33616 Federal Register / Vol. 66, No. 121 / Friday, June 22, 2001 / Rules and Regulations

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Part 972

[Docket No. FR–4476–F–03]

RIN 2577–AC02

Voluntary Conversion of

Developments From Public Housing

Stock; Required Initial Assessments

AGENCY: Office of the Assistant

Secretary for Public and Indian

Housing, HUD.

ACTION: Final rule.

SUMMARY: On July 23, 1999, HUD

published for public comment a

proposed rule to implement statutory

changes authorizing Public Housing

Agencies (PHAs) to convert a

development to tenant-based assistance

where the conversion would satisfy

statutory objectives. The statute requires

every PHA to conduct and submit to

HUD an initial assessment for its

development no later than October 1,

2001. Given this statutory deadline,

HUD is issuing this final rule, which

provides regulatory guidance on the

preparation and submission of the

required initial assessments in a

streamlined, simplified form. The final

rule also takes into consideration the

public comments received on the initial

assessment requirements contained in

the July 23, 1999 proposed rule. HUD is

currently developing its more

comprehensive final rule on voluntary

conversions, and expects to publish this

final rule in the near future.

DATES: Effective Date: July 23, 2001.

FOR FURTHER INFORMATION CONTACT: Rod

Solomon, Deputy Assistant Secretary for

Policy, Program and Legislative

Initiatives, Department of Housing and

Urban Development, Office of Public

and Indian Housing, 451 Seventh Street,

SW, Room 4116, Washington, DC 20410;

telephone (202) 708–0713 (this is not a

toll-free telephone number). Persons

with hearing or speech disabilities may

access this number via TTY by calling

the free Federal Information Relay

Service at 1–800–877–8339.

SUPPLEMENTARY INFORMATION:

I. Background

On July 23, 1999 (64 FR 40240), HUD

published for public comment a

proposed rule to implement section 22

of the United States Housing Act of

1937 (42 U.S.C. 1437 et seq.) (the ‘‘1937

Act’’), as amended by section 533 of the

Quality Housing and Work

Responsibility Act of 1998 (Title V of

the Fiscal Year 1999 HUD

Appropriations Act; Public Law 105–

276, approved October 21, 1998)

(‘‘QHWRA’’). Amended section 22

authorizes Public Housing Agencies

(PHAs) to convert a development to

tenant-based assistance by removing the

development (or a portion of a

development) from its public housing

inventory and providing for the

relocation of, or the provision of tenantbased assistance to, the residents. This

action is permitted only when that

change would be cost effective, be

beneficial to residents of the

development and the surrounding area,

and not have an adverse impact on the

availability of affordable housing. The

July 23, 1999 proposed rule would

implement the voluntary conversion

requirements through the creation of a

new 24 CFR part 972, subpart B.

Amended section 22 also requires

every PHA to conduct and submit to

HUD an initial assessment for its

developments no later than October 1,

2001 (see section 22(b)(2) of the 1937

Act and § 972.207(a) of the July 23, 1999

proposed rule). However, the statute

gives HUD the authority to exempt

certain classes of developments from

this requirement, or to streamline the

requirements of the required initial

assessment. In the proposed rule, HUD

streamlined the requirements of the

required initial assessment, but

proposed to require that every PHA

review and determine the best course of

action with respect to each development

that it operates as public housing.

Given the statutory deadline for

submission of the required initial

assessments, HUD is issuing this final

rule, which provides regulatory

guidance on the preparation and

submission of these assessments in a

streamlined, simplified form. The final

rule also takes into consideration the

public comments received on the

proposed initial assessment

requirements. HUD is currently

developing its more comprehensive

final rule on voluntary conversions,

which will address all other public

comments received on the July 23, 1999

proposed rule. HUD expects to publish

this final rule in the near future.

Nothing in this final rule would

preclude a PHA from converting a

development (or portion of a

development) at a later time, subject to

the requirements that will be

established in HUD’s upcoming

comprehensive final rule on voluntary

conversions.

