Vacancy Reduction Program; Final Rule and Notice DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

SUMMARY: The Department is issuing regulations to implement the Vacancy

Reduction Program. The Notice of Funding Availability (NOFA) for the

program is published elsewhere in today's Federal Register. Under this

program, certain Public Housing Agencies (PHAs) are required to develop

and submit a plan regarding vacancies in units owned or operated by the

PHA. Each plan will be required to include the elements specified in

the statute and this rule. In addition, assessment teams have conducted

on-site assessments of the vacancy situations of known eligible PHAs

and may provide assistance to PHAs in developing their plans. The

assistance available under this program is intended to supplement other

initiatives of the PHA that will reduce the rate of addressable

vacancies in a PHA's inventory.

EFFECTIVE DATE: July 13, 1994.

FOR FURTHER INFORMATION CONTACT: MaryAnn Russ, Director, Office of

Assisted Housing, Public and Indian Housing, room 4204, U.S. Department

of Housing and Urban Development, 451 Seventh Street SW., Washington DC

20410, telephone (202) 708-1380. Individuals with hearing or speech

impairments may call HUD's TDD number: (202) 708-0850. (These telephone

numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Statement

The information collection requirements contained in this final

rule have been approved by the Office of Management and Budget, under

section 3504(h) of the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-

3520), and assigned OMB control number 2577-0181.

Background

On May 21, 1993, the Department published a proposed rule to

implement the Vacancy Reduction Program (program). The program was

authorized when section 510 of the Cranston-Gonzales National

Affordable Housing Act added a new section 14(p) to the United States

Housing Act of 1937 (42 U.S.C. 14371) (1937 Act). Recently section

14(p) was amended by section 115 of the Housing and Community

Development Act of 1992 (Pub. L. 102-550, approved October 28, 1992)

(1992 Act), and funding was made available for the first time for the

program.

Section 14(p) requires any public housing agency (PHA) to

participate in the program if the PHA has a vacancy rate that exceeds

twice the national average, is designated as troubled under section

6(j) of the 1937 Act, or has been placed under a receiver pursuant to

section 6(j)(3) of the 1937 Act. Each PHA participating in the program

will be required to develop a vacancy reduction plan that identifies

vacant dwelling units in its inventory and the reasons for the

vacancies, and describes actions to be taken by the PHA for the

following five years to eliminate the vacancies.

In addition, the vacancy situations of every participating PHA will

be reviewed on-site by assessment teams consisting of representatives

of the Department, independent experts knowledgeable about vacancy

problems and management issues relating to public housing, and PHA

officials. The assessment teams will submit recommendations to HUD and

the PHA, and, at the request of the PHA, may assist the PHA in

preparing its vacancy reduction plan.

The plans will be the basis for selecting those PHAs that will

receive assistance under the program. For troubled PHAs, funding of

vacancy reduction activities will be contingent upon the PHA either

making or providing reasonable assurances of substantial progress in

remedying any management deficiencies.

Use of Survey to Determine FY 1993 NOFA Threshold Factors

As discussed in the proposed rule, all PHAs where existing data

indicated the PHA met the statutory criteria for mandatory

participation in the program were surveyed. The results of the survey

have been used to define the threshold factors for the NOFA published

elsewhere in today's Federal Register and are discussed in greater

detail in that NOFA. In addition, the Department has conducted

assessments at PHAs that the Department believes meet the threshold

factors for the NOFA that is published elsewhere in today's Federal

Register. As explained in the NOFA, any PHA that meets the threshold

factors and has not already been assessed should immediately request an

assessment by contacting the Department.

Comments on Proposed Rule

Six sets of comments were submitted to the Department on the

proposed rule: two from public housing authority (PHA) industry groups

and four from local housing authorities. Comments were received from

the:

--Council of Large Public Housing Authorities (CLPHA);

--Public Housing Authorities Directors Association (PHADA);

--Chicago Housing Authority (CHA);

--Morgan County (Illinois) Housing Authority (MCHA);

--Los Angeles County Housing Authority (LACHA); and

--Atlanta (Georgia) Housing Authority (AHA).

Discussion of the comments is organized according to the following

topics: Eligibility requirements; development of the vacancy reduction

plan; assessments; funding of vacancy reduction activities; sanctions;

use of NOFAs to convey significant program information; the

relationship of the Vacancy Reduction Program to other HUD programs;

and miscellaneous comments.

Eligibility Requirements

(1) The rule states that a PHA must participate in the program if a

receiver has been appointed for the PHA. The term ``receiver'' should

be clarified, in that HUD has taken actions against PHAs that have

resulted in takeovers of programs or operations from PHAs without

necessarily having a court-appointed receiver. (CLPHA)

Response: The term is statutory and refers to a receiver appointed

by a Federal or State court under section 6(j)(3) of the United States

Housing Act of 1937; the term does not include other arrangements.

(2) Benefits of the program should be available to a PHA that does

not have a vacancy rate of twice the national average only if the PHA

fails the Public Housing Management Assessment Program (PHMAP) standard

for vacancies (see 24 CFR part 901). (PHADA) Similarly, program

participation should be optional for troubled authorities that do not

have a vacancy rate twice the national average. (CHA)

Response: As the commenter noted, using the PHMAP standard would

require congressional action because the current statute requires

participation by PHAs that are troubled or for which receivers have

been appointed.

(3) In defining the term ``vacant unit'', reference is made to an

effective lease, which is defined in terms of an eligible family being

charged rent. However, because of utility allowances or zero income,

many residents do not pay rent for the units they occupy. (CLPHA)

Response: The definition requires that the family have a right to

possession of the unit, in addition to being charged rent. The

calculation of the rent to be charged by a PHA takes into account

income and any utility allowance. As noted by the commenter, as a

result of this calculation of rent, the PHA might not actually collect

any money from the family having the right to possess a unit (e.g.,

when the utility allowance equals or exceeds the total tenant payment).

However, the lease still obligates the tenant and includes a rental

charge that, at least in part, is based on income. Therefore, the

elements of the definition are met, even though the actual amount

collected by the PHA from the tenant is $0.

(4) A PHA is required to participate in the program if it has a

vacancy rate that is twice the national average, regardless of the

number of units in the PHA's inventory. Because the vacancy problems of

small PHAs, especially, may be due to lack of demand, participation in

the program should be optional for PHAs with less than 250 units.

