49572 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Rules and Regulations

1The standards set forth in the September 26,

1996 notice are organized to coincide with the

following statutory provisions:

(A) Be on the same or contiguous sites.

(B) Total more than 300 dwelling units.

(C) Have a vacancy rate of at least ten percent for

dwelling units not in funded, on-schedule

modernization programs.

(D) Have an estimated cost of continued operation

and modernization of the developments as public

housing in excess of the cost of providing tenantbased assistance under section 8 of the United

States Housing Act of 1937 for all families in

occupancy, based on appropriate indicators of cost

(such as the percentage of total development cost

required for modernization).

(E) Be identified as distressed housing that the

public housing agency cannot assure the long-term

viability as public housing through reasonable

revitalization, density reduction, or achievement of

a broader range of household income.

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Part 971

[Docket No. FR–4120–I–09]

RIN 2577–AB79

Assessment of the Reasonable

Revitalization Potential of Certain

Public Housing Required by Law

AGENCY: Office of the Assistant

Secretary for Public and Indian

Housing, HUD.

ACTION: Interim rule.

SUMMARY: On September 26, 1996, HUD

published a notice implementing

section 202 of the Omnibus

Consolidated Rescissions and

Appropriations Act of 1996. Section 202

requires PHAs to identify certain

distressed public housing developments

that cost more than Section 8 rental

assistance and cannot be reasonably

revitalized. Households in occupancy

that will be affected by the activities

will be offered tenant-based or projectbased assistance (that can include other

public housing units) and will be

relocated, to other decent, safe, sanitary,

and affordable housing which is, to the

maximum extent practicable, housing of

their choice. After residents are

relocated, the distressed developments

(or affected buildings) for which no

reasonable means of revitalization exists

will be removed from the public

housing inventory. The September 26,

1996 notice invited public comments.

This interim rule takes into

consideration the comments received on

the September 26, 1996 notice and

codifies the modified requirements in a

new part 971.

DATES: Effective date: October 22, 1997.

Comment due date: November 21,

1997.

ADDRESSES: Interested persons are

invited to submit comments regarding

this interim rule to the Office of the

General Counsel, Rules Docket Clerk,

Room 10276, Department of Housing

and Urban Development, 451 Seventh

Street, S.W., Washington, D.C. 20410–

0500. Comments should refer to the

above docket number and title. A copy

of each communication submitted will

be available for public inspection and

copying during regular business hours

(weekdays 7:30 a.m. to 5:30 p.m. Eastern

time) at the above address. Facsimile

(FAX) comments are not acceptable.

FOR FURTHER INFORMATION CONTACT: Rod

Solomon, Senior Director for Policy and

Legislation, Office of Public and Indian

Housing, Department of Housing and

Urban Development, 451 Seventh Street,

S.W., Washington, D.C. 20410,

telephone (voice): (202) 708–0713 (This

is not a toll-free number.) For hearingand speech-impaired persons, this

number may be accessed via text

telephone by dialing the Federal

Information Relay Service at 1–800–

877–8339.

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act

The information collection

requirements contained in this interim

rule have been approved by the Office

of Management and Budget (OMB) in

accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3501–

3520), and assigned OMB control

number 2577–0210. 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 valid control number.

II. The September 26, 1996 Federal

Register Notice

On September 26, 1996, the

Department published at 61 FR 50632,

a notice to implement section 202 of the

Omnibus Consolidated Rescissions and

Appropriations Act of 1996 (Pub. L.

104–134, approved April 26, 1996)

(‘‘OCRA’’). Section 202 requires PHAs to

identify certain distressed public

housing developments that cost more

than Section 8 rental assistance and

cannot be reasonably revitalized.

Households in occupancy that will be

affected by the activities will be offered

tenant-based or project-based assistance

(that can include other public housing

units) and will be relocated, to other

decent, safe, sanitary, and affordable

housing which is, to the maximum

extent practicable, housing of their

choice. After residents are relocated, the

distressed developments (or affected

buildings) for which no reasonable

means of revitalization exists will be

removed from the public housing

inventory.

As mandated by section 202, this

requirement covers developments that

(1) are on the same or contiguous sites,

(2) contain more than 300 units, (3) have

a vacancy rate of at least ten percent for

units not in funded, on-schedule

modernization programs, (4) cannot be

revitalized through reasonable

programs, and (5) are more expensive

than tenant-based assistance. These

developments must be removed from

the public housing inventory within five

years. Plans to do so must be developed

in consultation with affected public

housing residents and the local

government containing the public

housing. The term ‘‘developments,’’ as

used in the statute and in this rule,

includes applicable portions of

developments. Tenant-based assistance

or relocation to other public or assisted

housing (to the maximum extent

practicable, of the tenant’s choice) must

be offered to public housing residents

whose developments will be removed

from the inventory.

As required by section 202, the

September 26, 1996 notice established

standards to permit implementation in

fiscal year 1996.1 The standards tracked

section 202(a) of OCRA and became

effective September 30, 1996. On

December 26, 1996, at 61 FR 68048, the

Department issued a notice which

amended the time frames that the

Department set in the September 26,

1996 notice for accomplishing the

standards necessary for compliance

with section 202. On March 24, 1997, at

62 FR 13894, and on July 2, 1997, at 62

FR 35828, the Department issued

notices which further amended the time

frames.

Section 202 is a continuing

requirement. For FY 1997, the time

frames were established by Federal

Register notices referenced above. The

Department is considering, as of FY

1998, requiring one submission to be

due at the time of submission of the

Comprehensive Grant Plan or as a part

of the Comprehensive Grant Plan.

Comments are invited on this

consideration, as well as other aspects

of the proposed timing and consultation

process.

III. Summary of Changes to the

September 26, 1996 Federal Register

Notice

The interim rule makes the following

changes to the provisions set out in the

September 26, 1996 notice:

1. Appropriate resident participation

and involvement is emphasized.

2. When determining whether a

property is subject to the requirements,
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Rules and Regulations 49573

PHAs can now use vacancy data from

either their last confirmed PHMAP

certification, as reported on the Form

HUD–51234 (Report on Occupancy), or

more recent data which demonstrates

improvement in occupancy rates.

