Low-Income Public and Indian HousingVacancy Rule

Federal RegisterJul 19, 1995

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SUMMARY: This proposed rule would establish new conditions under which

a Public Housing Agency (PHA), an Indian Housing Authority (IHA), or

Resident Management Corporation (RMC) could include vacant units in its

computation of eligibility under the Performance Funding System (PFS).

(Note: The term housing authority (HA) will be used in this proposed

rule when referring to both PHAs and IHAs.) The proposed rule would

give greater recognition to units that are vacant for reasons beyond

the HA's control, make changes in the current treatment of vacant units

that are part of a modernization program, and, under certain

circumstances, have HAs exclude long-term vacant units from their

inventory of units available for occupancy. The changes being proposed

are based on the recommendations of a regulatory negotiation advisory

committee composed of persons who represent the interests affected by

the current vacancy rule.

DATES: Comments due date: August 18, 1995.

ADDRESSES: Interested persons are invited to submit comments regarding

this proposed rule to the Rules Docket Clerk, Office of General

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

Seventh Street, SW., Washington, DC 20410-0500. Communications should

refer to the above docket number and title. Facsimile (FAX) comments

are not acceptable. 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.

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

Financial Management Division, Public and Indian Housing, Room 4210,

U.S. Department of Housing and Urban Development, 451 Seventh Street,

SW., Washington, DC 20410, telephone (202) 708-1872. Hearing- or

speech-impaired individuals may call HUD's TDD number: (202) 708-0850.

[These telephone numbers are not toll-free.]

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

The information collection requirements contained in this proposed

rule have been submitted to the Office of Management and Budget (OMB)

for review under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-

3520). No person may be subjected to a penalty for failure to comply

with these information collection requirements until they have been

approved and assigned an OMB control number. The OMB control number,

when assigned, will be announced by separate notice in the Federal

Public reporting burden for the collection of information

requirements contained in this rule is estimated to include the time

for reviewing the instructions, searching existing data sources,

gathering and maintaining the data needed, and completing and reviewing

the collection of information. Information on the estimated public

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

Send comments regarding this burden estimate or any other aspect of

this collection of information, including suggestions for reducing this

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

Docket Clerk, 451 Seventh Street SW., Room 10276, Washington, DC 20410-

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

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

DC 20503.

Justification for Shortened Comment Period

It is the general practice of the Department to provide a 60-day

public comment period on all proposed rules. However, the Department is

shortening its usual 60-day public comment period to 30 days for this

proposed rule. By statute, the rule cannot become effective unless it

is in place at the beginning of the housing authority's (HA's) fiscal

year. Because a number of HAs affected by this rule have fiscal years

beginning on October 1, 1995, the Department wants to publish a final

rule, which is not permitted to become effective for 30 days after

publication, so that it will be effective by that date. The Department

believes that because the rule has been developed by a consensus

process, there is not likely to be much objection to its general

provisions and that, therefore, the 30 days allowed for comment will be

sufficient.

Regulatory Review Initiative

This proposed rule has been developed through negotiated

rulemaking, sometimes referred to as regulatory negotiations or ``reg-

neg.'' Negotiated rulemaking is a relatively new process for the

Federal government and this was 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 formal face-to-face negotiations that are open to the public. The

give-and-take of the negotiation process is expected to foster

constructive, creative, and acceptable solutions to difficult problems.

As such, this proposed rule represents a serious effort by Department

and affected interests to draft a clear, comprehensive rule that meets

the needs of the program and its participants.

Consistent with Executive Order 12866 and the President's

memorandum of March 4, 1995, to all Federal Departments and Agencies on

the subject of Regulatory Reinvention, the Department is reviewing each

of its regulations to determine whether the regulation is a candidate

for elimination, streamlining, or consolidation. As part of this

review, at the final rule stage this rule may undergo revisions in

accordance with the President's regulatory reform initiatives.

