Proposed Rule: Public and Indian Housing: Public Housing Operating Fund Program

Thursday,
April 14, 2005
Part III
Department of
Housing and Urban
Development
24 CFR Part 990
Revisions to the Public Housing
Operating Fund Program; Proposed Rule
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19858 Federal Register / Vol. 70, No. 71 / Thursday, April 14, 2005 / Proposed Rules
DEPARTMENT OF HOUSING AND address. Copies are also available for Harvard University Graduate School of
URBAN DEVELOPMENT inspection and downloading at http:// Design (Harvard GSD) to conduct a
www.epa.gov/feddocket. study on the costs incurred in operating
24 CFR Part 990 FOR FURTHER INFORMATION CONTACT: well-run public housing (Cost Study).
[Docket No. FR–4874–P–07, HUD–2005– Elizabeth Hanson, Public Housing This Congressional direction was
0005] Financial Management Division, Office contained in the Conference Report
of Public and Indian Housing, (H.R. Rep. No. 106–379 at 91 (1999))
RIN 2577–AC51 accompanying HUD’s Fiscal Year (FY)
Department of Housing and Urban
Development, 550 12th Street, SW., 2000 Appropriations Act (Pub. L. 106–
Revisions to the Public Housing 74, approved October 20, 1999).
Operating Fund Program Suite 100, Washington, DC 20024;
telephone 202–475–7949 (this telephone Congress further directed that HUD
AGENCY: Office of the Assistant number is not toll-free). Individuals make the results of the Cost Study
Secretary for Public and Indian with speech or hearing impairments available to the negotiated rulemaking
Housing, HUD. may access this number through TTY by committee and appropriate
ACTION: Proposed rule. calling the toll-free Federal Information congressional committees.
Relay Service at 1–800–877–8339. The Harvard GSD performed
SUMMARY: This proposed rule would extensive research on the question of
SUPPLEMENTARY INFORMATION:
revise the regulations for the Public what the expense level of managing
Housing Operating Fund Program I. Background well-run public housing should be.
(Operating Fund Program). Through the HUD, consistent with Congressional
Section 519 of the Quality Housing
Operating Fund Program, HUD direction, made the results of the Cost
and Work Responsibility Act of 1998
determines the allocation of operating Study available to the members of the
(Pub. L. 105–276, approved October 21,
subsidies to public housing agencies negotiated rulemaking committee who
1998) amended section 9 of the United
(PHAs). HUD developed the proposed developed the current Operating Fund
States Housing Act of 1937 (42 U.S.C. Program regulations, and also invited
rule with the active participation of 1437 et seq.) (1937 Act). As amended,
PHAs, public housing residents, and the committee members to be active
section 9 of the 1937 Act establishes an participants in Harvard GSD’s research
other relevant parties using the Operating Fund for the purpose of
procedures of the Negotiated for and development of the Cost Study.
making assistance available to public The Harvard GSD also conducted
Rulemaking Act of 1990. These housing agencies (PHAs) for the
regulatory changes reflect the several public meetings to allow for an
operation and management of public exchange of views and expectations
recommendations made by the housing. Section 9 of the 1937 Act also
negotiated rulemaking committee, with with the public housing industry,
requires that the amount of the beyond those industry members who
some modifications, on ways to improve assistance to be made available to a PHA
and clarify the current regulations were part of the negotiated rulemaking
from that fund be determined using a committee. The Cost Study was
governing the Operating Fund Program formula developed through negotiated
and take into consideration the completed and officially released in July
rulemaking procedures as provided in 2003.
recommendations of the subchapter III of chapter 5 of title 5,
congressionally-funded study by the United States Code, commonly referred II. The Negotiated Rulemaking
Harvard University Graduate School of to as the Negotiated Rulemaking Act of Advisory Committee on the Operating
Design on the cost of operating well-run 1990 (5 U.S.C. 561 et seq.). Fund
public housing. Negotiated rulemaking for an The FY 2004 Consolidated
DATES: Comments Due Date: June 13, Operating Fund Program was initiated Appropriations Act (Pub. L. 108–199,
2005. in March 1999, and the negotiated approved January 23, 2004) required
ADDRESSES: Interested persons are rulemaking committee consisted of 25 HUD to undertake negotiated
invited to submit comments regarding members representing PHAs, tenant rulemaking to make changes to the
this rule to the Regulations Division, organizations, community-based Operating Fund formula. Specifically,
Office of General Counsel, Room 10276, organizations, and the three national section 222 of the administrative
Department of Housing and Urban organizations representing PHAs— provisions for the HUD appropriations
Development, 451 Seventh Street, SW., Public Housing Authorities Directors provides for HUD to conduct negotiated
Washington, DC 20410–0500. Electronic Association (PHADA), Council of Large rulemaking with representatives from
comments may be submitted through Public Housing Authorities (CLPHA) interested parties for purposes of any
either: and National Association of Housing changes to the Operating Fund, and that
• The Federal Rulemaking Portal: at and Redevelopment Officials (NAHRO). a final rule be issued no later than July
http://www.regulations.gov; or The negotiated rulemaking committee 1, 2004.
• The HUD electronic Web site at: concluded with a proposed rule, In response to this statutory language,
http://www.epa.gov/feddocket. Follow published on July 10, 2000 (65 FR HUD published a notice on January 28,
the link entitled View Open HUD 42488), which was followed by an 2004 (69 FR 4212), announcing its
Dockets.’’ Commenters should follow interim rule published on March 29, intent to establish an advisory
the instructions provided on that site to 2001 (66 FR 17276). The March 29, committee to provide advice and
submit comments electronically. 2001, interim rule established the recommendations on developing a rule
Facsimile (FAX) comments are not Operating Fund Program regulations for effectuating changes to the Operating
acceptable. In all cases, communications that are currently in effect. These Fund Program in response to the
must refer to the docket number and regulations are located in part 990 of Harvard Cost Study. The January 28,
title. All comments and HUD’s regulations in title 24 of the Code 2004, notice solicited public comments
communications submitted will be of Federal Regulations. on the proposed membership of the
available, without revision, for public During the negotiated rulemaking for committee, and explained how persons
inspection and copying between 8 a.m. the Operating Fund Formula, Congress could be nominated for membership. On
and 5 p.m. weekdays at the above directed that HUD contract with the March 10, 2004 (69 FR 11349), HUD
Federal Register / Vol. 70, No. 71 / Thursday, April 14, 2005 / Proposed Rules 19859
published a notice in the Federal This section of the preamble describes the Department has concluded that the
Register announcing both the those situations where the purpose of the inflation factor is better
establishment of its negotiated recommendations submitted by the served by using the existing inflation
rulemaking advisory committee on the Committee have been revised, and the factor. Retaining the current inflation
Operating Fund (Committee) and the rationale for the changes. factor will provide PHAs with
final list of Committee members. continuity and an inflation factor that
The Committee held four meetings. A. Public Entity Fee
has adequately served to adjust the AEL
The meetings were held on March 30– The calculation of the Project Expense for many years.
April 1, 2004 in Washington, DC, April Level (PEL) would not include a $2 per The current inflation factor has a 60
13–15, 2004, also in Washington, DC, unit month (PUM) public entity fee. The percent wage and 40 percent non-wage
May 11–12, 2004 in Atlanta, Georgia, Committee recommended that a public structure in keeping with the
and June 8–9, 2004, in Potomac, entity fee of $2 PUM should be added Committee’s recommendation.
Maryland. All of the Committee sessions to the initial PELs. After careful review Additionally, the current inflation factor
were announced in the Federal Register of the proposal, it was determined that better reflects wages because it uses
and were open to the public. Members the expenses to be covered by the Bureau of Labor Statistics wage data
of the public were permitted to make additional subsidy from this public
generated from county level government
statements during the meetings at entity fee were already adequately
wages, which is then averaged to the
designated times, and to file written addressed through other means in the
metropolitan and non-metropolitan
statements with the Committee for its proposed rule.
level for each state. For the 40 percent
consideration. B. Operating Subsidy for Vacant Units non-wage inflation factor, the current
III. Changes to Committee Under the proposed rule, PHAs would formula uses the Producer Price Index
Recommendations receive subsidy for occupied dwelling (PPI) instead of the Consumer Price
This proposed rule is based primarily units and dwelling units with an Index (CPI). The PPI more accurately
on the recommendations made by the approved vacancy. The Committee reflects the actual costs associated with
Committee on ways to improve the recommended that PHAs also receive the production of non-food and non-
current Operating Fund regulations. operating subsidy for a limited number energy goods.
HUD developed a draft proposed rule of vacancies if the annualized rate is D. Nonprofit Ownership Coefficient
based on those recommendations. less than or equal to three percent. It is
Consistent with HUD’s obligations true that there are special circumstances The PEL for a given property consists
under Executive Order 12866 (entitled that may preclude PHAs from attaining of the sum of nine variable coefficients
‘‘Regulatory Planning and Review’’) and full occupancy and, therefore, HUD will added to a formula constant. The
other rulemaking authorities, the draft continue to pay subsidy for dwelling exponent of that sum is then multiplied
rule underwent further HUD and units meeting these circumstances (e.g., by a percentage, to reflect the nonprofit
executive branch review prior to units undergoing modernization, special ownership of the property. This
publication. As a result of those review use units, etc). However, payment of proposed rule provides for a nonprofit
processes, certain Committee subsidy for vacancies of up to three coefficient of four percent. The
recommendations have been revised. percent or for five units if the PHA has Committee recommended that the non-
These changes have been made to better 100 or fewer units is contradictory to profit coefficient be ten percent. The
reflect a comparison with subsidized the goals of subsidized housing and Department believes that PHAs have
market-based units and Administration asset management and comparability strong characteristics of both profit and
policies and budgetary priorities. HUD with subsidized market-based units. non-profit entities, and agrees with the
believes that these changes to the Accordingly, the proposed rule does not Cost Study’s inclusion of a coefficient.
recommendations advance the goals of provide for such additional subsidy. However, the ten percent differential
the Committee to implement an between the costs associated with for-
improved and more accurate Operating C. PEL Inflation Factor profit and non-profit entities also
Fund formula. The annual inflation factor used to reflects inefficiencies that currently
The overall proposed rule sets forth a adjust the PEL would continue to be the exist in the delivery of housing services
formula that is comparable with applicable local inflation factor used to that should not be supported in the
subsidized market-based units; adjust the Allowable Expense Level formula. Accordingly, the coefficient
however, differences between public (AEL) used under the current Operating has been reduced to account for these
housing units and subsidized market- Fund Program regulations. The current inefficiencies.
based units makes certain comparisons Committee recommended that the
E. Phase-In of Operating Subsidy Gains
difficult. In acknowledgment of these inflation factor should be based on
difficulties, certain add-ons were information published by the For PHAs that would experience a
included that went beyond the Harvard Department of Labor Bureau of Labor gain in their operating subsidy, the
Cost Study recommendations and Statistics (BLS). The Committee further proposed rule provides that the gain
provide additional incentives in some recommended that the adjustment factor will be phased in over a four-year
cases (for example, the freezing of rental should reflect a weight of 40 percent for period. The Committee recommended
income for three years). With these increases in cost of living as shown for that such increases be phased in over a
changes, the proposed rule would such annual period by the BLS U.S. two-year period. HUD recognizes that
provide PHAs more flexibility to Cities Average All Items Consumer Price PHAs should receive the full benefit of
augment the operating subsidy Index, and 60 percent for increases in increases to their operating subsidy
appropriations with additional revenue. wages, salaries and benefits for an allocation, but also believes that this
In total, the Department believes the annualized period as shown in the BLS period of time should be more closely
changes contained in the proposed rule Employment Cost Index. The Committee aligned with the five-year phase in
and the flexibility provided is sufficient based its recommendation on the fact period for those PHAs that would have
to provide for the operation and that the BLS data is readily available to their subsidy decreased as a result of the
maintenance of public housing. the public. Upon further consideration, proposed regulatory changes.