(PHADA) For the first year, program participation should be limited to

PHAs with 500 or more units. (CHA)

Response: The statute does not discriminate among the causes of

vacancies in establishing the participation requirements. However, the

extent of participation may be limited to providing documentation of

lack of demand or proposals to deprogram units. In awarding funding,

the Department will concentrate on PHAs where there is a demand for

housing, as reflected in the terms of the NOFA published elsewhere in

today's Federal Register. Furthermore, because smaller PHAs dependent

on CIAP funding often have fewer resources to solve a vacancy problem,

these PHAs could realize substantial improvement of their vacancy

statistics with a minimal increment of funding. Thus, their selection

for funding would serve the statutory purposes of the program, and

their exclusion from the initial round of funding could not be

justified.

(5) Program participation should be available to any PHA that needs

help in addressing its vacancy situation. (MCHA, CHA)

Response: Because current program funding is limited, the

Department is concentrating on PHAs that are required to participate.

(6) In the definition of ``vacant unit,'' the proposed rule does

not specify a timeframe for determining the existence of a vacancy.

Similarly, in calculating a PHA's vacancy rate for purposes of

determining program eligibility, the proposed rule does not recognize

any normal turnover time, such as the 20-day transition period allowed

under PHMAP Indicator 5. (LACHA)

Response: The Department recognizes that the vacancy rate of a PHA

is fluid. However, for the purpose of determining eligibility for the

program, the Department has decided to use a snapshot approach, i.e.,

the number of units vacant at the PHA on the appropriate date.

Development of the Vacancy Reduction Plan

(1) The proposed rule provides a number of examples of project-

specific activities to eliminate vacancies that a PHA might include in

its vacancy reduction plan. The number of examples should be expanded

to include such activities as unit redesign or conversion, site

reconfiguration, security improvements, and density reductions. These

additional examples will serve to give a better idea of the range of

acceptable activities. (CLPHA, CHA) Similarly, examples of specific

management improvements that should be encouraged include tenant

screening, evictions, and marketing and leasing efforts. (CHA)

Response: A number of these examples have been included in

Sec. 968.407(b)(3)(i) of the final rule.

(2) If demolition or disposition are selected activities, HUD's

review and approval process and replacement housing requirements will

make it very difficult for a PHA to provide the required schedule that

forecasts when the selected activities would be accomplished. (CLPHA,

PHADA (similar comment for other HUD actions)) In addition,

participating PHAs need to be able to change their schedules for

eliminating vacancies to reflect actual funding. (PHADA)

Response: Sections 968.407(b)(3)(ii) and 968.407(b)(8) have been

revised to include language providing that, in developing the required

schedule, PHAs should specify action within x days from HUD approval or

other action, when progress is dependent on HUD action. In addition, a

schedule may be revised to reflect the adequacy of funding for proposed

activities.

(3) If a PHA needs help in preparing the vacancy reduction plan,

the assessment team should be required to assist in the plan

development, if requested by the PHA. The proposed rule does not make

this assistance mandatory. (PHADA)

Response: Section 968.410(d) has been changed to clarify that, if

requested by the PHA, HUD will assist a PHA in preparing its vacancy

reduction plan.

(4) The final rule should clarify that participating PHAs do not

have to address each single vacant unit separately, but should be

permitted to group together vacant units by the cause of vacancy.

(PHADA)

Response: In accordance with the statutory requirements, each

vacant dwelling unit must be identified. However, vacant units may be

grouped together for purposes of explaining the reasons for the

vacancies and proposed actions for eliminating the vacancies.

(5) The vacancy reduction plan should include information on

turnover problems. (PHADA, AHA) The information should include the

number of units vacated and reoccupied during a defined period and any

indication of whether the turnover rate is changing. (CHA)

Response: A new paragraph has been added to Sec. 968.407(b) to

require that a vacancy reduction plan include certain information on a

PHA's turnover rate.

(6) A complete strategy needs to be developed that includes not

just rehabilitation work, but tenant screening, eviction, property

management, and security measures, as well. (CHA)

Response: The Department and the statute contemplate a complete

strategy. A PHA's vacancy reduction plan should include any action to

remove the unit from the PHA's inventory of vacant units, including

management improvements in each of the specific areas mentioned by the

commenter.

Assessments

(1) If funding will be on a ``first-come, first served'' basis, the

sequence of assessment team visits should be by public drawing in order

to avoid charges of favoritism. (PHADA)

Response: For the NOFA published today, the Department has decided

upon an approach that should provide some funding to all PHAs that meet

the eligibility criteria. Each eligible PHA that is a Comprehensive

Improvement Assistance Program (CIAP) agency will be funded fully for

all eligible units and approved activities, because smaller PHAs

dependent on CIAP funding often have fewer resources to solve a vacancy

problem. If sufficient funds are available, each PHA that is a

Comprehensive Grant Program (CGP) agency will be funded fully; however,

if there are not sufficient funds remaining, each CGP agency will be

awarded a pro rata share of the available funding. This pro rata share

will be calculated by a method, to be determined by HUD and announced

in the NOFA, that will provide funding equitably to those agencies.

(2) When the PHA already is required under PHMAP to have developed

a plan to address its vacancy problem, the primary purpose of the

Vacancy Reduction Program assessment team should be a validation or

critique of the PHA's existing plan, rather than an independent

assessment. The intent of the program is to encourage action, not

further studies. (PHADA)

Response: The statute requires an on-site assessment of the vacancy

situation of each participating PHA, and specifies what is to be

included in the PHA's vacancy reduction plan. To the extent that a PHA

is able, the Department encourages the PHA to use work that has been

done in accordance with PHMAP requirements to comply with the

requirements of this program.

(3) PHAs that lend a staff person to an assessment team should be

reimbursed for the staff person's salary and benefits during that

assignment. (PHADA)

Response: The Department agrees that the statutory provision

allowing program funds to be used for travel and administrative

expenses of assessment teams, extends to PHA staff. Therefore, PHAs

will be reimbursed for the salary and benefits for any staff person

that serves on an assessment team. However, this does not apply to

staff members of the PHA that is being assessed.

(4) Because the need for these funds is great, the Department

should speed up the scheduling of assessments. (MCHA, PHADA)

Response: The Department has assessed all known eligible PHAs.

