19708 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Parts 941 and 970

[Docket No. FR–3919–I–01]

RIN 2577–AB54

Office of the Assistant Secretary for

Public and Indian Housing; Public/

Private Partnerships for the MixedFinance Development of Public

Housing Units

AGENCY: Office of the Assistant

Secretary for Public and Indian

Housing, HUD.

ACTION: Interim rule.

SUMMARY: This interim rule adds a new

subpart F to the public housing

development program at 24 CFR part

941, which authorizes a public housing

authority to use a combination of

private financing and public housing

development funds to develop public

housing units. HUD is issuing this

interim rule as a result of its

determination that public housing

development funds may be provided to

a PHA, even though the PHA will

provide those funds to a non-PHA entity

so that it can develop and own the

resulting public housing units. This

interim rule also sets forth the

requirements that must be met by the

owner entity before HUD will approve

a proposal to use mixed-finance

strategies under subpart F, and sets forth

continuing requirements that apply

throughout the development and

operation of the public housing units by

the owner entity. In addition, this

interim rule clarifies that replacement

public housing units for public housing

units that have been demolished may be

built on the original public housing site,

or in the same neighborhood, if the

number of such replacement units is

significantly fewer than the number of

units demolished.

DATES: Effective date: July 1, 1996,

except for §§ 941.606 and 941.610,

which contain information collection

requirements, and are not effective until

approved by the Office of Management

and Budget. When approval is obtained,

HUD will publish notice of the effective

date. See the Paperwork Reduction Act

Statement below under the heading, ‘‘V.

OTHER MATTERS.’’

Comments due date: Comments must

be submitted by July 1, 1996.

ADDRESSES: Interested persons are

invited to submit comments regarding

this interim rule to the Office of the

General Counsel, Rules Docket Clerk,

room 10276, Department of Housing and

Urban Development, 451 Seventh Street,

S.W., Washington, D.C. 20410–0500.

Comments should refer to the above

docket number and title. A copy of each

communication submitted will be

available for public inspection and

copying during regular business hours

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

time) at the above address. Facsimile

(FAX) comments are not acceptable. A

copy of any comment concerning the

information collections contained in the

interim rule also should be sent to the

Office of Management and Budget,

Office of Information and Regulatory

Affairs, Attention: Desk Officer for HUD,

Washington, D.C. 20503.

FOR FURTHER INFORMATION CONTACT: Bill

Flood, Office of Capital Improvements,

Office of Public and Indian Housing,

Department of Housing and Urban

Development, 451 Seventh Street, S.W.,

Washington, D.C. 20410. Telephone

number (voice): (202) 708–1640, ext.

4185; (TTY): (202) 708–9300 or 1–800–

877–8339. (Except for the ‘‘800’’

telephone number, these are not toll-free

numbers.)

SUPPLEMENTARY INFORMATION:

I. Background

This interim rule adds a new subpart

F to the public housing development

program at 24 CFR part 941, which

authorizes a PHA to use a combination

of private financing and public housing

development funds to develop public

housing units. HUD is issuing this

interim rule as a result of its

determination that a PHA may receive

public housing development funds

under section 5 of the United States

Housing Act of 1937, notwithstanding

the fact that the PHA will provide those

funds to a non-PHA entity to develop

and own the resulting public housing

units.

Under this subpart, a PHA and its

partner(s) may structure transactions

that make use of private and/or public

sources of financing (including public

housing development funds) for the

purpose of developing public housing

units. The resulting development(s)

(referred to as a ‘‘mixed-finance’’

development(s) for purposes of this

interim rule), may consist of 100 percent

public housing units, or may consist of

both public housing and non-public

housing units. Through Fiscal Year

1997, transactions approved under this

subpart will not involve more than $94

million in mortgage financing insured

by the Federal Housing Administration.

Additionally, at the end of the 1997

fiscal year, HUD will undertake an

analysis to determine the costs and

benefits of the transactions approved

under this subpart and will reconsider

the policy of using FHA mortgage

insurance in connection with this

development method.

Many potential scenarios for

ownership and transaction structures

exist, ranging from the PHA or its

partner(s) holding no ownership

interest, a partial ownership interest, or

l00 percent ownership interest in the

public housing units that are to be

developed. PHAs and/or their partner(s)

may choose to enter into a partnership

or other contractual arrangement with a

third-party entity for the mixed-finance

development and/or ownership of

public housing units. If this entity has

primary responsibility along with the

PHA for the development of these units,

it is referred to for purposes of this

interim rule as the PHA’s partner. The

entity that ultimately owns the public

housing units, whether the PHA retains

an ownership interest or not, is referred

to as the ‘‘owner entity.’’

Subpart F also sets forth the

requirements that must be met by the

PHA before HUD can approve a

proposal involving mixed-finance

strategies, and sets forth continuing

requirements that apply throughout the

development and operation of the

public housing units by the owner

entity. HUD notes that, in developments

where the proposed public housing

units are not specifically designated

units, the development requirements set

forth in subpart F (including DavisBacon and procurement requirements)

are applicable to all units that may, at

any time, be used as the public housing

units. Federal requirements applicable

to the operation of public housing units

must also be satisfied with respect to the

percentage of public housing units

approved by HUD for construction

within the development.

HUD believes that the establishment

of this new subpart will expand greatly

opportunities for private sector

investment in the development of

public housing units. The Department

believes further that the increased

development of such public housing

units will aid local efforts in providing

affordable housing for low income

families. HUD expects that the increased

flexibility of using public housing funds

for mixed-finance developments will

expand considerably the opportunities

for low income families to become more

economically and socially integrated

within the broader community. HUD

specifically requests comments from the

public on how the interim rule can

provide for further expansion of such

opportunities.

Furthermore, in HUD’s continuing

efforts to devolve responsibility and

avoid micromanagement, it has
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19709

attempted to establish in this interim

rule the minimal process necessary to

ensure that public housing development

funds are used for program purposes

and not subject to waste, fraud or abuse.

The Department specifically requests

comments from the public as to how the

process may be further streamlined,

particularly in light of any existing safe

harbors that may permit an abbreviated

Departmental review. HUD will

consider all comments that it receives in

developing the final rule implementing

subpart F.

II. Implementation

The Department’s primary

consideration in approving proposals

under this new subpart is to ensure the

financial viability of the proposed

mixed-finance development, since HUD

wants to ensure that the public housing

units remain available to eligible

families for the maximum term of any

low-income use restrictions. HUD also

wants to ensure that the Federal

investment of funds in the development

is protected.

The mixed-finance strategies

established in subpart F are

independent of the normal requirements

governing public housing development,

as set forth in existing subparts A

through E of part 941. To the extent that

certain requirements contained in

subparts A through E also apply to

mixed-finance development, HUD has

included in subpart F explicit crossreferences to such requirements.

The Department intends to model

procedures and requirements under

subpart F as closely as possible to the

Urban Development Action Grant

(UDAG) program. Just as UDAG

provided grant assistance to local

governments for use with other sources

of public and private funds (frequently

for implementation through

partnerships with other entities), so

subpart F is intended to allow PHAs to

combine their funds with other sources

and enter into partnerships for the

development and/or ownership of the

funded property. Of course, the public

housing funding sources that may be

used in a mixed-finance development

strategy operate under statutory

provisions different from those of the

UDAG program. The requirements

applicable to the use of public housing

development funds are set forth in this

subpart.

The Department notes that currently it

is in the process of overhauling the

public housing development program

set forth in 24 CFR subparts A through

E, and expects to publish shortly an

interim rule that will effect major

changes to these subparts. HUD intends

to include in that interim rulemaking a

republication of the contents of today’s

rulemaking. This will enable HUD to

correct in subpart F any cross-references

to provisions that may be revised and

reorganized in subparts A through E of

part 941.

A PHA may decide to pursue a mixedfinance development strategy under

subpart F using either public housing

development funds, or modernization

funds reserved by HUD for the PHA

prior to September 30, 1995 and

approved by HUD for conversion to

development uses. A PHA may also

propose mixed-finance strategies to

HUD under funding rounds for any

appropriate programs in the future,

which may be implemented after HUD

establishes the necessary regulatory

framework.