Therefore, in addition to comments on the substance of this proposed

rule, the Department welcomes comments on ways, if any, that the rule

may be made more understandable and less burdensome, while still

assuring the goals of the Performance Funding System (PFS).

Background

HUD uses a formula approach called the Performance Funding System

(PFS) to distribute operating subsidies to housing agencies. A

regulatory description of the PFS can be found at 24 CFR parts 950,

subpart J, and 990. Although somewhat oversimplified, the amount of

subsidy received by an 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 an HA. In 1994, HUD distributed over $2.6 billion in

operating subsidies to HAs.

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The amount of dwelling rental income an HA expects to receive is an

important element in estimating subsidy eligibility. If rental income

increases, operating subsidy eligibility will generally 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% 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% 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%; specifying that an HA

need not use an occupancy level higher than 97%; and, in recognition

that a low number of vacancies may make it difficult for a small HA to

reach 97%, allowing small HAs to use an occupancy percentage based on

having 5 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 proposed changes would have included:

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

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

a means to justify using less than the prescribed occupancy standard;

3. Limiting the amount of subsidy paid for those vacant units that

are greater than 2% of the total number of units available for

occupancy; and

4. Instituting a year-end review to compare the HA's actual

occupancy achieved with its projected occupancy percentage.

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; 42

U.S.C. 1437g(a)(3)(A)) that required 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 Negotiations

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 vacancy rule that was within HUD's

statutory authority and addressed the issues of the interested parties.

If HUD proceeded with the formation of a negotiated rulemaking

committee, the Interagency Agreement called for the FMCS to provide

facilitating services.

The final convening report was provided to HUD in September 1994

and concluded 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 in the office of the Rules Docket Clerk.

Chartering of Reg-Neg Committee

As a general rule, a Federal Department is required to comply with

the requirements of the Federal Advisory Committee Act (FACA), Pub. L.

92-463, 5 U.S.C. App., when it establishes or uses a group of non-

Federal members as a source of advice. Under FACA, HUD was required to

request a charter for this reg-neg committee. Approval of the charter

submitted by HUD to the Office of Management and Budget was given on

February 23, 1995.

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 in 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.

The members of the Committee were:

Housing Agencies

Housing Authority of the City Of Houston (TX)

Cuyahoga Metropolitan Housing Authority (Cleveland, OH)

Housing Authority of the Birmingham District (AL)

New York City Housing Authority (NY)

Housing Authority of the City of Newark (NJ)

Housing Authority of the City of Reno (NV)

Housing Authority of the City of Littleton (CO)

Housing Authority of the City of South Bend (IN)

Tenant Organizations and Public Interest Groups

Bromley Heath Tenant Management Corporation, Jamaica Plain, MA

New Jersey Association of Public and Subsidized Housing Residents, Inc.

Housing and Development Law Institute, Washington, DC

Illinois Association of Housing Authorities

Federal Government

U.S. Department of Housing and Urban Development

Development of Proposed Rule

The first meeting of the Committee took place March 7-9, 1995, in

Washington, DC. The FMCS conveners also served as facilitators for the

Committee. Committee members agreed to a set of protocols that covered

the areas of participation, decisionmaking, meetings, the role of the

FMCS facilitators, and the intended product of the negotiations. The

Committee agreed to define consensus as unanimous agreement to advance

a specific proposal as the Committee's recommendation on any given

point. As framed by one member, the goal of the negotiation should be a

proposed rule that makes sense to all committee members or,

alternatively, no proposed rule at all.

The Committee members then began a discussion among themselves over

possible issues that needed to be addressed. The FMCS facilitators used

a variety of techniques, including brainstorming, supposition, and

suggestion, to have the group focus on what the general objective or

objectives should be for a new vacancy rule and

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to develop a list of factors that would make it possible to achieve the

objectives. Points of discussion included:

1. The appropriateness of the current occupancy standard of 97% and

the use of five or fewer vacant units in determining the occupancy

percentage for small HAs.

