Public and Indian Housing Amendments to the Comprehensive Grant Program; Final Rule DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

SUMMARY: This rule amends the Comprehensive Grant Program (CGP)

regulations by simplifying and expediting the planning and funding

process for public housing agencies (PHAs) and Indian housing

authorities (IHAs) that own or operate 250 or more public or Indian

housing units.

DATES: Effective date: September 29, 1994.

FOR FURTHER INFORMATION CONTACT: For questions concerning public

housing agencies contact Janice D. Rattley, Director, Office of

Construction, Rehabilitation and Maintenance, Public and Indian

Housing, Room 4138, telephone (202) 708-1800, or (202) 708-0850 (voice/

TDD).

For questions concerning Indian housing authorities, contact Debbie

Lalancette, Director, Housing Management Division, Office of Native

American Programs, Public and Indian Housing, Room 8204 (L'Enfant

Plaza), telephone (202) 755-0088, or (202) 708-0850 (voice/TDD).

The address for all the above-listed persons is: Department of

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

20410. (The telephone numbers listed above are not toll-free.)

SUPPLEMENTARY INFORMATION:

I. Background

Section 14 of the United States Housing Act of 1937 (42 U.S.C.

1437l) (``the Act''), as amended by section 119 of the Housing and

Community Development Act of 1987 (the ``1987 Act'') and Cranston-

Gonzalez National Affordable Housing Act of 1990 (``NAHA''),

established the Comprehensive Grant Program (CGP), which was designed

to govern the modernization needs of PHAs and IHAs that own and operate

250 or more public or Indian housing units. PHAs and IHAs that own and

operate fewer than 250 public or Indian housing units are governed by

the Comprehensive Improvement Assistance Program (CIAP).

(The reader should note that, hereafter, for ease of discussion,

the preamble to this final rule uses the terms ``public housing'' to

refer to both public and Indian housing, and ``HAs'' or ``housing

agency,'' to refer to both PHAs and IHAs, unless otherwise stated. In

addition, the term ``development'' is used to refer to ``low-income

projects,'' as defined at section 3(b)(l) of the Act.)

The Department promulgated regulations for the CGP and CIAP at 24

CFR parts 905 and 968, and these regulations have governed the

modernization of public and Indian housing assisted under the Act. On

February 14, 1992, the Department published the final rule for the CGP

at 57 FR 5514. The February 14, 1992 rule amended the CIAP at 24 CFR

part 968, subpart B, to limit its applicability to HAs that own or

operate fewer than 500 public housing units (fewer than 250 units

beginning in Federal Fiscal Year (FFY) 1993); added a new subpart C to

part 968, which sets forth the new CGP for HAs that own or operate a

total of 500 or more public housing units (250 or more units beginning

in FFY 1993); and revised both the CIAP and CGP programs for purposes

of implementing various technical and substantive program amendments

contained in sections 509 (b) through (f) of the NAHA.

On March 15, 1993, the Department published an interim rule for

CIAP at 58 FR 13916 for HAs with less than 250 units in FFY 1993 and

minor technical corrections for CGP. The CIAP interim rule was

published in response to public comment requesting both streamlining

and simplification and was also based on experience gained through

program operation.

On March 8, 1994, the Department published a proposed CGP rule for

comment at 59 FR 10876 (hereinafter referred to as the ``proposed

rule''). The proposed rule requested comments on HUD's efforts to

simplify and expedite the CGP planning and funding process for HAs that

own or operate 250 or more public or Indian housing units. HUD also

requested comments on other aspects affecting the operation of the CGP.

II. Summary of Public Comments

HUD received 35 comments in response to the proposed rule for CGP.

Comments were received from 23 PHAs, 5 IHAs, one individual and 6

interest groups including Public Housing Authorities Directors

Association (PHADA), National Association of Housing and Redevelopment

Officials (NAHRO), Council of Large Public Housing Authorities (CLPHA),

National American Indian Housing Council (NAIHC), Association of

Community Organization for Reform Now (ACORN), and Pacific Southwest

Region Development and Modernization Coordinators (PSRDMC).

The comments were overwhelmingly positive and were supportive of

HUD's efforts to simplify and expedite the CGP. Commenters were pleased

that HUD had minimized the regulation and provided HAs with more

flexibility. The aspects of this rule which generated the most comment

were the proposed full fungibility of work items over a five-year

period and eligible costs, especially management improvements and

administrative costs. This summary will outline the comments with HUD's

response in the regulation order. Comments on the public housing

regulation (Part 968) and Indian housing regulation (Part 905) have

been combined except where there are differences in the provisions for

public and Indian housing. Miscellaneous comments and responses will

follow the comments on the regulations.

Secs. 905.601 and 968.103--Allocation of Funds Under Section 14.

Set-Aside for Emergencies and Disasters

Comment: Two commenters responded to the proposed change in

paragraph (b) of Secs. 905.601 and 968.103 which would allow all HAs

(including smaller HAs that participate in CIAP) to apply for emergency

and disaster funds from the $75 million set-aside. Both commenters were

supportive of this change which provides another avenue for smaller

agencies to access urgently needed resources; however, one of the

commenters did not support the maintenance of the set-aside out of

modernization funds and suggested other fund sources such as National

Emergency Relief funds.

Response: Section 14 of the Act authorizes this set-aside from

modernization funds. The set-aside is part of the formula approach and

makes up for funding shortfalls to address emergencies or disasters.

This provision would also allow CIAP HAs to receive funding for

unanticipated emergencies during the period between when CIAP funds are

exhausted for the current year and when funds are available for next

year, as well as for disasters at any time during the year.

The requirements governing the reserve for disasters and

emergencies and the procedures by which an HA may request such funds

are found at Secs. 905.667 (IHAs) and 968.312 (PHAs). HAs (including a

PHA that has been designated as mod troubled under PHMAP or IHAs that

are determined to be high risk under Sec. 905.135) may obtain funds at

any time, for any eligible emergency work item as defined in

Secs. 905.102 or 968.305 (for HAs participating in CGP, ``CGP HAs'') or

for any eligible emergency work item (described as emergency

modernization in Secs. 905.102 or 968.205) (for HAs participating in

CIAP, ``CIAP HAs''), from the reserve established under

Secs. 905.601(b) or 968.103(b). However, emergency reserve funds may

not be provided to a CGP HA that has the necessary funds available from

any other source, including its annual formula allocation under

Secs. 905.601 (e) and (f) or 968.103 (e) and (f), other unobligated

modernization funds, and its replacement reserves under Secs. 905.666

or 968.310(a)(3). A CGP HA is not required to have an approved

comprehensive plan under Secs. 905.672 or 968.320 before it can request

emergency assistance from this reserve.

Emergency reserve funds may not be provided to a CIAP HA that has

the necessary funds available from any other source, including

unobligated CIAP, or if CIAP funding is available. A CIAP HA will not

be required to repay emergency funds, because it does not have a future

formula allocation of assistance with which to make this repayment.

To date, the set-aside has never been depleted in any of the FFYs

of CGP operation. This final rule adopts the proposed rule's

provisions. However, the Department is seeking legislation which will

permit the set-aside to be used for other purposes including activities

related to the settlement of litigation and desegregation of public

housing.

Calculation of Number of Units

Comment: One commenter supported the proposal to include new or

converted units in formulating the amount to be awarded if they are on-

line when awards are calculated.

Response: HUD has retained the proposed rule's provisions on

calculation of number of units. In order to treat each HA fairly, HUD

will count units that have reached date of full availability (DOFA) and

are under ACC amendment by the first day in the FFY in which the

formula is being run. See also discussion under Secs. 905.669 and

968.315 Allocation of assistance, Formula Characteristics Report (FCR)

below.

Paid-off Mutual Help Units

Comment: All of the IHAs which commented provided suggestions on

the treatment of paid-off units. Two commenters were in favor of

modernizing paid-off units only if additional funds are made available

(paid-off units being included in the calculation of units under

management for formula funding allocation purposes).

Response: Units which are paid-off, but not conveyed, are included

in the calculation of units under management and for purposes of

determining the IHA's formula share until they are conveyed. Upon

conveyance, units are removed from the count of units under management

and thereafter are no longer counted in the formula funding

calculation.

Comment: An IHA wanted to be able to work on homes that have been

paid-off if the family that paid-off the home is still in possession of

the home, or to work on any home that pays off after submission of the

five-year plan, and recommended that paid-off units should be added to

the unit count. One IHA suggested grandfathering all units that were

originally submitted in the five-year plan but have subsequently been

paid-off. Another IHA indicated that some Mutual Help participants are

being penalized by the cut-off date, and IHAs should be allowed to work

on their homes even if they are paid-off when the individual has

fulfilled all of their obligations by not being delinquent (or who

makes the maximum house payments) and still occupies the home.

Response: The Department has decided to remove the regulatory

prohibition against modernizing Mutual Help units which are paid-off

but not conveyed. The Department believes that the only regulatory

restrictions on the modernization of paid-off Mutual Help units should

be that: title has not been conveyed to the homebuyer; where the

homebuyer has a delinquency at the end of the amortization period, non-

emergency modernization work shall not be done until all delinquencies

are repaid; and, the units shall be identified in the Comprehensive

Plan (including the Physical Needs Assessments and Five-Year Action

Plan). The prohibition against performing modernization work on

conveyed units is based on a determination by the Department's Office

of General Counsel that statutory authority for the expenditure of

modernization funds is limited to existing public housing units. Once

title is conveyed and the unit is no longer covered by the ACC, the

unit is no longer a public housing unit and there is no legal authority

for the expenditure of modernization funds provided under section 14 of

the Act. IHAs that wish to modernize conveyed Mutual Help units must

obtain funding from another source; e.g., proceeds from the sale of

homeownership units or Bureau of Indian Affairs Housing Improvement

Program funds.

With respect to the recommendations provided by the commenters

concerning whether the unit must be occupied by the homebuyer that paid

it off, the Department believes that prior to conveyance, the unit

would be occupied by an eligible subsequent homebuyer and therefore the

unit itself would be eligible for modernization work, where needed. The

Department believes that decisions as to whether the IHA plans to

modernize paid-off but not conveyed Mutual Help units at all, which

specific units will be modernized and the level of work to be provided,

should be made at the local level by the IHA.

The Department also has removed restrictions on the modernization

of paid-off but not conveyed Turnkey III units to the extent that there

is statutory authority to do so. The authority to perform comprehensive

modernization on Mutual Help units provided by the National Affordable

Housing Act of 1990 does not extend to Turnkey III units. Because the

eligibility of homeowner-occupied Turnkey III units for modernization

work is limited, see Sec. 905.666 and Sec. 968.310, the regulations

have been amended to allow HAs to do work necessary to meet statutory

or regulatory requirements in Turnkey III units which are paid-off, so

long as the work is completed prior to conveyance.

Contingency Accounts

Comment: Although not proposed by HUD, three commenters recommended

an HA-wide line-item account for contingencies. Such an account could

be used for cost overruns and contract modifications (change orders).

The commenters called for money assigned to this account by the HA to

be considered ``obligated''. One PHA has found that its underruns on

construction contracts are sufficient to fund most exigencies and act

as a de facto contingency account. However, HUD restricts the use of

underruns by requiring that all monies be reprogrammed within the

funding program's original obligation period. It was noted that a

contingency line item exists for development funds, and the amount in

the contingency line item could be limited to a fixed percentage of the

construction costs and would not require HAs to make numerous revisions

to their budgets. A single revision could be made annually with the

contract modifications reflected in the proper line item.

Response: HUD generally agrees with these comments and has revised

the regulation to permit HAs to budget for a contingency account for

cost overruns and contract modifications. HUD notes that Section 504

accessibility conversion is an eligible expense under HA-wide physical

improvements. Refer to the next section below for a discussion of HA-

wide items.

HUD currently permits a contingency account in its Development

Program and has decided to adopt a similar approach for the CGP. A HA

may budget up to 8% of its total annual grant for a contingency

account. (A new account will be established and included on the Annual

Statement Form). Money budgeted in a contingency account is considered

unobligated until it is moved to another account and obligated for a

cost overrun or other work items. The HA will provide the status of its

contingency account in its annual Performance and Evaluation Report

(P&E Report). For example, if an HA uses $100,000 from its contingency

fund for a contract modification in Account 1460, the P&E Report will

reflect a reduction of $100,000 in the contingency account and an

increase of $100,000 in Account 1460. The $100,000 will be obligated

when the contract modification is issued under Account 1460. The

contingency account will be a fixed account for each annual grant;

i.e., the HA cannot replenish the account as funds are used from it.

HUD wishes to clarify that it does not restrict the use of

underruns by requiring that all monies be reprogrammed within the

funding program's original obligation period. Under the CGP, a HA may

extend the target dates for fund obligation in the approved Annual

Statement without prior HUD approval whenever any delay outside of the

HA's control occurs, as specified by HUD (e.g., litigation, HUD or

other institutional delay, extended labor strikes, extended material

shortages, or need to use leftover funds) and the extension is made in

a timely manner. The need to reprogram unobligated funds resulting from

underruns constitutes a valid reason for self-executing a time

extension.

Comment: One HA suggested a two pronged approach for implementing

contingency accounts. First, HUD should remove the two-year obligation

deadline and allow HAs to obligate monies at any time in the

modernization process provided that the funds are expended within the

5-year statutory limit. The second component would permit each HA to

establish a line-item contingency account equal to 1%-2% of the total

grant amount in its annual submission. Funds resulting from underruns

or credit contract modifications would be transferred into the

contingency account for future use. The account would not be allowed to

exceed 10% of the outstanding grant balance without prior HUD approval.

HAs would draw funds to pay for contingencies from the account as

needed. These funds would be added to contract accounts via budget

modifications. In general, excess contingency account funds would be

reprogrammed into additional modernization work. This modernization

work could come from anywhere in the HA's physical or management needs

assessment or from eligible management improvements. As the expenditure

deadline for a particular funding year nears, HAs would begin to use

the excess funds in that year's contingency account to pay for contract

work performed in other funding programs. At the end of the fifth year,

all program funds--including contingency account funds--would be

expended. HAs would prepare for HUD's review and audit, annual reports

detailing the use of all contingency funds. In addition, program close-

out reports would provide HUD with a detailed accounting for each

contract on which program funds were spent. An amendment to

Secs. 905.666 and 968.310 was also recommended to describe the

mechanics for operating a contingency account.

Response: HUD wishes to clarify that there is no statutory two-year

obligation period, three-year expenditure period, or 5-year statutory

limit for spending funds approved in a particular FFY. However, HUD

expects that funds allocated in a FFY, including those designated by

the HA as contingency funds, will be obligated within two years and

expended within three years of approval. If an HA can demonstrate that

a longer implementation schedule is necessary (e.g., size of grant,

complexity of work), HUD may approve an obligation/expenditure schedule

that exceeds this National guideline. The HA has responsibility for

proposing its implementation schedule, as part of each Annual Work

Statement. Also, as previously noted, the HA may self-execute a time

extension of the approved implementation schedule for reasons outside

of its control (e.g., litigation). In all cases, however, timeliness of

obligation and expenditure of funds will be considered in the

assessment of a PHA's modernization performance under the PHMAP.