A PHA that wants to pursue a mixedfinance strategy is encouraged to

identify as soon as possible the

entity(ies) with which it would like to

partner. The PHA must select its

partner(s) pursuant to the requirements

set forth in § 941.602(d), in such a

manner that it can certify as to

competitive selection pursuant to

§ 941.606(n)(1)(ii). Since the roles in

development, ownership and

management of the proposed public

housing may substantially affect the

type of partner the PHA seeks, PHAs are

encouraged to thoroughly consider

desired arrangements before soliciting

partner(s).

The Department is authorizing the use

of mixed-finance strategies under this

subpart because it allows PHAs to

incorporate other financing sources into

the redevelopment of public housing

communities. The PHA and its

partner(s), as the primary entities

responsible for developing the proposal,

will be responsible for raising nonpublic housing capital for the mixedfinance development, as well as

structuring a transaction and ownership

structure that accommodates the

requirements of the other financing

sources.

For purposes of this interim rule, the

term ‘‘participating party’’ refers to any

public or private individual or

organization that: (a) provides financial

or other resources to carry out the

proposal, or specified activities

contained in the proposal; or (b)

otherwise participates in the

development and/or operation of the

public housing units and will receive

HUD funds with respect to such

participation.

To be eligible to use mixed-finance

strategies under this subpart, a PHA

must prepare its proposal pursuant to

§ 941.606, and make a submission

directly to Headquarters. Following a

technical screening of the proposal,

HUD will carry out a substantive review

of the proposal. This review includes a

preliminary assessment of the financing

and other documentation so that HUD

can determine, to its own satisfaction,

whether the mixed-finance development

is viable and is structured so as to

adequately protect the Federal

investment of funds in the development.

In addition, HUD will determine

whether the proposal complies with all

program requirements set forth in

subpart F, and will undertake various

statutory, regulatory and executive order

reviews.

If Headquarters determines that the

proposal can be approved, it will notify

the PHA accordingly and send to the

PHA for execution an ACC amendment

and/or grant agreement. If the PHA has

already executed a front-end ACC

amendment, HUD will send to the PHA

another ACC amendment for the mixedfinance development and/or a grant

agreement. After the PHA executes these

document(s), it must return them to

HUD for execution.

Before public housing development

funds may be disbursed to the PHA, it

must first submit to HUD evidentiary

materials and other forms of

documentation, as described in

§§ 941.610 and 941.612, and execute the

ACC amendment or special mixedfinance amendment to the ACC (and/or

grant agreement). Thereafter, the PHA is

responsible for ensuring that the mixedfinance development is carried out in

accordance with its approved proposal.

Requirements governing HUD’s

monitoring and review of the

development, and the sanctions that

HUD may impose for non-performance,

will be set forth in the special mixedfinance amendment to the ACC (and/or

grant agreement).

III. Justification for Interim

Rulemaking

In general, the Department publishes

a rule for public comment before issuing

a rule for effect, in accordance with its

own regulations on rulemaking at 24

CFR part 10. However, part 10 does

provide for exceptions from that general

rule where the agency finds good cause

to omit advance notice and public

participation. The good cause

requirement is satisfied when prior

public procedure is ‘‘impracticable,

unnecessary, or contrary to the public

interest.’’ (24 CFR § 10.1.)

The Department finds that good cause

exists to publish this interim rule for

effect without first soliciting public

comment, in that prior public procedure

is contrary to the public interest. This is
19710 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

because 24 CFR part 941, subpart F

authorizes a new and creative method of

financing the development of public

housing, which will enable localities to

respond to critical shortages in their low

income housing stock. The development

of public housing units within a

development will also promote the

economic and social integration of low

income families within the broader

community, thereby providing greater

opportunities for the upward mobility of

such families. In addition, mixedfinance development will promote

public/private development of public

housing units, thereby facilitating the

demolition of some of the nation’s most

severely distressed, obsolete high-rise

public housing complexes. The

Department invites public comment on

the interim rule. The comments

received within the 60-day comment

period will be considered during

development of a final rule that will

supersede this interim rule.

IV. Description of Provisions

Following is a section-by-section

analysis of each of the provisions

included in this interim rulemaking:

Section 941.202—(‘‘Site and

Neighborhood Standards’’)

This rulemaking adds a new

paragraph (c)(3) to HUD’s existing site

and neighborhood standards at

§ 941.202. This provision is applicable

only to mixed-finance proposals

submitted under 24 CFR part 941,

subpart F. The purpose of this provision

is to clarify HUD’s existing authority to

approve the building of replacement

public housing units for public housing

units that have been demolished on

either the original public housing site,

or in the same neighborhood, if the

number of such replacement public

housing units is significantly fewer than

the number of public housing units

demolished. This authority was

affirmed by the recent passage of section

1002(a)(9) of Pub.L. 104–19 (approved

July 27, 1995) which explicitly

authorizes HUD to approve the building

of replacement public housing units

under such circumstances.

The Department notes that, in

construing the phrase, ‘‘significantly

fewer units,’’ it has chosen not to

establish a quantitative standard.

Instead, HUD will assess, on a case-bycase basis, the facts involved in each

request. In addition, it will take into

account the evolving interpretation of

the phrase, ‘‘significantly fewer units’’

as it develops in the course of HUD’s

separate rulemaking on site and

neighborhood standards.

Section 941.600—(‘‘Purpose’’)

This section indicates that the

purpose of 24 CFR part 941, subpart F,

is to authorize PHAs to use a

combination of private financing and

public housing development funds. In

addition, this provision indicates that

subpart F is intended to authorize a

variety of ownership and transaction

structures, in which the PHA or its

partner(s) may hold no ownership

interest, a partial ownership interest, or

100 percent ownership interest. In

addition, this section sets forth

continuing requirements that apply

throughout the development and

operation of the public housing units in

the development.

Section 941.600(b) provides that

public housing units built within a

development using mixed-finance

strategies must be comparable to nonpublic housing units with respect to

size, location, external appearance, and

distribution within the development.

Section 941.602—(‘‘Applicability of

Other Requirements’’)

Paragraph (a) identifies the

relationship between subpart F and the

remaining subparts in 24 CFR part 941.

Specifically, this paragraph states that

the requirements contained in subpart F

apply to the development and operation

of public housing units in a

development that is owned, or that will

be owned, by a public/private

partnership using mixed-finance

strategies. If the PHA and/or owner

entity does not want to designate

specific units in a development as

public housing units, the development

of all units that may at any time be

considered public housing units must

be carried out in accordance with

Federal requirements (including DavisBacon and procurement requirements,

as set forth in this subpart).

This paragraph also provides that

other requirements related to public

housing development, as set forth in

subparts A through E, do not apply to

subpart F, except as may be required by

HUD. Included in this paragraph is a

listing of specific provisions contained

in subparts A through E that are

applicable to mixed-finance

development under subpart F, which

include: various definitions contained

in § 941.103; PHA eligibility (§ 941.201);

site and neighborhood standards

(§ 941.202); design and construction

standards (§ 941.203); cost guidelines

(§ 941.204); PHA contracts (§ 941.205);

eligible properties (§ 941.206);

relocation and acquisition (§ 941.207);

other Federal requirements (§ 941.208);

audit (§ 941.209); maximum

development cost (§ 941.406);

construction requirements (§ 941.503);

acceptance of work and contract

settlement (§ 941.504); and completion

of development (§ 941.505). (See

§ 941.602(a) for limitations on

applicability.)

Paragraph (b) provides that if HUD

determines there is a conflict between a

requirement contained in subpart F and

a requirement contained in any other

subpart of part 941, the requirements set

forth in subpart F shall apply, unless

HUD otherwise determines in writing.

