[Federal Register Volume 70, Number 197 (Thursday, October 13, 2005)]
[Rules and Regulations]
[Pages 59892-59930]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-20035]



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Part IV





Department of Housing and Urban Development





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24 CFR Part 983



Project-Based Voucher Program; Final Rule

Federal Register / Vol. 70, No. 197 / Thursday, October 13, 2005 / 
Rules and Regulations

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 983

[Docket No. FR-4636-F-02]
RIN 2577-AC25


Project-Based Voucher Program

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Final rule.

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SUMMARY: This rule replaces the current project-based certificate (PBC) 
regulations with a comprehensive new project-based voucher program. 
This rule is based on statutory authorities enacted in 1998 and 2000, 
and follows a proposed rule and public comment.

DATES: Effective date: November 14, 2005.

FOR FURTHER INFORMATION CONTACT: David Vargas, Director, Office of 
Voucher Programs, Department of Housing and Urban Development, 451 
Seventh Street, SW., Room 4210, Washington, DC 20410; telephone (202) 
708-2815 (this is not a toll-free number). Persons with hearing or 
speech impairments may access these numbers via TTY by calling the 
federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    The project-based voucher law was initially enacted in 1998, as 
part of the statutory merger of the certificate and voucher tenant-
based assistance programs. (See section 545 of the Quality Housing and 
Work Responsibility Act of 1998 (Pub L. 105-276) approved October 21, 
1998) (QHWRA) amending 42 U.S.C. 1437f(o).) Under QHWRA, a public 
housing agency (PHA), as defined under section 3(b)(6) of the U.S. 
Housing Act of 1937, 42 U.S.C. 1437a(b)(6), has the option to use a 
portion of its available tenant-based voucher funds for project-based 
rental assistance. The project-based voucher law replaced an authority 
for project-based rental assistance in the former Section 8 certificate 
program.
    In 2000, Congress substantially revised the project-based voucher 
law. (Section 8(o)(13) of the United States Housing Act of 1937, 42 
U.S.C. 1473f(o)(13), as amended by section 232 of the Fiscal Year 2001 
Departments of Veterans Affairs and Housing and Urban Development and 
Independent Agencies Appropriations Act (Pub. L. 106-377, 114 S-tat. 
1441, approved October 27, 2000)). The statutory basis for project-
based housing is codified at 42 U.S.C. 1437f(o)(13) under the heading, 
``PHA project-based assistance.''
    Significant changes made by QHWRA and the FY 2001 Appropriations 
Act include:
    <bullet> A PHA may project-base up to 20 percent of the PHA's 
voucher funding.
    <bullet> A PHA may provide project-based assistance for existing 
housing that does not need rehabilitation, as well as for newly 
constructed or rehabilitated housing.
    <bullet> Project-based assistance must be consistent with the ``PHA 
Plan.''
    <bullet> Project-basing must be consistent with the statutory goals 
of ``deconcentrating poverty and expanding housing and economic 
opportunities.''
    <bullet> After one year of assistance, a family may move from a 
project-based voucher unit. When a slot is available, the family may 
switch to the PHA's tenant-based voucher program or another comparable 
program.
    <bullet> Except for units designated for families that are elderly, 
disabled, or receiving supportive services, no more than 25 percent of 
units in a building may have project-based voucher assistance.
    <bullet> A PHA may enter into a housing assistance payments (HAP) 
contract for a term of up to 10 years. However, the PHA's contractual 
commitment is subject to availability of appropriated funds.
    <bullet> At the end of the contract term, the PHA may extend the 
HAP contract with an owner for a period appropriate to achieve long-
term affordability or to expand housing opportunities. Extensions are 
subject to availability of appropriated funds.
    <bullet> Generally, project-based voucher rents (rent to owner plus 
the allowance for tenant-paid utilities) may not exceed the lower of 
the reasonable rent, or 110 percent of the applicable Fair Market Rent 
(FMR) (or any exception payment standard approved by the Secretary), 
or, if applicable, the tax credit rent. This limit applies both to the 
initial rent and rent adjustments over the term of the HAP contract.
    <bullet> There are special provisions for establishing the project-
based voucher rent for a unit in a tax credit building located outside 
a ``qualified census tract.'' These provisions are found at 42 U.S.C. 
1437f(o)(13)(H).
    <bullet> Admission to project-based units is subject to the overall 
voucher ``income-targeting'' requirement. Under 42 U.S.C. 
1437f(o)(13)(J), the income targeting provisions of section 16(b) of 
the U.S. Housing Act of 1937 apply. Under these provisions, at least 75 
percent of the families admitted to the PHA tenant-based and project-
based voucher programs each year must be families with annual incomes 
below 30 percent of median income for the area. HUD's regulations 
define such families as ``extremely low-income families'' at 24 CFR 
5.603.
    <bullet> All units must be inspected for housing quality standards 
(HQS) compliance before the PHA enters into a HAP contract with an 
owner. After the initial inspection, the PHA is not required to re-
inspect each unit annually. Instead, the PHA may inspect a 
representative sample of units at the annual re-inspection.
    <bullet> If a family moves out, the PHA may continue payments to 
the owner for up to 60 days. The PHA has discretion whether to provide 
such vacancy payments.
    On January 16, 2001, (66 FR 3605), HUD published a Federal Register 
notice with guidance on the changes made to the project-based voucher 
(PBV) program in the FY 2001 Appropriations Act. By ``project-based 
voucher program,'' this regulation means the program statutorily 
codified at 42 U.S.C. 1437f(o)(13), which allows PHAs to attach to 
dwelling units up to 20 percent of the funding available for tenant-
based assistance. The HUD guidance notice described the law, identified 
statutory requirements that are effective immediately, and provided 
guidance on how to implement the law and existing program regulations.

II. The Proposed Rule

    HUD published a proposed rule for comment on March 18, 2004 (69 FR 
12950). A summary overview of the proposed rule can be found at 69 FR 
12950-12953. The proposed rule text begins at 69 FR 12954. The comment 
period for this proposed rule closed on May 17, 2004. Forty-seven 
commenters submitted comments during the comment period on a wide 
variety of issues related to this proposed rule. The commenters 
included a variety of entities, including PHAs, professional and trade 
organizations, and individuals. In response to the comments, this final 
rule makes certain changes to the proposed rule as described in the 
following section of the preamble. In addition, a summary of the issues 
raised by the public commenters and HUD's responses is found at section 
IV of this preamble.

III. This Final Rule

    This final rule implements the project-based voucher program. As of 
its effective date, this rule supersedes the January 2001 notice. The 
following

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changes to the proposed rule are made by this final rule. Section IV of 
this preamble summarizes the public comments and HUD's responses to 
them.

Subpart A--General

1. Section 983.1

    This final rule makes a technical correction in Sec.  983.1(c), 
``Specific 24 CFR part 982 provisions that do not apply to PBV 
assistance.'' References to Sec.  982.551-982.555 are removed. It is 
not necessary to mention these sections as excepted from the sections 
that do not apply, because the same result is obtained by simply not 
mentioning them.

2. Section 983.3

    In the PBV definitions under Sec.  983.3(b), the definition of 
``baseline units'' is deleted. Instead, the rule uses the concept of 
``budget authority'' to indicate the amount of appropriated funds 
available to a PHA for its housing choice voucher program.
    The definition of ``HUD'' is removed because it is unnecessary to 
restate it in this part. ``HUD'' is defined in 24 CFR 5.100.
    The definition of PHA-owned unit is revised to clarify that ``PHA 
owned'' includes any interest by the PHA in the building in which a 
unit is located. This change is necessary because HUD's experience to 
date has been that the definition has been misunderstood and applied 
differently in different geographical areas. Also, in the proposed 
rule, this definition cross-referenced a non-applicable portion of part 
982.
    The definition of ``proposal selection date'' is revised to 
reference the PHA's administrative plan. Section 983.51(b) of this rule 
requires that the PHA's procedures for selecting proposals be stated in 
the administrative plan.
    The definition of ``rent to owner'' is amended. Examples of non-
housing services that are not included in rent are added, and the 
adjective ``reasonable'' is removed. The rent reasonableness test is an 
overall limitation on the amount of rent to owner under the rule, and 
it is not necessary to include it in the definition.
    A number of terms defined in the proposed rule are removed because 
those terms are defined in 24 CFR part 982 and are applicable to this 
rule under Sec.  983.3(a)(2)(ii). These terms are: Fair market rent 
(FMR); family; gross rent; group home; HAP contract; owner; 
participant; reasonable rent; tenant; and tenant rent.
    Definitions were removed and replaced with cross references for 
``utility allowance'' and ``utility reimbursement.'' Both of these 
terms are defined at 24 CFR 5.603.

3. Section 983.5

    The final rule makes two minor technical corrections. Section 
983.5(a)(4) is amended to change ``rental assistance payments'' to 
``housing assistance payments.'' Section 983.5(b)(2) is amended to 
change ``project-basing'' to ``project-based vouchers'' (a similar 
change is made in Sec.  983.6(c)).

4. Section 983.6

    In paragraphs (a) and (c) of this section dealing with the amount 
of project-based assistance available to a PHA, the phrase ``baseline 
units'' is removed. Instead, the amount of project-based funding is 
expressed as a percentage of the amount of budget authority allocated 
to the PHA.

5. Section 983.7

    The Notice of Proposed Rulemaking (NPRM) proposed that voucher 
program funds could not be used to pay for relocation costs under the 
Uniform Relocation Act in connection with assistance under this part. 
This final rule allows administrative fee reserves to be used for this 
purpose provided that payment of relocation benefits is consistent with 
state and local law and HUD regulations on the use of reserves, 
including 24 CFR 982.155, and that all other program administrative 
expenses have been satisfied.

6. Section 983.10

    This final rule revises Sec.  983.10(b) to clarify that PHAs may 
renew PBC HAP contracts for terms of up to five years, to an aggregate 
total including the original term and all extensions, of 15 years, 
depending on the availability of appropriated funds.

Subpart B--Selection of PBV Owner Proposals

7. Section 983.51

    The final rule makes several editorial changes to this section. In 
addition, Sec.  983.51(b)(2) is revised to allow PHAs to select owner 
proposals without a separate competition for projects that were 
competitively selected under another program within three years of the 
PBV proposal selection date. The prior competitive selection cannot 
have considered future PBV assistance, because such a consideration 
could give such projects an unfair advantage by wrongly affecting the 
original competition and thereby tainting the process. Also, the non-
competitive selection of a project for low income housing tax credits 
(LIHTCs) does not satisfy the requirement of a prior competition.

8. Section 983.52

    This section adds additional detail to the general description of 
housing types to which assistance may be attached under this program. 
Existing housing is defined to exclude housing for which new 
construction or rehabilitation has been started. The rule cross-
references subpart D as applicable to newly constructed and 
rehabilitated housing.

9. Section 983.53

    This section makes an editorial change to combine Sec.  
983.53(a)(2) and (a)(4). Substantively, Sec.  983.53(b) is revised to 
give PHAs the responsibility to make an initial determination (and HUD 
approves such determination as the statute requires) as to whether 
assistance may be attached to a high-rise elevator project that may be 
occupied by families with children because there is no practical 
alternative. PHAs may make this initial determination for its entire 
project-based program, a portion of it, or case-by-case, and HUD may 
approve the determination on the same basis.

10. 983.56

    The NPRM proposed that the overall cap of 25 percent of the total 
number of dwelling units in the building include units receiving any 
type of federal, project-based assistance. This final rule limits the 
units that count against the cap to units receiving PBV assistance 
under this program, revising paragraph (a)(1) accordingly and removing 
paragraph (a)(2). Additionally, Sec.  983.56(b)(2)(B) is revised. In 
the proposed rule, this exception to the 25 percent cap on project-
basing units was limited to families in a housing voucher Family Self-
Sufficiency (FSS) program under section 23 of the 1937 Act, 42 U.S.C. 
1437u.
    This final rule revises this exemption to include units that are 
made available to families that are receiving any type of supportive 
services that the PHA specifies as qualifying services in its PHA 
administrative plan. If a family at the time of initial tenancy is 
receiving, and while the resident of an excepted unit has received, FSS 
supportive services or any other supportive services as defined in the 
PHA administrative plan, and successfully completes the FSS contract of 
participation or the supportive services requirement, the unit 
continues to count as an excepted unit for as long as the family 
resides in the unit. If a family in an excepted unit fails to complete 
the FSS contract of

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participation or fails to complete another program of supportive 
services, such failure results in termination of assistance by the PHA, 
and is grounds for lease termination by the owner. The PHA is 
responsible for monitoring and ensuring compliance with this 
requirement. At the time of initial lease execution between the family 
and the owner, the family and the PHA sign a statement of family 
responsibility, and HUD will include this requirement in this 
statement, thus ensuring that the family is aware that the PHA will 
terminate assistance if the family fails to meet its obligation.
    If the unit at the time of such termination is an excepted unit 
outside the 25 percent cap, the exception continues to apply to the 
unit as long as the unit is made available to another family receiving 
qualifying services. A family is deemed to be receiving supportive 
services if it has at least one family member receiving at least one 
qualifying service.
    The section also is revised to clarify that, generally, a PHA may 
not require participation in medical or disability-related services. 
The one exception is that a PHA may require current drug and alcohol 
abusers to receive drug and alcohol treatment. This requirement is in 
accordance with HUD's overall policy to ensure that drug and alcohol 
abusers do not interfere with other residents' health, safety, or right 
to reasonable enjoyment of the premises of assisted housing. See, for 
example, 24 CFR 5.858 and 5.860.

11. Section 983.57

    The NPRM proposed at Sec.  983.57(b)(1) that a proposed site for 
project-based assistance be ``consistent with the goal of 
deconcentrating poverty and expanding housing and economic 
opportunities.'' This final rule revises proposed Sec.  983.57(b)(1) 
and adds seven factors that the PHA must consider in determining 
whether a proposed PBV site is consistent with these goals. Under this 
final rule, the housing site must be consistent with the 
deconcentration goals stated in the PHA plan and with civil rights laws 
and regulations, including HUD's rules on accessibility at 24 CFR 
8.4(b)(5). These include whether the site is in an Enterprise Zone, 
Economic Community, or Renewal Community (EZ/EC/RC); whether the 
concentration of assisted units will be or has decreased as a result of 
public housing demolition; whether the census tract is undergoing 
significant revitalization; whether government funding has been 
invested in the area; whether new market rate units are being developed 
in the area, which are likely to positively impact the poverty rate in 
the area; if the poverty rate in the area is greater than 20 percent, 
whether in the past five years there has been an overall decline in the 
poverty rate; and whether there are meaningful opportunities for 
educational and economic advancement in the area. Housing under the PBV 
program may be selected only if consistent with the goal of 
deconcentrating poverty and expanding housing and economic 
opportunities.

12. Section 983.58

    Section 983.58(c) is revised to indicate that in the case of 
existing housing, the responsible entity must determine whether or not 
PBV assistance is categorically excluded from review under the National 
Environmental Policy Act and whether or not the assistance is subject 
to review under the laws and authorities listed in 24 CFR 58.5. The 
responsible entity must either complete the environmental review 
requirements of 24 CFR part 58, or HUD must perform the review under 
part 50, or the project must be determined to be exempt or 
categorically excluded. Section 983.58(d)(ii) of this final rule 
clarifies that in the case of review by the responsible entity under 
part 58, that entity makes the determination whether the project to be 
assisted is exempt or categorically excluded, and that if the project 
is exempt or categorically excluded, no further environmental review is 
needed.

Subpart C--Dwelling Units

    There are no substantive changes to this subpart made in this final 
rule. There are some minor editorial changes.

Subpart D--Requirements for Rehabilitated and Newly Constructed Units

13. Section 983.155

    The NPRM proposed that the PHA and HUD could set requirements for 
the evidence of completion of a housing project under this program at 
Sec.  983.155(b), along with additional documentation that could be 
required under proposed Sec.  983.155(b)(2). In the final rule, 
reference to HUD is removed so that the PHA alone sets these 
requirements.

Subpart E--Housing Assistance Payments Contract

14. Section 983.202

    This final rule removes an unnecessary sentence from Sec.  
983.202(b)(2). This is an editorial change that does not alter the 
overall intent of the section. The sentence stated that HUD provides 
funds to PHAs to make housing assistance payments to owners. This 
sentence is redundant as the same idea is stated in the first two 
sentences of the paragraph.

15. Section 983.203

    This final rule conforms Sec.  983.203(h) to the change to the 
exception to the 25 percent cap, making the exception generally 
applicable to families receiving supportive services, rather than only 
to families with a contract of participation under the statutory FSS 
program at 42 U.S.C. 1437u (see also Sec.  983.57, redesignated from 
proposed Sec.  983.56).

16. Section 983.205

    The NPRM proposed that extensions of the HAP contract be in one-
year increments. The final rule revises Sec.  983.205(a) to allow for 
extensions of up to five years.

17. Section 983.206

    In Sec.  983.206(b), on ``amendments to add contract units,'' this 
final rule removes ``compliance with Davis-Bacon wage rates during 
construction'' as an example of the legal requirements for a HAP 
amendment and replaces it with ``rents are reasonable.''

18. Section 983.209

    This final rule adds ``spouse'' to the list of prohibited family 
relationships between the owner of a PBV unit and the resident(s) of 
this unit at Sec.  983.209(e).

Subpart F--Occupancy

19. Section 983.251

    This section relates to protection of in-place families; that is, 
families that are eligible to participate in the program as of the date 
the proposal is selected, and which reside in a unit that will be 
placed under a project-based assistance contract. This final rule 
finalizes similar protections for in-place families that were 
originally proposed, with the one difference that Sec.  983.251(b)(2) 
is revised to require that such families be placed on the PHA's waiting 
list, with an absolute preference for referral to owners and placement 
in units that become available.
    This final rule adds a new Sec.  983.251(d), entitled ``Preference 
for services offered,'' and redesignates proposed Sec.  983.251(d) as 
Sec.  983.251(e). This new section allows PHAs to grant a preference to 
families with disabilities that require the services offered at a 
particular project. The preference may be applied to those families, 
including individuals, whose disabilities

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significantly interfere with their ability to obtain and maintain 
themselves in housing; who, without such services, will not in the 
future be able to maintain themselves in housing; and for whom such 
services cannot be provided in a non-segregated setting. Disabled 
residents cannot be required to accept the particular services offered. 
The project may be advertised as being for a particular type of 
disability; however, the project must be open to all otherwise eligible 
persons with disabilities who may benefit from the services offered.
    Section 983.252, relating to information to be provided to 
families, is slightly revised for consistency and to make changes. 
Paragraph (c) is revised to include alternative formats for persons 
with disabilities. A new 24 CFR 983.252(d) is added regarding 
information for families with limited English proficiency.
    Section 983.253 is revised in this final rule. Section 
983.253(a)(2), stating that the owner ``may apply its own admission 
standards,'' is replaced with a statement that, like current 24 CFR 
983.203(c)(4)(i), the owner is responsible for having written tenant 
selection procedures. These procedures must be consistent with the 
purpose of improving housing opportunities for very low-income families 
and be reasonably related both to program eligibility requirements and 
to the applicant family's ability to perform its obligations under the 
lease.

20. Section 983.255

    The NPRM proposed in Sec.  983.255(a) that a PHA has no obligation 
but ``may opt to screen applicants for family behavior and suitability 
for tenancy.'' This final rule specifies that a PHA may deny admission 
based on this screening. Proposed Sec.  983.255(b)(2)(vi) gave the 
owner broad latitude to screen a family's background for a variety of 
factors, including ``other factors determined by the owner.'' This 
paragraph is removed from the final rule. The owner may screen for 
factors ``such as'' the factors listed in Sec.  983.255(b)(2)(i)-(v). A 
variety of minor revisions are made to proposed Sec.  983.255 on 
information that a PHA must provide. These include the provision to the 
owner of any prior address of the applicant (rather than any 
immediately prior address) and information relating to drug trafficking 
by family members. This section also provides that the PHA may give the 
owner certain information about an applicant family, and that the PHA 
must disclose to the family a description of the PHA's policy regarding 
such information. The requirement that this disclosure must be included 
specifically in the information package given to a family is removed, 
although the underlying requirement to give the disclosure to the 
family is retained.

21. Section 983.256

    This final rule strengthens the PHA's ability to ensure that the 
lease meets the requirements of state and local law. Proposed Sec.  
983.256(b)(4) would have allowed the PHA to require revisions to the 
lease, if necessary. This final rule allows the PHA to decline to 
approve the tenancy if the lease does not meet the requirements of law.
    This final rule adds an item to Sec.  983.256(c), entitled 
``Required information.'' New Sec.  983.256(c)(6) requires the lease to 
specify ``the amount of any charges for food, furniture, or supportive 
services.''
    The final rule revises Sec.  983.256(f). The NPRM had proposed 
that, under certain conditions, leases could be for a term of less than 
one year. This final rule eliminates that option.

22. Section 983.257

    The final rule refines the section on owner termination of tenancy 
and eviction by specifying in a new Sec.  983.257(b) that the owner 
shall not terminate a lease under the PBV program without good cause as 
meant in 24 CFR 982.310 (except for 24 CFR 982.310(d)(1)(iii) and (iv), 
and under the eviction provisions of 24 CFR 5.858-5.861). Otherwise, an 
owner may renew or non-renew a lease upon expiration, but if the owner 
does not renew without good cause, the family must be provided tenant-
based assistance and the unit must be removed from the coverage of the 
HAP contract. A new Sec.  983.257(c) is added to make the section 
consistent with Sec.  983.56 and clarify that, if a family is living in 
a unit excepted from the 25 percent per-building cap on project-basing 
because of the family's participation in an FSS or other supportive 
services program, failure of the family without good cause to complete 
its FSS or supportive services program is grounds for lease termination 
by the owner.

23. Section 983.258

    This section provides that the owner may collect a security deposit 
from the tenant, and that the deposit may be used when the tenant moves 
out to reimburse the owner for any unpaid rent, damages to the unit, or 
other money that the tenant owes to the owner. This final rule makes 
only minor editorial revisions.

24. Section 983.260

    This final rule makes a minor technical change to this section to 
make the second sentence of paragraph (a) into a new stand-alone 
paragraph at Sec.  983.260(d). This change is made because this 
sentence is actually a separate consideration from the remainder of 
paragraph (a). Paragraph (a) generally concerns termination of the 
lease at the family's option after one year of occupancy; the new Sec.  
983.260(d) concerns termination before one year of occupancy, which is 
treated differently.

25. Section 983.261

    This section governs referrals to units that are excepted from the 
25 percent cap on project basing. Under Sec.  983.56(b), units in a 
multifamily building that are occupied by the elderly, families with 
disabilities, or families receiving supportive services are exempt from 
the overall 25 percent cap. This final rule revises Sec.  983.261 in 
accordance with Sec.  983.56 to expand the exemption from families with 
a contract of participation in the statutory FSS program under 42 
U.S.C. 1437u to units made available to all families receiving 
supportive services as stated in Sec.  983.57(b)(2)(ii). A family is 
``receiving supportive services'' if it has at least one member 
receiving at least one such service. If a family successfully completes 
its supportive services program, the unit remains an excepted unit as 
long as the family resides in the unit. If a family fails to complete 
its FSS or other supportive services participation, or no longer has a 
member qualifying as elderly or disabled, the family must vacate the 
unit in a reasonable time established by the PHA and the PHA shall 
cease paying housing assistance on behalf of the non-qualifying family. 
In the case of a partially assisted building, the owner has the choice 
of substituting a different unit in accordance with 983.206(a) or 
terminating the lease. The assistance for a family that is not in 
compliance with its obligations, such as non-completion of its FSS 
program without good cause, shall be terminated by the PHA.

Subpart G--Rent to Owner

26. Section 983.301

    The proposed rule would have provided for annual redeterminations 
of the rent to owner (at Sec.  983.301(a)(3)), and for the amount of 
rent to owner (except for certain tax credit units) to be up to the 
lowest of the payment standard amount for the bedroom size minus any 
utility allowance, the reasonable rent, or the rent requested by the 
owner. This final rule significantly

[[Page 59896]]

revises these provisions in response to public comments, which are 
described below at section IV of this preamble. Under this final rule, 
the rent to owner is established at the beginning of the HAP contract 
term. The rent to owner, for non-LIHTC units, may not exceed the lowest 
of an amount determined by the PHA, not to exceed 110 percent of the 
applicable FMR or HUD-approved exception payment standard for the unit 
size less any utility allowance; the reasonable rent; or the rent 
requested by the owner. The tax credit rent is similar, except that the 
first of the three amounts is the tax credit rent minus any utility 
allowance. The tax-credit rent provision applies to certain tax credit 
projects not located in a qualified census tract. A ``qualified census 
tract'' is defined as any census tract or equivalent area defined by 
the Census Bureau in which: (1) At least 50 percent of households have 
an income of less than 60 percent of Area Median Gross Income; or (2) 
the poverty rate is at least 25 percent and where the census tract is 
designated as a qualified census tract by HUD. The rent must be 
redetermined at the owner's request or whenever there is a five percent 
or greater decrease in the published FMRs. The owner must request any 
rent increase at the annual anniversary of the HAP by written notice to 
the PHA.
    Under final Sec.  983.301(f), when determining the initial rent to 
the owner, the most recently published fair market rent (FMR) and 
utility allowance schedule applies, rather than, as proposed, the 
payment standard amount on the PHA's payment standard schedule.

27. Sections 983.302 and 983.303

    These sections apply to redeterminations of the rent to owner. This 
final rule revises these sections so that, consistent with Sec.  
983.301, the time for redetermination is upon the owner's request and 
when there is a five percent or greater decrease in the published FMR.

28. Section 983.304

    This section addresses limitations on the rent to owner for units 
that have subsidies under programs in addition to the PBV program. 
Proposed Sec.  983.304(b)(2) would have provided that the rent to owner 
could not exceed the amounts allowed in these programs, enumerated 
under proposed Sec.  983.304(b)(1). This final rule adds tax credit 
projects to this list. In addition, in order to provide paragraph 
designations for all sections, the proposed undesignated introductory 
section is redesignated Sec.  983.304(a) in this final rule, and the 
following sections are redesignated (b)-(f), accordingly.

Subpart H--Payment to Owner

29. Section 983.354

    This section provides that meals and supportive services, 
generally, may not be charged as part of the rent to the owner, and 
that an owner may not use non-payment of such charges as grounds for 
termination of tenancy. The exception to this general rule is that in 
an assisted living development, owners may charge families or their 
members for meals or supportive services. In the case of such a 
development, the final rule adds a proviso that non-payment of such 
charges may be grounds for the owner to terminate the lease. The HAP 
payment may not be used for the costs of meals and supportive services.