Funding of Vacancy Reduction Activities

(1) HUD needs to clarify its position regarding the use of program

funds for security improvements. (CLPHA)

Response: Where units are vacant because of security problems, HUD

will provide funding for physical security improvements, such as

improved locks, security screens, additional lighting, and site

improvement. As part of management improvements, HUD also will provide

funding for security activities over a limited duration, if HUD

determines that such funding is likely to result in the reoccupancy and

continued occupancy of vacant units. Examples of security activities

that could be funded as part of management improvements include:

Hiring of additional staff to coordinate the provision, by

local government or other public and private entities, of appropriate

social services, such as drug education and treatment referral

programs;

Hiring of security guards, through individual employment

contracts, or guard services, using competitive proposal or small

purchase procurement procedures, or contracting with a local police

force for security that is in addition to that required under the

Cooperation Agreement. As a condition of employment, these security

personnel shall be required to meet all relevant State insurance,

training, licensing, and other similar requirements;

Development and implementation of improved screening

procedures for prospective residents;

Development of more timely and effective management

techniques for dealing with disruptive residents and drug-related

crime;

Organization and training of unarmed voluntary resident

patrols to work cooperatively with the local law enforcement agencies;

Development and implementation of improved communication

and coordination with local law enforcement agencies; and

Hiring of investigators to investigate drug-related crime

in and around the developments or to provide evidence relating to any

such crime in any administrative or judicial proceedings.

(2) The minimum housing standards that should be imposed for

capital improvements funded under this program are the modernization

standards, not the Housing Quality Standards (HQS). Units renovated to

the HQS often still need modernization. (CLPHA) In addition, the

minimum housing standards should be applied only to the inside of units

improved under the program, rather than to common areas and major

structural items. (CHA)

Response: Each work item funded under this program must be

performed in compliance with modernization standards. However, the

vacancy reduction program is an occupancy program, and HQS is a minimum

occupancy standard. The goal of the individual work items (performed to

modernization standards) is to bring the vacant units into an

occupiable condition. Section 968.435 of this rule requires

certification that affected vacant units will be brought into

compliance with the HQS. As applied in Section I.F(1)(b) of today's

NOFA, only aspects of the HQS that pertain to the vacant unit directly

are required.

(3) The decision on how to target the initial funding available

under this program should be based on the survey responses only and not

on any existing data mentioned in the preamble of the proposed rule.

(PHADA)

Response: The survey responses were used to determine which PHAs

surveyed have vacancy problems and the nature of their problems.

Eligibility and final decisions on funding will be based on submitted

applications, including the vacancy reduction plans, the number of

eligible units, and the assessments.

(4) Funding should not be on a ``first-come, first-served'' basis,

which rewards those able to act the quickest, but should be awarded

using a more traditional competitive approach. Criteria that should be

used to make awards include: PHA capacity and ability to use the funds

effectively and likelihood that additional funds will improve vacancy

situation. Severely distressed properties should not be a priority, and

funding should be targeted for entire developments, rather than

scattered units. (PHADA)

Response: Because the Department would like to fund all PHAs that

meet the requirements of the NOFA, it has decided not to include the

first-come, first-served limitation. The immediate goal of the

Department is to promote the occupancy of the greatest number of units;

the problems of severely distressed developments are targeted more

directly through other programs and are not priorities of the vacancy

reduction program. Similarly, because of funding limitations, the

Department believes the program purposes will be promoted best by

targeting the elimination of vacant units, rather than the upgrading of

entire developments that include occupied units.

(5) Under some circumstances, a PHA may be made eligible for

program funds, but restricted in spending the funds until an assessment

is performed. If this assessment is not done within 45 days of the fund

award, then the PHA should be allowed to expend the funds. (PHADA, CHA)

Response: The Department has already conducted assessments of known

eligible PHAs and will complete all assessments in advance of funding

decisions. In order to ensure fairness, in the NOFA published elsewhere

in today's Federal Register, the Department has provided that a PHA for

which an assessment has not been conducted but that considers itself

eligible under the NOFA, should notify the Department within 15 days of

its request for an immediate assessment. In addition, when an

approvable plan submitted in response to the NOFA needs improvement or

supplementation, the Department will assist the PHA in revising its

plan prior to the execution of the amendment to the Annual

Contributions Contract (ACC). Because very few, if any, eligible PHAs

will not have had assessments by today's publication of the NOFA, the

Department believes that all assessments will be completed on a timely

basis in this funding cycle.

(6) Activities that will decrease unit turnover in occupied units

(e.g., replacement of appliances) also should be considered eligible

for funding under this program. (CHA)

Response: Although the Department recognizes the relationship

between turnover and vacancy rates and is sympathetic to this

reasonable suggestion, current funding for the vacancy reduction

program is limited. Therefore, the Department intends to target funding

of unit improvements for currently vacant units or units to become

vacant for reconfiguration purposes, where reconfiguration is necessary

to reduce the current number of vacancies.

(7) Funding should be guaranteed for a minimum of a three-year

period following HUD approval of a five-year vacancy reduction plan,

subject to the PHA's continued progress on and adherence to its vacancy

reduction plan. (CHA, MCHA)

Response: The Department cannot guarantee funds that have not been

appropriated by Congress. Therefore, a PHA's five-year plan should

reflect a realistic projection of the actions that can be taken with

available or potential resources.

(8) If funded activities require compliance with Housing Quality

Standards, the amount of funds may not be sufficient to address

problems in areas outside the unit (e.g., hallways, stairways, fire

protection systems). HQS standards should apply only to unit interiors.

(CHA)

Response: The Department recognizes that current funding available

under the Vacancy Reduction Program will not be sufficient to address

all problems areas relating to excess vacancies, and it expects to be

guided in its funding decisions by the assessment team reports. The

vacancy reduction plans and the recommendations of the assessment teams

should include all work inside the units, in the hallways, in common

areas, on the site, and to the exterior of the buildings necessary to

make the units marketable; providing plans and funding for only the

interiors of vacant units may not make those units marketable.

Individual work items funded under this program must comply with

modernization standards and must result in the targeted unit meeting

the HQS.

(9) Program funds should not be directed at PHAs that have vacancy

problems due primarily to marketing problems or lack of demand. (CHA)

Response: The Department agrees that the limited program funds

should be focused on those PHAs whose vacancy situations can actually

be improved by additional funding. This factor is accounted for in

Sec. 968.413(d)(2) of the rule (``extent to which the proposed

activities will improve the PHA's vacancy problem'') and in the

definition of ``eligible unit'' set out in the NOFA published elsewhere

in today's Federal Register.

Sanctions

In the proposed rule, the Department reported that, at this time,

it does not intend to implement section 14(p)(3) of the statute, which

provides sanctions for the failure to make progress under a plan.