Paragraph (c) of this section states that

all references in subparts A through F of

part 941 to the need for ‘‘HUD’’ or ‘‘field

office’’ action or approval shall be

construed to mean that ‘‘HUD

Headquarters’’ shall take such action or

provide such approval, unless the field

office is authorized in writing by

Headquarters to carry out a specific

function under this part. This is because

HUD intends that its Headquarters

office, located in Washington, DC, will

be responsible primarily for taking

necessary actions, and providing

approvals with respect to proposals

under subpart F.

Paragraph (d) provides that the

administrative requirements under 24

CFR part 85, which are applicable to

grants to PHAs and certain subgrantees,

are also applicable to grantees and

subgrantees that receive funds under

subpart F. However, this paragraph also

sets forth two provisos with respect to

the applicability of part 85.

The first proviso states that a PHA

may select a partner to implement its

proposal using competitive proposal

procedures for qualifications-based

procurement. This method will enable

the PHA to select a partner based on its

qualifications, subject to negotiation of

fair and reasonable compensation.

Currently, this method (which does not

require a consideration of price as a

selection factor) is authorized in part 85

only with respect to a grantee’s

procurement of architectural/

engineering professional services (see 24

CFR § 85.36(d)(3)(v). HUD believes that

a qualifications-based procurement of

partners in mixed-finance undertakings

is critical to the success of this new

development method. This is because

the success of a public/private

partnership hinges upon the creativity,

capacity, and vision of the partner and,

in many instances, the scope or cost of

the development may not be known at

the time the owner entity seeks to

procure the partner.

Consequently, HUD advocates

providing maximum flexibility to the

PHA to select a partner based upon its

qualifications to develop a mixed-
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19711

finance development. In this manner,

once selected, the partner will have the

freedom to consider various approaches,

sites, and financing strategies for the

development of the public housing

units, so long as the partner can provide

the minimum number of units for which

public housing funds were provided,

and complies with any total

development cost (TDC) and other

statutory and mandatory requirements.

The second proviso relates to the

applicability of part 85 to the owner

entity that will develop and operate the

public housing units. As a private

entity, the owner entity would not

normally be subject to the requirements

of part 85. However, this provision

states that the owner entity will be

required to comply with 24 CFR part 85

if HUD determines that the PHA or PHA

instrumentality exercises significant

functions within the owner entity with

respect to managing the development of

the proposed units. Even under such

circumstances, however, HUD may

exempt the owner entity from

complying with part 85 if it finds that

the owner entity has developed an

acceptable alternative procurement

plan.

Section 941.604—(‘‘Definitions’’)

This section of the interim rule

defines terms that are applicable only to

mixed-finance development:

‘‘development,’’ ‘‘mixed-finance,’’

‘‘owner entity,’’ ‘‘participating party,’’

‘‘partner,’’ ‘‘proposal,’’ ‘‘public housing

agency,’’ and ‘‘public housing unit.’’ In

addition to these terms, § 941.602(a)(1)

identifies those definitions in subpart A

that are also applicable to development

carried out pursuant to subpart F. These

definitions include: ‘‘Annual

Contributions Contract,’’ ‘‘cooperation

agreement,’’ ‘‘design documents,’’

‘‘reformulation,’’ and ‘‘total

development cost.’’

Section 941.606—Proposal

This section provides that the PHA

must submit its proposal for the mixedfinance development by a deadline to be

established by HUD. The Department

has the discretion to determine the

scope of a PHA’s submissions under this

section. HUD shall exercise its

discretion based upon a consideration of

whether the documentation is required

for HUD to carry out statutory or other

mandatory reviews, as well as a

consideration of the PHA’s past

performance in implementing

development projects under part 941,

and the PHA’s administrative capability,

as demonstrated by its overall score on

the PHMAP.

HUD has attempted to limit the scope

of the PHA proposal submissions to

those that it believes are necessary for

the Department to comply with

mandatory front-end reviews, such as

environmental reviews, section 213 (24

CFR part 791, subpart C) clearance,

subsidy layering, and life cycle analysis.

In addition, HUD is requesting a

number of items that it believes are

necessary for a preliminary assessment

of the financial viability of the proposed

mixed-finance development, and which

would be required by any private sector

lender prior to making available

construction or permanent financing.

These submissions include, but are not

limited to: information with respect to

the proposed activities to be carried out;

a description of the relationship of the

participating parties and of the

proposed financing (including the

proposed use of public housing

development funds); a description of the

proposed housing; site information; a

market analysis; an estimate of the

development construction cost;

information with respect to facilities,

displaced occupants, life cycle analysis,

a determination of operating feasibility,

and a copy of the section 213

solicitation letter; and various

certifications and assurances.

Section 941.608—Technical Processing

and Approval

After a PHA submits its proposal by

the specified deadline, HUD will

perform an initial screening to

determine that all required

documentation has been submitted. If

there are any deficiencies in the

proposal, HUD will advise the PHA and

request that the additional information

be submitted by a specified date.

Once the proposal is determined to be

complete, HUD will evaluate the

proposal to determine whether: (1) The

PHA has the necessary legal authority to

develop the public housing units

pursuant to subpart F; (2) the proposed

sources and uses of funds identified in

the proposal are eligible and reasonable,

and whether HUD’s preliminary

assessment of the financing and other

documentation establishes to HUD’s

satisfaction that the mixed-finance

development is viable and is structured

so as to adequately protect the Federal

investment of funds in the development;

(3) if applicable, whether the public

housing units in the proposed

development will be comparable in size,

location, external appearance and

distribution within the development to

the non-public housing units; (4) if

applicable, if public housing

development funds are to be used to pay

for more than the pro rata cost of

common area improvements, whether

the proposal complies with the specific

requirements set forth in § 941.608(b)(4)

(i) and (ii); (5) the proposal complies

with all program requirements

including, if applicable, any comments

received from the unit of general local

government under section 213 (24 CFR

part 791, subpart C); and (6) the

proposal is approvable after conducting

an environmental review in accordance

with 24 CFR part 50.

If HUD determines that the proposal

can be approved, it will send a

notification letter to the PHA indicating

that its proposal has been approved and

stating the approved total development

cost of the public housing units in the

development. HUD will also send to the

PHA for execution an ACC amendment

and/or grant agreement (or, if the PHA

has previously executed a front-end

ACC amendment, HUD will send to the

PHA a special mixed-finance

amendment to the ACC and/or a grant

agreement). (The special amendment to

the ACC (and/or grant agreement)

contains additional requirements

pertaining to the development and

operation of the public housing units in

the context of a mixed-finance

development.) After the PHA executes

these documents, it will return them to

HUD for execution.

Section 941.610—Evidentiary Materials

and Other Documents

Before HUD will allow a PHA to draw

down development funds pursuant to

its approved proposal, the PHA must

submit to HUD, within the prescribed

timeframe, certain evidentiary materials

and other documentation with respect

to the proposed development. This

documentation includes, but is not

limited to: various certifications and

assurances to ensure that the public

housing units will be developed and

operated by the owner entity in

accordance with the ACC and other

applicable Federal requirements for the

maximum period required by law;

copies of executed development-related

contracts; agreements that are needed to

implement the approved proposal; deed

restrictions, covenants running with the

land, etc.

Section 941.612—Disbursement of

Grant Funds

Paragraph (a) provides that a PHA

may obtain front-end assistance under

this subpart, and may use such funds to

pay for: (1) The costs of materials and

services related to the development of a

proposal; (2) costs associated with the

demolition of existing units on a

proposed site; or (3) other preliminary

development work.
19712 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

HUD will determine the maximum

amount of public housing funds that

may be drawn down by a PHA to pay

for preliminary development costs

based upon its review of the nature and

scope of activities proposed to be

carried out by the PHA. The Department

emphasizes that it will scrutinize

carefully any proposed request by a

PHA to use public housing funds in

such a manner as to benefit the nonpublic housing units in a development.

HUD will not permit public housing

development funds to be used to

subsidize non-public housing units, or

parts of the development, that do not

meet the specific requirements set forth

in this subpart.