3. The per occupied unit cost test for

continuing to operate the current,

partially occupied development is

eliminated. Instead, the cost test used

will be the cost of providing a

development that is viable over the long

term.

4. For definition of viability, the

income mix standards are changed to

emphasize a site’s ability to attract and

retain a reasonable mix of households

with full-time workers.

5. Changes to the post-revitalization

cost test include reduced accrual costs

for a revitalized development to better

reflect modernization costs and the

amount of investment made in the

property, and inclusion of certain

demolition and relocation costs as a cost

of Section 8 rental assistance. Though

the requirement remains for most

developments to amortize

modernization over a 20 year period

rather than over a thirty year period,

PHAs may present a thirty year

amortization when revitalization is

equivalent to new construction.

Revitalization will only be considered

reasonable where its cost does not

exceed the cost of Section 8 rental

assistance. All sources of funds for the

revitalization effort must be identified,

and the funds must be on hand if the

PHA proposes to revitalize the

development.

6. Where the PHA will demolish all

of the units in a development, or the

portion thereof, that is subject to section

202, section 202 requirements will be

satisfied once the demolition occurs and

its standards will not be applied further

to the PHA’s use of the site.

IV. Discussion of Public Comments on

the September 26, 1996 Federal

Register Notice

The September 26, 1996 notice

invited public comment, and five

commenters responded. In general, the

commenters expressed concern in

several areas. First, the process followed

to develop and publish the notice was

questioned. Second, the need for tenant

consultation at all stages was stressed.

Third, various issues were raised

regarding the cost tests, specifically

whether both the pre- and postrevitalization cost tests adequately

reflected true and accurate costs.

Further, many comments considered the

outcome of post-revitalization scenarios,

including the reasonableness of the

‘‘definition’’ of long-term viability, and

the availability of sufficient Section 8

rental assistance. Finally, several

commenters questioned if the outcome

meant fewer housing resources for those

in need.

A summary of the comments, with

HUD’s responses, follows:

Administrative Process and Legal

Requirements Comment: The September

26, 1996 notice is invalid because:

—The Administrative Procedures Act

was ignored. There was not a

proposed and final rulemaking (and

no good cause exception) with

submission to Congress and the

Comptroller General. HUD has

usurped the rulemaking process as

described in Part 10 of 24 Code of

Federal Regulations.

—The statutory authority for the

program lapsed on October 1, 1996,

and there has been no legal extension.

—The notice was published on

September 26, 1996 with an effective

date of September 30, 1996. This was

not sufficient; there is a need for a

proposed and a final rule.

—The legislative language indicates that

the process for implementation (and

not actual implementation) begin by

September 30, 1996.

Response: The September 26, 1996

notice is valid for the following reasons:

—Advance notice and public comment

were not required before issuance of

the document because the document

was a notice and not a rule. Section

202 of OCRA does not contain a

provision that mandates rulemaking

before implementation of this section.

Furthermore, section 202 directs the

Secretary to establish standards for

implementation and guidelines for

developing a conversion plan. The

notice did not go beyond the

provisions of the statute, but provided

the standards and guidelines required

by the statute. With respect to the

latter, HUD solicited public comment

from representatives of groups most

affected. As stated in the published

Notice, the comments were taken into

consideration.

—Since the document was not a rule, it

did not have to be submitted for

Congressional review of final rules

and did not have to comply with the

15-day pre-publication and 30-day

delayed effective date requirements

for rules under section 7(o) of the

HUD Act.

—Section 202 mandates that the

Secretary establish standards to

permit implementation of this section

in Fiscal Year 1996. The statute was

passed on April 26, 1996, and it

would have been unreasonable to

expect full implementation, through

proposed and final rulemaking, by

September 30, 1996. HUD made every

effort to publish these standards as

soon as possible, after informal

consultation with representative

groups. Despite the tight deadline and

the necessary review procedures

(including review by OMB), HUD was

able to publish the standards on

September 26, 1996.

Tenant Consultation and Relocation

Comment: Tenant consultation is not

addressed. There is a need for tenant

consultation at all stages of the process,

with detail provided on what is

expected (in terms of tenant

consultation) at each stage.

Response: The Department agrees that

it is important to involve tenants at all

stages of the assessment process, and

the September 26, 1996 notice does

discuss the statute’s requirement for

consultation with applicable public

housing tenants of the affected

developments.

On December 26, 1996, the

Department published another notice

(61 FR 68048), which clarifies that

PHAS must provide, as an initial step,

copies of their submissions for

Standards A to C to the appropriate

tenant councils and groups.

This interim rule further details, at

§ 971.9, the PHAs’ requirements to

consult with appropriate tenant groups

when conducting a viability assessment

and developing conversion plans.

Comment: The notice needs to further

address tenant relocation, expand

relocation requirements and reference

the Uniform Relocation Act.

Response: The section entitled ‘‘Plan

for Removal of Units From Public

Housing Inventories; Implementation’’

in the September 26, 1996 notice

includes a discussion of the relocation

process, including alternatives,

resources and the statutory requirement

for consultation.

This interim rule cross-references to

the regulatory provisions on

displacement and relocation at 24 CFR

970.5 which include applicability of the

Uniform Relocation Assistance and Real

Property Acquisition Policies Act of

1970 (42 U.S.C. 4601–4655) and the

implementing regulations at 49 CFR part

24.

Cost Test Issues

Comment: The formula creates

inflated costs per public housing unit,

while undercounting the costs of

Section 8 rental assistance.

The formula unfairly favors Section 8

by comparing the cost of all public

housing units to the cost of Section 8 for

only tenants currently in occupancy, by
49574 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Rules and Regulations

failing to capture inflation, and by

overstating accrual needs.

The calculation disadvantages public

housing.

The calculation fails to capture the

inherent value of a public housing

development.

Demolition and relocation costs

should be included on the Section 8

side of the calculation.

The calculation overly penalizes a

substantially vacant development.

Response: Several changes have been

made to the cost test as a result of these

comments and the experiences of HUD

and its consultants. With the changes,

the interim rule provides a better

comparison between the costs of a

public housing unit versus the costs of

Section 8 rental assistance.