However, commenters were invited to submit suggestions on how this

portion of the statute could be implemented in the future. Several

commenters submitted remarks on this aspect of the current statutory

program, as follows: (1) If a withholding action seems likely after 18

months, an assessment team should be sent to the PHA to perform a

review and prepare a report. (PHADA) (2) If there is withholding,

consideration should be given to forcing a receiver to be used so that

the funds can be used. (PHADA, CHA) (3) Withholding of subsidy because

of a failure to make progress is contrary to the approach of rewarding

PHAs for solving problems. (MCHA)

Response: This final rule does not include provisions implementing

the sanctions mandated by section 14(p)(3) of the 1937 Act. However,

the Department is continuing to work on those provisions, and will take

into consideration the remarks provided by commenters in response to

the proposed rule. The Department will comply with the requirements

within the applicable statutory timeframe.

Use of NOFAs

(1) HUD is proposing to use NOFAs as the vehicle to convey

significant program information to interested PHAs, which defeats the

intent of notice-and-comment rulemaking. The proposed rule does not

provide sufficient detail on how program funds will be targeted, the

format of the vacancy reduction plans, and criteria for determining a

PHA's capacity to implement the plan in a timely and effective manner.

Use of NOFAs will lead PHAs to try to second-guess HUD on selection

criteria and lead to a hit or miss approach on solving the vacancy

problem. (CLPHA)

Response: The Department disagrees with this comment. The rule

provides the framework for the program and meets or exceeds the

requirements of the Administrative Procedure Act and the Department's

regulations. The preamble to the proposed rule elaborates on the

Department's expectations for targeting funds made available for the

program.

The Department views the program as a dynamic tool in the effort to

reduce unnecessary vacancies in public housing. Experience with the

program and elimination of certain root causes of vacancies will guide

the Department in selecting the optimal criteria for any subsequent

targeting of program funds. This targeting would be done in compliance

with the statutory parameters of the program.

The Department intends to undertake the vacancy reduction effort by

providing funding for those vacant units most likely to be turned

around quickly, targeting the majority of the funding for units

averaging a cost of $8,000 or less, with some funds targeted for units

for which a CGP agency can provide the additional funding necessary.

Furthermore, the report of the assessment team is expected to

address the capacity of a PHA to implement vacancy reduction activities

in a timely and efficient manner. The Department reiterates that the

intent of the requirement that participating PHAs submit vacancy

reduction plans is to assist in the development of a comprehensive

approach to vacancy reduction. As demonstrated by its efforts to

solicit the input of industry and PHA representatives during the

development of the proposed rule and the initial NOFA, the Department

is committed to implementing this program in a constructive way that

responds to the needs of PHAs with remediable vacancy problems.

(2) Before the NOFA is published, there should be a meeting with

industry groups. The meeting should be used to share survey results and

exchange viewpoints. (PHADA)

Response: The Department solicited the input of representatives of

the industry, PHAs, and resident organizations during the development

of the proposed rule and the initial NOFA. Meetings were held with

these representatives on January 28 and July 9, 1993. The Department

believes these meetings have been valuable in helping to develop the

program, but does not believe that it is necessary to schedule any

additional meetings at this time. The discussions at the previous

meetings, along with the written comments received in response to the

proposed rule, have provided the Department with a foundation for the

policy decisions it has made regarding how to operate this program

within the parameters established by Congress. Furthermore, in the NOFA

published elsewhere in today's Federal Register, the Department

discusses the results of the survey, in the context of both general

results and specific implications for the program decisionmaking

process.

(3) The proposed rule seems to imply that more than one NOFA might

be published in a single fiscal year. Only one NOFA should be issued

and it should coincide with the Comprehensive Grant Program planning

process. (PHADA, CHA)

Response: The language that referred to ``periodic'' NOFAs in the

proposed rule was intended simply to verify that separate NOFAs would

be published for any money that is appropriated for the program in

subsequent years. This is the common practice of the Department, as

established in the HUD Reform Act, but the actual timing of a

subsequent NOFA in any fiscal year cannot be predicted. The Department

appreciates the commenters' point about the coordination of capital

planning programs.

Relationship of the Vacancy Reduction Program to Other HUD Programs

(1) HUD should integrate the approach of the Vacancy Reduction

Program into an overall effort to draft a new vacancy rule. The Vacancy

Reduction Program itself is insufficient to address problems faced by

PHAs with expired Comprehensive Occupancy Plans (COPs); these PHAs

still need operating funds to keep vacant units in shape until money is

available to make necessary improvements. (CLPHA)

Response: Any new vacancy rule would require substantial time for

development and implementation. Meanwhile, the Department is committed

to providing assistance currently available under the vacancy reduction

program to PHAs with vacancy problems. Changes to the determination of

operating subsidy eligibility as proposed by the commentor are outside

the scope of this rule.

(2) The Vacancy Reduction Program may duplicate planning

requirements of other programs, such as PHMAP and the Comprehensive

Grant Program, that also address vacancy problems. (PHADA, CHA)

Response: As noted above, the Department appreciates the

commenters' point about the coordination of capital planning programs

and will endeavor to integrate the vacancy reduction program with other

related programs.

(3) The same format used for the vacancy reduction plan should be

used for developing an Improvement Plan under PHMAP if the PHA fails

the PHMAP vacancy standard. (PHADA)

Response: The Department intends to coordinate the formats of these

plans, to the extent possible.

(4) The restrictions placed on assistance to troubled authorities

(see Sec. 968.413(b)) should be made consistent with the language of

HOPE VI. (PHADA)

Response: The restrictions are prescribed by the authorizing

statute for the program. However, in recognition of the comments

requesting coordination of the Department's capital planning programs,

the final rule includes new language that cross-references PHMAP

indicators and clarifies the evaluation of the progress of troubled

PHAs.

(5) If a PHA presents a vacancy reduction plan that HUD approves,

the PHA should receive operating subsidy based on its actual occupancy

rate, rather than on the current formula rate. (CHA, AHA) How does the

Department view this program in the context of the Performance Funding

System (PFS) funding of vacant units? (PHADA)

Response: The vacancy reduction program is not intended as a

substitute for the vacancy rule or to provide relief for PHAs that do

not meet established goals under COPs. However, the vacancy reduction

program should improve the revenue situations of participating PHAs in

two ways: First, through direct funding of portions of the plans;

second, through the increased operating subsidies and rent collections

that will result from reoccupancy of those vacant units.

Miscellaneous

(1) The survey results and data developed from analyzing the

vacancy reduction plans should be released publicly. (PHADA)

Response: The Department is releasing data from the survey as part

of the NOFA published elsewhere in today's Federal Register. In

addition, the Department intends to develop a report based on data and

information provided by the assessment teams in their reports.