Paragraph (b) provides that HUD will

review the evidentiary materials and

other documents submitted pursuant to

§ 941.610 and, upon determining that

such documents are satisfactory, may

approve a drawdown of development

funds, consistent with the following

requirements:

First, a PHA may only draw down

public housing development funds in an

approved ratio to other public and

private funds, in accordance with a

schedule approved by HUD. The PHA

and its partner must certify, in a form

prescribed by HUD, prior to the initial

drawdown of public housing

development funds that the PHA will

not draw down, and the partner will not

request, more public housing grant

funds than necessary to meet the PHA’s

pro rata share of the development costs.

The PHA may draw down public

housing development funds only when

payment is due and after inspection and

acceptance of work covered by the

draw. The PHA is required to release

funds promptly to its partner (or other

designated third parties approved by

HUD), normally within two working

days of receipt of the funds from HUD.

The PHA’s partner is also required to

take prompt action to distribute the

funds (normally within two working

days of receipt of the funds from the

PHA).

Second, the interim rule provides that

each drawdown of public housing

development funds constitutes a

certification by the PHA that all the

representations and warranties of the

PHA, as submitted under subpart F,

continue to be valid, true, and in full

force and effect. The PHA’s draw down

of funds constitutes a certification that

it is in full compliance with all of the

PHA’s obligations under this subpart

that are applicable at the time the funds

are draw down, and that the ratio for the

draw down of funds is satisfied. Finally,

the interim rule provides that the PHA’s

drawdown of funds constitutes a

certification that all conditions

precedent to the PHA’s authority to

draw down the public housing grant

funds have been satisfied, and that the

funds to be drawn down will be used

only for eligible costs actually incurred,

or that will be incurred, in accordance

with the provisions of this subpart and

the approved proposal.

Paragraph (c) of this section clarifies

that the standard drawdown

requirements set forth in paragraph (b)

(including the requirement that public

housing development funds must be

drawn down in an approved ratio to

other public and private funds) do not

apply to front-end assistance that is

approved by HUD for drawdown under

paragraph (a) of this section.

Section 941.614—(‘‘HUD Monitoring

and Review’’)

This section establishes the regulatory

authority for HUD’s ongoing monitoring

and review of a PHA’s approved

proposal, and provides that the special

mixed-finance amendment to the ACC

(and/or grant agreement) will set forth

specific monitoring and review

requirements under this subpart.

Section 941.616—(‘‘Sanctions’’)

This section establishes the regulatory

authority for HUD’s imposition of

sanctions in the event the public

housing units that are proposed to be

developed under this subpart are not

developed in accordance with the

projected development schedule, the

approved proposal, or all applicable

Federal requirements, or if the units are

not operated in accordance with

applicable requirements. In addition,

this section provides that HUD may

impose sanctions on the PHA, and/or

seek legal and equitable relief in

accordance with requirements

prescribed by HUD in the special

mixed-finance amendment to the ACC

and/or the grant agreement.

Section 970.2—(‘‘Applicability’’)

HUD is amending 24 CFR § 970.2 to

carve out two additional exceptions to

the applicability of 24 CFR part 970 (the

Department’s regulations implementing

the demolition and disposition

requirements of section 18 of the United

States Housing Act of 1937 (‘‘USHA’’)).

These exceptions are intended to clarify

that a PHA is not required under certain

circumstances to comply with the

disposition requirements set forth in

section 18 of the USHA.

The first exception provides that a

PHA is not required to comply with

section 18 if the PHA conveys a project

to the owner entity pursuant to an

approved proposal under 24 CFR part

941, subpart F, before the determination

of the Actual Development Cost to

enable an owner entity to develop the

project using the mixed-finance

development method.

The second exception provides that

the requirements of section 18 are

inapplicable in the event of a reversion

of the public housing units from the

owner entity to the PHA (e.g., at the end

of the low-income housing tax credit

term).

However, section 18 does apply

whenever the owner entity seeks to

dispose of public housing units

developed under subpart F to a nonPHA entity, or to demolish the units, or

to operate the units in a manner

inconsistent with public housing

occupancy requirements. Section 18

also applies to any disposition by the

PHA of public housing units once the

Actual Development Cost of the units is

determined. Thus, a PHA that wants to

convey existing public housing units to

an owner entity for rehabilitation would

have to comply with requirements set

forth in section 18.

V. Other Matters

National Environmental Policy Act

A Finding of No Significant Impact

with respect to the environment has

been made in accordance with HUD

regulations at 24 CFR part 50

implementing section 102(2)(C) of the

National Environmental Policy Act of

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

Significant Impact is available for public

inspection and copying between 7:30

a.m. and 5:30 p.m. weekdays at the

Office of Rules Docket Clerk, 451

Seventh Street, S.W., room 10276,

Washington, D.C. 20410–0500.

Regulatory Flexibility Act

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)), has reviewed this interim rule

before publication and by approving it

certifies that the interim rule will not

have a significant impact on a

substantial number of small entities.

Executive Order 12866

This interim rule was reviewed by the

Office of Management and Budget under

Executive Order 12866 as a significant

regulatory action. Any changes made in

this interim rule as a result of that

review are clearly identified in the

docket file, which is available for public

inspection in the Office of HUD’s Rules

Docket Clerk, room 10276, 451 7th

Street, S.W., Washington, D.C.

Pursuant to Executive Order 12866,

each Federal agency must provide a

cost/benefit analysis with respect to
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19713

each rule that is determined to be a

significant regulatory action.

Accordingly, HUD sets forth the

following cost/benefit analysis for this

interim rulemaking:

Mixed finance development is a new

development method whereby existing

public housing development funds can

be used with other public and private

funding sources. This interim rule will

not result in any additional cost to the

taxpayer, since it enables PHAs to

combine their funding with private and

other public sources, and to enter into

partnerships with other entities for the

development, ownership and/or

management of public housing units.

This financing mechanism will enable

PHAs to locate public housing units in

developments that may consist of public

housing and non-public housing units.

This interim rule provides that public

housing units located within a

development must be comparable to the

non-public housing units with respect

to size, location, external appearance

and distribution within the

development. In developments

consisting solely of public housing

units, the additional capital made

available through other sources is

expected to provide higher quality

living environments than would be

possible if the PHA used only public

housing development funds to construct

the development.

Examples of this method of

development under the HOPE VI Urban

Revitalization Demonstration program

are underway. Estimated private

investment in these transactions range

from one-half to twice the level of the

public housing funds involved.

Additional benefits to the public

include ending the isolation and

stigmatization of public housing

residents. Moreover, the interim rule

will enhance the ability of PHAs to

collaborate substantially with other

local institutions in the large-scale

revitalization of neighborhoods

containing public housing. Public

housing created as part of mixed-finance

transactions is subject to market forces,

particularly when integrated with nonpublic housing units in a development.

Finally, the interim rule provides for

flexibility in transaction structures as

well as development, ownership and

management strategies for PHAs to craft

the most advantageous proposal for

their particular communities.

Executive Order 12606, the Family

The General Counsel, as the

Designated Official under Executive

Order 12606, The Family, has

determined that the provisions of this

interim rule will not have a significant

impact on family formation,

maintenance or well-being, except to the

extent that the program authorized by

the interim rule will provide increased

opportunities for low-income families to

live in public housing developments.

The Department believes that these

opportunities will increase the

likelihood that low-income families will

become more economically and racially

integrated within the broader

community, thereby providing positive

benefits for families.

Executive Order 12611, Federalism

The General Counsel, as the

Designated Official under section 6(a) of

Executive Order 12611, Federalism, has

determined that the policies contained

in this interim rule will not have

substantial direct effects on States or

their political subdivisions, or on the

relationship between the Federal

government and the States, or on the

distribution of power and

responsibilities among the various

levels of government.

Catalog of Federal Domestic Assistance.

The Catalog of Federal Domestic

Assistance number for this program is

14.850.

Paperwork Reduction Act Statement

The information collection

requirements contained in §§ 941.606

and 941.610 of this interim rule have

been submitted to the Office of

Management and Budget (OMB) for

review under the Paperwork Reduction

Act of 1995 (44 U.S.C. 3501–3520). An

agency may not conduct or sponsor, and

a person is not required to respond to,

a collection of information unless the

collection displays a valid control

number. The OMB control number,

when assigned, will be announced by

separate notice in the Federal Register.