II. Significant Differences Between This

Final Rule and July 23, 1999 Proposed

Initial Assessment Requirements

For the convenience of readers, this

section of the preamble briefly

summarizes the most significant

differences between the initial

assessment requirements contained in

the July 23, 1999 proposed rule and the

initial assessment procedures contained

in this final rule. These revisions are

discussed in greater detail elsewhere in

this preamble. The major changes made

by this final rule to the proposed initial

assessment requirements are as follows:

A. Reorganization of Required Initial

Assessment Requirements

For purposes of clarity, this final rule

consolidates the regulatory provisions

concerning the preparation and

submission of the required initial

assessments in a single section

(§ 972.200). The July 23, 1999 proposed

rule addressed these requirements in

various sections (most significantly

§§ 972.207 and 972.211).

B. Exemption of Elderly/Disabled

Developments From Initial Assessment

Requirements

The final rule exempts developments

designated for occupancy by the elderly

and/or persons with disabilities from

the initial assessment requirements.

HUD believes that few such

developments are likely to be proposed

for voluntary conversion, and that

including such developments in the

required initial assessment process is

unnecessary and could be confusing to

the public. The additional exemption

also will alleviate burden on PHAs, and

focus the initial assessments on family

(i.e., general occupancy) developments

which are more likely to merit

consideration for voluntary conversion

in some instances.

C. Further Streamlined Initial

Assessment Procedures

The final rule expands the availability

of the streamlined initial assessment

process to all PHAs, not just those that

have received passing scores on the

physical condition indicator of the

Public Housing Assessment System

(PHAS). This is necessary because of the

advisory status of prior PHAS scores.

The proposed rule would have required

that PHAs failing the PHAs physical

conditions indicator conduct cost

analyses comparing the cost of

continuing to operate their

developments as public housing with

the cost of providing tenant-based

assistance.

Irrespective of the results of the

required initial assessments for

particular developments, PHAs retain

the discretion whether to propose any

particular development for voluntary

conversion at a later time.

Federal Register / Vol. 66, No. 121 / Friday, June 22, 2001 / Rules and Regulations 33617

III. Overview of Final Rule

A. General

This final rule implements the initial

assessment requirements in a new

§ 972.200. A PHA must conduct a

required initial assessment once for

each of its developments, unless the

developments falls under one of the four

following categories:

1. The development is subject to

required conversion under 24 CFR part

971;

2. The development is the subject of

an application for demolition or

disposition that has not been

disapproved by HUD;

3. The development has been awarded

a HOPE VI revitalization grant; or

4. The development is designated for

occupancy by the elderly and/or

persons with disabilities (i.e., is not a

general occupancy development).

B. Certification Procedure

The final rule requires that a PHA

certify that it has reviewed each

development’s operation as public

housing and considered the

implications of converting the public

housing to tenant-based assistance.

Further, the PHA must certify that,

based on its review, the PHA has

concluded that conversion of the

development is likely to be either

appropriate or inappropriate.

Conversion of a public housing

development is appropriate only if the

PHA concludes that conversion will: (1)

Not be more expensive than continuing

to operate the development (or portion

of it) as public housing; (2) principally

benefit the residents of the public

housing development to be converted

and the community; and (3) not

adversely affect the availability of

affordable housing in the community.

C. Timing of Submission

The results of each required initial

assessment (consisting of the

certification described above) must be

submitted to HUD as part of the next

PHA Annual Plan after its completion.

A PHA must maintain documentation of

the reasoning with respect to each

required initial assessment.

As noted, the statute provides that

each PHA must prepare and submit

their required initial assessments by

October 1, 2001. HUD appreciates the

impact of the timing of today’s

publication on PHAs’ ability to

complete the required initial

assessments by the statutory deadline.

HUD expects PHAs now to proceed

expeditiously and responsibly to

complete the required initial

assessments.

