Annual Contributions for Operating Subsidy; Shared Savings From Utility Rate Reduction and Subsidy for Economic Self-Sufficiency and Anti-Drug Activities

Federal RegisterJun 30, 1994

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Public and Indian Housing

24 CFR Parts 905 and 990

[Docket No. R-94-1733; FR-3387-F-01]

RIN 2577-AB24

Annual Contributions for Operating Subsidy; Shared Savings From

Utility Rate Reduction and Subsidy for Economic Self-Sufficiency and

Anti-Drug Activities

AGENCY: Office of the Assistant Secretary for Public and Indian

Housing, HUD.

ACTION: Final rule.

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SUMMARY: This final rule extends, for a period not to exceed an

additional 6 years, the existing arrangement under which a public

housing agency or Indian housing authority (hereinafter referred to

collectively as ``HAs'') may share equally with the Department any cost

reductions due to the differences between projected and actual utility

rates in the first year that the reductions occur. The rate savings

must be directly related to the actions of the HA and must be cost

effective. In addition, the rule eliminates the need for a waiver

before operating subsidy may be paid for certain units approved for

nondwelling use to promote economic self-sufficiency services and anti-

drug activities.

EFFECTIVE DATE: August 1, 1994.

FOR FURTHER INFORMATION CONTACT: John T. Comerford, Director, Financial

Management Division, Office of Assisted Housing, Room 4212, Department

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

DC 20410. Telephone: (202) 708-1872; TDD: (202) 708-0850. (These are

not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Information Collection Requirements

The information collection requirements contained in the remaining

sections of this rule have been submitted to the Office of Management

and Budget (OMB) for review under the Paperwork Reduction Act of 1980

(44 U.S.C. 3501-3520). No person may be subjected to a penalty for

failure to comply with these information collection requirements until

they have been approved and assigned an OMB control number. The OMB

control number, when assigned, will be announced by separate notice in

the Federal Register.

Public reporting burden for the collection of information

requirements contained in this rule is estimated to include the time

for reviewing the instructions, searching existing data sources,

gathering and maintaining the data needed, and completing and reviewing

the collection of information. Information on the estimated public

reporting burden is provided under the Preamble heading, Other Matters.

Send comments regarding this burden estimate or any other aspect of

this collection of information, including suggestions for reducing this

burden, to the Department of Housing and Urban Development, Rules

Docket Clerk, 451 Seventh Street, SW., Room 10276, Washington, DC

20410-0500; and to the Office of Information and Regulatory Affairs,

Office of Management and Budget, Attention: Desk Officer for HUD,

Washington, DC 20503.

Background on Shared Utility Rate Savings

Section 9(a)(3)(B)(i) of the United States Housing Act of 1937 (42

U.S.C. 1437g) (the ``1937 Act'') provides that under the performance

funding system in the first year that the reductions occur, any public

housing agency shall share equally with the Department any cost

reductions due to the differences between projected and actual utility

rates attributable to actions taken by the agency which lead to such

reductions.

Section 114(c) of the Housing and Community Development Act of 1992

(Pub. L. 102-550, approved October 28, 1992) (the ``1992 Act'') amended

section 9(a)(3)(B)(i) of the 1937 Act to provide that in subsequent

years, the Secretary may continue, with regard to energy savings, the

sharing arrangement with the public housing agency for an additional 6

years.

As a result of section 201(b)(1) of the 1937 Act, the provisions of

Title I of the 1937 Act apply to low-income housing developed or

operated pursuant to a contract between the Secretary and an Indian

housing authority. Therefore, the shared savings provisions under

section 9(a)(3)(B)(i) extend to Indian housing authorities. However,

under section 201(b)(2) no provision of Title I, or amendment to Title

I, that is enacted after the date of enactment of the Indian Housing

Act of 1988 (June 29, 1988) shall apply to public housing developed or

operated pursuant to a contract between the Secretary and an Indian

housing authority unless the provision explicitly provides for

applicability. Therefore, absent such a provision, section 114(c) of

the 1992 Act does not extend to Indian housing authorities. The

Department, however, as matter of policy, is extending the shared

savings arrangement to Indian housing authorities also. Not to do so

would frustrate the goals of providing incentives to undertake energy

conservation activities.