The public reporting burden for each

of these collections of information is

estimated to include the time for

reviewing the instructions, searching

existing data sources, gathering and

maintaining the data needed, and

completing and reviewing the collection

of information. Information on the

estimated public reporting burden is

provided herein. Send comments

regarding this burden estimate or any

other aspect of this collection of

information, including suggestions for

reducing this burden, to Kay Weaver,

Reports Management Officer,

Department of Housing and Urban

Development, 45l Seventh Street, S.W.,

Room 10276, Washington, D.C. 20410;

and to the Office of Management and

Budget, Attention: Desk Officer for

HUD, Washington, D.C. 20503.

Information on the estimated public

reporting burden is provided, as

follows:

ANNUAL REPORTING BURDEN FOR INFORMATION COLLECTION

[FR–3919]

Section Number of respondents x Frequency of

responses x Hours per response = Burden hours

941.606 ...................................................................................... 35 1 48 1,680

941.610 ...................................................................................... 20 1 64 1,280

Total Reporting Burden ................................................... ....................... ... ....................... ... ....................... ... 2,960

List of Subjects

24 CFR Part 941

Grant programs—housing and

community development, Loan

programs—housing and community

development, Public housing, Reporting

and recordkeeping requirements.

24 CFR Part 970

Grant programs—housing and

community development, Public

housing, Reporting and recordkeeping

requirements.

In accordance with the reasons set

forth in the preamble, 24 CFR part 941

and part 970 are amended as follows:

PART 941—PUBLIC HOUSING

DEVELOPMENT

1. The authority citation for 24 CFR

part 941 continues to read as follows:

Authority: 42 U.S.C. 1437b, 1437c, 1437g,

and 3535(d).
19714 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

2. Section 941.202 is amended by

adding a new paragraph (c)(3), to read

as follows:

§ 941.202 Site and neighborhood

standards.

* * * * *

(c) * * *

(3) Notwithstanding any other

provision of this part, and for purposes

only of subpart F of this part,

replacement public housing units for

public housing units demolished may

be built on the original public housing

site, or in the same neighborhood, if the

number of such replacement public

housing units is significantly fewer than

the number of public housing units

demolished.

* * * * *

3. A new subpart F is added to read

as follows:

Subpart F—Public/Private Partnerships for

the Mixed Finance Development of Public

Housing Units

Sec.

941.600 Purpose.

941.602 Applicability of other

requirements.

941.604 Definitions.

941.606 Proposal.

941.608 Technical processing and approval.

941.610 Evidentiary materials and other

documents.

941.612 Disbursement of grant funds.

941.614 HUD monitoring and review.

941.616 Sanctions.

Subpart F—Public/Private Partnerships

for the Mixed Finance Development of

Public Housing Units

§ 941.600 Purpose.

(a)(1) This subpart authorizes a PHA

to use a combination of private

financing and public housing

development funds to develop public

housing units, and is designed to enable

PHAs and their partners to structure

transactions that make use of private

and/or public sources of financing.

Many potential scenarios for ownership

and transaction structures exist, ranging

from the PHA or its partner(s) holding

no ownership interest, a partial

ownership interest, or 100 percent of the

ownership interest of the public housing

units that are to be developed. PHAs

and/or their partner(s) may choose to

enter into a partnership or other

contractual arrangement with a thirdparty entity for the mixed-finance

development and/or ownership of

public housing units. If this entity has

primary responsibility along with the

PHA for the development of these units,

it is referred to for purposes of this

subpart as the PHA’s ‘‘partner.’’ The

entity that ultimately owns the public

housing units, whether or not the PHA

retains an ownership interest, is referred

to as the ‘‘owner entity.’’ The resulting

‘‘mixed-finance’’ developments may

consist of 100 percent public housing

units, or may consist of public housing

and non-public housing units.

(2) This subpart sets forth the

requirements that must be met by the

PHA and its partner(s) before HUD can

approve a proposal for mixed-finance

development, and also sets forth

continuing requirements that apply

throughout the development and

operation of the development by the

owner entity.

(b) Under this subpart, public housing

units that are built in a mixed-finance

development must be comparable in

size, location, external appearance, and

distribution to the non-public housing

units within the development.

§ 941.602 Applicability of other

requirements.

(a) Relationship of this subpart to

other requirements in this part. The

requirements contained in this subpart

apply only to the development of public

housing units using mixed-finance

development methods under this

subpart and to the operation of public

housing units that are owned, or that

will be owned, by an owner entity

under this subpart. Other requirements

for the development of public housing,

as set forth in subparts A through E of

this part, shall not apply to the

development of public housing units

pursuant to this subpart, except as may

be required by HUD. Applicable

requirements include, but shall not be

limited to, the following:

(1) Section 941.103 (‘‘Definitions’’)

(definitions of the following terms only

shall apply to this subpart: ‘‘Annual

Contributions Contract (ACC),’’

‘‘cooperation agreement,’’ ‘‘design

documents,’’ ‘‘reformulation,’’ and

‘‘Total Development Cost (TDC).’’

(2) Section 941.201 (‘‘PHA

eligibility’’) (except that specific

requirements governing the cooperation

agreement, as set forth in § 941.201(c),

shall be determined in accordance with

this subpart);

(3) Section 941.202 (‘‘Site and

neighborhood standards’’);

(4) Section 941.203 (‘‘Design and

construction standards’’);

(5) Section 941.204 (‘‘Cost

guidelines’’);

(6) Section 941.205 (‘‘PHA contracts’’)

(except that the reference to

‘‘development related contracts entered

into by the PHA’’ shall be construed to

mean ‘‘development related contracts

entered into by the PHA or the owner

entity’’);

(7) Section 941.206 (‘‘Eligible

properties’’);

(8) Section 941.207 (‘‘Relocation and

acquisition’’);

(9) Section 941.208 (‘‘Other Federal

requirements’’);

(10) Section 941.209 (‘‘Audit’’);

(11) Section 941.406 (‘‘Maximum

development cost and advances’’)

(except that paragraph (b) of that

section, dealing with ‘‘development

advances,’’ is not applicable to this

subpart);

(12) Section 941.503 (‘‘Construction

requirements’’);

(13) Section 941.504 (‘‘Acceptance of

work and contract settlement’’); and

(14) Section 941.505 (‘‘Completion of

development’’).

(b) Procedure in the event of a conflict

between requirements. In the event of a

conflict between a requirement

contained in this subpart and an

applicable requirement set forth in

subparts A through E of this part, the

requirements of this subpart shall apply,

unless HUD otherwise so determines in

writing.

(c) HUD approval. For purposes of

this subpart only, any action or approval

that is required to be taken or provided

by HUD or by the HUD field office,

pursuant to a requirement set forth in

subparts A through F of this part, shall

be construed to mean that HUD

Headquarters shall take such action or

provide such approval, unless the field

office is authorized in writing by

Headquarters to carry out a specific

function under this subpart.

(d) Applicability of requirements

pursuant to 24 CFR part 85. The

requirements of 24 CFR part 85 are

applicable to this subpart, subject to the

following two provisos:

(1) A PHA may select a partner using

competitive proposal procedures for

qualifications-based procurement

(subject to negotiation of fair and

reasonable compensation, including

TDC and other applicable cost

limitations);

(2) An owner entity (which, as a

private entity, would normally not be

subject to part 24 CFR part 85) shall be

required to comply with 24 CFR part 85

if HUD determines that the PHA or PHA

instrumentality exercises significant

functions within the owner entity with

respect to managing the development of

the proposed units. HUD may, on a

case-by-case basis, exempt such an

owner entity from the need to comply

with 24 CFR part 85 if it determines that

the owner entity has developed an

acceptable alternative procurement

plan.
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19715

§ 941.604 Definitions.