IV. Responses to Public Comments

Comments Addressed to the Rule Generally

    Comment: One commenter questioned why the provisions applicable to 
the project-based voucher program do not also apply to the former PBC 
program. Another commenter stated that HUD should combine the 
certificate and voucher programs and stop having multiple versions of 
one program in operation.
    HUD Response: The Department is required by its regulations on 
rulemaking at 24 CFR 10.2 to publish regulations to implement, 
interpret, and prescribe law and policy for future effect. Thus, these 
regulations cannot be made retroactive to apply to the former program.
    Comment: A commenter stated that PHAs are currently being funded 
from quarter to quarter based on actual utilization, and that, as a 
result, would likely have to hold or set aside some of their tenant-
based funding in order to facilitate project-based voucher development 
proposals. ``The proposed rule should more specifically address the 
allocation of funding for the PBV program as it relates to this 
issue.''
    HUD Response: HUD does not agree that this rule should address 
funding issues as it relates to the PBV program. In Calendar Year 2005, 
PHAs were provided with a specified amount of funding that was 
determined at the beginning of the calendar year and was not subject to 
quarterly or other utilization changes. PHAs are charged with managing 
their resources within program requirements to ensure that they do not 
incur costs beyond their annual funding allocation. If a PHA elects to 
project-base any of its voucher units, it must manage its resources to 
ensure that the agreement to enter into a HAP contract agreement and 
HAP contract commitments will be honored.
    Comment: One commenter stated that PHAs should be able to give 
preferences to ``CHDOs, HOME, HOPE VI, LIHTC properties'' and similar 
projects, and to housing providers with a history of ``responsible 
practices and proper reporting.''
    HUD Response: CHDOs most likely refers to community housing 
development organizations that are eligible to participate in certain 
HUD Community Development Block Grant programs. The requirements for 
CHDOs are stated at 570.204(c). HOME probably refers to the HOME 
Investment Partnerships Act, 42 U.S.C. 12701 note. HOPE VI is the 
popular name for the program for revitalization of public housing now 
codified at 42 U.S.C. 1437v.
    The final rule provides that in cases where a federal, state, or 
local housing assistance, community development, or supportive services 
program that requires a competitive selection of proposals has already 
competitively selected proposals, a second competition for PBV is not 
required. The original competition, however, cannot have considered the 
possibility of future PBV assistance, but the selection must have been 
based on the project's merits at the time of the competition. However, 
the PHA, if it is in accordance with its administrative plan, can give 
a preference to CHDOs, HOME, and LIHTC projects.
    Comment: A commenter stated ``we remain concerned about the need 
for HUD's continued involvement in a given PHA's administration of the 
PBV program.'' This commenter stated that PHAs are independent 
governmental agencies and can police themselves with respect to the 
proper and needed use of public funds. This commenter cited proposed 
Sec.  983.51 (referenced by the commenter as ``dealing with PHA-owned 
units'') and Sec.  983.55 (subsidy layering) as particular concerns. 
Because many PHAs are heavily involved in real estate development and 
subsidy layering reviews--``perhaps even better than a HUD staff person 
who is not intimate with the local real estate development market''--
PHAs should be allowed to make determinations in both those areas.
    HUD Response: Congress specifically set in place safeguards against 
possible program abuse regarding PHA-owned units by requiring HUD to 
ensure that Housing Quality Standards (HQS) inspections and rent 
determinations are conducted by outside entities. To

[[Page 59897]]

protect against possible PHA bias or abuse, and to ensure fairness, HUD 
has promulgated program regulations to carry out Congress' intent. The 
Office of Public and Indian Housing will be issuing a separate 
regulation to delegate subsidy layering reviews (see response to 
comments on Sec.  983.55).
    Comment: Five commenters commented on the relationship between 24 
CFR part 982 and part 983. Four commenters stated that HUD should add a 
general provision that in the event of a conflict between parts 982 and 
983, part 983 shall prevail over any inconsistent provisions of part 
982 with respect to the PBV program. Another commenter stated that in 
the event that HUD has missed something in part 982 that is not 
applicable to the PBV program, there should be leeway for HUD to 
determine, short of a regulatory waiver, that the provision is 
inapplicable to the PBV program.
    HUD Response: 24 CFR 982 is the regulation for the tenant-based 
voucher program. The rule identifies the provisions in 24 CFR 982 that 
do not apply to PBV assistance under part 983. HUD believes it has 
accurately cross-referenced part 982 in the 983 regulation, but if HUD 
determines that any errors have been made, HUD will publish corrections 
in the Federal Register.
    Comment: A commenter stated that there is a disincentive to 
participation in the PBV program because PHAs want to designate a 
portion of their Section 8 allocation to leverage investment or LIHTCs. 
However, while these units are undergoing construction or substantial 
rehabilitation, they are counted adversely in the PHA's lease-up rate 
calculation. This commenter recommends a grace period for such PHAs 
during construction or substantial rehabilitation. This grace period 
should be provided as long as there is a well-defined construction plan 
in place with specific time frames that are documented and submitted to 
HUD.
    HUD Response: During construction or substantial rehabilitation, 
units that will have PBV assistance attached pursuant to an agreement 
do not require the setting aside of vouchers and budget authority 
committed for those units. Rather such set asides are required only 
after completion of the project. However, the PHA must ensure that 
budget authority is available for those units upon execution of the HAP 
contract. If a PHA is leased up to its budget authority, it must ensure 
that through the turnover of vouchers it will have the necessary units 
and dollars to meet its contractual commitments when the project is 
ready to be occupied. PHAs are responsible for monitoring their leasing 
and turnover to ensure that they do not over-lease units or expend more 
budget authority than is available.
    Comment: A commenter also stated that ``Agencies should be able to 
lease the necessary number of vouchers through monthly turnover by the 
time they are needed for occupancy under the PBV program. To allow for 
this, HUD should not consider budget authority committed to PBV 
assistance for this reason to be unutilized.'' This change should also 
be reflected in HUD's Section Eight management assessment (SEMAP). HUD 
should change its procedures for determining agencies' lease-up rates 
and corresponding budget authority. Similarly, another commenter stated 
that, should a PHA set aside vouchers to project-base, the vouchers 
set-aside should not count against SEMAP or any other indicator. PHAs 
should be able to set-aside vouchers based on projections of the 
expected availability of vouchers due to turnover, attrition, or 
expected allocation of additional vouchers.
    HUD Response: See response to comment above.
    Comment: One commenter stated that HUD should increase the total 
number of vouchers available. ``This is the best and most successful 
housing subsidy program in the country.''
    HUD Response: The appropriations for the voucher program, as well 
as the percentage of voucher funding that may be project-based, are 
both set by Congress.
    Comment: A commenter stated that ``The rule proposed is still 
inconsistent with the congressional intent to simplify the process for 
project-basing vouchers * * *. Regrettably, the proposed rule continues 
to make the program too cumbersome to be appealing to many housing 
agencies.''
    HUD Response: HUD disagrees that the proposed rule makes the 
program too cumbersome. The proposed rule has simplified and 
deregulated many aspects of the PBV program, such as competition and 
HQS inspections. The rule also eliminates any HUD approval actions 
during the development process resulting in a decrease in the necessity 
for HUD-approved exceptions and regulatory waivers. The final rule also 
simplifies the selection of proposals even further than originally 
proposed.
    Comment: A commenter stated generally that transitional housing is 
important because it assists the homeless with skills necessary to 
become good tenants to whom landlords would be willing to rent. 
Accordingly, the PBV rule should be modified so that it will work with 
transitional housing serving homeless persons and persons with special 
needs.
    HUD Response: The final rule provides that transitional housing is 
ineligible housing under the project-based voucher program. The statute 
governing the project-based voucher program specifically provides that 
low-income families assisted under the program may move after the 
family has occupied a unit for 12 months. If a transitional housing 
agreement requires a family to move prior to 12 months, the law 
governing the project-based voucher program does not give families the 
right to a tenant-based voucher prior to 12 months. Thus, in the 
situation described, a family would not be entitled to tenant-based 
assistance under the law governing the project-based voucher program.
    Also, if a transitional housing agreement requires a family to move 
some time after the initial 12 months, a PHA would be required under 
the law to provide such a family with tenant-based assistance. If the 
project-based voucher contract with the owner extends beyond the 
transitional housing agreement, the PHA would also be required to 
refill the units vacated by the previous transitional housing 
participant. Given the scarcity of funding, such a result is 
undesirable. Additionally, if a family must leave after the initial 12-
month lease in accordance with the transitional housing requirements, 
the PHA may not have a voucher or other form of assistance readily 
available. Since the participant would be required to move, the 
participant would have to do so without the benefit of subsidy since 
the PBV law only requires PHAs, after the initial 12 months, to issue a 
voucher or other form of assistance if available. The Department 
believes that transitional housing is inconsistent with the project-
based voucher program. Thus, the final rule makes transitional housing 
an ineligible housing type under the project-based voucher program.

Subpart A (Proposed Sec. Sec.  983.1-983.10)

    Comment: In reference to proposed 24 CFR 983.2(c)(6)(iv), one 
commenter stated that the proposed rule incorrectly identifies 24 CFR 
Sec. Sec.  982.551-.555 as being under part 982, subpart K. These 
sections are codified under subpart L.
    HUD Response: HUD agrees and this final rule includes this 
technical correction.
    Comment: A number of commenters questioned the definition of 
``existing housing'' in Sec.  983.3, seeking specificity about dollar 
amounts of repair that would distinguish substantial rehabilitation 
from existing housing.

[[Page 59898]]

Five commenters suggested that there be a ``safe harbor'' dollar amount 
of repairs that constitute existing housing. One of these commenters 
asked, if existing housing requires less than $1,000 of rehabilitation, 
and ``rehabilitation'' is any unit that requires $3,000 or more, how 
are units requiring $1,000-$3,000 worth of work categorized?
    HUD Response: In this final rule, HUD has retained the language 
contained in the proposed rule. HUD has decided not to accept the 
suggestion of specifying a dollar amount since costs attributable to 
repairs and rehabilitation are market-driven and may vary widely 
depending upon individual market areas. Such decisions are properly 
left up to the PHAs.
    Comment: Commenters objected to the definition of ``comparable 
rental assistance'' in proposed Sec.  983.3, stating that the 
definition should define comparable rental assistance as gross rent 
that costs the family no more that 30 percent of their adjusted income, 
rather than 40 percent. One of these commenters stated that setting the 
standard at 40 percent violates the statute, and argued that the 
standard should be 30 percent, subject to a limited exception if the 
gross rent is greater than the PHA's payment standard.
    HUD Response: The final rule defines comparable rental assistance 
as ``a subsidy or other means to enable a family to obtain decent 
housing in the PHA jurisdiction renting at a gross rent that requires 
the tenant to pay no more than 40 percent of its adjusted monthly gross 
income for rent.'' Section 8(o)(3) of the United States Housing Act of 
1937 governing the voucher program provides that at any time a family 
initially receives voucher assistance, the family rent contribution is 
limited to 40 percent of adjusted income. The definition of comparable 
rental assistance contained within the final rule does not violate the 
statute.
    Comment: A commenter stated that the lobbying restriction in 
proposed Sec.  983.4 is obsolete.
    HUD Response: HUD reviewed the lobbying restrictions in Sec.  983.4 
and determined that they are not obsolete and therefore continue to 
apply to the project-based voucher program.
    Comment: A commenter stated that Sec.  983.5, which describes the 
project-based program, should specify when PBVs count toward the PHA's 
utilization rate. This commenter states that ``the Agreement to enter 
into a Housing Assistance Payment (HAP) contract is the appropriate 
trigger for SEMAP purposes.''
    HUD Response: HUD has considered this comment. Currently SEMAP does 
not exclude units under an Agreement from total units for SEMAP scoring 
purposes under the leasing indicator. Since units and dollars that are 
committed under an agreement do not have to be set aside during the 
development or rehabilitation phase of a project, these units will not 
be excluded from the SEMAP leasing indicator. PHAs must monitor their 
leasing and turnover to ensure that they do not over-lease units or 
expend more budget authority than available. If a PHA is fully leased, 
it may have to withhold issuance of vouchers for a number of months 
based on attrition rates to ensure that units and dollars will be 
available at the time the HAP contract is executed.
    Comment: A commenter stated that Sec.  983.5(b), which references 
Section 8 administrative fees, should be revised. This commenter stated 
that PHAs that own PBV developments are restricted to a significantly 
lower administrative fee than private owners. However, PHAs must also 
contract for services at increasing administrative costs. This creates 
a disincentive to participation. Therefore, PHAs should be entitled to 
the same administrative fee as private owners.
    HUD Response: HUD has considered this comment, but is not adopting 
it for the following reasons. The United States Housing Act of 1937 
requires that a unit of state or local government or another entity 
approved by HUD perform certain functions for PHA-owned units. The act 
also authorizes HUD to decrease the administrative fees for PHA-owned 
units. In the case of PHA-owned units, some activities for which an 
owner is compensated from rental income under other HUD project-based 
programs result in a reduced administrative fee. For example, income-
certification and re-examination are tasks for which PHAs are 
reimbursed as an owner through rental income under the PBV program.
    Comment: Two commenters expressed concerns about the 20 percent cap 
on project basing. One of these commenters stated that the cap is too 
high and would force consumers ``to use their vouchers in projects, at 
least for a period of time,'' and will not have the option of using 
them with private landlords. The commenter stated that this does 
nothing to increase the amount of affordable, accessible housing and 
that the proposed regulation promotes segregation, loss of affordable 
units, and subjects tenants to impossible compliance regulations like 
workfare. This commenter recommends full funding of the Section 8 
program in its present form, as well as additional changes in 
regulations to allow those with very low incomes to qualify for housing 
under LIHTC programs, such as the 80/20 program, HPD programs, and the 
Mitchell-Llama programs.
    Another of these commenters stated that the 20 percent cap is a 
``significant restriction'' on a PHA's ability to project-base vouchers 
and that HUD should pursue statutory changes to make the same 
flexibility that exists in the Moving to Work (MTW) program available 
to all PHAs.
    HUD Response: The commenter refers to various assisted housing 
programs. The 80/20 program is a form of bond-financed tax credit that 
derives its name from the requirement that no more than 80 percent of 
the units in an LIHTC project financed with tax-exempt private activity 
bonds are to be occupied by individuals or families at market-rate 
rents, while the other 20 percent must be rented to low-income (no more 
than 50 percent of median) households. HPD is the New York City 
Department of Housing Preservation and Development. Mitchell-Lama is a 
New York State program of moderate- and middle-income rental and 
limited-equity cooperative developments. MTW is a HUD demonstration 
program codified under 42 U.S.C. 1437 note, which allows PHAs to design 
and test ways to promote self-sufficiency among assisted families, 
achieve programmatic efficiency and reduce costs, and increase housing 
choice for low-income households.
    HUD must work under the current statutory framework that restricts 
project-based assistance to 20 percent of a PHA's budget authority 
under the voucher program.
    Comment: Four commenters stated that proposed Sec.  983.7(a)(2), 
which provides that relocation costs may not be paid out of voucher 
program funds, should not prohibit PHAs from using funds in the Section 
8 administrative fee reserve account to pay relocation costs.
    HUD Response: HUD has considered this comment and decided to adopt 
it. Provided payment of relocation benefits is consistent with state 
and local law, and provided the use of the administrative fee reserve 
is consistent with 24 CFR 982.155, PHAs may use their administrative 
fee reserves to pay for relocation assistance after all other program 
administrative expenses are satisfied. Program participants should also 
be mindful that HUD and Congress have from time to time restricted the 
use of administrative fee reserves.
    Comment: Proposed Sec. Sec.  983.9 and 983.53(a) prohibit voucher 
funding to be

[[Page 59899]]

used with cooperative housing and shared housing. Two commenters stated 
that they object to this exclusion of cooperative housing. These 
commenters stated that this ``is an arbitrary exclusion, not required 
by statute, and represents a change from the Initial Guidance.'' These 
commenters also state that the exclusion is against HUD's ``regulations 
and policies for other project-based Section 8 programs, as well as 
tenant-based Section 8,'' and that there are numerous examples of 
cooperative projects that have been good housing providers. One of 
these commenters stated that ``denying project-based Section 8 to* * * 
co-ops would make the projects unfeasible and be unfair to the low-
income seniors who benefit from the creation of this affordable 
housing.'' This commenter also states that cooperatives have been 
proven to have lower operating costs than comparable rentals, and, 
therefore, it is in the government and public interest to encourage 
Section 8 in cooperatives.
    Another commenter similarly objected to the exclusion of shared 
housing. The commenter stated that ``[shared housing] can be an 
extremely effective supportive transitional housing model that is being 
extensively used around the country.''
    HUD Response: HUD considered these comments, but did not adopt them 
for the following reasons. Cooperative housing is not a permitted 
housing type under the project-based voucher program. Cooperative 
housing is considered homeownership and Section 8(y) of the United 
States Housing Act, which governs homeownership under the voucher 
program, limits the form of subsidy PHAs may use to provide 
homeownership assistance to tenant-based assistance. The comment 
regarding shared housing is also rejected since there are provisions to 
allow the use of group homes and congregate housing that are similar to 
shared housing. Additionally, to permit shared housing under the PBV 
program would require PHAs to refer families to an owner to occupy a 
unit with families that are not acquainted with each other, which may 
not be a desirable housing situation. This would result in many 
families refusing to share housing and as a result have families living 
in oversized units in violation of program guidelines.

Subpart B (Proposed Sec. Sec.  983.51-983.59)

    Comment: A number of commenters submitted comments regarding 
proposed Sec.  983.51, which requires competitive selection of 
proposals for project-basing with an exception for proposals already 
selected pursuant to a competitive government housing assistance, 
supportive services, or community development program.
    More than ten commenters supported the exception to competitive 
selection for units that have been previously competed. Four commenters 
stated that this proposal would save time and money and avoid needless 
duplication.
    Some commenters opposed requiring any competition. One commenter 
stated that the competitive selection procedure, including the 
requirement for prior competitive selection, is too rigid. This 
commenter stated that these Reform Act requirements do not apply to 
PHAs. Since there is no statutory requirement for a competitive 
process, PHAs should be given discretion in how they award vouchers. 
Another commenter stated that selection should be allowed based on a 
request from a developer or owner; based on a HOPE VI site or similar 
endeavor having PHA participation; or public notice inviting 
competitive proposals. Another commenter stated that proposals subject 
to previous competitive selection should be exempt from additional 
environmental, site selection, and subsidy layering reviews; however, 
the rule should allow PHAs to use PBVs without any competition because 
``agencies that need to lay out annual budgets and support their annual 
program operations would be placed in a compromising position. Agencies 
could thus face financial disincentives and opt out of using this 
important program.'' Another commenter stated that there should be no 
competition, but PHAs should develop and provide a clear set of 
guidelines to applicants. This commenter stated that the statute does 
not require competitive selection, but does require that HAP contracts 
be consistent with the agency's plan. This commenter stated that 
competitive selection is neither practical nor necessary, given the 
limited number of vouchers that will be available. Most affordable 
housing developments have funding from a variety of sources, and adding 
yet another competitive funding cycle complicates the process of 
financing affordable housing units, and adds unnecessary time and 
costs.
    Some commenters criticized specific aspects of the competition 
provisions. Two commenters, while agreeing generally with the proposal 
on competitive selection, stated that the rule should make clear 
whether the PHA must include in its administrative plan its intent to 
make PBVs available based on a prior competition. Another commenter 
supported the prior competition exemption and also stated that the rule 
should give PHAs some discretion in establishing the competitive 
criteria whereby they will select units for project basing. A commenter 
stated that a news release and web publication should be sufficient to 
satisfy the advertising requirement in proposed Sec.  983.51(c). A 
commenter, while agreeing with competitive selection generally, stated 
that the prior competition exception would appear to allow subsidy 
layering.
    HUD Response: No response is necessary to the supportive comments. 
As to other comments, HUD believes that many commenters misunderstand 
the nature of the competitive selection of proposals. The purpose of 
the notice is to provide interested parties a fair opportunity to 
participate in the program. The final rule clarifies that PHAs must 
publish a general notice in accordance with 983.51(c) to inform the 
public that the PHA is soliciting proposals for the PBV program. The 
notice must indicate that the PHA's selection policy is available for 
viewing at the PHA's office. In addition, the PHA's selection criteria 
must be stated in the PHA's administrative plan. HUD will clarify that 
PHAs may target particular units in desirable neighborhoods or key 
``turning point'' buildings in established revitalizing areas. One 
commenter suggested allowing PHAs to substitute environmental, site 
selection, and subsidy layering reviews conducted under previous 
competitions for the project-based voucher program. In response to the 
suggestion, HUD believes it would be impractical and infeasible for HUD 
to monitor requirements under individual state and local programs to 
assure consistency with federal statutory and regulatory requirements. 
HUD, therefore, is not adopting that comment. Site and neighborhood, 
site selection standards, environmental reviews, and subsidy layering 
requirements continue to apply.
    Comment: Proposed Sec.  983.51(e) prohibits PHAs from using PBV 
assistance with public housing units. A number of commenters suggested 
that this language was overbroad and should be clarified. Two 
commenters stated that the language ``could be read too broadly to 
include non-public housing units in a HOPE VI or public housing mixed 
finance project that contains both public housing units and non-public 
housing units.'' Three commenters stated that the definition of 
``public housing'' in the U.S. Housing Act includes units receiving 
both capital and operating assistance. Therefore, under this rule, PHAs 
could not use

[[Page 59900]]

PBVs in HOPE VI developments. The commenters object to this result. One 
commenter stated that using PBV assistance in conjunction with HOPE VI 
and replacement housing factor (RHF) funds is especially important in 
areas where there has been a significant amount of public housing 
demolition. Therefore, more replacement housing could be produced. In 
many markets, PBVs alone do not provide enough of an incentive to 
develop affordable housing. This commenter and another commenter stated 
that pairing PBV with capital funds would provide enough operating and 
capital subsidy to develop long-term affordable housing, and suggests 
that the first sentence of proposed Sec.  983.51(e) be revised to read: 
``Under no circumstances may PBV assistance be used with a unit 
receiving public housing operating funds.'' Another commenter agreed 
and stated that ``Congress made substantial changes to the PBV program 
in Section 232 of the 2001 HUD Appropriations Act, with the intent of 
making the program more flexible and workable. One of the important 
changes Congress made was to repeal a former statutory prohibition of 
project-based assistance for units to be constructed or rehabilitated 
with funds under the United States Housing Act of 1937.'' Proposed 
Sec.  983.51(e) could be read to reinstate the bar on providing PBV 
assistance for units to be constructed or rehabilitated with U.S. 
Housing Act funds notwithstanding Congress' repeal of that bar.
    HUD Response: The Department believes that Congress' adoption of 
disparate or parallel statutory provisions for the public housing and 
voucher programs affirms that public housing and voucher programs are 
intended to operate as separate, and mutually exclusive, subsidy 
systems under the U.S. Housing Act of 1937. It is not permissible by 
law to combine voucher funds with public housing funds. For HOPE VI 
funds that predate FY 2000, it is generally permissible to combine 
these funds in accordance with the terms of the relevant HOPE VI 
appropriations act if the HOPE VI funds were not used to develop or 
operate public housing units. It is not permissible in any case to 
combine HOPE VI funds appropriated on and after FY 2000 (Section 24 
funds), because Section 24 funds are public housing funds. If Capital 
Funds or Section 24 funds are used in the development of affordable 
housing, pro-ration must occur. For example, if a project receives 
$2,000 in non-public housing HOPE VI funds and $1,000 in Capital Funds 
and there are 60 units in the development, 20 of the units (one-third) 
are being funded with capital funds and, therefore, cannot be combined 
with project-based vouchers. Provided that the remaining 40 units (two-
thirds) are not receiving any Public Housing funds, the units may be 
assisted under the PBV program.
    Comment: Proposed Sec.  983.53 provides that certain types of 
housing are ineligible for PBV assistance. A number of commenters 
commented on this section. One commenter stated that there may be 
situations where location of a facility, especially supportive housing, 
on the grounds of a medical or mental institution is appropriate (see 
proposed Sec.  983.53(a)(2)). If the intent of the rule is to prevent 
subsidizing of hospital rooms, that can be accomplished another way.
    HUD Response: HUD has considered this comment and is not adopting 
it for the following reasons. To allow project-based assistance units 
on the grounds of medical or mental institutions would be inappropriate 
since the residency requirements for such housing facilities are 
usually limited to patients of the medical or mental institution. 
Housing for medical and mental institutions is generally funded 
privately or by local or state governments. The PBV program is not 
intended to be used to substitute for financing of housing that already 
exists for individuals who are residents of mental or medical 
facilities with federal funds appropriated to assist low-income 
families.
    Comment: Five commenters stated that the PHA, not HUD, should 
determine when there is no practical alternative for a high-rise 
elevator project that may be occupied by families with children (see 
proposed Sec.  983.53(b)). This could be particularly important where a 
PHA has a better understanding of the preservation needs of the 
community. Another commenter stated that the term ``high-rise'' should 
be defined because even two, three, or four story buildings that 
provide excellent family housing may have elevators. Another commenter 
stated that some existing high-rise developments provide good housing 
and should be preserved. The limitation on high-rise buildings with 
elevators should apply only to new construction. Another commenter 
stated that in Baltimore, high-rise buildings with elevators may be a 
significant source of housing. ``We believe that that high-rise 
elevator buildings with one and two bedroom apartments * * * should be 
eligible.''
    HUD Response: While the statute gives the authority to make the 
determination about high-rise elevator projects to the Secretary, HUD 
is also mindful of the commenters' concerns. Therefore, this final rule 
revises the rule so that PHAs may make an initial determination, but 
HUD must approve a PHA's finding that there is no practical 
alternative.
    Comment: Proposed Sec.  983.58(c)(2) makes the release of PBV funds 
contingent on an environmental review being performed. A number of 
commenters stated that it is unclear what ``release of funds'' means 
because the funds will have already been allocated to the PHA.
    HUD Response: Under part 58, HUD may allocate funds to the PHA, but 
the PHA may not commit or expend these funds until an environmental 
finding is completed by the responsible entity (RE). If the finding is 
that of an exempt activity (Sec.  58.34) or a finding of activity that 
is categorically excluded and not subject to Sec.  58.5, then the PHA 
does not have to submit a request for release of funds (RROF) and 
certification, and no further approval from HUD is needed by the PHA 
for the draw down of funds to carry out exempt activities and projects. 
However, the RE must document in writing its determination that each 
activity or project is exempt and meets the conditions specified for 
such exemption.
    In those cases where the RE determines that an environmental review 
is required, the RE will perform such review and execute the 
certification portion of the RROF by completing only Parts 1 and 2 of 
HUD form 7015.15 and by forwarding the form to the PHA, which must 
complete Part 3 before providing the form to HUD for approval. The PHA 
must await HUD approval from the Field Office Public Housing Director 
as the HUD Authorizing Officer; the approval is obtained either on HUD 
form 7015.16--Authority to Use Grant Funds or by a letter dispatched to 
the PHA. Once received, the PHA may then draw down funds under the 
voucher annual contributions contract for the project-based voucher 
project.
    Comment: One commenter commented on proposed Sec.  983.53(d), which 
prohibits PHAs from attaching PBV assistance to units occupied by 
ineligible families. This commenter stated that the PHA should be given 
the flexibility, between the time the Agreement and HAP contract are 
executed, to move the family to another unit and free the unit for an 
eligible family.
    HUD Response: It is HUD's policy to minimize displacement and what 
the commenter proposes is unnecessary.