The HA may initially budget up to 8% of its annual grant for

contingencies, and HUD believes that this provides sufficient

flexibility for HAs within each annual grant. When the HA needs to use

the funds in this contingency account for cost overruns or other work

within its Five-Year Action Plan, the HA is required to ``move the

funds'' through internal budgeting to other eligible development

accounts and then draw down the funds from other line items. After the

HA has moved the funds from the contingency account into other eligible

development accounts for purposes of obligation and expenditure, the HA

may not replenish this account because at program completion, this

account must be zero. Therefore, HUD has not adopted the suggestion

that funds resulting from underruns or contract modifications be used

to replenish this account since funds in the contingency account must

be moved to other line items for drawdown in a timely fashion to meet

the HA's approved implementation schedule. Funds resulting from

underruns or credit contract modifications, as well as funds not needed

for contingencies shall be reprogrammed for other modernization work in

the approved Five-Year Action Plan.

HA-Wide Line Items

Comment: Three commenters recommended a HA-wide line item account

for relocation services, asbestos testing and abatement, lead-based

paint abatement and ``on demand'' Section 504 accessibility

conversions.

Response: HUD recognizes that HAs occasionally encounter work items

that are unpredictable, such as lead-based paint abatement when a child

has been identified as having an elevated blood level or the need to

modify a unit for physical accessibility. Therefore, HUD wishes to

clarify that HA-wide line item accounts covering HA-wide activities

such as lead-based paint, Section 504 compliance, mitigation of

environmental hazards such as asbestos abatement, and modernization of

vacant units is consistent with established program requirements and

procedures and does not require any change to the existing regulation.

Note: modernization of vacant units is limited to non-routine

maintenance work items. Routine maintenance is not an eligible

modernization cost. Funds budgeted in a HA-wide line item should be

based on historical data. The HA should estimate the amount of funds

that it anticipates will be needed, annually, on the above items. The

HA-wide line item would enable the HA to complete these work items at

any of its developments, and avoid numerous budget revisions because

the estimated needs at a particular development are under-funded or

over-funded. However, the HA is required to report in the Performance

and Evaluation Report on the quantity and cost for each development

where HA-wide activities were carried out.

With regard to HA-wide line items, a HA may wish to consider

utilizing an indefinite quantity architectural/engineering (A/E)

contract to meet its needs with regard to the above types of work. HAs

usually hire A/E firms to provide services as specific needs arise.

Many HAs, however, have the need for a number of A/E services during

the course of the next one or two years. In these cases, the HA may

solicit for an indefinite quantity contract where separate orders are

issued to the selected A/E firm for each service as the need arises.

Another method similar to this approach is to issue a solicitation for

several A/E firms to provide services on an as-required basis rather

than merely one firm. The solicitation would clearly indicate that the

HA anticipates having the need for several A/E services, identify types

of services to be provided for that year, and describe how an A/E firm

would be selected among the groups. As the need arises, the HA would

execute contracts with A/E firms for specific tasks in accordance with

the procedures identified in the solicitation. These methods allow the

HA to quickly contract for critical services in a timely manner rather

than waiting until the need arises to issue the solicitation and select

the needed firm. Further information regarding indefinite quantity

contracts for A/E services is found in paragraph 4-26 of the

Procurement Handbook.

Secs. 905.601 and 968.310 Eligible costs

Management Improvements

Comment: Twenty-eight comments were received on the proposal to

raise the cap on management improvements from 10% to 20% and to permit

high performers under PHMAP or IHAs determined by the Field Office to

be high performing and with administrative capacity to exceed the 20%

limit. To the maximum extent feasible, the Department proposed that HAs

should use management improvement funds to train residents in carrying

out activities related to the modernization-funded physical and

management improvements. Most commenters saw the proposal as a

significant improvement. Some noted that this proposal will not relieve

HUD of its responsibility to adequately fund mandates regarding

resident services (security improvements, training, etc.) and operating

subsidies. Others opposed the Department for even suggesting that

modernization improvement funds be utilized for resident training

activities and preferred that this be left to local discretion. Many

commenters urged a return to ``true'' management improvement

activities, rather than recent years' necessity of funding on-going

operational need in HAs in areas of security, drug prevention and

enforcement and resident services. It was recommended that CGP funds

should only be used for incremental improvement to equipment and

information systems, but not personnel. It was noted that each HA's

modernization grant is based upon a formula allocation, which is based

upon that HA's estimated modernization needs. There is nothing in this

method of allocation which reflects or is based upon a HA's needs for

funding for security, resident services, or resident initiatives

programs, nor is the formula allocation process designed to address

those needs. Other commenters saw the percentage limitation increase

enabling some HAs to address new and greater problems dealing with

crime and security as well as family values. One commenter supported

the proposal because it could result in needed funds for resident

training required for compliance with Section 3 and other programs such

as the Family Investment Center Program and Youthbuild.

Several commenters recommended that HUD should also broaden the

list of allowable management improvements, especially to include the

establishment of preventive maintenance systems as an eligible item

under management improvements, perhaps up to a certain reasonable

percentage limit (one recommended 6% of most HA's CGP grants). CLPHA

and NAHRO strongly recommended that management improvement rules allow

preventive maintenance to be funded. They recommended where a low AEL

has resulted in seriously declining housing stock with high levels of

deferred maintenance, the first few years of implementing a Preventive

Maintenance Program represent a major non-recurring expense in terms of

both manpower and materials. After the first three years, the cost

associated with this program was proposed by some commenters to be

reduced to a level that is supportable within the normal operating

budget.

Response: HUD would like to clarify by explicitly adding the

example to the regulation that the establishment of a preventive

maintenance system or improvement of an existing system is already an

eligible management improvement. The Department strongly encourages HAs

to establish a preventive maintenance system or improve an existing

system to assure that the modernization-funded physical improvements

are sustained. A preventive maintenance system must provide for regular

inspections of building structures, systems and units and determine the

applicability of work eligible for operating funds (routine

maintenance) and work eligible for CGP funding (non-routine

maintenance).

Comment: Two commenters opposed the increase to 20% because of

their belief that the majority of modernization funds should go to

property improvement. They asserted that the CGP was becoming another

HUD social program and stated there were wastes in the area of

management improvements.

Some commenters requested that the Department reconsider and give

the proposed incentive to all standard and high performing HAs. It was

also recommended that subparagraph (f)(1)(iii) should clarify that

there is an exception to the 20% threshold by a cross-reference to

(m)(1). Clarification was requested whether a HA must be an over-all

high performer, mod-high performer, both or either.

Response: In response to the comments, HUD has decided to increase

the cap on management improvements from 10% to 20% for all HAs and to

completely remove the cap for PHAs designated as both over-all high

performers and mod-high performers under the PHMAP. HUD does not agree

that increasing the allowable management improvement limit moves the

CGP towards becoming another ``HUD social program''. Many management

improvements are geared towards improving the efficiency and

effectiveness of a HA's operations and are necessary to sustain the

physical improvements. It should be noted that the direct delivery of

social services is an ineligible CGP expenditure. Experience has shown

that physical improvements without appropriate management actions often

are not sustained, thereby wasting federal dollars. HUD will continue

to strongly suggest that HAs use management improvement funds for

resident training and has retained this suggestion in

Sec. 968.310(m)(1).

Comment: One IHA commented that there is no equality as to how ACA

reviews are conducted at the HUD level since some reviews are not

conducted on site, leading to determinations which may not be accurate.

Two IHAs suggested that the criteria for IHA high performers should be

stringent enough that only the best managed IHAs be classified as high

performers, and that all areas of IHA management and operations should

be evaluated. They suggested the following criteria: (a) The IHA must

have a final ACA score of 90% or above for two consecutive years,

including the FFY that funds are being requested, and (b) the IHA must

be current on all implementation schedules for action CGP and CIAP

grants. Two commenters suggested that HUD consult with interested

parties to set guidelines for high performers.

Response: HUD does not agree with the suggestions that ACA scores

be used to determine whether an IHA qualifies as a high performer. The

ACA is to be used to highlight areas where training or technical

assistance may be needed, identify IHAs with potential problems, and

determine functional areas where reviews are needed. HUD has decided to

delay implementation of the incentive for high performing IHAs in order

to maximize the opportunity for consultation with interested parties.

HUD will invite public comment on the criteria to be used to determine

high performers when the revised Indian Housing regulations at 24 CFR

part 905 are published as a proposed rule.

Administrative Costs

Comment: HUD limited HAs to no more than 7% of their annual grant

for administrative costs in account 1410, excluding any costs related

to in-house lead-based paint or asbestos testing, in-house A/E work, or

other special administrative costs required by State, Tribal or local

law, unless specifically approved by HUD. An additional 2% of the

annual grant may be spent on costs related to travelling to the HA's

developments for CGP-related business, as specifically approved by HUD.

Eighteen comments were received on this provision. Most of the comments

urged HUD to raise the cap to 10%. Most found the current 7% to be

insufficient to fully administer the modernization program. For

example, one commenter indicated that in a high cost area, the expenses

for a construction manager and clerk of the works, with benefits,

exceed the 7% cap. HUD was advised that even HAs which operate in a

limited geographical area often require overnight travel and pay a

premium for administration because of the need to operate over several

telephone area codes. HAs which have highly active, very organized

Resident Advisory Councils and Resident Management Corporations have

higher administrative costs because of increased level of outreach,

planning, consultations and discussions. Similarly, HAs that operate

joint ventures with residents also experience increase administrative

costs. Others noted that the present 7% cap does not reflect the

spiraling increase in health benefits, workers compensation, and

unemployment insurance premiums for administrative workers, increase in

complexity and resulting staff time to comply with HUD's regulations,

and increase in expenses associated with transitioning from the CIAP

model to CGP.

Commenters recommended that the word ``in-house'' be deleted, and

that any costs related to lead-based paint or asbestos testing be

excluded from the 7% total. Another commenter emphasized the

administrative burden that lead-based paint and asbestos abatement

imposes on HAs. Nearly every rehabilitation and remodeling activity in

public housing developments now requires the work of environmental

consultants for lead-based paint and/or asbestos testing and abatement.

The oversight and administration of these contracts is very time- and

resource-intensive. Some commenters requested examples of areas where

the Field Offices could approve higher limits. HUD was asked to clarify

the issue of administration of force-account labor. It was requested

that the regulation state that administrative costs associated with

force account labor used in relationship to resident training programs

are eligible management improvement costs. NAIHC noted that IHAs with

force account labor incur additional administrative costs because they

need more warehouse space to house their materials, more administrative

staff to process the paperwork, and more financial management staff to

assure records are up-to-date. In addition, development staff spends

more time overseeing the entire program. They recommended that the

administrative cost limit be set at 10%.

One commenter suggested that like management improvements, standard

and high performing HAs be allowed to exceed the 7% level without prior

HUD approval. Retaining the additional 2% for CGP travel-related

expenses received approval, but it was recommended that it should not

be limited to commercial vendors because some legitimate overnight

travel may be conducted by private or PHA-owned automobiles. Some

commenters suggested that the additional 2% should include some factor

related to miles traveled in relationship to density of developments.

Response: The comments clearly demonstrate a need for an increase

in the administrative cost limit. Accordingly, HUD has raised the

administrative cost limit to 10% for all HAs. Field Offices may approve

amounts higher than the 10% limit where there is sufficient

justification to warrant an increase. Because of the increase in the

overall administrative cost limit, HUD has deleted the additional 2%

limit related to travel costs. It should be noted that costs related to

lead-based paint or asbestos testing (whether conducted by force

account employees or by a contractor) are excluded from the 10%

administrative cost total. In response to the request for clarification

on the issue of administration of force-account labor, it should be

noted that non-technical oversight costs associated with force account

work are included in the cost limitations for administrative costs

(account 1410). The actual force account labor costs including direct

supervision are charged to the appropriate account for the work being

performed, e.g., dwelling structures (account 1460). Administrative

costs related to resident training programs are eligible management

improvement costs.

Additional Eligible Costs Issues

Comment: Recommended additions to the list of eligible costs were

air conditioning, wallpaper, garbage disposals, carpeting in all units,

lawn sprinkler systems and maintenance vehicles. Two commenters

requested that eligible items and modernization standards be

consistent.

Response: Recently, the Public Housing Development Program, revised

its cost containment and modest design requirements to provide HAs with

maximum flexibility regarding work items previously considered

amenities. Maximum flexibility is hereby being provided in the CGP. The

Department has modified its policy regarding eligible work items under

CGP to allow work items that are modest in design and cost, but still

blend in with the design and architecture of the surrounding

communities by including amenities, quality materials and design and

landscaping features that are customary for the locality. The Indian

Housing Development Program also encourages IHAs to incorporate

culturally relevant design concepts into their developments. For

guidance in culturally relevant design considerations, IHAs may refer

to a publication prepared by the American Indian Council of Architects

and Engineers, Our Home, Giving Form to Traditional Values. It should

be noted that there will be no increase in operating subsidy due to

items added to promote the blend of public housing into the surrounding

neighborhood. Such items may be included in the modernization of a

development as long as the provisions for cost reasonableness are met.

The PHA/IHA Board Resolution approving the Comprehensive Plan/Annual

Statement, Form HUD-52836, will be modified to include a certification

that the modernization work will promote Public and Indian housing that

is modest in design and cost, but still blends in with the surrounding

community.

Comment: Additionally, it was asked that HOPE I, HOPE III and 5(h)

Homeownership activities be listed as eligible items.

Response: The current rule and this final rule permit the study of

the feasibility of converting rental to homeownership units, as well as

the preparation of an application for conversion to homeownership, as

eligible management improvement costs (see resident homeownership

costs, Sec. 968.310 (g)(3)).

Comment: Clarification on the quality of materials to allow for

higher quality security and plumbing fixtures was requested. This was

suggested because of the high use factor and increased security needs

of public housing.

Response: HUD does not mandate the specific quality of materials

used. HAs must ensure that the quality of materials used is appropriate

to meeting the needs of the HA and its residents. In keeping with the

flexibility mandated under the CGP, the quality of materials used is a

local decision subject to the provisions relating to cost

reasonableness.

Comment: Clarifications were also requested on replacement of old

maintenance vehicles.

Response: Purchase of maintenance vehicles that are necessary to

administer/implement the modernization program are eligible under the

CGP. However, the HA must indicate in its Management Needs Assessment

that such purchase is necessary to improve or sustain maintenance

operations. If the maintenance vehicle is to be used for both the Low-

Rent Public Housing Program and other programs administered by the HA,

the cost of the purchase shall be prorated among programs. By statute,

CGP funds are to be used to improve the physical condition of existing

public housing projects and to upgrade the management and operation of

such projects. All work items, including the purchase of equipment,

must be directly related to carrying out the physical and management

improvements to HA property.

Secs. 905.669 and 968.315 Allocation of Assistance.

Elimination of Presumptive Estimates

Comment: Most found that the previous system caused unnecessary

confusion and created HA credibility issues with residents and local

government. They agreed with HUD's proposal to eliminate the

presumptive estimates since, in general, they no longer serve a useful

purpose. This change eliminates the burden of amending the Five-Year

Action Plan and/or Annual Statement during a FFY because of differences

between the presumptive estimate and final formula amount.

Response: As endorsed by the commenters, HUD has adopted the

proposed rule's provision of providing only one formula amount in the

FFY.

Formula Characteristics Report (FCR)

Comment: HAs expressed a need to receive their final formula

amounts at the earliest possible date. This would allow HAs to base

proposed work items and budgets on the actual dollars available.

