HOME Investment Partnerships Program; Final Rule and Notice DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

SUMMARY: This interim rule amends the existing interim rule for the

HOME Investment Partnerships Program by implementing amendments enacted

by the Housing and Community Development Act of 1992 and by making a

number of clarifying changes.

DATES: Effective Date: May 19, 1994 through June 30, 1995.

Comments due date: Comments on this interim rule must be submitted

on or before June 20, 1994.

ADDRESSES: Interested persons are invited to submit comments regarding

this interim rule to the Rules Docket Clerk, Office of General Counsel,

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

Street SW., Washington, DC 20410. Communications should refer to the

above docket number and title. A copy of each communication submitted

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

and 5:30 p.m. weekdays at the above address. FAXED comments will not be

accepted.

FOR FURTHER INFORMATION CONTACT: Mary Kolesar, Director, Program Policy

Division, Office of Affordable Housing Programs, 451 Seventh Street

SW., Washington, DC 20410, telephone (202) 708-2470, TDD (202) 708-

2565. (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

The information collection requirements for the HOME Investment

Partnerships Program have been approved by the Office of Management and

Budget, under section 3504(h) of the Paperwork Reduction Act of 1980

(44 U.S.C. 3501-3520), and assigned OMB control number 2501-0013. This

interim rule does not contain additional information collection

requirements.

II. Background

The HOME Investment Partnerships Program (HOME) was enacted under

title II (42 U.S.C. 12701-12839) of the Cranston-Gonzalez National

Affordable Housing Act (NAHA) (Pub. L. 101-625, approved November 28,

1990). On March 19, 1991, the Department published a proposed rule (56

FR 11592) to implement the HOME Program. The Department received 119

public comments in response to the proposed rule. After reviewing and

considering these comments, HUD published an interim rule on December

16, 1991 (56 FR 65313), inviting additional comments on the program.

The Department received 118 public comments on the interim rule. In

partial response to these comments and HUD's experience in implementing

the program, an interim rule to make necessary changes on an expedited

basis to the December 16, 1991 interim rule was developed. In addition,

the Housing and Community Development Act of 1992 (HCDA 1992) (Pub. L.

102-550, approved October 28, 1992) included a substantial number of

amendments to the HOME program. Some of the HCDA 1992 amendments that

were determined to be immediately effective were included in the

``necessary changes'' interim rule, which was published on December 22,

1992 (57 FR 60960). The remaining HCDA 1992 amendments determined to be

immediately effective were published in an interim rule on June 23,

1993 (58 FR 34130).

Other HCDA 1992 changes were determined to require the publication

of a proposed rule with an opportunity for public notice and comment

before they could be implemented. A proposed rule for this purpose was

published on April 29, 1993 (58 FR 26048). The Department received 21

comments in response to the proposed rule. Twelve were from state

agencies; four were from local agencies; and five comments were from

associations. This rule implements the April 29, 1993 proposed rule as

an interim rule. This rule is being published as an interim rule and

not as a final rule because the HOME program regulation at 24 CFR part

92 has not yet been issued as a final rule.

In addition to implementing the April 29 proposed rule, this

interim rule addresses two additional areas of necessary amendments to

the HOME regulation. First, a number of clarifying revisions are made

to the HOME regulation to provide additional guidance for program

participants, as explained below in the discussion of changes made to

individual sections. Second, Departmental staff reviewed the HOME rule

in relationship to the Community Development Block Grant (CDBG)

Program, and developed a number of recommendations for greater

compatibility between the HOME and CDBG regulations which are included

in this interim rule.

The following discussion, arranged according to the sequence of the

HOME rule sections being considered, summarizes and responds to the

comments received, and describes the changes made to the HOME Program

regulation in this interim rule. Unless otherwise indicated in this

preamble, the portions of this rule that were a part of the proposed

rule remain the same.

In Sec. 92.2, the definition of commitment is revised. The

Department believes greater flexibility in the definition of commitment

is required to give participating jurisdictions additional time to use

their HOME allocations. In addition to commitments to specific projects

which are recognized as legally binding agreements between PJs and

project owners, the Department is expanding the definition of

commitment. The expanded definition would count as commitments legally

binding agreements with State recipients, subrecipients, contractors or

reservation of funds by Community Housing Development Organizations

(CHDOs).

Initially, the Department believed that additional flexibility was

warranted for FY1992 funds because of the slow start-up of the program

based on initial statutory complexity. With both significant statutory

amendments of the Housing and Community Development Act of 1992 and

regulatory simplification by the Department, the ability of States and

local governments to operate the HOME Program has now been increased.

Nonetheless, the Department recognizes that to build upon the momentum

of these changes, an expansion of the definition will provide

regulatory relief to allow funds to be committed to both state

recipients, subrecipients and CHDOs in a more orderly and equitable

fashion. States can work with small cities and recently formed

nonprofits to build capacity without fear of losing funds in the short

term. Local participating jurisdictions may also take on more difficult

rental projects with nonprofits which serve very-low income families or

special populations, which often require greater development time.

The Department will provide additional guidance on how these

commitments will be documented for purposes of meeting the commitment

deadlines. While the Department is providing greater flexibility on

commitments, it will continue to collect information on commitments to

specific projects and will maintain its emphasis on this aspect of the

program both in reporting and monitoring of participating

jurisdictions. All cash and management procedures will remain in effect

with regard to reporting and disbursement of HOME funds.

The definition of commit to a specific local project, included

within the definition of commitment, is revised by changing the start

construction period for publicly owned projects from six months to

twelve months. This change will make the start construction period for

publicly owned projects consistent with the start construction period

for privately owned projects.

The definition of community housing development organization in

Sec. 92.2 is revised to specify that this term means a private

nonprofit organization that has a tax-exempt ruling from the Internal

Revenue Service under section 501(c) (3) or (4) of the Internal Revenue

Code of 1986. The definition did not previously include the reference

to paragraph (3) or (4) of section 501.

The definition of housing in Sec. 92.2 is revised to include elder

cottage housing opportunity (ECHO) units.

One comment recommended that the ``footprint'' foundation

requirements present in the definition of reconstruction should be

eased to give participating jurisdictions (PJs) the decision-making

ability to waive the requirement if the situation warrants. The

Department agrees that additional flexibility may be needed, for

example, to permit PJs to meet current zoning requirements that would

affect the reconstruction site. The definition of reconstruction at

Sec. 92.2 is modified to permit a unit to be reconstructed anywhere on

the existing lot. However, all other Federal requirements of subpart H

would still be applicable to the project.

A new Sec. 92.4 is added to implement a Department-wide policy that

provides for the expiration of interim rules within a set period of

time if they are not issued in final form before the end of the period.

The expiration period may be extended by notice published in the

Federal Register. The expiration date for the HOME interim rule is June

30, 1995.

While reconstruction is considered a rehabilitation activity for

the general purposes of the HOME Program, this would not always be the

case for complying with the environmental review requirements at

Sec. 92.352. If a HOME-assisted project is reconstructed upon the same

foundation or footprint as the original structure, it may be treated as

a rehabilitation project for the purposes of complying with part 50 and

part 58. However, the reconstruction of a structure on another portion

of the lot must be treated as new construction for purposes of part 50

and part 58.

The treatment of administrative costs as eligible HOME costs is

clarified in this rule. The definition of administrative costs is

removed from Sec. 92.2 and incorporated into Sec. 92.207, a section

previously held in reserve, where administrative and planning costs are

listed as eligible costs. The reference to project delivery costs that

were a part of the definition of administrative costs is deleted and a

more specific and useful reference is made to staff and overhead costs

directly related to a project. In addition, participating jurisdictions

are given the option of charging such staff and overhead costs as a

``related soft cost'' of a project, under a new Sec. 92.206(c)(6), or

as an administrative cost under Sec. 92.207. If charged as an

administrative cost, these costs are included in the ten percent cap

applicable to administrative and planning costs. If charged to specific

projects as related soft costs, these costs must be prorated among

HOME-assisted units, and are subject to the maximum per unit subsidy

limits and matching requirements.

A typographical error in the definition of single room occupancy in

Sec. 92.2 is corrected by replacing, in the third sentence of the

definition, the word ``residual'' with ``residential.''

Section 92.50(f) is redesignated as Sec. 92.50(d)(5), and its

applicability is limited to paragraph 92.50(d) to conform to the intent

expressed in Amendment No. 15 on page 14 of H.Rept. 103-273, the

Conference Report for the Department's 1994 Fiscal Year appropriations

with regard to minimum thresholds.

The reference to ``housing strategy'' is deleted from the title of

Sec. 92.61, since insular areas are no longer required to have one.

A correction to Sec. 92.64(a)(1) (dealing with the applicability of

HOME program requirements to insular areas) is made to delete

references to Secs. 92.208 through 92.210, which have been revised

since first being cited in this section, and to the prohibition against

using HOME funds to defray administrative costs.

Section 92.150(b)(2) is revised to include the new eligible

activities--administrative expenses, and community housing development

organization (CHDO) operating expenses--as required in the program

description that participating jurisdictions must submit.