In addition to the definitions set forth

in § 941.602(a)(1), the following

definitions are applicable to this

subpart:

Development. A housing facility

consisting of public housing units, and

that may also consist of non-public

housing units, that has been developed,

or that will be developed, using mixedfinance strategies under this subpart.

Mixed-finance. The combined use of

publicly and privately financed sources

of funds for the development of public

housing units under this subpart.

Owner Entity. The entity that will

own the public housing units, if the

PHA holds less than one hundred

percent of the ownership interest; or the

lessee under a ground lease from the

PHA. The owner entity may be a

partnership that includes the PHA.

Participating party. Any person, firm,

corporation, or public or private entity

that:

(1) Agrees to provide financial or

other resources to carry out the

approved proposal, or specified

activities contained in the proposal; or

(2) Otherwise participates in the

development and/or operation of the

public housing units and will receive

funds derived from HUD with respect to

such participation. The term

‘‘participating party’’ includes an owner

entity or partner.

Partner. A third party entity with

whom the PHA has entered into a

partnership or other contractual

arrangement to provide for the mixedfinance development of public housing

units pursuant to this subpart, and that

has primary responsibility with the PHA

for the development of the housing

units under the terms of the approved

proposal.

Proposal. For purposes of this subpart

only, the term ‘‘proposal’’ means a

detailed PHA submission of information

under § 941.606.

Public Housing Agency (PHA). Any

State, county, municipality, or other

governmental entity or public body (or

agency or instrumentality thereof)

which is authorized to engage in or

assist in the development or operation

of low-income housing under this part.

For purposes of this subpart, the term

‘‘PHA’’ also encompasses any agency or

instrumentality of the PHA.

Public housing unit. A unit that is

eligible to receive operating subsidy

pursuant to section 9 of the Act (42

U.S.C. 1437g).

§ 941.606 Proposal.

Each proposal shall be prepared in the

form prescribed by HUD and shall

include some or all of the following

documentation, as deemed necessary by

HUD. In determining the amount of

information to be submitted by the PHA

under this section, HUD shall consider

whether the documentation is required

for HUD to carry out mandatory

statutory or executive order reviews, the

quality of the PHA’s past performance

in implementing development projects

under this part, and the PHA’s

demonstrated administrative capability,

as demonstrated by its overall score on

the PHMAP. The proposal includes:

(a) Activities; relationship of

participating parties. An identification

of the participating parties and a

description of the activities to be

undertaken by each of the participating

parties and the PHA, and the legal and

business relationships between the PHA

and each of the participating parties.

(b) Financing. A detailed description

of all financing (including public

housing development funds) necessary

for the implementation of the proposal,

specifying the sources (with respect to

each of the proposed categorical uses of

all such financing), together with a tenyear operating pro forma for the

development (including all underlying

assumptions). In addition, the PHA may

be required to submit to HUD, for such

review and approval as HUD deems

necessary, all documents (including

applications for financing) relating to

the financing of the proposal, including,

but not limited to, any loan agreements,

notes, mortgages or deeds of trust, use

restrictions, operating pro formas

relating to the viability of the

development, and other agreements or

documents pertaining to the financing

of the proposal.

(c) Methodology. If the PHA proposes

to provide public housing operating

subsidy for the public housing units, it

must submit a methodology acceptable

to HUD for the distribution of a portion

of its operating subsidy to such units;

(d) Development description. A

description of the housing, including

the number and type (with bedroom

count) of public housing units and, if

applicable, the number and type of nonpublic housing units (with bedroom

count) to be developed; schematic

drawings and designs of the proposed

building and unit plans; outline

specifications; and the types and

amounts of non-dwelling space to be

provided.

(e) Site information. An identification

and description of the proposed site,

site plan, and neighborhood.

(f) Market analysis. An analysis of the

projected market for the proposed

development.

(g) Development construction cost

estimate. A preliminary development

construction cost estimate based on the

schematic drawings and outline

specifications and current construction

costs prevailing in the area. In addition,

a copy of the PHA development

schedule, including the architect or

contractor estimate of the time required

to complete each major development

stage.

(h) Facilities. A statement addressing

the adequacy of existing or proposed

facilities and services for the

prospective occupants of the

development.

(i) Relocation. Information concerning

any displacement of site occupants,

including identification of each

displacee, the distribution plan for

notices, and the anticipated cost and

source of funding for relocation benefits.

(j) Operating feasibility. A

demonstration of the operating

feasibility of the development, which

shall be accomplished by the PHA’s

showing that the estimated operating

expenses of the development will not

exceed its estimated operating income.

(k) Life cycle analysis. For new

construction and substantial

rehabilitation, the criteria to be used in

equipping the proposed development

with heating and cooling systems,

which shall include a life-cycle cost

analysis of the installation, maintenance

and operating costs of such systems

pursuant to section 13 of the Act (42

U.S.C. 1437k).

(l) Section 213 clearance. To expedite

processing of the proposal, a PHA may

solicit, on behalf of HUD, comments

under section 213 (24 CFR part 791,

subpart C) from the chief executive

officer (CEO) (or his or her designee) of

the unit of general local government. In

such case, the solicitation letter must

state that comments should be sent

directly to HUD within 30 calendar days

of HUD’s estimated date of receipt of the

PHA’s proposal. The local government’s

response must state that the comments

are to be considered its only response

under 24 CFR part 791, subpart C. A

copy of the solicitation letter must be

included in the PHA’s proposal.

(m) New construction. If a proposal

involves new construction, the PHA

must comply with section 6(h) of the

Act (42 U.S.C. 1437d). This may be

accomplished by the PHA’s submission

of a comparison of the cost of new

construction in the neighborhood where

the housing is proposed to be

constructed and the cost of acquisition

of existing housing (with or without

rehabilitation) in the same

neighborhood (including estimated

costs of lead-based paint testing and

abatement). Alternatively, the PHA may

submit a certification, accompanied by
19716 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

supporting documentation, that there is

insufficient existing housing in the

neighborhood to develop public housing

through acquisition.

(n)(1) Certifications and assurances.

The PHA shall submit, as part of its

proposal, certifications and assurances

warranting that it:

(i) Has the legal authority under State

and local law to develop public housing

units through the establishment or

selection of an owner entity, and to

enter into all agreements and provide all

assurances required under this subpart.

In addition, the PHA shall warrant that

it has the legal authority necessary to

enter into any proposed partnership and

to fulfill its obligations as a partner

thereunder, and that it has obtained all

necessary approvals for this purpose;

(ii) Will use an open and competitive

process to select the partner and/or the

owner entity and shall ensure that there

is no conflict of interest involved in the

PHA’s selection of the partner and/or

owner entity to develop and operate the

proposed public housing units. In

addition, the PHA shall ensure that:

(A) Any selected partner and/or

owner entity complies with all

applicable State and local procurement

and conflict of interest requirements

with respect to its selection of entities

to assist in the development, and uses

a competitive process consistent with

the requirements set forth in this

subpart; and

(B) If the partner and/or owner entity

(or any other entity with an identity of

interests with such parties) wants to

serve as the general contractor for the

project or development, it may award

itself the construction contract only if it

can demonstrate to HUD’s satisfaction

that its bid is the lowest bid submitted

in response to a public request for bids;

(iii) Will be responsible to HUD for

ensuring that the public housing units

are developed and operated in

accordance with all applicable public

housing requirements, including the

ACC, and all pertinent statutory,

regulatory, and executive order

requirements, as those requirements

may be amended from time to time. The

PHA must also warrant that it will

provide for a mechanism to assure, to

HUD’s satisfaction, that the public

housing units will remain available for

use by low-income families for the

maximum period required by law. In

addition, the PHA must warrant that

any agreement providing for the

management of the public housing units

by an entity other than the PHA shall

require that the units be operated in

accordance with all applicable

requirements under this subpart for the

full term of any low-income use

restrictions.

(2) The PHA shall submit a

certification of previous participation in

accordance with procedures set forth in

24 CFR part 200, subpart H, and shall

ensure that a similar certification is

submitted to HUD by the participating

parties.

§ 941.608 Technical processing and

approval.