Commenters also requested HUD to update the formula characteristics

data in July and August of each year so that the formula

characteristics information can be finalized in September. If the

formula characteristics information was ready in September, it could be

applied at the earliest possible date to the congressionally

appropriated amount yielding each HA its final funding amount

significantly ahead of the March 1994 date achieved this year. Access

to new CGP funds at the earliest possible date is critical to

obligating and expending CGP funds in a timely manner.

Response: HUD will transmit the formula characteristics data to HAs

before the end of the current FFY for review and updating for the next

year's formula run. However, since the formula calculation is based on

all units that are under ACC and have reached DOFA by October 1 of the

FFY in which the formula is being run, it is not feasible for HAs to

return the FCR until after October 1. Notwithstanding an early review

and correction of data, HAs should be aware that the exact amount of

funds available for the CGP may not be known until several months into

the FFY. This is due to the need to determine the following: (1) Amount

of funds, if any, carried over from the previous FFY; (2) amount of

funds authorized for set-asides by the Appropriations Act; and (3)

shortfalls, if any, in other programs which share the Annual

Contributions Account with the Modernization Program. Once the adjusted

total appropriation for the Modernization Program is determined, then

the Department is able to run the modernization formula, which

determines the allocation of funds between the CIAP and CGP, as well as

the formula amounts for CGP HAs. However, HUD still anticipates that

HAs will have access to their formula amounts earlier in the FFY since

only one formula amount will be provided.

Basis for Appeals

Comment: Commenters also indicated a need for a full explanation of

the calculation of formula amounts announced each year by HUD to

determine if they have a valid basis for appeal. Currently, HUD issues

virtually no information on how the amounts are calculated from year to

year, other than the formula characteristics which HUD uses as input to

the formula. Commenters requested that HUD provide a simplified

explanation to all HAs, including such factors as any set-asides HUD is

making each year off the top of the modernization, the R.S. Means or

other factors HUD is using to adjust local allocation levels, and any

deductions HUD is making against the HA's allocation.

Response: HUD intends to prepare a Notice each FFY that explains

any modernization set-asides, deductions and carry-over funds and the

amount of funds allocated to the CIAP and the CGP. HUD will also

provide information relative to the R.S. Means Index used for that FFY.

The formula characteristics data used to calculate the formula amount

will be transmitted to the HA with its formula amount.

Appeals

Comment: HUD gives HAs 30 days to review and advise HUD of errors

in the FCR. It does not specify the calculation of the 30 days. It is

recommended that the regulation be redrafted to state ``30 days from

the HA's receipt to review and advise HUD of errors'' because of

previous delays (e.g., up to 15 days before HAs received this year's

report).

Currently, the appeal of a HA's annual formula allocation can only

be based on unique circumstances. HAs suggest that this is

inappropriate and should be changed, but they realized that this would

require a statutory amendment. HAs want to be able to appeal their

allocation if it is based on calculations that inaccurately represent a

HA's real modernization needs.

It was also noted that the increase in the amount of time a HA has

to appeal based upon error from 30 to 60 days equalizes the HUD-HA

partnership for appeals based both on error and unique circumstances.

However, if HAs do not file within the time period, they forfeit their

appeal rights. In the spirit of true partnership, it was suggested that

if HUD fails to respond to an appeal in either situation within 60

days, HUD should forfeit its right to reject the appeal. Further, they

stated that this would only be effective and fair if HUD officials do

not automatically disapprove an appeal in order to extend the time

period.

Response: HUD acknowledges past difficulty in ensuring that HAs had

a full 30 days to review and return the FCR. It would be difficult to

track a HA's receipt of the FCR on an individual basis, and there is a

need for a fixed time for HAs to respond. Because the data changes

little on an annual basis, HA review time should be minimal. As

previously noted, HUD will send out the FCR prior to the end of the

FFY, (e.g., mid-August), and HA responses will not be due until after

October 1. In addition, HUD has revised the regulation to provide that

the HA will have at least 30 days to review and correct errors in the

FCR.

Although the commenters recognized that a statutory amendment would

be necessary to allow other bases for appeals of the annual formula

allocation, HUD would like to point out that the formula is based on

data collected from a major study of the modernization needs of public

and Indian housing agencies. This formula is being used because the

modernization needs study could not provide statistically valid data on

modernization needs for every HA. The formula by its nature cannot be

completely accurate in estimating the needs at each HA participating in

the CGP, but does provide for a reliable source of funds to all

participating HAs. HAs should also recognize that, because this formula

funds on the basis of relative needs of HAs, a successful appeal by one

HA results in the reduction of formula allocations to all other HAs.

HAs are also advised that the appeals no longer have an extra layer

of HUD review. The review and approval of appeals on the basis of error

in data and of the reduced formula because a PHA is mod-troubled have

been delegated to the Field Offices, and this should facilitate HUD's

responding to those appeals within the 60-day time frame. The approval

of appeals on the basis of unique circumstances will be approved at the

Headquarter's level following review at the Field Office level. The

review at the Regional Office level has been eliminated. Therefore, HUD

has not adopted the suggestion that an appeal is considered approved if

HUD does not approve/disapprove within 60 days.

Reallocation of Funds Withheld From Mod-Troubled HAs

Comment: One commenter noted that HUD should be more aggressive in

recapturing CGP and CIAP funding which has not been obligated or

expended in a timely manner and should also be more aggressive about

reallocating CGP funding withheld from mod-troubled HAs. It was urged

that these funds should be reallocated in a timely fashion to HAs who

have proven that they can obligate and expend the funds in a timely

fashion. Commenters were concerned that FFY 1995 CGP funding would be

reduced for all HAs because of the amount of unobligated and unexpended

funds. Instead, they suggested that HUD add recaptured and reallocated

funds to new congressional appropriations to put the money where it

will get utilized. HAs indicated that it was unfair to penalize high

performing HAs because some HAs have been negligent in obligating and

expending their funds.

Response: The commenter should note that section 14 of the Act, as

amended, provides the methodology and eligibility for the reallocation

of funds. The Act also establishes a credit system to provide a HA with

additional funding after the HA is determined to be no longer mod-

troubled, to compensate for amounts not received because of the mod-

troubled designation.

The Department views the recapture of funds from a HA as a last

resort since recapture adversely impacts on the residents who have to

continue to live in housing which needs rehabilitation. HUD staff is

directed to exhaust all other means of technical assistance, including

requiring alternative oversight by a third party, to help HAs obligate

and expend funds. However, where such assistance does not work, HUD

will recapture funds.

In response to the concern regarding possible reduction in CGP

funding, HUD has amended its FY 1995 budget request to increase by $100

million funding for modernization up to $2.9 billion.

Obligation of Formula Funding

Comment: Most commenters agreed with the concept of fungibility of

work items to promote expenditure of oldest funds first and recommended

various ways that HUD could further speed up the process. First, to

speed the flow of funds in the modernization pipeline, HUD should

substantially speed up HUD's own release of the modernization funds

each year. The commenters believed that most HAs do not get a funding

reservation until late summer each year. HUD should be able to make

each year's new funding under CGP available to the HAs by no later than

March 1. Commenters disagreed that the two-year obligation period

should begin with the ACC amendment. HAs stated that it can take up to

15 months to receive the ACC amendment. HUD was asked to improve its

performance in this area or continue to allow a five-year period.

Allowing a five-year period would give HAs maximum flexibility in

scheduling modernization work. It was suggested that HUD's role should

be limited to monitoring PHA progress through the P&E Report.

Response: HUD disagrees that it will take up to 15 months for HAs

to have an executed ACC amendment and receive funds. HUD has

streamlined the ACC amendment process. As noted in Notice PIH 94-13

(entitled Expediting Obligation/Expenditure of Modernization Funds in

the Pipeline, issued April 6, 1994), the ACC amendment is prepared by

Field Office program staff, reviewed by the HUD Field Counsel and

forwarded to the HA for signature. Unless required by State or local

law or the HA by-laws, the Executive Director is permitted to sign and

return the ACC amendment without a Board Resolution. HAs are encouraged

to consider amending their by-laws (where permitted under law) so that

a Board Resolution is not required or, if a Board Meeting is not

imminent, the HA may consider conducting a telephone Board Meeting to

authorize the signing of the ACC amendment. After ACC amendment, the

Field Office should spread the budget line items in the Line of Credit

Control System/Voice Response System (LOCCS/VRS) as quickly as

possible. As to the need to speed up the provision of funds to HAs, HUD

has made significant progress in this regard, and in fact, advised HAs

of their funding amount in February of this year. It is anticipated

that additional progress will be made and access to funds will occur

even earlier in the FFY since HUD will provide only one formula amount

and the Formula Characteristics Report for the next FFY will be sent

out for review and validation prior to the end of the current FFY.

HUD must again emphasize that there is no mandatory two-year

obligation period, three-year expenditure period, or 5-year statutory

limit for spending funds approved in a particular FFY. Generally, HUD

expects that funds allocated in a FFY will be obligated within two

years and expended within three years of approval unless a longer

implementation schedule is approved by HUD. The HA has responsibility

for establishing its implementation schedule, as part of its Annual

Statement. In instances where it is unreasonable for a HA to meet the

two year-three year expectation for obligation and expenditure of

funds, e.g., size of grant, complexity of the work, the HA may propose

a schedule of longer duration. Also, as previously noted, the HA may

self-execute a time extension of the approved implementation schedule

for reasons outside of its control.

HUD plans to speed up release of modernization funds to the extent

possible. However, HUD disagrees that this affects the modernization

pipeline and suggests that addressing the pipeline is a reprogramming

issue. For additional guidance on the issue of reprogramming, see

Notice PIH 94-13.

Comment: Another area commented on as causing delay in the

obligation of formula funding is the LOCCS/VRS automated draw-down

mechanism. Problems include systemic problems such as having to draw

equal monthly amounts as well as persistent problems with errors by

Field Office staff in placing edits on accounts and not removing them

in a timely fashion. Reports were received indicating that some Field

Office staff do not agree with the expedited policies and deliberately

delay the process.

Response: This system is new and monitoring its use is essential.

To the extent that adjustments are needed in its administration, they

will be made. Other LOCCS/VRS issues are discussed below under the

heading ``Miscellaneous Issues.''

Comment: It was recommended that the obligation requirements should

be made consistent with the annual submission section which allows a HA

to self-execute an extension when delays are out of its control. HUD

was cautioned that while on the surface accelerating the program's

implementation schedule for obligating and expending funds would

suggest a quicker utilization of these dollars, such an acceleration

without a transition period or a recognition of the needs of larger HAs

would likely result in either schedules not being met or those dollars

being poorly utilized. They noted that HAs are still shifting their

modernization operations from one based on the CIAP to one based on

CGP. HUD was urged to review and alter other regulatory standards or

work practices as the mechanism for accelerating the usage of Federal

modernization dollars.

Response: HUD again notes that the obligation time-frame is a

general rule. If a HA can demonstrate that a longer obligation

timeframe is warranted, HUD may initially approve a time period longer

than two years, and subsequently, a HA may extend the approved

implementation schedule if there are reasons outside of its control, as

long as the extension is made in a timely manner.

Comment: One HA noted that HUD's proposal was reasonable except for

FFY 92 and FFY 93. In those years their plans included making 504

accessibility improvements, assessment and removal of lead-based paint,

and capital improvements required as the result of deferred maintenance

and inadequate previous years funding under their operating budget and

CIAP. It was recommended that the changes under proposed rule for

obligating funds not be retroactive to FFYs 92-94.

Response: This obligation guideline will now appear in the

regulation and continues to be a guideline. Approved implementation

schedules for FFYs 92 and 93 are not disturbed and remain in effect

until amended. In general, HUD expects that funds allocated in a FFY

will be obligated within two years and expended within three years of

approval.

Comment: Another HA asked that changes to the time frames reflect

the particular needs of HAs with over 10,000 units. For these large

authorities, it was suggested that the time frames should remain as

they currently are.

Response: HUD disagrees that a longer period is needed for larger

HAs. HUD recognizes the concerns of the New York City Housing Authority

(NYCHA) and other HAs with over 10,000 units. HUD wants to point out

that section 14 of the Act does not differentiate between the types of

submissions to be made by HAs participating in the CGP due to their

size. Nevertheless, HUD believes that the NYCHA and other large HAs

will be benefitted, along with all other HAs participating in the CGP,

as a result of the simplified requirements contained in this final

rule.

Comment: HAs also suggested that the way to improve expenditures is

not to shorten the time but to make changes in HUD regulations

including procurement, HUD oversight, pre-qualification of vendors, use

of state and local government purchasing contracts, use of previous

participation forms which would be valid for 2-3 years, training of HUD

staff, expediting of Davis-Bacon issuances, and an increase in the

administrative costs cap.

Response: HUD will address these issues under the heading

``Miscellaneous Issues'' below.

PHMAP Scores Relating to Obligation and Expenditure of Modernization

Funds

Comment: CLPHA mentioned in its comments that HAs on the average

nationwide now spend 80% of their modernization funds within 3.25 years

from the time they receive their ACC amendment. In a large proportion

of cases, the remaining 20% of the funds are held up for a variety of

reasons beyond the control of the HA (e.g., unsatisfactory performance

by contractors, litigation, unforeseen problems with lead-based paint,

asbestos, other hazardous materials or site problems). CLPHA

recommended that PHA's PHMAP scores be based on the time it take them

to obligate or expend 80% of their modernization money, since this is

much more within the control of the PHA. Another commenter objected to

the all or nothing bases of PHMAP. Although no suggestions were made,

the PHA suggested as an overall recommendation that a PHA's performance

be based on whether they have accomplished the scope of work stated in

their work plan as opposed to whether they have residuals resulting

from this plan.

Response: HUD has referred these comments to the PHMAP working

group for consideration in the development of a revised PHMAP rule. If

a HA can demonstrate that a longer implementation schedule is

necessary, e.g., size of grant, complexity of work, HUD may approve a

schedule that exceeds the National guideline. PHMAP is based on whether

they are performing under the HUD-approved or extended schedule.

Alternative Management Strategy

Comment: While commmenters appreciated the mechanism of a prior

corrective action order with appeal rights that the proposed rule

offers, the parameters were found to be too vague. The following

improvements were suggested: (a) Prior to imposition of this penalty,

the agency must have been declared mod-troubled for at least one year;

(b) The mod-troubled authority must be failing to meet the objectives

set forth in its Memorandum of Agreement; and (c) At least six months

prior to imposing the penalty, a team consisting of HUD personnel and

better performing CGP agencies should be sent to the affected authority

to try to assist the agency in getting its program in order. Some

commenters agreed that a HUD alternative management strategy may be

imposed as long as the HA is given a voice in the strategy.

Response: The comments present a rather rigid structure. HUD

prefers to work with the HAs on a case-by-case basis and tailor its

technical assistance to HAs based on their specific needs before

requiring an alternative strategy. HUD would only require alternative

management by a third party after a corrective action order had been

issued and the HA failed to comply with the order. Examples of

technical assistance that may be provided include but are not limited

to:

1. Helping the HA with budget revisions that will use the oldest

funds first by substituting work items which are ready to go to

contract award;

2. Working with the HA to acquire in-house capability for managing

the modernization program, including hiring additional staff or staff

training, or requiring alternative oversight of the modernization

program through contracting with another entity for oversight;

3. Facilitating the sharing of information and cross-training among

HAs, such as arranging for a HA with problems obligating funds to

receive assistance from a HA that is a high performer in this area; and

4. Training the HA on the use of an indefinite quantity A/E

contract or the issuance of a solicitation to procure a pool of

qualified A/E firms, rather than just one firm, to provide services, as

a means to contract quickly for critical services in a timely manner.