The cost test in the notice for

continuing to administer the current,

partially occupied development

typically required layers of assumptions

to estimate costs and to express these

costs per occupied unit. Moreover,

while that test attempted to accurately

include current costs per occupied unit,

no public housing authority proposes to

continue to administer a development

for two decades in a partially occupied

state. Thus, HUD has decided to drop

the initial cost test and to rely on the

cost test for a revitalized, fully occupied

development.

The cost test for the revitalized

development will require realistic

estimates for physically upgrading and

then maintaining a viable development.

Although current operating costs of the

development will no longer be required

for an independent cost test, these

current costs will be used as one of the

standards to show that the projected

operating costs of the revitalized

development are plausible. In

particular, the discussion of projected

costs must justify any estimate of per

unit costs of the revitalized

development that are significantly lower

than the current operating costs per

occupied unit of the development (or an

estimate of those costs).

The accrual number for the postrevitalization cost test is now

determined by taking the Total

Development Cost (TDC), multiplying it

by a coefficient of .02, and dividing by

12. Commenters thought that higher

levels of modernization at the start of an

accrual cycle should lower the accrual

costs for many years to come. HUD

agrees. To reflect these views, the

accrual model for the revitalization

stage (now the only stage) will first

deduct from the TDC half the per unit

cost of modernization, before

multiplying the coefficient of .02 (a fifty

year cycle) and dividing by 12 to make

a monthly estimate. Thus, if the

modernization cost per unit equalled

the TDC, the estimated accrual per

month would be halved.

An amount for demolition, site

preparation and relocation will now be

included as a cost of Section 8 rental

assistance. Commenters said that

demolition of buildings on site is a cost

that should be covered by the Section 8

alternative. HUD agrees. The interim

rule takes into account basic demolition

costs of units that would otherwise be

occupied under a viability plan and

treats them as a capital cost to be

amortized on the Section 8 side. The per

unit costs of basic demolition and

relocation will be actual costs based on

comparable experience, but can be no

higher than 10 percent of the TDC of a

two bedroom walkup in the area. This

cap is higher than the typical cost of

demolition sustained by buildings

demolished in the Hope VI program.

Some commenters suggested that

extensive revitalization of a

development will extend its useful life

as low income housing to well beyond

the twenty years of a viability test.

Although some developments with the

right mix of site, initial construction,

management, tenants, and neighborhood

remain viable well past twenty years,

such extended viability cannot be

assumed—especially for developments

with the vacancy problems of those on

the 202 list. The expenditure of

modernization funds will not

necessarily ensure viability past twenty

years. Rather than generally extending

the amortization period from twenty to

thirty years, and rather than stiffening

the viability test from twenty to thirty

years, the interim rule instead will use

a thirty year period only when

revitalization is equivalent to new

construction. Even for developments

with a twenty year amortization, the

cost test will recognize the value of

large-scale modernization by reducing

the ongoing cost of accrual (See above).

A somewhat different view of value is

that public housing merits an insurance

value because it will always be there to

serve low income residents, whereas

private rental housing might become

much less available. Insurance value,

however, is not easily computed and a

marked decline in the supply of private

rental housing for low income

households will be reflected in a higher

Fair Market Rent (FMR) standard.

Post-Revitalization Scenarios

Comment: The definition of long-term

viability is too stringent; not all covered

developments need density reduction;

the income-mix requirement is

unrealistic.

The criteria for long-term viability are

problematic. Additional field work

needs to be done to determine more

adequately what is viable in the longterm (e.g., what is reasonable in terms

of income mix).

The definition of long-term viability is

too vague.

HUD needs to clarify what is meant

by ‘‘substantially exceeds Section 8 cost

test.’’

The use of the Total Development

Cost guidelines is inappropriate.

Response: The basic elements

required for reasonable revitalization

have been retained. Viability has been

defined elsewhere as the achievement of

structural/system soundness and full

occupancy at reasonable cost (see 24

CFR 968.315(e)(4)); and a reasonable

source of funding also is an obvious

requirement. Experience has shown, in

addition, that achievement of physical

soundness and full occupancy is not

always enough to achieve viability in

the long term. Section 202’s inclusion of

‘‘density reduction’’ and ‘‘achievement

of a broader range of household

income’’, as measures to be taken in

pursuit of long-term viability, indicate

Congress’ understanding that excessive

density and concentration of very-lowincome households can be serious

impediments to the viability of public

housing.

A fundamental aspect of this standard

is the definition of long-term viability.

For this purpose, HUD will continue to

consider twenty years (or at least 30

years when the investment is equivalent

to new construction) to be ‘‘long term’’.

Twenty years is in keeping with the

expected life of modernization

improvements, as reflected by the length

of annual contributions contracts

covering modernization grant awards.

[See section 14(b)(2) of the United States

Housing Act of 1937 as amended, 42

U.S.C. 1437 et seq.]

This interim rule, nevertheless, in

some respects modifies the ‘‘definition’’

of long-term viability. First, density

requirements are clarified. PHAs no

longer need demonstrate reduced

density to assure long-term viability, but

must show that the density proposed in

the revitalized site is appropriate for the

property and the site.

Second, income mix requirements are

loosened somewhat. Some commenters

thought that requiring an income mix

estimated as 25 percent of households

over time having an income of 30 to

50% of the area median income was too

rigorous as a threshold standard for

viability. HUD agrees. The interim rule

will moderate the standard, so that the

revitalized development must be able to

attract over time a significant mix of
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Rules and Regulations 49575

households with at least one full-time

worker (for example, at least 20 percent

with an income at least 30 percent of the

area median). The presence of some

income mix is essential to the long-term

social viability of a family development

and is cited in the statute, and pegging

that mix to a significant presence of fulltime workers with a range of modest

incomes is a minimum way to have a

mix.

After consideration of the comments

and in light of the statute’s purpose, the

interim rule states that reasonable

revitalization must be able to be carried

out with currently available funds and

for no more than the cost of Section 8

rental assistance.