(2) The Vacancy Reduction Program should be separately funded,

instead of using amounts set aside from regular modernization funding.

(PHADA, CHA)

Response: As recognized by the commenters, Congress has authority

over the mechanism used for funding the program.

(3) Funding decisions under the program should recognize when a PHA

has used existing resources to address its vacancy problem. For

example, although a commitment to use a large portion of CGP funds to

address vacancies will reduce the need for additional vacancy reduction

funds, those CGP funds could have been used to fund other substantial

needs of the PHA. (AHA)

Response: When PHAs have other modernization needs that cannot be

met by current funding, Vacancy Reduction Program funds may be used

instead of CGP funding committed but not yet under contract for vacancy

reduction.

Section-by-Section Analysis

The Department is establishing the Vacancy Reduction Program as new

subpart D in 24 CFR part 968, with conforming amendments made as

necessary in other sections of title 24 of the Code of Federal

Regulations. The following discussion is a section-by-section

description of the rule.

Section 968.103 addresses the allocation of funds under section 14

of the 1937 Act. The Department is amending paragraph (c) to account

for the new set-aside for the Vacancy Reduction Program. The new

language repeats the statutory scheme for setting aside four percent of

the section 14 funds remaining after deducting amounts for emergencies

and natural and other disasters. Paragraph (c)(1) provides that 20

percent of these funds will be available for activities under section

6(j) of the 1937 Act, while the remaining 80 percent will be available

for the Vacancy Reduction Program, as implemented by this rule. Section

968.103 also is amended to clarify that the Vacancy Reduction Program

does not apply to Indian Housing Authorities (IHAs).

Subpart D of part 968, encompassing Secs. 968.401-968.425, is added

to implement the Vacancy Reduction Program.

Section 968.401 states the policy of the Department with respect to

achieving high occupancy rates in public housing, in order to ensure

maximum use of available housing resources.

Section 968.403 repeats the statutory definition of PHAs to which

the Vacancy Reduction Program is applicable, but clarifies that units

not eligible for funding under section 14 of the 1937 Act are excluded

from this set-aside program, as well.

Section 968.405 defines terms that are used in subpart D to the

extent these terms are not applicable to the remainder of part 968.

Section 968.407 establishes the requirement that eligible PHAs

submit a five-year vacancy reduction plan, and specifies the contents

of the plan. For purposes of identifying components of a plan that may

be identified as eligible for funding, within the limits of

appropriated amounts, each submitted plan must be organized in a manner

that facilitates review by the Department. For each action proposed to

eliminate vacancies, the plan must include a schedule that shows the

number of vacancies that the PHA expects to eliminate by the end of

each 12-month period during the five years of the plan.

When components of a plan involve capital improvements to dwelling

units, the PHA must ensure that, after the improvements, the units

themselves would meet or exceed the Housing Quality Standards set forth

in 24 CFR 882.109, as amended by regulatory requirements concerning

lead-based paint hazards.

Section 968.410 explains the requirement for an on-site assessment

of a participating PHA's vacancy situation, including the composition

and responsibilities of the assessment teams and the purpose of the

assessments.

Section 968.413 establishes eligible uses and limitations on the

use of funds available for the Vacancy Reduction Program. Paragraphs

(a), (b), and (c) echo the statute establishing the program, but

paragraph (b) includes clarifying language that cross-references PHMAP

indicators in measuring the progress required under the statute for

troubled PHAs. Paragraph (d) establishes that funding decisions would

be through a publicly announced process, on the basis of priorities to

be established by the Department.

Section 968.416 provides that the PHA must comply with HUD

requirements in requesting funds against the approved modernization

budget.

Section 968.419 requires the grantee to be responsible for assuring

the quality of work performed using program funds.

Section 968.422 establishes periodic reporting requirements for

grantees until activities funded under the vacancy reduction program

are completed. This section also specifies a schedule for completion of

funded activities.

Section 968.425 details the process for notifying a PHA of any

deficiencies in its compliance with program requirements and specifies

the nature of the changes and sanctions that may be pursued by HUD.

Section 968.428 establishes requirements to be applied in auditing

the grantee's use of funds upon completion of activities funded under

the program.

Section 968.435 lists program requirements that apply to the

Vacancy Reduction Program in addition to the requirements specified in

other sections of subpart D and Sec. 968.110.

Other Matters

Environmental Review

At the time of publication of the proposed rule, a finding of no

significant impact with respect to the environment was made in

accordance with HUD regulations in 24 CFR part 50 that implement

section 102(2)(C) of the National Environmental Policy Act of 1969 (42

U.S.C. 4332). The proposed rule is adopted by this final rule without

significant change. Accordingly, the initial finding of no significant

impact remains applicable, and is available for public inspection

between 7:30 a.m. and 5:30 p.m. weekdays in the office of the Rules

Docket Clerk at the above address.

Executive Order 12866

This rule has been reviewed by the Office of Management and Budget

under Executive Order 12866. Any changes made in the rule as a result

of this review are identified in the docket file of the rule maintained

by the Department and available for review at the above address.

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this rule before publication and by

approving it certifies that this rule does not have a significant

economic impact on a substantial number of small entities. The rule

implements a statutory program that provides funding to PHAs for

limited activities designed to reduce the number of vacant dwelling

units in their inventories.

Executive Order 12612, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that the policies

contained in this rule do not have substantial direct effects on States

or their political subdivisions, or the relationship between the

Federal Government and the States, or on the distribution of power and

responsibilities among the various levels of government. As a result,

the rule is not subject to review under the Order. The rule merely

implements a statutory program that provides funding to PHAs for

limited activities designed to reduce the number of vacant dwelling

units in their inventories.

Executive Order 12606, the Family

The General Counsel, as the Designated Official under Executive

Order 12606, The Family, has determined that this rule does not have

potential for significant impact on family formation, maintenance, and

general well-being, and, thus, is not subject to review under the

Order. No significant change in existing HUD policies or programs

result from promulgation of this rule, as those policies and programs

relate to family concerns.

Regulatory Agenda

This rule was listed as Item 1688 in the Department's Semiannual

Agenda of Regulations published on April 25, 1994 (59 FR 20424, 20470),

in accordance with Executive Order 12866 and the Regulatory Flexibility

Act.

List of Subjects in 24 CFR Part 968

Grant programs--housing and community development, Indians, Loan

programs--housing and community development, Public housing, Reporting

and recordkeeping requirements.

For the reasons set out in the preamble, part 968 of title 24 of

the Code of Federal Regulations is amended as follows.