Secs. 905.672 and 968.320 Comprehensive Plan (Including Five-Year

Action Plan)

Notice of Submission Date

Comment: It was proposed that HUD shall notify HAs of the requested

date for submitting or updating a Comprehensive Plan. For planning

purposes, HAs may use the amount they received under CGP in the prior

year in developing their Comprehensive Plan or they may wait for the

annual HUD notification of formula amount. One commenter conditionally

supported this proposal, and explained that without the formula amount,

forms cannot be completely or accurately filled out. If there is a

major change in the formula amount, the planning and meetings with

residents, staff, architects, governmental agencies would have to be

repeated. While the proposal may help, it was noted that it has the

potential to also do a lot of harm by creating more work and putting a

HA into a very awkward and damaging position with staff, residents and

local agencies. IHA commenters were in favor of these changes. One

commenter objected to the removal of the 30-day notice for resident

groups upon HUD's indication of the estimated funding level.

Response: A HA has the option to prepare its Comprehensive Plan/

Annual Statement based on funding received in the prior year and make

adjustments before submission to HUD if the same amount of funding is

not provided in the current year or the HA can wait for the actual

formula amounts before preparing its submission. HUD has retained the

proposed provision, and notes that with one formula amount, any

difference between a presumptive estimate and a final formula amount is

eliminated. The accelerated approach which is optional, may use a

dollar amount for planning purposes, i.e., last FFY's final formula

amount, that is different from the actual formula amount for the

current FFY. If there are problems associated with that approach, the

HA may continue to use the old approach (i.e., the HA could wait for

the actual formula amount, before planning for the current year). In

any event, a HA's Annual Submission must be received in the Field

Office no later than July 15 each year in order to allow for the 75-day

review period before the end of the FFY. Since HUD will no longer

provide an estimated formula amount, HUD has eliminated the requirement

for the initial notice. The level of detail and the format for the

public notice has been left to local discretion.

Public Notice

Comment: HUD proposed to expand the public notice requirements. HAs

were to provide public notice of the advance meeting and the public

hearing in a manner determined by the HA and which ensures notice to

all duly elected resident councils. The information to be provided in

the public notice was also to be expanded to include a summary of

activities of the previous year and progress update, estimated funding

level, summary of CGP requirements, the estimated time frames for

completion of the required CGP documents and the requirement for

resident participation in the planning, development and monitoring of

modernization activities under the CGP. In order to reach a much

broader public, HAs stated that they would have to use means beyond

mailings to current residents. Commenters objected to the use of media

such as newspapers, radio and TV because it would greatly increase the

cost to the HA, and HUD should allow an increase in the allowable

administrative costs to cover the additional expense. For the public at

large, it was suggested that the HAs state that the required

information is available for inspection at various locations.

Presenting a draft P&E Report for all active funding years would

increase the HA's administrative burden. A simplified summary of active

modernization projects and management improvements in a format to be

determined by the HA was suggested as sufficient for this stage of the

process.

Other commenters found an improvement in the timing and manner of

the notice, but also questioned the level of detail. The listed details

were thought to be more appropriate for the resident meetings and

public hearings and the notice should properly indicate that these

details will be presented during these forums. Large HAs found there is

no way to simply summarize this information because any summary's level

of detail would be so broad that the report would be meaningless. It

was also said to be impossible to summarize large HA's activities and

progress on hundreds of contracts representing hundreds of millions of

dollars in contract work on any HA-wide notice. HAs requested the

discretion to provide such detail where feasible and appropriate.

Recommended information in resident letters would include basic

information (i.e., level of funding and the time and place of the

advance meeting) with the understanding that additional information is

available upon request at the HA's management office.

Response: HUD has revised the public notice provision. HAs have the

discretion to decide the level of detail and format of the public

notice. HUD is not specifying the information to be included in the

public notice. Public notice related costs are eligible administrative

costs.

Advance Meetings

Comment: HUD proposed that the HA shall hold, within a reasonable

amount of time before the public hearing, an advance meeting for

residents and duly elected resident councils at which the HA shall

explain the components of the Comprehensive Plan. The meeting shall be

open to all residents and duly elected resident councils. In addition,

HUD requested comments as to resident consultation regarding changes to

the Five-Year Action Plan.

Most commenters agreed that the timing of meetings with residents

should be the decision of the HA. HUD was requested to clarify to HAs,

residents and HUD Field Offices that the residents' role is to advise

and not approve. It was stated that resident interest and concern are

concentrated on the development in which they reside. Given the backlog

of critical work that must be done, such as replacing leaking roofs and

complying with HUD mandates, there is often considerable frustration

about the inclusionary planning process when realistically there is not

a lot of choice about what will be done. Another HA noticed that

resident involvement has diminished since it began conducting advance

meetings. One commenter objected to the removal of the three-week

notification for a public hearing, following the advance meeting

because they considered the current rule to be a reasonable minimum.

Regarding resident consultation on changes to the Five-Year Action

Plan, NAHRO suggested there is no need for a dollar threshold

nationwide. Each HA has its own method in place for consultation with

residents. HAs are currently notifying residents and their

representatives and public officials about the CGP. They questioned

what benefit further notification requirements would provide. One HA

proposed written notification to resident council presidents with a

meeting per local needs. They proposed to limit the definition of

significant change to instances where a work item is deleted or

postponed from the Five-Year Plan. Modifications resulting from a

reprogramming of unobligated funds from a work item or in response to

emergency needs should not be deemed as significant changes for

resident consultation purposes. IHAs that commented suggested that this

consultation should be at the discretion of each HA. For a threshold,

they recommended that resident consultation would be in order when

significant changes reach the cumulative total of 15% of the total

grant amount.

One commenter did not support putting the burden on the HA to

create resident involvement. It was recommended that HUD should mandate

that a minimum of one notice be given to residents of the HA's intent

to apply for funds combined with a notice of one public hearing to

solicit input.

One commenter suggested that the proposed rule separates the

planning process from the funding process, making resident

participation in the former of little consequence to the latter. Tenant

consultation would have no meaningful purpose. It was also suggested

that this is inconsistent with the statute because HUD was fulfilling

the resident consultation requirements simply by engaging tenants in

abstract discussions of modernization concerns, unrelated to any

particular year's funding decisions.

Response: The final rule incorporates the proposed rule provisions.

HUD strongly recommends open and full communication between the

residents and the HA throughout the planning and funding process and

believes that it is essential to achieve and sustain viable public and

Indian housing. As requested by the comments, the timing of meetings

with the residents should be at the discretion of the HA. HUD has

decided not to impose thresholds on resident consultation for changes

within the Five-Year Action Plan. Although resident council involvement

is not required whenever work items are shifted within the Five-Year

Action Plan, HUD believes that consultation is generally in the best

interest of good relations between the HA and the residents. The degree

of consultation should be consistent with the degree of change and that

determination is at the discretion of the HA. HAs are encouraged to

inform residents of significant changes. Except for emergencies, items

which are not in the Five-Year Action Plan require resident

consultation and HUD approval before being undertaken.

Public Hearing

Comment: HUD proposed that HAs hold annually at least one public

hearing and any appropriate number of additional hearings to ensure

ample opportunity for residents, local government officials and other

interested parties to express their priorities and concerns. HAs were

to give full consideration to the comments and concerns of residents,

local government officials, and other interested parties. NYCHA

indicated that each year there are too many changes in their plans to

detail at the public hearing. NYCHA urged PHAs to provide detailed

resident notification, and the best vehicle for large PHAs to provide

this notification is through Modernization and Maintenance Committee

meetings at the development level.

Additionally, it was commented that presenting a draft P&E Report

for all active funding years would increase instead of decrease the HA

administrative burden. The final report would need to prepared again in

just a few months. Adding the P&E Reports to the agenda would compound

the confusion in absorbing all this information during meetings. A

simple summary of active modernization projects and management

improvements would suffice for this stage of the process.

Response: In the final rule, HUD has left the level of detail up to

the HA. However, the HA is required to present information on the

Comprehensive Plan/Annual Submission and progress of previously funded

modernization programs. Development level meetings are acceptable, but

not required. By statute, HAs must hold at least one public hearing.

The number of additional meetings necessary is left to HA discretion.

Summaries

Comment: As part of its Comprehensive Plan, a HA is required to

prepare various summaries. Some commenters questioned the level of

detail required. Rather than require less detail that would require

more explanation after the fact, one HA suggested that the required

level of detail should be such that HUD will be able to make its

eligibility and environmental needs determination at the time of

submission. PHADA suggested that the provision of work categories,

quantity, and overall costs, as opposed to work items and individual

costs, is a workable compromise. It was requested that the rule more

clearly define the level of detail at this point.

Another issue related to the level of detail was that because HUD

proposes that the level of detail in the Annual Statement and Five-Year

Action Plan be consistent, this would result in increased detail in the

balance of the Five-Year Plan. It was found to be beneficial to use a

consistent level of detail for all work, however a HA noted that the

level of detail should be in sufficient detail to relay the scope of

work and cost for all reports, i.e., the new Five-Year Plan and the P&E

Report. A further breakdown of work items in the P&E Report would be an

extraordinary administrative burden for HAs and contractors and would

be of questionable value and accuracy. Detailed cost documentation

exists in HA's files to support any work items that HUD would like to

examine more closely.

Response. HUD has adopted the recommendation that the level of

detail be consistent in the Annual Statement, the Five-Year Action Plan

and the P&E Report. The level of detail for physical work includes a

description of major work categories, quantity and cost. The level of

detail for administrative and management improvement costs must be

sufficient enough for HUD to make a determination of eligibility. For

example, the HA must describe training activities and how they relate

to identified physical or management improvement needs.

Comment: The combination of annual statements and five-year plans

at Sec. 968.330 presented a statutory issue according to ACORN. ACORN

argued that this contradicts section 14(e)(3)(A) of the Act, which sets

forth the requirement of PHAs to produce an Annual Statement. Further,

it was stated that this requirement is clearly distinct from the

comprehensive needs assessment and action plan described in subsections

(e)(l)(A) and (e)(l)(D). ACORN stated that the combination of the

Annual Statement with the larger document will make interpretation of

the single year's policymaking very difficult. Site-specific data for

residents will become confusing. Since the Five-Year Action Plan and

Annual Statement serve two distinct purposes, and since their merger

will entail significant disadvantages in citizen participation, they

argued that the two should remain separate.

Response: It is not accurate to suggest that HUD has combined the

Annual Statement and Five-Year Action Plan in a way that violates the

Act. The information related to the Annual Statement and Five-Year

Action Plan remain distinguishable. The work expected to be

accomplished in each of the five years will be identified on a Work

Statement for that year by major work categories. Requiring HAs to only

describe a major work category with quantity and cost without

specifying work items within a major work category is in keeping with

the statutory intent of granting more flexibility to HAs and eases the

transition to full five-year fungibility. The HA must continue to

provide residents with the opportunity to review the Annual Statement

and comment on it, and such comments must be taken into account in

finalizing the Annual Statement prior to submission to HUD. Definitions

of Annual Statement, Work Statements and Annual Submission have been

added to the rule.

Level of Detail in Five-Year Action Plan vs. Performance and Evaluation

Report (P&E Report)

Comment: Numerous comments were received concerning the level of

detail in the Annual Statement versus the level of detail in the P&E

Report. Currently, the level of detail is the same in both documents;

however, in the proposed rule, this provision was modified to require

less detail in the Annual Statement and more detail in the P&E Report.

One HA agreed with HUD's proposal to eliminate the current Annual

Statement and Five-Year Action Plan and incorporate their information

into a modified Five-Year Action Plan. They agreed that requiring HAs

to describe a major work category with only quantity and cost without

specifying work items is in keeping with the statutory intent of

granting more flexibility to HAs and as such eases the transition to

full five-year fungibility. However, they requested that HUD clarify

the issue regarding ineligible costs in the Five-Year Action Plan. To

further minimize major disagreements at the end of the process, CLPHA

recommended that HUD should clearly spell out in advance any items

which HUD will consider strictly ineligible. CLPHA urged that the list

of ineligible items be shortened and that additional items be made

specifically eligible under CGP.

NAHR0 supported a five-year ``fungible'' approach to the CGP.

However, NAHRO commented on the level of detail to be required in the

new Five-Year Action Plan. NAHRO was concerned by HUD's statement on

ineligible costs. It was found to give HAs the impression that when

their P&E Reports are filed with the Field Offices, work items can be

disallowed even if they are eligible expenses. In order for the Five-

Year Action Plan to be ``fungible'' the actual details of how the funds

were spent should be included at the end of the year, not at the

beginning, in the Annual Submission. Both Field Offices and HAs should

be familiar with eligibility of work items and guidance to both groups

about eligible costs should be clear. However, NAHRO did not want Field

Offices to believe that they can disallow eligible items. According to

NAHRO, fungibility should allow the HA to decide what items they will

do and where.

Four IHAs indicated satisfaction with the guidance on eligible and

ineligible costs, but noted that if HUD expands and or clarify these

lists, they suggest that IHA's should be included in developing such

lists in light of their unique modernization needs and differences from

PHAs.

Two commenters questioned HUD's proposal that if the HA performs a

work item that HUD will not be able to determine if it was an eligible

work item, then HA's would have to repay ineligible costs discovered

during review of the P&E Report. It was suggested that this procedure

could permit HUD to fail to properly review and then seek denial of

funds or reimbursement later. A better approach is for HUD to have

sufficient detail in the Annual Statement in order to make an

eligibility determination up-front. This eliminates any question of how

the HA should proceed. HUD still has the authority to deny funds or

seek reimbursement from the HA that has clearly performed ineligible

work. The HA did not support the Five-Year Action Plan minimal level of

detail and the resulting discretion by HUD to seek reimbursement for

ineligible costs. Another suggested approach was to reduce the agency's

future CGP amount to recoup the ineligible expenditure.

CLPHA disagreed with the level of detail being proposed for the

Five-Year Action Plan and for the P&E Report. They suggested that in

the Five-Year Action Plan, references to quantities be eliminated and

that the ``major work category'' along with a general description be

considered acceptable. They acknowledged that PHAs must plan in detail,

and HUD could require them to maintain documentation in their files to

support the work activities proposed. CLPHA indicated that it would be

desirable to keep the detail in the P&E statements no greater than in

the Five-Year Action Plan. A further breakdown of work items in the P&E

Report would be a heavy administrative burden for PHAs and contractors,

and would be of questionable value and accuracy. For purposes of

audits, HUD could reasonably require a PHA to keep detailed cost

documentation in its files, to support any work items that HUD would

like to examine more closely.

They considered the Two-Year Application a better option for

reducing paperwork and the burden of review. The HA supported the

current level of detail required by the Annual Statement and Five-Year

Action Plan versus the proposed Five-Year Action Plan with one level of

detail.

Several comments regarding the P&E Report were mentioned and

responded to above. The level of detail was the greatest concern. One

commenter noted that the proposed amendments will require them to

develop the annual P&E Report in greater detail to cover a lack of

detail in the Five-Year Action Plan. Generally, they had been moving

from more detail in the Physical Needs Assessment to lesser detail in

their Annual P&E Report. They wished to continue this practice. They

also hoped that HUD would continue to allow HA's to develop facsimiles

of required HUD forms for the CGP that work better with their housing

stock while allowing them to work on the forms in spreadsheet format.