Commenters indicated that use of

Total Development Cost (TDC)

guidelines as a measure on which to

judge reasonable reconstruction costs is

inappropriate. Though HUD is

reviewing possible changes in the

applicability of TDC to reconstruction

costs on an expedited basis, PHAs must

continue to use the TDC until such

changes are finalized.

Comment: The time frames for

response are not realistic, especially for

the development of a revitalization plan.

Response: The time frames for

submission have been modified

accordingly and the new time frames

were published in notices in the Federal

Register on December 26, 1996, March

24, 1997, and July 2, 1997. The July 2,

1997 notice extended the deadlines for

submissions to HUD field offices as

follows:

Accomplish Standards A to C by

January 31, 1997 (was December 29,

1996)

Accomplish Standard D and E thirty

(30) days after the effective date of the

interim rule (was June 30, 1997)

Submit conversion plan ninety (90) days

after accomplishing Standards D and

E (was September 26, 1997)

PHAs now have more time to comply

with all of the requirements of Section

202, and to develop a plan to either

remove units from the public housing

inventory or revitalize the development.

Additional time will be provided to

PHAs to modify plans or submissions if

needed to comply with this interim rule.

Comment: The rule should stress the

need for all plans to be consistent with

the Consolidated Plan.

Response: As required by the statute,

the interim rule will reiterate that any

conversion plan must be approved by

the local officials as not inconsistent

with the Consolidated Plan.

Comment: HUD needs to indicate how

a PHA can appeal if it disagrees with the

HUD contractor.

Response: As stated in the September

26, 1996 notice, for sites where HUD has

contracted with consultants for

assessments, PHA responsibilities under

this section are independent of any

activities of the consultants. PHAs are

responsible for submitting

documentation in accordance with the

requirements, but may use the

consultants’ assessments if they choose.

Even where the PHA agrees with the

consultant’s findings, HUD reserves the

right to make its own assessment of the

evidence. In cases where a PHA

disagrees with the consultant’s findings

and recommendations, the PHA’s

independent submission will serve as

an initial indicator of disagreement.

HUD will follow up in such situations

accordingly, and may require additional

documentation from the PHA or the

consultant.

Potential Loss of Low Income Housing

Resources

Comment: There needs to be a Section

8 rental assistance allocation to offset

the loss of hard units.

There are not sufficient Section 8

resources available to meet the demand.

A commitment for replacement units

is necessary before PHAs proceed.

Response: HUD has awarded several

thousand section 8 rental certificates

and vouchers in fiscal years 1995 and

1996 for relocation housing or

replacement of developments covered

by this interim rule. The fiscal year 1997

appropriation of Section 8 rental

assistance that can be used for section

202 purposes appears sufficient. HUD

has requested that Congress appropriate

a sufficient number of Section 8

certificates and vouchers for this

purpose in fiscal year 1998.

Comment: The rule does not

adequately consider the needs of the

current residents, or those on the

waiting list.

The rule places a burden on the

Section 8 rental market, which will be

a problem for certain communities.

The rule fails to adequately consider

the need for hard units in certain

communities.

There is a need for additional projectbased housing in some communities.

This ‘‘one size fits all’’ solution is not

applicable to all cases.

Response: The law and the interim

rule allow for implementation of a

conversion plan over a period of up to

five years, to provide some flexibility to

adapt to local situations.

This Interim Rule

This interim rule takes into

consideration the comments received on

the September 26, 1996 notice and

codifies the modified requirements, as

discussed above, in a new part 971. This

interim rule also provides for

establishment of the time frames for

compliance with section 202 by

publication of a notice annually in the

Federal Register.

Justification for Interim Rule

The Department generally publishes a

rule for public comment before issuing

a rule for effect, in accordance with its

regulations on rulemaking in 24 CFR

part 10. However, part 10 provides that

prior public procedure will be omitted

if HUD determines that it is

‘‘impracticable, unnecessary, or contrary

to the public interest’’ (24 CFR 10.1).

This interim rule provides further

information on provisions that are

already in effect, and modifies several of

the requirements in accordance with

public comments received on the

September 26, 1996 Federal Register

notice. It is important that these changes

be applicable to those PHAs subject to

section 202 in fiscal year 1997.

In the interest of obtaining the fullest

participation possible in determining

the proper means of administering the

section 202 provisions, and in addition

to the comment process that occurred

with respect to the Notice, the

Department invites public comment on

the interim rule. The comments

received within the 60-day comment

period will be considered during

development of a final rule that

ultimately will supersede this interim

rule.

Findings and Certifications

Executive Order 12866

This interim rule was reviewed by the

Office of Management and Budget

(OMB) under Executive Order 12866 on

Regulatory Planning and Review, issued

by the President on September 30, 1993.

Any changes made in the rule

subsequent to its submission to OMB

are identified in the docket file, which

is available for public inspection as

provided under the section of this

preamble entitled ‘‘Address.’’

Impact on the Environment

A Finding of No Significant Impact

with respect to the environment has

been made in accordance with HUD

regulations at 24 CFR part 50 that

implement section 102(2)(C) of the

National Environmental Policy Act of

1969, 42 U.S.C. 4332. The Finding of No

Significant Impact is available for public

inspection and copying during regular

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

in the Office of the Rules Docket Clerk,

Room 10276, 451 Seventh Street, S.W.,

Washington, D.C. 20410–0500.
49576 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Rules and Regulations

Federalism Impact

The General Counsel, as the

Designated Official under section 6(a) of

Executive Order 12612, Federalism, has

determined that the policies contained

in this interim rule do not have

significant impact on States or their

political subdivisions since the

provisions of this interim rule apply to

only a small percentage of PHAs that

have developments with more than 300

units and adjusted vacancy rates of ten

percent or more.

Impact on Small Entities

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)), has reviewed this interim rule

before publication and by approving it

certifies that this interim rule will not

have a significant impact on a

substantial number of small entities,

because the provisions of this interim

rule apply to only a small percentage of

PHAs that have developments with

more than 300 units and adjusted

vacancy rates of ten percent or more.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic

Assistance number for the programs

affected by this interim rule is 14.855.

List of Subjects in 24 CFR Part 971

Grant programs—housing and

community development, Public

housing, Reporting and recordkeeping

requirements.