(a) Initial screening. HUD shall

perform an initial screening to

determine that all documentation

required as part of the proposal under

§ 941.606 has been submitted. HUD will

advise the PHA of any deficiencies in

the proposal and indicate that

additional information will be accepted

if it is received by a specified date.

(b) Technical processing. Upon

determining that a proposal is

acceptable for technical processing,

HUD will evaluate the proposal to

determine:

(1) Whether the PHA has the legal

authority necessary to develop public

housing units through the establishment

of an owner entity and the use of mixedfinance strategies in accordance with

this subpart;

(2) Whether the proposed sources and

uses of funds set forth in the proposal

are eligible and reasonable, and whether

HUD’s preliminary assessment of the

financing and other documentation

establishes to HUD’s satisfaction that

the mixed-finance development is

viable and is structured so as to

adequately protect the Federal

investment of funds in the development.

For this purpose, HUD will consider

(among other factors) the PHA’s

proposed methodology for allocating

operating subsidies on behalf of the

public housing units; the projected

revenues to be generated by any nonpublic housing units in a mixed-finance

development; and the l0-year operating

pro forma and other information

contained in the proposal;

(3) If applicable, whether the public

housing units in the proposed

development will be comparable in size,

location, external appearance and

distribution within the development to

the non-public housing units;

(4) If public housing development

funds are to be used to pay for more

than the pro rata cost of common area

improvements, whether the proposal

ensures that:

(i) On a per unit basis (taking into

consideration the number of public

housing units for which funds have

been reserved) the PHA will not exceed

TDC limits; and

(ii) Any common area improvements

will benefit all residents of the

development;

(5) Whether the proposal complies

with all program requirements

including, if applicable, any comments

received from the unit of general local

government pursuant to section 213 of

the Housing and Community

Development Act of 1974 (42 U.S.C.

1439) (see 24 CFR part 791, subpart C);

and

(6) Whether the proposal is

approvable following completion by

HUD of an environmental review in

accordance with the requirements of 24

CFR part 50.

(c) Proposal approval. HUD shall send

a notification letter to the PHA stating

that the proposal has been approved or

disapproved. For approved proposals,

the letter shall indicate the approved

total development cost of the public

housing units in the development. HUD

will also send to the PHA for execution

an ACC amendment and/or a grant

agreement. If the PHA has already

executed a front-end ACC amendment,

HUD will send to the PHA for execution

a special ACC amendment for the

mixed-finance development (and/or a

grant agreement). The PHA shall

execute these documents and return

them to HUD for execution.

§ 941.610 Evidentiary materials and other

documents.

(a) Submission of documents. As a

condition of the release of grant funds

under § 941.612, the PHA shall submit

to HUD, within the timeframe

prescribed by HUD, evidentiary

materials and other documentation, as

more fully set forth in the special

mixed-finance amendment to the ACC

(and/or grant agreement). Such

materials and documentation shall

include, but shall not be limited to:

(1) A copy of executed developmentrelated contracts entered into by the

PHA or owner entity with respect to the

development, and the PHA-executed

ACC amendment or special mixedfinance amendment to the ACC (and/or

grant agreement);

(2) Agreements that are necessary to

implement the proposal and to ensure

that all requirements of this subpart are

satisfied. Such agreements must be

submitted to HUD for review and

approval and shall include, but shall not

be limited to:

(i) A deed restriction, covenant

running with the land, ground lease, or

other arrangement of public record, that

will assure to HUD’s satisfaction that

the public housing units will be

available for use by eligible low-income

families in accordance with all
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19717

applicable public housing requirements

for the maximum period required by

law;

(ii) A regulatory or operating

agreement between the PHA and the

owner entity that provides binding

assurances that the operation of the

public housing units will be in

accordance with all applicable public

housing requirements;

(iii) An agreement between the PHA

and the owner entity with respect to the

provision of operating subsidy by the

PHA in accordance with this subpart;

(iv) A partnership agreement,

development agreement, or other

agreement entered into between the

PHA and its partner, or any other

participating party, that establishes the

relationships between the parties with

respect to the implementation of the

proposal, including all rights and

liabilities (financial and otherwise) of

the parties, a development schedule,

and the respective commitments of the

parties with respect to the development

of the public housing units. For

developments involving public and

non-public housing units only, the PHA

shall also provide for an allocation with

the owner entity of expenses and risks

(e.g., fire, exhaustion of, or failure to

receive, syndication funds, etc.)

associated with the development and

operation of the development. The

allocation of expenses and risks shall be

based upon a ratio that reflects the

proposed bedroom mix of the public

housing units as compared to the

bedroom mix and unit count of the nonpublic housing units in the

development, or as otherwise approved

by HUD;

(v) Any agreement relating to the

management of the public housing units

by an entity other than the PHA;

(vi) For developments consisting of

public housing and non-public housing

units, and in lieu of the standard

cooperation agreement required under

§ 941.201(c), the PHA shall submit a

cooperation agreement with the

applicable locality concerning PILOT

payments, local tax exemption and local

government services on behalf of the

proposed public housing units. Such

payments, exemption and services must

be based upon a ratio reflecting the

proposed bedroom mix of the public

housing units as compared to the

bedroom mix of the non-public housing

units in the development, or as

otherwise approved by HUD. For

developments consisting only of public

housing units, the PHA shall submit the

standard cooperation agreement

required under § 941.201(c);

(3) All private or public financing

documents evidencing the availability

of the participating party(ies)’s

financing, the amount and source of

financing committed to the proposal by

the participating party(ies), and the

irrevocability of those funds. HUD may

require in lieu of, or in addition to the

submission of these documents, an

opinion of the PHA’s and the owner

entity’s counsel (or other party

designated by HUD) attesting that

counsel has examined the availability of

the participating party(ies)’s financing,

and the amount and source of financing

committed to the proposal by the

participating party(ies), and has

determined that such financing has been

irrevocably committed by the

participating party(ies) for use in

carrying out the proposal, and that such

commitment is in the amount required

under the terms of the proposal;

(4) The organizational documents of

the owner entity, which shall be

reviewed by HUD (together with all

financing documents) to ensure that

they do not provide equity investors,

creditors, and any other parties, with

rights that would be inconsistent with,

or that could interfere with, HUD’s

interest in the proposed development;

(5) Evidence that all necessary actions

have been taken by the PHA and other

participating parties to confer such

legally enforceable rights as will enable

HUD to protect its investment in the

property and to ensure the availability

of the public housing units for lowincome persons for the maximum

permissible period;

(6) Evidence of control of the site by

the PHA, partner, or owner entity

following proposal submission, for such

period of time as may be required by

HUD;

(7) Evidence that construction or

rehabilitation is permitted by current

zoning ordinances or regulations, or

evidence to indicate that needed

rezoning is likely and will not delay

construction of the development;

(8) In addition, the PHA shall submit

the following certifications warranting

that:

(i) For PHAs receiving operating

assistance, that:

(A) There shall be no disposition of

the public housing units without the

prior written approval of HUD during

and for ten years after the end of the

period in which the public housing

units receiving operating subsidy from

the PHA; and

(B) During a 40-year period (which

may be extended for 10 years after the

end of the period in which the public

housing units receive operating subsidy

from the PHA, or as may be otherwise

required by law), the public housing

units shall be maintained and operated

in accordance with all applicable public

housing requirements (including the

ACC), as those requirements may be

amended from time to time;

(ii) The PHA will develop at least the

same number of public housing units as

were approved by HUD as part of the

PHA’s proposal. Where the PHA

proposes to pay for more than its pro

rata share of the cost of common area

improvements, the PHA must also

certify that:

(A) It will develop the same number

of public housing units as were

approved by HUD as part of the PHA’s

proposal, and will do so within the TDC

limits; and

(B) The common area improvements

will benefit all residents of the

development. If the PHA’s proposal

provides that public housing units

within a development will not be

specifically designated as public

housing units, but shall instead

constitute a fixed percentage of the

housing units and number of bedrooms

developed under the proposal, the PHA

must provide additional binding

assurances that the percentage of public

housing units and number of bedrooms,

as approved by HUD, will be

maintained as public housing by the

owner entity, and that all of the

requirements of this subpart will be

satisfied with respect to those units;