F. Discontinuation of Subsidy Reduction certain Committee recommendations A. Implementation of Cost Study

Through Demonstration of Successful that, as discussed above, were not
Conversion to Asset Management adopted in the proposed rule. The Committee used the Cost Study
Specifically, the four factors would be: as the basis for developing the interim
PHAs that experience a reduction in regulatory changes. For example, the
their operating subsidy will not be able (1) A $2 PUM public entity fee; (2) a ten
percent nonprofit coefficient; (3) proposed rule would implement the
to discontinue the reduction at the recommendation made by the Cost
PHA’s next subsidy calculation by payment of operating subsidy on a
limited number of vacancies if the Study to replace the current factor
demonstrating a successful conversion known as the Allowable Expense Level
to asset management. The Committee annualized rate is less than or equal to
three percent; and (4) an annual (AEL) with a new Project Expense Level
recommended that HUD should (PEL). The proposed rule also adopts the
inflation factor based on the most recent
discontinue subsidy reductions for a recommendation of the Cost Study to
annual data published by the BLS.
PHA that can demonstrate a successful redirect the focus of the public housing
conversion to asset management. It was H. Subsidy for Vacant Units program from an ‘‘agency-centric’’ to a
concluded that the Cost Study PHAs that appeal to receive higher ‘‘property-based’’ management model,
methodology should be equally applied subsidy on vacant units due to changing as is the case generally with multifamily
to all PHAs, and that providing for market conditions would be required to rental housing management.
discontinuation of subsidy reductions submit, with their appeal, a plan to end However, the Committee recognized
would weaken implementation of the the higher subsidy within two years. In that asset management reflects a
Cost Study. However, the proposed rule addition, a PHA shall only be granted significant change in the direction and
continues to phase in the reduction of one such appeal and shall only receive methods employed by many PHAs and
subsidy over the five-year period and by the higher subsidy for a maximum by HUD, and will require a longer
the percentages recommended by the period of two years. The Committee implementation period because there
Committee. Further, in accordance with recommendations did not provide for are many aspects to this change. Such
the Committee recommendations, the the submission of a plan to end the changes will include the creation of new
proposed rule allows PHAs to substitute higher subsidy, nor did the goals, a conversion to project-based
independent cost data for use as a basis recommendations provide for a limit on accounting, the establishment of a
of subsidy funding through an appeals the number of appeals or the term a different operational approach, and the
process. PHA would be permitted receive this implementation of additional
G. Adjustment Based on Committee higher subsidy. HUD recognizes that organizational and regulatory changes
Recommendations for Certain PHAs when units are vacant due to changing beyond those included in this rule. The
market conditions, receipt of additional regulatory changes made by this rule are
The proposed rule would provide an subsidy may be necessary. However, the
‘‘add on’’ for certain PHAs that would a significant initial step in the direction
Department believes that continuing to of asset management.
experience a reduction in its operating support vacant units is not sound fiscal
subsidy between the formula in the policy and a two year period is a B. Other Regulatory Goals
current Operating Fund Program sufficient time in which to implement a
regulations and the formula contained In addition to implementing the
plan to lease these vacant units. recommendations of the Cost Study, the
in the proposed rule. Specifically, if
such a PHA would instead experience I. Sanctions for Failure To Convert to changes contained in this proposed rule
an operating subsidy increase if the four Asset-Based Management improve and clarify the existing
factors listed below were applied to the The proposed rule provides that HUD requirements for the Operating Fund
formula in the proposed rule, the PHA shall impose sanctions as deemed Program. As more fully described
will receive an add on to its subsidy necessary, and otherwise provided by below, the proposed rule: (1) Provides
allocation. The Department recognizes law, for those PHAs that are not in more explicit guidance on the expected
that many PHAs, especially those that compliance with asset management by outcomes contained in the operating
would have experienced an operating FY2011. These sanctions may include subsidy formula; (2) streamlines and
subsidy reduction, may have already the imposition of a daily monetary fine simplifies the operating subsidy
begun initial conversion steps to asset until the PHA converts to asset calculation to determine appropriate
management. The Department believes management. The Committee sessions subsidy amounts for each PHA by
that a reduction in subsidy from the did not make a recommendation project and to distribute those correct
current regulations for those PHAs that regarding sanctions for PHAs not in amounts timely and accurately, to use
were expecting to receive an increase in compliance with asset management. effective administrative control of
subsidy jeopardizes their timely and HUD believes that such a provision is funds; to reduce reporting errors and
successful conversion to asset necessary to help ensure enforcement of facilitate more efficient and robust data
management. The amount of the add-on the asset management requirements collection; and (3) improves the
would be equal to the difference contained in the proposed rule. operating subsidy estimation process by
between the PHA’s operating subsidy placing more emphasis on actual or
calculated under the formula in the IV. This Proposed Rule historical data rather than on forecasted
proposed rule and the amount of the The proposed rule reflects the information.
PHA’s operating subsidy under the recommendations made by the 1. Streamlined calculation. The
proposed rule with the application of Committee, with some modifications, on proposed rule re-organizes part 990 to
the four factors listed below. The ways to improve and clarify the current describe and simplify the operating
amount of the increased funding would regulations governing the Operating subsidy calculation. The rule clearly
be determined using FY 2004 data and Fund Program, and takes into defines the major components of the
would be subject to the transition consideration the recommendations formula (such as the new Project
policies and requirements contained in contained in the Cost Study. The most Expense Level, Utilities Expense Level,
the proposed rule. The four factors used significant features of the proposed rule Other Formula Expenses (Add-ons), and
for purposes of this calculation reflect are described below. Formula Income) and notes the
relationships of these various forecasted information. The proposed rule revises the current regulations by
components. rule seeks to provide more accurate removing the discussion of those
Consistent with the Committee’s reporting and improve HUD’s ability to provisions that pertain to the Virgin
decision to streamline the operating estimate budget requirements by relying Islands, Puerto Rico, Guam, and Alaska
subsidy calculation, the proposed rule more on historical data. For example, PHAs. These PHAs had previously
would not codify certain secondary HUD will develop a PHA’s formula received operating subsidy funding
elements that will be used in the revised income from a PHA’s year-end financial outside of the Operating Fund formula
Operating Fund Formula. These information provided by the PHA but are now included within the
elements include the coefficients used through HUD’s information systems. formula.
to adjust the variables for calculating the 3. Funding period. In this proposed
new PEL, the units of measurement and rule, a PHA’s fiscal year-end is no Subpart B—Eligibility for Operating
round-off conventions that will be used longer tied to the formula and funding Subsidy; Computation of Eligible Unit
in the formula, and the determination of process. Under this proposed rule, HUD Months
the geographic variable used in the PEL will run the formula and obligate funds Subpart B describes the requirements
calculation. Regulatory codification of for all PHAs at the same time during the and procedures governing the
these formula elements would require fiscal year. This is a change from prior computation of eligible unit months. A
the use of notice and comment practice where HUD based the funding public housing unit may receive
rulemaking for future amendments and, on a limited number of actual current operating subsidy for each unit month
thus, potentially delay HUD’s ability to year subsidy calculations submissions that it qualifies as an occupied dwelling
update the formula as new and more and estimates of the remaining unit or a dwelling unit with an
accurate data becomes available. After outstanding subsidy calculations. This approved vacancy. The total number of
careful consideration, the Committee change will result in a one-time eligible unit months for the PHA will be
determined that these details should transition of obligating funds based on calculated from July 1 to June 30 prior
more appropriately be provided in non- a PHA’s fiscal year-end to a calendar to the first day of the applicable funding
codified guidance that may be more year. It is also HUD’s intent to use the period and will consist of eligible units
quickly revised, such as a Handbook, data, where available from its systems, as defined in this rule. The rule reserves
Federal Register notice, or other non- to populate the formula and to eliminate to HUD the right to determine the status
regulatory means. Following publication duplicate data reporting. of any public housing unit based on
of the final rule for this proposed rule, information in HUD’s information
HUD will issue guidance providing the C. New Information Systems systems. In addition, the rule provides
information described above, as well as As noted in this preamble and the for a change in a PHA’s formula within
other guidance regarding the revised proposed regulatory text, the changes to each one-year funding period based on
operating subsidy calculation. the Operating Fund Formula will the addition and deletion of units in a
In furtherance of this goal, the require that PHAs maintain and report PHA’s inventory.
Committee also elected to streamline data not required under the current Subpart C—Calculating Formula
regulatory text concerning statutory and operating subsidy calculation process. Expenses
other cross-cutting federal requirements Further, HUD will be required to update
that apply to the Operating Fund its automated information systems to New subpart C describes how formula
Program (for example, the accommodate the new data collections expenses will be calculated under the
environmental review procedures of the required by the rule. HUD has begun the revised Operating Fund Formula. The
National Environmental Policy Act of process of updating its systems, and will rule provides a detailed description
1969 (42 U.S.C. 4321) and the notify each PHA when HUD has the with respect to the computation of the
implementing regulations at 24 CFR automated systems capacity to receive PEL. The PEL replaces the existing AEL
parts 50 and 58 currently referenced at the information required by the rule. methodology pursuant to the
§ 990.111). This regulatory streamlining recommendations contained in the Cost
would not reflect any change in the V. Overview of Revised Part 990 Study. As more fully detailed in the
timing and applicability of the The proposed rule re-organizes the proposed regulatory text, the specific
requirements of part 58 as currently regulations in 24 CFR part 990 for PEL for a given property consists of the
described in § 990.111(c), including the purposes of clarity and to reflect the sum of nine variable coefficients added
need to obtain approval of a request for recommendations of the Cost Study. to a formula constant. The exponent of
release of funds, HUD environmental The proposed rule establishes ten that sum is then multiplied by a
approval, or a responsible entity’s subparts (A through J) in part 990, with percentage, to reflect the nonprofit
determination of exemption before the each subpart addressing a specific ownership of the property and an
funding of non-routine maintenance and aspect of the Operating Fund. This annual inflation factor is then applied to
capital expenditure activities may be section of the preamble summarizes the the resulting PEL. This nonprofit
incorporated into a PHA’s initial requirements of each subpart. Further ownership adjustment is based on the
operating budget and before the PHA guidance will be provided in a conclusions contained in the Cost
may commit any funds to such transition notice and through annual Study. The Cost Study found three basic
activities. HUD will issue non- notices provided at the beginning of property ownership types were
regulatory guidance providing further each funding cycle. available for benchmarking—nonprofit,
instructions on the applicability of these for profit, and limited dividends. The
requirements. Subpart A—Purpose, Applicability, Cost Study designated PHAs as
2. Increased focus on actual or Operating Fund Formula, and nonprofit, upon concluding that this
historical data. The typical budget cycle Definitions classification related closest to the
results in an 18-month lag between the Subpart A contains the definitions ownership and operation of public
time HUD formulates the Operating applicable to the Operating Fund and housing properties.