Accordingly, title 24 of the Code of

Federal Regulations is amended to add

a new part 971 to read as follows:

PART 971—ASSESSMENT OF THE

REASONABLE REVITALIZATION

POTENTIAL OF CERTAIN PUBLIC

HOUSING REQUIRED BY LAW

Sec.

971.1 Purpose.

971.3 Standards for identifying

developments.

971.5 Long-term viability.

971.7 Plan for removal of units from public

housing inventories.

971.9 Tenant and local government

consultation.

971.11 Hope VI developments.

971.13 HUD enforcement authority.

Authority: Pub. L. 104–134; 42 U.S.C.

3535(d).

§ 971.1 Purpose.

Section 202 of the Omnibus

Consolidated Rescissions and

Appropriations Act of 1996 (Pub.L. 104–

134, approved April 26, 1996)

(‘‘OCRA’’) requires PHAs to identify

certain distressed public housing

developments that cost more than

Section 8 rental assistance and cannot

be reasonably revitalized. Households in

occupancy that will be affected by the

activities will be offered tenant-based or

project-based assistance (that can

include other public housing units) and

will be relocated, to other decent, safe,

sanitary, and affordable housing which

is, to the maximum extent practicable,

housing of their choice. After residents

are relocated, the distressed

developments (or affected buildings) for

which no reasonable means of

revitalization exists will be removed

from the public housing inventory.

§ 971.3 Standards for identifying

developments.

(a) PHAs shall use the following

standards for identifying developments

or portions thereof which are subject to

section 202’s requirement that PHAs

develop and carry out plans for the

removal over time from the public

housing inventory. These standards

track section 202(a) of OCRA. The

development, or portions thereof, must:

(1) Be on the same or contiguous sites.

(OCRA Sec. 202(a)(1)). This standard

and the standard set forth in paragraph

(a)(2) of this section refer to the actual

number and location of units,

irrespective of HUD development

project numbers.

(2) Total more than 300 dwelling

units. (OCRA Sec. 202(a)(2)).

(3) Have a vacancy rate of at least ten

percent for dwelling units not in funded,

on-schedule modernization. (OCRA Sec.

202(a)(3)). For this determination, PHAs

and HUD shall use the data the PHA

relied upon for its last Public Housing

Management Assessment Program

(PHMAP) certification, as reported on

the Form HUD–51234 (Report on

Occupancy), or more recent data which

demonstrates improvement in

occupancy rates. Units in the following

categories shall not be included in this

calculation:

(i) Vacant units in an approved

demolition or disposition program;

(ii) Vacant units in which resident

property has been abandoned, but only

if State law requires the property to be

left in the unit for some period of time,

and only for the period stated in the

law;

(iii) Vacant units that have sustained

casualty damage, but only until the

insurance claim is adjusted; and

(iv) Units that are occupied by

employees of the PHA and units that are

utilized for resident services.

(4) Have an estimated cost of

continued operation and modernization

of the developments as public housing

in excess of the cost of providing tenantbased assistance under section 8 of the

United States Housing Act of 1937 for

all families in occupancy, based on

appropriate indicators of cost (such as

the percentage of total development cost

required for modernization). (OCRA

Sec. 202(a)(5)).

(i) For purposes of this determination,

the costs used for public housing shall

be those necessary to produce a

revitalized development as described in

the paragraph (a)(5) of this section.

(ii) These costs, including estimated

operating costs, modernization costs

and accrual needs must be used to

develop a per unit monthly cost of

continuing the development as public

housing.

(iii) That per unit monthly cost of

public housing must be compared to the

per unit monthly Section 8 cost.

(iv) Both the method to be used and

an example are included in the

Appendix to this part.

(5) Be identified as distressed housing

that the PHA cannot assure the longterm viability as public housing through

reasonable revitalization, density

reduction, or achievement of a broader

range of household income. (OCRA Sec.

202(a)(4)). [See § 971.5.]

(b) Properties meeting the standards

set forth in paragraphs (a)(1) through (3)

of this section will be assumed to be

‘‘distressed’’ unless the PHA can show

that the property fails the standard set

forth in paragraph (a)(3) of this section

for reasons that are temporary in

duration and are unlikely to recur.

(c) Where the PHA will demolish all

of the units in a development, or the

portion thereof, that is subject to section

202, section 202 requirements will be

satisfied once the demolition occurs and

its standards will not be applied further

to the use of the site.

(d) PHAs will meet the test for

assuring long-term viability of identified

housing only if it is probable that, after

reasonable investment, for at least

twenty years (or at least 30 years for

rehabilitation equivalent to new

construction) the development can

sustain structural/system soundness and

full occupancy; will not be excessively

densely configured relative to standards

for similar (typically family) housing in

the community; will not constitute an

excessive concentration of very lowincome families; and has no other site

impairments which clearly should

disqualify the site from continuation as

public housing.

§ 971.5 Long-term viability.

(a) Reasonable investment. (1)

Proposed revitalization costs for

viability must be reasonable. Such costs

must not exceed, and ordinarily would

be substantially less than, 90 percent of

HUD’s total development cost limit for
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Rules and Regulations 49577

the units proposed to be revitalized (100

percent of the total development cost

limit for any ‘‘infill’’ new construction

subject to this regulation). The

revitalization cost estimate used in the

PHA’s most recent comprehensive plan

for modernization is to be used for this

purpose, unless a PHA demonstrates or

HUD determines that another cost

estimate is clearly more realistic to

ensure viability and to sustain the

operating costs that are described in

paragraph (a)(2) of this section.

(2) The overall projected cost of the

revitalized development must not

exceed the Section 8 cost under the

method contained in the Appendix to

this part, even if the cost of

revitalization is a lower percentage of

the TDC than the limits stated in

paragraph (a)(1) of this section.

(3) The source of funding for such a

revitalization program must be

identified and already available. In

addition to other resources already

available to the PHA, a PHA may

assume that future formula funds

provided through the Comprehensive

Grant Program are available for this

purpose, provided that they are

sufficient to permit completion of the

revitalization within the statutory five

year time frame. (Comprehensive plans

must be amended accordingly.)