Utility rate reduction measures include wellhead purchases of

natural gas and administrative appeals or legal action beyond normal

public participation in rate-making proceedings. It is important that

an extension of the shared savings term provide adequate incentives and

cover the increased administrative expense involved in undertaking

energy conservation activities as sophisticated as a wellhead purchase

program. The Department has a manifold interest in promoting the most

economical purchasing arrangements in order to reduce the need for

operating subsidies. There is, first and foremost, a national interest

in reducing consumption of non-replaceable energy resources, and a

parallel interest in making sure that energy resources are purchased

economically and efficiently. In the context of the housing assistance

programs, HUD is obliged to honor these over-all goals by encouraging

energy conservation in assisted housing environments.

Background on Subsidy for Nondwelling Uses

On September 6, 1991, the Department published a proposed rule that

would have established new conditions under which a PHA or an IHA could

have included vacant units in its computation of eligibility for

operating subsidy. The comment period for this proposed rule was

reopened on June 22, 1992 (57 FR 27716). Ultimately, as a result of

congressional action, the proposed rule was not pursued to a final

rule. See, Departments of Veterans Affairs and Housing and Urban

Development, and Independent Agencies Appropriations Act, 1992 (Pub. L.

102-139, approved October 29, 1991; 106 Stat. 757), and section 114(b)

of the Housing and Community Development Act of 1992 (Pub. L. 102-550,

approved October 28, 1992; 106 Stat. 3691).

A number of the provisions contained in the proposed rule were

opposed by commenters. However, the aspect of the proposed rule that

would permit the payment of operating subsidy, under certain

conditions, for units approved for nondwelling use for economic self-

sufficiency and anti-drug activities was not controversial. The

comments received on this aspect generally supported the proposed rule,

but urged the Department to adopt an even more generous treatment of

nondwelling space in the calculation of operating subsidy eligibility.

However, in this final rule the Department is adopting only the

provisions that appeared in the proposed rule, and only to the extent

that those provisions reflect the existing practice. The Department is

clarifying in Secs. 905.720(b)(2) and 990.198(b)(2) that an IHA or PHA

need demonstrate only that non-utility operating costs are not

available from other funding. This conforms to existing practice.

Currently, the Department is permitting PHAs and IHAs to continue

receiving operating subsidy for units that are no longer available for

occupancy because they have been removed from the rent roll and

approved for economic self-sufficiency and anti-drug activities. Under

Notice PIH 90-39 (PHA) (issued August 24, 1990), a PHA or an IHA may

request a waiver to allow consideration of such units in its

calculation of operating subsidy eligibility. Therefore, the effect of

the revisions to Secs. 905.720 and 990.108(b) in this final rule is not

to change current treatment of these units in the calculation of

operating subsidy eligibility, but merely to reduce the administrative

burdens of all parties involved in the waiver process.

This Rule

The existing regulation on shared utility rate savings provides an

incentive to HAs to implement utilities conservation programs,

particularly rate-savings programs like wellhead purchase, when

calculating eligibility for operating subsidy under the Performance

Funding System, but limits the effect of that incentive to one year.

This revision to the regulation does not change the mechanism for

granting the incentive, but extends the authorization for the shared

savings arrangement up to an additional six years. HUD will continue to

require that the HA be able to demonstrate in each annual budget that

there are real rate reduction savings in each of the years for which

the extended incentive applies.

In addition, the revisions in this rule will eliminate the need to

seek a waiver to permit the payment of operating subsidy for certain

units approved for nondwelling use for economic self-sufficiency and

anti-drug activities.

To achieve the regulatory goals discussed above, this rule amends

24 CFR 905.715(b)(2), 905.720(b), 905.730(c), 990.107(b)(2),

990.108(b), and 990.110(c)(1)(i).