To satisfy the proposed rule, one commenter thought it would have

to keep two sets of records (one to prepare the limited detail of the

Five-Year Action Plan and another to write the P&E Report). This change

was found to not result in any real saving of time or effort for HUD.

It may reduce by, at most, two months the up-front processing time

reviewing HA submissions; however, HUD would still have to review each

HA's P&E Report in detail for line-item eligibility. It was proposed

that if it is beneficial for a HA to keep the current level of detail

in its submitted plans and P&E Report, it should be able to do so. They

suggested the following amendment: ``The Work Statement for all five

years will be, at least, at the current level of detail so that the HA

may interchange work items as discussed in Sec. 968.320(d)(5)(i).''

Adding any additional post-program review and evaluation was not found

to be in the spirit of providing HAs with regulatory relief. The time

saved up-front is not worth the additional time spent responding to

audits later on.

Commenters recommended combining the two processes (P&E Report and

Annual Submission of Activities and Expenditures) into one. One HA also

requested that HAs not be burdened with generating resident interest in

the preparation of this report.

Response: In order to permit full fungibility of work items in the

Five-Year Action Plan, the level of detail with regard to work items

must be consistent in all five years. HUD proposed limiting the level

of detail up-front to reduce administrative burden to HAs. It was

further proposed that HAs provide additional detail in the P&E Report

for purposes of determining eligibility. However, after reviewing the

comments, HUD agrees that the level of detail should be consistent in

the Annual Statement, the Five-Year Action Plan and the P&E Report.

Also, in keeping with HUD's commitment to simplify the CGP and provide

maximum flexibility wherever possible, HUD has streamlined the level of

detail that must be provided. The rule now requires HAs to specify

major work categories, quantities and costs. For example, 100 kitchens

at Development X for a total of $100,000. The level of detail for

administrative and management improvement costs must be sufficient

enough for HUD to make a determination of eligibility. HUD already may

request additional information (e.g., for eligibility determinations)

to facilitate review and approval of the Annual Submission during the

75-day review period. HUD notes that HAs have the responsibility for

ensuring that only eligible modernization work items are charged to the

CGP. As previously noted, work items, including the purchase of

equipment, must be directly related to carrying out physical and

management improvements identified in the Needs Assessments. Such work

must be modest in design and cost, but still blend in with the design

and architecture of the surrounding community. HAs are advised to keep

supporting documentation relative to work items within the major work

category for monitoring and auditing purposes and such information must

be made available to HUD upon request.

HUD wishes to maintain a partnership with HAs throughout the CGP

process and minimize concerns regarding the eligibility of work items.

Eligible work items include those which are modest in design and cost,

but still blend in with the design and architecture of the surrounding

communities by including amenities, quality materials and design and

landscaping features that are customary for the locality and culture.

However, if a HA has a question on the possible eligibility of a work

item, it should consult with the Field Office. Should a HA expend funds

for ineligible work items, HUD will require repayment.

HAs may develop facsimiles of required HUD forms as long as they

contain all of the required information in a format that reasonably

approximates the actual format.

Demonstration of Long-Term Physical and Social Viability Cost

Reasonableness and TDC

Comment: Generally, IHAs supported retaining TDC while HAs

preferred other methods. One PHA supported the current method of TDC

and the 90% requirement. However, the PHA suggested that, HAs have the

option to use CGP funds to supplement other funds to demo and replace

units where that option is most advantageous to HUD and the HA. Thus,

if the HA intends to modernize a project at 80% of TDC, it should have

the option to add 20% of other funding to demolish and rebuild the

complex. This option could require review and approval by HUD, and the

Public Hearing and Resident Group review.

Commenters noted that often, the HA spends an inordinate amount of

time after the architect develops the plans and specifications trying

to determine how or what should be cut from the minimum to construct

the development. We should be striving for quality not a specific

quantity.

Commenters were pleased with the proposed new way of evaluating

cost reasonableness, namely by evaluating the costs of individual types

of work items and comparing them with published private construction

cost standards. CLPHA recommended that a PHA be allowed to demonstrate

cost reasonableness under any of the three following methods: (a) The

current approach using 90% of TDCs; (b) the cost reasonableness

approach related to the cost of individual work proposed by HUD in the

proposed rule, but also allowing PHAs to submit additional data

concerning local market conditions as they relate to published cost

indicators; or (c) sealed pre-bid estimates to be compared to the

competitive bids received for such work. Once approved, the definition

used by the PHA would remain constant.

Another commenter suggested that HUD should allow HAs to develop

their own methods of determining the cost reasonableness of planned

work. These cost evaluations should not be submitted to HUD on an

annual basis and should not have to be retained by HAs for HUD review.

The time and cost of generating this kind of data in a form suitable

for HUD audit could be significant. Pre-bid estimates and competitive

bids received for work should be adequate to document the

reasonableness of cost for work items. HUD was urged to use a

sufficiently expansive definition of reasonable cost to permit HAs to

utilize very durable materials and construction techniques and revised

modernization standards critical to ensuring a development's long-term

viability. HUD was also urged to implement a similar standard for its

development program. In particular, development cost must: (a) Be more

reflective of local and changing conditions; (b) expand beyond the

modest design standards; and (c) provide adequate square footage for

today's family needs.

NAHRO recommended that the reasonable cost determinations still be

compared to the cost of new development. They also suggested a

viability assessment must allow both approaches, a cumulative approach,

such as a comparison of the total cost of modernization as compared to

the total cost of new development or as the Department suggests, a cost

reasonable test of the work items proposed.

PHADA applauded the removal of the artificial TDC caps, but

remained concerned about the level of detail PHAs will have to keep in

their files and the form of the annual HUD review. Management choices

are an essential part of this process and they were worried about some

HUD personnel second-guessing authority decisions, thus leading to

huge, unnecessary, battles. HUD was requested to clearly address the

level of detail for filing in the handbook revisions. There was also an

expressed need to prevent redundant files where work is publicly bid

and selected architect/engineers provide cost estimates prior to

bidding. No program benefit was found in further administrative

procedures that do not impact construction quality or timeliness of

expenditures.

One PHA was concerned that if HUD does not establish a procedure it

will be left to Field Office definition. The PHA suggested that local

authorities be given the discretion to define reasonableness and have

HUD approve the definition. Once approved, the definition would remain

constant. The issue of cost reasonableness also illustrates the need

for greater flexibility to do a cost analysis of rehabilitation of the

existing units versus demolition and new construction. While a PHA does

not want to see HUD reduce its responsibility to provide a steady

funding source for new construction of public housing units, they

believed that it is important to look at the cost reasonableness. The

PHA was also seeking that the revised regulations permit this

flexibility in scattered sites. It could be limited to specific units

where the cost analysis demonstrated the cost-effectiveness and long-

term viability of new construction.

Response: In the rule, HUD has clarified that long-term viability

includes ensuring structural/system integrity and full occupancy. For

cost reasonableness, HUD has decided that HAs may choose one of two

methods to determine cost reasonableness: (1) unfunded modernization

hard costs do not exceed 90% of computed TDC; or (2) individual work

items are reasonable in accordance with National cost indices, adjusted

by local conditions and the HA's own recent procurement experience.

Five-Year Fungibility

Comment: All but one commenter supported HUD's proposed five-year

fungibility. HAs found that full fungibility will allow HAs more

flexibility to undertake and complete rehabilitation and modernization

work at their housing developments. The elimination of the need for

preparing amendments for HUD approval before work items may be

interchanged from one year to another was predicted to save countless

hours for both HAs and HUD Field Offices. While HAs wholeheartedly

supported fungibility, some indicated a preference for it to be based

on the Needs Assessments, rather than the Five-Year Action Plan. HAs

stated a general principle that once a HA has established a need in

their Needs Assessments, they would not have to request prior approval

from HUD to fund that item. The condition of a development's physical

plant can change dramatically from one year to the next. HAs, not HUD,

were found to be in a better position to decide what work items need to

be funded and when. Any extra level of approval was seen as not keeping

with HUD's goal of increasing HA discretion and responsibility. It was

also asserted that this would enable HAs to better and more rapidly

address changing conditions without an extensive, interim public and

HUD review process. Such reviews were considered more appropriate at

the annual submission and performance and evaluation stages of the CGP.

However, some HAs and CLPHA opposed the proposed requirement for HUD

approval of any item not included in the current five-year plan as

unrealistic, overly restrictive and would negate the benefits intended

by full fungibility. Preparing budget revision proposals and the

turnaround time involved in seeking HUD approval could result in

project delays. With the increased emphasis for timely obligation and

expenditure of funds, they were concerned that this restriction would

make those goals more difficult to achieve. It was recommended that HAs

should be able to add items to their current year modernization

activities without HUD approval if these items are shown in their needs

assessment (even if not included in the HA's Five-Year Action Plan), or

are of similar type to items in their approved plan. HAs should also be

able to add emergency items, or items certified by the HA as otherwise

eligible and approvable, without further approval from HUD, provided

that any items so added will not result in the deletion of any work

item from the Five-Year Action Plan. Only if a HA proposes to delete an

item from its Five-Year Action Plan should it have to notify HUD, or

changes should be allowed for any item identified in an approved needs

assessment up to a predetermined percentage cap.

One HA supported the proposal to allow a HA to perform emergency

work not outlined in its Five-Year Action Plan without prior HUD

approval. As an incentive for high performers, one HA suggest that high

performers should be allowed to not report on changes in excess of 10%

of the grant other than on the yearly P&E Report, along with giving a

reason for the change.

Response: HUD has adopted the proposed version of fungibility. HUD

has not revised its approach to be based on the Needs Assessments

because it would be too broad and would circumvent the resident and

local government consultation requirements. HAs are currently able to

add emergency work items, and will continue to be able to do so without

HUD approval. HAs cannot add other work items to the Five-Year Action

Plan without HUD approval. Full fungibility will be allowed within the

five-year period spanned by the latest HUD-approved Five-Year Action

Plan. It should also be noted that the five-year fungibility eliminates

the need to report on changes in excess of 10% of the annual grant

other than on the yearly P&E Report.

Definition of Fungibility

Comment: One commenter saw a need to define fungibility in the

rule. The following definition of fungibility was proposed:

``Fungibility. The ability to exchange CIAP or Comprehensive Grant

program dollars or work items prospectively or retroactively, between

any years covered by an ACC, Five-Year Action Plan or Needs

Assessment.'' It was also noted that additional references to

``fungibility'' should be altered to conform to this definition.

Response: Fungibility is a concept reflected throughout the rule.

Fungibility permits a HA to substitute any work item from the latest

approved Five-Year Action Plan to any previously approved CIAP budget

or CGP Annual Statement and to move work items among approved budgets

without prior HUD approval. This definition of fungibility appears in

the rule.

Retroactive Fungibility

Comment: NYCHA indicated that applying fungibility only to those

jobs included in the current Five-Year Action Plan is too restrictive.

This HA wanted to be able to apply the fungibility principle to

unobligated work items--past, present, or future (currently in either

an approved implementation schedule or their needs assessment

(including both CIAP and CGP-funded items)). By authorizing

``retroactive fungibility'' in the CGP rule and with guidance in the

Handbook, NYCHA expected a significant increase in PHA flexibility and

responsiveness to modernization needs. NYCHA suggested that retroactive

fungibility will allow a PHA to close out its older programs on

schedule and will also aid in reprogramming underruns.

With respect to the time period for the fungibility of work items,

it was suggested that full fungibility should be allowed within the

five-year period spanned by a Five-Year Action Plan's rolling base. If

fungibility is tied to our initial Five-Year Action Plan (submitted in

FFY 92), they expected to move work items from FFY 96 into their FFY 94

CGP budget, but not items from FFY 97. If fungibility is tied to the

rolling base Five-Year Action Plan, developed each year by dropping off

the initial year and adding a subsequent year for their Annual

Submission, they could move work items from FFY 98 into their FFY 94

CGP budget. Another commenter found it would be much simpler to have a

fixed five-year period with changes and updates made annually to that

plan. In the fifth year a new Five-Year Action Plan for the next five

years would be submitted and approved. This HA found a lot of

difficulty in trying to explain to residents that the first year of the

1993 budget was the same as the second year of the 1992 budget but that

they were different because some items had been revised or changed.

Response: HUD does not agree with the suggestions that fungibility

should apply to all unobligated work items and any work items in the

Needs Assessment. If HUD permitted the use of the Needs Assessments for

purposes of fungibility, the five-year planning and resident

partnership processes could be circumvented. The Five-Year Action Plan

has a rolling base and is updated annually. The approval of the Five-

Year Action Plan submitted for the current FFY supersedes other

previously approved Five-Year Action Plans. For example, the current

Five-Year Action Plan may cover FFYs 1994-1998. However, a HA may

substitute a major work category from the latest approved Five-Year

Action Plan into a 1992 CGP or a 1991 CIAP budget, but it cannot

substitute work that only appears in the Needs Assessments.

It should be clarified that HUD approval is not required for moving

previously approved work among previously approved budgets. In

addition, HUD approval is not required for reprogramming if funds

remain after completion of a work item where the funds will be used for

any item in the latest approved Five-Year Action Plan or an approved

CIAP budget or Annual Statement. The HA may also self-execute a time

extension, if necessary, to use the leftover funds.

Post-Obligation Fungibility of Dollars

Comment: In the proposed rule, fungibility centers on the

interchangeability of work items between funding programs prior to

obligation. However, for one large HA, fungibility of dollars during

the expenditure period would be just as useful. Numerous circumstances

beyond a PHA's control can make it impossible to close a contract, and

with it the funding program, within the five-year statutory limit. When

such circumstances occur, the monies remaining in a funding program

about to expire should be used for payments on contracts in later

funding programs. In a sense, PHAs would be creating post-award,

``split funded'' contracts. Fungibility of dollars is the expenditure

version of using old money first.

Post-obligation fungibility of contract dollars would allow PHAs to

closeout old funding programs within the five-year funding deadline and

would yield a more accurate picture of the PHAs ability to expend

modernization funds. The rule should provide directly for post-

obligation fungibility, and this important subject should not be left

for handbook interpretation, as suggested in the proposed rule's

preamble.

Response: As previously noted, there is no statutory five-year

funding deadline. HUD wishes to emphasize that fungibility relates to

major work categories, not dollars. The dollars approved in a

particular grant, e.g., 701, are tracked against that grant number. A

HA may fund work categories in total or in part from a particular

grant. If the cost of a work category is in excess of the funds

available in 701, the HA may charge up to the total amount of funds

remaining in 701 and add that work category to another grant, e.g.,

702.

The Department issued Notice PIH 94-13 (HA), Expediting Obligation/

Expenditure of Modernization Funds in the Pipeline, on April 6, 1994.

HAs should refer to this Notice which specifically discusses methods

which HAs may wish to use to obligate and expend their oldest

modernization funds before charging work against newer programs.

Comprehensive Grant Process

Comment: One commenter suggested a revised CGP process. It would

require an approval process only every five years. The plan would be

updated annually with changes made to reflect actual funding costs as

tasks are completed, items added and/or deleted from the Plan or moved

to different years. A new fifth year would not be added each year. Only

new items added to the Plan would require HUD approval and interim year

changes would require documented consultation with the tenants at a

public meeting. PHAs could expend funds from any grant year against any

item in the approved Plan. An example of a Plan was also provided.