(b) Density. Density reduction

measures would have to result in a

public housing community with a

density approaching that which prevails

in the community for similar types of

housing (typically family), or a lower

density. If the development’s density

already meets this description, further

reduction in density is not a

requirement.

(c) Income mix. (1) Measures

generally will be required to broaden

the range of resident incomes to include

over time a significant mix of

households with at least one full-time

worker (for example, at least 20 percent

with an income at least 30 percent of

median area income). Measures to

achieve a broader range of household

incomes must be realistic in view of the

site’s location. Evidence of such realism

typically would include some mix of

incomes of other households located in

the same census tract or neighborhood,

or unique advantages of the public

housing site.

(2) For purposes of judging

appropriateness of density reduction

and broader range of income measures,

overall size of the public housing site

and its number of dwelling units will be

considered. The concerns these

measures would address generally are

greater as the site’s size and number of

dwelling units increase.

§ 971.7 Plan for removal of units from

public housing inventories.

(a) Time frames. Section 202 is a

continuing requirement, and the

Secretary will establish time frames for

submission of necessary information

annually through publication of a

Federal Register notice.

(b) Plan for removal. With respect to

any development that meets all of the

standards listed, the PHA shall develop

a plan for removal of the affected public

housing units from the inventory. The

plan should consider relocation

alternatives for households in

occupancy, including other public

housing and Section 8 tenant-based

assistance, and shall provide for

relocation from the units as soon as

possible. For planning purposes, PHAs

shall assume that HUD will be able to

provide in a timely fashion any

necessary Section 8 rental assistance.

The plan shall include:

(1) A listing of the public housing

units to be removed from the inventory;

(2) The number of households to be

relocated, by bedroom size;

(3) Identification and obligation status

of any previously approved CIAP,

modernization, or major reconstruction

funds for the distressed development

and PHA recommendations concerning

transfer of these funds to Section 8 or

alternative public housing uses;

(4) The relocation resources that will

be necessary, including a request for any

necessary Section 8 and a description of

actual or potential public or other

assisted housing vacancies that can be

used as relocation housing;

(5) A schedule for relocation and

removal of units from the public

housing inventory;

(6) Provision for notifying families

residing in the development, in a timely

fashion, that the development shall be

removed from the public housing

inventory; informing such families that

they will receive tenant-based or

project-based assistance; providing any

necessary counselling with respect to

the relocation, including a request for

any necessary counseling funds; and

assuring that such families are relocated

as necessary to other decent, safe,

sanitary and affordable housing which

is, to the maximum extent possible,

housing of their choice;

(7) The displacement and relocation

provisions set forth in 24 CFR 970.5.

(8) A record indicating compliance

with the statute’s requirements for

consultation with applicable public

housing tenants of the affected

development and the unit of local

government where the public housing is

located, as set forth in § 971.9.

(c) Section 18 of the United States

Housing Act of 1937 shall not apply to

demolition of developments removed

from PHA inventories under this

section, but shall apply to any proposed

dispositions of such developments or

their sites. HUD’s review of any such

disposition application will take into

account that the development has been

required to be removed from the PHA’s

inventory.

(d) For purposes of determining

operating subsidy eligibility under the

Performance Funding System (PFS), the

submitted plan will be considered the

equivalent of a formal request to remove

dwelling units from the PHA’s

inventory and ACC and approval (or

acceptance). The PHA will receive

written notification that the plan has

been approved (or accepted). Units that

are vacant or vacated on or after the

written notification date will be treated

as approved for deprogramming under

§ 990.108(b)(1) of this chapter and also

will be provided the phase-down of

subsidy pursuant to § 990.114 of this

chapter.

(Approved by the Office of Management and

Budget under control number 2577–0210).

§ 971.9 Tenant and local government

consultation.

(a) PHAs are required to proceed in

consultation with affected public

housing residents. PHAs must provide

copies of their submissions complying

with §§ 971.3(a) (1) through (3) to the

appropriate tenant councils and resident

groups before or immediately after these

submissions are provided to HUD.

(b) PHAs must:

(1) Hold a meeting with the residents

of the affected sites and explain the

requirements of section 202 of OCRA;

(2) Provide an outline of the

submission(s) complying with § 971.3(a)

(4) and (5) to affected residents; and

(3) Provide a reasonable comment

period for residents and must provide a

summary of the resident comments to

HUD.

(c) PHAs must prepare conversion

plans in consultation with affected

tenants and must:

(1) Hold a meeting with affected

residents and provide draft copies of the

plan; and

(2) Provide a reasonable comment

period for residents and must provide a

summary of the resident comments to

HUD.

(d) The conversion plan must be

approved by the local officials as not

inconsistent with the Consolidated Plan.

§ 971.11 HOPE VI developments.

Developments with HOPE VI

implementation grants that have
49578 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Rules and Regulations

approved HOPE VI revitalization plans

will be treated as having shown the

ability to achieve long-term viability

with reasonable revitalization plans.

Future HUD actions to approve or deny

proposed HOPE VI implementation

grant revitalization plans will be taken

with consideration of the standards for

section 202. Developments with HOPE

VI planning or implementation grants,

but without approved HOPE VI

revitalization plans, are fully subject to

section 202 standards and requirements.

§ 971.13 HUD enforcement authority.

Section 202 provides HUD authority

to ensure that certain distressed

developments are properly identified

and removed from PHA inventories.

Specifically, HUD may:

(a) Direct a PHA to cease additional

spending in connection with a

development which meets or is likely to

meet the statutory criteria, except as

necessary to ensure decent, safe and

sanitary housing until an appropriate

course of action is approved;

(b) Identify developments which fall

within the statutory criteria where a

PHA has failed to do so properly;

(c) Take appropriate actions to ensure

the removal of developments from the

inventory where the PHA has failed to

adequately develop or implement a plan

to do so; and

(d) Authorize or direct the transfer of

capital funds committed to or on behalf

of the development (including

comprehensive improvement assistance,

comprehensive grant amounts

attributable to the development’s share

of funds under the formula, and major

reconstruction of obsolete projects

funds) to tenant-based assistance or

appropriate site revitalization for the

agency.