A conforming change is made to Sec. 92.204(a)(1) to remove the

reference to Secs. 92.208 through 92.210, which is no longer relevant

because of amendments made to these sections.

In Sec. 92.205(a)(1), the reference to specific eligible costs at

the end of the paragraph is revised to include Secs. 92.206 through

92.209, in accordance with the reorganization of sections dealing with

eligible costs, as described in the following preamble paragraph.

The listing of eligible costs is reorganized in this rule. Rather

than listing all eligible costs at Sec. 92.206, eligible costs are

listed, starting at Sec. 92.206 and continuing through previously

reserved Secs. 92.207, 92.208, and 92.209, by the type of cost. Thus,

Sec. 92.206 now covers only eligible project costs; Sec. 92.207 covers

eligible administrative and planning costs; Sec. 92.208 deals with

eligible CHDO operating expense costs; and Sec. 92.209 covers eligible

costs related to tenant-based rental assistance. Within these sections,

clarifying changes are made as explained below. In addition, conforming

changes throughout part 92 to reflect the new section numbers of

eligible costs are made by this rule.

Section 92.206(a)(2) is amended to permit the refinancing of

secured, existing debt on a single family, owner-occupied unit when

lending program funds to rehabilitate the unit, if overall housing

costs of the borrower will be reduced and made more affordable. This

means a PJ can make one loan to the homeowner to repay existing private

debt and provide the rehabilitation loan. HOME funds cannot be used to

pay the transaction costs of privately refinancing the existing debt.

Section 92.206(a)(3) is revised to clarify the eligibility of

demolition, utility connections and site improvements associated with

new construction and rehabilitation. This section clarifies that off-

site utility connections from the property line to the adjacent street

are eligible. It also provides that site improvements may include on-

site roads and water and sewer lines necessary to the development of

the project. The project site is defined as the property, owned by the

project owner, upon which the project is located.

Section 92.206(c)(5) is clarified by adding the modifier

``project'' before ``operating expenses'' to distinguish these costs

from CHDO operating expenses, which are now covered under Sec. 92.208.

As discussed above, a new Sec. 92.206(c)(6) makes staff and

overhead costs eligible as a ``related soft cost'' of a project.

A new Sec. 92.206(c)(7) is added to make the payment of impact fees

that are commonly charged for all projects within a jurisdiction, an

eligible cost for new construction and rehabilitation, and the

prohibition against impact fees at Sec. 92.214(a)(8) is deleted.

Section 92.206(g) is redesignated as Sec. 92.208, and a technical

correction is made in this section to change the reference concerning

requirements and limitations on the receipt of operating expenses by

community housing development organizations from Sec. 92.301 (e) and

(f) to Sec. 92.300 (e) and (f). Capacity building costs under

Sec. 92.300(b) are also specifically listed as eligible HOME costs in

Sec. 92.208(b).

A request was received for clarification of Sec. 92.211(a)(2),

amended by the December 22,1992 interim rule to implement an HCDA 1992

amendment that replaces the use of the Section 8 waiting list as the

selection criterion for families eligible to receive HOME-funded

tenant-based rental assistance. This assistance is now provided in

accordance with a participating jurisdiction's written tenant selection

policies and criteria that are consistent with the purposes of

providing housing to very low- and low-income families and are

reasonably related to preference rules established under section

6(c)(4)(A) of the Housing Act of 1937 (42 U.S.C. 1437 et. seq.)

Questions arise because of uncertainty concerning the meaning of

``reasonably related to'' the preference rules under section 6(c)(4)(A)

of the Housing Act of 1937. These preference rules provide for local

rental assistance programs in which at least 70% of the families

assisted meet Federal preferences and 30% meet local preferences. For

example, a Federal preference exists for homeless families. The HOME

tenant-based rental assistance (TBRA) written selection policy may

provide a preference to families that, although not presently homeless,

are likely to be homeless in the near future. This may be the case for

families in transitional housing, which is provided for only a set time

period, or for families living temporarily with relatives or friends.

Section 92.211(a)(2) is amended by adding a clarifying sentence to

state that ``reasonably related'' means that the PJs may provide TBRA

to families who currently meet a Federal preference or who because of

circumstances would qualify in the near future for one of the three

Federal preferences under section 6(c)(4)(A) of the Housing Act of 1937

without tenant-based rental assistance. These preferences are: (1)

Families that occupy substandard housing (including families that are

homeless or living in a shelter for homeless families); (2) families

that are paying more than 50 percent of family income for rent; or (3)

families that are involuntarily displaced.

Comments were received that objected to the requirements at

Sec. 92.211(f)(3) that limit a PJ's ability to establish TBRA payment

standards based on local market conditions and a determination of rent

reasonableness. The Department agrees that participating jurisdictions

should be given greater discretion in the implementation of the HOME

program, and Sec. 92.211(f)(3) is amended accordingly.

In response to several questions concerning eligible acquisition

costs, the list of prohibited activities at Sec. 92.214 is revised to

prohibit the use of HOME funds to acquire property owned by a

participating jurisdiction, except for property acquired by the

participating jurisdiction with HOME funds, or property acquired in

anticipation of carrying out a HOME project. Such a transaction could

not be considered a bona fide acquisition, since the participating

jurisdiction owns the property and is providing assistance to buy the

property. The element of an arm's length transaction is not present.

This prohibition is added as paragraph (a)(8), which previously

referred to impact fees.

In addition to the change (which appeared in the proposed rule) to

Sec. 92.218(a) to substitute ``housing that qualifies as affordable

housing under the HOME program'' for ``affordable housing assisted with

HOME funds,'' Sec. 92.218(c) is revised to give the new citations to

the references to eligible costs. A new paragraph (e) is also added to

Sec. 92.218 to clarify that contributions that have been or will be

counted towards satisfying a matching requirement of another Federal

grant or award may not count toward satisfying the matching

contribution requirement for the HOME program. This clarification is

based on the language in the Department's common rule on uniform

requirements for grants to State and local governments at 24 CFR

85.24(b)(3).

Eight comments opposed the policy outlined in the proposed rule

that a PJ's contribution to a state or local tenant-based rental

assistance program is not eligible as match. One comment pointed out

some State constitutions prohibit the use of State funds for the

development of private property. These States often have extensive TBRA

programs to provide affordable housing. If TBRA is not allowable for

match purposes, then these States would be limited in their ability to

meet their match requirements.

The Department has been convinced by such arguments to permit local

contributions to TBRA (but not related administrative costs) to be used

for match. Section 92.219(b) is amended to permit match credit for TBRA

which meets the provisions of Secs. 92.210, 92.211 and 92.253(a) and

(b). This parallels the approach taken for local contributions to

affordable housing which is not HOME-assisted, but which must still

conform to certain HOME requirements to be considered ``affordable.''

This interim rule also provides clarification, made in response to

a number of comments that requested additional guidance, on what HOME

requirements apply to projects in which state or local investment of

funds are being counted as match. PJs must establish a procedure to

monitor these HOME-eligible projects to ensure continued compliance

with the requirements of 92.203 (income determinations), 92.210 (TBRA-

security deposits), 92.211 (TBRA, except for 92.211(c), Term of rental

assistance contract) 92.252 (rental) 92.253 (tenant protections) and

92.254 (ownership), but the units are not subject to the annual on-site

inspections or recertification of income and rents as HOME projects

are. HOME administrative funds may be used to monitor these projects

for compliance with HOME requirements. No other HOME requirements

apply, including the cross-cutting requirements of subpart H of part

92, to non-assisted projects counted as match. Investment in units

other than affordable units does not count as match, and Sec. 92.219(c)

is amended to reflect this.

In general, contributions in HOME-eligible projects will be counted

in the same manner as match contributions in HOME-assisted projects. A

contribution will be counted only to the extent it is a permanent

contribution and repayments are placed in the HOME local account. Once

deposited in the HOME account the funds must be used for HOME-eligible

projects; funds from repayments do not have to be matched but can not

count as match. The contribution itself may be for any eligible forms

of match except those in Sec. 92.220(a) (2) and (4), which by statute

must be made for affordable housing assisted with HOME funds.

Section 92.220(a)(1) is expanded to clarify that repayments of

matching contributions in HOME-assisted projects, or in affordable

housing projects that are not HOME-assisted in accordance with

Sec. 92.219(b), must be made to the local HOME account to earn match

credit for the full loan amount. In both cases, HOME-assisted and non-

HOME-assisted affordable housing projects, the contribution must be

contributed permanently to the project in order to qualify as match.

Section 92.220(a)(2) is revised and expanded to permit as an

eligible form of match contribution all taxes, fees, and other charges

that are imposed or charged on projects and waived by a State or local

government. Before this change, only such charges waived by a

participating jurisdiction were eligible.