Other Matters

Justification for Final Rule

The Department has determined that notice and public comment are

unnecessary and contrary to the public interest before making this rule

effective because it is an extension of an ongoing policy which rewards

a HA for its action to secure a reduction in utility rates.

Information Collection Requirements

The information collection requirements contained in this rule have

been submitted to the Office of Management and Budget under the

Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520). The Department

has determined that the following provisions contain information

collection requirements.

Tabulation of Reporting and Recordkeeping Burdens

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Estimated

No. of Frequency average Estimated

Sections respondents of response response annual

time (in burden (in

hours) hours)

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Reporting burden:

905.720(b)(2), 990.108(b)(2)............................ 200 1 8 1,600

905.730(c)(1)(i), 990.110(c)(1)(i)...................... 100 1 2 200

905.720(b)(2)(i)-(v), 990.108(b)(2)(i)-(v).............. 200 1 4 800

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Total reporting burden................................ ........... ........... ........... 2,600

Recordkeeping burden:

905.720(b)(2)(v), 990.108(b)(2)(v)...................... 200 1 2 400

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Total recordkeeping burden............................ ........... ........... ........... 400

===================================================

Total burden.......................................... ........... ........... ........... 3,000

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Environmental Review

A Finding of No Significant Impact with respect to the environment

has been made in accordance with HUD regulations at 24 CFR Part 50,

which implement section 102(2)(C) of the National Environmental Policy

Act of 1969. The Finding of No Significant Impact is available for

public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the

Office of the Rules Docket Clerk, Office of the General Counsel,

Department of Housing and Urban Development, Room 10276, 451 Seventh

Street, S.W., Washington, D.C. 20410.

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. This rule

pertains only to an arrangement between HUD and certain HAs.

Executive Order 12612, Federalism

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

of Executive Order 12612, Federalism, has determined that this rule

does not have ``federalism implications'' because it does not have

substantial direct effects on the States (including their political

subdivisions), or on the distribution of power and responsibilities

among the various levels of government.

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 significant impact on family formation, maintenance, and

general well-being. It pertains only to an arrangement between HUD and

certain HAs.

Semi-Annual Agenda of Regulations

This rule was listed as item number 1706 in the Department's

Semiannual Agenda of Regulations published on April 25, 1994 (59 FR

20424, 20474) in accordance with Executive Order 12866 and the

Regulatory Flexibility Act.

Catalog of Federal Domestic Assistance

The Federal domestic assistance number is 14.850.

List of Subjects

24 CFR Part 905

Aged, Energy conservation, Grant programs--housing and community

development, Grant programs--Indians, Indians, Individuals with

disabilities, Lead poisoning, Loan programs--housing and community

development, Loan programs--Indians, Low and moderate income housing,

Public housing, Reporting and recordkeeping requirements.

24 CFR Part 990

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

Reporting and recordkeeping requirements.

Accordingly, the Department amends 24 CFR parts 905 and 990 as

follows:

PART 905--INDIAN HOUSING PROGRAMS

1. The authority for part 905 is revised to read as follows:

Authority: 25 U.S.C. 450e(b); 42 U.S.C. 1437a, 1437aa, 1437bb,

1437cc, 1437ee, and 3535(d).

2. In Sec. 905.715, paragraph (b)(2) is revised to read as follows:

Sec. 905.715 Computation of utilities expense level.

* * * * *

(b) * * *

(2) If an IHA takes action, such as a wellhead purchase of natural

gas, or administrative appeals or legal action beyond normal public

participation in rate-making proceedings to reduce the rate it pays for

utilities (including water, fuel oil, electricity, and gas), then the

IHA will be permitted to retain one-half of the cost savings during the

first 12 months attributable to its actions. Upon determination that

the action was cost-effective in the first year, the IHA may be

permitted to retain one-half the annual cost savings for an additional

period not to exceed six years, if the actions continue to be cost-

effective. See also paragraph (f) of this section and Sec. 905.730(c).