As previously mentioned only one commenter opposed the proposed

fungibility provisions. They argued that this was an attempt to

circumvent the statutory five-year planning requirements. They asserted

that full fungibility is inconsistent with the Act because it violated

the requirement of a schedule to prioritize work items during the Five-

Year Action Plan. The full fungibility was said to remove the scheduled

order of the planning process. The second perceived inconsistency was

the exemption of HAs from the amendment process outlined in the Act

which describes how changes to the approved plan may be made. They

interpreted the Act to require HAs to wait until their submission of an

annual statement, with appropriate tenant consultation and public

comment, before elements of the comprehensive plan are to be changed.

It was also stated that full fungibility is bad public policy. The

proposed rule gives HAs absolute discretion over modernization funds

upon award. They found this to be an abdication of Federal

responsibility. They asserted that this approach is also problematic

because modernization is a troubled program with an enormous pipeline

and an inability to impact the profound repair needs in public housing.

HUD was charged with the failure of the modernization program due to

its poor oversight and HA's weak management practices and financial

operations.

Response: HUD cannot change the comprehensive grant process to a

once every five years submission process. The Act requires an Annual

Statement. The Five-Year Action Plan is also a statutory requirement.

Fungibility is not inconsistent with the Act. The Act provides that as

long as the activities and expenditures are consistent with the

approved plan, the HA shall have total discretion in expending

assistance for any activity or work set forth in the plan. HAs are to

certify that they have provided residents of the housing affected by

the planned activities the opportunity to review the Annual Statement

and comment on it, and that such comments have been taken into account

in formulating the Annual Statement as submitted to the Secretary.

Needs Assessment

Comment: One HA found the requirement to amend the Needs Assessment

in order to perform work items not on that Needs Assessment to be

redundant and of no value. The Needs Assessment's value was found in

providing the residents and public overview information about the

identified deficiencies of each site.

Response: The Act requires that work items be included in a

Comprehensive Plan or Annual Statement before modernization funds may

be spent on the work items, except in the case of emergencies. The Act

also provides that work items may not appear in the Annual Statement or

Five-Year Action Plan unless the need for the work has been identified

in the Physical or Management Needs Assessments. Therefore, this

comment was not accepted because the Needs Assessments have to be

amended to include new needs.

Six-Year Revision of Comprehensive Plan

Comment: HAs and CLPHA objected to the requirement for submission

of a totally new Comprehensive Plan in the sixth year of a HA's

participation in the CGP, but suggested allowing HAs to keep updating

the Five-Year Action Plan's rolling base so that it would continue

indefinitely. Another comment was that the requirement for a

development-by-development analysis of whether the improvements will

(a) reasonably ensure the long-term viability of the development at a

reasonable cost or (b) is necessary to maintain habitability until

residents can be relocated does not accomplish any purpose. Another

commenter suggested that HUD's inclusion of ``essential non-routine

maintenance necessary to maintain habitability'' is good but requires

further clarification (such as including routine maintenance costs that

are excessively high as a direct result of the units' need for

comprehensive modernization work).

Response: HUD has retained the requirement for the submission of an

updated Comprehensive Plan every sixth year. However, the submission

requirements have been reduced by eliminating two components of the

Executive Summary, which are the strategy statement and the statement

regarding the HA's plans for developments funded for comprehensive

modernization under CIAP. Therefore, the additional documents which

must be submitted in the sixth year are: Summary of total preliminary

estimated costs; description of the resident participation process and

summary of general issues; and revised and updated Physical and

Management Needs Assessments. The Five-Year Action Plan, which is also

part of the Comprehensive Plan, must be submitted in any case. While

HAs may elect to update annually the Physical and Management Needs

Assessments by eliminating work already funded and adding newly

identified work, there is no requirement for HAs to submit these

updates to HUD. HAs are only required to submit updated Needs

Assessments to HUD if they wish to undertake work which was not

previously identified on the Needs Assessments. HUD feels that a

completely updated Comprehensive Plan every sixth year will provide

valuable information to both HUD and the public on how well the CGP is

meeting HA needs, as well as the types and dollar estimates of unmet

needs.

The Act requires the development-by-development analysis of whether

the improvements will reasonably ensure the long-term viability of the

development at a reasonable cost. HUD has added the alternative of

maintaining habitability where reasonable cost cannot be met and an

interim period is needed to provide housing until relocation for the

residents can be arranged. When providing ``essential non-routine

maintenance necessary to maintain habitability'', a HA is required to

do so in the most efficient and economical manner and within the

eligibility guidelines of the CGP. Routine maintenance costs are

ineligible. However, work items that would ordinarily be performed on a

regular basis but have become substantial in scope because they have

been put off, and involve expenditures that would otherwise materially

distort the level trend of maintenance expenses are eligible CGP costs

under the definition of nonroutine maintenance.

Secs. 905.675 and 968.325 Effect of HUD Approval of Comprehensive Plan

Comment: Commenters supported the elimination of approval of

amendments to the annual statement, but were confused by the mechanics

in the process. Similar questions as previously raised above were

expressed on the fungibility of work items between years and the

requirement for HAs to consult to the extent practicable with residents

on significant changes. One HA noted that based on their experience

with HUD, the term practicable imposed an impossibly high standard of

performance. The HA again requested that each HA should have the

discretion to develop appropriate means of resident communications.

Response: HAs have the responsibility to keep residents informed as

they exercise fungibility. When a HA amends the Five-Year Action Plan

by adding work not previously included, the HA is required to consult

with residents and obtain HUD approval.

Secs. 905.678 and 968.330 Annual Submission of Activities and

Expenditures

Comment: Commenters raised the same issues on the annual submission

procedures as they did for the Five-Year Action Plan and Comprehensive

Plan. Most HAs agreed that they would prefer to develop their

preliminary plans based upon the amount of money they had received in

the prior year, and not finalize these plans until HUD announces the

final amounts for the current year. The public notice, advance

meetings, public hearing, and level of detail concerned many

commenters. Commenters also suggested that either some parameters be

defined regarding the time allotment for corrections or that some other

mechanism be defined by which a HA may have recourse to unreasonable

time constraints. Commenters supported the proposal authorizing HAs to

self-execute an extension of target dates contained in the annual

submission for fund obligation and expenditure when a delay outside of

its control occurs. Penalties for missed target dates concerned the

commenters. One HA suggested an option of a two-year application that

eliminates one year of application. NAHRO suggested that the P&E Report

be submitted at the same time as the annual submission of the Five-Year

Action Plan.

Commenters supported the proposal which requires only an annual

report and its intent to involve HA residents. However, HUD was

directed not to place a burden on HAs to create resident interest and

councils. It was proposed that HUD should mandate that HAs make

information available, and the methods and format should be left to

local discretion. Only one hearing each year was recommended and

advanced meetings were not needed because the residents should have

been working on the plan and know what it contains. HUD was asked to

develop a system by which it could certify that authorities with

effective resident participation processes would not have to have an

advance hearing.

CLPHA agreed that HAs should be allowed the option of advance

planning, to complete their annual updates before the final

modernization awards are announced. However, they urged HUD not to

require HAs to do this because local circumstances vary.

Response: These comments have been addressed above. HUD again

emphasizes that the Annual Statement is statutory. HUD reviews the P&E

Report before approving the next year's submission in order to

determine if corrective actions are needed. Therefore, NAHRO's

suggestion for simultaneous submission could hinder early approval of

the Annual Statement and access to funds. HAs must be accountable to

the residents. There must be a partnership process which is documented.

HAs must annually conduct both an advance meeting and a public hearing.

The format has been left to HA discretion. Also, as previously

mentioned, HUD is providing the option for advance planning.

Secs. 905.681 and 968.335 Conduct of Modernization Activities

Comment: One commenter requested that HUD clarify the statement

that ``the HA shall comply with requirements prescribed by HUD.'' They

interpreted this to apply only to the process by which funds are

requisitioned and not to the actual administration of the CGP program

by a HA. Any other interpretation could allow HUD to take away the

flexibility that was granted in other sections of the rule.

Response: HUD wishes to clarify that the purpose of the above-

referenced statement is that there are other requirements regarding

fund requisitions (through LOCCS/VRS) which are prescribed by HUD.

Sections 905.681(b) and 968.335(b) only relate to fund requisitions.

Secs. 905.684 and 968.340 HA Performance and Evaluation Report

Comment and Response: Several comments were raised regarding this

report and have been responded to in other sections. See e.g.,

Contingency accounts, Obligation of Formula Funding, Public Notice,

Summaries, Five-Year Fungibility, Level of Detail in Five-Year Action

Plan vs. P&E Report, Annual Submission of Activities and Expenditures,

and HUD Discretion.

Secs. 905.687 and 968.345 HUD review of HA Performance

Comment: As previously mentioned in other comments, it was

suggested that this section should also clarify timeliness. When

referring to the obligation of funds, it was suggested that it should

make reference to legitimate self-executed time extensions and also

take into consideration any other delays that were outside of the HA's

control.

Response: Timeliness includes meeting HUD-approved implementation

schedules, or HA-executed time extensions which are the result of

delays beyond the control of the HA. HUD annually reviews these

schedules and may review these schedules more frequently as needed.

Comment: One commenter supported the proposal which continues the

reduction of paperwork by requiring only an annual report, but did not

support the creation of a Section 3 Annual Report.

Response: Comments on Section 3 related issues are also found under

the Miscellaneous Issues heading below.

Miscellaneous Issues

Several comments were also received in response to HUD requests for

specific comments in the preamble to the proposed rule. Additional

comments were made on other topics and guidance provided in the

preamble or comments which are not limited or covered by regulatory

sections. These issues include HA discretion, LOCCS/VRS, space

guidelines, environmental reviews, procurement procedures, HUD-2530

Previous Participation, force account, Section 3, paperwork burden,

consistent funding levels, ACC issues, contractor delays and wage rate

issues, Consolidated Supply Program, HUD Assistance, including Handbook

guidance and Field Office assistance, Section 504 issues, and CGP and

MROP.

HUD Discretion

Comment: Commenters emphasized that HAs should be given discretion,

flexibility, responsibility and control of their CGPs. Changes to the

CGP program should contribute to the greater discretion, flexibility,

responsibility and control of the local HAs and their residents. HAs

should maintain control over methods of working with and meeting with

residents, determining and prioritizing needed improvements,

determining the methods to accomplish these improvements, establishing

budgets, generating bid documents, entering into contracts, and

determining the clearest methods of providing HUD with required

information such as comprehensive plans, annual submissions and P&E

Reports.

Response: HUD agrees, and this final rule supports HA discretion.

LOCCS/VRS

The impact of LOCCS/VRS on the CGP program has been discussed

above; however, additional miscellaneous comments were received which

recommended various changes.

Comment: Commenters recommended that HUD eliminate the thresholds

for LOCCS/VRS because they found the threshold amounts are insufficient

and result in Field Office review for approval. They found this is

often time consuming and results in delays in payments and delays in

fund expenditure. HAs favored eliminating the percentage limitations on

monthly draw-downs. In addition, it was recommended that the eight

percent draw-down limit be lifted for high performers. It was noted

that because the modernization process results in low levels of

expenditure during early design phases and high levels of expenditures

when one or more construction contracts are in process, HAs have

frequently exceeded the percentage limitation and delayed requesting

funds or sought HUD approval to request additional funds.

Response: LOCCS/VRS contains an edit limiting the total cumulative

amount that any HA can draw down in a current month without triggering

Field Office review. The limit is set forth as a percentage of the

annual grant and varies by size of the annual grant (from 2 percent to

8 percent). The Department is reevaluating these percentages to

determine if they are overly restrictive and result in an excessive

number of requisitions requiring Field Office review. If the Department

finds this to be the case, the Department will adjust the percentages

accordingly. However, it should be noted that Field Office review

should not result in lengthy delays in payment. When a HA's voucher is

flagged for review, the HA should immediately call the Field Office and

explain the circumstances. Based on the HA's telephone explanation, the

Field Office may decide to release the voucher or request additional

documentation. Extensive documentation is not needed in most cases.

Comment: HAs requested immediate access to funds via LOCCS once an

amendment to the ACC is executed.

Response: Once the ACC amendment is executed by HUD, the Field

Office must enter the Budget Line Items (BLIs) into LOCCS/VRS before

HAs may requisition funds. The Field Office may not enter the BLIs into

LOCCS/VRS before the fund obligation (ACC amendment) is recorded in the

Program Accounting System (PAS).

Comment: One commenter opposed entering expended and obligated

funds into LOCCS on a quarterly basis because it requires extensive

research and data preparation as well as requiring more frequent budget

revisions. A two-day turnaround on the supply of funds through the

LOCCS was requested (currently it is three days). Full fungibility was

also requested to be reflected in LOCCS.

Response: The Department believes that obtaining quarterly

information on obligations and expenditures is essential to monitoring

implementation progress by HAs. This requirement should not be

burdensome since HAs should be maintaining this information as part of

their own financial systems and controls. The Department would like to

point out that the need for budget revisions triggered by obligations

and expenditures will be greatly diminished by the provision of

fungibility.

Comment: CLPHA advised HUD to meet with industry groups quickly,

make a commitment to a specific deadline for changing the LOCCs system

to accommodate five-year fungibility and in the interim, make some

changes manually.

Response: The Department has taken steps to revise the existing BLI

edits in LOCCS/VRS to accommodate fungibility. Specifically, the

existing soft edit of 110% will be removed for the following BLIs:

1430, 1440, 1450, 1460, 1465, 1470, 1475, and 1495. In addition, the

existing edits for BLIs 1408 and 1410 will be revised.

Space Guidelines

Comment: Two commenters suggested changes regarding space

guidelines. One PHA suggested that HUD should delete the maximum space

guidelines for administrative, maintenance and community space.

Instead, PHAs should determine the amount of space, the configuration

of space and type of space appropriate based on the intended usage. The

needs and usages of space were stated to vary widely and did not

warrant an arbitrary imposition of a set square footage criteria.

Providing space for service providers serving HA residents including

community organizations, Head Start, early childhood education, parent

education, English as a second language, medical clinics, food shelf,

teen centers, drug elimination activities, employment and Section 3

training, family self-sufficiency should be a high priority for use of

these HUD funds.

Response: Non-dwelling space standards are to be viewed as

guidance, not mandatory. HAs may exceed the standards. However, the

Department notes that modernization funds may be used only to provide

space which is primarily for the benefit of the public housing

residents.

Comment: Another PHA suggested that HAs should have the ability to

convert all existing non-dwelling space (whether previous dwelling

space or not) into dwelling space. This ability could ease the unit

loss impact of complying with Section 504 as well as address design

deficiency conditions.

Response: The CGP Handbook 7485.3 cites the extension of exterior

walls to enlarge interior dwelling space or provide for physical

accessibility as an ineligible work item. HUD has decided to revise its

policy and to amend the regulations to allow the adding of dwelling

space to existing units, including Mutual Help and Turnkey III units.

However, it is noted that HAs are not required to exercise this option

in order to meet 504 requirements. Modernization funds may not be used

to construct or acquire additional public housing units. The HA may use

its own funds to provide additional dwelling units, but without a

reservation of development funds, such units will not be covered by the

ACC and, therefore, not included in the operating subsidy calculation.

Comment: HAs should be permitted to utilize CGP funds to convert

studio units in elderly developments into one bedroom units as local

conditions warrant.

Response: Conversion of efficiencies or studio units into one-

bedroom units is an eligible modernization cost, with prior Field

Office approval.