Additional guidance on the match eligibility of contributions of

land is provided in this rule. The general rule that the value of land

not acquired with federal resources is a permissible form of matching

contribution is still applicable. The reason for excluding land

acquired with federal resources is that the authorizing statute for the

HOME Program permits cash contributions only from non-federal resources

as an eligible form of match. The ineligibility of federal resources

cannot be circumvented by purchasing land with federal resources (for

example, with CDBG funds) and then contributing the land to a HOME

project in order to obtain match credit.

However, the question has arisen of whether or not the difference

between the fair market value and the purchase price of land acquired

with federal resources and donated to affordable housing would be an

eligible form of match. The Department recognizes that this difference

in value could qualify as an eligible contribution, but also recognizes

that there are inherent difficulties in distinguishing between when

such a transaction would merely be a ``good buy'' and when it would

constitute a true contribution for match purposes. To provide guidance

on this question so that match credit may be recognized for this form

of contribution, Sec. 92.220(a)(3) is revised to state that the

acquisition cost in such a transaction must be demonstrably below the

appraised value and must be acknowledged by the seller as a donation to

affordable housing at the time of acquisition. Property that is

acquired with federal assistance must be acquired specifically for

HOME-assisted housing or for affordable housing that will be counted as

match pursuant to Sec. 92.219(b)(2). If these conditions are met, the

full value of the difference in price may be claimed for match credit.

Two comments disagreed with the prohibition in

Sec. 92.220(a)(5)(iii) against permitting carryover of excess match

related to bond proceeds to apply to subsequent years' 25 percent

limitation. Upon reconsideration, the Department agrees that such a

carryover is appropriate, and this interim rule permits it.

In Sec. 92.221, the provision that defines when bond proceeds are

recognized as match, which appeared as paragraph (b)(6) in the proposed

rule, is added as paragraph (a)(7). This is because in the period

between the publication of the proposed rule and this interim rule, an

interim rule was published on June 23, 1993 (58 FR 34130) that revised

the structure of Sec. 92.221. In addition, a new paragraph (c) is added

to Sec. 92.221 to clarify which entity receives match credit for a

contribution. The general rule is that the PJ that makes the match

investments in HOME-assisted or HOME-eligible projects is the entity

that receives the match credit. If a non-PJ makes a contribution for

affordable housing to a PJ, the PJ receives the match credit. By way of

additional clarification, the interim rule also declares that a State

that makes a contribution to a local participating jurisdiction to be

used for affordable housing, whether or not HOME-assisted, may take the

match credit for itself or may permit the local participating

jurisdiction to recognize the match credit.

Seven comments were received on the proposed revisions to

Sec. 92.222 on reduction of the matching contribution requirement.

These comments were generally favorable, especially concerning the two

year match reduction period provision at Sec. 92.222(a)(4). A few

comments suggested alternative criteria to use for local government

participating jurisdictions, but these criteria are established by

statute, and the interim rule merely repeats the statutory language.

There were also suggestions to use other distress criteria, such as

changes in non-agricultural employment or in State taxes collected, for

State participating jurisdictions. However, for the reasons stated in

the preamble to the proposed rule, this portion of the interim rule

remains unchanged. The list of State participating jurisdictions that

qualify for this match reduction is published as a Notice elsewhere in

this issue of the Federal Register.

In response to a number of inquiries, this interim rule provides

clarification of the adjustment of HOME rents. Section 92.252(a)(1)

requires that in order to qualify as affordable housing, a project must

bear rents not greater than the lesser of FMR or 30 percent of the

adjusted income of a family whose gross income equals 65 percent of the

median income for the area. Section 92.252(a)(2) requires further rent

limitations on the 20 percent of units in each project which must be

occupied by very low-income families. The adjustment of qualifying

rents is addressed in Sec. 92.252(d), which is amended to clarify that

the rent ceilings for HOME projects do not fall below the HOME rent for

the project in effect at the time of project commitment. This is

permitted to ensure the continued financial viability of the project

and for consistency with the low-income housing tax credit statute.

Section 92.252(a)(2) includes as a rent limitation for the

qualification of projects with three or more rental units as affordable

housing that not less than 20 percent of the units be occupied by very

low-income families and bear rents not greater than 30 percent of the

gross income of a family whose income equals 50 percent of the median

income for the area. The Department has received indications that,

depending upon the FMR or the differences in adjusted and gross income,

the use of this formula, which is intended to produce a lower HOME rent

than that computed under Sec. 92.252(a)(1), results in a higher rent

than under Sec. 92.252(a)(1). To prevent very low-income families from

potentially paying more rent than low-income families, a new

Sec. 92.252(a)(2)(iii) is added to specify that the lowest rent

computed under either Secs. 92.252(a) (1) or (2) is applicable to units

occupied by very low-income families.

A correction is made in this interim rule concerning the

foreclosure provisions of Sec. 92.252(a)(5) to parallel the revision

made in the June 23, 1993 interim rule to Sec. 92.254(a)(4)(i)(B).

A number of clarifying amendments are being made to the

homeownership affordability requirements of Sec. 92.254(a). In response

to comments criticizing the length of the affordability period imposed

upon first-time homebuyers regardless of the amount of HOME assistance

received, this interim rule amends Sec. 92.254(a) to make it conform to

the Sec. 92.252(a)(5) table that provides differing affordability

periods for rental units depending upon the amount of the HOME

investment. The 20-year affordability period for newly constructed

housing, regardless of the amount of HOME funds invested, has been

eliminated for homeownership activities.

Two additional clarifying changes are made to Sec. 92.254(a) in

this rule. A sentence is added to Sec. 92.254(a)(4)(ii)(C) to specify

that the HOME investment subject to recapture is the HOME assistance

that enabled the first-time homebuyer to buy the dwelling unit,

including any HOME assistance that reduced the purchase price from fair

market value to an affordable price, such as subsidizing construction

financing costs or other development costs. The second change to this

section provides guidance with respect to two-to-four unit first-time

homebuyer projects. New paragraph (a)(4)(ii)(D) states that when HOME

funds are used in two-to-four unit first-time homebuyer projects, upon

recapture of the HOME funds the affordability periods on the rental

units may be terminated.

Technical corrections to change the references to 24 CFR 203.18(b)

in Secs. 92.254(a)(1)(i) and 92.254(b)(1)(i) to 24 CFR 203.18b are made

by this rule.

Six comments were received regarding the ``floating'' units

amendment to Sec. 92.255, all of them favorable. As explained in the

preamble to the proposed rule, the Department is amending the procedure

for housing project owners to designate those units in a property that

are HOME-assisted units. Formerly, specific units were designated as

the HOME units, and that designation was fixed for the term of the

affordability period. To provide more program flexibility, this interim

rule adds new language to Sec. 92.255 that permits the participating

jurisdiction to use a system of ``floating'' units that may be changed

over the affordability period, so long as the total number of units

remains the same and the substituted units are at least comparable in

terms of size, features, and number of bedrooms to the originally

designated HOME-assisted units.

Additional guidance is provided in Sec. 92.256 by clarifying that

the requirement that residential living space must constitute at least

51 percent of the project space is significant only for purposes of

counting the contribution in the non-residential portion of the

property as match. The concern in making this change is that this

section was being misinterpreted to mean that a project required at

least 51 percent residential living space to permit the use of HOME

funds.

The ECHO housing provisions of Secs. 92.259 and 92.625 were

addressed in two comments that were generally favorable. One of the

comments pointed out differences in the two sections and recommended

that they be made uniform. The two sections are, in fact, identical

except for the differences necessary to accommodate the general HOME

program and the program as modified for Indian tribes in subpart M of

the rule.

In Sec. 92.300(b), the language concerning the availability of a

percentage of the minimum CHDO setaside for capacity building is

amended from ``may be expended'' to ``may be committed'' to allow

participating jurisdictions more flexibility in using HOME funds for

this purpose. Corrections are made to change the references in

Secs. 92.300 (e) and (f) from operating expenses provided under

Sec. 92.206(g) to operating expenses provided under Sec. 92.208, and to

change the reference in Sec. 92.300(f) from administrative funds under

Sec. 92.206(f) to administrative funds under Sec. 92.207, to conform

these citations to this rule's reorganization of eligible costs.

Section 92.354(a) is revised to clarify the applicability of the

Davis-Bacon Act to the HOME Program. The revision makes clear that the

Davis-Bacon wage provisions apply if HOME funds are used for any

project costs (as defined at Sec. 92.206), including construction or

nonconstruction costs, of housing with 12 or more assisted units. Once

applicable, these wage provisions apply to all laborers and mechanics

employed in the development of the entire project, as defined in

Sec. 92.2, including portions other than the assisted units. The

interim rule specifies that if HOME funds are only used to assist

first-time homebuyers to acquire single-family housing and not for any

other project costs, these wage provisions apply to the construction of

housing containing 12 or more units when there is a written agreement

with the owner or developer of the housing that the HOME funds will be

used to assist first-time homebuyers to buy the housing.

A conforming change is made to Sec. 92.502(b)(1) that is necessary

because of the amendment made to the definition of commitment in

Sec. 92.2, discussed above.

This interim rule eases the requirements of Sec. 92.504(e)(1) by

permitting on-site review once within a two-year period for rental

housing containing 25 HOME-assisted units or less.