[[Page 59901]]

Section 983.206 allows PHAs to add units to the HAP contract when an 
ineligible family moves out.
    Comment: Proposed Sec.  983.54 prohibits PBV assistance from being 
attached to units that have other forms of Section 8 and other types of 
federal assistance. Two commenters stated that the rule should make 
clear that in mixed-finance projects, this prohibition applies only to 
the same units that are receiving subsidies.
    HUD Response: This final rule clarifies that the use of PBV 
assistance in mixed-finance projects that are not classified as 
ineligible housing is authorized. Section 983.54 discusses prohibited 
types of housing under the project-based voucher program. Since the 
type of units the commenter mentions is not listed, the unit type is 
not an ineligible housing type.
    Comment: Two commenters stated that Sec.  983.54(a), for 
clarification, should add the word ``unit'' after ``public housing.''
    HUD Response: The comment is accepted. The final rule is revised to 
include this clarification and also to specify that the unit is a 
``dwelling unit.''
    Comment: A commenter stated that an exception to the general rule 
should be made for holders of enhanced vouchers who received those 
vouchers when a mortgage on an older, assisted 236 project, which may 
have had a high tenant rent contribution, was prepaid. PHAs should have 
the flexibility to replace these enhanced vouchers with PBVs to reduce 
these tenants' rent contribution to 30 percent of adjusted income.
    HUD Response: The comment relates to an issue that is beyond the 
scope of this rule. Section 8(t) of the United States Housing Act of 
1937 explicitly limits enhanced voucher assistance to tenant-based 
assistance under section 8(o) of the Act.
    Comment: One commenter stated that proposed Sec.  983.54(a), 
barring a PHA from attaching project-based assistance to ``public 
housing units,'' is a carry-over of current Sec.  983.7(c)(1) that 
predates the QHWRA. In QHWRA, Congress authorized PHAs to provide 
capital funds only and changed the definition of public housing to 
include units in a mixed-finance project that receive capital or 
operating assistance. Section 983.7(c)(1) was intended to bar project-
based assistance from being attached to units that were receiving 
operating assistance. It was not intended to bar using project-based 
assistance with units that were constructed or rehabilitated with 
capital funds under the 1937 Act. HUD should clarify that Sec.  
983.54(a) and the last sentence of Sec.  983.54(e) apply only to public 
housing units receiving operating subsidies under section 9(e) of the 
1937 Act, 42 U.S.C. 1437(g)(e). Two other commenters agreed, stating 
that the rule should clarify that project-based assistance can be used 
with HOPE VI or capital funds.
    HUD Response: HUD has considered these comments with the result 
that this final rule retains the proposed rule language, but clarifies 
when project-based voucher assistance may be combined with HOPE VI 
funds. The Department believes that Congress' adoption of disparate or 
parallel statutory provisions for the public housing and voucher 
programs affirms that the public housing and voucher programs are 
intended to operate as separate, and mutually exclusive, subsidy 
systems under the U.S. Housing Act of 1937. It is impermissible to 
combine voucher funds with public housing funds. For HOPE VI funds that 
predate FY 2000, it is generally permissible to combine these funds in 
accordance with the terms of the relevant HOPE VI appropriations act if 
the HOPE VI funds were not used to develop or operate public housing 
units. It is not permissible in any case to combine PBV and HOPE VI 
funds appropriated on and after FY 2000 (Section 24 funds), because 
Section 24 funds are public housing funds. If Capital Funds or Section 
24 funds are used in the development of affordable housing, pro-ration 
must occur. For example, if a project receives $2,000 in HOPE VI funds 
and $1,000 in Capital Funds and there are 60 units in the development, 
20 of the units (one-third) are being funded with capital funds and, 
therefore, cannot be combined with project-based vouchers. Provided 
that the remaining 40 units (two-thirds) are not receiving any public 
housing funds, the units may be assisted under the PBV program.
    Comment: One commenter asked that HUD not make projects that 
receive ``operating support'' ineligible for PBV. ``Sometimes projects 
need additional operating cash flows due to unexpected increases in 
operating costs and expenses.'' Another commenter stated that, as part 
of a plan to end long-term homelessness, ``we urge that the rule be 
amended to permit replacement of temporary subsidy with PBVs, or to 
clarify that such replacement is permissible.'' This commenter also 
stated that there may be situations, especially in supportive housing, 
where operating cost subsidy is required, despite rent subsidy, to 
ensure affordable rents and achieve project rent payment standards. 
This commenter suggested that HUD delete Sec.  983.54(d) or revise it 
to permit operating subsidy where other governmental operating cost 
subsidy is required and demonstrated through the subsidy layering 
review to be necessary to the project. This commenter recommended that 
a new Sec.  983.54(m) be added to read:
    ``For purposes of paragraphs (c), (d), and (l), rental or operating 
costs subsidies intended to terminate upon implementation of a HAP 
contract shall not be considered ``governmental rent subsidy,'' 
``governmental subsidy,'' or ``housing subsidy.''
    HUD Response: HUD considered these comments, but did not adopt 
them. With respect to the public housing program, it is statutorily 
impermissible to combine Public Housing Operating funds with PBV funds. 
Supportive housing programs that receive operating funds are also 
ineligible under the PBV program since rent is generally included as an 
operating expense.
    Comment: A number of commenters objected to Sec.  983.55, which 
requires a subsidy layering review to be conducted by HUD or an 
approved entity before a PHA may enter into a HAP contract. Commenters 
objected both to the overall requirement of a subsidy layering review 
and to the conduct of the review by HUD.
    One commenter stated that subsidy layering should not be required 
as rent caps and other guidance should suffice. If subsidy layering is 
to be required, the rule should be amended to allow the PHA to conduct 
the review and receive just compensation. One commenter stated that 
there should be an exception for projects that provide extensive 
support services, such as projects that serve the homeless. Another 
commenter stated that if the PHA determines that there is no other 
government subsidy involved, no subsidy layering review should be 
required. Another commenter stated that the rule should permit 
additional governmental subsidy when necessary for the success of the 
project. One commenter questioned whether subsidy layering analysis 
applies to every application that shows public capital investments in 
the form of loans or grants, and stated that such an analysis should 
not be required where the bulk of public financing is through loans and 
there is no tax-credit financing.
    HUD Response: Because prevention of excessive subsidy is 
statutorily required, this final rule retains the requirement for 
subsidy layering reviews.
    Comment: One commenter stated that HUD should not be involved in 
subsidy

[[Page 59902]]

layering reviews. Other commenters stated that section 911 of the 
Housing and Community Development Act of 1992 (42 U.S.C. 3545 note) 
requires that, where low-income housing tax credits are involved, the 
state tax credit allocating agency must do the review. Still another 
commenter stated that while use of PBV must be consistent with subsidy 
layering, the rule ``could be misconstrued to create additional 
bureaucratic barriers'' and that the rule should clarify that it does 
not supersede authority of Housing Credit Agencies (HCAs) and Housing 
Finance Agencies (HFAs) to conduct the review when they are involved 
because of tax credits. When there is such an agency already involved, 
HUD should not have to determine individually whether it is an 
appropriate independent agency to do the review. Two commenters stated 
that a subsidy layering review for this program should not be required 
when another office or agency is authorized to perform a subsidy 
layering review or has recently performed such a review in connection 
with other assistance. One commenter stated that the rule should 
clarify what are approved entities and what entities may conduct a 
layering review. This should include entities already approved or 
required to perform such reviews in HUD programs.
    HUD Response: The issue of entities that can perform subsidy 
layering reviews is addressed in statute and guidance published as 
Federal Register notices, and, hence, is not appropriate for treatment 
in this rule. Pursuant to Section 911 of the Housing and Community 
Development Act of 1992, as amended, 42 U.S.C. 3545 note, HUD has 
issued guidelines in the form of Federal Register notices on February 
25, 1994 (59 FR 9332), and December 15, 1994 (59 FR 64748). Under these 
notices, the Office of Public and Indian Housing performs subsidy 
layering reviews for programs under its jurisdiction with input from 
field offices. HUD may invite HCAs to perform subsidy layering reviews 
in connection with projects receiving low-income housing tax credits, 
by publishing a Federal Register notice along with the guidelines that 
HCAs must follow in conducting subsidy layering reviews. PIH may 
publish revised guidelines as a Federal Register notice in the near 
future.
    Comment: A number of commenters commented on the Family Self-
Sufficiency (FSS) program exemption to the 25 percent cap on project-
basing, with most commenters stating that the exemption is too narrowly 
limited to statutory FSS programs under section 23 of the 1937 Act, 42 
U.S.C. 1437u. Many commenters expressed the view that there should be a 
broader definition of services that qualify for the exemption to the 
cap. Commenters stated that ``other tools are available than FSS, such 
as local self-sufficiency programs * * *,'' and that a broader 
definition of qualifying services is a better alternative than the FSS 
program alone. Some of these commenters cited specific local programs 
as ones that should qualify for the exception to the cap. Along these 
lines, three commenters suggested that the term ``families receiving 
supportive services'' be defined as ``families receiving services 
essential for maintaining or achieving independent living, such as, but 
not limited to, counseling, education, job training, health care, 
mental health services, alcohol or other substance abuse services, 
child care services, or service coordination and case management 
services.'' One commenter stated, in addition, that HUD should remove 
Sec.  983.56(b)(2)(ii) and replace it with the phrase ``Families 
receiving supportive services.'' Another commenter stated that the 
limitation of supportive services to the FSS program is arbitrary and 
impractical. First, families in self-sufficiency programs other than 
FSS in many cases receive services that are as comprehensive or more 
comprehensive than FSS. Second, funding for FSS coordinators has been 
shrinking in real terms in recent years. One commenter stated that ``* 
* * service programs run by many of the faith-based organizations we 
are partnering with would not qualify for this exception.'' Two 
commenters stated that it is inconsistent with statute to limit 
``families receiving supportive services'' to ``FSS families,'' because 
the statute refers to the broader concept of ``supportive services.''
    HUD Response: HUD has considered these comments and adopted the 
suggestion to allow for services other than those services associated 
with the statutory FSS program under 42 U.S.C. 1437u. Under the Final 
Rule, PHAs are authorized to establish the type of services and the 
extent to which services will be provided to allow exceptions to the 25 
percent limit. PHAs must state in their administrative plans what these 
services are. The final rule also clarifies that PHAs are responsible 
for determining that units are made available to families that are 
receiving the services in order for the unit to be and to remain 
excepted from the cap (see Sec.  983.56(b)(2)(ii)(C)) and ensuring that 
assistance is terminated if families living in exempted units fail 
without good cause to complete their FSS or supportive services 
obligation.
    Comment: One commenter stated that the narrow definition of social 
services that qualify for the exception to the cap ``will exclude many 
chronically homeless individuals and families--who may neither 
participate in the FSS program nor qualify as `disabled' under the 
Section 8 statute due to a primary diagnosis of alcoholism or substance 
abuse. Such a result would be clearly contrary to the Administration's 
commitment to prioritize this vulnerable population within all HUD 
programs.''
    HUD Response: See response above.
    Comment: Two commenters stated that HUD should provide more 
flexibility with respect to the FSS exception to the 25 percent cap on 
project basing and make clear that the PHA can make its own 
determination what constitutes adequate supportive services.
    HUD Response: See response above.
    Comment: Two commenters stated that the proposed rule improperly 
imposes a work requirement by allowing PHAs to terminate assistance to 
a family not in compliance with its FSS contract of participation. 
``The statute is silent about any such condition of continued 
occupancy.''
    HUD Response: Since the family is receiving PBV assistance for a 
unit outside the statutory 25 percent cap because of its participation 
in supportive services, the family necessarily loses that right if it 
fails with respect to its FSS contract or its supportive services 
program. Therefore, this final rule provides that assistance to such a 
family can be terminated. However, as long as the unit continues to be 
made available to qualifying families, the unit can continue to receive 
assistance and benefit another family participating in supportive 
services.
    Comment: A number of commenters stated that other forms of project-
based subsidy should not count toward the 25 percent limit, because the 
statute applies only the 25 percent limit to project-based vouchers. 
Other commenters stated that this limitation would impede the 
preservation of affordable housing and constrain the development of 
supportive housing units. Two commenters stated that if HUD continues 
to include ``other federal project-based assistance'' as counting 
against the 25 percent cap on assisted units, the rule should make it 
clear that the term does not include units receiving only mortgage or 
production subsidies (such as Sec.  236, Sec.  221(d)(3), LIHTCs, or 
HOME funds).
    HUD Response: HUD has considered these comments and adopts them in 
this

[[Page 59903]]

final rule. This final rule limits the number of project-based units in 
a building to 25 percent of the total units in the building and not to 
25 percent of the unassisted units.
    Comment: One commenter stated that limiting the size of a 
multifamily building to no more than a specified number of units is 
another alternative to the 25 percent cap.
    HUD Response: The 25 percent cap is provided for by a clear and 
unambiguous statute, 42 U.S.C. 1437f(o)(13)(D)(i), and cannot be 
changed by this rule.
    Comment: Two commenters stated that they support the exception to 
the 25 percent per building cap on project-based units for elderly and 
disabled families. One commenter stated that ``we would encourage HUD 
to also provide an exception to developments for units that provide 
families with service-enhanced housing which includes families who were 
previously homeless.'' Another commenter similarly stated that ``We 
suggest including in the list of examples of ``excepted units'' housing 
developments created through HUD's initiatives to provide permanent 
supportive housing to address the needs of chronically homeless 
individuals.''
    HUD Response: HUD has considered these comments, but has not 
adopted them. The statute explicitly provides for certain exceptions to 
the limitation on the number of dwelling units that may be assisted in 
any one building. The commenters' suggestion is not included in the 
statutorily permissible exceptions because inclusion of the type of 
developments suggested would expand the exceptions allowed under the 
law. Nonetheless, the final rule expands the definition of supportive 
services to include services other than those under the FSS program.
    Comment: Two commenters stated that if HUD follows the 
recommendation to expand the definition of ``supportive services'' that 
qualify for the exception to the 25 percent cap on project-based units 
in a building, the rule should make it clear that when an owner has 
entered into a contract with a public agency other than a PHA to 
provide supportive services, it is that public agency which has the 
primary responsibility for monitoring the delivery of those services. 
As with the competition for project-based vouchers in Sec.  
983.51(b)(2), the rule should permit PHAs to rely on the established 
selection procedures and monitoring expertise of other agencies.
    HUD Response: HUD has considered this comment, but is not adopting 
it. Under the Project-Based Voucher program, HUD's contractual 
relationship is with public housing agencies. The Department can 
neither impose nor enforce requirements on entities with which the 
Department has no legally enforceable agreement.
    Comment: One commenter suggested that the rule add additional 
language to three sections. The additions are as follows:
    A new Sec.  983.56(b)(4): ``(4) Monitoring of supportive services. 
(i) The PHA may determine that the monitoring and reporting 
requirements specified in Sec.  983.203(d)(ii) and certified by the 
owner in Sec.  983.209(b)(i) suffice to establish the units as 
``excepted units'' for purposes of this section.
    ``(ii) Where the owner has not entered into contracts with public 
agencies to deliver supportive services or where the PHA has reasonably 
determined that the monitoring and reporting requirements specified in 
Sec.  983.203(d)(ii) and certified by the owner in Sec.  983.209(b)(i) 
do not suffice to establish units as `excepted units' for purposes of 
Sec.  983.56(b)(2)(B), the PHA may require the owner to submit such 
documentation as is reasonably required to establish the units as 
excepted units for purposes of this section.''
    New Sec. Sec.  983.283(d)(i) and (ii), to be added at the end 
(before the semicolon) of Sec.  983.203(d): ``including (i) the public 
agencies other than the PHA, if any, with whom the owner and/or its 
affiliates and/or its subcontractors intends to contract to provide 
funding for or direct supportive services for any units receiving PBV 
assistance; and (ii) a description of the monitoring and reporting 
requirements regarding the delivery and efficacy of the supportive 
services under any contracts identified under (i).''
    The following, to be added at the end (before the period) of Sec.  
983.209(b): ``* * * and the owner and/or its affiliates and/or its 
subcontractors are in compliance with any existing contracts with 
public agencies to provide funding for or direct supportive services 
for any units receiving PBV assistance.''
    HUD Response: HUD has considered these comments and has determined 
that, because of the variety of local circumstances and supportive 
services that may be provided, it is preferable for PHAs, which know 
the local area and the needs of residents, to administer the details of 
this aspect of the statute and regulations.
    Comment: The site selection standards in proposed Sec.  983.57 
would require that project-based assistance ``be consistent with the 
goal of expanding housing opportunities'' and that projects using PBV 
be sited to ``promote greater choice of housing opportunities and avoid 
undue concentration of assisted persons in areas containing a high 
proportion of low-income persons.'' One commenter stated that this 
standard would prevent affordable housing from being developed in areas 
previously dominated by urban blight, thus attracting residents. 
Properties outside areas with a high concentration of low-income 
persons are mostly unaffordable or unwilling to accept government 
subsidy. Conversely, another commenter stated an objection to the 
proposed rule's elimination of any standard for deconcentration and 
expansion of housing and economic opportunity, and suggested that HUD 
adopt an alternative standard, based on waiver requests, that allows 
PBV units in mixed-income projects and neighborhoods undergoing 
``gentrification'' while ensuring that the PHA also creates PBV units 
in non-poor neighborhoods. Another commenter stated that the rule 
should allow projects to be sited in areas of poverty concentration 
where it would allow access to supportive services. ``It is the 
supportive services that will ultimately help lift a family out of 
poverty rather than the location of the housing outside an area of 
concentrated poverty.''
    HUD Response: The requirement that project-based voucher contracts 
be consistent with the goal of deconcentrating poverty and expanding 
housing and economic opportunities is a clear statutory mandate and, 
therefore, cannot be changed as suggested by these commenters. In 
addition, these are factors under SEMAP scoring. This final rule 
provides guidelines that PHAs must consider in selecting project-based 
voucher proposals to ensure that, in selecting projects under the 
program, the statutory goal of deconcentrating poverty and expanding 
housing and economic opportunities is satisfied.
    Comment: Two commenters questioned whether the site and 
neighborhood standards in proposed Sec.  983.57(d) should apply to the 
PBV program. Four commenters stated that some of the site and 
neighborhood standards do not seem meant to apply to existing 
buildings. One commenter stated that the PHA should determine whether 
in the context of its affordable housing goals it makes sense to 
provide PBVs to the project. Also, the rule should be clearer on 
whether the PHA or HUD makes the determination that site and 
neighborhood standards are met. Two commenters stated that the PHA 
should make the determination. One commenter stated that the proposed 
rule is unclear about the process for satisfying site and neighborhood

[[Page 59904]]

standards, and that units may be lost because landlords in low poverty 
areas will not wait to rent their units on the private market while a 
review process is underway.
    HUD Response: HUD has considered the comments, but does not adopt 
them. The standard for existing housing is reasonable and not as 
stringent as the standard for New Construction. The requirements of 
proposed Sec.  983.57(d) (Sec.  983.58(d) of this final rule) are 
applicable to existing housing under the PBV program. The rule details 
the requirements that must be considered in determining whether site 
and neighborhood standards are satisfied.
    Comment: Several commenters questioned proposed Sec.  983.58 on 
environmental reviews. Commenters stated that environmental review 
requirements should not apply to existing units because actions such as 
demolition, rehabilitation, and construction are not taking place. A 
commenter stated that properties for which an environmental review was 
previously done under another program should be exempt from 
environmental reviews in the PBV program. Another commenter stated that 
the section is overbroad as drafted, because it appears to prohibit PBV 
contracts being executed with owners who have purchased properties 
prior to HUD completing its environmental review. A commenter stated 
that where a PBV contract is for existing units and will have an 
initial HAP term of 5 years or less, parts 50 and 58 should not apply. 
A commenter stated that ``to apply these requirements to existing 
public accommodations will make it even more difficult for landlords in 
strong markets to participate in the Special Mobility Program * * *.'' 
Moreover, the delays in waiting for approvals will result in lost 
units.
    HUD Response: Existing housing as used in the PBV regulation is 
normally categorically excluded from the requirements for an 
environmental assessment and finding of no significant impact under the 
National Environmental Policy Act (NEPA). However, existing housing is 
subject to the applicable federal environmental laws and authorities 
listed at 24 CFR 58.5.
    The responsible entity will conduct the environmental review in 
accordance with 24 CFR part 58 (or HUD will complete an environmental 
review under 24 CFR part 50 where HUD has determined to do the 
environmental review). In the case of existing housing that is reviewed 
under part 58, the responsible entity must determine whether or not PBV 
assistance is categorically excluded from review under NEPA and whether 
or not the assistance is subject to review under the laws and 
authorities listed in 24 CFR 58.5.
    Assistance to a project previously approved under another HUD 
program for which an environmental review was completed under 24 CFR 
part 58 is considered supplemental assistance and is categorically 
excluded and not subject to further review under the related laws in 24 
CFR 58.5, if the approval is made by the same responsible entity that 
conducted the environmental review on the original project and re-
evaluation of the environmental findings is not required under 24 CFR 
58.47. This exemption is limited to contracts for the same units that 
previously had an environmental review completed under part 58.
    In accordance with the NEPA and the Council on Environmental 
Quality's implementing regulations, the Department does place 
limitations on actions before completion of the environmental review. 
The final rule is clear at Sec.  983.58(d) that the PHA may not enter 
an Agreement or a HAP contract with an owner, and its contractors may 
not acquire, rehabilitate, convert, lease, repair, dispose of, 
demolish, or construct real property or commit or expend program or 
local funds for PBV activities under part 983, until an environmental 
review is complete. However, there is no intent to prohibit an owner 
from acquiring a property before the owner enters the PHA's property 
selection process under the PBV program.
    Comment: A commenter stated that in proposed Sec.  983.59 and 
elsewhere, there are provisions regarding the selection of PHA-owned 
units that are problematic, because the rule establishes up-front 
procedural hurdles that could be addressed in a less burdensome way by 
monitoring PHA performance. For example, initial rents must be based on 
an appraisal by a licensed and certified appraiser. Also, HUD has to 
approve in advance an independent entity that will perform rent 
reasonableness and housing quality standards (HQS) determinations. 
Another commenter stated that the PHA should be allowed to attach PBVs 
to PHA-owned units without a request for proposals or review by another 
entity. Similarly, a commenter stated it supported removing the 
requirement for independent appraisal of PHA-owned units, and stated 
that PHAs should have the option of allowing an owner to submit an 
independent appraisal of the requested rents as part of the project 
selection process.
    Similarly, a commenter stated that ``in a variety of ways, the 
proposed rule makes it extremely difficult for PHAs to expand the 
supply of publicly-owned affordable housing through use of project-
based vouchers.'' This commenter cites language primarily from the 
proposed Sec.  983.59, as well as from proposed language concerning the 
competitive selection of units. A commenter stated that ``* * * the 
best way to protect tenants and the public is not through front-end 
procedural barriers * * * but rather through subsequent monitoring of 
the outcomes. PHAs * * * should be trusted to comply with the law 
unless they are shown to have violated the trust.'' This commenter 
suggested changes to Sec. Sec.  983.51(e) and 983.59. The change to 
983.51(e) would exempt units owned by the PHA from the review of the 
selection process, and would provide that the ``selection of PHA-owned 
units will be deemed approved by the HUD field office if the field 
office fails to act within 30 days of receipt of the required 
information concerning the selection process.'' The changes to Sec.  
983.59 would be to permit agencies of local government (in cases where 
the PHA is not part of the local government) to determine rent 
reasonableness and HQS compliance without HUD approval, and to permit 
PHAs to select an independent entity other than a unit of local 
government to perform the same function, also without HUD approval.
    HUD Response: HUD has considered these comments, but does not adopt 
them. The proposed regulation governing PHA-owned units is not intended 
to reject the use of performance standards nor to impose a more 
administratively burdensome process than necessary, but rather to 
protect, to the extent possible, taxpayer dollars by ensuring that such 
dollars are appropriated fairly and without undue influence and 
favoritism. It should also be noted that the law requires that an 
independent agency inspect units and determine the reasonableness of 
rents in the case of PHA-owned housing under the tenant-based program. 
The law establishes these same requirements for the project-based 
component of the voucher program.

Subpart C (Sec. Sec.  983.101-983.103)

    Comment: Proposed Sec.  983.101 requires units to comply with HQS 
and lead-based paint regulations at 24 CFR part 35. A commenter stated, 
as to proposed Sec.  983.101(c), that lead paint requirements at 24 CFR 
part 35, particularly at 24 CFR 35.720(c) and 35.730, which involve 
reporting by local health officials, could be problematic in

[[Page 59905]]

the PBV program. This commenter stated that the rule should be revised 
to require PHAs to give the local health department the addresses of 
all PBV units, and to require the PHA to notify each unit owner of 
their obligations. Also, unit owners need to be informed of their 
obligation to verify with the health department when they learn the 
information (about elevated lead levels) from a source other than local 
health officials.
    HUD Response: These comments relate to matters beyond the scope of 
this rulemaking. Since the proposed rule did not involve the lead paint 
regulations, those regulations were not made available for public 
comment. A separate public rulemaking procedure would be required to 
address lead paint issues.
    Comment: One commenter stated that HUD needs to define what 
qualifies as a unit generally complying with HQS. Two commenters stated 
that instead of requiring PHAs to inspect all units for HQS compliance 
prior to unit selection and again prior to HAP execution, the rule 
should give PHAs discretion to do only one inspection. One commenter 
also stated that if a project has a Real Estate Assessment Center 
(REAC) score higher than 60, it should not be necessary to do an 
inspection after each turnover. One commenter stated that it is unclear 
what steps a PHA must take to ensure that existing units comply with 
Sec.  504 of the Rehabilitation Act of 1973 and the Fair Housing Act. 
One commenter stated that the requirement for inspection of a sample of 
units at least annually seems to conflict with the SEMAP requirement of 
inspecting each unit under contract at least annually.
    HUD Response: HUD disagrees with the comments relating to a 
definition of general compliance with HQS, and with the comment 
relating to Public Housing Assessment System (PHAS) scores. Only in the 
case of selecting existing units, and for the purpose of defining them 
as existing units, must the PHA ensure that all of the units 
substantially comply with HQS. HUD has elected not to define what 
qualifies as a unit substantially complying with HQS since the units 
must comply fully with HQS prior to HAP execution. The law also 
requires that units be inspected for compliance with HQS, regardless of 
PHAS score. Furthermore, compliance of existing units under Section 504 
of the Rehabilitation Act of 1973 and the Fair Housing Act is defined 
in 24 CFR Section 8 subpart C. HUD agrees with the comment regarding 
SEMAP. SEMAP scoring for inspections will be adjusted to remove all PBV 
units as reflected in the Public Housing Information Center (PIC) from 
the annual inspection indicator.
    Comment: Proposed Sec.  983.103(d) requires an annual inspection of 
a random sample of 20 percent of all PBV units in each building of a 
project. Some commenters stated that inspections should be of a random 
sample of units in a project, rather than units in a building. One 
commenter stated that the section should be revised to require 
inspection of at least two units or 20 percent of the units, whichever 
is more. Alternatively, this section should restrict the random sample 
method to multifamily buildings. An inspection of only one unit in a 
small building does not provide enough of a sample. One commenter 
supported this section as proposed.
    HUD Response: HUD considered the comments regarding random 
inspections of a project rather than a building, but is not adopting 
them. The statute requires annual compliance with inspection 
requirements except that the agency shall not be required to make 
annual inspections of each assisted unit in the development. HUD 
believes that the sample should be drawn on a building basis in order 
to get a good cross-section of the condition of the units in a project. 
HUD has interpreted the law by requiring at least 20 percent of the 
units in a building be inspected annually. A development or project 
could consist of several buildings and a random sample of the project 
or development would not necessarily ensure an inspection in each 
building. In response to the issue of sample size, HUD believes that 
the inspection of at least one unit in buildings where five or fewer 
PBV units are located is, due to the small number of units involved, an 
adequate sample.

Subpart D--Requirements for Rehabilitated and Newly Constructed Units 
(Sec. Sec.  983.151-983.156)

    Comment: Proposed Sec.  983.152(c)(1)(ii) requires that the 
location of contract units be described in the agreement to enter into 
a HAP contract. One commenter stated that because units can float, it 
seeks confirmation that this provision requires identification of the 
building, not the exact unit.
    HUD Response: The ``location of the contract units on site'' does 
refer to the location of the contract units in a building in which PBV 
units will be located and must be described in the HAP contract. 
Floating units are addressed in Sec.  983.206.
    Comment: Proposed Sec. Sec.  983.153(a) and 983.55 require a 
subsidy layering review prior to execution of the Agreement by the 
owner and the PHA. Commenters stated that subsidy layering analysis 
should be done prior to the Agreement only when some kind of 
governmental assistance is being provided to the project. ``For 
instance, we do not think subsidy layering would apply where a PHA 
chose to use PBVs in a project that already has an FHA insured 
mortgage'' and no new assistance. A commenter stated that subsidy 
layering requirements should be clarified and explained with a ``clear 
road map'' so as not to ``chill'' PHAs and developers.
    HUD Response: The Final Rule retains the requirement for subsidy 
layering reviews because it is statutory. Section 102(d) of the 
Department of Housing and Urban Development Reform Act of 1989 
(codified at 42 U.S.C. 3545) requires that the Secretary certify that 
``assistance within the jurisdiction of the Department'' to any housing 
project shall not be more than is necessary to provide affordable 
housing after taking into account ``other government assistance.''
    Comment: Proposed Sec.  983.154(b)(3) requires the owner and the 
owner's contractors and subcontractors to comply with applicable 
federal labor standards, and requires the PHA to monitor that 
compliance. One commenter stated that the rule should allow PHAs to 
work with other agencies that have an interest in the project to 
monitor compliance with the Davis-Bacon Act.
    HUD Response: HUD considered this comment but did not adopt it 
because, although a PHA can subcontract any of its functions, the PHA 
is still ultimately responsible for monitoring to ensure that the owner 
and owner's contractors and subcontractors comply with applicable 
federal labor standards (see HUD handbook 1344.1, Federal Labor 
Standards Compliance in Housing and Community Development Programs).
    Comment: Two commenters stated that the conflict-of-interest 
provision in Sec.  983.154(e) is too vague and needs additional 
definition.
    HUD Response: The provisions of 24 CFR Section 982 subpart D apply 
to the project-based voucher program in accordance with Section 
983.2(a). Specifically, Section 982.161 details conflict of interest 
provisions.
    Comment: Proposed Sec.  983.155(a) states that the Agreement must 
state the completion deadline and that the owner must provide evidence 
of completion. Three commenters stated that the completion deadline 
should be between the owner and PHA, not HUD. If the project is not 
completed, the owner will not get the PBVs. HUD should leave the 
completion determinations to the PHA.

[[Page 59906]]

    HUD Response: HUD agrees with commenters that the completion 
deadline should be arranged between the owner and the PHA. Although HUD 
may specify additional documentation that must be submitted by the 
owner to evidence completion of the housing, the additional 
documentation must be submitted to the PHA, not to HUD.

Subpart E--Housing Assistance Payments Contract (Sec. Sec.  983.201-
983.209)

    Comment: One commenter stated that in the Special Mobility Program, 
landlords commit to a number of Section 8 units, but they may not know 
which specific units will be available. The requirement in proposed 
Sec.  983.203(c) to identify the location of each contract unit may be 
difficult to meet. This commenter stated that the rule should be 
modified to allow HQS inspection and HAP amendment to occur as units 
become available, with adjustments to lease terms as needed.
    HUD Response: The regulation as proposed resolves this issue, since 
it allows floating units. In Sec.  983.206(a), at the discretion of the 
PHA, the HAP contract may be amended to substitute a different unit 
with the same number of bedrooms in the same building for a previously 
covered contract unit. HQS and rent reasonableness must be determined 
for the new units. Section 983.206(b), allows for amendment of the 
contract within 3 years of initial execution to add additional units in 
a building. Leases and HAP contracts do not run concurrently as in the 
tenant-based program.
    Comment: A number of commenters disagreed with the provision for 
one-year extensions of HAP contracts in proposed Sec.  983.205(b). 
These commenters stated that the length of extensions should be up to 
the PHA, and should be for up to the length of the initial term. 
Commenters stated that the statute allows longer extensions, and that 
the one-year limitation violates the statute. One commenter suggested 
that Sec.  983.205(b) should be revised as follows:

    In the initial contract, the PHA and owner may agree that, 
subject to appropriations, they will extend the term of the HAP 
contract prior to its expiration for a duration agreed upon by the 
parties if the PHA determines an extension is appropriate to 
continue providing affordable housing for low-income families and 
the owner has complied with the contract during the initial term. 
Subsequent extensions are subject to the same limitations.