PART 968--PUBLIC HOUSING MODERNIZATION

1. The authority citation for part 968 continues to read as

follows:

Authority: 42 U.S.C. 1437d, 14371 and 3535(d).

2. Section 968.103 is amended by revising paragraph (c) to read as

follows:

Sec. 968.103 Allocation of funds under section 14.

* * * * *

(c) Set-asides. After deducting amounts for the reserve for natural

and other disasters and for emergencies under paragraph (b) of this

section, HUD shall set aside from the funds remaining:

(1) Regarding vacancy reduction, an amount equal to 4 percent of

those funds, to be further allocated as follows:

(i) Twenty percent of this four percent shall be available only for

carrying out activities under section (6)(j) of the United States

Housing Act of 1937; and

(ii) Eighty percent of this four percent shall be available under

the vacancy reduction program (see subpart D of 24 CFR part 968).

(2) Regarding the comprehensive grant program, no more than five

percent for the purpose of providing credits to PHAs that were formerly

designated as mod troubled agencies under the Public Housing Management

Assessment Program (PHMAP) (see 24 CFR part 901). The purpose of this

set-aside is to compensate these PHAs for amounts not allocated by HUD

because of a PHA's prior designation as a mod troubled agency.

(3) Nonapplicability to IHAs. The Vacancy Reduction Program in

subpart D of this part does not apply to IHAs. In addition, because the

PHMAP performance indicators under 24 CFR part 901 do not apply to

IHAs, these agencies cannot be deemed ``mod troubled'' for purposes of

the CGP and are not eligible for funding under paragraph (c)(1)(i) of

this section. Hence, IHAs are not subject to any reduction in funding

under section 14(k)(5)(A) of the Act, and IHAs do not participate in

the set-aside credits established under paragraph (c)(2) of this

section.

* * * * *

3. A new subpart D, consisting of Secs. 968.401 through 968.425, is

added to read as follows:

Subpart D--Vacancy Reduction Program

Sec.

968.401 Purpose.

968.403 Applicability.

968.405 Definitions.

968.407 Vacancy reduction plan.

968.410 Assessments.

968.413 Funding.

968.416 Fund requisitions.

968.419 Grantee's oversight responsibilities.

968.422 Progress reports and completion schedule.

968.425 HUD review of grantee performance.

968.428 Program closeout.

968.425 Other program requirements.

Sec. 968.401 Purpose.

Section 14(p) of the United States Housing Act of 1937 establishes

the Vacancy Reduction Program, in conjunction with statutory provisions

on public and Indian housing modernization. It is the policy of the

Department that public housing agencies should maximize the use of

housing resources, using every reasonable means to achieve and maintain

high levels of occupancy by eligible families in PHA-owned or -operated

housing.

Sec. 968.403 Applicability.

(a) Participation. A PHA shall participate in the vacancy reduction

program under this subpart if:

(1) The PHA has a vacancy rate among dwelling units owned or

operated by the PHA that exceeds twice the average vacancy rate among

all public housing agencies;

(2) The PHA is designated as a troubled or mod troubled agency

under section 6(j) of the Act; or

(3) A receiver has been appointed for the PHA pursuant to section

6(j)(3) of the Act.

(b) Exclusions. Units owned or operated by a PHA that are not

eligible for funding under section 14 of the Act are excluded from

coverage under this subpart and shall not be used to calculate the

eligibility of a PHA under this subpart.

(c) Examples of eligibility. The following are specific examples of

eligibility under this program:

(1) All units in the Federal Low-Rent Public Housing Program are

eligible;

(2) In the Section 23 program, only those units that are in

projects that are bond-financed and for which the PHA would receive

clear title at the end of the lease term will be eligible; and

(3) Section 8 projects are not eligible.

Sec. 968.405 Definitions.

In addition to the definitions applicable under Sec. 968.105, the

following definitions apply to this subpart:

Average vacancy rate means the average vacancy rate for all public

housing agencies.

NOFA means Notice of Funding Availability. NOFAs announcing

available funding under the program will be published in the Federal

Register, and will set out the application requirements and applicable

selection criteria.

Operating subsidy means the annual contribution for operating

subsidy made to the PHA by HUD, which is determined in accordance with

part 990 of this chapter.

PHA means public housing agency. For purposes of this subpart, the

term excludes Indian Housing Authorities.

PHMAP means the Public Housing Management Assessment Program,

authorized in 42 U.S.C. 1437d(j) and implemented in 24 CFR part 901,

which is designed to allow HUD and the PHA to identify PHA management

capabilities and deficiencies and to lead to better overall management

of the public housing.

Receiver means a person or entity appointed by a court pursuant to

section 6(j)(3) of the United States Housing Act of 1937 to be

responsible for the day-to-day operation of a PHA.

Troubled PHA means a public housing agency that has been designated

as a troubled agency (including mod troubled) under section 6(j) of the

United States Housing Act of 1937.

Vacancy or vacant unit means a dwelling unit that is not under an

effective lease to an eligible family. An effective lease is a lease

under which an eligible family has a right to possession of the unit

and is being charged rent, even if the amount of any utility allowance

equals or exceeds the amount of a total tenant payment that is based on

income and, as a result, the amount paid by the family to the PHA is

zero.

Vacancy reduction plan means a plan developed and submitted by a

PHA to HUD, regarding vacancies in units owned or operated by the PHA.

The plan must meet the criteria established in Sec. 968.407.

Sec. 968.407 Vacancy Reduction Plan.

(a) Submission of plan. Each PHA to which this subpart applies, in

accordance with Sec. 968.403, shall submit a vacancy reduction plan.

The plan shall contain the elements identified in paragraph (b) of this

section, and shall be organized so that each of the elements can be

identified, reviewed, and funded separately.

(b) Contents of plan. The format of a plan submitted for funding

under this program will be defined in NOFAs to be published

periodically in the Federal Register. Each vacancy reduction plan

submitted by a PHA under paragraph (a) of this section shall include

statements:

(1) Identifying all vacant dwelling units administered by the PHA,

including unmarketable units, and explaining the reasons for the

vacancies. Units may be grouped together when explaining the reasons

for the vacancies;

(2) A description of the turnover rate of units for the past two

years, including the number of units vacated and reoccupied per

development per year and the average number of days required to return

a unit to occupancy. If the turnover rate is increasing, the plan

should identify each cause of the increase.