2. Circumstances that create vacant units or cause vacant units to

remain vacant for long periods of time. These included modernization,

turnover, litigation, legislation, insurance claims, natural disasters,

and market factors.

3. Circumstances or causes of vacancies that would warrant

continuation of some level of subsidy payment.

4. Recognition of direct costs that are incurred by an HA

regardless of the level of its vacancies.

5. Factors that could be incorporated into a vacancy rule that

would promote the occupancy of vacant units.

6. Circumstances under which waivers of the regulatory provisions

would be permitted.

The discussion process continued throughout the afternoon of the

first day's session. The Committee reached consensus on retaining the

provisions of the current rule with respect to small HAs being able to

use an occupancy percentage of less than 97%, if the percentage is

based on having five or fewer vacant units. The Committee, recognizing

budgetary realities, rejected as not feasible or productive the

possibility of redefining the 97% occupancy goal at a different optimum

level.

A synopsis of the first day's efforts to develop a new vacancy rule

was presented to the Committee by the facilitator at the start of the

second day. The Committee, under the guidance of the facilitator, used

the synopsis as a starting point to continue its discussion. Discussion

included how litigation, Federal and State legislation, and regulatory

action can serve as barriers to vacant units or buildings being

reoccupied, demolished, sold, consolidated, or modernized.

Much of the discussion during the second morning segment was on the

issue of vacant units that were undergoing modernization or were being

scheduled for modernization. The Committee viewed modernization as a

positive undertaking on the part of HAs to reduce vacancies, for which

continued subsidy support is appropriate at some level. Topics

discussed under this issue included sources of funding; scheduling of

work and the ability of an HA to control its modernization; what

constitutes a reasonable period of time in advance of modernization

work for vacating occupied units or not reoccupying vacant units; and

the treatment of small HAs that compete for modernization funding,

where the resources may be insufficient to fund all approvable

applications.

The facilitator prepared a new synopsis for the Committee to use as

it began the second afternoon segment of the negotiations. After

reviewing the synopsis, the Committee started to discuss the

circumstances under which it would be reasonable to receive full or

partial subsidy funding for vacant units. Full or partial subsidy was

understood to mean receiving 100% or some lower level of the current

Allowable Expense Level (AEL). A chart that presented the various cost

items that comprise the AEL was provided to the Committee for its use.

The Committee discussed whether and to what extent certain costs would

be applicable to vacant units undergoing modernization, excess vacant

units or empty buildings not undergoing modernization.

For partial funding purposes, the Committee agreed that the

determination of the appropriate partial amount should be expressed in

terms of a percentage of the AEL, and not in terms of reimbursement of

actual allowable costs, because of the administrative burden that a

direct reimbursable system would entail. The Committee then discussed

various levels of partial subsidy support and whether it was reasonable

to apply one partial subsidy level to all the different scenarios under

consideration (vacant units undergoing modernization, excess vacant

units, or empty buildings not undergoing modernization).

During the discussion the point was made that the current vacancy

rule permits vacant units that are part of a funded, on-schedule

modernization program to receive full funding. The Committee agreed to

full subsidy eligibility for vacant units undergoing modernization, if

the units have to be vacant in order to accomplish the work and the

units are included in a HUD-approved modernization budget. The HA must

place the vacant units under construction within two Federal Fiscal

Years (FFYs) of funding approval. The Committee discussed a proposal to

permit vacant units proposed for rehabilitation in the second year of

an HA's Five-Year Action Plan to be eligible for full funding, but

rejected the idea because of the annual cycle of Federal

appropriations. Discussion continued on what partial subsidy level

would be sufficient for the HA to maintain the structural integrity of

vacant buildings/units in other circumstances. The session ended with

an agreement to revisit this topic the following day.

The third day's session began with a discussion by members on

whether a new vacancy rule should contain a section describing the

general circumstances under which a waiver might be given. The

Committee felt that there may be circumstances beyond an HA's or

Resident Management Corporation's (RMC) control that have brought about

a vacancy problem that, despite the HA's/RMC's documented best efforts,

is not correctable or would place an unreasonable burden on the HA/RMC.