Environmental Reviews

Comment: One comment was received which indicated that the proposal

to require HUD conduct environmental reviews of all proposed activities

in the Five-Year Action Plan should be a part of the burden on the HA

to obtain an independent environmental analysis and submit it to HUD

prior to modernization activities occurring. The commenter concluded

that HUD did not have the travel funds nor the staff to do this type of

review and suggested that HAs could hire and train residents out of

management improvement funds to perform these reviews.

Response: The Department is required by law to comply with the

National Environmental Policy Act (NEPA) of 1969 and related

environmental and historic preservation laws before approving funding

for specific developments. The provision for fungibility of work within

the entire Five-Year Action Plan means that the Department must make

this determination on an annual basis for each development within the

Five-Year Action Plan. This responsibility cannot be delegated to HAs.

On April 11, 1994, S. 1299 became law, and added, among other things, a

new Section 26 to the United States Housing Act of 1937, as amended.

This new Section 26 authorizes the Department to designate a State or

unit of general local government to assume the responsibilities for

environmental review. The authorization for State and local governments

to conduct such reviews continues a statutory precedent embodied in the

legislation of other HUD programs. The delegations are limited to

entities with general governmental powers to control development, land

use, development standards and special mitigation requirements. HAs do

not possess these powers and do not qualify for such delegations. In

order to implement this new Section 26, the Department must issue

regulations after consultation with the Council on Environmental

Quality. Until those regulations are issued, the Department must

continue to comply with NEPA and related environmental and historic

preservation laws by undertaking the required reviews itself and cannot

delegate any responsibilities to State or local governments. In

addition, it should be noted that Field Offices are encouraged to

maintain previously completed environmental reviews on file and update

them as necessary when undertaking the required reviews.

Procurement Procedures

Comments: A number of comments were made on HUD's discussion of

procurement procedures in the preamble to the proposed rule. CLPHA

indicated that PHAs have identified possible conflicts between

comprehensive grant procurement procedures and the requirements of

other HUD procurement rules. CLPHA recommended that HUD ask PHAs for

recommendations in this area, then follow up to clarify these areas and

provide PHAs with greater flexibility and consistency. One PHA wanted

to see additional information addressing contract administration in the

revised CGP Handbook. PHAs and CLPHA recommended an extensive review of

procurement requirements to identify proper and appropriate ways to

simplify or ease how HAs contract for work.

Suggested items included establishing procedures for HAs to better

utilize alternative procurement vehicles like state procurement, job

order contracting, and a revived, modified HUD Consolidated Supply

Program and accelerating the approval process of HUD Form 5230, the

Previous Participation Certificate.

A PHA suggested the use of competitive proposals and indicated that

the seven percent administrative cost limit would not be required to be

increased because it would be part of the contract cost. Another

commenter disagreed and indicated that this method was not successful

for development of public housing units and would not be appropriate

for modernization except on a small scale at a limited number of HAs.

HUD's clarification on the use of indefinite quantity contracts for

A/E services and the ability to perform modernization work through

competitive proposals was viewed as a real benefit in expediting

construction.

One PHA disagreed with the limit on modifications or contract

modifications in the Handbook (7460.8, REV.1 dated 1/14/93, paragraph

11-1 (e). They challenged the rational for this requirement since they

may award construction contracts exceeding several million dollars

without prior HUD approval, but must obtain HUD approval on all

contract modifications exceeding $25,000. In addition, HAs are not

required to forward contract documents to the Field Offices which would

appear to make it difficult to approve any contract modification. The

present process was found to slow down construction. It was requested

that HAs be allowed to authorize contract modifications up to 10% of

the original contract amount without prior HUD approval.

CLPHA commented that pre-qualification of vendors should be

encouraged and expedited.

Response: HUD appreciates these comments and will take them under

advisement as revisions and updates to the Procurement Handbook are

considered.

HUD-2530 Previous Participation

Comment: Four commenters fully supported the proposal to automate

the 2530 system to allow direct access to HAs. CLPHA also indicated

that previous participation forms should be valid for two to three

years.

Response: In an effort to streamline procurement procedures and

reduce HA requirements, HUD published an interim rule at 59 F.R. 31521

on June 20, 1994, which eliminates the previous participation approval

requirement (submission of Form HUD-2530) for all HA contracts. This

interim rule became effective on July 20, 1994.

Force Account

Comment: Seven commenters were strongly in favor of eliminating

prior HUD approval for use of force account labor, but four of those

commenters recommended limiting this proposal to high performers.

Response: For PHAs that are designated as both over-all high

performers and mod-high performers under the PHMAP, and IHAs which are

not high risk, HUD has eliminated prior approval for use of force

account labor.

Section 3

Comment: Seven comments were received on HUD's proposal to monitor

each HA's Section 3 efforts. One commenter noted that HUD did not

specify which division or department would do this, and recommended

that training should be provided. One commenter cautioned HUD on the

impact its proposals would have on CGP and recommended HUD gather input

from people who work in this area. To further Section 3 efforts, a PHA

suggested that residents registered with the HA as trainees be exempt

from the HUD-determined wage Rates and Davis-Bacon wage rates. The

resident trainee rates could be approved by HUD the same as HUD

determined wage rates. By analogy to Connecticut law, one PHA noted

that their housing construction programs required 25% of the dollar

value of the contract be sub-contracted to Minority Business

Enterprises and that 25% of that amount be awarded to Women's Business

Enterprises. This was stated to produce verifiable results and has been

very effective. Another PHA supported HUD's effort and suggested HA's

focus more of their resources on the Section 3 process and involve more

residents in the distribution of work and training program. CLPHA

indicated that by FFY 95, HUD expects to have an effective final rule

implementing the amended Section 3 which proposes that PHAs certify as

to compliance with Section 3 and provide anticipated projections based

on best efforts. PHAs can certify as to compliance with Section 3 but

CLPHA stated it was unreasonable to expect projections as to the number

of jobs or type of training available through various contracts. This

was found to only be determined by the successful contractor. The

additional costs of carrying out Section 3 training should also be

taken into account in evaluating bids according to CLPHA.

NAHRO disagreed with any request for numerical targets because

annual targets are influenced by a number of factors beyond the PHA's

or contractor's control, and monitoring and reporting regarding such

targets creates paper games. NAHRO did not find a program-by-program

approach to necessarily be effective in creating real employment for

residents. NAHRO recommended that PHAs establish goals authority-wide

to comply with Section 3, of which CGP is one component. To foster

successful implementation of Section 3, HUD should work with public

housing industry groups as well as contractors and unions.

Response: Section 3 of the Housing and Urban Development Act of

1968 (Section 3) (as amended by the Housing and Community Development

Act of 1992) requires that employment and other economic opportunities

generated by Federal financial assistance for housing and community

development programs shall, to the greatest extent feasible, be

directed toward low- and very low-income persons, particularly, those

who are recipients of government assistance for housing.

The requirements of Section 3 apply to HAs for modernization

activities, notwithstanding the amount of the assistance provided to

the HA or the amount of the contract or subcontract.

For CGP, the Section 3 rule requires HAs to certify compliance with

Section 3 and demonstrate this compliance by committing ``to the

greatest extent feasible'' to meet the numerical goals set in the

Section 3 interim rule (24 CFR 135.30). For CGP, HUD requested through

the letter transmitting the FY 1994 presumptive estimate, that each HA

to the greatest extent feasible, establish and commit to numerical

goals.

Each HA is required to submit, with the annual P&E Report, an

annual Section 3 report on Form HUD-60002. The HA must document actions

taken to comply with the requirements of Section 3, the results of

actions taken and impediments.

As part of the process of development of the Section 3 interim rule

and data collection, the Department held meetings with various housing

authorities, industry groups and organizations which are currently

subject to compliance with Section 3 or share interest in the

regulatory implementation of Section 3.

Paperwork Burden

Comment: One commenter recommended that CGP funds be allocated

through the HA's operating budget in order to eliminate most CGP

paperwork.

Response: HUD does not have the statutory authority to allocate CGP

funds through the Performance Funding System.

Consistent Funding Levels

Comment: Three commenters concluded that a constant or increasing

level of funding for CGP is required if HAs are to complete required

improvements on public housing properties to ensure their long-term

viability. Decreases in funding levels results in only emergency work

being completed and destroys HA's ability to do long range planning and

follow thorough on commitments made to the residents. Significant

decreases from year to year (anything exceeding 10%) was stated to

result in delays in implementing completed design work (risking the

need to revise work based on changing existing conditions) and

decreased resident participation and interest.

Response: HUD understands the competing demands for limited

resources and the significant points made by the commenters. HUD is

bound by the modernization appropriations and formula.

ACC and CGP

Comment: CLPHA stated that all statements about flexibility in the

CGP rule should over-ride less flexible statements in the ACC, and that

the ACC should be revised to be consistent with the CGP rule.

Response: HUD has started revising the ACC with the goal of

simplifying the contract and placing most of the existing requirements

in program regulations.

Contractor Delays, Wage Rates and CSP

Comment: One HA indicated that greater consideration should be

given to valid delays, including contractor or consultant performance

problems which impact obligation and expenditure of CGP funds,

including those which may remain after planned work items have been

completed.

Response: HUD does consider contractor delays to be an acceptable

reason outside of the HA's control for the HA to execute a time

extension in its implementation schedule.

Comment: Wage rate determinations have become increasingly

problematic in their timing and completeness. They are received after

contracts are executed and sometimes many months of construction has

already been completed. Often there is no wage rate determination given

for requested classifications.

Response: The Department is unaware of any widespread or systemic

problems involving the provision of Davis-Bacon wage determinations for

modernization projects. HUD is installing a Davis-Bacon wage

determination database to expedite the provision of determinations.

Comment: Expedite wage-rate issuances. HUD should expedite Davis-

Bacon issuances and eliminate variances between HUD and DOL

requirements. The date of the wage decision should be the date of the

start of the contract. HAs shouldn't have to delay opening of the bids

because of a ``pending wage decision.''

Response: HUD works closely with DOL to assure that wage

determinations are made available for projects in a timely manner. This

means that the wage determinations must be made available for

incorporation into bid solicitations. There are projects which are

subject to HUD-determined wage rates (``non-routine'' maintenance)

rather than DOL-determined wage rates which are issued under the Davis-

Bacon and Related Acts. Resultant variations in wages which may be

issued are due to the fact that the work is defined differently and the

rates are determined under separate legal authorities. The applicable

Davis-Bacon wage determination for a particular project is ``locked

in'' at the award of the contract.

Comment: An HA suggests that HUD encourage local expenditures.

Although Consolidated Supply type programs provide competitive rates,

they do nothing for the local economy. The HA suggested that HUD

emphasize the ``buy locally'' proposition in order to best stimulate

the HA's local economy.

Response: HAs are required to follow the Department's regulation at

24 CFR 85.36 for the procurement of goods and services. This regulation

was developed pursuant to Office of Management and Budget (OMB)

Circular A-102, Uniform Administrative Requirements for Grants to State

and Local Governments, to provide consistent government-wide

procurement standards in Federal grant programs.

One of the fundamental principles of the regulation is that all

procurements are to be conducted in a manner to promote full and open

competition. The principle is intended to ensure equal treatment among

contractors, while providing the most advantageous prices in the market

place, particularly when the Federal government is providing the funds.

Consistent with the concept of providing equal treatment among

contractors is a specific requirement in the regulation prohibiting the

use of statutorily or administratively imposed in-state or local

geographical preferences in the award of contracts. Further,

restricting competition to local contractors will not yield HAs the

best prices in the market place. This is particularly important with

limited Federal resources. Accordingly, the Department does not accept

the comment that HUD should emphasize the ``buy locally'' proposition

in order to stimulate the HA's local economy.

HUD Assistance: Handbook and Field Offices

Comment: Nine comments provided advice on better ways to give

assistance to program participants. One suggestion was to reinforce the

concept of enhanced flexibility with rational handbook guidelines and

grant Field Offices sufficient authority to adapt the regulation to

local conditions. Field Office and PHA partnerships were praised such

as the relationship between the St. Paul HA and the Minneapolis Field

Office. Further delegation of approvals and discretion to Field Offices

was suggested. Additional Field Office staff training was recommended.

The Handbook was found to be deficient on implementation guidance. IHAs

expressed a need for extensive assistance on the new rule. Four IHAs

also strongly recommended that each Office of Native American Programs

should have a full time CIAP/CGP Director/Coordinator or fund NAIHC

additional monies to allow them to give technical assistance to those

IHAs needing additional support.

HUD was directed to give clear, strict instructions to its Field

Offices that establish time deadlines for Field Office action on HA

requests, including approvals of RFPs, recommendations for awards, 2530

approvals and approving of waivers. If HUD does not act within 14 days,

HAs suggested that the items should be approved. Departmental review

and approval of CGP submissions was also mentioned as improving but HAs

wanted mandated deadlines for HUD approval and no continuous review of

previous approvals. Field Office oversight of troubled HAs was

criticized for lacking in clear direction.

CLPHA and the NYCHA recommended that HUD's rules and procedures for

CGP should vary much more widely to acknowledge the differences between

modernization programs at HAs of different sizes.

Response: HUD will take these comments regarding better assistance

to program participants into account when it revises the CGP Handbook.

Recently, HUD completed its reorganization of the Field Offices.

Regional Offices were eliminated and revised delegations of authority

were provided to the Field Offices. IHAs are advised that technical

assistance is already in place. HUD will make its best efforts to

provide timely reviews. However, HUD cannot always respond to HA

requests within 14 days in all cases.

Section 504 Requirements

Comment: CLPHA requested that HUD allow HAs much wider latitude in

meeting 504 requirements, to take into account the current

configuration of buildings and units and the comparative suitability of

individual buildings for 504 modifications. They also requested that

HUD speed up its decisions concerning 504 requirements under

modernization and noted that Field Offices sometimes make unreasonable

demands on the HAs, and there is no official HUD guidance in this area.

Response: It is unclear what the commenter intended. Section 504 of

the Rehabilitation Act of 1973 is a civil rights statute. The current

regulation at 24 CFR part 8 provides HAs with a considerable amount of

latitude to take into consideration current building and site

configuration. When an HA undertakes new construction or substantial or

other alterations with respect to a given project, the HA has the

authority to determine which are the units, buildings and sites in

which the required number of accessible units will be located. The

following are several examples of how the regulation provides latitude:

--Section 8.23(b) of the regulation requires that when ``other

alterations'' are undertaken, accessible units be provided to ``the

maximum extent feasible.'' The regulation indicates that this

requirement shall not be interpreted as requiring that an HA make a

dwelling unit accessible if doing so would impose an undue financial

and administrative burden on the operation of the development.

--Section 8.26 requires that units be distributed throughout

developments and sites and shall be available in a range of sizes and

amenities. The regulation, however, indicates that this provision shall

not be construed to require the provision of an elevator solely for the

purpose of permitting the location of accessible units above or below

grade level.

--Section 8.32 provides that compliance with the Uniform Federal

Accessibility Standards (UFAS) shall be deemed to comply with the 504

requirements and that departures from UFAS are permitted where

substantially equivalent or greater access to and usability of the

building is provided. Since the regulation does not mandate the use of

UFAS, the HA is free to use another standard as long as it is at least

equal to or greater than this standard. Further, this part of the

regulation indicates that the HA is not required to make building

alterations that have little likelihood of being accomplished without

removing or altering a load-bearing structural member.

While the Department believes that HAs do have wide latitude in

determining the location of accessible units, it is important to

emphasize that such latitude should not be construed as relieving HAs

from the specific requirements mandated by the statute or regulation.