    Two commenters stated that annual extensions are too 
administratively burdensome. One commenter also stated that contractors 
need an assurance of a longer term. Some commenters stated that one-
year extensions could impede the ability of owners to obtain financing, 
and that the minimum extension should be five years. One commenter 
stated that the limitation increases the risk to investors who are 
risk-averse. Three commenters stated that the limitation may also 
interfere with using LIHTCs. One commenter also suggested that Sec.  
983.305(b) be revised to be extendable ``for up to an additional 10 
years.''
    One commenter stated that (as of the time of the comment) annual 
contributions contracts (ACCs) are only being extended for 3 months. 
This places the PHA in an awkward position to enter even into a one-
year HAP with an owner.
    HUD Response: HUD has considered all of the comments and agrees 
that renewal terms should be more than one year. Accordingly, PHAs will 
be allowed to approve extensions after the initial term on a five-year 
or shorter basis as determined by the PHA.
    Comment: Proposed Sec.  983.205(d) allows the owner to terminate a 
contract if the rent falls below the initial rent. In this case, 
families are given tenant-based assistance. A number of commenters 
disagreed with this provision.
    Five commenters stated that instead of allowing the owner to 
terminate the contract if rent falls below initial rent, as provided in 
proposed Sec.  983.205(d), the rule should not allow PHAs to reduce 
rents below initial rents. Two of these commenters stated also that the 
proposed rule is contrary to the statutory provision on rent adjustment 
and will discourage participation in the program. The statute delegates 
the determination of rent to PHA and owner, outside of HUD's rulemaking 
power. Two commenters stated that the initial guidance provided by HUD 
requires rent adjustments only at the request of owner, and that an 
arbitrary reduction in rent based on a change in payment standard can 
create financial stress for the property. One commenter stated that the 
rule should clarify whether, if the HAP contract is terminated under 
Sec.  983.205(d), the tenants are eligible to receive enhanced or 
regular vouchers. Two commenters stated that although the rule protects 
tenants if rents are reduced and the owner opts out, it may endanger 
the project because converting the assistance to tenant-based removes a 
unit and would limit the units available for the intended population 
and threaten the viability of the project. The rule should remove 
disincentives for the owner to participate and protect funders by 
modifying Sec.  983.301(a)(3) to provide that rents are redetermined at 
the request of the owner, and deleting Sec. Sec.  983.205(d) and 
983.302(c).
    HUD Response: HUD has considered all of the comments and has 
addressed changes to rent adjustments in Sec.  983.302. However, HUD 
believes that the law is very specific for setting rents and that HUD 
lacks the ability to limit rent reductions. Should the owner terminate 
the HAP contract in accordance with Sec.  983.205(d), families are 
eligible to receive the same regular (not enhanced) tenant-based 
vouchers for which they are eligible, at their request, after living in 
a project-based unit for 12 months.
    Comment: One commenter stated that the proposed rule provides that 
units do not float. PBV units should be permitted to float within a 
building or development so long as the PHA meets HUD requirements. This 
commenter suggests new language for 983.206(a):

    At the discretion of the PHA and subject to all PBV 
requirements, the HAP contract may permit PBV units to float within 
a building or development. The owner must maintain the same number 
of units and the same number of bedrooms. Prior to attaching PBV 
subsidy to a unit within a building or development, all PBV 
requirements must be met, including an inspection confirming that 
the unit meets HQS standards and a rent reasonableness 
determination.

    One commenter supported a provision to amend the HAP contract by 
allowing units to ``float.'' It should be made clear that this should 
only be done at turnover or where families lose assistance due to being 
over income to prevent displacement, and there should be safeguards 
against replacement of accessible units with non-accessible ones. One 
commenter stated that the rule should not require HAP contract 
amendments when, because of administrative burden, units are added or 
substituted. Another commenter stated that allowing units to be 
substituted ``is a great enhancement.'' However, the commenter stated 
that the restriction of substitutions to 3 years after HAP execution 
(Sec.  983.206(b)) should be removed, to allow the PHA to help an 
additional family in cases where the assistance drops to zero but the 
family prefers to stay in the unit and pay market rent.
    HUD Response: HUD believes the flexibility sought by the commenters 
already exists and therefore is not adopting the proposed change to 
Sec.  983.206(a). In Sec.  983.206(a), at the discretion of the PHA, 
the HAP contract may be amended to substitute a different unit with the 
same number of bedrooms in the same building for a

[[Page 59907]]

previously covered contract unit. Further restrictions regarding 
``floating'' units is not necessary since substituting units must be in 
compliance with all PBV requirements. HUD believes that units cannot be 
assisted without a contractual agreement obligating the assistance 
necessitating a revision to the HAP contract. Section 983.206(a) does 
not restrict the substitution of units to three years. The three-year 
limit applies only to adding new units to the original PBV contract.
    Comment: Proposed Sec.  983.206(c) states that even if contract 
units are placed under the HAP contract in stages commencing on 
different dates, there is a single annual anniversary for all contract 
units under the HAP contract. Five commenters stated that in order to 
protect against displacement and transition to lower-income families 
over time, HUD should change its position that there is a single 
anniversary date for all units under HAP contract within the full term 
of the contract. One of these commenters stated that some proposals may 
require a complex transition of units into the program over time. The 
PHA and owner should be able to structure the admission requirements in 
the PHA's administrative plan in a manner to best serve both current 
residents and those on the PHA waiting list.
    HUD Response: HUD does not accept that in order to protect against 
displacement and transition to lower-income families over time, HUD 
must change its position on a single anniversary date for all units 
under one HAP contract. The commenter did not elaborate on how the same 
anniversary date for all units under the same contract would displace 
and transition lower-income families. Once units are accepted into the 
program, they are placed under a HAP contract. Eligible current 
residents are given priority for admission in accordance with 
983.251(b).
    Comment: Proposed Sec.  983.209 requires the owner to certify to 
certain matters. Three commenters stated that the owner may not be able 
to certify that each unit receiving assistance is occupied by a family 
referred by the PHA because some families receiving assistance due to 
displacement provisions will not have been referred by the PHA.
    HUD Response: In response to these comments, HUD will clarify that 
only families referred by the PHA may be assisted. Section 983.251(b) 
protects in-place families by providing a priority for admission to the 
PBV program. However, these families must also be determined eligible 
by the PHA and referred to the owner by the PHA.
    Comment: One commenter stated that the prohibition on renting to 
the owner's relatives in proposed Sec.  983.209(e) should be subject to 
an exception when necessary to make a reasonable accommodation, as in 
current 24 CFR 982.306(d).
    HUD Response: The comment was not adopted. HUD intentionally 
differentiates in this case between the tenant-based voucher and 
project-based voucher programs. To allow an owner of a project-based 
voucher development to rent to close family relatives (whether disabled 
or not) creates a systematic incentive to owners to misuse the program. 
Persons requesting a reasonable accommodation in policies in order to 
effectively participate in the housing choice voucher program are not 
harmed by restricting the exception to renting to relatives to the 
tenant-based program.

Subpart F--Occupancy (Sec. Sec.  983.251-983.261)

    Comment: Proposed Sec.  983.251 regulates how families are selected 
for the PBV program. Commenters stated that the PHA and the owner 
should be able to structure the admission requirements to best serve 
both current residents and those on the waiting list. While generally 
supporting the anti-displacement provision (Sec.  983.251(b)(2)), the 
commenters stated that this provision should be revised in the final 
rule to allow discretion in providing current families with PBV 
assistance. A commenter also stated that owners and PHAs should be 
given the flexibility to lease units on a rolling basis in compliance 
with the PHA's waiting list policy. Owners should be able to contract 
for the maximum number of units needed to accommodate the greatest 
number of eligible households in a way that can be financially 
supported over time.
    HUD Response: HUD does not agree with these comments. Eligible in-
place families should not be penalized if units in the building are 
selected to receive project-based assistance. However, project-based 
assistance is limited to 25 percent of the units in a building which 
means that not all of the eligible families in the building can receive 
project-based voucher assistance. However, eligible in-place families 
must be given an absolute preference on the waiting list for units that 
become available.
    Comment: Regarding proposed 983.251(a)(1), one commenter stated 
that public housing families should have the choice to move to PBV 
units without having to put themselves on a separate Section 8 waiting 
list.
    HUD Response: The comment was not accepted because the statute 
governing the project-based voucher program requires that PHAs select 
families to receive project-based assistance from its waiting list.
    Comment: A number of commenters stated that they support protection 
for in-place families provided in Sec.  983.251(b). One of these 
commenters stated that this provision would help prevent families from 
becoming homeless. Another commenter stated that an eligible family 
should have a choice between a voucher or relocation benefits. Another 
commenter stated that eligibility should be determined at the HAP 
execution stage, so that a family could become eligible during 
construction, and that HUD should consider making the residency 
determination at the proposal acceptance stage. Since the units can 
float, any ineligible units can be switched at the time of execution of 
the HAP contract. This commenter also stated that HUD should disregard 
in-place families when assessing a PHA's compliance with income-
targeting requirements since these tenants are already in occupancy and 
constitute a continuing tenancy. Another commenter stated that it 
supports the minimizing displacement provision; however, because 
existing units will now be eligible for PBV, the ``inclusion of 
minimizing displacement should be available to the families of existing 
units selected for PBV.'' Another commenter, while expressing general 
support, also stated that some in-place families might not be 
appropriate for the project. For example, the in-place family may be a 
single individual and the project may be for chronically mentally ill 
homeless individuals. Another commenter stated that it supports 
approving existing housing with tenants in place. Otherwise, the supply 
of housing would be limited, and issues of preference usually get 
resolved on turnover. ``The benefits outweigh the slowing down of 
assistance to those on the waiting list.''
    HUD Response: The suggestion regarding a choice between a voucher 
and relocation benefits was not adopted. This is because relocating an 
in-place family in these circumstances would be inconsistent with HUD's 
policy to minimize displacement. An in-place family cannot otherwise be 
placed ahead of others on a PHA's waiting list unless a PHA develops 
such a preference. The comment regarding establishing eligibility at 
the time of HAP execution would not be consistent with HUD policy to 
minimize

[[Page 59908]]

displacement and protect in-place tenants. Providing such protection is 
appropriate only when a decision is made to provide PBV assistance. It 
is for this reason that HUD determined that an in-place family must be 
eligible on the proposal selection date. The suggestion involving 
choosing appropriate in-place families cannot be considered because it 
would be inconsistent with civil rights laws. Specifically, the PHA's 
administrative plan cannot provide for a selection preference for the 
program based on a specific disability.
    Comment: Two commenters stated that priority for in-place families 
for assistance needs to be balanced against the needs of the families 
on the waiting list, and suggests limiting the number of prioritized 
in-place families to 20 to 30 percent of the total. One commenter 
advocated ``allowing owners some discretion in determining which 
families are eligible for PBV assistance, consistent with 
administrative plan and waiting list policies.'' Another commenter 
stated that the section clarifying that PHAs must offer assistance to 
eligible in-place tenants who occupy proposed contract units will 
facilitate the use of PBVs to preserve existing housing. However, the 
rule should give PHAs the flexibility, between the time the Agreement 
and HAP are executed, to substitute new tenants as the in-place 
tenants. Also, PHAs should be allowed to select units with ineligible 
tenants and move the tenants to appropriate units. A commenter stated 
that the PHA should have flexibility to offer tenant-based vouchers to 
in-place families. Also, the rule should clarify whether in-place 
families have priority for the program or the particular project they 
occupy. A commenter stated that from a practical perspective, it will 
not ordinarily be necessary to use occupied units in partially assisted 
developments because of turnover. While there may be meritorious cases 
for using an occupied unit, a PHA could use this provision to steer 
assistance toward favored sites and tenants.
    HUD Response: The suggestion to provide priority for only 20 to 30 
percent of in-place families is contrary to HUD policy to minimize 
displacement. The law requires that PHAs determine eligibility of 
families under the project-based voucher program and PHA selection of 
families from the waiting list. The PHA must give in-place families 
that are eligible for assistance a selection preference to minimize 
displacement. When such families move out of the PBV unit, the unit 
will then become available for a waiting list family.
    Comment: Proposed Sec.  983.251(c) governs the selection of 
families from the PBV waiting list. One commenter stated that the rule 
should allow for preferences for persons with disabilities for units in 
which disabled individuals will be receiving specialized services if 
the persons are recognized by Congress as a protected class because of 
their disabilities. Placing preferences for these recognized classes 
would minimize the need for waivers. Another commenter stated that HUD, 
in supportive housing with ``wraparound services,'' should allow PHAs 
and owners to select the applicants who need the services and allow 
preferences based on eligibility for services offered at specific 
complexes. Another commenter stated that ``in some circumstances, 
supportive housing projects that serve people with disabilities that 
grant preference to applicants who are eligible for the supportive 
services offered may be entirely appropriate * * *''
    HUD Response: HUD agrees with the commenters. HUD is revising this 
final rule to allow a selection preference for disabled persons in need 
of the services offered at a particular PBV project.
    Comment: Proposed Sec.  983.251(c)(3) provides for project or 
building-specific waiting lists. Three commenters stated that they 
support project-specific waiting lists. One commenter stated that it 
supported selection criteria for individual projects. Two commenters 
stated that ``we applaud the proposed rule's clear statement that a PHA 
may maintain project-specific waiting lists, a policy that is essential 
for permanent supportive housing to operate efficiently.'' Another 
commenter stated that it supports separate waiting lists for PBV units.
    HUD Response: HUD agrees with the commenters. The rule gives PHAs 
the ability to establish project-specific waiting lists.
    Comment: Two commenters objected to the income-targeting provision 
in proposed Sec.  983.251(c)(6). One stated that the PBV program will 
create disincentives for PHAs because this section would require that 
75 percent of families be extremely low-income. This will result in 
higher assistance payments and fewer families being served. Another 
commenter stated that income targeting should be removed entirely. It 
is not in line with upcoming budget reductions and does not allow PHAs 
to make decisions on how to spend their funding.
    HUD Response: HUD has considered these comments but declines to 
adopt them for the following reason. Section 8(o)(13)(J) makes the 
statutory requirements governing income targeting applicable to the 
project-based voucher program. The income targeting requirements are 
program-wide requirements. PHAs need not apply the requirements on a 
project-by-project basis.
    Comment: Commenters stated that Sec.  983.251(c) should be revised 
to allow for preferences based on eligibility for supportive services 
being offered, while at the same time preserving, for persons with 
disabilities, the principle that participation in supportive services 
is voluntary. Two commenters agreed with preferences based on 
eligibility for supportive services and stated that the civil rights 
concepts embodied in Section 504 and part 982 regulations should be 
preserved in this rule.
    These commenters recommended an additional paragraph be added to 
proposed Sec.  983.251(c) providing that ``in appropriate circumstances 
to be determined by the PHA in its PHA plan * * * the PHA may adopt 
preferences on its project-specific lists for families who are eligible 
for the services to be offered in conjunction with an individual 
project, building, or set of units. However, the owner must permit 
occupancy by any qualified person with a disability who could benefit 
from the housing or services provided, regardless of the person's 
disability.''
    HUD Response: HUD agrees. The final rule allows a selection 
preference for disabled persons in need of the services offered at the 
PBV project.
    Comment: Proposed Sec.  983.251(c)(5) provides that ``the PHA may 
place families referred by the PBV owner on its PBV waiting list.'' One 
commenter stated that this section should clarify that the PHA may not 
provide owner-referred families with any admission rights not enjoyed 
by other families. Otherwise, the owners would become the gatekeepers 
for the PBV program. This, the commenter argued, would be 
inappropriate. Another commenter stated that this section and proposed 
Sec.  981.251(c)(3) (providing for separate project or building waiting 
lists) essentially negate (c)(1) (providing for selection from the PHA 
waiting list), and allow landlords to make referrals to a site-based 
list that can have its own preferences. This appears inconsistent with 
the statute and would allow individuals referred by the landlord to 
jump over the community-wide waiting list. Unlike public housing, there 
is no provision for civil rights monitoring of these lists. This 
commenter recommended certain revisions:
    In proposed Sec.  983.251(c)(3), strike the last sentence reading, 
``In either case, the waiting list may establish criteria or

[[Page 59909]]

preferences for occupancy of particular units.''
    Revise proposed Sec.  983.251(c)(5) to read, ``Subject to its 
waiting list policies and selection preferences specified in the PHA 
administrative plan, the PHA may place families referred by the PBV 
owner on its PBV waiting list.''
    HUD Response: HUD has considered these comments and believes that 
the commenters misunderstood HUD's intent. The PHA must administer its 
waiting list in accordance with its administrative plan that governs 
admission policies. The PHA may establish preferences for selecting 
families from its waiting list. The law governing the PBV program 
requires that families be selected from the PHA's waiting list and 
allows the PHA to place on its waiting list families referred by an 
owner. The statute further provides that a PHA may maintain a separate 
waiting list for a particular project.
    Comment: Proposed Sec.  983.251(c)(7) provides that in selecting 
families to occupy PBV units with special accessibility features for 
persons with disabilities, the PHA must first refer to the owner those 
families that require such features (see 24 CFR 8.26 and 100.202). A 
commenter stated that this section should also include material 
regarding the owner's duties in connection with families that require 
accessibility features.
    HUD Response: This commenter's suggestion was not adopted since a 
requirement to provide materials regarding owner's duties in connection 
with families that require accessibility features is beyond the scope 
of this rulemaking.
    Comment: A commenter stated that the waiting list system should 
allow owner referrals during times of under-utilization and PHA 
referrals to owners during times of over-utilization. Another commenter 
stated that the rule should remove the requirement to use the PHA's 
waiting list when the project serves homeless or special needs 
populations, as such populations are not well-served by using PHA 
waiting lists.
    HUD Response: The rule retains the proposed rule language. The 
statute requires that the PHA maintain waiting lists for project-based 
units. However, the PHA may use separate waiting lists for PBV units in 
individual projects or buildings or may use a single waiting list for 
the PHA's whole PBV program. PHAs may also give a selection preference 
for homeless individuals and homeless families.
    Comment: Commenters stated that there is nothing in the rule to 
cover tenants who become over-income. This commenter states that there 
should be a 6-month grace period as in the tenant-based program, citing 
Sec.  982.455 (which provides that the HAP contract terminates 180 days 
after the last housing assistance payment to the owner). Income changes 
may be temporary, or the family could relocate to a unit with higher 
gross rent for which they are eligible. One commenter states that a 
sentence should be added to proposed Sec.  983.259 that reads ``if a 
family is over-income, subsidy shall be suspended for six months.''
    HUD Response: HUD disagrees that there should be a 6-month grace 
period for families that no longer require housing assistance in a PBV 
unit. The provisions of Section 982.455 do not apply to the PBV 
program. If a unit is occupied by a family for which housing assistance 
is no longer required, the PHA has the option of removing this unit 
from the HAP contract or substituting the unit with a comparable unit 
in the building for occupancy by another eligible family in need rather 
than hold off on the use of the assistance for six months.
    Comment: Proposed Sec.  983.254(b) provides that if any contract 
units have been vacant for a period of 120 or more days since owner 
notice of vacancy, the PHA may give notice to the owner amending the 
HAP contract to reduce the number of contract units by subtracting the 
number of contract units (by number of bedrooms) that have been vacant 
for such a period. One commenter stated that HUD should clarify that 
this reduction is not the same as termination of the HAP, but merely an 
adjustment to the payment. In addition, HUD should make clear that the 
PHA would still have the duty to fully utilize its Section 8 funding in 
some manner, such as in the tenant-based program. The commenter based 
this argument on 42 U.S.C. 1439(a) and 42 U.S.C. 1437f(o)(K). One 
commenter stated that it should be more clearly stated that the PHA may 
not reduce the units under HAP contract if the units have been vacant 
120 days or more due to the PHA's failure to refer a sufficient number 
of families to owner.
    HUD Response: HUD has considered the comment, but is not adopting 
it for the following reasons. HUD believes that the regulation is clear 
upon scrutiny. A reduction in the number of units under the PBV HAP 
contract is not synonymous with termination of the HAP contract. 
Funding utilization is the responsibility of the PHA regardless of 
whether the vouchers are project-based or tenant-based. Since the owner 
can refer families to the PHA's waiting list for PBV, HUD disagrees 
that units should not be removed from the HAP contract if the units 
have been vacant 120 days or more due to the PHA's failure to refer a 
sufficient number of families to the owner. Additionally, subject to a 
PHA's policy on vacancy payments, an owner is not receiving subsidy on 
units that remain unoccupied and the PHA can remove such units from the 
HAP contract.
    Comment: Proposed Sec.  983.256(c)(3) states that the lease must 
state ``the term of the lease (initial term and any provision for 
renewal).'' One commenter stated that this section should be revised to 
require a renewal provision in the lease or tenancy addendum.
    HUD Response: The lease used in the PBV program is comparable to 
lease requirements in the tenant-based program. HUD does not require 
specific renewal provisions in the lease or tenancy addendum since this 
is a matter of local rental practice and is up to the owner.
    Comment: Proposed Sec.  983.257 states that ``Section 982.310 of 
this chapter applies with the exception that Sec.  982.310(d)(1)(iii) 
and (iv) does not apply to the PBV program. (In the PBV program, ``good 
cause'' does not include a business or economic reason or desire to use 
the unit for personal, family, or a non-residential rental purpose.)'' 
Two commenters stated that ``we do not understand why in the PBV 
program it would not be good cause to terminate a tenancy for business 
or economic reasons similar to the voucher program.''
    HUD Response: In the tenant-based program, each HAP contract is for 
a specific unit. In the project-based program, most HAP contracts will 
be for more than one unit. Since HAP contracts under the PBV program 
will be for multiple units, the owner cannot claim a business or 
economic reason to terminate a tenancy since the unit is obligated, 
under any HAP contract, to be an assisted unit for the term of the 
contract. The regulation provides, however, that if the owner 
terminates a lease without good cause, the unit must be removed from 
the housing assistance payments contract.
    Comment: Two commenters stated that HUD should use 24 CFR part 247 
(which applies to section 221(d)(3) and (d)(5) below market interest 
rate projects; projects under section 236 of the National Housing Act; 
and projects under section 202 of the Housing Act of 1959) as the rule 
for termination. Part 247 requires good cause for termination, and the 
proposed section does not. Under the proposal, an owner can in effect 
capriciously remove a tenant from the PBV program and force the tenant 
into the tenant-based program. One

[[Page 59910]]

commenter also stated that as an alternative, if HUD does not adopt the 
standard in 24 CFR part 247, HUD should add a clause in Sec.  983.256 
of this final rule that would require owners to offer lease renewal 
unless they have good cause to do otherwise. One commenter also stated 
that good cause should be required for termination of tenancy.
    HUD Response: The final rule clarifies provisions on lease 
termination in response to comments. As a general matter, 24 CFR 
982.310 (other than paragraphs (d)(1)(iii) and (iv)) applies and 
describes the events that constitute good cause for lease termination. 
Final Sec.  983.257(b) describes the owner's options upon lease 
expiration: To renew the lease; refuse to renew for ``good cause'' as 
defined; or refuse to renew without good cause, in which case the PHA 
would provide the family with a tenant-based voucher and remove the 
unit from the HAP contract. In this latter case, the unit would be 
removed from the PBV HAP contract. HUD believes that these changes 
clarify the issue.
    Comment: Proposed Sec.  983.259 provides that if the PHA determines 
that a family is occupying a wrong-size unit, the PHA must offer the 
family the opportunity to receive continued housing assistance in 
another unit. This assistance may be in the form of another Section 8 
project-based unit, tenant-based voucher assistance, or other 
comparable project-based or tenant-based assistance.
    Two commenters stated that wrong-size unit termination provision is 
unfair to the project when the fault is with the family and not the 
owner. The owner should be able to evict the family under these 
circumstances. The same should apply when the PHA offers the family 
other comparable assistance and the family fails to act on the offer.
    Referring to relocation from a wrong-size unit, a commenter stated 
that tenants should have more choice of the replacement assistance to 
be provided and the right to reject a unit for good cause, and that the 
rule should require the PHA to offer an appropriately sized affordable 
unit. Also, if an appropriate alternate unit is identified, the tenant 
should have an opportunity to reject the unit for good cause. This 
commenter asks that current Sec.  983.205(b), which provides many of 
these features, be retained in this rule.
    HUD Response: HUD considered but did not adopt these comments for 
the following reasons. Although the owner may evict a family in 
accordance with the lease, the PHA must terminate assistance for any 
unit occupied by an ineligible family once sufficient time is provided 
on a tenant-based voucher, or another form of comparable assistance is 
offered to the family and then refused. HUD disagrees that a family 
should have the right to reject the offer of another PBV or comparable 
unit for cause, as that would prolong the time until the unit could be 
made available to another needy family. However, the regulation in 
Section 983.259(c)(2) does not preclude the PHA from establishing a 
policy on unit offers when offering another form of continued housing 
assistance.
    Comment: Proposed Sec.  983.260 gives the family a right to move 
with tenant-based assistance after one year in the project-based unit. 
One commenter stated that the occupancy period before the option to 
move should be extended to two years, because many project-based 
programs have a supportive services option that goes beyond one year. 
In addition, other project-based units should be given as a moving 
option. Finally, the rule should include tenant protection so that 
tenants don't pay more rent than they would in the voucher program. 
Another commenter stated that this provision should be changed in the 
case of transitional supportive housing so that the tenant is 
encouraged to complete the tenant's services plan before moving. Also, 
the PHA should be able to substitute other comparable housing. Another 
commenter stated that it supported the option to move after 12 months, 
however, there should be stronger language requiring owners to fulfill 
their PBV commitments before issuing vouchers to families that wish to 
move, and the PHA must have sufficient funding to fill the vacated 
unit. One commenter stated that it supports the ability of a family to 
leave with a tenant-based voucher because it will be an incentive to 
participate in transitional housing programs.
    HUD Response: The right of tenants to move after one year is 
statutory and cannot be revised in the manner suggested. Transitional 
housing is not a factor because, as noted above, transitional housing 
often has requirements incompatible with this aspect of the PBV 
program, and hence is not eligible for assistance under this program.
    Comment: Three commenters stated that the provision allowing 
families to move after 12 months should be eliminated. It will 
complicate waiting lists, contradict PHA preferences, and restrict 
capacity for assistance. Owners may be reluctant to participate knowing 
they could lose their tenants in a year, and families could circumvent 
the tenant-based waiting list. It adversely impacts the PHA and allows 
applicants to jump the waiting list.
    HUD Response: Tenant mobility after 12 months is a statutory 
requirement and cannot be eliminated. However, when the family moves 
out of a unit with project-based assistance, the PHA is required to 
refer other families to the owner to be selected to occupy vacated 
units.
    Comment: Proposed Sec.  983.260(a) would have provided that ``if 
the family terminates the assisted lease before the end of one year, 
the family relinquishes the opportunity for continued tenant-based 
assistance.'' A commenter stated that there should be good cause 
exceptions allowing family to move within the first year.
    HUD Response: The comment is not adopted. The statute provides only 
for continued assistance under the tenant-based voucher program or 
other comparable assistance after the family has occupied the dwelling 
unit under a PBV HAP contract for 12 months. This final rule places 
this statement in a new Sec.  983.260(d).
    Comment: Commenters stated that, to follow Sec.  504 and HUD's ADA 
regulations and avoid unnecessary concentration and isolation of 
persons with disabilities, the rule should adopt project size limits 
for persons with disabilities similar to the 811 program Notice of 
Funding Availability (NOFA). These commenters suggested a new Sec.  
983.263 be added setting size limits for buildings serving disabled 
persons. Independent living projects would be capped at 24 PBV units 
serving persons with disabilities. Group homes serving persons with 
disabilities would be capped at six PBV units. The language would also 
include criteria for the HUD field office to grant exceptions to these 
limits.
    HUD Response: HUD disagrees with comments that would unduly 
restrict the PBV program by limiting the size of buildings or group 
homes occupied by persons with disabilities.
    Comment: Proposed Sec.  983.261(c) provides that a family residing 
in an excepted unit that no longer meets the criteria for a 
``qualifying family'' in connection with the 25 percent per building 
cap exception must vacate the unit within a reasonable period of time 
established by the PHA. Four commenters stated that the rule should 
also state that a family in an excepted unit (that is, a unit excepted 
from the 25 percent cap on project basing) not in compliance with its 
FSS obligations can be evicted.
    HUD Response: The law requires that excepted units must be made 
available to families that receive services. If the

[[Page 59911]]

family no longer qualifies for the excepted unit because it is in non-
compliance with its obligations to receive supportive services, the PHA 
may terminate assistance on that basis. (See final Sec.  983.261(c)). 
If a family at the time of initial tenancy is receiving, and while the 
resident of an excepted unit has received, FSS supportive services or 
any other supportive services as defined in the PHA administrative 
plan, and successfully completes the FSS contract of participation or 
the supportive services requirement, the unit continues to count as an 
excepted unit for as long as the family resides in the unit. (See final 
Sec.  983.261(d)).