The Committee agreed that the procedures and the documentation needed

for obtaining a waiver would not be part of the new rule, but would be

contained in a notice.

An updated synopsis was presented to the Committee for review and

discussion. The Committee then returned to the issue of partial

subsidies and agreed that an appropriate level of subsidy support would

be 20% of the AEL. The Committee agreed that this level of support

would be applied against vacant units that have been vacant for more

than 12 months and were not undergoing modernization or were not vacant

due to circumstances beyond the HA's control. These long-term vacant

units will be removed from the HA's inventory of unit months available

(UMAs). However, the Committee noted and emphasized that full funding

of utilities under the current PFS would be continued. The Committee

also agreed that the new vacancy rule would eliminate the current

provisions regarding Comprehensive Occupancy Plans (COPs) and

reiterated that units approved by HUD for deprogramming would not be

included in the calculation of UMAs. A final synopsis containing all

the consensus agreements made to that date was prepared for the

Committee.

The second meeting of the Committee took place April 4-5, 1995, in

Washington, DC. The meeting began with a discussion on whether the

proposed rule language should reflect consequences that could occur if

funds already appropriated by Congress for the Comprehensive Grant

Program (CGP) were rescinded. If funds for the CGP were to be

significantly decreased, HAs might have to delay placing some vacant

units under a construction contract. This could lead to the HA having

long-term vacancies that would not be eligible for full operating

subsidy. The Committee agreed to language that

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would permit the HA to seek a waiver to deal with this situation.

The Committee also discussed the treatment of Resident Management

Corporations (RMCs) that have responsibility for administering

modernization programs, but are dependent upon the HA to provide

funding. The Committee found that there are parallels between requests

made by HAs for Comprehensive Improvement Assistance Program (CIAP)

funds and requests made by RMCs for CGP funds, in that an otherwise

approvable application or request could be denied because of

insufficient funding. The Committee agreed to language that would treat

this situation as a circumstance or action that was beyond the RMC's

control.

The Committee then began a section-by-section review of the

proposed rule language that had been prepared by HUD staff based on the

agreements reached at the first meeting. Edits and clarifications were

proffered for incorporation into a new draft. The Committee then

followed the same process in its review of the preamble material.

A copy of the approved minutes is available for public inspection

and copying from the Department's Rules Docket Clerk (see Addresses in

this preamble).

Components of Proposed Rule

The following elements of the proposed rule evolved from the

consensus-seeking process applied in the reg-neg Committee. Although

the Committee recognized that there are anomalies that will not be

reached by the general elements of this proposed rule, its provisions

were developed to address the majority of the situations facing HAs.

(1) The standard for expected occupancy will continue to be 97%.

The proposed rule would also maintain the five-unit exception, as in

the current regulation, for small HAs where small numbers of vacant

units would make it extremely difficult to attain a 97% occupancy rate.

(2) HAs will be allowed to take into consideration circumstances

and actions beyond the HA's control that prohibit the HA from

occupying, selling, demolishing, rehabilitating, reconstructing,

consolidating, or modernizing vacant units. Such circumstances and

actions are limited to:

(a) Litigation, such as a court order or settlement agreement that

is legally enforceable. Units that are being held vacant as part of a

court-ordered or HUD-approved desegregation effort would be an example.

(b) Laws. Federal, Tribal, or State laws of general applicability,

or their implementing regulations. For example, demolition or

disposition requirements that have the effect of preventing an HA from

taking action to remove unusable units from its inventory may be

considered a circumstance beyond the HA's control. However, units

vacant only because they do not meet minimum standards pertaining to

construction or habitability under Federal, State, or local laws or

regulations will not be considered vacant due to circumstances and

actions beyond the PHA's control.

located in areas experiencing population loss or economic dislocations

may face a lack of demand in the foreseeable future, even after the HA

has taken aggressive marketing and outreach measures.