The Department also is unclear why Field Offices should be slow

making decisions concerning 504 requirements. Further, the Department

disagrees that there is ``no guidance'' with respect to 504

requirements. The requirements for compliance with Section 504 are

outlined in 24 CFR part 8 and UFAS. There may be individual unusual or

unique situations which require a more detailed solution in order for

particular design to meet these requirements.

CGP and MROP

Comment: One HA found it impossible to accomplish a comprehensive

improvement program for a given development because of the incremental

approach resulting from CGP. Developments with needs for major redesign

of obsolete systems have inadequate funds to complete this work. A

solution proposed was to eliminate the requirement that prohibits

previous use of CIAP or CGP funds on a development seeking MROP

eligibility.

Response: HUD is seeking repeal of MROP. There is a statutory

prohibition against using modernization funds on a building being

funded with MROP funds. HUD's Office of General Counsel has determined

that this prohibition does not last forever. Accordingly, the

Department has determined that a development or a building which has

been funded under MROP after FFY 1988 is eligible for modernization

funding if it has reached DOFA. Also, a development or a building which

has been funded under MROP during FFYs 1986-1988 is eligible for

modernization funding if all MROP funds have been expended.

III. Other Matters

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

provides revisions to the existing CGP under which HAs receive

modernization assistance from HUD on the basis of a formula. HUD does

not anticipate a significant economic impact on small entities since

HAs will continue to carry out their modernization activities by

entering into contracts for the work as they now do.

Finding of No Significant Impact

A Finding of No Significant Impact with respect to the environment

has been made in accordance with HUD regulations at 24 CFR part 50 that

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

1969, 42 U.S.C. 4332. The Finding of No Significant Impact is available

for public inspection and copying during regular business hours (7:30

a.m. to 5 p.m. weekdays) in the Office of the Rules Docket Clerk, Room

10272, 451 Seventh Street, SW., Washington, DC 20410.

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 will 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 revised CGP is

consistent with federalism principles since it reduces unnecessary

burdens on HAs. While the program is revised, the primary change is

only in the way that HUD processes and reviews HA modernization

activities, and not the modernization activities. Since participation

by HAs is discretionary, this rule lacks the direct and substantial

effects on HAs required for a policy with federalism implications under

the Order.

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 will

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

relate to family concerns. The rule does not have the potential for

significant impact on family formation, maintenance, or general well-

being, since its effect is limited to revising program procedures for

HAs applying for discretionary grants.

Regulatory Agenda

This rule was listed as item 1680 in the Department's Semiannual

Regulatory Agenda published on April 25, 1994, at 59 FR 20424/20468, in

accordance with Executive Order 12866 and the Regulatory Flexibility

Act.

Anti-Lobbying

On February 26, 1990, the Department published an interim rule (24

CFR part 87) advising recipients and subrecipients of Federal

contracts, grants, cooperative agreements and loans of a prohibition

mandated by Congress. Section 319 of the Department of the Interior

Appropriations Act (Pub. L. 101-121, approved October 23, 1989)

generally prohibits recipients of Federal contracts, grants, and loans

from using appropriated funds for lobbying the Executive or Legislative

branches of the Federal Government in connection with a specific

contract, grant, or loan. The interim rule generally prohibits the

awarding of contracts, grants, cooperative agreements, or loans unless

the recipient has made an acceptable certification regarding lobbying.

In addition, the recipient must also file a disclosure if it has made

or has agreed to make any payment with nonappropriated funds that would

be prohibited, if paid with appropriated funds. IHAs established by an

Indian Tribe as a result of the exercise of the tribe's sovereign power

are excluded from coverage of the Byrd Amendment, but IHAs established

under State law are not excluded from the statute's coverage.

The certification and disclosure requirements apply to all grants

in excess of $100,000. All potential grantees are required to submit

the certification, and to make the required disclosure if the grant

amount exceeds $100,000. Potential grantees should refer to 24 CFR part

87 for the language for the certification and disclosure. The law

provides substantial monetary penalties for failure to file the

required certification or disclosure.

The Catalog of Domestic Assistance numbers for the programs

affected by this proposed rule are 14.146, 14.147, 14.850, 14.851,

14.852, and 15.141.

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 968

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

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

and recordkeeping requirements.

Accordingly, the Department amends 24 CFR parts 905 and 968 as set

forth below:

PART 905--INDIAN HOUSING PROGRAMS

1. The authority citation for 24 CFR part 905 continues to read as

follows:

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

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

2. Section 905.102 is amended by removing the definition of Major

changes, revising the definition of Annual Statement, and adding in

alphabetical order definitions of Annual Submission, Fungibility and

Work Statements, to read as follows:

Sec. 905.102 Definitions.

* * * * *

Annual Statement. A work statement covering the first year of the

Five-Year Action Plan and setting forth the major work categories and

costs by development or IHA-wide for the current FFY grant, as well as

a summary of costs by development account and implementation schedules

for obligation and expenditure of the funds.

* * * * *

Annual Submission. A collective term for all documents which the

IHA must submit to HUD for review and approval before accessing the

current FFY grant funds. Such documents include the Annual Statement,

Work Statements for years two through five of the Five-Year Action

Plan, local government statement, IHA Board Resolution, materials

demonstrating the partnership process and any other documents as

prescribed by HUD.

* * * * *

Fungibility. Fungibility is a concept which permits an IHA to

substitute any work item from the latest approved Five-Year Action Plan

to any previously approved CIAP budget or CGP Annual Statement and to

move work items among approval budgets without prior HUD approval.

* * * * *

Work Statements. Work Statements cover the second through the fifth

years of the Five-Year Action Plan and set forth the major work

categories and costs by development or IHA-wide which the IHA intends

to undertake in each year of years two through five. In preparing these

Work Statements, the IHA shall assume that the current FFY formula

amount will be available in each year of years two through five.

* * * * *

3. In Sec. 905.601, paragraph (b) is revised, paragraph (h) is

amended by removing the reference to ``Sec. 905.669(b)(2)'' and adding

in its place ``Sec. 905.669(b)''; by adding three sentences to the end

of paragraph (j); and by revising paragraphs (k)(2)(i) and (k)(3)(iii),

to read as follows:

Sec. 905.601 Allocation of funds under section 14.

* * * * *

(b) Set-aside for emergencies and disasters. For each FFY, HUD

shall reserve from amounts approved in the appropriation act for grants

under this part and part 968 of this title, $75 million (which shall

include unused reserve amounts carried over from previous FFYs), which

shall be made available to IHAs and PHAs for modernization needs

resulting from natural and other disasters, and from emergencies. HUD

shall replenish this reserve at the beginning of each FFY so that it

always begins with a $75 million balance. Any unused funds from

previous years will remain in the reserve until allocated. The

requirements governing the reserve for disasters and emergencies and

the procedures by which an IHA may request such funds, are set forth in

Sec. 905.667.

* * * * *

(j) Calculation of number of units. * * * New development units

that are added to an IHA's or PHA's inventory will be added to the

overall unit count so long as they are under ACC amendment and have

reached DOFA by the first day in the FFY in which the formula is being

run. Any increase in units (reaching DOFA and under ACC amendment) as

of the beginning of the FFY shall result in an adjustment upwards in

the number of units under the formula. New units reaching DOFA after

this date will be counted for formula purposes as of the following FFY.

(k) * * *

(2) * * *

(i) Increases in the number of units resulting from the conversion

of existing units will be added to the overall unit count so long as

they are under ACC amendment by the first day in the FFY in which the

formula is being run;

* * * * *

(3) * * *

(iii) Exception. A unit which is conveyed under the Mutual Help or

Turnkey III programs will result in an automatic (rather than a phased-

in) reduction in the unit count. Paid-off Mutual Help or Turnkey III

units continue to be counted until they are conveyed.

4. Section 905.602 is revised to read as follows:

Sec. 905.602 Special requirements for Turnkey III and Mutual Help

developments.

(a) Modernization costs. Modernization work on a Mutual Help or

Turnkey III unit shall not increase the purchase price or amortization

period of the home.

(b) Paid-off units-- (1) Turnkey III units. Eligible modernization

work on any Turnkey III units that have been paid-off, but not

conveyed, by the time the CIAP application or CGP Annual Statement is

submitted, is limited to work which is necessary to meet statutory

requirements (e.g., accessibility for disabled persons, lead-based

paint testing, interim containment, professional risk assessment and

abatement). Such work must be completed prior to conveyance. Turnkey

III units that have not been paid-off at the time the CIAP application

or CGP Annual Statement is submitted and for which work is included in

the CIAP application or CGP Annual Statement, are eligible for any

physical improvements provided under Sec. 905.666(d) even where the

units are subsequently paid-off before the work is completed, so long

as the work is completed prior to conveyance.

(2) Mutual Help units. An IHA may use CIAP or CGP funds under this

subpart for the purposes of modernizing a Mutual Help unit which is

paid-off, but not conveyed, and may do so only with a unit which the

IHA has identified in its CIAP application or Comprehensive Plan

(including Five-Year Action Plan and Annual Statement). In accordance

with the provisions of Sec. 905.440 (e)(8), an IHA may perform non-

emergency work on a paid-off Mutual Help unit only after all

delinquencies are repaid.

(c) Other. The homebuyer family must be in compliance with its

financial obligations under its homebuyer agreement in order to be

eligible for non-emergency physical improvements, with the exception of

work necessary to meet statutory and regulatory requirements, (e.g.,

accessibility for disabled persons, lead-based paint testing, interim

containment, professional risk assessment, and abatement) and the

correction of development deficiencies. Notwithstanding the above

requirement, an IHA may, with prior HUD approval, complete non-

emergency physical improvements on any homeownership unit where the IHA

demonstrates that, due to economies of scale or geographic constraints,

substantial cost savings may be realized by completing all necessary

work in a development at one time.

5. Section 905.666 is amended by revising paragraphs (a)(1) through

(a)(3), (b), (c), (d)(1), (d)(3)(i), (f)(1)(iii), and (m) to read as

follows:

Sec. 905.666 Eligible costs.

(a) * * *

(1) Undertaking activities described in its approved Five-Year

Action Plan under Sec. 905.672(d)(5);

(2) Carrying out emergency work, whether or not the need is

indicated in the IHA's approved Comprehensive Plan (including Five-Year

Action Plan) or Annual Statement;

(3) Funding a replacement reserve to carry out eligible activities

in future years, subject to the restrictions set forth in paragraph (f)

of this section;

* * * * *

(b) Demonstration of viability. Except in the case of emergency

work, an IHA shall only expend funds on a development for which the IHA

has demonstrated that completion of the improvements and replacements

identified in the comprehensive plan will reasonably ensure the long-

term physical and social viability of the development at a reasonable

cost or for essential non-routine maintenance needed to keep the

property habitable until residents are relocated.

(c) Physical improvement costs. Eligible costs include alterations,

betterments, additions, replacements, and non-routine maintenance that

are necessary to meet the modernization and energy conservation

standards prescribed in Sec. 905.603. These mandatory standards may be

exceeded only when the IHA determines that it is necessary or highly

desirable for the long-term physical and social viability of the

individual development. If demolition or disposition is proposed, the

IHA shall comply with 24 CFR part 905, subpart M. Additional dwelling

space may be added to existing units.

(d) Costs for Turnkey III developments--(1) General. Eligible

physical improvement costs for existing Turnkey III developments are

limited to work items which are not the responsibility of the homebuyer

families and which are related to health and safety, correction of

development deficiencies, physical accessibility, energy audits and

cost-effective energy conservation measures, and lead-based paint

testing and abatement. In addition, management improvements are

eligible modernization costs for existing Turnkey III developments.

(2) * * *

(3) * * *

(i) Notwithstanding the requirements of paragraph (d)(1) of this

section, an IHA may substantially rehabilitate a Turnkey III unit

whenever the unit becomes vacant or is occupied by a non-homebuyer

family. An IHA that intends to use funds under this paragraph must

identify in its needs assessment the estimated number of units that the

IHA is proposing for substantial rehabilitation and subsequent sale. In

addition, an IHA must demonstrate in its needs assessment that the IHA

has homebuyers who are both eligible for homeownership, in accordance

with the requirements of 24 CFR part 905 (Subpart G), and who have

demonstrated their intent to be placed into each of the Turnkey III

units proposed to be substantially rehabilitated;

* * * * *

(f) * * *

(1) * * *

(iii) A management improvement requires more funds than the IHA may

use under its 20% limit for management improvements (except as provided

in paragraph (m)(1)), and the IHA needs to save a portion of its annual

grant in order to combine it with a portion of subsequent year(s)

grants, to fund the work item;

* * * * *

(m) Cost limitation. (1) Notwithstanding the full fungibility of

work items in Sec. 905.675(c), an IHA shall not use more than a total

of 20 percent of its annual grant for management improvement costs in

account 1408, unless specifically approved by HUD.

(2) Notwithstanding the full fungibility of work items in

Sec. 905.675(c), an IHA shall not use more than a total of 10 percent

of its annual grant on administrative costs in account 1410, excluding

any costs related to lead-based paint or asbestos testing (whether

conducted by force account employees or by a contractor), in-house

architectural/engineering (A/E) work, or other special administrative

costs required by State, tribal or local law, unless specifically

approved by HUD;

* * * * *

6. Paragraphs (a)(1) and (a)(3) of 905.667 are revised to read as

follows:

Sec. 905.667 Reserve for emergencies and disasters.

(a) Emergencies--(1) Eligibility for assistance. An IHA (including

an IHA that is determined to be high risk under Sec. 905.135) may

obtain funds at any time, for any eligible emergency work item as

defined in Sec. 905.102 (for IHAs participating in CGP) or for any

eligible emergency work item (described as emergency modernization in

Sec. 905.102) (for IHAs participating in CIAP), from the reserve

established under Sec. 905.601(b). However, emergency reserve funds may

not be provided to an IHA participating in CGP that has the necessary

funds available from any other source, including its annual formula

allocation under Sec. 905.601(e) and (f), other unobligated

modernization funds, and its replacement reserves under Sec. 905.666.

An IHA is not required to have an approved comprehensive plan under

Sec. 905.672 before it can request emergency assistance from this

reserve. Emergency reserve funds may not be provided to an IHA

participating in CIAP unless it does not have the necessary funds

available from any other source, including unobligated CIAP, and no

CIAP modernization funding is available from HUD for the remainder of

the fiscal year.

* * * * *

(3) Repayment. A CGP IHA that receives assistance for its emergency

needs from the reserve under Sec. 905.601(b) must repay such assistance

from its future allocations of assistance, where available. For IHAs

participating in the CGP, HUD shall deduct up to 50 percent of an IHA's

succeeding year's formula allocation under Sec. 905.601 (e) and (f) to

repay emergency funds previously provided by HUD to the IHA. The

remaining balance, if any, shall be deducted from an IHA's succeeding

years' formula allocations.

* * * * *

7. Section 905.669 is amended by adding three sentences to the end

of paragraph (a)(1); by revising paragraphs (b) and (c); by adding a

new paragraph (d); and by adding the OMB control number to the end of

the section, to read as follows:

Sec. 905.669 Allocation of assistance.

(a) * * *

(1) * * * On an annual basis, HUD will transmit to the IHA the

formula characteristics report which reflects the data that will be

used to determine the IHA's formula share. The IHA will have at least

30 calendar days to review and advise HUD of errors in this HUD report.

Necessary adjustments will be made to the IHA's data before the formula

is run for the current FFY.

* * * * *

This text is long and has been trimmed here. Open the source document for the complete record.