Finally, in Sec. 92.508, paragraph (a)(4)(v) is revised to make a

conforming change, related to the reorganization of eligible costs,

from a reference to Sec. 92.206(g) to a reference to Sec. 92.208.

III. Findings and Certifications

Environmental Review

A Finding of No Significant Impact with respect to the environment

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

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

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

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

Office of the Rules Docket Clerk.

Regulatory Planning and Review

This interim rule has been reviewed and approved in accordance with

Executive Order 12866, issued by the President on September 30, 1993

(58 FR 51735, October 4, 1993). Any changes to the interim rule

resulting from this review are available for public inspection between

7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules Docket

Clerk.

Impact on Small Entities

In accordance with the Regulatory Flexibility Act (5 U.S.C.

605(b)), the undersigned hereby certifies that this interim rule does

not have a significant economic impact on a substantial number of small

entities, because jurisdictions that are statutorily eligible to

receive formula allocations are relatively larger cities, counties or

States.

Regulatory Agenda

This interim rule was listed as item number 1472 in the

Department's Semiannual Agenda of Regulations published on October 25,

1993 (58 FR 56402, 56416) under Executive Order 12291 and the

Regulatory Flexibility Act.

Federalism Impact

The General Counsel has determined, as the Designated Official for

HUD under section 6(a) of Executive Order 12612, Federalism, that this

interim rule does not have federalism implications concerning the

division of local, State, and federal responsibilities. While the HOME

Program interim rule amended by this interim rule was determined to be

a rule with federalism implications and the Department submitted a

Federalism Assessment concerning the interim rule to OMB, this amending

rule only makes limited adjustments to the interim rule and does not

significantly affect any of the factors considered in the Federalism

Assessment for the interim rule.

Impact on the Family

The General Counsel, as the designated official under Executive

Order 12606, The Family, has determined that this interim rule would

not have significant impact on family formation, maintenance, and

general well-being. Assistance provided under this interim rule can be

expected to support family values, by helping families achieve security

and independence; by enabling them to live in decent, safe, and

sanitary housing; and by giving them the means to live independently in

mainstream American society. This interim rule would not, however,

affect the institution of the family, which is requisite to coverage by

the Order. Even if this interim rule had the necessary family impact,

it would not be subject to further review under the Order, since the

provision of assistance under this interim rule is required by statute,

and is not subject to agency discretion.

The Catalog of Federal Domestic Assistance Number for the HOME

Program is 14.239.

List of Subjects in 24 CFR Part 92

Administrative practice and procedure, Grant programs--housing and

community development, Grant programs--Indians, Indians, Low and

moderate income housing, Manufactured homes, Rent subsidies, Reporting

and recordkeeping requirements.

Accordingly, the Department amends part 92 of title 24 of the Code

of Federal Regulations as follows:

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

1. The authority citation for part 92 continues to read as follows:

Authority: 42 U.S.C. 3535(d) and 12701-12839.

2. In Sec. 92.2, the definition for ``Administrative costs'' is

removed, and the definitions for ``Commit to a specific local project

or commitment'', paragraph (4) of ``Community housing development

organization'', ``Housing'', ``Reconstruction'', and ``Single room

occupancy (SRO)'', are revised to read as follows:

Sec. 92.2 Definitions.

* * * * *

Commitment means:

(1) The participating jurisdiction has entered into a legally

binding agreement with a state recipient, a subrecipient, or a

contractor to use a specific amount of HOME funds to produce affordable

housing or provide tenant-based rental assistance or has entered into a

written agreement reserving a specific amount of funds to a CHDO, or

commit to a specific local project, as defined in paragraph (2) of this

definition.

(2) Commit to a specific local project, which means:

(i) For a project which is privately owned when the commitment is

made:

(A) If the project is for rehabilitation or new construction, a

written legally binding agreement between the participating

jurisdiction and the project owner under which the participating

jurisdiction (or other entity receiving HOME funds directly from HUD,

state recipient, or subrecipient) agrees to provide HOME assistance to

the owner for an identifiable project as defined in this part that can

reasonably be expected to start construction within twelve months of

the agreement and in which the owner agrees to start construction

within that period.

(B) If funds are used for tenant-based rental assistance, the

participating jurisdiction (or other entity receiving HOME funds

directly from HUD, state recipient, or subrecipient) has entered into a

rental assistance contract with the owner or the tenant in accordance

with the provisions of Sec. 92.211.

(C) If the project is for acquisition, a written legally binding

agreement, i.e., contract for sale, between the participating

jurisdiction (or other entity receiving HOME funds directly from HUD,

state recipient, or subrecipient) and the project owner under which the

participating jurisdiction (or other entity receiving HOME funds

directly from HUD, state recipient, or subrecipient) agrees to provide

HOME assistance to the owner for purchase of the project that can

reasonably be expected to be accomplished within six months of the

agreement and in which the owner agrees to transfer title within that

period.

(ii) For a project that is publicly owned when the commitment is

made, the Project Set-Up Report submitted under the Cash and Management

Information System which identifies a specific project that will start

construction within twelve months of receipt of the Project Set-Up

Report.

(iii) Under both paragraphs (2)(i) and (ii) of this definition, the

date HUD enters into the Cash and Management Information System

(Sec. 92.502) an acceptable Project Set-Up Report for a project is

deemed to be the date of project commitment.

Community housing development organization means a private

nonprofit organization that

* * * * *

(4) Has a tax exempt ruling from the Internal Revenue Service under

section 501(c)(3) or (4) of the Internal Revenue Code of 1986;

* * * * *

Housing includes manufactured housing and manufactured housing

lots. Housing also includes elder cottage housing opportunity (ECHO)

units that are small, free-standing, barrier-free, energy-efficient,

removable, and designed to be installed adjacent to existing single-

family dwellings. Housing does not include emergency shelters.

* * * * *

Reconstruction means the rebuilding, on the same lot, of housing

standing on a site at the time of project commitment. The number of

housing units on the lot may not be decreased or increased as part of a

reconstruction project, but the number of rooms per unit may be

increased or decreased. The reconstructed housing must be substantially

similar (i.e., single- or multi-family housing) to the original

housing. Reconstruction also includes replacing an existing substandard

unit of manufactured housing with a new or standard unit of

manufactured housing. Reconstruction is rehabilitation for purposes of

this part.

* * * * *

Single room occupancy (SRO) housing means housing consisting of

single room dwelling units that is the primary residence of its

occupant or occupants. The unit must contain either food preparation or

sanitary facilities (and may contain both) if the project consists of

new construction, conversion of non-residential space, or

reconstruction. For acquisition or rehabilitation of an existing

residential structure, neither food preparation or sanitary facilities

is required to be in the unit. If the units do not contain sanitary

facilities, the building must contain sanitary facilities that are

shared by tenants. SRO does not include facilities for students.

* * * * *

3. Section 92.4 is added to read as follows:

Sec. 92.4 Expiration of interim rule.

This part shall expire and shall not be in effect after June 30,

1995, unless it is published as a final rule or the Department

publishes a notice in the Federal Register to extend the effective

date.

4. In Sec. 92.50, paragraph (f) is redesignated as paragraph (d)(5)

and revised to read as follows:

Sec. 92.50 Formula allocation.

* * * * *

(d) * * *

(5) For the purpose of determining the formula allocation in fiscal

years in which Congress appropriates less than $1.5 billion of HOME

funds, $335,000 is substituted for $500,000 each time it appears in

this paragraph (d), and $167,500 is substituted for $250,000 each time

it appears in this paragraph (d).

* * * * *

5. In Sec. 92.61, the section heading is revised to read,

Sec. 92.61 Program description.

6. In Sec. 92.64, paragraph (a)(1) is revised to read as follows:

Sec. 92.64 Applicability of requirements to insular areas.

(a) * * *

(1) Subpart E (Program Requirements): Administrative costs, as

described in Sec. 92.207, are eligible costs for insular areas in an

amount not to exceed 15 percent of the HOME funds provided to the

insular area. The matching contribution requirements in this part do

not apply.

* * * * *

7. In Sec. 92.150, paragraph (b)(2) is revised to read as follows:

Sec. 92.150 Submission of program description and certifications.

* * * * *

(b) * * *

(2) For a local participating jurisdiction, the estimated use of

HOME funds and of matching contributions (consistent with its approved

housing strategy) for each of the following categories of eligible

activities: New construction, substantial rehabilitation, other

rehabilitation, acquisition (not involving new construction or

rehabilitation), tenant-based rental assistance, administrative

expenses, and community housing development organization (CHDO)

operating expenses, and an estimate of whether units assisted will be

rental or owner-occupied;

* * * * *

8. In Sec. 92.204, paragraph (a)(1) is revised to read as follows:

Sec. 92.204 Applicability of requirements to entities that receive a

reallocation of HOME funds, other than participating jurisdictions.

(a) * * *

(1) Subpart E (Program Requirements) of this part: The matching

contribution requirements in Sec. 92.218 through Sec. 92.221 do not

apply.