(d) Natural disasters.

(e) Insufficient funding for otherwise approvable applications made

for Comprehensive Improvement Assistance Program (CIAP) funds.

(f) RMC Funding. The failure of a PHA to fund an otherwise

approvable RMC request for Federal modernization funding.

(g) Casualty Losses. Delays in repairing damage to vacant units due

to the time needed for settlement of insurance claims.

(3) An HA with vacant units in a project that is otherwise viable,

but is undergoing modernization that includes work necessary to

reoccupy the vacant units will not be penalized for the vacancies when

the HA determines its operating subsidy eligibility, if one of the

following conditions is met:

(a) The vacant units are under construction (i.e., construction

contract awarded or force account work started); or

(b) Treatment of the vacant units is included in a HUD-approved

modernization budget (e.g., an approved Annual Statement for the

Comprehensive Grant Program (CGP) or CIAP Budget), but the time period

for placing the vacant units under construction has not yet expired.

The HA must place the vacant units under construction within two

Federal Fiscal Years (FFYs) after the FFY in which the modernization

funds are approved. For example, if the HA receives HUD approval for

the modernization budget in FFY 1996, the HA must start construction on

the vacant units by September 30, 1998. If the HA fails to place the

vacant units under construction within this 2-year time frame, the

units will be treated as long-term vacancies and the HA is eligible for

limited subsidy for those units.

The 2-year provision to place vacant units under construction will

not be extended. Failure to meet this provision affects subsidy

eligibility only, not the use of the modernization funds, which are

governed by a modernization implementation schedule that may be longer

than 2 years.

Because of the funding cycle for modernization funds, HAs with FYs

beginning January 1 or April 1 may not have approved modernization

budgets at the time they develop operating budgets for those years.

These HAs would use their current approved modernization budget to

determine their subsidy eligibility, but would be permitted to submit

an operating budget revision when the modernization budget had been

approved.

(4) Any HA that estimates it will have vacant units in its

requested budget year in excess of 3% of the units available for

occupancy (and in excess of five vacant units), after adjusting for

units that are vacant for reasons beyond its control (as described in

item 2 under this heading), and vacant units that are covered by funded

modernization (as described in item 3 under this heading), will receive

less than full operating subsidy for these vacant units. If a unit has

been vacant for longer than 12 months, it will be removed from the HA's

calculation of units available for occupancy and subsidy eligibility

will be limited to 20% of the Allowable Expense Level. Units that are

vacant for 12 months or less will be included in the HA's calculation

of units available for occupancy, but the HA will have to presume

dwelling rental income will be generated by these units.

(5) Provisions in the current vacancy rule relating to

Comprehensive Occupancy Plans (COPs) will be eliminated. An HA that has

a HUD-approved COP at the time the new vacancy rule becomes effective

may choose to determine its PFS eligibility under the existing rule or

to terminate its COP and become subject to the new rule.

(6) Because the 2-year provision to place vacant units under

construction is new, the proposed rule contains a transition section to

address the treatment of units already under an approved modernization

budget at the time the new rule becomes effective. Such units may have

a longer time period, if already approved by HUD.

(7) The new vacancy rule would permit the granting of waivers to

HAs or RMCs when necessary to address unusual situations. HUD will

establish

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procedures for requesting a waiver and required documentation. HUD will

take prompt action in responding to a waiver request, and any relief

provided will be in accordance with these procedures and at a level

established at HUD's discretion on a case-by-case basis.

Computation of Subsidy Under Proposed Rule

In computing its per-unit Dwelling Rental Income under the

Performance Funding System, an HA will determine its Projected

Occupancy Percentage in much the same manner as in the current rule.