Fund budget request and the actual also describes the Operating Fund This subpart also describes the
budget year. In the past, HUD has based Formula along with its applicability to Utilities Expense Level (UEL), including
its budget request to Congress on various HUD programs. The proposed the computation of the current
consumption level and the rolling base Failure to do so may result in sanctions. each of these two fiscal years. Hold-back
consumption level. A PHA that Also, if HUD determines that a PHA is funds not utilized will be added back to
undertakes energy conservation not in compliance with all of the the formula within each of the affected
measures financed by an entity other income reexamination requirements, fiscal years. Appeals are voluntary and
than HUD may qualify under this rule HUD shall withhold payments to which must cover an entire portfolio, not
for financial incentives with HUD the PHA may be entitled. single properties. However, the
approval. In addition, this subpart Assistant Secretary for Public and
Subpart F—Transition Policy and
describes add-ons to the subsidy Indian Housing has the discretion to
Transition Funding
calculation (e.g., funding of resident accept appeals of less than an entire
participation activities, information Because of the elimination of AEL, the portfolio for PHAs with greater than
technology, asset repositioning, and introduction of the PEL, and other 5,000 units.
asset management). formula differences, many PHAs will
experience changes in the calculation of Subpart H—Asset Management
Subpart D—Calculating Formula their operating subsidies. This subpart This rule states that PHAs shall
Income provides policies on such transitions. manage their properties according to an
Subpart D describes the calculation of For PHAs that will experience a asset management model, consistent
formula income, which will be derived reduction in their operating subsidy with management norms in the broader
from a PHA’s year-end audited financial calculated under the current multifamily management industry.
information contained in HUD’s regulations, such reductions will occur PHAs shall also implement project-
information systems. Formula income is over a five year period. In the first year based management, project-based
an estimate of a PHA’s non-operating of the effect of this rule, the decrease budgeting, and project-based
subsidy revenue and is calculated by will be limited to 24 percent of the accounting, defined in the rule, which
multiplying the per unit month (PUM) difference between the two funding are essential components of asset
income amount by the eligible unit levels. The decrease will be limited to management. The rule provides that
months (EUMs), as defined in the rule. 43 percent of the difference in the PHAs that own and operate 250 or more
The rule provides for different PHA second year, 62 percent of the difference dwelling rental units are required to
fiscal year-ends within 2004. After a in the third year, and 81 percent of the operate using an asset management
PHA’s formula income is calculated, it difference in the fourth year. The full model consistent with this subpart.
will not be recalculated nor inflated for amount of the reduction in the operating PHAs that own and operate fewer than
fiscal years 2006 through 2008, unless a subsidy shall be realized in the fifth 250 dwelling rental units may treat their
PHA can show a severe local economic year of the effect of this rule. entire portfolio as a single project, but
hardship affecting its ability to maintain For PHAs that will experience a will not receive the add-on for the asset
some aspect of its formula income. No subsidy increase in their operating management fee. Similarly, PHAs with
later than FY 2008, HUD will analyze subsidy, such increases will occur over only one project will not be eligible for
the effects of freezing formula income a four year period. In the first year of the an asset management fee. The rule
and, based on that analysis, determine effect of this rule, the increase will be further provides that a PHA is
whether to extend the applicability of limited to 20 percent of the difference considered in compliance with asset
this provision for future fiscal years or between the two levels. The increase management requirements if it can
to modify the income component of the will be limited to 40 percent in the demonstrate that it is managing
formula. HUD will issue this policy second year of effect of this rule, and 60 substantially in accordance with this
determination through handbook, percent in the third year. The full subpart H. This subpart also provides
Federal Register notice, or other non- increase in subsidy will be realized in that HUD may impose sanctions for
regulatory means, and offer the public the fourth year of the effect of this rule. PHAs that are not in compliance with
an opportunity to comment before the asset management by FY 2011.
policy determination takes effect. Subpart G—Appeals
Among other changes to the Operating Subpart I—Operating Subsidy for
Subpart E—Determination and Payment Fund Formula, the revised formula Properties Managed by Resident
of Operating Subsidy procedures will involve new methods Management Corporations (RMCs)
Subpart E describes, among other for determining formula expenses and This subpart describes how the
things, the amount of operating subsidy require the asset-based management of operating subsidy will be calculated for
for which a PHA is eligible, as well as PHA properties. Given the significant RMCs including direct-funded RMCs,
the procedures HUD will follow to make changes to the current Operating Fund and lists several factors that will affect
operating subsidy payments to PHAs. Formula, the Committee determined the calculation of the subsidy, including
Subpart E also addresses the fungibility that it would be appropriate to provide changes in inflation, utility rates and
of operating subsidy between projects. PHAs with the opportunity to appeal consumption, and changes in the
Specifically, the proposed rule provides subsidy amounts under certain specified number of units in the resident
that operating subsidy will remain fully circumstances. These appeals management project. The rule indicates
fungible between Annual Contribution procedures will assist PHAs to other factors and exclusions and
Contract (ACC) projects until operating transition to the new methods for inclusions that will affect the amounts
subsidy is calculated by HUD at a calculating operating subsidies, and to be provided a project managed by an
project level. After subsidy is calculated help ensure that accurate data is used in RMC. Subpart I also contains detailed
at a project level, operating subsidy can the new formula calculations. provisions regarding the preparation of
only be transferred to another ACC Subpart G describes the different an RMC’s operating budget and the
project if a project’s financial types of appeals available to PHAs, and retention of excess revenues.
information reveals excess cash flow the requirements applicable for each
and only in the amount up to those appeal. HUD will provide up to a two Subpart J—Financial Management
excess cash flows. Under the rule, the percent hold-back of Operating Fund Systems, Monitoring, and Reporting
PHA shall submit timely data to ensure appropriations for FY2006 and FY2007 Subpart J describes requirements
accurate calculation under the formula. to fund appeals that are filed during regarding financial management
systems, as well as on the monitoring of negotiated rulemaking committee inspection at the same location and on
PHA program and financial included representatives of smaller HUD’s Web site at http://www.hud.gov.
performance. These requirements are PHAs, who expressed the views and A summary of the findings contained in
mostly unchanged from the current concerns of these PHAs during Economic Analysis follows.
regulatory provisions. development of the proposed regulatory A. Rulemaking Goals and Focus of
changes. Economic Analysis. As noted above, the
VI. Findings and Certifications Accordingly, the undersigned certifies proposed regulatory changes contained
Information Collection Requirements that this rule will not have a significant in this proposed rule reflect the
economic impact on a substantial recommendations made by the
The information collection Committee on ways to improve and
number of small entities.
requirements contained in this proposed clarify the current regulations governing
Notwithstanding HUD’s determination
rule have been approved by the Office the Operating Fund Program, and take
that this rule will not have a significant
of Management and Budget (OMB) into consideration the recommendations
effect on a substantial number of small
under the Paperwork Reduction Act of of the Cost Study on the cost of
entities, HUD specifically invites
1995 (44 U.S.C. 3501–3520) and operating well-run public housing. The
comments regarding any less
assigned OMB Control Numbers 2577– proposed rule would make some
burdensome alternatives to this rule that
0026, 2577–0029, 2577–0066, and 2577– modifications to the Committee
will meet HUD’s objectives as described
0072. In accordance with the Paperwork recommendations to more accurately
in this preamble.
Reduction Act, HUD may not conduct or compare the costs of operating public
sponsor, and a person is not required to Executive Order 13132, Federalism housing and subsidized market-based
respond to, a collection of information Executive Order 13132 (entitled units, as well as to better reflect
unless the collection displays a ‘‘Federalism’’) prohibits an agency from Administration policies and budgetary
currently valid OMB control number publishing any rule that has federalism priorities. More specifically, the rule
Environmental Impact implications if the rule either imposes attempts to achieve three objectives:
substantial direct compliance costs on 1. Provide more explicit guidance on
A Finding of No Significant Impact state and local governments and is not the expected outcomes contained in the
with respect to the environment for this required by statute, or the rule preempts operating subsidy formula.
rule has been made in accordance with state law, unless the agency meets the 2. Streamline and simplify the
HUD regulations at 24 CFR part 50, consultation and funding requirements operating subsidy calculation to: (i)
which implement section 102(2)(C) of of section 6 of the executive order. This Determine appropriate subsidy amounts
the National Environmental Policy Act rule does not have federalism for each PHA by project; (ii) distribute
of 1969 (42 U.S.C. 4321 et seq.). The implications and will not impose those amounts in a timely and accurate
Finding of No Significant Impact is substantial direct compliance costs on manner; (iii) use effective administrative
available for public inspection between state and local governments nor control of funds; and (iv) reduce
8 a.m. and 5 p.m. weekdays in the preempt state law within the meaning of reporting errors and facilitate more
Regulations Division, Office of the the executive order. efficient and robust data collection.
General Counsel, Department of 3. Improve the operating subsidy
Housing and Urban Development, Room Unfunded Mandates Reform Act estimation process by placing more
10276, 451 Seventh Street, SW., Title II of the Unfunded Mandates emphasis on actual or historical data
Washington, DC 20410–5000. Reform Act of 1995 (2 U.S.C. 1531– rather than on forecasted information.
Regulatory Flexibility Act 1538) (UMRA) establishes requirements The Economic Analysis discusses the
for federal agencies to assess the effects economic impact of the implementation
The Regulatory Flexibility Act (RFA) of their regulatory actions on state, of the proposed rule.
(5 U.S.C. 601 et seq.), generally requires local, and tribal governments, and on B. Basis for Economically Significant
an agency to conduct a regulatory the private sector. This rule does not Determination Under E.O. 12866. HUD
flexibility analysis of any rule subject to impose any federal mandates on any determined that the proposed rule
notice and comment rulemaking state, local, or tribal government, nor on would be an economically significant
requirements unless the agency certifies the private sector, within the meaning of rule under E.O. 12866 because the rule
that the rule will not have a significant the UMRA. would results in transfers of funding
economic impact on a substantial levels to and among PHAs of more than
number of small entities. The entities Executive Order 12866, Regulatory $100 million a year.
that would be subject to this rule are Planning and Review C. Findings. This Economic Analysis
public housing agencies that administer The Office of Management and Budget finds that, with more efficient transfers
public housing. Under the definition of (OMB) reviewed this rule under through better incentives, there will be
‘‘small governmental jurisdiction’’ in Executive Order 12866 (‘‘entitled a net increase in societal benefits. The
section 601(5) of the RFA, the Regulatory Planning and Review’’). This net increase was not quantified. The
provisions of the RFA are applicable rule was determined to be economically Economic Analysis also finds that the
only to those public housing agencies significant under E.O. 12866. Any full implementation cost of the
that are part of a political jurisdiction changes made to this proposed rule as proposed rule is approximately $74
with a population of under 50,000 a result of that review are identified in million in 2003 dollars in increased
persons. The number of entities the docket file, which is available for operating subsidy eligibility. The
potentially affected by this rule is public inspection between 8 a.m. and 5 transition funding provisions, which are
therefore not substantial. Further, the p.m. weekdays in the Office of intended to provide a transition period
proposed regulatory changes were Legislation and Regulations, Office of for PHAs with subsidy changes, would
developed using negotiated rulemaking the General Counsel, Room 10276, 451 result in varying costs over a five year
procedures and with the active Seventh Street, SW., Washington, DC period when compared to the fully
participation of PHAs that will be 20410–0500. phased in subsidy change, which would
affected by the revised Operating Fund The Economic Analysis prepared for occur in year 5 of rule implementation.
requirements. The membership of the this rule is also available for public The proposed rule would alter the flow
of transfers to PHAs, as such, would 990.125 Eligible units. 990.315 Submission and approval of
have a direct financial consequence on 990.130 Ineligible units. operating budgets.
the federal budget and on individual 990.135 Eligible unit months (EUMs). 990.320 Audits.
990.140 Occupied dwelling units. 990.325 Record retention requirements.
PHAs and their tenants.
990.145 Dwelling units with approved
The Economic Analysis concludes Authority: 42 U.S.C. 1437g; 42 U.S.C.
vacancies.
that the two immediate consequences of 990.155 Addition and deletion of units. 3535(d).
the proposed rule would be as follows:
1. Using FY 2003 dollars and Subpart C—Calculating Formula Expenses
Subpart A—Purpose, Applicability,
assuming funding at 100 percent of 990.160 Overview of calculating formula Formula, and Definitions
eligibility, public housing program expenses.
funding eligibility for operating 990.165 Computation of project expense § 990.100 Purpose.
subsidies would increase by $83 million level (PEL).
over the 5-year period and by about $74 990.170 Computation of utilities expense This part implements section 9(f) of
level (UEL): Overview. the United States Housing Act of 1937
million a year in 2003 dollars when 990.175 Utilities expense level:
fully implemented. (1937 Act), (42 U.S.C. 1437g). Section
Computation of the current consumption 9(f) establishes an Operating Fund for
2. Changes in operating subsidy level.
allocations resulting from the proposed 990.180 Utilities expense level: the purposes of making assistance
rule would be phased in over four years Computation of the rolling base available to public housing agencies
for PHAs having subsidy eligibility consumption level. (PHAs) for the operation and
increases and over five years for those 990.185 Utilities expense level: Incentives management of public housing. In the
with subsidy eligibility decreases; thus for energy conservation/rate reduction. case of unsubsidized housing, the total
the increase in Operating Fund 990.190 Other formula expenses (add-ons).
expenses of operating rental housing
eligibility and the change in distribution Subpart D—Calculating Formula Income should be covered by the operating
of funds will be less during the 990.195 Calculation of formula income. income, which primarily consists of
transition than in the full rental income and, to some degree,
implementation of the proposed rule in Subpart E—Determination and Payment of
Operating Subsidy investment and non-rental income. In
the fifth year. the case of public housing, the
990.200 Determination of formula amount.
Congressional Review of Major Proposed 990.205 Fungibility of operating subsidy Operating Fund provides a subsidy to
Rules between projects. assist PHAs to serve low, very low, and
This rule is a ‘‘major rule’’ as defined 990.210 Payment of operating subsidy. extremely low-income families. This
990.215 Payments of operating subsidy part describes the policies and
in Chapter 8 of 5 U.S.C. At the final rule
conditioned upon reexamination of procedures for Operating Fund formula
stage, the rule will be submitted for income of families in occupancy.
congressional review in accordance calculations and management under the
with this chapter. Subpart F—Transition Policy and Transition Operating Fund Program.
