Vacancy Rule: Notice of Intent To Establish a Negotiated Rulemaking Advisory Committee and Notice of First Meeting

SUMMARY: The Department is considering the establishment of a

Negotiated Rulemaking Advisory Committee under the Federal Advisory

Committee Act (FACA). The purpose of the Committee would be to discuss

and negotiate a proposed rule that would change the current method of

determining the payment of operating subsidies to vacant public housing

units. The Committee would consist of representatives with a definable

interest in the outcome of a proposed rule. HUD has prepared a charter

and has initiated the requisite consultation process pursuant to the

FACA, Executive Order 12838, and the implementing regulations.

DATES: Comments must be received by February 2, 1995.

If the charter is approved and a final determination is made to

form the Committee, the first meeting will take place March 7-9, 1995,

at a location to be announced in Washington, D.C.

ADDRESSES: Interested persons are invited to submit comments regarding

the proposed Committee and membership to the Rules Docket Clerk, Office

of General Counsel, Room 10276, Department of Housing and Urban

Development, 451 Seventh Street, SW, Washington, DC 20410-0500.

Comments or any other communications submitted should consist of an

original and four copies and refer to the above docket number and

title. Facsimile (FAX) comments are not acceptable. The docket will be

available for public inspection and copying between 7:30 a.m. and 5:30

p.m. weekdays at the above address.

The exact location of the first meeting on March 7-9, 1995, in

Washington, D.C., will be announced in a subsequent Federal Register

notice. Interested persons may also contact John Comerford, at the

telephone number listed below, for this information.

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

Management Division, Public and Indian Housing, Room 4212, Department

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

DC 20410-0500; telephone (202) 708-1872, or (202) 708-0850 (TDD).

(These telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

Background

HUD uses a formula approach called the Performance Funding System

(PFS) to distribute operating subsidies to public housing agencies

(PHAs) and Indian housing authorities (IHAs). (NOTE: the term housing

agency (HA) is used by HUD to mean both PHAs and IHAs.) A regulatory

description of the PFS can be found at 24 CFR 990. Although somewhat

oversimplified, the amount of subsidy received by a HA is the

difference between projected expenses and projected income, with the

PFS regulations detailing how these projections will be made. HAs

calculate their PFS eligibility annually and submit a request for

funding as part of their budget process. While the amount varies, this

subsidy can represent a substantial amount of revenue to a HA. In 1994,

HUD distributed over $2.6 billion in operating subsidies to HAs.

The amount of dwelling rental income expected to be received is an

important element in estimating subsidy eligibility. If rental income

increases, it can generally be expected that operating subsidy

eligibility will decrease. Likewise, if rental income decreases, an HA

may receive a greater amount of subsidy. With some exceptions, HUD

expects that HAs will project an occupancy level of 97 percent. This

standard of 97 percent has been part of the PFS since its

implementation in 1975.

That part of the PFS that deals with the projection of occupancy

levels is known as the vacancy rule. The vacancy rule was published as

a final rule in 1986 (51 FR 16835, May 7, 1986) and was intended to

create incentives to HAs to return vacant units to occupancy and to

maintain an occupancy level of 97 percent or higher. The rule provided

these incentives by defining the conditions under which HUD would

approve the use of an occupancy level of less than 97 percent; by

specifying that an HA need not use an occupancy level higher than 97

percent; and, in recognition that a low number of vacancies may make it

difficult for a small HA to reach 97 percent, by finding it acceptable

to use an occupancy percentage based on having five or fewer vacant

units.

In September 1991, HUD published a proposed rule (56 FR 45814,

September 6, 1991) that would have made significant changes to the way

in which vacant units would be considered eligible for operating

subsidy. These changes included:

1. Increasing the occupancy standard from 97 percent to 98 percent;

2. Eliminating HUD-approved Comprehensive Occupancy Plans (COPs) as

a means to justify using less than the occupancy standard;

3. Limiting the amount of subsidy paid for vacant units greater

than 2 percent of the total number of units available for occupancy;

and

4. Instituting a year-end review to compare the actual occupancy

achieved with the projected occupancy percentage.

HUD argued that the changes were needed in order to correct what it

perceived to be a situation in which full operating subsidies (100

percent of the Allowable Expense Level) being paid for vacant units in

modernization programs or in COPs were greater than the direct

operating expenses incurred by the HA. With regard to COPs, HUD stated

that HAs with the most extensive and difficult vacancy problems were

expected to develop five year COPs in 1986 and that most of these would

soon expire.

Before the comment period on the proposed rule expired, Congress

inserted language in HUD's Appropriation Act for 1992 (105 Stat. 757)

that prohibited HUD from using appropriated funds to implement the

proposed rule. Later, Congress included a provision in the Housing and

Community Development Act of 1992 (section 114(b), Pub. L. 102-550;

approved October 28, 1992) to require that any changes to the PFS

relating to the payment of operating subsidies to vacant public housing

units be accomplished only through the use of negotiated rulemaking

procedures.

Regulatory Negotiation

Negotiated rulemaking, or ``reg-neg'', is a relatively new process

for the Federal government and this will be the first use of the

process at HUD. The basic concept of reg-neg is to have the agency that

is considering drafting a rule bring together representatives of

affected interests for face-to-face negotiations that are open to the

public. The give-and-take of the negotiation process is expected to

foster [[Page 305]] constructive, creative, and acceptable solutions to

difficult problems.