* * * * *

3. In Sec. 905.720, the text of paragraph (b) following the heading

is designated as paragraph (b)(1), and new paragraph (b)(2) is added,

to read as follows:

Sec. 905.720 Other costs.

* * * * *

(b) * * *

(1) * * *

(2) Units approved for nondwelling use to promote economic self-

sufficiency services and anti-drug activities are eligible for

operating subsidy under the conditions provided in this paragraph

(b)(2), and the costs attributable to them are to be included in the

operating budget. If a unit satisfies the conditions stated in

paragraphs (b)(2) (i) through (v) of this section, it will be eligible

for subsidy at the rate of the AEL for the number of months the unit is

devoted to such use. Approval will be given for a period of no more

than three years. Renewal of the approval to allow payments after that

period may be made only if the IHA can demonstrate that no other

sources for paying the non-utility operating costs of the unit are

available:

(i) The unit must be used for either economic self-sufficiency

activities directly related to maximizing the number of employed

residents or for anti-drug programs directly related to ridding the

development of illegal drugs and drug-related crime. The activities

must be directed toward and for the benefit of residents of the

development.

(ii) The IHA must demonstrate that space for the service or program

is not available elsewhere in the locality and that the space used is

safe and suitable for its intended use or that resources are committed

to make the space safe and suitable.

(iii) The IHA must demonstrate satisfactorily that other funding is

not available to pay for the non-utility operating costs. All rental

income generated as a result of the activity must be reported as income

in the operating subsidy calculation.

(iv) Operating subsidy may be approved for only one site (involving

one or more contiguous units) per Indian housing development for

economic self-sufficiency services or anti-drug programs, and the

number of units involved should be the minimum necessary to support the

service or program. Operating subsidy for any additional sites per

development can only be approved by HUD Headquarters.

(v) The IHA must submit a certification with its Performance

Funding System Calculation that the units are being used for the

purpose for which they were approved and that any rental income

generated as a result of the activity is reported as income in the

operating subsidy calculation. The IHA must maintain specific

documentation of the units covered. Such documentation should include a

listing of the units, the street addresses, and project/management

control numbers.

* * * * *

4. In Sec. 905.730, paragraph (c)(1)(i) is revised to read as

follows:

Sec. 905.730 Adjustments.

* * * * *

(1) Rates. (i) A decrease in the utilities expense level because of

decreased utility rates--to the extent funded by operating subsidy--

will be deducted by HUD from future operating subsidy payments.

However, where the rate reduction covering utilities, such as water,

fuel oil, electricity, and gas, is directly attributable to action by

the IHA, such as wellhead purchase of natural gas, or administrative

appeals or legal action beyond normal public participation in rate-

making proceedings, then the IHA will be permitted to retain one-half

of the cost savings attributable to its actions for the first year and,

upon determination that the action was cost-effective in the first

year, for up to an additional six years, as long as the actions

continue to be cost-effective, and the other one-half of the cost

savings will be deducted from operating subsidy otherwise payable.

* * * * *

PART 990--ANNUAL CONTRIBUTIONS FOR OPERATING SUBSIDY

5. The authority for part 990 is revised to read as follows:

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

6. In Sec. 990.107, paragraph (b)(2) is revised to read as follows:

Sec. 990.107 Computation of utilities expense level.

* * * * *

(b) * * *

(2) If a PHA takes action, such as wellhead purchase of natural

gas, or administrative appeals or legal action beyond normal public

participation in rate-making proceedings to reduce the rate it pays for

utilities (including water, fuel oil, electricity, and gas), then the

PHA will be permitted to retain one-half of the cost savings during the

first 12 months attributable to its actions. Upon determination that

the action was cost-effective in the first year, the PHA may be

permitted to retain one-half the annual cost savings for an additional

period not to exceed six years, if the actions continue to be cost-

effective. See also paragraph (f) of this section and Sec. 990.110(c).

* * * * *

7. In Sec. 990.108, the text of paragraph (b) is designated as

paragraph (b)(1), and new paragraph (b)(2) is added, to read as

follows:

Sec. 990.108 Other costs.