(3) Describing the actions to be taken by the PHA during the

following five years to eliminate the vacancies. The PHA shall:

(i) State project-specific actions that it is taking or intends to

take that will eliminate vacancies, such as modernization, demolition,

unit redesign or conversion, density reduction, disposition,

modification of occupancy policies, site and security improvements, and

other physical or management improvements; and

(ii) For each project identified, set out a schedule for completing

the actions identified in paragraph (b)(3)(i) of this section and

removing the dwelling units from the PHA's inventory of vacant units.

If the timing of any action is dependent upon a HUD approval or

decisionmaking process, the schedule for the PHA action may be

presented in terms of a specified time period following completion of

the HUD process. For each action, the schedule shall include the number

of vacancies that will be eliminated by the end of each 12-month period

after the PHA begins to receive assistance under this subpart.

(iii) When the PHA has been unable to return units vacated during

the last two years to occupancy within an average of 30 days, the plan

shall describe actions that the PHA will undertake to achieve at least

a 30-day turnover rate.

(4) Identifying any impediments that will prevent elimination of

the vacancies within the five-year period;

(5) Identifying any vacant units funded for modernization, major

reconstruction, demolition, or disposition activities;

(6) Identifying any vacant dwelling units that are eligible for

modernization, major reconstruction, demolition, or disposition, but

have not been funded or approved for these activities and are not

likely to be funded or approved for at least three years. The statement

shall include an estimate of the amount of assistance necessary to

complete the modernization, major reconstruction, demolition, or

disposition of these units;

(7) Identifying any vacant units not identified under paragraphs

(b)(5) and (b)(6) of this section. The statement shall include a

description of any appropriate activities relating to elimination of

the vacancies in these units and an estimate of the amount of

assistance necessary to carry out the activities identified under this

paragraph (b)(7);

(8) Setting forth an agenda for implementation of management

improvements during the first fiscal year beginning after submission of

the plan. If the timing of any improvement is dependent upon a HUD

approval or decisionmaking process, the schedule for the improvement

may be presented in terms of a specified time period following

completion of the HUD process. The agenda should include any management

improvements recommended by the assessment team pursuant to

Sec. 968.410 and an estimate of the amount of assistance necessary to

implement the management improvements; and

(9) Of any other information that the Secretary shall deem

appropriate, as provided in the applicable NOFA. Such information may

include budget documents, in the case of any PHA that is applying for

funds under a NOFA.

(c) Housing standards. To the extent that a plan involves

modernization, reconstruction, or rehabilitation activities that have

not been funded or approved previously and are not planned to be

undertaken using Comprehensive Grant Program funds, the plan must

reflect cost estimates that, at a minimum, are based on:

(1) For individual work items funded under the program, compliance

with modernization standards, as set forth in HUD Handbook 7485.2, as

revised; and

(2) For each vacant unit on which funds are expended, compliance of

the unit with the Housing Quality Standards, as set forth in 24 CFR

882.109 and as amended by the regulations concerning lead-based paint

in public housing in 24 CFR part 35.

(Approved by the Office of Management and Budget under control

number 2577-0181)

Sec. 968.410 Assessments.

(a) Requirement. Each PHA participating in the program under this

subpart shall cooperate with an onsite assessment of the vacancy

situation of the PHA by an assessment team, whose members will be

selected by the Secretary in accordance with paragraph (b) of this

section. The Secretary will schedule assessments in a priority order,

based on:

(1) The nature and extent of each PHA's vacancy problem, and HUD's

goal of achieving maximum reoccupancy using the funds available; and

(2) The availability of assessment teams and the expected level of

complexity of the assessments to be scheduled.

(b) Composition of assessment team. The assessment team shall

include representatives of HUD, an equal number of independent experts

knowledgeable with respect to vacancy problems and management issues

relating to public housing, and officials of the PHA.

(c) Scope of assessment. The assessment team shall assess the

vacancy situation of the PHA to determine the causes of the vacancies,

including any management deficiencies or modernization activities. At

least one member of the assessment team shall consult with residents of

the PHA's units regarding the vacancy situation of the PHA. The

assessment team shall also examine indicators of the management

performance of the PHA relating to vacancy, which shall include

consideration of the performance of the PHA as measured by the

indicators under paragraphs (A) and (E) of section 6(j)(1) of the Act

(implemented by 24 CFR 901.10(b)(1) and 901.10(b)(5)).

(d) Report of assessment team. The assessment team shall submit to

the PHA and the Secretary written recommendations for management

improvements to eliminate or alleviate management deficiencies and for

strategies to deal with vacant units. If requested by the PHA, HUD will

assist the PHA in preparing the vacancy reduction plan under

Sec. 968.407, including determining appropriate actions to eliminate

vacancies.

Sec. 968.413 Funding.

(a) Eligible activities. Except as provided in paragraph (b) of

this section, assistance may be provided under this subpart to PHAs

submitting vacancy reduction plans for reasonable costs of the

following activities:

(1) Implementing management improvements;

(2) Rehabilitating vacant dwelling units identified in the plan in

accordance with Sec. 968.407; and

(3) Carrying out vacancy reduction activities described in the plan

in accordance with Sec. 968.407.

(b) Assistance to troubled PHAs. Assistance may be provided to a

troubled PHA only if the PHA meets either of the conditions described

in paragraphs (b)(1) and (2) of this section:

(1) The PHA has demonstrated substantial progress on the following

vacancy related Public Housing Management Assessment Plan (PHMAP)

indicators: 2 (Modernization), 5 (Unit Turnaround), 6 (Outstanding Work

Orders), or 7 (Annual Inspection and Condition of Units and Systems),

as demonstrated by a PHMAP score of ``C'' or better. If the PHA does

not have a score of ``C'' or better on these indicators, substantial

progress may be demonstrated as follows:

(i) The PHA, based on current data would qualify for a score of

``C'' or better on the indicators.

(ii) A statement of alternative arrangements that have been made to

assure effective administration of the function covered by the

indicator, i.e. rehabilitation and modernization activities (in regard

to the units for which funding is requested) and the PHA-wide

administration of unit turnaround, work orders, and preventive

maintenance.

(2) The PHA has provided reasonable assurances that substantial

progress will be made to remedy any management deficiencies identified

by the assessment team or any vacancy-related deficiencies identified

in HUD reviews and audits, through activities that have already begun

or will be initiated.

(c) Costs of assessment teams. The Secretary may use amounts

appropriated for activities under this subpart for any travel,

administrative, and other necessary expenses of assessment teams under

Sec. 968.410.