Funding
Catalog of Federal Domestic Assistance 990.220 Purpose. § 990.105 Applicability.
The Catalog of Federal Domestic 990.225 Transition determination. (a) Applicability of this part. (1) With
Assistance (CFDA) program number is 990.230 PHAs that will experience a the exception of subpart I of this part,
14.850. subsidy reduction.
990.235 PHAs that will experience a this part is applicable to all PHA rental
List of Subjects in 24 CFR Part 990 subsidy increase. units under an Annual Contributions
Accounting, Grant programs-housing Contract (ACC). This includes PHAs
Subpart G—Appeals that have not received Operating Fund
and community development, Public 990.240 General.
housing, Reporting and recordkeeping payments previously, but are eligible for
990.245 Types of appeals. such payments under the Operating
requirements. 990.250 Requirements for certain appeals.
Accordingly, for the reasons stated in Fund Formula.
the preamble, HUD proposes to amend Subpart H—Asset Management
(2) This part is applicable to all rental
24 CFR part 990 as follows: 990.255 Overview. units managed by a resident
990.260 Applicability. management corporation (RMC),
PART 990—THE PUBLIC HOUSING 990.265 Identification of projects.
990.270 Asset management.
including a direct-funded RMC.
OPERATING FUND PROGRAM
990.275 Project-based management. (b) Inapplicability of this part. (1) This
1. Revise part 990 to read as follows: 990.280 Project-based budgeting and part is not applicable to Indian Housing,
accounting. section 5(h) and section 32
PART 990—THE PUBLIC HOUSING 990.285 Records and reports.
homeownership projects, the Housing
OPERATING FUND PROGRAM 990.290 Compliance with asset
management requirements. Choice Voucher Program, the section 23
Subpart A—Purpose, Applicability, Leased Housing Program, or the section
Formula, and Definitions Subpart I—Operating Subsidy for 8 Housing Assistance Payments
Properties Managed by Resident
Sec. Programs.
Management Corporations (RMCs)
990.100 Purpose.
990.295 Resident Management Corporation (2) With the exception of subpart J of
990.105 Applicability.
990.110 Operating fund formula. operating subsidy. this part, this part is not applicable to
990.115 Definitions. 990.300 Preparation of operating budget. the Mutual Help Program or the
990.116 Environmental review 990.305 Retention of excess revenues. Turnkey III Homeownership
requirements. Opportunity Program.
Subpart J—Financial Management Systems,
Subpart B—Eligibility for Operating Monitoring, and Reporting
§ 990.110 Operating fund formula.
Subsidy; Computation of Eligible Unit 990.310 Purpose—General policy on
Months financial management, monitoring, and (a) General formula. (1) The amount
990.120 Unit months. reporting. of annual contributions (operating
subsidy) each PHA is eligible to receive financial assistance and the PHA agrees purposes of asset management, as
under this part shall be determined by to comply with HUD requirements for described in subpart H of this part,
a formula. the development and operation of its projects may be as identified under the
(2) In general, operating subsidy shall public housing projects. ACC or may be a reasonable grouping of
be the difference between formula Asset management is a management projects or portions of a project or
expense and formula income. If a PHA’s model that emphasizes property projects under the ACC.
formula expense is greater than its management as well as long term and Project-based management is the
formula income, then the PHA is strategic planning. provision of property management
eligible for an operating subsidy. Current consumption level is the services that are tailored to the unique
(3) Formula expense is an estimate of amount of each utility consumed at a needs of each property, given the
a PHA’s operating expense and is project during the one-year period that resources available to that property.
determined by the following three ended the June 30th prior to the Project expense level (PEL) is the
components: Project Expense Level beginning of the applicable funding amount of estimated expenses for each
(PEL), Utility Expense Level (UEL), and period. project (excluding utilities and add-ons)
other formula expenses (add-ons). Eligible unit months (EUM) are the expressed as a per unit per month cost.
Formula expense and its three actual number of PHA units in eligible Project units means all dwelling units
components are further described in categories expressed in months for a in all of a PHA’s projects under an ACC.
subpart C of this part. Formula income specified time frame and for which a Rolling base consumption level
is an estimate for a PHA’s non-operating PHA receives operating subsidy. (RBCL) is the average of the yearly
subsidy revenue and is further Formula amount is the amount of consumption levels for the 36-month
described in subpart D of this part. operating subsidy a PHA is eligible to period ending 18 months prior to the
(4) Certain portions of the operating receive, expressed in whole dollars, as beginning of the applicable funding
fund formula (e.g., PEL) are calculated determined by the Operating Fund period.
in terms of per unit month (PUM) Formula. Transition funding is the timing and
amounts and are converted into whole Formula expense is an estimate of a amount by which a PHA will realize
dollars by multiplying the PUM amount PHA’s operating expense used in the increases and reductions in operating
by the number of eligible unit months Operating Fund Formula. subsidy based on the new funding levels
(EUMs). EUMs are further described in Formula income is an estimate of a of the Operating Fund Formula.
subpart B of this part. PHA’s non-operating subsidy revenue Unit months are the total number of
(b) Specific formula. (1) A PHA’s used in the Operating Fund Formula. project units in a PHA’s inventory
Operating Fund amount shall be the Funding period is the calendar year expressed in months for a specified time
sum of the three formula expense for which HUD will distribute the frame.
components calculated as follows: [(PEL Operating Fund according to the Utilities means electricity, gas,
multiplied by EUM) plus (UEL Operating Fund Formula. heating fuel, water, and sewerage
multiplied by EUM) plus add-ons] Operating fund is the account/ service.
minus formula income multiplied by program authorized by section 9 of the Utilities expense level (UEL) is a
EUM. 1937 Act for making assistance available product of the utility rate multiplied by
(2) A PHA whose formula amount is to PHAs for the operation and the payable consumption level
equal to or less than zero is still eligible managements of public housing. multiplied by the utilities inflation
to receive Operating Fund equal to its Operating fund formula (Formula)
factor expressed as a per unit month
most recent actual audit cost. means the data and calculations used
dollar amount.
(3) Operating Fund will be limited to under this part to determine a PHA’s Utility rate (rate) means the actual
the availability of funds as described in amount of the operating subsidy for a average rate for any given utility for the
§ 990.210(c). given period. latest 12 months that ended the June
(c) Non-codified formula elements. Operating subsidy is the amount of
30th prior to the beginning of the
This part defines the major components annual contributions for operations a
applicable funding period.
of the Operating Fund Formula and PHA receives each funding period
Yearly consumption level is the actual
describes the relationships of these under section 9 of the 1937 Act as
amount of each utility consumed at a
various components. However, this part determined by the Operating Fund
project during a one-year period ending
does not codify certain secondary Formula in this part.
June 30.
elements that will be used in the revised Other operating costs (add-ons)
Operating Fund Formula. HUD will means PHA expenses that are § 990.116 Environmental review
more appropriately provide this recognized as formula expenses but are requirements.
information in non-codified guidance, not included either in the project The environmental review procedures
such as a Handbook, Federal Register expense level or in the utility expense of the National Environmental Policy
notice, or other non-regulatory means level. Act of 1969 (42 U.S.C. 4332(2)(C)) and
that HUD determines appropriate. Payable consumption level is the the implementing regulations at 24 CFR
amount for all utilities consumed at a parts 50 and 58 are applicable to the
§ 990.115 Definitions. project that the Formula recognizes in Operating Fund Program.
The following definitions apply to the the computation of a PHA’s utility
Operating Fund program: expense level at that project. Subpart B—Eligibility for Operating
1937 Act means the United States Per unit month (PUM) is an Subsidy; Computation of Eligible Unit
Housing Act of 1937 (42 U.S.C. 1437 et expression of Project Expense Level, Months
seq.) Utility Expense Level and formula
Annual contribution contract (ACC) is income. It describes a cost or an amount § 990.120 Unit months.
a contract in the form prescribed by on a monthly basis per unit. (a) Some of the components of HUD’s
HUD for loans and contributions, which Project means each PHA project under Operating Fund Formula are based on a
may be in the form of operating subsidy an ACC to which the Operating Fund measure known as unit months. Unit
whereby HUD agrees to provide Formula is applicable. However, for months represent a PHA’s public
housing inventory during a specified § 990.140 Occupied dwelling units. (2) Disasters. Units that are vacant due
period of time. The unit months eligible A PHA is eligible to receive operating to a federally declared, state-declared, or
for operating subsidy in a one-year subsidy for public housing units for other declared disaster.
period are equal to the number of each unit month they are under an ACC (3) Casualty losses. Damaged units
months that the units are in an and occupied by a public housing that remain vacant due to delays in
operating subsidy eligible category, eligible family under lease. settling insurance claims.
adjusted for changes in inventory (e.g., (c) A PHA may appeal to HUD to
units added or removed), as described § 990.145 Dwelling units with approved receive operating subsidy for units that
below. vacancies. are vacant due to changing market
(b) A PHA is eligible to receive (a) A PHA is eligible to receive conditions (see subpart G of this part—
operating subsidy for a unit on the date operating subsidy for vacant public Appeals).
it is both placed under the ACC and housing units for each unit month they § 990.155 Addition and deletion of units.
occupied. The date a unit is eligible for are under ACC and meet one of the
operating subsidy does not change the following HUD-approved vacancies: (a) Changes in public housing unit
Date of Full Availability (DOFA) or the inventory. To generate a change to its
(1) Units undergoing modernization. formula amount within each one-year
date of the End of Initial Operating Vacancies resulting from project
Period (EIOP), nor does this provision funding period, PHA shall periodically
modernization or unit modernization (e.g., quarterly) report the following
place a project into management status. (such as work necessary to reoccupy information to HUD, during the funding
§ 990.125 Eligible units.
vacant units) provided that one of the period:
following conditions is met: (1) New units that were added to the
A PHA is eligible to receive operating (i) The unit is undergoing
subsidy for public housing units under ACC, and occupied by a public housing-
modernization (i.e., the modernization eligible family during the prior
an ACC for: contract has been awarded or force reporting period for the one-year
(a) Occupied dwelling units as accounting has started) and must be funding period, but have not been
defined in § 990.140; and vacant to perform the work, and the included in the previous eligible unit
(b) A dwelling unit with an approved construction is on schedule according to months’ data; and
vacancy (as defined in § 990.145). a HUD-approved PHA Annual Plan; or (2) Projects, or entire buildings in a
§ 990.130 Ineligible units. (ii) The unit must be vacant to project, that are eligible to receive an
perform the work and the treatment of asset repositioning fee in accordance
(a) Vacant units that do not fall within the vacant unit is included in a HUD- with the provisions in § 990.190(h).
the definition of § 990.145 are not approved PHA Annual Plan, but the (b) Revised eligible unit month
eligible for operating subsidy. time period for placing the vacant unit calculation. (1) For new units, the
(b) Units that are eligible to receive an under construction has not yet expired. revised calculation shall assume that all
asset repositioning fee, as described in The PHA shall place the vacant unit such units will be fully occupied for the
§ 990.190(h), are not eligible to receive under construction within two federal balance of that funding period. The
operating subsidy under this subpart. fiscal years (FFYs) after the FFY in actual occupancy/vacancy status of
which the capital funds are approved. these units will be included to calculate
§ 990.135 Eligible unit months (EUMs).