* * * * *

9. In Sec. 92.205, paragraph (a)(1) is revised to read as follows:

Sec. 92.205 Eligible activities: General.

(a) * * *

(1) HOME funds may be used by a participating jurisdiction to

provide incentives to develop and support affordable rental housing and

homeownership affordability through the acquisition (including

assistance to first-time homebuyers), new construction, reconstruction,

or moderate or substantial rehabilitation of non-luxury housing with

suitable amenities, including real property acquisition, site

improvement, conversion, demolition, and other expenses, including

financing costs, relocation expenses of any displaced persons,

families, businesses, or organizations, to provide tenant-based rental

assistance, including security deposits; to provide payment of

reasonable administrative and planning costs; and to provide for the

payment of operating expenses of community housing development

organizations. The housing must be permanent or transitional housing,

and includes permanent housing for disabled homeless persons, and

single-room occupancy housing. The specific eligible costs for these

activities are set forth in Secs. 92.206 through 92.209.

* * * * *

10. In Sec. 92.206, the section heading, paragraphs (a)(2), (a)(3),

paragraph (b), the introductory text of paragraph (c), and paragraphs

(c)(5), (d) and (e) are revised; paragraphs (c)(6) and (c)(7) are

added; and paragraphs (f) and (g) are removed, to read as follows:

Sec. 92.206 Eligible project costs.

(a) * * *

(2) For rehabilitation, costs:

(i) To meet the applicable rehabilitation standards of the

participating jurisdiction or correct substandard conditions to,

minimally, the housing quality standards at Sec. 882.109 of this title;

(ii) To make essential improvements, including energy-related

repairs or improvements, improvements necessary to permit use by

handicapped persons, and the abatement of lead-based paint hazards, as

required by Sec. 92.355, and to repair or replace major housing systems

in danger of failure; and

(iii) To refinance existing debt secured by a single-family owner-

occupied unit when loaning HOME funds to rehabilitate the unit, if the

overall housing costs of the borrower will be reduced and made more

affordable.

(3) For both new construction and rehabilitation, costs:

(i) To demolish existing structures;

(ii) To make utility connections including off-site connections

from the property line to the adjacent street; and

(iii) To make improvements to the project site that are in keeping

with improvements of surrounding, standard projects. Site improvements

may include on-site roads and sewer and water lines necessary to the

development of the project. The project site is the property, owned by

the project owner, upon which the project is located.

(b) Acquisition costs. Costs of acquiring improved or unimproved

real property, including acquisition by first-time homebuyers.

(c) Related soft costs. Other reasonable and necessary costs

incurred by the owner or participating jurisdiction and associated with

the financing, or development (or both) of new construction,

rehabilitation or acquisition of housing assisted with HOME funds.

These costs include, but are not limited to:

* * * * *

(5) For new construction or substantial rehabilitation, the cost of

funding an initial operating deficit reserve, which is a reserve to

meet any shortfall in project income during the period of project rent-

up (not to exceed 18 months) and which may only be used to pay project

operating expenses, reserve for replacement payments, and debt service.

Any HOME funds placed in an operating deficit reserve that remain

unexpended when the reserve terminates must be returned to the

participating jurisdiction's local HOME Investment Trust Fund account.

(6) Staff and overhead costs directly related to carrying out the

project, such as work specifications preparation, loan processing

inspections, and other services related to assisting potential owners,

tenants, and homebuyers, e.g., housing counseling, may be charged to

project costs only if the project is funded and the individual becomes

the owner or tenant of the HOME-assisted project. For multi-unit

projects, such costs must be allocated among HOME-assisted units in a

reasonable manner and documented.

(7) For both new construction and rehabilitation, costs for the

payment of impact fees that are charged for all projects within a

jurisdiction.

(d) Community housing development organization (CHDO) project

specific assistance under Sec. 92.301.

(e) Relocation costs. The cost of relocation payments and other

relocation assistance to persons displaced by the project are eligible

costs.

(1) Relocation payments include replacement housing payments,

payments for moving expenses, and payments for reasonable out-of-pocket

costs incurred in the temporary relocation of persons.

(2) Other relocation assistance means staff and overhead costs

directly related to providing advisory and other relocation services to

persons displaced by the project, including timely written notices to

occupants, referrals to comparable and suitable replacement property,

property inspections, counseling, and other assistance necessary to

minimize hardship.

11. Section 92.207 is added to read as follows:

Sec. 92.207 Eligible administrative and planning costs.

A participating jurisdiction may expend, for payment of reasonable

administrative and planning costs of the HOME program, an amount of

HOME funds that is not more than ten percent of the fiscal year HOME

basic formula allocation plus any funds received in accordance with

Sec. 92.102(b) to meet or exceed participation threshold requirements

that fiscal year. A State that transfers any HOME funds in accordance

with Sec. 92.102(b) must exclude these funds in calculating the amount

it may expend for administrative and planning costs. A participating

jurisdiction may also use up to ten percent of any return of the HOME

investment, as defined in Sec. 92.503, calculated at the time of

deposit in its local HOME account, for administrative and planning

costs. Reasonable administrative and planning costs includes:

(a) General management, oversight and coordination. Reasonable

costs of overall program management, coordination, monitoring, and

evaluation. Such costs include, but are not limited to, necessary

expenditures for the following:

(1) Salaries, wages, and related costs of the participating

jurisdiction's staff. In charging costs to this category the

participating jurisdiction may either include the entire salary, wages,

and related costs allocable to the program of each person whose primary

responsibilities with regard to the program involves program

administration assignments, or the prorated share of the salary, wages,

and related costs of each person whose job includes any program

administration assignments. The participating jurisdiction may use only

one of these methods. Program administration includes the following

types of assignments:

(i) Developing systems and schedules for ensuring compliance with

program requirements;

(ii) Developing interagency agreements and agreements with entities

receiving HOME funds;

(iii) Monitoring HOME-assisted housing for progress and compliance

with program requirements;

(iv) Developing agreements and monitoring housing not assisted with

HOME funds that the participating jurisdiction designates as a matching

contribution in accordance with Sec. 92.219(b) for compliance with

applicable program requirements;

(v) Preparing reports and other documents related to the program

for submission to HUD;

(vi) Coordinating the resolution of audit and monitoring findings;

(vii) Evaluating program results against stated objectives; and

(viii) Managing or supervising persons whose primary

responsibilities with regard to the program include such assignments as

those described in paragraph (a)(1) (i) through (vii) of this section;

(2) Travel costs incurred for official business in carrying out the

program;

(3) Administrative services performed under third party contracts

or agreements, including such services as general legal services,

accounting services, and audit services; and

(4) Other costs for goods and services required for administration

of the program, including such goods and services as rental or purchase

of equipment, insurance, utilities, office supplies, and rental and

maintenance (but not purchase) of office space.

(5) Costs of administering tenant-based rental assistance programs.

(b) Staff and overhead. Staff and overhead costs directly related

to carrying out the project, such as work specifications preparation,

loan processing inspections, and other services related to assisting

potential owners, tenants, and homebuyers (e.g., housing counseling).

Staff and overhead costs directly related to providing advisory and

other relocation services to persons displaced by the project,

including timely written notices to occupants, referrals to comparable

and suitable replacement property, property inspections, counseling,

and other assistance necessary to minimize hardship. These costs may be

charged as administrative costs or as project costs under Sec. 92.206

(c)(6) and (e)(2), at the discretion of the participating jurisdiction.

(c) Public information. The provision of information and other

resources to residents and citizen organizations participating in the

planning, implementation, or assessment of projects being assisted with

HOME funds.

(d) Fair housing. Activities that affirmatively further fair

housing.

(e) Indirect Costs. Indirect costs may be charged to the HOME

program under a cost allocation plan prepared in accordance with OMB

Circulars A-87 or A-122 as applicable.

(f) Submission of the housing strategy. Preparation of the housing

strategy required under 24 CFR part 91. Preparation includes the costs

of public hearings, consultations, and publication.

12. Section 92.208 is added to read as follows:

Sec. 92.208 Eligible CHDO operating expense and capacity building

costs.

(a) Up to 5 percent of a participating jurisdiction's fiscal year

HOME allocation may be used for the operating expenses of community

housing development organizations (CHDOs). These funds may not be used

to pay operating costs incurred by a CHDO acting as a subrecipient or

contractor under the HOME Program. The requirements and limitations on

the receipt of these funds by CHDOs are set forth in Sec. 92.300 (e)

and (f).

(b) HOME funds may be used for capacity building costs under

Sec. 92.300(b).

13. Section 92.209 is added to read as follows:

Sec. 92.209 Eligible costs related to tenant-based rental assistance.

Eligible costs are the rental assistance and security deposit

payments made to provide tenant-based rental assistance for a family.

Administration of tenant-based rental assistance is eligible only under

general management oversight and coordination at Sec. 92.207(a).

14. In Sec. 92.211, paragraphs (a)(2) and (f)(3) are revised, and

paragraph (a)(3) is added, to read as follows:

Sec. 92.211 Tenant-based rental assistance.