In July 1994, HUD entered into an Interagency Agreement with the

Federal Mediation and Conciliation Service (FMCS) for convening

services that would assist HUD in assessing the feasibility of

assembling a balanced committee willing and able to work towards the

goal of consensus on a proposed rule that is within HUD's statutory

authority and addresses the issues of the interested parties. If HUD

proceeded with the formation of a negotiated rulemaking committee, the

Interagency Agreement called for FMCS to provide facilitating services.

The final convening report was provided to HUD in September 1994

and concludes that ``there is sufficient support to re-examine the

vacancy rule through a regulatory negotiations process.'' A copy of the

report titled Convening Report for Regulatory-Negotiations on HUD's

Vacancy Rule is available in the office of the Rules Docket Clerk at

the above address.

Chartering of Reg-Neg Committee

As a general rule, an agency of the Federal Government is required

to comply with the requirements of the Federal Advisory Committee Act

(FACA) when it establishes or uses a group of non-Federal members as a

source of advice. Under FACA, HUD must receive a charter for this reg-

neg committee. HUD has prepared a charter and sent it to the Office of

Management and Budget for approval. If the charter is approved and

schedule changes are not necessary as a result of public comments, the

Committee will be convened in accordance with this notice.

Substantive Issues for Negotiation

The convening report identified the following issues to be

addressed by the Committee:

What constitutes an acceptable level of vacancies for

housing authorities of various size classifications?

What criteria should be used for providing less than full

subsidy?

What criteria should be used for providing full subsidy

despite less than full occupancy?

Committee Membership

The FMCS conveners consulted and interviewed over 30 officials of

various organizations interested and affected by the vacancy rule.

Three national HA associations--the Council of Large Public Housing

Authorities (CLPHA), the National Association of Housing and

Redevelopment Officials (NAHRO), and the Public Housing Authority

Directors Association (PHADA)--worked together to suggest executive

directors of HAs for committee membership that would reflect a balance

among HAs in terms of size and number of vacant units. The national

associations committed themselves to serving as staff support to the

HAs selected for membership.

After reviewing the recommendations of the FMCS conveners, HUD has

tentatively identified the following list of possible interests and

parties:

Housing Agencies

Housing Authority of the City Of Houston, TX

Cuyahoga Metropolitan Housing Authority, Cleveland, OH

New York City, NY Housing Authority

Newark, NJ Housing Authority

Reno, NV Housing Authority

Littleton, CO Housing Authority

Housing Authority of the City of South Bend, IN

Tenant Organizations and Public Interest Groups

National Tenants Organization, Ft. Pierce, FL

Bromley Heath Tenant Management Corporation, Jamaica

Plains, MA

New Jersey Association of Public and Subsidized Housing

Residents, Newark, NJ

National Housing Law Project, Washington, DC

Housing and Development Law Institute, Washington, DC

Illinois Association of Housing Authorities

Federal Government

U.S. Department of Housing and Urban Development

Comments and suggestions on this tentative list of committee

members are invited. HUD does not believe that each potentially

affected organization or individual must necessarily have its own

representative. However, HUD must be satisfied that the group as a

whole reflects a proper balance and mix of interests. Negotiation

sessions will be open to members of the public, so individuals and

organizations that are not members of the committee may attend all

sessions and communicate informally with members of the committee.

Requests for Representation

If in response to this Notice, an additional individual or

representative of an interest requests membership or representation on

the committee, HUD, in consultation with the FMCS conveners, will

determine whether that individual or representative will be added to

the committee. Each additional nomination for membership on the

committee must include the name of the nominee and a description of the

interests the nominee would represent, evidence that the nominee is

authorized to represent relevant parties, a written commitment that the

nominee shall participate in good faith, and the reasons that the

members proposed in this notice do not adequately represent the

interests of the person submitting the nomination. HUD will make the

decision on membership based on whether the individual or interest

would be substantially affected by the proposed rule and whether the

individual or interest is already adequately represented on the

committee.

Final Notice Regarding Committee Establishment

After reviewing any comments on this Notice and any requests for

representation, HUD will issue a final notice. That notice will

announce the establishment of a Negotiated Rulemaking Advisory

Committee, unless HUD's charter request is disapproved or HUD decides,

based on comments and other relevant considerations, that such action

is inappropriate.

Tentative Schedule

If the final determination is that the committee should be formed

and negotiations started, HUD plans to hold the first meeting of the

committee on March 7-9, 1995. On March 7, the meeting will start at

10:00 a.m. and run until completion; on March 8, the meeting will start

at 9:00 a.m. and run until completion; and on March 9, the meeting will

start at 9:00 a.m. and run until approximately 1:00 p.m. The exact

location of the meeting in Washington, D.C., will be announced in a

subsequent Federal Register notice. Interested persons may also contact

John Comerford, at the telephone number listed above, for this

information. The purpose of the meeting is to orient members to the

reg-neg process, establish a basic set of understandings and ground

rules (protocols) regarding the process that will be followed in

seeking a consensus, and begin to address the issues. This meeting is

open to the public.

Decisions with respect to future meetings will be made at the first

meeting and from time to time thereafter. Notices of future meetings

will be published in the Federal Register if time

permits. [[Page 306]]

To prevent delays that might postpone timely issuance of a proposed

rule, HUD intends to terminate the committee's activities if it does

not reach consensus within 5 months of the first meeting. The process

may end earlier if the FMCS conveners/facilitators believe that

sufficient progress cannot be made or that an impasse has developed

that cannot be resolved.

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

Dated: December 20, 1994.

Joseph Shuldiner,

Assistant Secretary for Public and Indian Housing.

[FR Doc. 94-32309 Filed 12-30-94; 8:45 am]

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