Subpart G--Rent to Owner (Sec. Sec.  983.301-983.305)

    Comment: A commenter stated that ``we do not favor the proposed 
rent limits,'' that is, the higher of 110 percent FMR or the HUD-
approved exception rent. These limits are too restrictive, and will 
limit project basing to the lower end of the market and interfere with 
income mixing. Another commenter agreed and stated that while there are 
sharp reductions in payment standards due to budgetary concerns, FMRs 
are not falling. The program will not attract quality developers and 
favorable financing. Two commenters stated that the statute allows for 
a different payment standard, as well as a higher payment standard, as 
long as the rent reasonableness test is met. Two other commenters 
stated that they object to Sec.  983.301(b)(1) as unjustifiably 
eliminating flexibility to use a higher range of payment standard in 
particular cases. Such a rule will reduce the willingness of landlords 
to enter the program and thus have the opposite effect of encouraging 
PHAs to set higher payment standards across the board, potentially 
increasing overall costs. One of these commenters stated that 
Sec. Sec.  983.205(d) and 983.302(c) should be deleted, and Sec. Sec.  
983.301(a)(3) and 983.301(b) should be revised to read as follows (new 
material is in italics):
    Sec.  983.301(a)(3): The rent to owner is redetermined at the 
request of the owner and not more frequently than the annual contract 
anniversary in accordance with this section and Sec.  983.302.
    Sec.  983.301(b): ``Amount of rent to owner. Except for certain tax 
credit units as provided in paragraph (c) of this section, the rent to 
owner must not exceed the lowest of:
    (1) 110 percent of the fair market rent for the unit bedroom size 
minus any utility allowance;
    (2) The reasonable rent; or
    (3) The rent requested by the owner; except that the rent to owner 
never is required to be less than the initial approved rent to owner.
    Another commenter also stated that the rents should be required to 
be redetermined only at the request of the owner and that the 
requirement to annually redetermine rent be removed.
    HUD Response: The final rule provides that the rent to owner may be 
established in accordance with the statutory maximum. Thus, the final 
rule provides at Section 983.301(b):
    Amount of rent to owner. Except for certain tax credit units as 
provided in paragraph (c) of this section, the rent to owner must not 
exceed the lowest of:
    (1) An amount determined by the PHA, not to exceed 110 percent of 
the applicable fair market rent (or any exception payment standard 
approved by the Secretary) for the unit bedroom size minus any utility 
allowance;
    (2) The reasonable rent; or
    (3) The rent requested by the owner.
    Comment: One commenter stated that the rent provisions take away 
the PHA's flexibility to set rents by limiting the rents to the 
existing tenant-based payment standard. By statute, PHAs have authority 
to raise the rent to the higher of 110 percent of FMR or the PHA's 
payment standard. Two commenters stated that in economically robust 
areas the maximum rent of 110 percent of FMR is more appropriate, and 
rent reasonableness checks will keep a PHA from overpaying. Three other 
commenters made similar comments.
    HUD Response: The commenters' concerns have been addressed in the 
HUD response immediately above.
    Comment: One commenter stated that proposed Sec.  983.301(a)(3) 
should be rewritten to state: ``The rent to owner is determined at the 
request of the owner and not more frequently than the annual contract 
anniversary in accordance with this section and Sec.  983.302.''
    HUD Response: The final rule addresses the commenter's concern. It 
provides that the rent to owner shall be redetermined when the owner 
requests an increase in the rent to owner at the annual anniversary of 
the HAP contract or when there is a 5 percent decrease in the published 
FMR.
    Comment: Two commenters stated that limiting rents to the PHA 
payment standard means that if the payment standard is reduced, rents 
must be reduced. This provision of the rule seems contrary to the 
statutory provision on rent adjustments (8)(o)(13)(I)). If this 
provision remains it would likely discourage owner willingness to 
accept PBV contracts. In addition, lack of rent stability would make it 
hard to leverage additional financing.
    A number of commenters stated that Sec.  983.301(b) should state 
that the PHA may establish a separate payment standard for a PBV 
project.
    HUD Response: HUD agrees and is adopting an FMR-based standard as 
described in the above responses.
    Comment: Proposed Sec.  983.301(c) provides for a different rent-
to-owner calculation for certain LIHTC units. Three commenters stated 
that the higher rent for LIHTC units appears to apply only when there 
are LIHTC units not receiving PBV assistance. This appears to prohibit 
the higher tax credit rent for buildings that are 100 percent PBV. 
These commenters stated that for projects for the elderly, persons with 
disabilities, and families receiving supportive services, HUD should 
determine what the maximum tax credit rent would be and set the rent 
accordingly. One commenter stated that the rule runs counter to the 
Department's existing treatment of Section 8 assistance in conjunction 
with LIHTCs. As currently proposed, the rule would lead to 
concentration in qualified census tracts. Low-income families need 
services and those services must be supported by project rents. This 
commenter recommends that HUD adhere to its existing treatment of 
Section 8 assistance with LIHTCs in PIH notices 2003-32 and 2002-22.
    HUD Response: HUD has determined that it is inappropriate to allow 
owners to collect higher rents from voucher families than they are 
allowed to collect from tax credit families. HUD has determined that 
allowing higher rents would result in a duplicative subsidy. 
Accordingly, LIHTC projects under 24 CFR 983.304(c)(1)(v) will be 
treated in the same manner as Section 236 and Section 221(d)(3) below-
market interest rate (BMIR) projects. HUD believes that the rule text, 
as drafted, accurately reflects the language of Sec.  8(o)(13)(H) of 
the 1937 Act (42 U.S.C. 1437f(o)(13)(H)).
    Comment: One commenter stated that proposed Sec.  983.301(f)(2) 
(providing that the PHA may not apply different payment standard and 
utility allowance amounts in the project-based and tenant-based 
programs) is inconsistent with the statute.
    HUD Response: HUD considered the comment regarding utility 
allowance schedules, but is not adopting it. The final rule provides 
that the PHAs may not establish rents under the PBV program that differ 
from the PHAs' tenant-based payment standards. The statute governing 
the PBV program is silent on utility allowance schedules. Utility 
allowance schedules are

[[Page 59912]]

determined based on community rates and average consumption. It is 
therefore not necessary to establish separate utility allowance 
schedules for the PBV program.
    Comment: Proposed Sec.  983.302 provides for an annual 
redetermination of the rent to owner prior to the annual anniversary of 
the HAP contract. A number of commenters stated that Sec.  982.302(c) 
should be deleted from the rule because it is contrary to statute and 
would discourage owners, lenders, and investors from program 
participation. This section states that if the annual redetermination 
shows that the rent to the owner has decreased, the actual rent to the 
owner must be decreased regardless of whether the owner has requested 
an adjustment.
    HUD Response: HUD disagrees with the interpretation that the 
proposed Sec.  983.302(c) is contrary to the statute. HUD believes that 
any rent adjustments under the statute may not exceed the maximum 
permitted under the law (i.e., an amount determined by the PHA, not to 
exceed 110 percent of the applicable FMR (or any exception payment 
standard approved by the Secretary)) and that the statute does not 
limit adjustments to upward adjustments. Nonetheless, to accommodate 
the commenter's concerns, the final rule provides that upon an owners 
request for a rent adjustment or when there is a 5 percent or greater 
decrease in the published FMR, rents shall be redetermined.
    Comment: In proposed Sec.  983.301(c)(3) on LIHTC rents, the word 
``chargeable'' would be better than the word ``charged'' in the phrase 
``the `tax credit rent' is the rent charged for comparable units of the 
same bedroom size* * *'' HUD Response: The comment was considered but 
not adopted. The use of the word ``charged'' appropriately conveys the 
definition of tax credit rent that the owner is collecting for the 
unit.
    Comment: Proposed Sec.  983.303 provides that the rent to owner 
must not exceed the reasonable rent as determined by the PHA. Three 
commenters, while agreeing that rents are subject to the rent 
reasonableness test, stated that the rule establishes numerous times at 
which the PHA must determine rent reasonableness. This, the three 
commenters argued, is unduly burdensome and will inhibit participation 
in the program by lenders and investors. HUD should require only an 
annual determination, they argued. Another commenter stated that a rent 
comparability study should be conducted initially and then once every 5 
years, except where an upward rent adjustment is proposed. No statutory 
section requires annual redeterminations of rent during a contract 
unless rents are increased. One commenter stated that PHAs should be 
required only once a year to determine rent reasonableness and at the 
time a new PBV contract is executed. Another commenter stated that two 
comparables, rather than three, should be required. Another commenter 
stated that rent, once determined to be reasonable, should not be 
redetermined at no less than 3-year intervals. Another commenter stated 
that the requirement that rents be redetermined annually will result in 
reduced rent to the owner if the payment standard is reduced. This is 
contrary to section 8(o)(13)(I) of the 1937 Act, which delegates rent 
determinations to the PHA and to the owner. Furthermore, this provision 
will make it difficult to use PBV with HOME funds because it is 
inconsistent with HOME regulations.
    HUD Response: The final rule retains the requirements concerning 
rent reasonableness determinations. Section 8(o)(10)(A) of the United 
States Housing Act of 1937 requires that rents under the program be 
reasonable. The implication is that rents must be reasonable at all 
times. The circumstances under which a PHA is required to redetermine 
rent reasonableness under the PBV program are not overly burdensome. 
The final rule also retains the requirement that three comparables must 
be used. Three comparables, as opposed to two, will more accurately 
reflect market rental conditions.
    Comment: Proposed Sec.  983.304 provides that in the case of 
projects with HOME funds or other subsidies, the PBV rent may not 
exceed the rent permitted under the other subsidy program. Four 
commenters stated objections to this section. This section would appear 
to authorize PHAs to continue an ongoing subsidy layering review that 
would create uncertainty with respect to rent levels and discourage 
participation by private lenders and investors. Two commenters stated 
that an owner interested in preservation should be able to seek a 
waiver to allow a Section 236 subsidy in a partially assisted Section 8 
project to be allocated to the units with no Section 8 assistance. 
These commenters state that in Sec.  983.304(b)(2) the words 
``subsidized'' and ``(basic rent)'' should be deleted. One commenter 
stated that Sec.  983.304(d) lacks clarity and suggests a revision to 
Sec.  983.304(d)(the new material is in italics):

    ``At its discretion, a PHA may reduce the initial rent to owner 
to reflect the assumptions used in the award of other subsidy, 
including tax credit or tax exemption, grants, or other subsidized 
financing.''

    HUD Response: Rents at projects receiving other forms of subsidy 
(e.g. Section 236) combined with project-based voucher assistance are 
restricted to the rent restrictions of the applicable subsidized 
program. Thus, the PBV rent may not exceed the subsidized rent 
established under the procedures for other subsidized programs.

Subpart H--Payment to Owner

    Comment: Proposed Sec.  983.351(b) provides for monthly payments to 
the owner for each unit that complies with HQS and is leased to and 
occupied by an eligible family. Four commenters stated that this 
provision should also indicate that the PHA will include any vacancy 
payments that it has previously agreed to provide in its monthly 
assistance payment to the owner.
    HUD Response: HUD has considered this comment and is not adopting 
it. Section 983.351 is titled ``PHA payment to owner for occupied unit 
(emphasis added).'' Units for which an owner is receiving vacancy 
payments are not occupied and are discussed in Section 983.352.
    Comment: Proposed Sec.  983.352(b) provides for vacancy payments at 
the discretion of the PHA. One commenter stated that vacancy payments 
should be mandatory for all PHAs.
    HUD Reponse: The statute governing the PBV program requires that if 
the HAP contract allows for vacancy payments, that such payments may be 
made at a PHA's discretion.

Findings and Certifications

Executive Order 12866, 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 economically 
significant, as provided in section 3(f)(1) of the Order). Any changes 
made to the rule subsequent to its submission to OMB are identified in 
the docket file, which is available for public inspection between the 
hours of 8 a.m. and 5 p.m. in the Office of Regulations, Room 10276, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410.

Regulatory Flexibility Act

    The undersigned, in accordance with the Regulatory Flexibility Act 
(RFA) (5 U.S.C. 605(b)), has reviewed and

[[Page 59913]]

approved this rule, and in so doing certifies that this rule will not 
have a significant economic impact on a substantial number of small 
entities. This final rule is exclusively concerned with PHAs that 
administer tenant-based housing assistance under section 8 of the 
United States Housing Act of 1937. Specifically, the rule would give 
PHAs the option of project-basing up to 20 percent of their annual 
budget authority under the tenant-based program. Under the definition 
of ``Small governmental jurisdiction'' in section 601(5) of the RFA, 
the provisions of the RFA are applicable only to those few PHAs that 
are part of a political jurisdiction with a population of under 50,000 
persons. The number of entities potentially affected by this rule is 
therefore not substantial.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made at the proposed rule stage in accordance with HUD regulations 
at 24 CFR part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332). This Finding of No 
Significant Impact remains applicable and is available for public 
inspection between the hours of 8 a.m. and 5 p.m. weekdays in the 
Office of Regulations, Office of General Counsel, Room 10276, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410. Due to security measures at the HUD Headquarters 
building, please schedule an appointment to review the public comments 
by calling the Regulations Division at (202) 708-3055 (this is not a 
toll-free number).

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications and either imposes 
substantial direct compliance costs on state and local governments and 
is not required by statute, or preempts state law, unless the relevant 
requirements of section 6 of the Executive Order are met. 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 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for federal 
agencies to assess the effects of their regulatory actions on state, 
local, and tribal governments, and on the private sector. This final 
rule would not impose any federal mandates on any state, local, or 
tribal governments, or on the private sector, within the meaning of the 
UMRA.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number applicable to the 
program affected by this rule is 14.871.

List of Subjects in 24 CFR Part 983

    Grant programs--housing and community development, Low- and 
moderate-income housing, Public housing, Rent subsidies, Reporting and 
recordkeeping requirements.

0
For the reasons stated in the preamble, HUD amends 24 CFR part 983 to 
read as follows:
0
1. Revise 24 CFR part 983 to read as follows:

PART 983--PROJECT-BASED VOUCHER (PBV) PROGRAM

Subpart A--General
Sec.
983.1 When the PBV rule (24 CFR part 983) applies.
983.2 When the tenant-based voucher rule (24 CFR part 982) applies.
983.3 PBV definitions.
983.4 Cross-reference to other Federal requirements.
983.5 Description of the PBV program.
983.6 Maximum amount of PBV assistance.
983.7 Uniform Relocation Act.
983.8 Equal opportunity requirements.
983.9 Special housing types.
983.10 Project-based certificate (PBC) program.
Subpart B--Selection of PBV Owner Proposals
983.51 Owner proposal selection procedures.
983.52 Housing type.
983.53 Prohibition of assistance for ineligible units.
983.54 Prohibition of assistance for units in subsidized housing.
983.55 Prohibition of excess public assistance.
983.56 Cap on number of PBV units in each building.
983.57 Site selection standards.
983.58 Environmental review.
983.59 PHA-owned units.
Subpart C--Dwelling Units
983.101 Housing quality standards.
983.102 Housing accessibility for persons with disabilities.
983.103 Inspecting units.
Subpart D--Requirements for Rehabilitated and Newly Constructed Units
983.151 Applicability.
983.152 Purpose and content of the Agreement to enter into HAP 
contract.
983.153 When Agreement is executed.
983.154 Conduct of development work.
983.155 Completion of housing.
983.156 PHA acceptance of completed units.
Subpart E--Housing Assistance Payments Contract
983.201 Applicability.
983.202 Purpose of HAP contract.
983.203 HAP contract information.
983.204 When HAP contract is executed.
983.205 Term of HAP contract.
983.206 HAP contract amendments (to add or substitute contract 
units).
983.207 Condition of contract units.
983.208 Owner responsibilities.
983.209 Owner certification.
Subpart F--Occupancy
983.251 How participants are selected.
982.252 PHA information for accepted family.
983.253 Leasing of contract units.
983.254 Vacancies.
983.255 Tenant screening.
983.256 Lease.
983.257 Owner termination of tenancy and eviction.
983.258 Security deposit: amounts owed by tenant.
983.259 Overcrowded, under-occupied, and accessible units.
983.260 Family right to move.
983.261 When occupancy may exceed 25 percent cap on the number of 
PBV units in each building.
Subpart G--Rent to owner
983.301 Determining the rent to owner.
983.302 Redetermination of rent to owner.
983.303 Reasonable rent.
983.304 Other subsidy: effect on rent to owner.
983.305 Rent to owner: effect of rent control and other rent limits.
Subpart H--Payment to Owner
983.351 PHA payment to owner for occupied unit.
983.352 Vacancy payment.
983.353 Tenant rent; payment to owner.
983.354 Other fees and charges.

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

Subpart A--General


Sec.  983.1  When the PBV rule (24 CFR part 983) applies.

    Part 983 applies to the project-based voucher (PBV) program. The 
PBV program is authorized by section 8(o)(13) of the U.S. Housing Act 
of 1937 (42 U.S.C. 1437f(o)(13)).


Sec.  983.2  When the tenant-based voucher rule (24 CFR part 982) 
applies.

    (a) 24 CFR Part 982. Part 982 is the basic regulation for the 
tenant-based voucher program. Paragraphs (b) and (c) of this section 
describe the provisions of part 982 that do not apply to the PBV 
program. The rest of part 982 applies to the PBV program. For use and

[[Page 59914]]

applicability of voucher program definitions at Sec.  982.4, see Sec.  
983.3.
    (b) Types of 24 CFR part 982 provisions that do not apply to PBV. 
The following types of provisions in 24 CFR part 982 do not apply to 
PBV assistance under part 983.
    (1) Provisions on issuance or use of a voucher;
    (2) Provisions on portability;
    (3) Provisions on the following special housing types: shared 
housing, cooperative housing, manufactured home space rental, and the 
homeownership option.
    (c) Specific 24 CFR part 982 provisions that do not apply to PBV 
assistance. Except as specified in this paragraph, the following 
specific provisions in 24 CFR part 982 do not apply to PBV assistance 
under part 983.
    (1) In subpart E of part 982: paragraph (b)(2) of Sec.  982.202 and 
paragraph (d) of Sec.  982.204;
    (2) Subpart G of part 982 does not apply, with the following 
exceptions:
    (i) Section 982.10 (owner temination of tenancy) applies to the PBV 
Program, but to the extent that those provisions differ from Sec.  
983.257, the provisions of Sec.  983.257 govern; and
    (ii) Section 982.312 (absence from unit) applies to the PBV 
Program, but to the extent that those provisions differ from Sec.  
983.256(g), the provisions of Sec.  983.256(g) govern; and
    (iii) Section 982.316 (live-in aide) applies to the PBV Program;
    (3) Subpart H of part 982;
    (4) In subpart I of part 982: Sec.  982.401(j); paragraphs (a)(3), 
(c), and (d) of Sec.  982.402; Sec.  982.403; Sec.  982.405(a); and 
Sec.  982.406;
    (5) In subpart J of part 982: Sec.  982.455;
    (6) Subpart K of Part 982: subpart K does not apply, except that 
the following provisions apply to the PBV Program:
    (i) Section 982.503 (for determination of the payment standard 
amount and schedule for a Fair Market Rent (FMR) area or for a 
designated part of an FMR area). However, provisions authorizing 
approval of a higher payment standard as a reasonable accommodation for 
a particular family that includes a person with disabilities do not 
apply (since the payment standard amount does not affect availability 
of a PBV unit for occupancy by a family or the amount paid by the 
family);
    (ii) Section 982.516 (family income and composition; regular and 
interim examinations);
    (iii) Section 982.517 (utility allowance schedule);
    (7) In subpart M of part 982:
    (i) Sections 982.603, 982.607, 982.611, 982.613(c)(2); and
    (ii) Provisions concerning shared housing (Sec.  982.615 through 
Sec.  982.618), cooperative housing (Sec.  982.619), manufactured home 
space rental (Sec.  982.622 through Sec.  982.624), and the 
homeownership option (Sec.  982.625 through Sec.  982.641).


Sec.  983.3  PBV definitions.

    (a) Use of PBV definitions. (1) PBV terms (defined in this 
section). This section defines PBV terms that are used in this part 
983. For PBV assistance, the definitions in this section apply to use 
of the defined terms in part 983 and in applicable provisions of 24 CFR 
part 982. (Section 983.2 specifies which provisions in part 982 apply 
to PBV assistance under part 983.)
    (2) Other voucher terms (terms defined in 24 CFR 982.4). (i) The 
definitions in this section apply instead of definitions of the same 
terms in 24 CFR 982.4.
    (ii) Other voucher terms are defined in Sec.  982.4, but are not 
defined in this section. Those Sec.  982.4 definitions apply to use of 
the defined terms in this part 983 and in provisions of part 982 that 
apply to part 983.
    (b) PBV definitions. 1937 Act. The United States Housing Act of 
1937 (42 U.S.C. 1437 et seq.).
    Activities of daily living. Eating, bathing, grooming, dressing, 
and home management activities.
    Admission. The point when the family becomes a participant in the 
PHA's tenant-based or project-based voucher program (initial receipt of 
tenant-based or project-based assistance). After admission, and so long 
as the family is continuously assisted with tenant-based or project-
based voucher assistance from the PHA, a shift from tenant-based or 
project-based assistance to the other form of voucher assistance is not 
a new admission.
    Agreement to enter into HAP contract (Agreement). The Agreement is 
a written contract between the PHA and the owner in the form prescribed 
by HUD. The Agreement defines requirements for development of housing 
to be assisted under this section. When development is completed by the 
owner in accordance with the Agreement, the PHA enters into a HAP 
contract with the owner. The Agreement is not used for existing housing 
assisted under this section. HUD will keep the public informed about 
changes to the Agreement and other forms and contracts related to this 
program through appropriate means.
    Assisted living facility. A residence facility (including a 
facility located in a larger multifamily property) that meets all the 
following criteria:
    (1) The facility is licensed and regulated as an assisted living 
facility by the state, municipality, or other political subdivision;
    (2) The facility makes available supportive services to assist 
residents in carrying out activities of daily living; and
    (3) The facility provides separate dwelling units for residents and 
includes common rooms and other facilities appropriate and actually 
available to provide supportive services for the residents.
    Comparable rental assistance. A subsidy or other means to enable a 
family to obtain decent housing in the PHA jurisdiction renting at a 
gross rent that is not more than 40 percent of the family's adjusted 
monthly gross income.
    Contract units. The housing units covered by a HAP contract.
    Development. Construction or rehabilitation of PBV housing after 
the proposal selection date.
    Excepted units (units in a multifamily building not counted against 
the 25 percent per-building cap). See Sec.  983.56(b)(2)(i).
    Existing housing. Housing units that already exist on the proposal 
selection date and that substantially comply with the HQS on that date. 
(The units must fully comply with the HQS before execution of the HAP 
contract.)
    Household. The family and any PHA-approved live-in aide.
    Housing assistance payment. The monthly assistance payment for a 
PBV unit by a PHA, which includes:
    (1) A payment to the owner for rent to owner under the family's 
lease minus the tenant rent; and
    (2) An additional payment to or on behalf of the family, if the 
utility allowance exceeds the total tenant payment, in the amount of 
such excess.
    Housing quality standards (HQS). The HUD minimum quality standards 
for housing assisted under the program. See 24 CFR 982.401.
    Lease. A written agreement between an owner and a tenant for the 
leasing of a PBV dwelling unit by the owner to the tenant. The lease 
establishes the conditions for occupancy of the dwelling unit by a 
family with housing assistance payments under a HAP contract between 
the owner and the PHA.
    Multifamily building. A building with five or more dwelling units 
(assisted or unassisted).
    Newly constructed housing. Housing units that do not exist on the 
proposal selection date and are developed after the date of selection 
pursuant to an Agreement between the PHA and owner for use under the 
PBV program.

[[Page 59915]]

    Partially assisted building. A building in which there are fewer 
contract units than residential units.
    PHA-owned unit. A dwelling unit owned by the PHA that administers 
the voucher program. PHA-owned means that the PHA or its officers, 
employees, or agents hold a direct or indirect interest in the building 
in which the unit is located, including an interest as titleholder or 
lessee, or as a stockholder, member or general or limited partner, or 
member of a limited liability corporation, or an entity that holds any 
such direct or indirect interest.
    Premises. The building or complex in which the contract unit is 
located, including common areas and grounds.
    Program. The voucher program under section 8 of the 1937 Act, 
including tenant-based or project-based assistance.
    Proposal selection date. The date the PHA gives written notice of 
PBV proposal selection to an owner whose proposal is selected in 
accordance with the criteria established in the PHA's administrative 
plan.
    Qualifying families (for purpose of exception to 25 percent per-
building cap). See Sec.  983.56(b)(2)(ii).
    Rehabilitated housing. Housing units that exist on the proposal 
selection date, but do not substantially comply with the HQS on that 
date, and are developed, pursuant to an Agreement between the PHA and 
owner, for use under the PBV program.
    Rent to owner. The total monthly rent payable by the family and the 
PHA to the owner under the lease for a contract unit. Rent to owner 
includes payment for any housing services, maintenance, and utilities 
to be provided by the owner in accordance with the lease. (Rent to 
owner must not include charges for non-housing services including 
payment for food, furniture, or supportive services provided in 
accordance with the lease.)
    Responsible entity (RE) (for environmental review). The unit of 
general local government within which the project is located that 
exercises land use responsibility or, if HUD determines this 
infeasible, the county or, if HUD determines that infeasible, the 
state.
    Single-family building. A building with no more than four dwelling 
units (assisted or unassisted).
    Site. The grounds where the contract units are located, or will be 
located after development pursuant to the Agreement.
    Special housing type. Subpart M of 24 CFR part 982 states the 
special regulatory requirements for single-room occupancy (SRO) 
housing, congregate housing, group homes, and manufactured homes. 
Subpart M provisions on shared housing, cooperative housing, 
manufactured home space rental, and the homeownership option do not 
apply to PBV assistance under this part.
    State-certified appraiser. Any individual who satisfies the 
requirements for certification as a certified general appraiser in a 
state that has adopted criteria that currently meet or exceed the 
minimum certification criteria issued by the Appraiser Qualifications 
Board of the Appraisal Foundation. The state's criteria must include a 
requirement that the individual has achieved a satisfactory grade upon 
a state-administered examination consistent with and equivalent to the 
Uniform State Certification Examination issued or endorsed by the 
Appraiser Qualifications Board of the Appraisal Foundation. 
Furthermore, if the Appraisal Foundation has issued a finding that the 
policies, practices, or procedures of the state are inconsistent with 
Title XI of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (12 U.S.C. 3331-3352), the individual must 
comply with any additional standards for state-certified appraisers 
imposed by HUD.
    Tenant-paid utilities. Utility service that is not included in the 
tenant rent (as defined in 24 CFR 982.4), and which is the 
responsibility of the assisted family.
    Total tenant payment. The amount described in 24 CFR 5.628.
    Utility allowance. See 24 CFR 5.603.
    Utility reimbursement. See 24 CFR 5.603.
    Wrong-size unit. A unit occupied by a family that does not conform 
to the PHA's subsidy guideline for family size, by being is too large 
or too small compared to the guideline.


Sec.  983.4  Cross-reference to other Federal requirements.

    The following provisions apply to assistance under the PBV program.
    Civil money penalty. Penalty for owner breach of HAP contract. See 
24 CFR 30.68.
    Debarment. Prohibition on use of debarred, suspended, or ineligible 
contractors. See 24 CFR 5.105(c) and 24 CFR part 24.
    Definitions. See 24 CFR part 5, subpart D.
    Disclosure and verification of income information. See 24 CFR part 
5, subpart B.
    Environmental review. See 24 CFR parts 50 and 58 (see also 
provisions on PBV environmental review at Sec.  983.58).
    Fair housing. Nondiscrimination and equal opportunity. See 24 CFR 
5.105(a) and section 504 of the Rehabilitation Act.
    Fair market rents. See 24 CFR part 888, subpart A.
    Fraud. See 24 CFR part 792. PHA retention of recovered funds.
    Funds. See 24 CFR part 791. HUD allocation of voucher funds.
    Income and family payment. See 24 CFR part 5, subpart F (especially 
Sec.  5.603 (definitions), Sec.  5.609 (annual income), Sec.  5.611 
(adjusted income), Sec.  5.628 (total tenant payment), Sec.  5.630 
(minimum rent), Sec.  5.603 (utility allowance), Sec.  5.603 (utility 
reimbursements), and Sec.  5.661 (section 8 project-based assistance 
programs: approval for police or other security personnel to live in 
project).
    Labor standards. Regulations implementing the Davis-Bacon Act, 
Contract Work Hours and Safety Standards Act (40 U.S.C. 3701-3708), 29 
CFR part 5, and other federal laws and regulations pertaining to labor 
standards applicable to an Agreement covering nine or more assisted 
units.
    Lead-based paint. Regulations implementing the Lead-based Paint 
Poisoning Prevention Act (42 U.S.C. 4821-4846) and the Residential 
Lead-based Paint Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856). 
See 24 CFR part 35, subparts A, B, H, and R.
    Lobbying restriction. Restrictions on use of funds for lobbying. 
See 24 CFR 5.105(b).
    Noncitizens. Restrictions on assistance. See 24 CFR part 5, subpart 
E.
    Program accessibility. Regulations implementing Section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794). See 24 CFR parts 8 and 9.
    Relocation assistance. Regulations implementing the Uniform 
Relocation Assistance and Real Property Acquisition Policies Act of 
1970 (URA) (42 U.S.C. 4201-4655). See 49 CFR part 24.
    Section 3--Training, employment, and contracting opportunities in 
development. Regulations implementing Section 3 of the Housing and 
Urban Development Act of 1968 (12 U.S.C. 1701u). See 24 CFR part 135.
    Uniform financial reporting standards. See 24 CFR part 5, subpart 
H.
    Waiver of HUD rules. See 24 CFR 5.110.


