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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A94-21139

## Record

- **Collection:** Federal Register
- **Document type:** Uncategorized Document
- **Published:** August 30, 1994

## Text

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 cond

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-21139. Public record. Not legal advice.