(2) Special use units. Units approved the PHA’s operating subsidy in the
(a) A PHA’s total number of eligible and used for resident services, resident subsequent funding period after these
unit months will be calculated for the organization offices and related units have one full year of a reporting
12-month period from July 1 to June 30 activities such as self-sufficiency and cycle.
that is prior to the first day of the anti-crime initiatives. (2) Projects, or entire buildings in a
applicable funding period, and will project, that are eligible to receive an
(b) On a project-by-project basis,
consist of eligible units as defined in asset repositioning fee in accordance
subject to prior HUD approval and for
§ 990.140 and § 990.145. with § 990.175(h) are not to be included
the time period agreed to by HUD, a
(b)(1) The determination of whether a PHA shall receive operating subsidy for in the calculation of eligible unit
public housing unit satisfies the the units affected by the following months. Funding for these units is
requirements of § 990.140 or § 990.145 events that are outside the control of the provided under the conditions
for any unit month shall be based on the PHA: described in § 990.190(h).
unit’s status as of either the first or last
(1) Litigation. Units that are vacant Subpart C—Calculating Formula
day of the month, as determined by the
due to litigation, such as a court order Expenses
PHA.
or settlement agreement that is legally
(2) HUD reserves the right to enforceable; units that are vacant in § 990.160 Overview of calculating formula
determine the status of any and all order to meet regulatory and statutory expenses.
public housing units based on requirements to avoid potential (a) General. Formula expenses
information in its information systems. litigation (as covered in a HUD- represent the costs of services and
(c) The PHA shall maintain and, at approved PHA Annual Plan); and units materials needed by a well-run PHA to
HUD’s request, shall make available to under voluntary compliance agreements sustain the project. These costs include
HUD, specific documentation of the with HUD or other voluntary items such as administration,
status of all units, including, but not compliance agreements acceptable to maintenance, and utilities. HUD also
limited to, a listing of the units, street HUD (e.g., units that are being held determines a PHA’s formula expenses at
addresses or physical address, and vacant as part of a court-order, HUD- a project level. HUD uses the following
project/management control numbers. approved desegregation plan, or three factors to determine the overall
(d) Any unit months that do not meet voluntary compliance agreement formula expense level for each project:
the requirements of this subpart are not requiring modifications to the units to (1) The project expense level (PEL)
eligible for, and will not be subsidized make them accessible pursuant to 24 (calculated in accordance with
by, the Operating Fund. CFR part 8). § 990.165);
(2) The utilities expense level (UEL) (10) Geographic. accordance with 24 CFR 941.606 for a
(calculated in accordance with (c) Cost adjustments. HUD will apply mixed finance transaction, then the
§§ 990.170, 990.175, 990.180, and five adjustments to the PEL. The project covered by the mixed finance
990.185); and adjustments are: transaction will receive funding based
(3) Other formula expenses (add-ons) (1) Application of a $200 floor for any on the higher of its former Allowable
(calculated in accordance with senior property and a $215 floor for any Expense Level or the new computed
§ 990.190). family property; PEL.
(b) PEL, UEL, and add-ons. Each (2) Application of a $420 ceiling for (h) Calculation of PELs when data are
project of a PHA has a unique PEL and any property except for New York City inadequate or unavailable. When
UEL. The PEL for each project is based Housing Authority projects, which have sufficient data are unavailable for the
on ten characteristics and certain a $480 ceiling; calculation of a PEL, HUD may calculate
adjustments described in § 990.165. The (3) Application of a four percent a PEL using an alternative methodology.
PEL represents the normal expenses of reduction for any PEL calculated over The characteristics may be used from
operating public housing projects, such $325, with the reduction limited to similarly situated properties.
as maintenance and administration $325; and (i) Review of PEL methodology by
costs. The UEL for each project (4) The reduction of audit costs as advisory committee. In 2009, HUD will
represents utility expenses. Utility reported for FFY 2003 PUM amount. convene a meeting with representation
(d) Annual inflation factor. The PEL of appropriate stakeholders, to review
expense levels are based on an incentive
for each project shall be adjusted the methodology to evaluate the PEL
system aimed at reducing utility
annually, beginning in 2005, by the based on actual cost data. The meeting
expenses. Both the PEL and UEL are
local inflation factor. The local inflation shall be convened in accordance with
expressed in PUM costs. The expenses
factor shall be the HUD-determined the Federal Advisory Committee Act (5
not included in these expense levels
weighted average percentage increase in U.S.C. Appendix) (FACA) or such other
and unique to PHAs are titled other
local government wages and salaries for authority or protocol determined
formula expenses (add-ons) and are
the area in which the PHA is located appropriate. HUD may determine
expressed in a yearly dollar amount.
(c) Calculating project formula and non-wage expenses. appropriate funding levels for each
(e) Calculating a PEL. To calculate a
expense. The formula expense of any project to be effective in FY 2011 after
specific PEL for a given property, the
one project is the sum of the project’s following appropriate rulemaking
sum of the nine variables’ coefficients
PEL and the UEL, multiplied by the procedures.
(all variables except ownership type)
total eligible unit months specific to the
shall be added to a formula constant. § 990.170 Computation of utilities expense
project, plus the add-ons.
The exponent of that sum shall be level (UEL): Overview.
§ 990.165 Computation of project expense multiplied by a percentage to reflect the (a) General. The UEL for each PHA is
level (PEL). non-profit ownership type, which will based on its consumption for each
(a) Computation of PEL. The PEL is produce an unadjusted PEL. For the utility, the applicable rates for each
calculated in terms of PUM cost and calculation of the initial PEL, the out of utility, and an applicable inflation
represents the costs associated with the model cost adjustments described in factor. The UEL for a given funding
project except for utility and add-on paragraphs (c)(1), (c)(2), and (c)(3) of period is the product of the utility rate
costs. Costs associated with the PEL are this section will be applied. After these multiplied by the payable consumption
administration, management fees, initial adjustments are applied, the level multiplied by the inflation factor.
maintenance, protective services, audit adjustment will be applied to The UEL is expressed in terms of PUM
leasing, occupancy, staffing, and other arrive at the PEL in year 2000 dollars. costs.
expenses such as project insurance. After the PEL in year 2000 dollars is (b) Utility rate. The utility rate for
HUD will calculate the PEL using created, the annual inflation factor as each type of utility will be the actual
regression analysis and benchmarking described in paragraph (d) of this average rate from the latest 12 months
for the actual costs of Federal Housing section will be applied cumulatively to that ended June 30. The rate will be
Administration (FHA) projects to this number through 2004 to yield an calculated by dividing the actual utility
estimate costs for public housing initial PEL in terms of current dollars. cost by the actual utility consumption,
projects. HUD will use the ten variables (f) Calculation of the PEL for Moving with consideration for pass-through
described in paragraph (b) of this to Work PHAs. PHAs participating in costs (e.g., state and local utility taxes,
section and their associated coefficient the Moving to Work (MTW) tariffs) for the respective time periods.
(i.e., values that are expressed in Demonstration authorized under section (c) Payable consumption level. The
percentage terms) to produce a PEL. 204 of the Omnibus Consolidated payable consumption level is based on
(b) Variables. The ten variables are: Rescissions and Appropriations Act of the current consumption level adjusted
(1) Size of project (number of units); 1996 (Public Law 104–134, approved by a utility consumption incentive. The
(2) Age of property (Date of Full April 26, 1996) shall receive an incentive shall be computed by
Availability (DOFA)); operating subsidy as provided in comparing current consumption levels
(3) Bedroom mix; Attachment A of their MTW Agreements of each utility to the rolling base
(4) Building type; executed prior to the effective date of consumption level. If the comparison
(5) Occupancy type (family or senior); this rule. PHAs with an MTW reflects a decrease in the consumption
(6) Location (an indicator of the type Agreement will continue to have the of a utility, the PHA shall retain 75
of community in which a property is right to request extensions of or percent of this decrease. Alternately, if
located; location types include rural, modifications to their MTW the comparison reflects an increase in
city central metropolitan, and non-city Agreements. the consumption of a utility, the PHA
central metropolitan (suburban) areas); (g) Calculation of the PELs for mixed shall absorb 75 percent of this increase.
(7) Neighborhood poverty rate; finance developments. If, prior to [insert (d) Inflation factor for utilities. The
(8) Percent of households assisted; effective date of final rule], a PHA has UEL shall be adjusted annually by an
(9) Ownership type (profit, non-profit, either a mixed-finance arrangement that inflation/deflation factor based upon the
or limited dividend); and has closed or has filed documents in fuels and utilities component of the
United States Department of Labor, (2) The yearly consumption level is measures that are approved by HUD, the
Bureau of Labor Statistics (BLS) the actual amount of each utility RBCL for the project and the utilities
Consumer Price Index for All Urban consumed during a one-year period involved may be frozen during the
Consumers (CPI–U). The annual ending June 30. For example, for the contract period. Before the RBCL is
adjustment to the UEL shall reflect the funding period January 1, 2006 through frozen, it must be adjusted to reflect any
most recently published and localized December 31, 2006, the RBCL will be energy savings resulting from the use of
data available from BLS at the time the the average of the following yearly any HUD funding. The RCBL also may
annual adjustment is calculated. consumption levels: be adjusted to reflect systems repaired
(e) Increases in tenant utility Year 1 = July 1, 2001 through June 30, to meet applicable building and safety
allowances. Increases in tenant utility 2002 codes as well as to reflect adjustments
allowances, as a component of the Year 2 = July 1, 2002 through July 30, for occupancy rates increased by
formula income, as described in 2003 rehabilitation. The RBCL shall be frozen
§ 990.195(b), shall result in a Year 3 = July 1, 2003 through June 30, at the level calculated for the year
commensurate increase of operating 2004 during which the conservation measures
subsidy. Decreases in such utility initially shall be implemented.
allowances shall result in a Note: In this example, the current year’s (ii) The PHA operating fund eligibility
commensurate decrease in operating consumption level will be July 1, 2004 shall reflect the retention of 100 percent
through June 30, 2005.
subsidy. of the savings from decreased
(f) Records and reporting. (1) (b) Distortions to rolling base consumption until the term of the
Appropriate utility records, satisfactory consumption level. The PHA shall have financing agreement is complete. The
to HUD, shall be developed and its RBCL determined so as not to distort PHA must use at least 75 percent of the
maintained, so that consumption and the rolling base period in accordance cost savings to pay off the debt, e.g., pay
rate data can be determined. with a method prescribed by HUD if: off the contractor or bank loan. If less
(2) All records shall be kept by utility (1) A project has not been in operation than 75 percent of the cost savings is
and by project for each twelve-month during at least 12 months of the rolling used for debt payment, however, HUD
period ending June 30. base period, shall retain the difference between the
(3) HUD will notify each PHA when (2) A project enters or exits actual percentage of cost savings used to
HUD has the automated systems management after the rolling base pay off the debt and 75 percent of the
capacity to receive such information. period and prior to the end of the cost savings. If at least 75 percent of the
Each PHA then will be obligated to applicable funding period, or cost savings is paid to the contractor,
provide consumption and cost data to (3) A project has experienced a the PHA may use the full amount of the
HUD for all utilities for each project. conversion from one energy source to remaining cost savings for any eligible
(4) If a PHA has not maintained or another, switched from PHA-supplied to operating expense.
cannot recapture utility data from its resident-purchased utilities during or (iii) The annual three-year rolling base
records for a particular utility, the PHA after the rolling base period, or for any procedures for computing the RBCL
shall compute the UEL by: other reason that would cause the RBCL shall be reactivated after the PHA
(i) Using actual consumption data for not to be comparable to the current satisfies the conditions of the contract.
the last complete year(s) of available year’s consumption level. The three years of consumption data to
data or data of comparable project(s) (c) Financial incentives. The three- be used in calculating the RBCL after
that have comparable utility delivery year rolling base for all relevant utilities the end of the contract period shall be
systems and occupancy, in accordance will be adjusted to reflect any financial the yearly consumption levels for the
with a method prescribed by HUD; or incentives to the PHA to reduce final three years of the contract.