(a) * * *

(2) The participating jurisdiction selects families in accordance

with written tenant selection policies and criteria that are consistent

with the purposes of providing housing to very low- and low-income

families and are reasonably related to preference rules established

under section 6(c)(4)(A) of the Housing Act of 1937 (42 U.S.C. 1437 et.

seq.). Selection policies and criteria meet the ``reasonably related''

requirement if at least 70% of the families assisted qualify, or would

qualify in the near future without the tenant-based rental assistance,

for one of the three Federal preferences under section 6(c)(4)(A) of

the Housing Act of 1937. These are families that occupy substandard

housing (including families that are homeless or living in a shelter

for homeless families); families that are paying more than 50 percent

of (gross) family income for rent; or families that are involuntarily

displaced. The participating jurisdiction may select low-income

families currently residing in units that are designated for

rehabilitation or acquisition under the participating jurisdiction's

HOME program without requiring that the family meet the written tenant

selection policies and criteria. Families so selected may use the

tenant-based assistance in the rehabilitated or acquired unit or in

other qualified housing.

(3) A participating jurisdiction may require the family to use the

tenant-based assistance within the participating jurisdiction's

boundaries or may permit the family to use the assistance outside its

boundaries.

* * * * *

(f) * * *

(3) The participating jurisdiction's rent standard for a unit size

must based on:

(i) Local market conditions; or

(ii) May not be less, for each unit size, than 80 percent of the

published Section 8 Existing Housing fair market rent (in effect when

the payment standard amount is adopted) nor more than the fair market

rent or HUD-approved community-wide exception rent (in effect when the

participating jurisdiction adopts its rent standard amount).

(Community-wide exception rents are maximum gross rents approved by HUD

for the Rental Certificate Program under 882.106(a)(3) of this title

for a designated municipality, county, or similar locality, which apply

to the whole PHA jurisdiction.) A participating jurisdiction may

approve on a unit-by-unit basis a subsidy based on a rent standard that

exceeds the applicable fair market rent by up to 10 percent for 20

percent of units assisted.

* * * * *

15. In Sec. 92.214, paragraph (a)(8) is revised to read as follows:

Sec. 92.214 Prohibited activities.

(a) * * *

(8) Pay for the acquisition of property owned by the participating

jurisdiction, except for property acquired by the participating

jurisdiction with HOME funds, or property acquired in anticipation of

carrying out a HOME project.

* * * * *

16. In Sec. 92.218, paragraphs (a) introductory text and (c) are

revised, and a new paragraph (e) is added, to read as follows:

Sec. 92.218 Amount of matching contribution.

(a) Each participating jurisdiction must make contributions to

housing that qualifies as affordable housing under the HOME program,

throughout a fiscal year. The contributions must total not less than:

* * * * *

(c) HOME funds used for administrative and planning costs (pursuant

to Sec. 92.207), CHDO operating expenses (pursuant to Sec. 92.208) and

capacity building (pursuant to Sec. 92.300(b)) of community housing

development organizations are not required to be matched.

* * * * *

(e) Contributions that have been or will be counted towards

satisfying a matching requirement of another Federal grant or award may

not count toward satisfying the matching contribution requirement for

the HOME program.

17. Section 92.219 would be revised to read as follows:

Sec. 92.219 Recognition of matching contribution.

(a) Match contribution to HOME-assisted housing. A contribution is

recognized as a matching contribution if:

(1) It is made with respect to a tenant who is assisted with HOME

funds; or

(2) It is made with respect to HOME-assisted housing; or

(3) It is made with respect to any portion of a project (including

a mixed-use project under Sec. 92.256) not less than 50 percent of the

dwelling units of which are HOME-assisted.

(b) Match contribution to affordable housing that is not HOME-

assisted. The following requirements apply for recognition of matching

contributions made to affordable housing that is not HOME-assisted:

(1) For tenant-based rental assistance (TBRA) that is not HOME-

assisted: (i) The contribution must be made with respect to a tenant

who is assisted with tenant-based rental assistance that meets the

requirements of Secs. 92.203 (income determinations), 92.210 (security

deposits), 92.211 (TBRA, except for 92.211(c), term of rental

assistance contract), and 92.253(a) and (b) (tenant protections); and

(ii) The participating jurisdiction must demonstrate in writing

that such assistance meets the provisions of Secs. 92.203, 92.210,

92.211, and 92.253(a) and (b).

(2) For affordable housing projects that are not HOME-assisted: (i)

The contribution must be made with respect to housing that qualifies as

affordable housing under Sec. 92.252 or Sec. 92.254.

(ii) The participating jurisdiction or its instrumentality must

execute, with the owner of the housing (or, if the participating

jurisdiction is the owner, with the manager or developer), a written

agreement that imposes and enumerates all of the affordability

requirements from Sec. 92.252 and Sec. 92.253(a) and (b) (tenant

protections), or Sec. 92.254, whichever are applicable, the property

standards requirements of Sec. 92.251, and income determinations made

in accordance with Sec. 92.203. This written agreement must be executed

before any match contributions may be made.

(iii) A participating jurisdiction must establish a procedure to

monitor these HOME match-eligible projects to ensure continued

compliance with the requirements of Secs. 92.203 (income

determinations), 92.252(rental), 92.253(a) and (b) (tenant protections)

and 92.254 (ownership). No other HOME requirements apply.

(iv) The match contribution may be in any eligible form of match

except those in Secs. 92.220(a)(2) and (4).

(v) Match contributions to mixed-use or mixed-income projects that

contain affordable housing units will be recognized only if the

contribution is made to the project's affordable housing units.

(c) In addition to the requirements of paragraphs (a) and (b) of

this section, a cash contribution is recognized as a matching

contribution only if it is used for costs eligible under Secs. 92.206

or 92.209, or for the following costs (which are not eligible costs for

HOME funds): The cost of removing and relocating an ECHO housing unit

to accommodate an eligible tenant, a project reserve account for

replacements, a project reserve account for unanticipated increases in

operating costs, operating subsidies, or costs relating to the portion

of a mixed-income or mixed-use HOME-assisted project not related to the

affordable housing units.

18. In Sec. 92.220, paragraphs (a)(1) introductory text, (a)(2),

(a)(3) and (a)(5) are revised to read as follows:

Sec. 92.220 Form of matching contribution.

(a) * * *

(1) Cash contributions from nonfederal sources. Except for

contributions made to affordable housing that is not assisted with HOME

funds and bond proceeds to which the provisions of Sec. 92.220(a)(5)

are applicable, to be a cash contribution, funds must be contributed

permanently to the HOME program, regardless of the form of investment

the jurisdiction provides to a project. Therefore all repayment,

interest, or other return on investment of the contribution must be

deposited in the local account of the participating jurisdiction's HOME

Investment Trust Fund to be used for eligible HOME activities in

accordance with the requirements of this part. A cash contribution to

affordable housing that is not assisted with HOME funds must be

contributed permanently to the project. Repayments of matching

contributions in affordable housing projects, as defined in

Sec. 92.219(b), that are not HOME-assisted, must be made to the local

account of the participating jurisdiction's HOME Investment Trust Fund

to get match credit for the full loan amount.

* * * * *

(2) The value, based on customary and reasonable means for

establishing value, of State or local taxes, fees, or other charges

that are normally and customarily imposed or charged by a State or

local government on all transactions or projects in the conduct of

State or local government operations but are waived, foregone, or

deferred (including State low-income housing tax credits) in a manner

that achieves affordability of housing assisted with HOME funds. Fees

or charges that are associated with the HOME Program only (rather than

normally and customarily imposed or charged on all transactions or

projects) are not eligible forms of matching contributions. The amount

of any real estate taxes may be based on post-improvement property

value, using customary and reasonable means of establishing value. For

taxes, fees, or charges that are given for future years, the value is

the present discounted cash value, based on a rate equal to the rate

for the Treasury security with a maturity closest to the number of

years for which the taxes, fees, or charges are waived, foregone, or

deferred.

(3) The value, before the HOME assistance is provided and minus any

debt burden, lien, or other encumbrance, of donated land or other real

property.

(i) Property not acquired with federal resources is a contribution

in the amount of 100% of the value.

(ii) Property that is acquired with federal assistance must be

acquired specifically for HOME-assisted housing or for affordable

housing that will be counted as match pursuant to Sec. 92.219(b)(2).

Such property is a contribution in the amount of the difference between

the acquisition cost and the appraised value at the time of acquisition

with the federal assistance, provided that the property is acquired by

the HOME project owner (or owner of the affordable housing that will be

counted as match) with the federal assistance. It also may be given to

the HOME project owner (or owner of the affordable housing that will be

counted as match) by the entity acquiring the property with federal

assistance or sold to the HOME project owner (or owner of the

affordable housing that will be counted as match) at a price equal to

or less than the amount of the federal assistance used to acquire the

property. The acquisition cost paid with the federal assistance must be

demonstrably below the appraised value and must be acknowledged by the

seller as a donation to affordable housing at the time of the

acquisition with the federal assistance.