Sec.  983.5  Description of the PBV program.

    (a) How PBV works. (1) The PBV program is administered by a PHA 
that already administers the tenant-based voucher program under an 
annual contributions contract (ACC) with HUD. In the PBV program, the 
assistance is ``attached to the structure.'' (See description of the 
difference between ``project-based'' and ``tenant-based'' rental 
assistance at 24 CFR 982.1(b).)

[[Page 59916]]

    (2) The PHA enters into a HAP contract with an owner for units in 
existing housing or in newly constructed or rehabilitated housing.
    (3) In the case of newly constructed or rehabilitated housing, the 
housing is developed under an Agreement between the owner and the PHA. 
In the Agreement, the PHA agrees to execute a HAP contract after the 
owner completes the construction or rehabilitation of the units.
    (4) During the term of the HAP contract, the PHA makes housing 
assistance payments to the owner for units leased and occupied by 
eligible families.
    (b) How PBV is funded. (1) If a PHA decides to operate a PBV 
program, the PHA's PBV program is funded with a portion of appropriated 
funding (budget authority) available under the PHA's voucher ACC. This 
pool of funding is used to pay housing assistance for both tenant-based 
and project-based voucher units and to pay PHA administrative fees for 
administration of tenant-based and project-based voucher assistance.
    (2) There is no special or additional funding for project-based 
vouchers. HUD does not reserve additional units for project-based 
vouchers and does not provide any additional funding for this purpose.
    (c) PHA discretion to operate PBV program. A PHA has discretion 
whether to operate a project-based voucher program. HUD approval is not 
required.


Sec.  983.6  Maximum amount of PBV assistance.

    (a) The PHA may select owner proposals to provide project-based 
assistance for up to 20 percent of the amount of budget authority 
allocated to the PHA by HUD in the PHA voucher program. PHAs are not 
required to reduce the number of PBV units selected under an Agreement 
or HAP contract if the amount of budget authority is subsequently 
reduced.
    (b) All PBC and project-based voucher units for which the PHA has 
issued a notice of proposal selection or which are under an Agreement 
or HAP contract for PBC or project-based voucher assistance count 
against the 20 percent maximum.
    (c) The PHA is responsible for determining the amount of budget 
authority that is available for project-based vouchers and for ensuring 
that the amount of assistance that is attached to units is within the 
amounts available under the ACC.


Sec.  983.7  Uniform Relocation Act.

    (a) Relocation assistance for displaced person. (1) A displaced 
person must be provided relocation assistance at the levels described 
in and in accordance with the requirements of the Uniform Relocation 
Assistance and Real Property Acquisition Policies Act of 1970 (URA) (42 
U.S.C. 4201-4655) and implementing regulations at 49 CFR part 24.
    (2) The cost of required relocation assistance may be paid with 
funds provided by the owner, or with local public funds, or with funds 
available from other sources. Relocation costs may not be paid from 
voucher program funds; however, provided payment of relocation benefits 
is consistent with state and local law, PHAs may use their 
administrative fee reserve to pay for relocation assistance after all 
other program administrative expenses are satisfied. Use of the 
administrative fee reserve in this manner must be consistent with legal 
and regulatory requirements, including the requirements of 24 CFR 
982.155 and other official HUD issuances.
    (b) Real property acquisition requirements. The acquisition of real 
property for a PBV project is subject to the URA and 49 CFR part 24, 
subpart B.
    (c) Responsibility of PHA. The PHA must require the owner to comply 
with the URA and 49 CFR part 24.
    (d) Definition of initiation of negotiations. In computing a 
replacement housing payment to a residential tenant displaced as a 
direct result of privately undertaken rehabilitation or demolition of 
the real property, the term ``initiation of negotiations'' means the 
execution of the Agreement between the owner and the PHA.


Sec.  983.8  Equal opportunity requirements.

    (a) The PBV program requires compliance with all equal opportunity 
requirements under federal law and regulation, including the 
authorities cited at 24 CFR 5.105(a).
    (b) The PHA must comply with the PHA Plan civil rights and 
affirmatively furthering fair housing certification submitted by the 
PHA in accordance with 24 CFR 903.7(o).


Sec.  983.9  Special housing types.

    (a) Applicability. (1) For applicability of rules on special 
housing types at 24 CFR part 982, subpart M, see Sec.  983.2.
    (2) In the PBV program, the PHA may not provide assistance for 
shared housing, cooperative housing, manufactured home space rental, or 
the homeownership option.
    (b) Group homes. A group home may include one or more group home 
units. A separate lease is executed for each elderly person or person 
with disabilities who resides in a group home.


Sec.  983.10  Project-based certificate (PBC) program.

    (a) What is it? ``PBC program'' means project-based assistance 
attached to units pursuant to an Agreement executed by a PHA and owner 
before January 16, 2001, and in accordance with:
    (1) The regulations for the PBC program at 24 CFR part 983, 
codified as of May 1, 2001 and contained in 24 CFR part 983 revised as 
of April 1, 2002; and
    (2) Section 8(d)(2) of the 1937 Act, as in effect before October 
21, 1998 (the date of enactment of Title V of Public Law 105-276, the 
Quality Housing and Work Responsibility Act of 1998, codified at 42 
U.S.C. 1437 et seq.).
    (b) What rules apply? Units under the PBC program are subject to 
the provisions of 24 CFR part 983 codified as of May 1, 2001, except 
that 24 CFR 983.151(c) on renewals does not apply. Consistent with the 
PBC HAP, at the sole option of the PHA, HAP contracts may be renewed 
for terms for an aggregate total (including the initial and any renewal 
terms) of 15 years, subject to the availability of appropriated funds.

Subpart B--Selection of PBV Owner Proposals


Sec.  983.51  Owner proposal selection procedures.

    (a) Procedures for selecting PBV proposals. The PHA administrative 
plan must describe the procedures for owner submission of PBV proposals 
and for PHA selection of PBV proposals. Before selecting a PBV 
proposal, the PHA must determine that the PBV proposal complies with 
HUD program regulations and requirements, including a determination 
that the property is eligible housing (Sec. Sec.  983.53 and 983.54), 
complies with the cap on the number of PBV units per building (Sec.  
983.56), and meets the site selection standards (Sec.  983.57).
    (b) Selection of PBV proposals. The PHA must select PBV proposals 
in accordance with the selection procedures in the PHA administrative 
plan. The PHA must select PBV proposals by either of the following two 
methods.
    (1) PHA request for PBV Proposals. The PHA may not limit proposals 
to a single site or impose restrictions that explicitly or practically 
preclude owner submission of proposals for PBV housing on different 
sites.
    (2) Selection of a proposal for housing assisted under a federal, 
state, or local government housing assistance,

[[Page 59917]]

community development, or supportive services program that requires 
competitive selection of proposals (e.g., HOME, and units for which 
competitively awarded LIHTCs have been provided), where the proposal 
has been selected in accordance with such program's competitive 
selection requirements within three years of the PBV proposal selection 
date, and the earlier competitive selection proposal did not involve 
any consideration that the project would receive PBV assistance.
    (c) Public notice of PHA request for PBV proposals. If the PHA will 
be selecting proposals under paragraph (b)(1) of this section, PHA 
procedures for selecting PBV proposals must be designed and actually 
operated to provide broad public notice of the opportunity to offer PBV 
proposals for consideration by the PHA. The public notice procedures 
may include publication of the public notice in a local newspaper of 
general circulation and other means designed and actually operated to 
provide broad public notice. The public notice of the PHA request for 
PBV proposals must specify the submission deadline. Detailed 
application and selection information must be provided at the request 
of interested parties.
    (d) PHA notice of owner selection. The PHA must give prompt written 
notice to the party that submitted a selected proposal and must also 
give prompt public notice of such selection. Public notice procedures 
may include publication of public notice in a local newspaper of 
general circulation and other means designed and actually operated to 
provide broad public notice.
    (e) PHA-owned units. A PHA-owned unit may be assisted under the PBV 
program only if the HUD field office or HUD-approved independent entity 
reviews the selection process and determines that the PHA-owned units 
were appropriately selected based on the selection procedures specified 
in the PHA administrative plan. Under no circumstances may PBV 
assistance be used with a public housing unit.
    (f) Public review of PHA selection decision documentation. The PHA 
must make documentation available for public inspection regarding the 
basis for the PHA selection of a PBV proposal.


Sec.  983.52  Housing type.

    The PHA may attach PBV assistance for units in existing housing or 
for newly constructed or rehabilitated housing developed under and in 
accordance with an Agreement.
    (a) Existing housing--A housing unit is considered an existing unit 
for purposes of the PBV program, if at the time of notice of PHA 
selection, the units substantially comply with HQS. Units for which new 
construction or rehabilitation was started in accordance with Subpart D 
of this part do not qualify as existing housing.
    (b) Subpart D of this part applies to newly constructed and 
rehabilitated housing.


Sec.  983.53  Prohibition of assistance for ineligible units.

    (a) Ineligible unit. The PHA may not attach or pay PBV assistance 
for units in the following types of housing:
    (1) Shared housing;
    (2) Units on the grounds of a penal, reformatory, medical, mental, 
or similar public or private institution;
    (3) Nursing homes or facilities providing continuous psychiatric, 
medical, nursing services, board and care, or intermediate care. 
However, the PHA may attach PBV assistance for a dwelling unit in an 
assisted living facility that provides home health care services such 
as nursing and therapy for residents of the housing;
    (4) Units that are owned or controlled by an educational 
institution or its affiliate and are designated for occupancy by 
students of the institution;
    (5) Manufactured homes;
    (6) Cooperative housing; and
    (7) Transitional Housing.
    (b) High-rise elevator project for families with children. The PHA 
may not attach or pay PBV assistance to a high-rise elevator project 
that may be occupied by families with children unless the PHA initially 
determines there is no practical alternative, and HUD approves such 
finding. The PHA may make this initial determination for its project-
based voucher program, in whole or in part, and need not review each 
project on a case-by-case basis, and HUD may approve on the same basis.
    (c) Prohibition against assistance for owner-occupied unit. The PHA 
may not attach or pay PBV assistance for a unit occupied by an owner of 
the housing.
    (d) Prohibition against selecting unit occupied by an ineligible 
family. Before a PHA selects a specific unit to which assistance is to 
be attached, the PHA must determine whether the unit is occupied and, 
if occupied, whether the unit's occupants are eligible for assistance. 
The PHA must not select or enter into an Agreement or HAP contract for 
a unit occupied by a family ineligible for participation in the PBV 
program.


Sec.  983.54  Prohibition of assistance for units in subsidized 
housing.

    A PHA may not attach or pay PBV assistance to units in any of the 
following types of subsidized housing:
    (a) A public housing dwelling unit;
    (b) A unit subsidized with any other form of Section 8 assistance 
(tenant-based or project-based);
    (c) A unit subsidized with any governmental rent subsidy (a subsidy 
that pays all or any part of the rent);
    (d) A unit subsidized with any governmental subsidy that covers all 
or any part of the operating costs of the housing;
    (e) A unit subsidized with Section 236 rental assistance payments 
(12 U.S.C. 1715z-1). However, the PHA may attach assistance to a unit 
subsidized with Section 236 interest reduction payments;
    (f) A unit subsidized with rental assistance payments under Section 
521 of the Housing Act of 1949, 42 U.S.C. 1490a (a Rural Housing 
Service Program). However, the PHA may attach assistance for a unit 
subsidized with Section 515 interest reduction payments (42 U.S.C. 
1485);
    (g) A Section 202 project for non-elderly persons with disabilities 
(assistance under Section 162 of the Housing and Community Development 
Act of 1987, 12 U.S.C. 1701q note);
    (h) Section 811 project-based supportive housing for persons with 
disabilities (42 U.S.C. 8013);
    (i) Section 202 supportive housing for the elderly (12 U.S.C. 
1701q);
    (j) A Section 101 rent supplement project (12 U.S.C. 1701s);
    (k) A unit subsidized with any form of tenant-based rental 
assistance (as defined at 24 CFR 982.1(b)(2)) (e.g., a unit subsidized 
with tenant-based rental assistance under the HOME program, 42 U.S.C. 
12701 et seq.);
    (l) A unit with any other duplicative federal, state, or local 
housing subsidy, as determined by HUD or by the PHA in accordance with 
HUD requirements. For this purpose, ``housing subsidy'' does not 
include the housing component of a welfare payment; a social security 
payment; or a federal, state, or local tax concession (such as relief 
from local real property taxes).


Sec.  983.55  Prohibition of excess public assistance.

    (a) Subsidy layering requirements. The PHA may provide PBV 
assistance only in accordance with HUD subsidy layering regulations (24 
CFR 4.13) and other requirements. The subsidy layering review is 
intended to prevent excessive public assistance for the housing by 
combining (layering)

[[Page 59918]]

housing assistance payment subsidy under the PBV program with other 
governmental housing assistance from federal, state, or local agencies, 
including assistance such as tax concessions or tax credits.
    (b) When subsidy layering review is conducted. The PHA may not 
enter an Agreement or HAP contract until HUD or an independent entity 
approved by HUD has conducted any required subsidy layering review and 
determined that the PBV assistance is in accordance with HUD subsidy 
layering requirements.
    (c) Owner certification. The HAP contract must contain the owner's 
certification that the project has not received and will not receive 
(before or during the term of the HAP contract) any public assistance 
for acquisition, development, or operation of the housing other than 
assistance disclosed in the subsidy layering review in accordance with 
HUD requirements.


Sec.  983.56  Cap on number of PBV units in each building.

    (a) 25 percent per building cap. Except as provided in paragraph 
(b) of this section, the PHA may not select a proposal to provide PBV 
assistance for units in a building or enter into an Agreement or HAP 
contract to provide PBV assistance for units in a building, if the 
total number of dwelling units in the building that will receive PBV 
assistance during the term of the PBV HAP is more than 25 percent of 
the number of dwelling units (assisted or unassisted) in the building.
    (b) Exception to 25 percent per building cap. (1) When PBV units 
are not counted against cap. In the following cases, PBV units are not 
counted against the 25 percent per building cap:
    (i) Units in a single-family building;
    (ii) Excepted units in a multifamily building.
    (2) Terms (i) ``Excepted units'' means units in a multifamily 
building that are specifically made available for qualifying families.
    (ii) ``Qualifying families'' means:
    (A) Elderly or disabled families; or
    (B) Families receiving supportive services. PHAs must include in 
the PHA administrative plan the type of services offered to families 
for a project to qualify for the exception and the extent to which such 
services will be provided. It is not necessary that the services be 
provided at or by the project, if they are approved services. To 
qualify, a family must have at least one member receiving at least one 
qualifying supportive service. A PHA may not require participation in 
medical or disability-related services other than drug and alcohol 
treatment in the case of current abusers as a condition of living in an 
excepted unit, although such services may be offered. If a family at 
the time of initial tenancy is receiving, and while the resident of an 
excepted unit has received, FSS supportive services or any other 
supportive services as defined in the PHA administrative plan, and 
successfully completes the FSS contract of participation or the 
supportive services requirement, the unit continues to count as an 
excepted unit for as long as the family resides in the unit. If a 
family in an excepted unit fails without good cause to complete its FSS 
contract of participation or if the family fails to complete the 
supportive services requirement as outlined in the PHA administrative 
plan, the PHA will take the actions provided under Sec.  983.261(d), 
and the owner may terminate the lease in accordance with Sec.  
983.257(c). Also, at the time of initial lease execution between the 
family and the owner, the family and the PHA must sign a statement of 
family responsibility. The statement of family responsibility must 
contain all family obligations including the family's participation in 
a service program under this section. Failure by the family without 
good cause to fulfill its service obligation will require the PHA to 
terminate assistance. If the unit at the time of such termination is an 
excepted unit, the exception continues to apply to the unit as long as 
the unit is made available to another qualifying family.
    (C) The PHA must monitor the excepted family's continued receipt of 
supportive services and take appropriate action regarding those 
families that fail without good cause to complete their supportive 
services requirement. The PHA administrative plan must state the form 
and frequency of such monitoring.
    (3) Set-aside for qualifying families. (i) In leasing units in a 
multifamily building pursuant to the PBV HAP, the owner must set aside 
the number of excepted units made available for occupancy by qualifying 
families.
    (ii) The PHA may refer only qualifying families for occupancy of 
excepted units.
    (c) Additional, local requirements promoting partially assisted 
buildings. A PHA may establish local requirements designed to promote 
PBV assistance in partially assisted buildings. For example, a PHA may:
    (1) Establish a per-building cap on the number of units that will 
receive PBV assistance or other project-based assistance in a 
multifamily building containing excepted units or in a single-family 
building,
    (2) Determine not to provide PBV assistance for excepted units, or
    (3) Establish a per-building cap of less than 25 percent.


Sec.  983.57  Site selection standards.

    (a) Applicability. The site selection requirements in paragraph (d) 
of this section apply only to site selection for existing housing and 
rehabilitated PBV housing. The site selection requirements in paragraph 
(e) of this section apply only to site selection for newly constructed 
PBV housing. Other provisions of this section apply to selection of a 
site for any form of PBV housing, including existing housing, newly 
constructed housing, and rehabilitated housing.
    (b) Compliance with PBV goals, civil rights requirements, and HQS. 
The PHA may not select a proposal for existing, newly constructed, or 
rehabilitated PBV housing on a site or enter into an Agreement or HAP 
contract for units on the site, unless the PHA has determined that:
    (1) Project-based assistance for housing at the selected site is 
consistent with the goal of deconcentrating poverty and expanding 
housing and economic opportunities. The standard for deconcentrating 
poverty and expanding housing and economic opportunities must be 
consistent with the PHA Plan under 24 CFR part 903 and the PHA 
Administrative Plan. In developing the standards to apply in 
determining whether a proposed PBV development will be selected, a PHA 
must consider the following:
    (i) Whether the census tract in which the proposed PBV development 
will be located is in a HUD-designated Enterprise Zone, Economic 
Community, or Renewal Community;
    (ii) Whether a PBV development will be located in a census tract 
where the concentration of assisted units will be or has decreased as a 
result of public housing demolition;
    (iii) Whether the census tract in which the proposed PBV 
development will be located is undergoing significant revitalization;
    (iv) Whether state, local, or federal dollars have been invested in 
the area that has assisted in the achievement of the statutory 
requirement;
    (v) Whether new market rate units are being developed in the same 
census tract where the proposed PBV development will be located and the 
likelihood that such market rate units will positively impact the 
poverty rate in the area;
    (vi) If the poverty rate in the area where the proposed PBV 
development will be located is greater than 20

[[Page 59919]]

percent, the PHA should consider whether in the past five years there 
has been an overall decline in the poverty rate;
    (vii) Whether there are meaningful opportunities for educational 
and economic advancement in the census tract where the proposed PBV 
development will be located.
    (2) The site is suitable from the standpoint of facilitating and 
furthering full compliance with the applicable provisions of Title VI 
of the Civil Rights Act of 1964 (42 U.S.C. 2000d-2000d(4)) and HUD's 
implementing regulations at 24 CFR part 1; Title VIII of the Civil 
Rights Act of 1968 (42 U.S.C. 3601-3629); and HUD's implementing 
regulations at 24 CFR parts 100 through 199; Executive Order 11063 (27 
FR 11527; 3 CFR, 1959-1963 Comp., p. 652) and HUD's implementing 
regulations at 24 CFR part 107. The site must meet the section 504 site 
selection requirements described in 24 CFR 8.4(b)(5).
    (3) The site meets the HQS site standards at 24 CFR 982.401(l).
    (c) PHA PBV site selection policy. (1) The PHA administrative plan 
must establish the PHA's policy for selection of PBV sites in 
accordance with this section.
    (2) The site selection policy must explain how the PHA's site 
selection procedures promote the PBV goals.
    (3) The PHA must select PBV sites in accordance with the PHA's site 
selection policy in the PHA administrative plan.
    (d) Existing and rehabilitated housing site and neighborhood 
standards. A site for existing or rehabilitated housing must meet the 
following site and neighborhood standards. The site must:
    (1) Be adequate in size, exposure, and contour to accommodate the 
number and type of units proposed, and adequate utilities and streets 
must be available to service the site. (The existence of a private 
disposal system and private sanitary water supply for the site, 
approved in accordance with law, may be considered adequate utilities.)
    (2) Promote greater choice of housing opportunities and avoid undue 
concentration of assisted persons in areas containing a high proportion 
of low-income persons.
    (3) Be accessible to social, recreational, educational, commercial, 
and health facilities and services and other municipal facilities and 
services that are at least equivalent to those typically found in 
neighborhoods consisting largely of unassisted, standard housing of 
similar market rents.
    (4) Be so located that travel time and cost via public 
transportation or private automobile from the neighborhood to places of 
employment providing a range of jobs for lower-income workers is not 
excessive. While it is important that housing for the elderly not be 
totally isolated from employment opportunities, this requirement need 
not be adhered to rigidly for such projects.
    (e) New construction site and neighborhood standards. A site for 
newly constructed housing must meet the following site and neighborhood 
standards:
    (1) The site must be adequate in size, exposure, and contour to 
accommodate the number and type of units proposed, and adequate 
utilities (water, sewer, gas, and electricity) and streets must be 
available to service the site.
    (2) The site must not be located in an area of minority 
concentration, except as permitted under paragraph (e)(3) of this 
section, and must not be located in a racially mixed area if the 
project will cause a significant increase in the proportion of minority 
to non-minority residents in the area.
    (3) A project may be located in an area of minority concentration 
only if:
    (i) Sufficient, comparable opportunities exist for housing for 
minority families in the income range to be served by the proposed 
project outside areas of minority concentration (see paragraph 
(e)(3)(iii), (iv), and (v) of this section for further guidance on this 
criterion); or
    (ii) The project is necessary to meet overriding housing needs that 
cannot be met in that housing market area (see paragraph (e) (3)(vi)) 
of this section for further guidance on this criterion).
    (iii) As used in paragraph (e)(3)(i) of this section, 
``sufficient'' does not require that in every locality there be an 
equal number of assisted units within and outside of areas of minority 
concentration. Rather, application of this standard should produce a 
reasonable distribution of assisted units each year, that, over a 
period of several years, will approach an appropriate balance of 
housing choices within and outside areas of minority concentration. An 
appropriate balance in any jurisdiction must be determined in light of 
local conditions affecting the range of housing choices available for 
low-income minority families and in relation to the racial mix of the 
locality's population.
    (iv) Units may be considered ``comparable opportunities,'' as used 
in paragraph (e)(3)(i) of this section, if they have the same household 
type (elderly, disabled, family, large family) and tenure type (owner/
renter); require approximately the same tenant contribution towards 
rent; serve the same income group; are located in the same housing 
market; and are in standard condition.
    (v) Application of this sufficient, comparable opportunities 
standard involves assessing the overall impact of HUD-assisted housing 
on the availability of housing choices for low-income minority families 
in and outside areas of minority concentration, and must take into 
account the extent to which the following factors are present, along 
with other factors relevant to housing choice:
    (A) A significant number of assisted housing units are available 
outside areas of minority concentration.
    (B) There is significant integration of assisted housing projects 
constructed or rehabilitated in the past 10 years, relative to the 
racial mix of the eligible population.
    (C) There are racially integrated neighborhoods in the locality.
    (D) Programs are operated by the locality to assist minority 
families that wish to find housing outside areas of minority 
concentration.
    (E) Minority families have benefited from local activities (e.g., 
acquisition and write-down of sites, tax relief programs for 
homeowners, acquisitions of units for use as assisted housing units) 
undertaken to expand choice for minority families outside of areas of 
minority concentration.
    (F) A significant proportion of minority households has been 
successful in finding units in non-minority areas under the tenant-
based assistance programs.
    (G) Comparable housing opportunities have been made available 
outside areas of minority concentration through other programs.
    (vi) Application of the ``overriding housing needs'' criterion, for 
example, permits approval of sites that are an integral part of an 
overall local strategy for the preservation or restoration of the 
immediate neighborhood and of sites in a neighborhood experiencing 
significant private investment that is demonstrably improving the 
economic character of the area (a ``revitalizing area''). An 
``overriding housing need,'' however, may not serve as the basis for 
determining that a site is acceptable, if the only reason the need 
cannot otherwise be feasibly met is that discrimination on the basis of 
race, color, religion, sex, national origin, age, familial status, or 
disability renders sites outside areas of minority concentration 
unavailable or if the use of this standard in recent years has had the 
effect of

[[Page 59920]]

circumventing the obligation to provide housing choice.
    (4) The site must promote greater choice of housing opportunities 
and avoid undue concentration of assisted persons in areas containing a 
high proportion of low-income persons.
    (5) The neighborhood must not be one that is seriously detrimental 
to family life or in which substandard dwellings or other undesirable 
conditions predominate, unless there is actively in progress a 
concerted program to remedy the undesirable conditions.
    (6) The housing must be accessible to social, recreational, 
educational, commercial, and health facilities and services and other 
municipal facilities and services that are at least equivalent to those 
typically found in neighborhoods consisting largely of unassisted, 
standard housing of similar market rents.
    (7) Except for new construction, housing designed for elderly 
persons, travel time, and cost via public transportation or private 
automobile from the neighborhood to places of employment providing a 
range of jobs for lower-income workers, must not be excessive.


Sec.  983.58  Environmental review.

    (a) HUD environmental regulations. Activities under the PBV program 
are subject to HUD environmental regulations in 24 CFR parts 50 and 58.
    (b) Who performs the environmental review? (1) Under 24 CFR part 
58, a unit of general local government, a county or a state (the 
``responsible entity'' or ``RE'') is responsible for the federal 
environmental review under the National Environmental Policy Act of 
1969 (42 U.S.C. 4321 et seq.) and related applicable federal laws and 
authorities in accordance with 24 CFR 58.5 and 58.6.
    (2) If a PHA objects in writing to having the RE perform the 
federal environmental review, or if the RE declines to perform it, then 
HUD may perform the review itself (24 CFR 58.11). 24 CFR part 50 
governs HUD performance of the review.
    (c) Existing housing. In the case of existing housing under this 
part 983, the RE that is responsible for the environmental review under 
24 CFR part 58 must determine whether or not PBV assistance is 
categorically excluded from review under the National Environmental 
Policy Act and whether or not the assistance is subject to review under 
the laws and authorities listed in 24 CFR 58.5.
    (d) Limitations on actions before completion of the environmental 
review. (1) The PHA may not enter into an Agreement or HAP contract 
with an owner, and the PHA, the owner, and its contractors may not 
acquire, rehabilitate, convert, lease, repair, dispose of, demolish, or 
construct real property or commit or expend program or local funds for 
PBV activities under this part, until one of the following occurs:
    (i) The responsible entity has completed the environmental review 
procedures required by 24 CFR part 58, and HUD has approved the 
environmental certification and request for release of funds;
    (ii) The responsible entity has determined that the project to be 
assisted is exempt under 24 CFR 58.34 or is categorically excluded and 
not subject to compliance with environmental laws under 24 CFR 
58.35(b); or
    (iii) HUD has performed an environmental review under 24 CFR part 
50 and has notified the PHA in writing of environmental approval of the 
site.
    (2) HUD will not approve the release of funds for PBV assistance 
under this part if the PHA, the owner, or any other party commits funds 
(i.e., enters an Agreement or HAP contract or otherwise incurs any 
costs or expenditures to be paid or reimbursed with such funds) before 
the PHA submits and HUD approves its request for release of funds 
(where such submission is required).
    (e) PHA duty to supply information. The PHA must supply all 
available, relevant information necessary for the RE (or HUD, if 
applicable) to perform any required environmental review for any site.
    (f) Mitigating measures. The PHA must require the owner to carry 
out mitigating measures required by the RE (or HUD, if applicable) as a 
result of the environmental review.


Sec.  983.59  PHA-owned units.