(ii) Requesting field office approval to consumption as described in § 990.185. (2) PHAs undertaking energy
use actual PUM utility expenses for its conservation measures that are financed
UEL in accordance with a method § 990.185 Utilities expense level: by an entity other than HUD may
prescribed by HUD when the PHA Incentives for energy conservation/rate include resident-paid utilities under the
cannot obtain necessary data to reduction.
consumption reduction incentive, using
calculate the UEL in accordance with (a) General/consumption reduction. If the following methodology:
paragraph (f)(4)(i) of this section. a PHA undertakes energy conservation (i) The PHA reviews and updates all
measures that are financed by an entity utility allowances to ascertain that
§ 990.175 Utilities expense level:
other than HUD, the PHA may qualify residents are receiving the proper
Computation of the current consumption
level. for the incentives available under this allowances before energy savings
section. The measures may include, but measures are begun;
The current consumption level shall
are not limited to, physical (ii) The PHA makes future
be the actual amount of each utility
improvements financed by a loan from calculations of rental income for
consumed during the one-year period
a bank, utility or governmental entity, purposes of the calculation of operating
ending June 30 that is six months prior
management of costs under a subsidy eligibility based on these
to the first day of the applicable funding
performance contract, or a shared baseline allowances. In effect, HUD will
period.
savings agreement with a private energy freeze the baseline allowances for the
§ 990.180 Utilities expense level: service company. For a PHA to qualify duration of the contract;
Computation of the rolling base for these incentives, the PHA must (iii) After implementation of the
consumption level. obtain HUD approval. Approval shall be energy conservation measures, the PHA
(a) General. (1) The rolling base based upon a determination that updates the utility allowances in
consumption level (RBCL) shall be payments under the contract can be accordance with provisions in 24 CFR
equal to the average of yearly funded from the reasonably anticipated part 965, subpart E. The new allowance
consumption levels for the 36-month energy cost savings. The contract period should be lower than baseline
period ending 18 months prior to the shall not exceed 12 years. allowances;
first day of the applicable funding (1) Frozen rolling base. (i) If a PHA (iv) The PHA uses at least 75 percent
period. undertakes energy conservation of the savings for paying the cost of the
improvement (the PHA will be be permitted to retain one-half the recent actual audit costs. The most
permitted to retain 100 percent of the annual savings realized from these recent actual audit costs are used as a
difference between the baseline actions. proxy to cover the cost of the next audit.
allowances and revised allowances); (c) Utility benchmarking. HUD will If a PHA does not have a recent actual
(v) After the completion of the pursue benchmarking utility audit cost, the PHA working with HUD
contract period, the PHA begins using consumption at the project level as part may establish an audit cost. A PHA that
the revised allowances in calculating its of the transition to asset management. requests funding for an audit shall
operating subsidy eligibility; and, HUD intends to establish benchmarks complete an audit. The results of the
(vi) The PHA may exclude from its by collecting utility consumption and audit shall be transmitted in a time and
calculation of rental income the cost information on a project-by-project manner prescribed by HUD.
increased rental income due to the basis. In 2009, after conducting a (e) Funding for resident participation
difference between the baseline feasibility study, HUD will convene a activities. Each PHA’s operating subsidy
allowances and the revised allowances meeting with representation of calculation shall include $25 per
of the projects involved, for the duration appropriate stakeholders to review occupied unit per year for resident
of the contract period. utility benchmarking options so that participation activities, including, but
(3) Subsidy add-on. (i) If a PHA HUD may determine whether or how to not limited to, those described in 24
qualifies for this incentive, i.e., the implement utility benchmarking to be CFR part 964. For purposes of this
subsidy add-on, in accordance with the effective in FY2011. The meeting shall section, a unit is eligible to receive
provisions of paragraph (a) of this be convened in accordance with the resident participation funding if it is
section, then the PHA is eligible for Federal Advisory Committee Act (5 occupied by a public housing resident
additional operating subsidy each year U.S.C. Appendix) (FACA) or such other or it is occupied by a PHA employee, a
of the contract to amortize the cost of authority or protocol determined police officer, or other security
the loan for the energy conservation appropriate. The HUD study shall take personnel who is not otherwise eligible
measures during the term of the contract into account typical levels of utilities for public housing. In any fiscal year, if
subject to the provisions of this consumption at public housing appropriations are not sufficient to meet
paragraph (b)(3) of this section . The developments based upon factors such all funding requirements under this
PHA’s operating subsidy for the current as building and unit type and size, part, then the resident participation
funding year will continue to be temperature zones, age and construction component of the formula will be
calculated in accordance with of building, and other relevant factors. adjusted accordingly.
paragraphs (a), (b) and (c) of § 990.170 (f) Asset management fee. Each PHA
(i.e., the rolling base is not frozen). The § 990.190 Other formula expenses (add- with at least 250 units shall receive a $4
PHA will be able to retain part of the ons). PUM asset management fee. PHAs with
cost savings in accordance with In addition to calculating operating fewer than 250 units that elect to
§ 990.170(c). subsidy based on the PEL and UEL, a transition to asset management shall
(ii) The actual cost of energy (of the PHA’s eligible formula expenses shall receive an asset management fee of $2
type affected by the energy conservation be increased by add-ons. The allowed PUM. PHAs with fewer than 250 units
measure) after implementation of the add-ons are: that elect to have their entire portfolio
energy conservation measure will be (a) Self-sufficiency. A PHA may treated and considered as a single
subtracted from the expected energy request operating subsidy for the project as described in § 990.260(b) or
cost, to produce the energy cost savings reasonable cost of program PHAs with only one project will not be
for the year. coordinator(s) and associated costs in eligible for an asset management fee. For
(iii) If the cost savings for any year accordance with HUD’s self-sufficiency all PHAs eligible to receive the asset
during the contract period is less than program regulations and notices. management fee, the fee will be based
the amount of operating subsidy to be (b) Energy loan amortization. A PHA on the total number of ACC units. PHAs
made available under this paragraph to may qualify for operating subsidy for that are not in compliance with asset
pay for the energy conservation measure payments of principal and interest cost management as described in subpart H
in that year, the deficiency will be offset for energy conservation measures of this part by FY2011 will forfeit this
against the PHA’s operating subsidy described in § 990.185(a)(3). fee.
eligibility for the PHA’s next fiscal year. (c) Payments in lieu of taxes (PILOT). (g) Information technology fee. Each
(iv) If energy cost savings are less than Each PHA will receive an amount for PHA’s operating subsidy calculation
the amount necessary to meet PILOT in accordance with section 6(d) shall include $2 PUM for costs
amortization payments specified in a of the 1937 Act, based on its attributable to information technology.
contract, the contract term may be cooperation agreement or its latest For all PHAs, this fee will be based on
extended (up to the 12-year limit) if actual PILOT payment. the total number of ACC units.
HUD determines that the shortfall is the (d) Cost of independent audits. A (h) Asset repositioning fee. (1) A PHA
result of changed circumstances rather PHA is eligible to receive operating that transitions projects or entire
than a miscalculation or subsidy equal to its most recent actual buildings of a project out of its
misrepresentation of projected energy audit costs of the Operating Fund when inventory is eligible for an asset
savings by the contractor or PHA. The an audit is required by the Single Audit repositioning fee. This fee supplements
contract term may only be extended to Act (31 U.S.C. 7501–7507) (see 24 CFR the costs associated with administration
accommodate payment to the contractor part 85) or when a PHA elects to prepare and management of demolition or
and associated direct costs. and submit such an audit to HUD. For disposition, tenant relocation, and
(b) Rate reduction. If a PHA takes the purpose of this rule, the most recent minimum protection and service
action beyond normal public actual audit costs include the associated associated with such efforts. The asset
participation in rate-making costs of an audit for the Operating Fund repositioning fee is not intended for
proceedings, such as well-head program only. A PHA whose operating individual units within a multi-unit
purchase of natural gas, administrative subsidy is determined to be zero based building undergoing similar activities.
appeals or legal action to reduce the rate on the Formula is still eligible to receive (2) Projects covered by applications
it pays for utilities, then the PHA will operating subsidy equal to its most approved for demolition or disposition
shall be eligible for an asset the difference between the PHA’s March 31, 2004, July 1, 2003 through
repositioning fee on the first day of the operating subsidy calculated under the June 30, 2004, October 1, 2003 through
next quarter six months after the date formula in this part and the amount of September 30, 2004, and January 1,
the first unit becomes vacant after the the PHA’s operating subsidy calculated 2004 through December 31, 2004. For
relocation date included in the by applying the four factors to the the purpose of the Operating Fund
approved relocation plan. When this formula in this part. The amount of the Formula, formula income is equal to the
condition is met, the project and all add-on will be determined using FY amount of rent charged to tenants
associated units are no longer 2004 data and will be subject to the divided by the respective unit months
considered an eligible unit month as transition policies and requirements leased, and is therefore expressed in
described in § 990.155. Each PHA is contained in § 990.235 of subpart F of terms of PUM.
responsible for accurately applying and this part. The four factors that will be (b) Calculation of formula income. To
maintaining supporting documentation used for purposes of this calculation are: calculate formula income in whole
on the start date of this transition period (1) A $2 PUM public entity fee; dollars, the PUM amount will be
or is subject to forfeiture of this add-on. (2) A ten percent nonprofit multiplied by the EUMs as described in
(3) Units categorized for demolition coefficient; subpart B of this part.
and which are eligible for an asset (3) Payment of operating subsidy on a (c) Frozen at 2004 level. After a PHA’s
repositioning fee are eligible for limited number of vacancies if the formula income is calculated as
operating subsidy at the rate of 75 annualized rate is less than or equal to described in paragraph (a) of this
percent PEL per unit for the first twelve three percent or for five units if the PHA section, it will not be recalculated or
months, 50 percent PEL per unit for the has 100 or fewer units; and inflated for fiscal years 2006 through
next twelve months, and 25 percent PEL (4) An annual inflation factor based 2008, unless a PHA can show a severe
per unit for the next twelve months. on the most recent annual data local economic hardship that is
(4) Units categorized for disposition published by the Department of Labor impacting the PHA’s ability to maintain
and which are eligible for an asset Bureau of Labor Statistics (BLS) for the some semblance of its formula income
repositioning fee are eligible for lowest geographic area with statistically (see subpart G of this part—Appeals). A
operating subsidy at the rate of 75 valid data at the time the annual PHA’s formula income may be
percent PEL per unit for the first twelve inflation adjustment is calculated. The recalculated if the PHA appeals to HUD
months and 50 percent PEL per unit for adjustment will reflect a weight of: for an adjustment in its formula.
the next twelve months. (i) 40 percent for increases in cost of (d) Calculation of formula income
Example: A PHA has HUD’s approval to living as shown for such annual period when data are inadequate or
demolish (or dispose of) a 100-unit project by the BLS U.S. Cities Average All Items unavailable. When audited data are
from its 1,000 EUM inventory. On January Consumer Price Index; and unavailable in HUD’s information
12, in conjunction with the PHA’s approved (ii) 60 percent for increases in wages, systems for the calculation of formula
Relocation Plan, a unit in that project salaries and benefits for an annualized income, HUD may use an alternative
becomes vacant. Accordingly, the period as shown in the BLS methodology, including, but not limited
demolition/disposition-approved project is Employment Cost Index, which annual
eligible for an asset repositioning fee on
to, certifications, hard copy reports, and
adjustment shall reflect the most communications with the respective
October 1. (This date is calculated as follows:
January 12 + six months = July 12. The first recently published annual data and the PHAs.
day of the next quarter is October 1.) lowest geographic area with statistically (e) Inapplicability of 24 CFR 85.25.
valid data available from BLS at the Formula income is not subject to the
Although payment of the asset time the annual inflation adjustment is provisions regarding program income in
repositioning fee will not begin until calculated. 24 CFR 85.25.
October 1, the PHA will receive its full (j) Costs attributable to changes in
operating subsidy based on the 1,000 federal law, regulation or economy. In Subpart E—Determination and
EUMs through September 30. On the event that HUD determines that Payment of Operating Subsidy
October 1 the PHA will begin its 3-year enactment of a federal law or revision in
phase down of operating subsidy in HUD or other federal regulations has § 990.200 Determination of formula
accordance with paragraph (h) (3) of this amount.
caused or will cause a significant
section for the 100 units approved for change in expenditures of a continuing (a) General. The amount of operating
demolition. (Phase down requirements nature above the PEL and UEL, HUD subsidy that a PHA is eligible for is the
for projects approved for disposition are may, in HUD’s sole discretion, decide to difference between its formula expenses
found in paragraph (h)(4) of this prescribe a procedure under which the (as calculated under subpart C of this
section.) On October 1, the PHA’s EUMs PHA may apply for or may receive an part) and its formula income (as
will be 900. adjustment in operating subsidy. calculated under subpart D of this part).