IV. Discussion of Public Comments On

Proposed Initial Assessment Procedures

The public comment period on the

proposed rule closed on September 21,

1999. By close of business on this date,

HUD had received 6 public comments

on the proposed rule. Comments were

submitted by a private citizen; a PHA;

two of the three main organizations

representing PHAs; and two legal aid

organizations. This section of the

preamble presents a summary of the

significant issues raised by the public

commenters regarding the proposed

initial assessment requirements and

HUD’s responses to these comments.

HUD’s comprehensive final rule on

voluntary conversions will address the

issues raised by the commenters on all

other provisions of the July 23, 1999

proposed rule.

Comment: PHAS should not be used

in the required initial assessment

process. Three commenters opposed the

use of the PHAS in the required initial

assessment process. The commenters

wrote that the PHAS ‘‘is not fully

functional, and in many cases the

results of the PHAS do not accurately

reflect the quality of the building and its

units.’’ The commenters suggested that

‘‘no workload or official determinations

[should] be made on the basis of PHAS

until such time as the system’’ is fully

in place. One of the commenters wrote

that until the PHAS is finalized, all

PHAs should be permitted to prepare

fully streamlined assessments.

HUD Response. HUD has revised the

proposed rule to adopt the suggestion

made by these public commenters. The

final rule expands the availability of the

streamlined initial assessment process

to all PHAs, not just those that have

received passing scores on the PHAS

physical condition indicator. HUD

believes that Congressional intent was

to ensure that every PHA review the

operations of developments operated as

public housing, and determine if

conversion would be appropriate.

However, as noted elsewhere in this

preamble, Congress did not intend for

the initial assessment process to place

an undue burden on PHAs, and

therefore gave HUD broad authority to

waive or provide for streamlined

assessments. Allowing all PHAs to make

use of the streamlined certification

process for the one-time initial

assessments will further both objectives.

Although PHAs will no longer be

required to conduct a full cost-analysis,

each PHA must review and certify to the

best course of action with respect to the

developments that it operates as public

housing.

Comment: PHAs should be allowed to

submit a streamlined initial assessment

consisting of a basic market study

assessing the viability of market units

for possible Section 8 assistance. One

commenter wrote that ‘‘many smaller

PHAs and market areas have little or no

market units suitable or affordable for

the Section 8 program.’’ The commenter

wrote that, under such circumstances,

‘‘no conversion plan however well

developed would have any basis in

reality.’’ Therefore, the commenter

urged that these PHAs be given the

option of submitting a streamlined

assessment consisting solely of a basic

market study assessing the viability of

market units for possible Section 8

assistance. ‘‘Given the nature of the

localities and the PHA knowledge of the

market, this assessment should not

prove difficult as an option to the full

cost analysis.’’

HUD Response. HUD has revised the

proposed rule to be more sensitive to

the concerns expressed by the

commenter. As noted in the response to

the preceding comments, HUD has

streamlined the required initial

assessment procedures for all PHAs.

V. Findings and Certifications

Public Reporting Burden

The information collection

requirements for the voluntary

conversion 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 2577–0234. 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.

Impact on Small Entities

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

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

approved this final rule, and in so doing

certifies that this rule will not have a

significant economic impact on a

substantial number of small entities.

The reasons for HUD’s determination

are as follows:

(1) A Substantial Number of Small

Entities Will Not be Affected. The

entities that are subject to this rule are

PHAs that administer public housing.

Under the definition of ‘‘Small

governmental jurisdiction’’ in section

601(5) of the RFA, the provisions of the

RFA are applicable only to those PHAs

that are part of a political jurisdiction

with a population of under 50,000

33618 Federal Register / Vol. 66, No. 121 / Friday, June 22, 2001 / Rules and Regulations

persons. The number of entities

potentially affected by this rule is

therefore not substantial.

(2) No Significant Economic Impact.

This rule requires PHAs to perform

required initial assessments for their

public housing developments using

readily available data to determine

whether those developments should be

converted to tenant-based assistance.