The HA will either take a ``snapshot'' of the last day of the month

which is 6 months before the start of its fiscal year or take the

average occupancy during that month. The HA will then use the data to

develop an estimated average occupancy percentage for its Requested

Budget Year (RBY). The conditions under which the RBY occupancy

percentage will be used as the projected occupancy percentage for

purposes of determining operating subsidy eligibility are described

below:

(1) If the RBY percentage is 97% or higher, the HA will use 97% as

its projected occupancy percentage. If the HA estimates a RBY

percentage of less than 97% but can demonstrate that it will have an

average of five or fewer vacant units in the requested budget year, the

HA may use its RBY percentage as its projected occupancy percentage.

(Reference in this part to ``more than five units'' or ``fewer than

five units'' refers to a circumstance in which 5 units equals or

exceeds 3% of the number of units to which the 3% threshold is

applicable.)

Example: The ABC Housing Authority has 1,000 units available for

occupancy. It estimates for its RBY an average of 980 units will be

occupied, an occupancy rate of 98%. Since the RBY percentage is

higher than 97%, it will use 97% as its projected occupancy

percentage.

Example: The XYZ Housing Authority has 50 units available for

occupancy. It estimates that for its RBY an average of 46 units will

be occupied; a RBY occupancy percentage of 92%. Since the Authority

estimates that it will have four vacant units in the RBY, it will

use 92% as its projected occupancy percentage.

(2) If the RBY occupancy percentage is less than 97% and the HA has

more than 5 vacant units, the HA will adjust its estimate of vacant

units to exclude units undergoing modernization. (see item 3 under the

section of the preamble headed COMPONENTS OF PROPOSED RULE). The HA

will also adjust its estimate for units that are vacant due to

circumstances and actions beyond the HA's control (see item 2 under the

section of the preamble headed COMPONENTS OF PROPOSED RULE). After

making these adjustments, the HA will recalculate its estimated vacancy

percentage. If the recalculated vacancy percentage is 3% or less (or

the HA would have five or fewer vacant units), the HA will use its RBY

occupancy percentage as its projected occupancy percentage.

Example: The ABC Housing Authority has 1,000 units available for

occupancy. It estimates that for its RBY an average of 950 units

will be occupied, a RBY occupancy percentage of 95%. Of its 50

vacant units, 40 units are part of a HUD-approved modernization

budget and will be under a construction contract during the budget

year. The Authority will adjust its 50 vacancies to exclude the 40

vacant units undergoing modernization and recalculate its RBY

vacancy percentage (10/1,000 = 1%). Since the recalculated RBY

vacancy percentage is less than 3%, the Authority will use its RBY

occupancy percentage of 95% as its projected occupancy percentage.

Example: The XYZ Housing Authority is a small HA with 50 units

available for occupancy. It estimates for its RBY an average of 40

units will be occupied, a RBY occupancy percentage of 80%. The

Authority documents that 5 of the vacancies are efficiencies in a

building serving elderly residents. There is no demand for these

units despite aggressive marketing and outreach and selling,

demolishing, or reconfiguration of the units is not possible. Since

the Authority can show that these 5 vacancies are due to

circumstances or action beyond its control, it will adjust its 10

vacancies to exclude these 5. With the number of vacant units now

recalculated to be 5, the Authority will use its RBY occupancy

percentage of 80% as its projected occupancy percentage.

(3) If the RBY vacancy percentage is greater than 3% and the HA has

more than 5 vacant units, even after adjusting for vacant units

undergoing modernization or units vacant due to circumstances and

actions beyond its control, the HA will then recalculate its RBY

occupancy percentage by excluding from its calculation of units months

available (UMAs), all vacant units that have been vacant for longer

than 12 months that are not either undergoing modernization or vacant

for reasons beyond the HA's control. The long-term vacancies removed

will be eligible to receive a reduced operating subsidy calculated at

20% of the HA's AEL. The conditions under which the recalculated RBY

occupancy percentage will be used as the projected occupancy percentage

for purposes of determining operating subsidy eligibility for a low-

occupancy HA are described below:

(a) If the recalculated RBY occupancy percentage estimate is 97% or

higher, the HA will use 97%.