(iii) Property must be appraised in conformance with established

and generally recognized appraisal practice and procedures in common

use by professional appraisers. Opinions of value must be based on the

best available data properly analyzed and interpreted. The appraisal of

land and structures must be performed by an independent, certified

appraiser.

* * * * *

(5) Proceeds from multi-family affordable housing and single-family

project bond financing validly issued by a State or local government,

or an agency, instrumentality, or political subdivision of a State, as

follows:

(i) Fifty percent of the loan amount made from bond proceeds to a

multi-family affordable housing project owner may qualify as match.

(ii) Twenty-five percent of the loan amount from bond proceeds made

to a single-family affordable housing project owner may qualify as

match.

(iii) Loans made from bond proceeds may not constitute more than 25

percent of a participating jurisdiction's total annual match

contribution. Loans made from bond proceeds in excess of 25 percent of

a participating jurisdiction's total annual match contribution may be

carried over to subsequent fiscal years as excess match, but may not

constitute more than 25 percent of a participating jurisdiction's total

annual match contribution in any one year.

* * * * *

19. In Sec. 92.221, paragraphs (a)(7) and (c) are added to read as

follows:

Sec. 92.221 Match credit.

(a) * * *

(7) A loan made from bond proceeds under Sec. 92.220(a)(5) is

credited at the time of the loan closing.

* * * * *

(c) The participating jurisdiction that makes the match

contributions to HOME-assisted or HOME match eligible projects (match

pursuant to Sec. 92.219(b) for contributions to affordable housing,

including tenant-based rental assistance, that is not assisted with

HOME funds) is the participating jurisdiction that receives the match

credit. A State that provides funding to a local participating

jurisdiction to be used for a contribution to affordable housing,

whether or not HOME-assisted, may take the match credit for itself or

may permit the local participating jurisdiction to receive the match

credit.

20. In Sec. 92.222, paragraph (a)(2) is added to read as follows:

Sec. 92.222 Reduction of matching contribution requirement.

(a) * * *

(2) Distress criteria for participating jurisdictions that are

States. As determined and published annually by HUD, if a State

satisfies at least 2 of the 3 distress factors in paragraphs (a)(2)(i)

through (iii) of this section, it is in severe fiscal distress and its

match requirement will be reduced 100% for the period specified in

paragraph (a)(3) of this section. If a State satisfies any 1 of the 3

distress factors in paragraphs (a)(2)(i) through (iii) of this section,

it is in fiscal distress and its match requirement will be reduced by

50 percent, for the period specified in paragraph (a)(4) of this

section.

(i) Poverty rate. The average poverty rate in the State was equal

to or greater than 125 percent of the average national poverty rate

during the calendar year for which the most recent data are available,

as determined according to information of the Bureau of the Census.

(ii) Per capita income. The average per capita income in the State

was less than 75 percent of the average national per capita income,

during the calendar year for which the most recent data are available,

as determined according to information of the Bureau of the Census.

(iii) Personal income growth. The average personal income growth

rate in the State over the most recent four quarters for which the data

are available was less than 75 percent of the average national personal

income growth rate during that period, as determined according to

information of the Bureau of Economic Analysis.

* * * * *

21. In Sec. 92.252, a new paragraph (a)(2)(iii) is added, and

paragraph (a)(5) text (the table remains unchanged) and paragraph (d)

are revised, to read as follows:

Sec. 92.252 Qualification as affordable housing and income targeting:

Rental housing.

(a) * * *

(2) * * *

(iii) The rent applicable to a unit under paragraph (a)(2) of this

section shall be the lowest rent computed under paragraphs (a)(1) and

(a)(2) of this section.

* * * * *

(5) Will remain affordable without regard to the term of any

mortgage or the transfer of ownership, pursuant to deed restrictions,

covenants running with the land, or other mechanisms approved by HUD,

for not less than the appropriate period, beginning after project

completion, as specified in the following table, except that the

affordability restrictions may terminate upon foreclosure or transfer

in lieu of foreclosure. The participating jurisdiction may use purchase

options, rights of first refusal or other preemptive rights to purchase

the housing before foreclosure or deed in lieu of foreclosure to

preserve affordability. The affordability restrictions shall be revived

according to the original terms if, during the original affordability

period, the owner of record before the foreclosure, or deed in lieu of

foreclosure, or any entity that includes the former owner or those with

whom the former owner has or had family or business ties, obtains an

ownership interest in the project or property. * * *

* * * * *

(d) Adjustment of qualifying rent. (1) Changes in fair market rents

and in median income over time should be sufficient to maintain the

financial viability of a project within the qualifying rent standards

in paragraphs (a) (1) and (2) of this section. Regardless of changes in

fair market rents and in median income over time, the qualifying rents

are not required to be lower than the HOME rent for the project in

effect at the time of project commitment.

(2) HUD may adjust the qualifying rents established for a project

under paragraphs (a) (1) and (2) of this section, only if HUD finds

that an adjustment is necessary to support the continued financial

viability of the project and only by an amount that HUD determines is

necessary to maintain continued financial viability of the project. HUD

expects that this authority will be used sparingly.

22. In Sec. 92.254, paragraphs (a)(1)(i), (a)(4) introductory text,

(a)(4)(ii)(C) and (b)(1) are revised, and paragraph (a)(4)(ii)(D) is

added to read as follows:

Sec. 92.254 Qualification as affordable housing: homeownership.

(a) * * *

(1)(i) Has an initial purchase price that does not exceed 95% of

the median purchase price for the type of single-family housing (1- to

4-family residence, condominium unit, cooperative unit, combination

manufactured home and lot, or manufactured home lot) for the

jurisdiction as determined by HUD, and which may be appealed in

accordance with 24 CFR 203.18b; and

* * * * *

(4) Is subject--for minimum periods of: 5 years where the per unit

amount of HOME funds provided is less than $15,000; 10 years where the

per unit amount of HOME funds provided is $15,000 to $40,000; and 15

years where the per unit amount of HOME funds provided is greater than

$40,000--to resale restrictions or recapture provisions that are

established by the participating jurisdiction and determined by HUD to

be appropriate to either:

* * * * *

(ii) * * *

(C) The HOME investment that is subject to recapture is the HOME

assistance that enabled the first-time homebuyer to buy the dwelling

unit. This includes any HOME assistance, whether a direct subsidy to

the homebuyer or a construction or development subsidy, that reduced

the purchase price from fair market value to an affordable price. The

recaptured funds must be used to assist other first-time homebuyers. If

no HOME funds will be subject to recapture, the provisions at

Sec. 92.254(a)(4)(i) apply.

(D) Upon recapture of the HOME funds used in a single-family,

first-time homebuyer project with two to four units, the affordability

period on the rental units may be terminated at the discretion of the

participating jurisdiction.

(b) Rehabilitation not involving purchase. Housing that is

currently owned by a family qualifies as affordable housing only if--

(1) The value of the property, after rehabilitation, does not

exceed 95% of the median purchase price for the type of single-family

housing (1- to 4-family residence, condominium unit, combination

manufactured home and lot, or manufactured home lot) for the

jurisdiction as determined by HUD, and which may be appealed in

accordance with 24 CFR 203.18b; and

* * * * *

23. Section 92.255 would be revised to read as follows:

Sec. 92.255 Mixed-income project.

(a) Housing that accounts for less than 100 percent of the dwelling

units in a project qualifies as affordable housing if the housing meets

the criteria of Sec. 92.252 or Sec. 92.254. Each building in the

project must contain housing that meets the requirements of Sec. 92.252

or Sec. 92.254. See Sec. 92.219 for matching contribution requirements

concerning mixed-income projects.

(b) For purposes of meeting affordable housing requirements for a

project, the dwelling units counted as affordable housing may be

changed over the affordability period, so long as the total number of

affordable housing units remains the same, and the substituted units

are, at a minimum, comparable in terms of size, features, and number of

bedrooms to the originally designated affordable housing units.

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

number 2501-0013)

24. Section 92.256 would be revised to read as follows:

Sec. 92.256 Mixed-use project.

Housing in a project that is designed in part for uses other than

residential use qualifies as affordable housing if such housing meets

the criteria of Sec. 92.252 or Sec. 92.254. A project that contains, in

addition to dwelling units, laundry and community facilities for the

exclusive use of the project residents and their guests, does not

constitute a project that is designed in part for uses other than

residential use. Residential living space must constitute at least 51

percent of the project space for contributions to the non-residential

portion of the property to count as match.

25. In subpart F, a new Sec. 92.259 would be added to read as

follows:

Sec. 92.259 Elder cottage housing opportunity (ECHO) units.

(a) General. HOME funds may be used for the initial purchase and

initial placement costs of elder cottage housing opportunity (ECHO)

units that meet the requirements of this section, and that are small,

free-standing, barrier-free, energy-efficient, removable, and designed

to be installed adjacent to existing single-family dwellings.