(i) Adjustment for certain PHAs. A (b) Use of HUD databases to calculate
PHA that will experience a reduction in Subpart D—Calculating Formula formula amount. HUD shall utilize its
its operating subsidy between Income databases to make the Formula
calculations using the formula in effect calculations. HUD’s databases are
prior to [insert effective date of final § 990.195 Calculation of formula income. intended to be employed to provide
rule] and the formula in this part, but (a) General. Formula income will be information on all primary factors in
would experience an increase in its derived from a PHA’s year-end financial determining the operating subsidy
operating subsidy between calculations information. The financial information amount. Each PHA is responsible for
using the formula in effect prior to used in the formula income supplying accurate information on the
[insert effective date of final rule] and computation will be the audited status of each of its units in HUD’s
the formula in this part with application information provided by the PHA databases.
of the four factors listed in paragraphs through HUD’s information systems. (c) PHA responsibility to submit
(i)(1) through (i)(4) of this section, will The information will be calculated timely data. PHAs shall submit data
receive an add on to its subsidy. The using the following PHA fiscal year-end used in the Formula on a regular and
amount of the add-on will be equal to information: April 1, 2003 through timely basis to ensure accurate
calculation under the Formula. If a PHA HUD shall have discretion to revise, on part and the formula in effect prior to
fails to provide accurate data, HUD will a pro rata basis, the amounts of [insert effective date of final rule]. The
make a determination as to the PHA’s operating subsidy to be paid to PHAs. difference will be calculated using FY
inventory, occupancy, and financial 2004 data. When actual data are not
§ 990.215 Payments of operating subsidy
information using available or verified available for one of the formula
conditioned upon reexamination of income
data, which may result in a lower of families in occupancy. components needed to calculate the
operating subsidy. HUD has the right to Operating Fund formula of this rule for
(a) General. Each PHA is required to
adjust any or all formula amounts based FY 2004, HUD will use alternate data as
reexamine the income of each family in
on clerical, mathematical, and accordance with the provisions of the a substitute (e.g., unit months available
informational system errors that affect ACC, the 1937 Act, and HUD for eligible unit months, phase-down
any of the data elements used in the regulations. Income reexaminations funding for asset repositioning fee, etc.)
calculation of the Formula. shall be performed annually, except as If the difference between these formulas
(d) HUD shall impose sanctions as indicates that a PHA shall have its
provided in the 1937 Act, in HUD
deemed necessary, and otherwise regulations, or in the MTW agreements. operating subsidy reduced as a result of
provided by law, for those PHAs that do A PHA must be in compliance with all this Formula, the PHA will be subject to
not report accurate and timely data, as reexamination requirements in order to a transition policy as indicated in
required under this section. be eligible to receive full operating § 990.230. If the difference between
subsidy. A PHA’s calculations of rent these formulas indicates that a PHA will
§ 990.205 Fungibility of operating subsidy
and utility allowances shall be accurate have its operating subsidy increased as
between projects.
and timely. a result of this Formula, the PHA will
(a) General. Operating subsidy shall be subject to the transition policy as
remain fully fungible between ACC (b) A PHA in compliance. A PHA
shall submit a certification that it is in indicated in § 990.235.
projects until operating subsidy is
calculated by HUD at a project level. compliance with the annual income § 990.230 PHAs that will experience a
After subsidy is calculated at a project reexamination requirements and that subsidy reduction.
level, operating subsidy can be rents and utility allowance calculations
have been or will be adjusted in (a) For PHAs that will experience a
transferred as the PHA determines reduction in their operating subsidy, as
during the PHA’s fiscal year to another accordance with current HUD
requirements and regulations. determined in § 990.225, such
ACC project(s) if a project’s financial reductions will have a limit of:
(c) A PHA not in compliance. Any
information, as described more fully in
PHA not in compliance with annual (1) 24 percent of the difference
§ 990.280, produces excess cash flow,
income reexamination requirements at between the two funding levels in the
and only in the amount up to those
the time of the submission of the first year following [insert effective date
excess cash flows.
calculation of operating subsidy shall of final rule];
(b) Notwithstanding the provisions of
furnish to the responsible HUD field (2) 43 percent of the difference
paragraph (a) of this section and subject
office a copy of the procedures it is between the two funding levels in the
to all of the other provisions of this part,
using to achieve compliance and a second year following [insert effective
the New York City Housing Authority’s
statement of the number of families that date of final rule];
Development Grant Project Amendment
have undergone reexamination during
Number 180, dated July 13, 1995, to (3) 62 percent of the difference
the twelve months preceding the current
Consolidated Annual Contributions between the two levels in the third year
funding cycle. If, on the basis of this
Contract NY–333 remains in effect. following [insert effective date of final
submission or any other information,
rule]; and
§ 990.210 Payment of operating subsidy. HUD determines that the PHA is not
substantially in compliance with all of (4) 81 percent of the difference
(a) Payments of operating subsidy
the annual income reexamination between the two levels in the fourth
under the Formula. HUD shall make
requirements, HUD shall withhold year following [insert effective date of
monthly payments equal to 1⁄12 of a
payments to which the PHA may be final rule].
PHA’s total annual operating subsidy
under the Formula by electronic funds entitled under this part. Payment may (b) The full amount of the reduction
transfers through HUD’s automated be withheld in an amount equal to in the operating subsidy level shall be
disbursement system. HUD shall HUD’s estimate of the loss of rental realized in the fifth year following
establish thresholds that permit PHAs to income to the PHA resulting from its [insert effective date of final rule].
request monthly installments. PHA failure to comply with the requirements. (c) For example, a PHA has a subsidy
requests that exceed these thresholds reduction from $1,000,000 under the
Subpart F—Transition Policy and formula in effect prior to [insert
will be subject to HUD review. HUD
Transition Funding effective date of final rule] to $900,000
approvals of requests that exceed these
thresholds are limited to PHAs that have § 990.220 Purpose. under the formula used for operating
an unanticipated and immediate need This policy is aimed at assisting all subsidy under this part using FY 2004
for disbursement. PHAs in transitioning to the new data. The difference would be
(b) Payments procedure. In the event funding levels as determined by the calculated at $100,000
that the amount of operating subsidy formula set forth in this rule. PHAs will ($1,000,000¥$900,000 = $100,000). In
has not been determined by HUD as of be subject to a transition funding policy the first year, the subsidy reduction
the beginning of the funding period, that will either increase or reduce their would be limited to $24,000, (24 percent
operating subsidy shall be provided total operating subsidy for a given year. of the difference). Thus, in this example
monthly, quarterly, or annually based the PHA will receive an operating
upon the amount of the PHA’s previous § 990.225 Transition determination. subsidy amount of this rule plus a
year’s formula or such other amount as The determination of the amount and transition funding amount of $76,000
HUD may determine to be appropriate. period of the transition funding shall be (the $100,000 difference between the
(c) Availability of funds. In the event based on the difference in subsidy levels two subsidy amounts minus the $24,000
that insufficient funds are available, between the formula set forth in this reduction limit).
(d) The schedule for a PHA whose FY 2006 and FY 2007. HUD will use the (b) Appeals under § 990.245(c) and (e)
subsidy would be reduced is reflected in hold-back amount to fund appeals that are subject to the following
the table below. are filed during each of these fiscal requirements:
years. Hold-back funds not utilized will (1) The PHA is required to acquire an
Funding period Reduction limited to be added back to the formula within independent cost assessment of its
each of the affected fiscal years. projects;
Year 1 ............ 24 percent of the difference. (2) The cost of services for the
Year 2 ............ 43 percent of the difference. (b) Appeals are voluntary and must
Year 3 ............ 62 percent of the difference. cover an entire portfolio, not single independent cost assessment is to be
Year 4 ............ 81 percent of the difference. projects. However, the Assistant paid by the appellant PHA;
Year 5 ............ Full reduction reached. Secretary for Public and Indian Housing (3) The assessment is to be reviewed
(or designee) has the discretion to by a professional familiar with property
§ 990.235 PHAs that will experience a accept appeals of less than an entire management practices and costs in the
subsidy increase. portfolio for PHAs with greater than region or state in which the appealing
(a) For PHAs that will experience a 5,000 public housing units. PHA is located. This professional is to
gain in their operating subsidy, as be procured by HUD. The professional
§ 990.245 Types of appeals. review and recommendation will then
determined in § 990.225, such increases
will have a limit of: (a) Streamlined Appeal. This appeal be forwarded to the Assistant Secretary
(1) 20 percent of the difference would demonstrate that the application for Public and Indian Housing or his
between the two funding levels in the of a specific Operating Fund formula designee for final determination; and
first year following [insert effective date component has a blatant and objective (4) If the appeal is granted, the PHA
of final rule]; flaw. agrees to be bound to the independent
(2) 40 percent of the difference (b) Appeal of Formula Income for cost assessment regardless of new
between the two funding levels in the Economic Hardship. After a PHA’s funding levels.
second year following [insert effective formula income has been frozen, the
date of final rule]; and PHA can appeal to have its formula Subpart H—Asset Management
(3) 60 percent of the difference income adjusted to reflect a severe local § 990.255 Overview.
between the two funding levels in the economic hardship that is impacting the (a) PHAs shall manage their
third year following [insert effective PHA’s ability to maintain rental and properties according to an asset
date of final rule]. other revenue.
(b) The full amount of the increase in management model, consistent with the
(c) Appeal for specific local management norms in the broader
the operating subsidy level shall be conditions. This appeal would be based
realized in the fourth year following multi-family management industry.
on demonstrations that the model’s PHAs shall also implement project-
[insert effective date of final rule]. predictions are not reliable because of
(c) For example, a PHA’s subsidy based management, project-based
specific local conditions. To be eligible, budgeting, and project-based
increased from $900,000 under the the affected PHA must demonstrate a
formula in effect prior to [insert accounting, which are essential
variance of ten percent or greater in its components of asset management. The
effective date of final rule] to $1,000,000 PEL.
under the formula used to calculate goals of asset management are to:
(d) Appeal for changing market (1) Improve the operational efficiency
operating subsidy under this part using conditions. A PHA may appeal to
FY 2004 data. The difference would be and effectiveness of managing public
receive operating subsidy for vacant housing assets;
calculated at $100,000 ($1,000,000— units due to changing market
$900,000 = $100,000). In the first year, (2) Better preserve and protect each
conditions, after a PHA has taken asset;
the subsidy increase would be limited to aggressive marketing and outreach
$20,000 (20 percent of the difference). (3) Provide appropriate mechanisms
measures to rent these units. For for monitoring performance at the
Thus, in this example the PHA will example, a PHA that is located in an
receive the PEL-derived subsidy amount property level; and
area experiencing population loss or (4) Facilitate future investment and
of this rule minus a transition funding economic dislocations that faces a lack
amount of $80,000 (the $100,000 reinvestment in public housing by
of demand for housing in the public and private sector entities.
difference between the two subsidy foreseeable future. A PHA’s appeal must
amounts minus the $20,000 transition (b) HUD recognizes that appropriate
contain a plan to end the higher subsidy changes in its regulatory and monitoring
amount). within two years. This exemption shall
(d) The schedule for a PHA whose programs will be needed to support
only be granted one time and for a PHAs to undertake the goals identified
subsidy would be increased is reflected
maximum term of two years. in paragraph (a) of this section.
in the table below.
(e) Appeal to substitute actual project
cost data. A PHA may appeal its PEL if § 990.260 Applicability.
Funding period Increase limited to
it can produce actual project cost data (a) PHAs that own and operate 250 or
Year 1 ............ 20 percent of the difference. derived from actual asset management, more dwelling rental units under title I
Year 2 ............ 40 percent of the difference. as outlined in subpart H of this part, for of the 1937 Act, including units
Year 3 ............ 60 percent of the difference. a period of at least two years. managed by a third party entity (for
Year 4 ............ Full increase reached. example, a resident management
§ 990.250 Requirements for certain corporation) but excluding section 8
appeals. units, are required to operate using an
Subpart G—Appeals
(a) Appeals under § 990.245(a) and (c) asset management model consistent
§ 990.240 General. must be submitted once annually. with this subpart.