    (a) Selection of PHA-owned units. The selection of PHA-owned units 
must be done in accordance with Sec.  983.51(e).
    (b) Inspection and determination of reasonable rent by independent 
entity. In the case of PHA-owned units, the following program services 
may not be performed by the PHA, but must be performed instead by an 
independent entity approved by HUD.
    (1) Determination of rent to owner for the PHA-owned units. Rent to 
owner for PHA-owned units is determined pursuant to Sec. Sec.  983.301 
through 983.305 in accordance with the same requirements as for other 
units, except that the independent entity approved by HUD must 
establish the initial contract rents based on an appraisal by a 
licensed, state-certified appraiser; and
    (2) Inspection of PHA-owned units as required by Sec.  983.103(f).
    (c) Nature of independent entity. The independent entity that 
performs these program services may be the unit of general local 
government for the PHA jurisdiction (unless the PHA is itself the unit 
of general local government or an agency of such government) or another 
HUD-approved public or private independent entity.
    (d) Payment to independent entity and appraiser. (1) The PHA may 
only compensate the independent entity and appraiser from PHA ongoing 
administrative fee income (including amounts credited to the 
administrative fee reserve). The PHA may not use other program receipts 
to compensate the independent entity and appraiser for their services.
    (2) The PHA, independent entity, and appraiser may not charge the 
family any fee for the appraisal or the services provided by the 
independent entity.

Subpart C--Dwelling Units


Sec.  983.101  Housing quality standards.

    (a) HQS applicability. Except as otherwise provided in this 
section, 24 CFR 982.401 (housing quality standards) applies to the PBV 
program. The physical condition standards at 24 CFR 5.703 do not apply 
to the PBV program.
    (b) HQS for special housing types. For special housing types 
assisted under the PBV program, housing quality standards in 24 CFR 
part 982 apply to the PBV program. (Shared housing, cooperative 
housing, manufactured home space rental, and the homeownership option 
are not assisted under the PBV program.)
    (c) Lead-based paint requirements. (1) The lead-based paint 
requirements at Sec.  982.401(j) of this chapter do not apply to the 
PBV program.
    (2) The Lead-based Paint Poisoning Prevention Act (42 U.S.C. 4821-
4846), the Residential Lead-based Paint Hazard Reduction Act of 1992 
(42 U.S.C. 4851-4856), and implementing regulations at 24 CFR part 35, 
subparts A, B, H, and R, apply to the PBV program.
    (d) HQS enforcement. Parts 982 and 983 of this chapter do not 
create any right of the family or any party, other than HUD or the PHA, 
to require enforcement of the HQS requirements or to assert any claim 
against HUD or the PHA for damages, injunction, or other relief for 
alleged failure to enforce the HQS.
    (e) Additional PHA quality and design requirements. This section 
establishes the minimum federal housing quality

[[Page 59921]]

standards for PBV housing. However, the PHA may elect to establish 
additional requirements for quality, architecture, or design of PBV 
housing, and any such additional requirements must be specified in the 
Agreement.


Sec.  983.102  Housing accessibility for persons with disabilities.

    (a) Program accessibility. The housing must comply with program 
accessibility requirements of section 504 of the Rehabilitation Act of 
1973 (29 U.S.C. 794) and implementing regulations at 24 CFR part 8. The 
PHA shall ensure that the percentage of accessible dwelling units 
complies with the requirements of section 504 of the Rehabilitation Act 
of 1973 (29 U.S.C. 794), as implemented by HUD's regulations at 24 CFR 
part 8, subpart C.
    (b) Design and construction. Housing first occupied after March 13, 
1991, must comply with design and construction requirements of the Fair 
Housing Amendments Act of 1988 and implementing regulations at 24 CFR 
100.205, as applicable.


Sec.  983.103  Inspecting units.

    (a) Pre-selection inspection. (1) Inspection of site. The PHA must 
examine the proposed site before the proposal selection date.
    (2) Inspection of existing units. If the units to be assisted 
already exist, the PHA must inspect all the units before the proposal 
selection date, and must determine whether the units substantially 
comply with the HQS. To qualify as existing housing, units must 
substantially comply with the HQS on the proposal selection date. 
However, the PHA may not execute the HAP contract until the units fully 
comply with the HQS.
    (b) Pre-HAP contract inspections. The PHA must inspect each 
contract unit before execution of the HAP contract. The PHA may not 
enter into a HAP contract covering a unit until the unit fully complies 
with the HQS.
    (c) Turnover inspections. Before providing assistance to a new 
family in a contract unit, the PHA must inspect the unit. The PHA may 
not provide assistance on behalf of the family until the unit fully 
complies with the HQS.
    (d) Annual inspections. (1) At least annually during the term of 
the HAP contract, the PHA must inspect a random sample, consisting of 
at least 20 percent of the contract units in each building to determine 
if the contract units and the premises are maintained in accordance 
with the HQS. Turnover inspections pursuant to paragraph (c) of this 
section are not counted toward meeting this annual inspection 
requirement.
    (2) If more than 20 percent of the annual sample of inspected 
contract units in a building fail the initial inspection, the PHA must 
reinspect 100 percent of the contract units in the building.
    (e) Other inspections. (1) The PHA must inspect contract units 
whenever needed to determine that the contract units comply with the 
HQS and that the owner is providing maintenance, utilities, and other 
services in accordance with the HAP contract. The PHA must take into 
account complaints and any other information coming to its attention in 
scheduling inspections.
    (2) The PHA must conduct follow-up inspections needed to determine 
if the owner (or, if applicable, the family) has corrected an HQS 
violation, and must conduct inspections to determine the basis for 
exercise of contractual and other remedies for owner or family 
violation of the HQS. (Family HQS obligations are specified in 24 CFR 
982.404(b).)
    (3) In conducting PHA supervisory quality control HQS inspections, 
the PHA should include a representative sample of both tenant-based and 
project-based units.
    (f) Inspecting PHA-owned units. (1) In the case of PHA-owned units, 
the inspections required under this section must be performed by an 
independent agency designated in accordance with Sec.  983.59, rather 
than by the PHA.
    (2) The independent entity must furnish a copy of each inspection 
report to the PHA and to the HUD field office where the project is 
located.
    (3) The PHA must take all necessary actions in response to 
inspection reports from the independent agency, including exercise of 
contractual remedies for violation of the HAP contract by the PHA 
owner.

Subpart D--Requirements for Rehabilitated and Newly Constructed 
Units


Sec.  983.151  Applicability.

    This Subpart D applies to PBV assistance for newly constructed or 
rehabilitated housing. This Subpart D does not apply to PBV assistance 
for existing housing. Housing selected under this subpart cannot be 
selected as existing housing, as defined in Sec.  983.52, at a later 
date.


Sec.  983.152  Purpose and content of the Agreement to enter into HAP 
contract.

    (a) Requirement. The PHA must enter into an Agreement with the 
owner. The Agreement must be in the form required by HUD headquarters 
(see Sec.  982.162 of this chapter).
    (b) Purpose of Agreement. In the Agreement the owner agrees to 
develop the contract units to comply with the HQS, and the PHA agrees 
that, upon timely completion of such development in accordance with the 
terms of the Agreement, the PHA will enter into a HAP contract with the 
owner for the contract units.
    (c) Description of housing. (1) At a minimum, the Agreement must 
describe the following features of the housing to be developed (newly 
constructed or rehabilitated) and assisted under the PBV program:
    (i) Site;
    (ii) Location of contract units on site;
    (iii) Number of contract units by area (size) and number of 
bedrooms and bathrooms;
    (iv) Services, maintenance, or equipment to be supplied by the 
owner without charges in addition to the rent to owner;
    (v) Utilities available to the contract units, including a 
specification of utility services to be paid by owner (without charges 
in addition to rent) and utility services to be paid by the tenant;
    (vi) Indication of whether or not the design and construction 
requirements of the Fair Housing Act and implementing regulations at 24 
CFR 100.205 and the accessibility requirements of section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794) and implementing regulations 
at 24 CFR 8.22 and 8.23 apply to units under the Agreement. If these 
requirements are applicable, any required work item resulting from 
these requirements must be included in the description of work to be 
performed under the Agreement, as specified in paragraph (c)(i)(viii) 
of this section.
    (vii) Estimated initial rents to owner for the contract units;
    (viii) Description of the work to be performed under the Agreement. 
If the Agreement is for rehabilitation of units, the work description 
must include the rehabilitation work write up and, where determined 
necessary by the PHA, specifications, and plans. If the Agreement is 
for new construction, the work description must include the working 
drawings and specifications.
    (2) At a minimum, the housing must comply with the HQS. The PHA may 
elect to establish additional requirements for quality, architecture, 
or design of PBV housing, over and above the HQS, and any such 
additional requirement must be specified in the Agreement.

[[Page 59922]]

Sec.  983.153  When Agreement is executed.

    (a) Prohibition of excess subsidy. The PHA may not enter the 
Agreement with the owner until the subsidy layering review is completed 
(see Sec.  983.55).
    (b) Environmental approval. The PHA may not enter the Agreement 
with the owner until the environmental review is completed and the PHA 
has received the environmental approval (see Sec.  983.58).
    (c) Prompt execution of Agreement. The Agreement must be executed 
promptly after PHA notice of proposal selection to the selected owner.


Sec.  983.154  Conduct of development work.

    (a) Development requirements. The owner must carry out development 
work in accordance with the Agreement and the requirements of this 
section.
    (b) Labor standards. (1) In the case of an Agreement for 
development of nine or more contract units (whether or not completed in 
stages), the owner and the owner's contractors and subcontractors must 
pay Davis-Bacon wages to laborers and mechanics employed in development 
of the housing.
    (2) The HUD prescribed form of Agreement shall include the labor 
standards clauses required by HUD, such as those involving Davis-Bacon 
wage rates.
    (3) The owner and the owner's contractors and subcontractors must 
comply with the Contract Work Hours and Safety Standards Act, 
Department of Labor regulations in 29 CFR part 5, and other applicable 
federal labor relations laws and regulations. The PHA must monitor 
compliance with labor standards.
    (c) Equal opportunity. (1) Section 3--Training, employment, and 
contracting opportunities. The owner must comply with Section 3 of the 
Housing and Urban Development Act of 1968 (12 U.S.C. 1701u) and the 
implementing regulations at 24 CFR part 135.
    (2) Equal employment opportunity. The owner must comply with 
federal equal employment opportunity requirements of Executive Orders 
11246 as amended (3 CFR, 1964-1965 Comp., p. 339), 11625 (3 CFR, 1971-
1975 Comp., p. 616), 12432 (3 CFR, 1983 Comp., p. 198) and 12138 (3 
CFR, 1977 Comp., p. 393).
    (d) Eligibility to participate in federal programs and activities. 
The Agreement and HAP contract shall include a certification by the 
owner that the owner and other project principals (including the 
officers and principal members, shareholders, investors, and other 
parties having a substantial interest in the project) are not on the 
U.S. General Services Administration list of parties excluded from 
federal procurement and nonprocurement programs.
    (e) Disclosure of conflict of interest. The owner must disclose any 
possible conflict of interest that would be a violation of the 
Agreement, the HAP contract, or HUD regulations.


Sec.  983.155  Completion of housing.

    (a) Completion deadline. The owner must develop and complete the 
housing in accordance with the Agreement. The Agreement must specify 
the deadlines for completion of the housing and for submission by the 
owner of the required evidence of completion.
    (b) Required evidence of completion. (1) Minimum submission. At a 
minimum, the owner must submit the following evidence of completion to 
the PHA in the form and manner required by the PHA:
    (i) Owner certification that the work has been completed in 
accordance with the HQS and all requirements of the Agreement; and
    (ii) Owner certification that the owner has complied with labor 
standards and equal opportunity requirements in development of the 
housing.
    (2) Additional documentation. At the discretion of the PHA, the 
Agreement may specify additional documentation that must be submitted 
by the owner as evidence of housing completion. For example, such 
documentation may include:
    (i) A certificate of occupancy or other evidence that the units 
comply with local requirements (such as code and zoning requirements); 
and
    (ii) An architect's certification that the housing complies with:
    (A) HUD housing quality standards;
    (B) State, local, or other building codes;
    (C) Zoning;
    (D) The rehabilitation work write-up (for rehabilitated housing) or 
the work description (for newly constructed housing); or
    (E) Any additional design or quality requirements pursuant to the 
Agreement.


Sec.  983.156  PHA acceptance of completed units.

    (a) PHA determination of completion. When the PHA has received 
owner notice that the housing is completed:
    (1) The PHA must inspect to determine if the housing has been 
completed in accordance with the Agreement, including compliance with 
the HQS and any additional requirement imposed by the PHA under the 
Agreement.
    (2) The PHA must determine if the owner has submitted all required 
evidence of completion.
    (3) If the work has not been completed in accordance with the 
Agreement, the PHA must not enter into the HAP contract.
    (b) Execution of HAP contract. If the PHA determines that the 
housing has been completed in accordance with the Agreement and that 
the owner has submitted all required evidence of completion, the PHA 
must submit the HAP contract for execution by the owner and must then 
execute the HAP contract.

Subpart E--Housing Assistance Payments Contract


Sec.  983.201  Applicability.

    Subpart E applies to all PBV assistance under part 983 (including 
assistance for existing, newly constructed, or rehabilitated housing).


Sec.  983.202  Purpose of HAP contract.

    (a) Requirement. The PHA must enter into a HAP contract with the 
owner. The HAP contract must be in the form required by HUD 
headquarters (see 24 CFR 982.162).
    (b) Purpose of HAP contract. (1) The purpose of the HAP contract is 
to provide housing assistance payments for eligible families.
    (2) The PHA makes housing assistance payments to the owner in 
accordance with the HAP contract. Housing assistance is paid for 
contract units leased and occupied by eligible families during the HAP 
contract term.


Sec.  983.203  HAP contract information.

    The HAP contract must specify:
    (a) The total number of contract units by number of bedrooms;
    (b) Information needed to identify the site and the building or 
buildings where the contract units are located. The information must 
include the project's name, street address, city or county, state and 
zip code, block and lot number (if known), and any other information 
necessary to clearly identify the site and the building;
    (c) Information needed to identity the specific contract units in 
each building. The information must include the number of contract 
units in the building, the location of each contract unit, the area of 
each contract unit, and the number of bedrooms and bathrooms in each 
contract unit;
    (d) Services, maintenance, and equipment to be supplied by the 
owner without charges in addition to the rent to owner;
    (e) Utilities available to the contract units, including a 
specification of utility

[[Page 59923]]

services to be paid by the owner (without charges in addition to rent) 
and utility services to be paid by the tenant;
    (f) Features provided to comply with program accessibility 
requirements of Section 504 of the Rehabilitation Act of 1973 (29 
U.S.C. 794) and implementing regulations at 24 CFR part 8;
    (g) The HAP contract term;
    (h) The number of units in any building that will exceed the 25 
percent per building cap (as described in Sec.  983.56), which will be 
set-aside for occupancy by qualifying families (elderly or disabled 
families and families receiving supportive services); and
    (i) The initial rent to owner (for the first 12 months of the HAP 
contract term).


Sec.  983.204  When HAP contract is executed.

    (a) PHA inspection of housing. (1) Before execution of the HAP 
contract, the PHA must inspect each contract unit in accordance with 
Sec.  983.103(b).
    (2) The PHA may not enter into a HAP contract for any contract unit 
until the PHA has determined that the unit complies with the HQS.
    (b) Existing housing. In the case of existing housing, the HAP 
contract must be executed promptly after PHA selection of the owner 
proposal and PHA inspection of the housing.
    (c) Newly constructed or rehabilitated housing. (1) In the case of 
newly constructed or rehabilitated housing the HAP contract must be 
executed after the PHA has inspected the completed units and has 
determined that the units have been completed in accordance with the 
Agreement and the owner has furnished all required evidence of 
completion (see Sec. Sec.  983.155 and 983.156).
    (2) In the HAP contract, the owner certifies that the units have 
been completed in accordance with the Agreement. Completion of the 
units by the owner and acceptance of units by the PHA is subject to the 
provisions of the Agreement.


Sec.  983.205  Term of HAP contract.

    (a) Ten-year initial term. The PHA may enter into a HAP contract 
with an owner for an initial term of up to ten years for each contract 
unit. The length of the term of the HAP contract for any contract unit 
may not be less than one year, nor more than ten years.
    (b) Extension of term. Within one year before expiration, the PHA 
may agree to extend the term of the HAP contract for an additional term 
of up to five years if the PHA determines an extension is appropriate 
to continue providing affordable housing for low-income families. 
Subsequent extensions are subject to the same limitations. Any 
extension of the term must be on the form and subject to the conditions 
prescribed by HUD at the time of the extension.
    (c) Termination by PHA--insufficient funding. (1) The HAP contract 
must provide that the term of the PHA's contractual commitment is 
subject to the availability of sufficient appropriated funding (budget 
authority) as determined by HUD or by the PHA in accordance with HUD 
instructions. For purposes of this section, ``sufficient funding'' 
means the availability of appropriations, and of funding under the ACC 
from such appropriations, to make full payment of housing assistance 
payments payable to the owner for any contract year in accordance with 
the terms of the HAP contract.
    (2) The availability of sufficient funding must be determined by 
HUD or by the PHA in accordance with HUD instructions. If it is 
determined that there may not be sufficient funding to continue housing 
assistance payments for all contract units and for the full term of the 
HAP contract, the PHA has the right to terminate the HAP contract by 
notice to the owner for all or any of the contract units. Such action 
by the PHA shall be implemented in accordance with HUD instructions.
    (d) Termination by owner--reduction below initial rent. The owner 
may terminate the HAP contract, upon notice to the PHA, if the amount 
of the rent to owner for any contract unit, as adjusted in accordance 
with Sec.  983.302, is reduced below the amount of the initial rent to 
owner (rent to owner at the beginning of the HAP contract term). In 
this case, the assisted families residing in the contract units will be 
offered tenant-based voucher assistance.


Sec.  983.206  HAP contract amendments (to add or substitute contract 
units).

    (a) Amendment to substitute contract units. At the discretion of 
the PHA and subject to all PBV requirements, the HAP contract may be 
amended to substitute a different unit with the same number of bedrooms 
in the same building for a previously covered contract unit. Prior to 
such substitution, the PHA must inspect the proposed substitute unit 
and must determine the reasonable rent for such unit.
    (b) Amendment to add contract units. At the discretion of the PHA, 
and provided that the total number of units in a building that will 
receive PBV assistance or other project-based assistance will not 
exceed 25 percent of the number of dwelling units (assisted or 
unassisted) in the building or the 20 percent of authorized budget 
authority as provided in Sec.  983.6, a HAP contract may be amended 
during the three-year period immediately following the execution date 
of the HAP contract to add additional PBV contract units in the same 
building. An amendment to the HAP contract is subject to all PBV 
requirements (e.g., rents are reasonable), except that a new PBV 
request for proposals is not required. The anniversary and expiration 
dates of the HAP contract for the additional units must be the same as 
the anniversary and expiration dates of the HAP contract term for the 
PBV units originally placed under HAP contract.
    (c) Staged completion of contract units. Even if contract units are 
placed under the HAP contract in stages commencing on different dates, 
there is a single annual anniversary for all contract units under the 
HAP contract. The annual anniversary for all contract units is the 
annual anniversary date for the first contract units placed under the 
HAP contract. The expiration of the HAP contract for all the contract 
units completed in stages must be concurrent with the end of the HAP 
contract term for the units originally placed under HAP contract.


Sec.  983.207  Condition of contract units.

    (a) Owner maintenance and operation. (1) The owner must maintain 
and operate the contract units and premises in accordance with the HQS, 
including performance of ordinary and extraordinary maintenance.
    (2) The owner must provide all the services, maintenance, 
equipment, and utilities specified in the HAP contract with the PHA and 
in the lease with each assisted family.
    (3) At the discretion of the PHA, the HAP contract may also require 
continuing owner compliance during the HAP term with additional housing 
quality requirements specified by the PHA (in addition to, but not in 
place of, compliance with the HUD-prescribed HQS). Such additional 
requirements may be designed to assure continued compliance with any 
design, architecture, or quality requirement specified in the 
Agreement.
    (b) Remedies for HQS violation. (1) The PHA must vigorously enforce 
the owner's obligation to maintain contract units in accordance with 
the HQS. The PHA may not make any HAP payment to the owner for a 
contract unit covering any period during which the contract unit does 
not comply with the HQS.
    (2) If the PHA determines that a contract unit is not in accordance 
with the housing quality standards (or other HAP contract requirement), 
the PHA may exercise any of its remedies under

[[Page 59924]]

the HAP contract for all or any contract units. Such remedies include 
termination of housing assistance payments, abatement or reduction of 
housing assistance payments, reduction of contract units, and 
termination of the HAP contract.
    (c) Maintenance and replacement--Owner's standard practice. 
Maintenance and replacement (including redecoration) must be in 
accordance with the standard practice for the building concerned as 
established by the owner.


Sec.  983.208  Owner responsibilities.

    The owner is responsible for performing all of the owner 
responsibilities under the Agreement and the HAP contract. 24 CFR 
982.452 (Owner responsibilities) applies.


Sec.  983.209  Owner certification.

    By execution of the HAP contract, the owner certifies that at such 
execution and at all times during the term of the HAP contract:
    (a) All contract units are in good and tenantable condition. The 
owner is maintaining the premises and all contract units in accordance 
with the HQS.
    (b) The owner is providing all the services, maintenance, 
equipment, and utilities as agreed to under the HAP contract and the 
leases with assisted families.
    (c) Each contract unit for which the owner is receiving housing 
assistance payments is leased to an eligible family referred by the 
PHA, and the lease is in accordance with the HAP contract and HUD 
requirements.
    (d) To the best of the owner's knowledge, the members of the family 
reside in each contract unit for which the owner is receiving housing 
assistance payments, and the unit is the family's only residence.
    (e) The owner (including a principal or other interested party) is 
not the spouse, parent, child, grandparent, grandchild, sister, or 
brother of any member of a family residing in a contract unit.
    (f) The amount of the housing assistance payment is the correct 
amount due under the HAP contract.
    (g) The rent to owner for each contract unit does not exceed rents 
charged by the owner for other comparable unassisted units.
    (h) Except for the housing assistance payment and the tenant rent 
as provided under the HAP contract, the owner has not received and will 
not receive any payment or other consideration (from the family, the 
PHA, HUD, or any other public or private source) for rental of the 
contract unit.
    (i) The family does not own or have any interest in the contract 
unit.

Subpart F--Occupancy


Sec.  983.251  How participants are selected.

    (a) Who may receive PBV assistance? (1) The PHA may select families 
who are participants in the PHA's tenant-based voucher program and 
families who have applied for admission to the voucher program.
    (2) Except for voucher participants (determined eligible at 
original admission to the voucher program), the PHA may only select 
families determined eligible for admission at commencement of PBV 
assistance.
    (b) Protection of in-place families. (1) The term ``in-place 
family'' means an eligible family residing in a proposed contract unit 
on the proposal selection date.
    (2) In order to minimize displacement of in-place families, if a 
unit to be placed under contract that is either an existing unit or one 
requiring rehabilitation is occupied by an eligible family on the 
proposal selection date, the in-place family must be placed on the 
PHA's waiting list (if the family is not already on the list) and, once 
its continued eligibility is determined, given an absolute selection 
preference and referred to the project owner for an appropriately sized 
PBV unit in the project. (However, the PHA may deny assistance for the 
grounds specified in 24 CFR 982.552 and 982.553.) Admission of such 
families is not subject to income-targeting under 24 CFR 
982.201(b)(2)(i), and such families must be referred to the owner from 
the PHA's waiting list. A PHA shall give such families priority for 
admission to the PBV program. This protection does not apply to 
families that are not eligible to participate in the program on the 
proposal selection date.
    (c) Selection from PHA waiting list. (1) Applicants who will occupy 
PBV units must be selected by the PHA from the PHA waiting list. The 
PHA must select applicants from the waiting list in accordance with the 
policies in the PHA administrative plan.
    (2) The PHA may use a separate waiting list for admission to PBV 
units or may use the same waiting list for both tenant-based assistance 
and PBV assistance. If the PHA chooses to use a separate waiting list 
for admission to PBV units, the PHA must offer to place applicants who 
are listed on the waiting list for tenant-based assistance on the 
waiting list for PBV assistance.
    (3) The PHA may use separate waiting lists for PBV units in 
individual projects or buildings (or for sets of such units) or may use 
a single waiting list for the PHA's whole PBV program. In either case, 
the waiting list may establish criteria or preferences for occupancy of 
particular units.
    (4) The PHA may merge the waiting list for PBV assistance with the 
PHA waiting list for admission to another assisted housing program.
    (5) The PHA may place families referred by the PBV owner on its PBV 
waiting list.
    (6) Not less than 75 percent of the families admitted to a PHA's 
tenant-based and project-based voucher programs during the PHA fiscal 
year from the PHA waiting list shall be extremely low-income families. 
The income-targeting requirements at 24 CFR 982.201(b)(2) apply to the 
total of admissions to the PHA's project-based voucher program and 
tenant-based voucher program during the PHA fiscal year from the PHA 
waiting list for such programs.
    (7) In selecting families to occupy PBV units with special 
accessibility features for persons with disabilities, the PHA must 
first refer families who require such accessibility features to the 
owner (see 24 CFR 8.26 and 100.202).
    (d) Preference for services offered. In selecting families, PHAs 
may give preference to disabled families who need services offered at a 
particular project in accordance with the limits under this paragraph. 
The prohibition on granting preferences to persons with a specific 
disability at 24 CFR 982.207(b)(3) continues to apply.
    (1) Preference limits. (i) The preference is limited to the 
population of families (including individuals) with disabilities that 
significantly interfere with their ability to obtain and maintain 
themselves in housing;
    (ii) Who, without appropriate supportive services, will not be able 
to obtain or maintain themselves in housing; and
    (iii) For whom such services cannot be provided in a nonsegregated 
setting.
    (2) Disabled residents shall not be required to accept the 
particular services offered at the project.
    (3) In advertising the project, the owner may advertise the project 
as offering services for a particular type of disability; however, the 
project must be open to all otherwise eligible persons with 
disabilities who may benefit from services provided in the project.
    (e) Offer of PBV assistance. (1) If a family refuses the PHA's 
offer of PBV assistance, such refusal does not affect the family's 
position on the PHA waiting list for tenant-based assistance.
    (2) If a PBV owner rejects a family for admission to the owner's 
PBV units,

[[Page 59925]]

such rejection by the owner does not affect the family's position on 
the PHA waiting list for tenant-based assistance.
    (3) The PHA may not take any of the following actions against an 
applicant who has applied for, received, or refused an offer of PBV 
assistance:
    (i) Refuse to list the applicant on the PHA waiting list for 
tenant-based assistance;
    (ii) Deny any admission preference for which the applicant is 
currently qualified;
    (iii) Change the applicant's place on the waiting list based on 
preference, date, and time of application, or other factors affecting 
selection under the PHA selection policy;
    (iv) Remove the applicant from the waiting list for tenant-based 
voucher assistance.


Sec.  983.252  PHA information for accepted family.

    (a) Oral briefing. When a family accepts an offer of PBV 
assistance, the PHA must give the family an oral briefing. The briefing 
must include information on the following subjects:
    (1) A description of how the program works; and
    (2) Family and owner responsibilities.
    (b) Information packet. The PHA must give the family a packet that 
includes information on the following subjects:
    (1) How the PHA determines the total tenant payment for a family;
    (2) Family obligations under the program; and
    (3) Applicable fair housing information.
    (c) Providing information for persons with disabilities. (1) If the 
family head or spouse is a disabled person, the PHA must take 
appropriate steps to assure effective communication, in accordance with 
24 CFR 8.6, in conducting the oral briefing and in providing the 
written information packet, including in alternative formats.
    (2) The PHA shall have some mechanism for referring to accessible 
PBV units a family that includes a person with mobility impairment.
    (d) Providing information for persons with limited English 
proficiency. The PHA should take reasonable steps to assure meaningful 
access by persons with limited English proficiency in accordance with 
obligations contained in Title VI of the Civil Rights Act of 1964 and 
Executive Order 13166.


Sec.  983.253  Leasing of contract units.

    (a) Owner selection of tenants. (1) During the term of the HAP 
contract, the owner must lease contract units only to eligible families 
selected and referred by the PHA from the PHA waiting list.
    (2) The owner is responsible for adopting written tenant selection 
procedures that are consistent with the purpose of improving housing 
opportunities for very low-income families and reasonably related to 
program eligibility and an applicant's ability to perform the lease 
obligations.
    (3) An owner must promptly notify in writing any rejected applicant 
of the grounds for any rejection.
    (b) Size of unit. The contract unit leased to each family must be 
appropriate for the size of the family under the PHA's subsidy 
standards.


Sec.  983.254  Vacancies.