Appendix to Part 971: Methodology of

Comparing Cost of Public Housing With

Cost of Tenant-Based Assistance

I. Public Housing

The costs used for public housing shall be

those necessary to produce a revitalized

development as described in the next

paragraph. These costs, including estimated

operating costs, modernization costs and

costs to address accrual needs must be used

to develop a per unit monthly cost of

continuing the development as public

housing. That per unit monthly cost of public

housing must be compared to the per unit

monthly Section 8 cost. The estimated cost

of the continued operation and

modernization as public housing shall be

calculated as the sum of total operating,

modernization, and accrual costs, expressed

on a monthly per occupied unit basis. The

costs shall be expressed in current dollar

terms for the period for which the most

recent Section 8 costs are available.

A. Operating Costs

1. The proposed revitalization plan must

indicate how unusually high current

operating expenses (e.g, security, supportive

services, maintenance, utilities) will be

reduced as a result of post-revitalization

changes in occupancy, density and building

configuration, income mix and management.

The plan must make a realistic projection of

overall operating costs per occupied unit in

the revitalized development, by relating

those operating costs to the expected

occupancy rate, tenant composition, physical

configuration and management structure of

the revitalized development. The projected

costs should also address the comparable

costs of buildings or developments whose

siting, configuration, and tenant mix is

similar to that of the revitalized public

housing development.

2. The development’s operating cost

(including all overhead costs pro-rated to the

development—including a Payment in Lieu

of Taxes (PILOT) or some other comparable

payment, and including utilities and utility

allowances) shall be expressed as total

operating costs per month, divided by the

number of units occupied by households. For

example, if a development will have 1,000

units occupied by households and will have

$300,000 monthly in non-utility costs

(including pro-rated overhead costs and

appropriate P.I.L.O.T.) and $100,000 monthly

in utility costs paid by the authority and

$50,000 monthly in utility allowances that

are deducted from tenant rental payments to

the authority because tenants paid some

utility bills directly to the utility company,

then the development’s monthly operating

cost per occupied unit is $450—the sum of

$300 per unit in non-utility costs, $100 per

unit in direct utility costs, and $50 per unit

in utility allowance costs.

3. In justifying the operating cost estimates

as realistic, the plan should link the cost

estimates to its assumptions about the level

and rate of occupancy, the per-unit funding

of modernization, any physical

reconfiguration that will result from

modernization, any planned changes in the

surrounding neighborhood and security

costs. The plan should also show whether

developments or buildings in viable

condition in similar neighborhoods have

achieved the income mix and occupancy rate

projected for the revitalized development.

The plan should also show how the operating

costs of the similar developments or

buildings compare to the operating costs

projected for the development.

4. In addition to presenting evidence that

the operating costs of the revitalized

development are plausible, when the per-unit

operating cost of the renovated development

is more than ten percent lower than the

current per-unit operating cost of the

development, then the plan should detail

how the revitalized development will

achieve its reduction in costs. To determine

the extent to which projected operating costs

are lower than current operating costs, the

current per-unit operating costs of the

development will be estimated as follows:

a. If the development has reliable operating

costs and if the overall vacancy rate is less

than twenty percent, then these costs will be

divided by the sum of all occupied units and

vacant units fully funded under PFS plus

fifty percent of all units not fully funded

under PFS. For instance, if the total monthly

operating costs of the current development

are $6.6 million and it has 1,000 occupied

units and 200 vacant units not fully funded

under PFS (or a 17 percent overall vacancy

rate), then the $6.6 million is divided by

1100—1000 plus 50 percent of 200—to give

a per unit figure of $600 per unit month. By

this example, the current costs of $600 per

occupied unit are at least ten percent higher

than the projected costs per occupied unit of

$450 for the revitalized development, and the

reduction in costs would have to be detailed.

b.If the development currently lacks

reliable cost data or has a vacancy rate of

twenty percent or higher, then its current per

unit costs will be estimated as follows. First,

the per unit cost of the entire authority will

be computed, with total costs divided by the

sum of all occupied units and vacant units

fully funded under PFS plus fifty percent of

all vacant units not fully funded under PFS.

Second, this amount will be multiplied by

the ratio of the bedroom adjustment factor of

the development to the bedroom adjustment

factor of the Housing Authority. The

bedroom adjustment factor, which is based

on national rent averages for units grouped

by the number of bedrooms and which has

been used by HUD to adjust for costs of units

when the number of bedrooms vary, assigns

to each unit the following factors:.70 for 0-

bedroom units, .85 for 1-bedroom units, 1.0

for 2-bedroom units, 1.25 for 3-bedroom

units, 1.40 for 4-bedroom units, 1.61 for 5-

bedroom units, and 1.82 for 6 or more

bedroom units. The bedroom adjustment

factor is the unit-weighted average of the

distribution. For instance, if the development

with one thousand occupied units had in

occupancy 500 two-bedroom units and 500

three-bedroom units, then its bedroom

adjustment factor would be 1.125—500 times

1.0 plus 500 times 1.25, the sum divided by

1,000. Where necessary, HUD field offices

will arrange for assistance in the calculation

of the bedroom adjustment factors of the

Housing Authority and its affected

developments.

c. As an example of estimating

development operating costs from PHA

operating costs, suppose that the Housing

Authority had a total monthly operating cost

per unit of $500 and a bedroom adjustment

factor of .90, and suppose that the

development had a bedroom adjustment

factor of 1.125. Then, the development’s

estimated current monthly operating cost per

occupied unit would be $625—or $500 times

1.25 (the ratio of 1.125 to .90).

B. Modernization

The cost of modernization is the initial

revitalization cost to meet viability standards,

that cost amortized over twenty years (which

is equivalent to fifteen years at a three

percent annual real capital cost for the initial

outlay). Expressed in monthly terms, the

modernization cost is divided by 180 (or 15

years times 12 months). Thus, if the initial

modernization outlay to meet viability

standards is $60 million for 1,000 units, then

the per-unit outlay is $60,000 and the
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Rules and Regulations 49579

amortized modernization cost is $333 per

unit per month (or $60,000 divided by 180).