(a) PHAs will be provided Appeals under § 990.245(a) and (c) must (b) PHAs that own and operate fewer
opportunities for appeals. HUD will be submitted for new projects entering than 250 dwelling rental units may treat
provide up to a two percent hold-back a PHA’s inventory within one year of their entire portfolio as a single project.
of the Operating Fund appropriation for the applicable DOFA. However, if a PHA selects this option,
it will not receive the add-on for the § 990.280 Project-based budgeting and (5) If the project has excess cash flow
asset management fee described in accounting. available after meeting all reasonable
§ 990.190(f). (a) All PHAs covered by this subpart operating needs of the property, the
shall develop and maintain a system of PHA may use this excess cash flow for
§ 990.265 Identification of projects. budgeting and accounting for each the following purposes:
For purposes of this subpart, project project in a manner that allows for (i) Fungibility between projects as
means a public housing building or set analysis of the actual revenues and provided for in § 990.205.
expenses associated with each property. (ii) Charging each project a reasonable
of buildings grouped for the purpose of
Project-based budgeting and accounting asset-management fee that may also be
management. A project may be as
will be applied to all programs and used to fund operations of the central
identified under the ACC or may be a
revenue sources that support projects office. However, this asset-management
reasonable grouping of projects or under an ACC (e.g., the Operating Fund, fee may only be charged if the PHA
portions of a project under the ACC. the Capital Fund, etc.). performs all asset management activities
HUD shall retain the right to disapprove (b)(1) Financial information to be described in this subpart (including
of a PHA’s designation of a project. budgeted and accounted for at a project project-based management, budgeting
PHAs may group up to 250 scattered- level shall include all data needed to and accounting). Asset management fees
site dwelling rental units into a single complete project-based financial are considered a direct expense.
project. statements in accordance with (iii) Other eligible purposes.
Accounting Principles Generally (c) In addition to project-specific
§ 990.270 Asset management. Accepted in the United States of records, PHAs may establish central
As owners, PHAs have asset America (GAAP), including revenues, office cost centers to account for non-
management responsibilities that are expenses, assets, liabilities, and equity project specific costs (e.g., human
above and beyond property management data. The PHA shall also maintain all resources, Executive Director’s office,
activities. These responsibilities include records to support those financial etc). These costs shall be funded from
decision-making on topics such as long- transactions. At the time of conversion the property-management fees received
term capital planning and allocation, to project-based accounting, a PHA shall from each property, and from the asset-
the setting of ceiling or flat rents, review apportion its assets, liabilities, and management fees to the extent these are
of financial information and physical equity to its respective projects and available.
HUD-accepted central office cost (d) In the case where a PHA chooses
stock, property management
centers. to centralize functions that directly
performance, long-term viability of (2) Provided that the PHA complies
properties, property repositioning and support a project (e.g., central
with GAAP and other associated laws maintenance), it must charge each
replacement strategies, risk management and regulations pertaining to financial
responsibilities pertaining to regulatory project using a fee-for-service approach.
management (i.e., OMB Circulars), it Each project shall be charged for the
compliance, and those otherwise shall have the maximum amount of
consistent with the PHA’s ACC actual services received and only to the
responsibility and flexibility in extent that such amounts are reasonable.
responsibilities, as appropriate. implementing project-based accounting.
(3) Project-specific operating income § 990.285 Records and reports.
§ 990.275 Project-based management.
shall include, but is not limited to, such (a) Each PHA shall maintain project-
Project-based management (PBM) is items as project-specific operating based budgets and fiscal year-end
the provision of property-based subsidy, dwelling and non-dwelling financial statements prepared in
management services that are tailored to rental income, excess utilities income, accordance with GAAP and shall make
the unique needs of each property, and other PHA or HUD-identified these budgets and financial statements
given the resources available to that income that is project-specific for available for review upon request by
property. These property management management purposes. interested members of the public.
services include, but are not limited to, (4) Project-specific formula expenses (b) Each PHA shall distribute the
marketing, leasing, resident services, shall include, but are not limited to, project-based budgets and year-end
direct administrative costs, utilities financial statements to the Chairman
routine and preventive maintenance,
costs, maintenance costs, tenant and to each member of the PHA Board
lease enforcement, protective services,
services, protective services, general of Commissioners, and to such other
and other tasks associated with the day-
expenses, non-routine or capital state and local public officials as HUD
to-day operation of rental housing at the expenses, and other PHA or HUD-
project level. Under PBM, these may specify.
identified costs which are project- (c) Some or all of the project-based
property management services are specific for management purposes.
arranged, coordinated, or overseen by budgets and financial statements and
Project-specific operating costs shall information shall be required to be
management personnel who have been also include a property-management fee
assigned responsibility for the day-to- submitted to HUD in a manner and time
charged to each project that is used to prescribed by HUD.
day operation of that property and who fund operations of the central office.
are charged with direct oversight of Amounts that can be charged to each § 990.290 Compliance with asset
operations of that property. Property project for the property-management fee management requirements.
management services may be arranged must be reasonable. If the PHA contracts (a) A PHA is considered in
or provided centrally; however, in those with a private management company to compliance with asset management
cases in which property management manage a project, the PHA may use the requirements if it can demonstrate
services are arranged or provided difference between the property substantially, as described in paragraph
centrally, the arrangement or provision management fee paid to the private (b) below, that it is managing according
of these services must be done in the management company and the fee that to this subpart.
best interests of the property, is reasonable to fund operations of the (b) Demonstration of compliance with
considering such factors as cost and central office and other eligible asset management will be based on an
responsiveness. purposes. independent assessment.
(1) The assessment is to be conducted (f) The following conditions may not conventionally owned public housing
by a professional familiar with property affect the amounts to be provided under program. Any expenditure of funds from
management practices and costs in the this part to a project managed by an the reserve must be for eligible
region or state in which the PHA is RMC: expenditures that are incorporated into
located. This professional is to be (1) Income reduction. Any reduction an operating budget subject to approval
procured by HUD. in the subsidy or total income of a PHA by HUD.
(2) The professional review and that occurs as a result of fraud, waste, (d) Investment of funds held in the
recommendation will then be forwarded or mismanagement by the PHA; and reserve will be in accordance with HUD
to the Assistant Secretary or his (2) Change in total income. Any regulations and guidance.
designee for final determination of change in the total income of a PHA that
compliance to asset management. occurs as a result of project-specific § 990.305 Retention of excess revenues.
(c) Upon HUD’s determination of characteristics when these (a) Any income generated by an RMC
successful compliance with asset characteristics are not shared by the that exceeds the income estimated for
management, PHAs will then be funded project managed by the RMC. the income categories specified in the
based on this information pursuant to (g) Other project income. In addition RMC’s management contract must be
§ 990.165(i). to the operating subsidy calculated in excluded in subsequent years in
(d) PHAs must be in compliance with accordance with this part and the calculating:
the project-based accounting and amount of income derived from the (1) The operating subsidy provided to
budgeting requirements in this subpart project (from sources such as rents and a PHA under this part; and
by FY 2007. PHAs must be in charges), the management contract (2) The funds the PHA provides to the
compliance with the remainder of the between the PHA and the RMC may RMC.
components of asset management by FY specify that income be provided to the (b) The management contract must
2011. project from other legally available specify the amount of income that is
(e) HUD may impose sanctions as sources of PHA income. expected to be derived from the project
deemed necessary, and otherwise (from sources such as rents and charges)
provided by law, for those PHAs that are § 990.300 Preparation of operating budget. and the amount of income to be
not in compliance with asset (a) The RMC and the PHA must each provided to the project from the other
management by FY 2011. These submit a separate operating budget to sources of income of the PHA (such as
sanctions may include the imposition of HUD for approval, including the operating subsidy under this part,
a daily monetary fine until the PHA calculation of operating subsidy interest income, administrative fees, and
converts to asset management. eligibility in accordance with § 990.200 rents). These income estimates must be
for the project managed by an RMC. The calculated consistent with HUD’s
Subpart I—Operating Subsidy for budget will reflect all project administrative instructions. Income
Properties Managed by Resident expenditures and will identify the estimates may provide for adjustment of
Management Corporations (RMCs) expenditures related to the anticipated project income between the
responsibilities of the RMC and the RMC and the PHA, based upon the
§ 990.295 Resident Management management and other project-
Corporation operating subsidy. expenditures that are related to the
functions that the PHA will continue to associated responsibilities (if any) that
(a) General. This part applies to all are to be retained by the PHA under the
projects managed by a Resident perform.
(b) For each project or part of a project management contract.
Management Corporation (RMC); (c) Any revenues retained by an RMC
that is operating in accordance with the
including a direct funded RMC. under this section may only be used for
(b) Operating subsidy. Subject to ACC amendment relating to this subpart
and in accordance with a contract purposes of improving the maintenance
paragraphs (c) and (d) of this section, and operation of the project,
the amount of operating funds that a vesting maintenance responsibilities in
the RMC, the PHA will transfer into a establishing business enterprises that
PHA or HUD provides a project employ residents of public housing, or
managed by an RMC shall not be sub-account of the operating reserve of
the PHA an operating reserve for the acquiring additional dwelling units for
reduced during the three-year period lower income families. Units acquired
beginning on the date the RMC first RMC project. When all maintenance
responsibilities for a resident-managed by the RMC will not be eligible for
assumes management responsibility for payment of operating subsidy.
the project. project are the responsibility of the
(c) Change factors. The operating RMC, the amount of the reserve made Subpart J—Financial Management
subsidy for an RMC managed project available to a project under this subpart Systems, Monitoring, and Reporting
shall reflect changes in inflation, utility will be the per unit cost amount
rates and consumption, and changes in available to the PHA operating reserve, § 990.310 Purpose—General policy on
the number of units in the resident excluding all inventories, prepaids and financial management, monitoring and
management project. receivables at the end of the PHA fiscal reporting.
(d) Exclusion of increased income. year preceding implementation, All PHA financial management
Any increased income directly multiplied by the number of units in the systems, reporting and monitoring on
generated by activities by the RMC or project operated. When some, but not program performance and financial
facilities operated by the RMC shall be all, maintenance responsibilities are reporting shall be in compliance with
excluded from the calculation of the vested in the RMC, the management the requirements of 24 CFR 85.20, 85.40
operating subsidy. contract between the PHA and RMC and 85.41. Certain HUD requirements
(e) Exclusion of technical assistance. may provide for an appropriately provide exceptions for additional
Any technical assistance the PHA reduced portion of the operating reserve specialized procedures that are
provides to the RMC will not be to be transferred into the RMC’s sub- determined by HUD to be necessary for
included for purposes of determining account. the proper management of the program
the amount of funds provided to a (c) The RMC’s use of the operating in accordance with the requirements of
project under paragraph (b) of this reserve is subject to all administrative the 1937 Act and the ACC between each
section. procedures applicable to the PHA and HUD.
§ 990.315 Submission and approval of economy, or stability. When the PHA no § 990.320 Audits.
operating budgets. longer is operating in a manner that All PHAs that receive financial
Required documentation: threatens the future serviceability, assistance under this part shall submit
(a) Prior to the beginning of its fiscal efficiency, economy, or stability of the an acceptable audit and comply with
year, a PHA shall prepare an operating housing it operates, HUD will notify the the audit requirements in 24 CFR 85.26.
budget in a manner prescribed by HUD. PHA that it no longer is required to
The PHA’s Board of Commissioners submit a complete operating budget § 990.325 Record retention requirements.
shall review and approve the budget by with detailed supporting information to The PHA shall retain all documents
resolution. Each fiscal year, the PHA HUD for review and approval. related to all financial management and
shall submit to HUD, in a time and activities funded under operating
manner prescribed by HUD, the (c) If HUD finds that an operating
budget is incomplete, inaccurate, subsidy for a period of five fiscal years
approved Board resolution. after the fiscal year in which the funds
(b) HUD may direct the PHA to includes illegal or ineligible
expenditures, mathematical errors, were received.
submit its complete operating budget
with detailed supporting information errors in the application of accounting Dated: March 18, 2005.
and the Board resolution if the PHA has procedures, or is otherwise Michael Liu,
breached the ACC contract, or for other unacceptable, HUD may, at any time, Assistant Secretary for Public and Indian
reasons, which, in HUD’s require the PHA to submit more or Housing.
determination, threaten the PHA’s revised information regarding the [FR Doc. 05–7376 Filed 4–13–05; 8:45 am]
future serviceability, efficiency, budget or revised budget. BILLING CODE 4210–33–P

Proposed Rule: Public and Indian Housing: Public Housing Operating Fund Program

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Proposed Rule: Public and Indian Housing: Public Housing Operating Fund Program

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F. Discontinuation of Subsidy Reduction certain Committee recommendations A. Implementation of Cost Study

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