    (a) Filling vacant units. (1) The owner must promptly notify the 
PHA of any vacancy or expected vacancy in a contract unit. After 
receiving the owner notice, the PHA must make every reasonable effort 
to refer promptly a sufficient number of families for the owner to fill 
such vacancies.
    (2) The owner must lease vacant contract units only to eligible 
families on the PHA waiting list referred by the PHA.
    (3) The PHA and the owner must make reasonable good faith efforts 
to minimize the likelihood and length of any vacancy.
    (b) Reducing number of contract units. If any contract units have 
been vacant for a period of 120 or more days since owner notice of 
vacancy (and notwithstanding the reasonable good faith efforts of the 
PHA to fill such vacancies), the PHA may give notice to the owner 
amending the HAP contract to reduce the number of contract units by 
subtracting the number of contract units (by number of bedrooms) that 
have been vacant for such period.


Sec.  983.255  Tenant screening.

    (a) PHA option. (1) The PHA has no responsibility or liability to 
the owner or any other person for the family's behavior or suitability 
for tenancy. However, the PHA may opt to screen applicants for family 
behavior or suitability for tenancy and may deny admission to an 
applicant based on such screening.
    (2) The PHA must conduct any such screening of applicants in 
accordance with policies stated in the PHA administrative plan.
    (b) Owner responsibility. (1) The owner is responsible for 
screening and selection of the family to occupy the owner's unit.
    (2) The owner is responsible for screening of families on the basis 
of their tenancy histories. An owner may consider a family's background 
with respect to such factors as:
    (i) Payment of rent and utility bills;
    (ii) Caring for a unit and premises;
    (iii) Respecting the rights of other residents to the peaceful 
enjoyment of their housing;
    (iv) Drug-related criminal activity or other criminal activity that 
is a threat to the health, safety, or property of others; and
    (v) Compliance with other essential conditions of tenancy;
    (c) Providing tenant information to owner. (1) The PHA must give 
the owner:
    (i) The family's current and prior address (as shown in the PHA 
records); and
    (ii) The name and address (if known to the PHA) of the landlord at 
the family's current and any prior address.
    (2) When a family wants to lease a dwelling unit, the PHA may offer 
the owner other information in the PHA possession about the family, 
including information about the tenancy history of family members or 
about drug trafficking and criminal activity by family members.
    (3) The PHA must give the family a description of the PHA policy on 
providing information to owners.
    (4) The PHA policy must provide that the PHA will give the same 
types of information to all owners.


Sec.  983.256  Lease.

    (a) Tenant's legal capacity. The tenant must have legal capacity to 
enter a lease under state and local law. ``Legal capacity'' means that 
the tenant is bound by the terms of the lease and may enforce the terms 
of the lease against the owner.
    (b) Form of lease. (1) The tenant and the owner must enter a 
written lease for the unit. The lease must be executed by the owner and 
the tenant.
    (2) If the owner uses a standard lease form for rental to 
unassisted tenants in the locality or the premises, the lease must be 
in such standard form, except as provided in paragraph (b)(4) of this 
section. If the owner does not use a standard lease form for rental to 
unassisted tenants, the owner may use another form of lease, such as a 
PHA model lease.
    (3) In all cases, the lease must include a HUD-required tenancy 
addendum. The tenancy addendum must include, word-for-word, all 
provisions required by HUD.
    (4) The PHA may review the owner's lease form to determine if the 
lease complies with state and local law. The PHA may decline to approve 
the tenancy if the PHA determines that the lease does not comply with 
state or local law.

[[Page 59926]]

    (c) Required information. The lease must specify all of the 
following:
    (1) The names of the owner and the tenant;
    (2) The unit rented (address, apartment number, if any, and any 
other information needed to identify the leased contract unit);
    (3) The term of the lease (initial term and any provision for 
renewal);
    (4) The amount of the tenant rent to owner. The tenant rent to 
owner is subject to change during the term of the lease in accordance 
with HUD requirements;
    (5) A specification of what services, maintenance, equipment, and 
utilities are to be provided by the owner; and
    (6) The amount of any charges for food, furniture, or supportive 
services.
    (d) Tenancy addendum. (1) The tenancy addendum in the lease shall 
state:
    (i) The program tenancy requirements (as specified in this part);
    (ii) The composition of the household as approved by the PHA (names 
of family members and any PHA-approved live-in aide).
    (2) All provisions in the HUD-required tenancy addendum must be 
included in the lease. The terms of the tenancy addendum shall prevail 
over other provisions of the lease.
    (e) Changes in lease. (1) If the tenant and the owner agree to any 
change in the lease, such change must be in writing, and the owner must 
immediately give the PHA a copy of all such changes.
    (2) The owner must notify the PHA in advance of any proposed change 
in lease requirements governing the allocation of tenant and owner 
responsibilities for utilities. Such changes may be made only if 
approved by the PHA and in accordance with the terms of the lease 
relating to its amendment. The PHA must redetermine reasonable rent, in 
accordance with Sec.  983.303(c), based on any change in the allocation 
of responsibility for utilities between the owner and the tenant, and 
the redetermined reasonable rent shall be used in calculation of rent 
to owner from the effective date of the change.
    (f) Initial term of lease. The initial lease term must be for at 
least one year.
    (g) Lease provisions governing tenant absence from the unit. The 
lease may specify a maximum period of tenant absence from the unit that 
may be shorter than the maximum period permitted by PHA policy. (PHA 
termination of assistance actions due to family absence from the unit 
is subject to 24 CFR 982.312, except that the HAP contract is not 
terminated if the family is absent for longer than the maximum period 
permitted.)


Sec.  983.257  Owner termination of tenancy and eviction.

    (a) In general. 24 CFR 982.310 applies with the exception that 
Sec.  982.310(d)(1)(iii) and (iv) do not apply to the PBV program. (In 
the PBV program, ``good cause'' does not include a business or economic 
reason or desire to use the unit for an individual, family, or non-
residential rental purpose.) 24 CFR 5.858 through 5.861 on eviction for 
drug and alcohol abuse apply to this part.
    (b) Upon lease expiration, an owner may:
    (1) Renew the lease;
    (2) Refuse to renew the lease for good cause as stated in paragraph 
(a) of this section;
    (3) Refuse to renew the lease without good cause, in which case the 
PHA would provide the family with a tenant-based voucher and the unit 
would be removed from the PBV HAP contract.
    (c) If a family resides in a project-based unit excepted from the 
25 percent per-building cap on project-basing because of participation 
in an FSS or other supportive services program, and the family fails 
without good cause to complete its FSS contract of participation or 
supportive services requirement, such failure is grounds for lease 
termination by the owner.


Sec.  983.258  Security deposit: amounts owed by tenant.

    (a) The owner may collect a security deposit from the tenant.
    (b) The PHA may prohibit security deposits in excess of private 
market practice, or in excess of amounts charged by the owner to 
unassisted tenants.
    (c) When the tenant moves out of the contract unit, the owner, 
subject to state and local law, may use the security deposit, including 
any interest on the deposit, in accordance with the lease, as 
reimbursement for any unpaid tenant rent, damages to the unit, or other 
amounts which the tenant owes under the lease.
    (d) The owner must give the tenant a written list of all items 
charged against the security deposit and the amount of each item. After 
deducting the amount used to reimburse the owner, the owner must 
promptly refund the full amount of the balance to the tenant.
    (e) If the security deposit is not sufficient to cover amounts the 
tenant owes under the lease, the owner may seek to collect the balance 
from the tenant. However, the PHA has no liability or responsibility 
for payment of any amount owed by the family to the owner.


Sec.  983.259  Overcrowded, under-occupied, and accessible units.

    (a) Family occupancy of wrong-size or accessible unit. The PHA 
subsidy standards determine the appropriate unit size for the family 
size and composition. If the PHA determines that a family is occupying 
a:
    (1) Wrong-size unit, or
    (2) Unit with accessibility features that the family does not 
require, and the unit is needed by a family that requires the 
accessibility features, the PHA must promptly notify the family and the 
owner of this determination, and of the PHA's offer of continued 
assistance in another unit pursuant to paragraph (b) of this section.
    (b) PHA offer of continued assistance. (1) If a family is occupying 
a:
    (i) Wrong-size unit, or
    (ii) Unit with accessibility features that the family does not 
require, and the unit is needed by a family that requires the 
accessibility features, the PHA must offer the family the opportunity 
to receive continued housing assistance in another unit.
    (2) The PHA policy on such continued housing assistance must be 
stated in the administrative plan and may be in the form of:
    (i) Project-based voucher assistance in an appropriate-size unit 
(in the same building or in another building);
    (ii) Other project-based housing assistance (e.g., by occupancy of 
a public housing unit);
    (iii) Tenant-based rental assistance under the voucher program; or
    (iv) Other comparable public or private tenant-based assistance 
(e.g., under the HOME program).
    (c) PHA termination of housing assistance payments. (1) If the PHA 
offers the family the opportunity to receive tenant-based rental 
assistance under the voucher program, the PHA must terminate the 
housing assistance payments for a wrong-sized or accessible unit at 
expiration of the term of the family's voucher (including any extension 
granted by the PHA).
    (2) If the PHA offers the family the opportunity for another form 
of continued housing assistance in accordance with paragraph (b)(2) of 
this section (not in the tenant-based voucher program), and the family 
does not accept the offer, does not move out of the PBV unit within a 
reasonable time as determined by the PHA, or both, the PHA must 
terminate the housing assistance payments for the wrong-sized or 
accessible unit, at the expiration of a reasonable period as determined 
by the PHA.

[[Page 59927]]

Sec.  983.260  Family right to move.

    (a) The family may terminate the assisted lease at any time after 
the first year of occupancy. The family must give the owner advance 
written notice of intent to vacate (with a copy to the PHA) in 
accordance with the lease.
    (b) If the family has elected to terminate the lease in this 
manner, the PHA must offer the family the opportunity for continued 
tenant-based rental assistance, in the form of either assistance under 
the voucher program or other comparable tenant-based rental assistance.
    (c) Before providing notice to terminate the lease under paragraph 
(a) of this section, a family must contact the PHA to request 
comparable tenant-based rental assistance if the family wishes to move 
with continued assistance. If voucher or other comparable tenant-based 
rental assistance is not immediately available upon termination of the 
family's lease of a PBV unit, the PHA must give the family priority to 
receive the next available opportunity for continued tenant-based 
rental assistance.
    (d) If the family terminates the assisted lease before the end of 
one year, the family relinquishes the opportunity for continued tenant-
based assistance.


Sec.  983.261  When occupancy may exceed 25 percent cap on the number 
of PBV units in each building.

    (a) Except as provided in Sec.  983.56(b), the PHA may not pay 
housing assistance under the HAP contract for contract units in excess 
of the 25 percent cap pursuant to Sec.  983.56(a).
    (b) In referring families to the owner for admission to excepted 
units, the PHA must give preference to elderly or disabled families; or 
to families receiving supportive services.
    (c) If a family at the time of initial tenancy is receiving and 
while the resident of an excepted unit has received FSS supportive 
services or any other service as defined in the PHA administrative 
plan, and successfully completes the FSS contract of participation or 
the supportive services requirement, the unit continues to count as an 
excepted unit for as long as the family resides in the unit.
    (d) A family (or the remaining members of the family) residing in 
an excepted unit that no longer meets the criteria for a ``qualifying 
family'' in connection with the 25 percent per building cap exception 
(e.g., a family that does not successfully complete its FSS contract of 
participation or the supportive services requirement as defined in the 
PHA administrative plan or the remaining members of a family that no 
longer qualifies for elderly or disabled family status) must vacate the 
unit within a reasonable period of time established by the PHA, and the 
PHA shall cease paying housing assistance payments on behalf of the 
non-qualifying family. If the family fails to vacate the unit within 
the established time, the unit must be removed from the HAP contract 
unless the project is partially assisted, and it is possible for the 
HAP contract to be amended to substitute a different unit in the 
building in accordance with Sec.  983.206(a); or the owner terminates 
the lease and evicts the family. The housing assistance payments for a 
family residing in an excepted unit that is not in compliance with its 
family obligations (e.g., a family fails, without good cause, to 
successfully complete its FSS contract of participation or supportive 
services requirement) shall be terminated by the PHA.

Subpart G--Rent to Owner


Sec.  983.301  Determining the rent to owner.

    (a) Initial and redetermined rents. (1) The amount of the initial 
and redetermined rent to owner is determined in accordance with this 
section and Sec.  983.302.
    (2) The amount of the initial rent to owner is established at the 
beginning of the HAP contract term. For rehabilitated or newly 
constructed housing, the Agreement states the estimated amount of the 
initial rent to owner, but the actual amount of the initial rent to 
owner is established at the beginning of the HAP contract term.
    (3) The rent to owner is redetermined at the owner's request for a 
rent increase in accordance with this section and Sec.  983.302. The 
rent to owner is also redetermined at such time when there is a five 
percent or greater decrease in the published FMR in accordance with 
Sec.  983.302.
    (b) Amount of rent to owner. Except for certain tax credit units as 
provided in paragraph (c) of this section, the rent to owner must not 
exceed the lowest of:
    (1) An amount determined by the PHA, not to exceed 110 percent of 
the applicable fair market rent (or any exception payment standard 
approved by the Secretary) for the unit bedroom size minus any utility 
allowance;
    (2) The reasonable rent; or
    (3) The rent requested by the owner.
    (c) Rent to owner for certain tax credit units. (1) This paragraph 
(c) applies if:
    (i) A contract unit receives a low-income housing tax credit under 
the Internal Revenue Code of 1986 (see 26 U.S.C. 42);
    (ii) The contract unit is not located in a qualified census tract;
    (iii) In the same building, there are comparable tax credit units 
of the same unit bedroom size as the contract unit and the comparable 
tax credit units do not have any form of rental assistance other than 
the tax credit; and
    (iv) The tax credit rent exceeds the applicable fair market rental 
(or any exception payment standard) as determined in accordance with 
paragraph (b) of this section.
    (2) In the case of a contract unit described in paragraph (c)(1) of 
this section, the rent to owner must not exceed the lowest of:
    (i) The tax credit rent minus any utility allowance;
    (ii) The reasonable rent; or
    (iii) The rent requested by the owner.
    (3) The ``tax credit rent'' is the rent charged for comparable 
units of the same bedroom size in the building that also receive the 
low-income housing tax credit but do not have any additional rental 
assistance (e.g., additional assistance such as tenant-based voucher 
assistance).
    (4) A ``qualified census tract'' is any census tract (or equivalent 
geographic area defined by the Bureau of the Census) in which:
    (i) At least 50 percent of households have an income of less than 
60 percent of Area Median Gross Income (AMGI); or
    (ii) Where the poverty rate is at least 25 percent and where the 
census tract is designated as a qualified census tract by HUD.
    (d) Rent to owner for other tax credit units. Except in the case of 
a tax credit unit described in paragraph (c)(1) of this section, the 
rent to owner for all other tax credit units is determined pursuant to 
paragraph (b) of this section.
    (e) Reasonable rent. The PHA shall determine reasonable rent in 
accordance with Sec.  983.303. The rent to owner for each contract unit 
may at no time exceed the reasonable rent.
    (f) Use of FMRs and utility allowance schedule in determining the 
amount of rent to owner. (1) Amounts used. (i) Determination of initial 
rent (at beginning of HAP contract term). When determining the initial 
rent to owner, the PHA shall use the most recently published FMR in 
effect and the utility allowance schedule in effect at execution of the 
HAP contract. At its discretion, the PHA may use the amounts in effect 
at any time during the 30-day period immediately before the beginning 
date of the HAP contract.
    (ii) Redetermination of rent to owner. When redetermining the rent 
to owner, the PHA shall use the most recently

[[Page 59928]]

published FMR and the PHA utility allowance schedule in effect at the 
time of redetermination. At its discretion, the PHA may use the amounts 
in effect at any time during the 30-day period immediately before the 
redetermination date.
    (2) Exception payment standard and PHA utility allowance schedule. 
(i) Any HUD-approved exception payment standard amount under 24 CFR 
982.503(c) applies to both the tenant-based and project-based voucher 
programs. HUD will not approve a different exception payment standard 
amount for use in the PBV program.
    (ii) The PHA may not establish or apply different utility allowance 
amounts for the PBV program. The same PHA utility allowance schedule 
applies to both the tenant-based and PBV programs.
    (g) PHA-owned units. For PHA-owned PBV units, the initial rent to 
owner and the annual redetermination of rent at the annual anniversary 
of the HAP contract are determined by the independent entity approved 
by HUD in accordance with Sec.  983.59. The PHA must use the rent to 
owner established by the independent entity.


Sec.  983.302  Redetermination of rent to owner.

    (a) The PHA must redetermine the rent to owner:
    (1) Upon the owner's request; or
    (2) When there is a five percent or greater decrease in the 
published FMR in accordance with Sec.  983.301.
    (b) Rent increase. (1) The PHA may not make any rent increase other 
than an increase in the rent to owner as determined pursuant to Sec.  
983.301. (Provisions for special adjustments of contract rent pursuant 
to 42 U.S.C. 1437f(b)(2)(B) do not apply to the voucher program.)
    (2) The owner must request an increase in the rent to owner at the 
annual anniversary of the HAP contract by written notice to the PHA. 
The length of the required notice period of the owner request for a 
rent increase at the annual anniversary may be established by the PHA. 
The request must be submitted in the form and manner required by the 
PHA.
    (3) The PHA may not approve and the owner may not receive any 
increase of rent to owner until and unless the owner has complied with 
all requirements of the HAP contract, including compliance with the 
HQS. The owner may not receive any retroactive increase of rent for any 
period of noncompliance.
    (c) Rent decrease. If there is a decrease in the rent to owner, as 
established in accordance with Sec.  983.301, the rent to owner must be 
decreased, regardless of whether the owner requested a rent adjustment.
    (d) Notice of rent redetermination. Rent to owner is redetermined 
by written notice by the PHA to the owner specifying the amount of the 
redetermined rent (as determined in accordance with Sec. Sec.  983.301 
and 983.302). The PHA notice of the rent adjustment constitutes an 
amendment of the rent to owner specified in the HAP contract.
    (e) Contract year and annual anniversary of the HAP contract. (1) 
The contract year is the period of 12 calendar months preceding each 
annual anniversary of the HAP contract during the HAP contract term. 
The initial contract year is calculated from the first day of the first 
calendar month of the HAP contract term.
    (2) The annual anniversary of the HAP contract is the first day of 
the first calendar month after the end of the preceding contract year. 
The adjusted rent to owner amount applies for the period of 12 calendar 
months from the annual anniversary of the HAP contract.
    (3) See Sec.  983.206(c) for information on the annual anniversary 
of the HAP contract for contract units completed in stages.


Sec.  983.303  Reasonable rent.

    (a) Comparability requirement. At all times during the term of the 
HAP contract, the rent to owner for a contract unit may not exceed the 
reasonable rent as determined by the PHA.
    (b) Redetermination. The PHA must redetermine the reasonable rent:
    (1) Whenever there is a five percent or greater decrease in the 
published FMR in effect 60 days before the contract anniversary (for 
the unit sizes specified in the HAP contract) as compared with the FMR 
in effect one year before the contract anniversary;
    (2) Whenever the PHA approves a change in the allocation of 
responsibility for utilities between the owner and the tenant;
    (3) Whenever the HAP contract is amended to substitute a different 
contract unit in the same building; and
    (4) Whenever there is any other change that may substantially 
affect the reasonable rent.
    (c) How to determine reasonable rent. (1) The reasonable rent of a 
contract unit must be determined by comparison to rent for other 
comparable unassisted units.
    (2) In determining the reasonable rent, the PHA must consider 
factors that affect market rent, such as:
    (i) The location, quality, size, unit type, and age of the contract 
unit; and
    (ii) Amenities, housing services, maintenance, and utilities to be 
provided by the owner.
    (d) Comparability analysis. (1) For each unit, the PHA 
comparability analysis must use at least three comparable units in the 
private unassisted market, which may include comparable unassisted 
units in the premises or project.
    (2) The PHA must retain a comparability analysis that shows how the 
reasonable rent was determined, including major differences between the 
contract units and comparable unassisted units.
    (3) The comparability analysis may be performed by PHA staff or by 
another qualified person or entity. A person or entity that conducts 
the comparability analysis and any PHA staff or contractor engaged in 
determining the housing assistance payment based on the comparability 
analysis may not have any direct or indirect interest in the property.
    (e) Owner certification of comparability. By accepting each monthly 
housing assistance payment from the PHA, the owner certifies that the 
rent to owner is not more than rent charged by the owner for comparable 
unassisted units in the premises. The owner must give the PHA 
information requested by the PHA on rents charged by the owner for 
other units in the premises or elsewhere.
    (f) Determining reasonable rent for PHA-owned units. (1) For PHA-
owned units, the amount of the reasonable rent must be determined by an 
independent agency approved by HUD in accordance with Sec.  983.58, 
rather than by the PHA. Reasonable rent must be determined in 
accordance with this section.
    (2) The independent entity must furnish a copy of the independent 
entity determination of reasonable rent for PHA-owned units to the PHA 
and to the HUD field office where the project is located.


Sec.  983.304  Other subsidy: effect on rent to owner.

    (a) General. In addition to the rent limits established in 
accordance with Sec.  983.301 and 24 CFR 982.302, the following 
restrictions apply to certain units.
    (b) HOME. For units assisted under the HOME program, rents may not 
exceed rent limits as required by the HOME program (24 CFR 92.252).
    (c) Subsidized projects. (1) This paragraph (c) applies to any 
contract units in any of the following types of federally subsidized 
project:
    (i) An insured or non-insured Section 236 project;

[[Page 59929]]

    (ii) A formerly insured or non-insured Section 236 project that 
continues to receive Interest Reduction Payment following a decoupling 
action;
    (iii) A Section 221(d)(3) below market interest rate (BMIR) 
project;
    (iv) A Section 515 project of the Rural Housing Service;
    (v) A project receiving low-income housing tax credits;
    (vi) Any other type of federally subsidized project specified by 
HUD.
    (2) The rent to owner may not exceed the subsidized rent (basic 
rent) or tax credit rent as determined in accordance with requirements 
for the applicable federal program listed in paragraph (c)(1) of this 
section.
    (d) Combining subsidy. Rent to owner may not exceed any limitation 
required to comply with HUD subsidy layering requirements. See Sec.  
983.55.
    (e) Other subsidy: PHA discretion to reduce rent. At its 
discretion, a PHA may reduce the initial rent to owner because of other 
governmental subsidies, including tax credit or tax exemption, grants, 
or other subsidized financing.
    (f) Prohibition of other subsidy. For provisions that prohibit PBV 
assistance to units in certain types of subsidized housing, see Sec.  
983.54.


Sec.  983.305  Rent to owner: effect of rent control and other rent 
limits.

    In addition to the limitation to 110 percent of the FMR in Sec.  
983.301(b)(1), the rent reasonableness limit under Sec. Sec.  
983.301(b)(2) and 983.303, the rental determination provisions of Sec.  
983.301(f), the special limitations for tax credit units under Sec.  
983.301(c), and other rent limits under this part, the amount of rent 
to owner also may be subject to rent control or other limits under 
local, state, or federal law.

Subpart H--Payment to Owner


Sec.  983.351  PHA payment to owner for occupied unit.

    (a) When payments are made. (1) During the term of the HAP 
contract, the PHA shall make housing assistance payments to the owner 
in accordance with the terms of the HAP contract. The payments shall be 
made for the months during which a contract unit is leased to and 
actually occupied by an eligible family.
    (2) Except for discretionary vacancy payments in accordance with 
Sec.  983.352, the PHA may not make any housing assistance payment to 
the owner for any month after the month when the family moves out of 
the unit (even if household goods or property are left in the unit).
    (b) Monthly payment. Each month, the PHA shall make a housing 
assistance payment to the owner for each contract unit that complies 
with the HQS and is leased to and occupied by an eligible family in 
accordance with the HAP contract.
    (c) Calculating amount of payment. The monthly housing assistance 
payment by the PHA to the owner for a contract unit leased to a family 
is the rent to owner minus the tenant rent (total tenant payment minus 
the utility allowance).
    (d) Prompt payment. The housing assistance payment by the PHA to 
the owner under the HAP contract must be paid to the owner on or about 
the first day of the month for which payment is due, unless the owner 
and the PHA agree on a later date.
    (e) Owner compliance with contract. To receive housing assistance 
payments in accordance with the HAP contract, the owner must comply 
with all the provisions of the HAP contract. Unless the owner complies 
with all the provisions of the HAP contract, the owner does not have a 
right to receive housing assistance payments.


Sec.  983.352  Vacancy payment.

    (a) Payment for move-out month. If an assisted family moves out of 
the unit, the owner may keep the housing assistance payment payable for 
the calendar month when the family moves out (``move-out month''). 
However, the owner may not keep the payment if the PHA determines that 
the vacancy is the owner's fault.
    (b) Vacancy payment at PHA discretion. (1) At the discretion of the 
PHA, the HAP contract may provide for vacancy payments to the owner (in 
the amounts determined in accordance with paragraph (b)(2) of this 
section) for a PHA-determined period of vacancy extending from the 
beginning of the first calendar month after the move-out month for a 
period not exceeding two full months following the move-out month.
    (2) The vacancy payment to the owner for each month of the maximum 
two-month period will be determined by the PHA, and cannot exceed the 
monthly rent to owner under the assisted lease, minus any portion of 
the rental payment received by the owner (including amounts available 
from the tenant's security deposit). Any vacancy payment may cover only 
the period the unit remains vacant.
    (3) The PHA may make vacancy payments to the owner only if:
    (i) The owner gives the PHA prompt, written notice certifying that 
the family has vacated the unit and containing the date when the family 
moved out (to the best of the owner's knowledge and belief);
    (ii) The owner certifies that the vacancy is not the fault of the 
owner and that the unit was vacant during the period for which payment 
is claimed;
    (iii) The owner certifies that it has taken every reasonable action 
to minimize the likelihood and length of vacancy; and
    (iv) The owner provides any additional information required and 
requested by the PHA to verify that the owner is entitled to the 
vacancy payment.
    (4) The owner must submit a request for vacancy payments in the 
form and manner required by the PHA and must provide any information or 
substantiation required by the PHA to determine the amount of any 
vacancy payment.


Sec.  983.353  Tenant rent; payment to owner.

    (a) PHA determination. (1) The tenant rent is the portion of the 
rent to owner paid by the family. The PHA determines the tenant rent in 
accordance with HUD requirements.
    (2) Any changes in the amount of the tenant rent will be effective 
on the date stated in a notice by the PHA to the family and the owner.
    (b) Tenant payment to owner. (1) The family is responsible for 
paying the tenant rent (total tenant payment minus the utility 
allowance).
    (2) The amount of the tenant rent as determined by the PHA is the 
maximum amount the owner may charge the family for rent of a contract 
unit. The tenant rent is payment for all housing services, maintenance, 
equipment, and utilities to be provided by the owner without additional 
charge to the tenant, in accordance with the HAP contract and lease.
    (3) The owner may not demand or accept any rent payment from the 
tenant in excess of the tenant rent as determined by the PHA. The owner 
must immediately return any excess payment to the tenant.
    (4) The family is not responsible for payment of the portion of the 
rent to owner covered by the housing assistance payment under the HAP 
contract. The owner may not terminate the tenancy of an assisted family 
for nonpayment of the PHA housing assistance payment.
    (c) Limit of PHA responsibility. (1) The PHA is responsible only 
for making housing assistance payments to the owner on behalf of a 
family in accordance with the HAP contract. The PHA is not responsible 
for paying the tenant rent, or for paying any other claim by the owner.

[[Page 59930]]

    (2) The PHA may not use housing assistance payments or other 
program funds (including any administrative fee reserve) to pay any 
part of the tenant rent or to pay any other claim by the owner. The PHA 
may not make any payment to the owner for any damage to the unit, or 
for any other amount owed by a family under the family's lease or 
otherwise.
    (d) Utility reimbursement. (1) If the amount of the utility 
allowance exceeds the total tenant payment, the PHA shall pay the 
amount of such excess as a reimbursement for tenant-paid utilities 
(``utility reimbursement'') and the tenant rent to the owner shall be 
zero.
    (2) The PHA either may pay the utility reimbursement to the family 
or may pay the utility bill directly to the utility supplier on behalf 
of the family.
    (3) If the PHA chooses to pay the utility supplier directly, the 
PHA must notify the family of the amount paid to the utility supplier.


Sec.  983.354  Other fees and charges.

    (a) Meals and supportive services. (1) Except as provided in 
paragraph (a)(2) of this section, the owner may not require the tenant 
or family members to pay charges for meals or supportive services. Non-
payment of such charges is not grounds for termination of tenancy.
    (2) In assisted living developments receiving project-based 
assistance, owners may charge tenants, family members, or both for 
meals or supportive services. These charges may not be included in the 
rent to owner, nor may the value of meals and supportive services be 
included in the calculation of reasonable rent. Non-payment of such 
charges is grounds for termination of the lease by the owner in an 
assisted living development.
    (b) Other charges by owner. The owner may not charge the tenant or 
family members extra amounts for items customarily included in rent in 
the locality or provided at no additional cost to unsubsidized tenants 
in the premises.

    Dated: September 29, 2005.
Paula O. Blunt,
General Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. 05-20035 Filed 10-12-05; 8:45 am]
BILLING CODE 4210-33-P