores, PHAs must 

continue to comply with all rules 

associated with the public housing 

program and must continue to manage 

with economy and efficiency. 

XI. Property Identifications 

Under § 990.265, PHAs must identify 

their property for purposes of asset 

management. Guidance regarding this 

exercise was contained in PIH Notice 

2006–10 (issued February 3, 2006), 

entitled ‘‘Identification of Projects for 

Asset Management.’’ These new 

property identifications will become the 

new measurement and funding focus of 

HUD. It is not necessary to revise the 

property numbers on the ACC. A copy 

of PIH Notice 2006–10 may be 

downloaded from http:// 

www.hudclips.org. 

XII. Inter-Relationship With Capital 

Fund 

Section 990.280(a) provides that 

property-based budgeting and 

accounting will be applied to all 

programs and revenues sources that 

support properties under the ACC, 

including the Capital Fund. When a 

PHA transfers funds from the Capital 

Fund to the Operating Fund, these 

funds lose their Capital Fund Program 

identity and are then governed by all 

Operating Fund rules. All other Capital 

Fund eligible activities are bound by the 

Capital Fund Program rules and the 

Annual PHA Plan requirements. 

Additionally, where a PHA may use 

Capital Funds for ‘‘management 

improvements’’ and ‘‘operations,’’ it 

may only use those amounts to fund 

‘‘property’’ expenses and not expenses 

of the central office cost center. 

XIII. PHAs With Fewer Than 250 Units 

For PHAs with fewer than 250 units 

of public housing and which have not 

elected to convert to asset management, 

only Sections X, XI, and XII of this 


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notice are applicable. HUD included in 

the September 19, 2005, Operating Fund 

final rule accommodations to enable 

PHAs with fewer than 250 units to more 

easily convert to asset management, 

such as allowing small PHAs to treat all 

of their units as one property. Section 

990.280 of the Operating Fund program 

regulations provides for the 

establishment a ‘‘HUD-accepted central 

office cost center’’ by PHAs converting 

to asset management. In the case of a 

small PHA operating as a single 

property, the establishment of a separate 

cost center would be contradictory to 

the streamlining and cost-efficiency 

goals of the September 19, 2005, final 

rule. The establishment of a separate 

cost center would impose financial and 

administrative burden on the PHA that, 

because it is operating as a single 

property, would not stand to benefit 

from the coordination and centralization 

of multiple properties. Accordingly, 

those PHAs with fewer than 250 units 

choosing to operate as one property 

need not establish a central office cost 

center that is separate from other PHA 

functions. Those small PHAs with fewer 

than 250 units that operate as more than 

one property and choose to convert to 

asset management, and that believe the 

establishment of a separate cost center 

would impose an undue financial or 

administrative burden, may seek 

regulatory relief from HUD from the 

central office cost center requirement; 

however, during the first two years of 

property-based budgeting and 

accounting, these PHAs need not 

establish a central office cost center. 

XIV. Findings and Certifications 

Paperwork Reduction Act 

The information collection 

requirements for the Operating Fund 

Program have been approved by the 

Office of Management and Budget 

(OMB) under the Paperwork Reduction 

Act of 1995 (44 U.S.C. 3501–3520) and 

assigned OMB Control Number 2577–

0029. In accordance with the Paperwork 

Reduction Act, HUD 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 

This Notice provides operating 

instructions and procedures in 

connection with activities under a 

Federal Register document that has 

previously been subject to a required 

environmental review. Accordingly, 

under 24 CFR 50.19(c)(4), this Notice is 

categorically excluded from 

environmental review under the 

National Environmental Policy Act (42 

U.S.C. 4321). 

Dated: August 30, 2006. 

Paula O. Blunt, 

General Deputy Assistant, Secretary for Public 

and Indian Housing. 

[FR Doc. 06–7475 Filed 8–31–06 4:12 pm] 

BILLING CODE 4210–67–P 


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