Example: The ABC Housing Authority has 1,000 units available for

occupancy. It estimates for its RBY an average of 950 units will be

occupied, a RBY occupancy percentage of 95%. The 50 vacant units do

not meet the criteria of being either vacant units undergoing

modernization or vacant due to circumstances or actions beyond the

HA's control. There are 25 long-term vacancies in the group of 50.

The Authority will remove these 25 units from its determination of

units available for occupancy and recalculate its RBY occupancy

percentage (950/975 = 98%). Since the RBY occupancy percentage is

higher than 97%, it will use 97% as its projected occupancy

percentage.

(b) If the recalculated RBY occupancy percentage is less than 97%,

but the RBY vacancy rate after adjusting for vacant units undergoing

modernization and units that are vacant due to circumstances and

actions beyond the HA's control is 3% or less (or the HA has five or

fewer vacant units), the HA may use its recalculated RBY Occupancy

Percentage as its projected occupancy percentage.

Example: The ABC Housing Authority has 1,000 units available for

occupancy. It estimates for its RBY that an average of 900 units

will be occupied, a RBY occupancy percentage of 90%. Of its 100

vacant units, 50 units are part of a HUD-approved modernization

budget and will be under a construction contract during the budget

year. The remaining 50 units fall outside the definition of being

vacant due to circumstances or actions beyond the HA's control; 25

of these units have been vacant for more than 12 months (long-term

vacancies) and 25 have been vacant for 12 months or less. When the

Authority excludes its long-term vacancies from its inventory of

units available for occupancy and recalculates its RBY occupancy

percentage, it finds that the recalculated RBY occupancy percentage

is still below 97%, (900/975 = 92%). The Authority will then take

its 75 vacancies, exclude the 50 vacant units undergoing

modernization, and recalculate its RBY vacancy percentage. Since the

resulting vacancy percentage is 3% or below (25/975 = 3%), the

Authority will use its recalculated RBY occupancy percentage of 92%

as its projected occupancy percentage.

more than five vacant units after adjusting for vacant units undergoing

modernization and units that are vacant due to circumstances and

actions beyond the HA's control, the HA will use 97% as its projected

occupancy percentage, but will be allowed to adjust the 97% by the

number of vacant units undergoing modernization and units that are

vacant due to circumstances and actions beyond the HA's control. For a

small HA using five vacant units as its occupancy objective for the

RBY, the HA will determine what percentage five

[[Page 37299]]

units represents as a portion of its units available for occupancy and

subtract that percentage from 100%. The result will be used as the HA's

projected occupancy percentage; however, the HA will be allowed to

adjust the projected occupancy percentage by vacant units undergoing

modernization and units that are vacant for circumstances and actions

beyond the HA's control.

Example: The ABC Housing Authority has 1,000 units available for

occupancy. It estimates for its RBY an average of 900 units will be

occupied, a RBY occupancy percentage of 90%. Of its 100 vacant

units, 50 units are part of a HUD-approved modernization budget and

will be under a construction contract during the budget year. The

remaining 50 units fall outside the definition of being vacant due

to circumstances or actions beyond the HA's control; none of the

vacancies are long-term vacancies. The Authority will have to use a

projected occupancy percentage of 97%, but will adjust the 97% by

the number of vacant units undergoing modernization. The 50 vacant

units undergoing modernization represent 5% of the Authority's

inventory and the 5% will be subtracted from the 97%. The Authority

will use 92% as its projected occupancy percentage.

(4) The relationship between the RBY occupancy percentage and the

projected occupancy percentage is illustrated in the chart below:

Relationship Between the RBY Occupancy Percentage and the Projected

Occupancy Percentage

------------------------------------------------------------------------

RBY occupancy percentage Projected occupancy percentage

------------------------------------------------------------------------

1. RBY Occupancy Percentage is 97% 1. Use 97%.

or higher.