HUD has used its broad statutory

authority to streamline the content of

the required initial assessments. This is

a one-time requirement as contemplated

by QHWRA. Smaller PHAs will have

fewer developments to consider, and the

burden on them should consequently be

proportionally smaller. Ultimately, the

goal of the rule is to promote more

efficient delivery of affordable housing

to residents of current public housing

developments. This efficiency should

benefit small PHAs and large PHAs

alike. Accordingly, the economic impact

of this rule will not be significant, and

it will not affect a substantial number of

small entities.

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 20410.

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

final rule does not have federalism

implications and does 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) establishes requirements for

Federal agencies to assess the effects of

their regulatory actions on State, local,

and tribal governments and the private

sector. This final rule does not impose

any Federal mandates on any State,

local, or tribal governments or the

private sector within the meaning of

Unfunded Mandates Reform Act of

1995.

Regulatory Planning and Review

The Office of Management and Budget

(OMB) reviewed this rule under

Executive Order 12866, entitled

‘‘Regulatory Planning and Review.’’

OMB determined that this rule is a

‘‘significant regulatory action’’ as

defined in section 3(f) of the Order

(although not an economically

significant regulatory action under the

Order). Any changes made to this rule

as a result of that review are identified

in the docket file, which is available for

public inspection in the office of the

Department’s Rules Docket Clerk, Room

10276, 451 Seventh Street, SW,

Washington, DC 20410.

Catalog of Federal Domestic Assistance

Number

The Catalog of Federal Domestic

Assistance number for the program

affected by this rule is 14.850.

List of Subjects in 24 CFR Part 972

Grant programs—housing and

community development, Low and

moderate income housing, Public

housing.

For the reasons discussed in the

preamble, HUD amends chapter IX of

title 24 of the Code of Federal

Regulations by adding part 972 to read

as follows:

PART 972—CONVERSION OF PUBLIC

HOUSING TO TENANT-BASED

ASSISTANCE

Subpart A—[Reserved]

Subpart B—Voluntary Conversion of Public

Housing Developments

Sec.

972.200 Required initial assessments.

Authority: 42 U.S.C. 1437t, 1437z–5, and

3535(d).

Subpart A—[Reserved]

Subpart B—Voluntary Conversion of

Public Housing Developments

§ 972.200 Required initial assessments.

(a) General. A PHA must conduct a

required initial assessment, in

accordance with this section, once for

each of its developments, unless:

(1) The development is subject to

required conversion under 24 CFR part

971;

(2) The development is the subject of

an application for demolition or

disposition that has not been

disapproved by HUD;

(3) A HOPE VI revitalization grant has

been awarded for the development; or

(4) The development is designated for

occupancy by the elderly and/or

persons with disabilities (i.e., is not a

general occupancy development).

(b) Certification procedure. For each

development, the PHA shall certify that

it has:

(1) Reviewed the development’s

operation as public housing;

(2) Considered the implications of

converting the public housing to tenantbased assistance; and

(3) Concluded that conversion of the

development may be:

(i) Appropriate because removal of the

development would meet the necessary

conditions for voluntary conversion

described in paragraph (c) of this

section; or

(ii) Inappropriate because removal of

the development would not meet the

necessary conditions for voluntary

conversion described in paragraph (c) of

this section.

(c) Necessary conditions for voluntary

conversion. Conversion of a public

housing development may be

appropriate if the PHA concludes that

conversion will:

(1) Not be more expensive than

continuing to operate the development

(or portion of it) as public housing;

(2) Principally benefit the residents of

the public housing development to be

converted and the community; and

(3) Not adversely affect the

availability of affordable housing in the

community.

(d) Documentation. A PHA must

maintain documentation of the

reasoning with respect to each required

initial assessment.

(e) Timing of submission. Consistent

with statutory submission requirements,

the results of each required initial

assessment (consisting of the

certification described in paragraph (b)

of this section) must be submitted to

HUD as part of the next PHA Annual

Plan after its completion.

Dated: June 12, 2001.

Mel Martinez,

Secretary.

[FR Doc. 01–15687 Filed 6–21–01; 8:45 am]

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