(iii) It will ensure that the

requirements of this subpart are binding

upon the owner entity and any partner

of the PHA and, to the extent

determined necessary by HUD, upon

any other participating party. In

addition, in the event of any

noncompliance with the requirements

of this subpart by any participating

party, the PHA agrees to take all

necessary enforcement action to ensure

such compliance or, alternatively, to

pursue any legal or equitable remedies

that HUD deems appropriate;

(iv) It will include in all agreements

or contracts with the partner, owner

entity, or any other participating parties

receiving development funds under this

subpart, an acknowledgement that a

transfer of the development funds by the

PHA to the partner, the owner entity, or

other participating party, shall not be

deemed to be an assignment of

development grant funds and that,

accordingly, the partner, the owner

entity or other participating party shall

not succeed to any rights to benefits of

the PHA under the ACC, or ACC

amendment, nor shall it attain any

privileges, authorities, interests, or

rights in or under the ACC or ACC

amendment;

(v) It will include, or cause to be

included, in all its agreements or
19718 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

contracts with the partner, the owner

entity, or other participating parties, and

in all contracts with any other party

involving the use of development grant

funds under this subpart, a provision

stating that nothing in the ACC or ACC

amendments providing such funds, nor

any agreement or contract between the

party(ies) shall be deemed to create a

relationship of third-party beneficiary,

principal and agent, limited or general

partnership, joint venture, or any

association or relationship involving

HUD;

(vi) It will ensure that the

development of the public housing units

will be in compliance with labor

standards applicable to the development

of public housing including, but not

limited to, wage rates under the DavisBacon Act (40 U.S.C. 276a et seq.). If the

proposed development will include

public housing units that are not

specifically designated units, the PHA

shall ensure that such labor

requirements are met with respect to the

development of all units that may, at

any time, be used as the public housing

units;

(vii) It will take all steps necessary to

ensure that, in the event of a foreclosure

or other adverse action brought against

the owner entity with respect to the

housing units (including, but not

limited to, the public housing units), the

operation of the public housing units

developed under this subpart shall not

be adversely affected.

(9) Such additional documentation as

may be required by HUD.

(b) Subsidy layering analysis. After

the PHA submits the documentation

required under paragraph (a) of this

section, HUD (or its designee) shall

carry out a subsidy layering analysis

pursuant to section 102(d) of the

Department of Housing and Urban

Development Reform Act of 1989 (42

U.S.C. 3545) (see 24 CFR part 4) to

determine whether the amount of

assistance being provided for the

development is more than necessary to

make the assisted activity feasible after

taking into account the other

governmental assistance.

§ 941.612 Disbursement of grant funds.

(a) Front-end drawdowns. A PHA may

request front-end assistance for both

scattered or non-scattered site

development in accordance with the

following requirements:

(1) Front-end assistance may be used

to pay for materials and services related

to proposal development, and may also

be used to pay for costs related to the

demolition of existing units on a

proposed site or for preliminary

development work;

(2) HUD shall determine on a case-bycase basis the maximum amount that

may be drawn down by a PHA to pay

for preliminary development costs,

based upon a consideration of the

nature and scope of activities proposed

to be carried out by the PHA;

(3) Before a request for front-end

assistance may be approved, the PHA

must provide HUD with such

information and documentation as HUD

deems appropriate from the list set forth

at § 941.606. In determining the extent

of the PHA’s submissions under this

paragraph (a), HUD shall ensure that it

has adequate information or

documentation to enable it to carry out

any statutory, executive order, or other

mandatory upfront reviews under this

subpart. These reviews shall include,

but shall not be limited to,

environmental reviews (including NEPA

and historic preservation),

intergovernmental review, section 213

clearance (24 CFR part 791, subpart C),

and subsidy layering. If, upon

completing these reviews, HUD

determines that the proposed

development is approvable, it may

execute with the PHA a front-end ACC

amendment and the special mixedfinance amendment to the ACC (and/or

grant agreement) to provide advances

for the purposes, and in the amounts,

approved by HUD.

(b) Standard drawdown requirements.

HUD will review the evidentiary

materials and other documents

submitted pursuant to § 941.610, and,

upon determining that such documents

are satisfactory, may approve a

drawdown of development funds,

consistent with the following

requirements:

(1) A PHA may only draw down

public housing development funds in an

approved ratio to other public and

private funds, in accordance with a

draw schedule prepared by the PHA and

approved by HUD. The PHA and its

partner shall certify, in a form

prescribed by HUD, prior to the initial

drawdown of public housing

development funds that the PHA will

not draw down and the partner will not

request more public housing grant funds

than necessary to meet the PHA’s pro

rata share of the development costs. The

PHA shall draw down public housing

development funds only when payment

is due and after inspection and

acceptance of work covered by the

draw. The PHA shall release funds to its

partner promptly, normally within two

working days of receipt of the funds

from HUD, and only in accordance with

the ratio approved by HUD. The PHA’s

partner shall take prompt action to

distribute the funds, normally within

two working days of receipt of the funds

from the PHA;

(2) Each drawdown of public housing

development funds constitutes a

certification by the PHA that:

(i) All the representations and

warranties of the PHA, as submitted in

accordance with this subpart, continue

to be valid, true, and in full force and

effect;

(ii) The PHA is in full compliance

with all of the PHA’s obligations

pursuant to this part which, by their

terms, are applicable at the time of the

drawdown of the public housing

development funds, and that to the best

of the PHA’s knowledge, it is not in

default under the ACC, as amended;

(iii) All conditions precedent to the

PHA’s authority to draw down the

public housing grant funds have been

satisfied;

(iv) The public housing grant funds to

be drawn down will be used for eligible

costs actually incurred or to be incurred

in accordance with the provisions of

this subpart and the approved proposal;

and

(v) The ratio for the draw down of

funds is satisfied.

(c) The standard drawdown

requirements set forth in paragraph (b)

of this section (including the

requirement that public housing

development funds must be drawn

down in an approved ratio to other

public and private funds) do not apply

to front-end assistance approved by

HUD pursuant to paragraph (a) of this

section.

§ 941.614 HUD monitoring and review.

HUD shall monitor and review the

implementation of the PHA’s approved

proposal in accordance with

requirements prescribed by HUD in a

special mixed-finance amendment to

the ACC (and/or grant agreement).

§ 941.616 Sanctions.

In the event the public housing units

that are proposed to be developed under

this subpart are not developed in

accordance with the projected

development schedule, the approved

proposal, and all applicable Federal

requirements, or if the units are not

operated in accordance with applicable

requirements, HUD may impose

sanctions on the PHA, and/or seek legal

and equitable relief, in accordance with

requirements prescribed by HUD in the

special mixed-finance amendment to

the ACC (and/or grant agreement).
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19719

PART 970—PUBLIC HOUSING

PROGRAM—DEMOLITION OR

DISPOSITION OF PUBLIC HOUSING

PROJECTS

5. Section 970.2 is amended by

removing the word ‘‘and’’ at the end of

paragraph (a)(9); by removing the period

at the end of paragraph (a)10); and by

adding new paragraphs (a)(11) and

(a)(12), to read as follows:

§ 970.2 Applicability.

(a) * * *

(11) A public housing development

that is conveyed by a PHA to an owner

entity pursuant to an approved proposal

under 24 CFR part 941, subpart F and

prior to the determination of the Actual

Development Cost to enable an owner

entity to develop the project using the

mixed-finance development method;

and

(12) Public housing units that are

developed pursuant to the mixedfinance development method at 24 CFR

part 941, subpart F, and that are

reconveyed by the owner entity to the

PHA.

* * * * *

Dated: January 16, 1996.

Kevin Emanuel Marchman,

Acting Assistant Secretary for Public and

Indian Housing.

[FR Doc. 96–10445 Filed 5–1–96; 8:45 am]

BILLING CODE 4210–33–P