(d) Determination of assistance amounts. (1) Whether a PHA is to

receive assistance, and the amount of any assistance, under this

subpart will be determined through a process to be described in detail

for each round of funding in Notices of Funding Availability to be

published in the Federal Register. A portion of a PHA's plan, rather

than the entire plan, may be funded, and the Secretary may establish

reasonable limits on the funding that will be available under a NOFA

for any category of eligible activities or for any PHA.

(2) Prior to determining the amount of any assistance to be awarded

to a PHA, HUD will review the PHA's plan and the extent to which it is

consistent with the assessment of the PHA, and any other factors that

the Secretary finds to be appropriate.

(e) Revisions. Funding is expected to be spent to carry out the

vacancy reduction activities funded under this program. Should a change

in circumstances make a revision necessary, HUD approval is required.

The grantee must submit a report that substantiates a need for the

revision, along with an account of how the revision affects the funded

plan.

Sec. 968.416 Fund requisitions.

To request funds against the total approved vacancy reduction

program budget, a PHA must submit a request to HUD in accordance with

HUD requirements.

Sec. 968.419 Grantee's oversight responsibilities.

Each grantee shall provide, by contract or otherwise, adequate and

competent supervisory and inspection personnel to assure work quality

and progress during modernization, whether work is performed by

contract or force account labor and with or without the services of an

architect/engineer.

Sec. 968.422 Progress reports and completion schedule.

(a) Reports required. Until completion of the activities funded

under the vacancy reduction program, the grantee shall submit to HUD,

in a form and at a time prescribed by HUD, the following:

(1) A report on modernization fund expenditures;

(2) A narrative report that includes an accounting of the grantee's

progress against the milestones established in its vacancy reduction

plan. The report shall include the number of both funded and regular

turn-over units that have been made ready for occupancy; and

(3) Any additional information as HUD may require.

(b) Completion schedule. HUD expects that most work items funded

under this program will be completed within one year. Work items must

be completed within two years from the date of funding, or by some

other time as may be specified in the Notice of Funding Availability,

unless prior approval is obtained from HUD.

(Approved by the Office of Management and Budget under control number

2577-0181)

Sec. 968.425 HUD review of grantee performance.

(a) Performance reviews. HUD shall carry out such reviews of the

performance of each funded PHA as may be necessary or appropriate to

determine compliance with the PHA's vacancy reduction plan and related

HUD requirements. In these reviews HUD will determine whether the PHA

has:

(1) Carried out its vacancy reduction activities in a timely manner

and in accordance with its vacancy reduction plan;

(2) Completed, or made reasonable progress toward completing, the

physical items funded under the vacancy reduction plan, and whether the

work items being carried out conform with the modernization and energy

standards in Sec. 968.115 of this chapter;

(3) Implemented, or made reasonable progress toward implementing,

the management improvements funded under the vacancy reduction program;

and

(4) Made reasonable progress in meeting the goals established in

its vacancy reduction plan.

(b) Notice of deficiency. If HUD finds any deficiency in a review

of a grantee's performance under this part, HUD may issue to the

grantee a notice of deficiency stating the specific program

requirements that the grantee has violated and requesting the grantee

to take corrective action.

(c) Corrective action order. (1) Issuance. If HUD finds any of the

deficiencies listed in paragraph (c)(3) of this section in its review

of the grantee's performance, HUD may issue to the grantee a corrective

action order, whether or not a notice of deficiency has previously been

issued on the specific deficiency. The corrective action order shall

notify the grantee of the specific program requirements that the

grantee has violated and shall specify the corrective action.

(2) Consultation with grantee. Before ordering corrective action,

HUD will give the grantee an opportunity to consult with HUD regarding

the proposed action.

(3) Bases for corrective action. HUD may order a grantee to take

corrective action only if HUD determines:

(i) The grantee has not submitted a performance report as required

by HUD;

(ii) The grantee has not carried out activities under its vacancy

reduction program in a timely manner and in accordance with HUD

requirements;

(iii) The grantee does not have continuing capacity to carry out

activities in its vacancy reduction plan; or

(iv) An audit conducted in accordance with 24 CFR part 44, or

pursuant to other HUD reviews, reveals deficiencies that HUD reasonably

believes require corrective action.

(d) Nature of corrective action. (1) HUD shall design corrective

action to prevent a continuation or recurrence of the same or a similar

deficiency or to mitigate to the greatest extent feasible any adverse

effects of the deficiency.

(2) HUD may order a grantee to take the corrective action that HUD

determines appropriate for carrying out the elements of the vacancy

reduction plan. Corrective action may include, but is not limited to,

suspension of grantee's authority to incur costs against the vacancy

reduction funding and reimbursement, from sources other than HUD funds,

of any amount spent improperly.

(e) Failure to take corrective action. In cases where HUD has

ordered corrective action and the grantee has failed to take the

required action within a reasonable time, as specified by HUD, HUD may

take one or more of the following steps:

(1) Withhold vacancy reduction funds from the grantee;

(2) Declare a breach of the ACC by the grantee; and

(3) Any other sanctions authorized by law or regulation.

Sec. 968.428 Program closeout.

(a) Requirements for grantees. Upon completion of the activities

funded in accordance with this part, the grantee shall submit to HUD,

and in a form prescribed by HUD, the actual modernization cost

certificate for HUD's review, audit verification, and approval. The

grantee shall immediately remit any excess funds provided by HUD. If

the audited modernization cost certificate discloses unauthorized

expenditures, the grantee shall take such corrective actions as HUD may

direct.

(b) Audit. The audit shall follow the guidelines prescribed in 24

CFR part 44, Non-Federal Government Audit Requirements.

(Approved by the Office of Management and Budget under control

number 2577-0181)

Sec. 968.435 Other program requirements.

In addition to the program requirements applicable to this subpart

under Sec. 968.110, each PHA participating in the vacancy reduction

program under this subpart shall:

(a) Certify that any modernization, reconstruction, or

rehabilitation activities that are funded under this subpart will be

undertaken in accordance with modernization standards, as set forth in

HUD Handbook 7485.2, as revised;

(b) Certify that activities undertaken within vacant units will

bring the affected vacant units into compliance with the Housing

Quality Standards, as set forth in 24 CFR 882.109 and amended by the

regulations concerning lead-based paint in public housing at 24 CFR

part 35; and

(c) Provide for resident involvement, in a manner to be determined

by the Secretary, in the process of applying for any funding available

under this part.

Dated: June 6, 1994.

Joseph Shuldiner,

Assistant Secretary for Public and Indian Housing.

[FR Doc. 94-14281 Filed 6-10-94; 8:45 am]

BILLING CODE 4210-33-P