(b) Eligible owners. The owner of a HOME-assisted ECHO unit may be:

(1) The owner of the single-family host property on which the ECHO

unit will be located;

(2) A participating jurisdiction; or

(3) A non-profit organization.

(c) Eligible tenants. During the affordability period, the tenant

of a HOME-assisted ECHO unit must be an elderly, handicapped or

disabled family as defined in part 812 of this title, and must also be

a low income family.

(d) Applicable requirements. The requirements of Sec. 92.252 of

this part apply to HOME-assisted ECHO units, except as specified in

this section, including the following requirements:

(1) Only one ECHO unit may be provided per host property.

(2) The ECHO unit owner may choose whether or not to charge the

tenant of the ECHO unit for rent, but if a rent is charged, it must

meet the requirements of Sec. 92.252.

(3) The ECHO housing must remain affordable for the period

specified in Sec. 92.252(a)(5). If within the affordability period the

original occupant no longer occupies the unit, the ECHO unit owner

must:

(i) Rent the unit to another eligible occupant on site;

(ii) Move the ECHO unit to another site for occupancy by an

eligible occupant; or

(iii) If the owner of the ECHO unit is the host property owner, in

accordance with the requirements of Sec. 92.254(a)(4)(ii), the

participating jurisdiction must recapture the HOME investment to be

used for additional HOME activities.

(4) The participating jurisdiction has the responsibility to

enforce the project requirements applicable to ECHO units.

26. In Sec. 92.300, paragraphs (b), (e) and (f) are revised to read

as follows:

Sec. 92.300 Set-aside for community housing development organizations

(CHDOs).

* * * * *

(b) Each participating jurisdiction must make reasonable efforts to

identify community housing development organizations that are capable,

or can reasonably be expected to become capable, of carrying out

elements of the jurisdiction's approved housing strategy and to

encourage such community housing development organizations to do so. If

during the first 24 months of its participation in the HOME Program a

participating jurisdiction cannot identify a sufficient number of

capable CHDOs, up to 20 percent of the minimum CHDO setaside of 15

percent specified in paragraph (a) of this section (but not more than

$150,000 during the 24 month period) may be committed to develop the

capacity of CHDOs in the jurisdiction.

* * * * *

(e) If funds for operating expenses are provided under Sec. 92.208

to a community housing development organization that is not also

receiving funds under paragraph (a) of this section for housing to be

developed, sponsored or owned by the community housing development

organization, the participating jurisdiction must enter into a written

agreement with the community housing development organization that

provides that the community housing development organization is

expected to receive funds under paragraph (a) of this section within 24

months of receiving the funds for operating expenses, and specifies the

terms and conditions upon which this expectation is based.

(f) Limitation. A community housing development organization may

not receive HOME funding for any fiscal year in an amount that provides

more than 50 percent or $50,000, whichever is greater, of the community

housing development organization's total operating expenses in that

fiscal year. This includes organization support and housing education

provided under Sec. 92.302 (c)(1), (c)(2), and (c)(6), as well as funds

for operating expenses provided under Sec. 92.208 and administrative

funds provided under Sec. 92.207 (if the community housing development

organization is a subrecipient or contractor of the participating

jurisdiction).

27. In Sec. 92.354, paragraph (a) is revised to read as follows:

Sec. 92.354 Labor.

(a) General. (1) Every contract for the construction

(rehabilitation or new construction) of housing that includes 12 or

more units assisted with HOME funds must contain a provision requiring

the payment of not less than the wages prevailing in the locality, as

predetermined by the Secretary of Labor pursuant to the Davis-Bacon Act

(40 U.S.C. 276a-276a-5), to all laborers and mechanics employed in the

development of any part of the housing. Such contracts must also be

subject to the overtime provisions, as applicable, of the Contract Work

Hours and Safety Standards Act (40 U.S.C. 327-332).

(2) The contract for construction must contain these wage

provisions if HOME funds are used for any project costs (as defined in

Sec. 92.206), including construction or nonconstruction costs, of

housing with 12 or more HOME-assisted units. Where 12 or more units in

a project are assisted under this part, the wage provisions must be

contained in the construction contract so as to apply to all laborers

and mechanics employed in the development of the entire project, as

defined in Sec. 92.2, including portions other than the assisted units.

If HOME funds are only used to assist first-time homebuyers to acquire

single-family housing and not for any other project costs, the wage

provisions apply to the construction of housing containing 12 or more

units when there is a written agreement with the owner or developer of

the housing that the HOME funds will be used to assist first-time

homebuyers to buy the housing.

(3) Participating jurisdictions, contractors, subcontractors, and

other participants must comply with regulations issued under these Acts

and with other federal laws and regulations pertaining to labor

standards and HUD Handbook 1344.1 (Federal Labor Standards Compliance

in Housing and Community Development Programs), as applicable.

Participating jurisdictions must require certification as to compliance

with the provisions of this section before making any payment under

such contract.

* * * * *

28. In Sec. 92.502, paragraph (b)(1) is revised to read as follows:

Sec. 92.502 Cash and Management Information System; disbursement of

HOME funds.

* * * * *

(b) * * *

(1) After the participating jurisdiction executes the HOME

Investment Partnership Agreement, complies with the environmental

requirements under part 58 of this title for release of funds, and

submits the appropriate banking and security documents, the

participating jurisdiction may identify (set up) specific investments

in the C/MI System. Investments that require the set-up of projects in

the C/MI System are the acquisition, new construction, or moderate or

substantial rehabilitation of real property, and investments of HOME

funds to provide tenant-based rental assistance. Within 12 calendar

days of project set-up, the participating jurisdiction is required to

submit a Project Set-Up Report to HUD for each project set up in the C/

MI System. Until an acceptable Project Set-Up Report is received and

entered in the C/MI System, HOME funds for the project are not

considered committed to a specific project (as defined in Sec. 92.2).

* * * * *

29. In Sec. 92.504, paragraph (e)(1) is revised to read as follows:

Sec. 92.504 Participating jurisdiction responsibilities; written

agreements; monitoring.

* * * * *

(e) * * *

(1) Not less than annually, the participating jurisdiction must

review the activities of owners of rental housing assisted with HOME

funds to assess compliance with the requirements of this part, as forth

in the written agreement under paragraphs (b) and (c) of this section.

For multi-family housing, each review must include on-site inspection

to determine compliance with housing codes and the requirements of this

part. For rental projects containing 25 HOME-assisted units or less, an

on-site review must be made once within each two year period. The

results of each review must be included in the participating

jurisdiction's performance report required by part 91 of this title and

must be made available to the public.

* * * * *

30. In Sec. 92.508, paragraph (a)(4)(v) is revised to read as

follows:

Sec. 92.508 Recordkeeping.

(a) * * *

(4) * * *

(v) Records of the written agreement the participating jurisdiction

must enter into under Sec. 92.300(e) with the community housing

development organization if funds for operating expenses are provided

under Sec. 92.208 to the community housing development organization

that is not also receiving funds under Sec. 92.300(a).

* * * * *

31. In subpart M, under the undesignated center heading ``Project

Requirements,'' a new Sec. 92.625 is added to read as follows:

Sec. 92.625 Elder cottage housing opportunity (ECHO) units.

(a) General. HOME funds may be used for the initial purchase and

initial placement costs of elder cottage housing opportunity (ECHO)

units that meet the requirements of this section, and that are small,

free-standing, barrier-free, energy-efficient, removable, and designed

to be installed adjacent to existing single-family dwellings.

(b) Eligible owners. The owner of a HOME-assisted ECHO unit may be:

(1) The owner of the single-family host property on which the ECHO

unit will be located;

(2) An Indian tribe; or

(3) A non-profit organization.

(c) Eligible tenants. During the affordability period, the tenant

of a HOME-assisted ECHO unit must be an elderly, handicapped or

disabled family as defined in Sec. 905.102 of this title, and must also

be a low income family.

(d) Applicable requirements. The requirements of Sec. 92.614 apply

to HOME-assisted ECHO units, except as specified in this section,

including the following requirements:

(1) Only one ECHO unit may be provided per host property.

(2) The ECHO unit owner may choose whether or not to charge the

tenant of the ECHO unit for rent, but if a rent is charged, it must

meet the requirements of Sec. 92.614.

(3) The ECHO housing must remain affordable for the period

specified in Sec. 92.614(a)(5). If within the affordability period the

original occupant no longer occupies the unit, the ECHO unit owner

must:

(i) Rent the unit to another eligible occupant on site;

(ii) Move the ECHO unit to another site for occupancy by an

eligible occupant; or

(iii) If the owner of the ECHO unit is the host property owner, in

accordance with the requirements of Sec. 92.615(a)(4)(ii), the

participating jurisdiction must recapture the HOME investment to be

used for additional HOME activities.

(4) The Indian tribe has the responsibility to enforce the project

requirements applicable to ECHO units.

Dated: April 6, 1994.

Henry G. Cisneros,

Secretary.

[FR Doc. 94-9227 Filed 4-18-94; 8:45 am]

BILLING CODE 4210-32-P