However, when revitalization would be

equivalent to new construction and the PHA

thus is permitted to amortize the proposed

cost over thirty years (which is equivalent to

twenty-two and one-half years at a three

percent annual real capital cost to the initial

outlay), the modernization cost will be

divided by 270, the product of 22.5 and 12,

to give a cost per unit month of $222.

C. Accrual

The monthly per occupied unit cost of

accrual (i.e., replacement needs) will be

estimated by using the latest published HUD

unit total development cost limits for the area

and applying them to the development’s

structure type and bedroom distribution after

modernization, then subtracting from that

figure half the per-unit cost of modernization,

then multiplying that figure by .02 (

representing a fifty year replacement cycle),

and dividing this product by 12 to get a

monthly cost. For example, if the

development will remain a walkup structure

containing five hundred two-bedroom

occupied and five hundred three-bedroom

occupied units, if HUD’s Total Development

Cost limit for the area is $70,000 for twobedroom walkup structures and $92,000 for

three-bedroom walkup structures, and if the

per unit cost of modernization is $60,000,

then the estimated monthly cost of accrual

per occupied unit is $85. This is the result

of multiplying the value of $51,000—the cost

guideline value of $81,000 minus half the

modernization value of $60,000—by .02 and

then dividing by 12.

D. Overall Cost

The overall current cost for continuing the

development as public housing is the sum of

its monthly post-revitalization operating cost

estimates, its monthly modernization cost per

occupied unit, and its estimated monthly

accrual cost per occupied unit. For example,

if the operating cost per occupied unit month

is $450 and the amortized modernization cost

is $333 and the accrual cost is $85, the

overall monthly cost per occupied unit is

$868.

II. Tenant-Based Assistance

The estimated cost of providing tenantbased assistance under Section 8 for all

households in occupancy shall be calculated

as the unit-weighted averaging of the

monthly Fair Market Rents for units of the

applicable bedroom size; plus the

administrative fee applicable to newly

funded Section 8 rental assistance during the

year used for calculating public housing

operating costs (e.g., the administrative fee

for units funded from 10/1/95 through 9/30/

96 is based on column C of the January 24,

1995 Federal Register, at 60 FR 4764, and the

administrative fee for units funded from 10/

1/96 through 9/30/97 is based on column B

of the March 12, 1997 Federal Register, at 62

FR 11526); plus the amortized cost of

demolishing the occupied public housing

units, where the cost per unit is not to exceed

ten percent of the TDC prior to amortization.

For example, if the development has five

hundred occupied two-bedroom units and

five hundred occupied three-bedroom units

and if the Fair Market Rent in the area is

$600 for two bedroom units and is $800 for

three bedroom units and if the administrative

fee comes to $46 per unit, and if the cost of

demolishing 1000 occupied units is $5

million, then the per unit monthly cost of

tenant based assistance is $774 ($700 for the

unit-weighted average of Fair Market Rents,

or 500 times $600 plus 500 times $800 with

the sum divided by 1,000; plus $46 for the

administrative fee; plus $28 for the amortized

cost of demolition and tenant relocation

(including any necessary counseling), or

$5000 per unit divided by 180 in this

example). This Section 8 cost would then be

compared to the cost of revitalized public

housing development—in the example of this

section, the revitalized public housing cost of

$868 monthly per occupied unit would

exceed the Section 8 cost of $774 monthly

per occupied unit by 12 percent. The PHA

would have to prepare a conversion plan for

the property.

III. Detailing the Section-8 Cost Comparison:

A Summary Table

The Section 8 cost comparison methods are

summarized, using the example provided in

this section III.

A. Key Data, Development: The revitalized

development has 1000 occupied units. All of

the units are in walkup buildings. The 1000

occupied units will consist of 500 twobedroom units and 500 three-bedroom units.

The total current operating costs attributable

to the development are $300,000 per month

in non-utility costs, $100,000 in utility costs

paid by the PHA, and $50,000 in utility

allowance expenses for utilities paid directly

by the tenants to the utility company. Also,

the modernization cost for revitalization is

$60,000,000, or $60,000 per occupied unit.

This will provide standards for viability but

not standards for new construction. The cost

of demolition and relocation of the 1000

occupied units is $5 million, or $5000 per

unit, based on recent experience.

B. Key Data, Area: The unit total

development cost limit is $70,000 for twobedroom walkups and $92,000 for threebedroom walkups. The two-bedroom Fair

Market Rent is $600 and the three-bedroom

Fair Market Rent is $800. The applicable

monthly administrative fee amount, in

column B of the March 12, 1997 Federal

Register Notice, at 62 FR 11526, is $46.

C. Preliminary Computation of the Per-Unit

Average Total Development Cost of the

Development: This results from applying the

location’s unit total development cost by

structure type and number of bedrooms to

the occupied units of the development. In

this example, five hundred units are valued

at $70,000 and five hundred units are valued

at $92,000 and the unit-weighted average is

$81,000.

D. Current Per Unit Monthly Occupied

Costs of Public Housing:

1. Operating Cost—$450 (total monthly

costs divided by occupied units: in this

example, the sum of $300,000 and $100,000

and $50,000—divided by 1,000 units).

2. Amortized Modernization Cost—$333

($60,000 per unit divided by 180 for

standards less than those of new

construction).

3. Estimated Accrual Cost—$85 (the perunit average total development cost minus

half of the modernization cost per unit, times

.02 divided by 12 months: in this example,

$51,000 times .02 and then divided by 12).

4. Total per unit public housing costs—

$868.

E. Current per unit monthly occupied costs

of section 8:

1. Unit-weighted Fair Market Rents—$700

(the unit-weighted average of the Fair Market

Rents of occupied bedrooms: in this example,

500 times $600 plus 500 times $800, divided

by 1000).

2. Administrative Fee—$46.

3. Amortized Demolition and Relocation

Cost—$28 ($5000 per unit divided by 180).

4. Total per unit section 8 costs—$774.

F. Result: In this example, because

revitalized public housing costs exceed

current Section 8 costs, a conversion plan for

the property would be required.

Dated: August 22, 1997.

Kevin Emanuel Marchman,

Acting Assistant Secretary for Public and

Indian Housing.

[FR Doc. 97–25044 Filed 9–19–97; 8:45 am]

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