2. RBY Occupancy Percentage is less 2. Use the RBY Occupancy

than 97%, but HA estimates it will Percentage.

have 5 or fewer vacant units in

RBY.

3. RBY Occupancy Percentage is less 3. Use the RBY Occupancy Percentage

than 97% and HA has more than 5 if vacancy percentage is 3% or

vacant units. less after adjusting for vacant

units undergoing modernization and

units vacant due to circumstances

and actions beyond the HA's

control.

4. RBY Occupancy Percentage is less 4. HA will exclude all long-term

than 97% and HA has more than 5 vacant units from its inventory of

vacant units, even after adjusting units available for occupancy and

for vacant units undergoing will recalculate its RBY Occupancy

modernization and units vacant due Percentage:

to circumstances and actions

beyond the HA's control.

a. If the recalculated RBY

Occupancy Percentage is 97% or

higher, the HA will use 97%.

b. If the recalculated RBY

Occupancy Percentage is less than

97%, but the HA estimates it will

have 5 or fewer vacant units in

the RBY, the HA will use the RBY

Occupancy Percentage.

c. If the recalculated RBY

Occupancy Percentage is less than

97% and HA has more than 5 vacant

units, even after making all

adjustments, the HA will use 97%,

but will be allowed to adjust the

97% for vacant units undergoing

modernization and units vacant due

to circumstances and actions

beyond the HA's control. A small

HA will determine what percentage

five units represents as a portion

of its units available for

occupancy and will make

adjustments against that

percentage.

------------------------------------------------------------------------

Comparison of Current and Proposed Rule

The proposed rule distinguishes itself from the current regulation

in several important respects, as follows:

(1) Conditions under which a vacant unit is considered eligible for

subsidy. The proposed rule would limit the circumstances under which an

HA could include excess long-term vacancies in its inventory of units

available for occupancy to those units that are: (a) Under construction

as part of a modernization program; (b) included in a HUD-approved

modernization budget, and the time period for placing the vacant units

under construction has not yet expired; or (c) subject to circumstances

and actions recognized to be beyond the HA's control. If long-term

vacant units are removed from an HA's inventory, those units would be

eligible for a reduced subsidy, calculated at 20% of the AEL, and would

continue to be eligible for utility costs. Section 990.108(b)(3)

describes the eligibility of long-term vacancies for these other costs.

The current rule does not make a distinction in the length of time a

unit has been vacant. The Committee believed that a reduced subsidy

level of 20% for such vacant units would be sufficient to maintain the

structural integrity of the units, but would also provide incentive to

returning the units to occupancy as soon as feasible.

(2) Treatment of vacant units in CIAP, CGP or other funded

modernization programs. Under the existing rule, the Department allows

each HA an opportunity to receive special treatment in determining

operating subsidy eligibility if the HA has or applies to have vacant

units in a funded, on-schedule modernization program. This special

treatment has been provided in two ways: first, if an HA anticipates

that it will have less than 97% occupancy in its budget year, the HA

may be able to use that lower percentage in its operating subsidy

calculations, by showing that its occupancy rate would be 97% or higher

after adjusting for vacant units in an on-schedule modernization

program. Second, if an HA has a HUD-approved Comprehensive Occupancy

Plan (COP), the HA would be permitted to adjust its otherwise fixed

occupancy goals if the HA could demonstrate that it had submitted an

approvable application for modernization work that was rejected because

of insufficient HUD funds. This special treatment has allowed an HA to

be eligible for full operating subsidy for vacant units that are

undergoing modernization and for units awaiting modernization when

funds become available.

The Committee supported the principle embodied in the existing

rule, i.e., HAs should not be unduly burdened in undertaking

modernization activities because of lost rental revenue. However, the

Committee believed that eligibility for full operating subsidy to this

group of vacant units should be limited to units that are actually

under a construction contract or included in an approved modernization

budget. The existing rule does not make this distinction and permits

the special treatment when funds are first

[[Page 37300]]

committed to the modernization program, often for the development of

architectural and engineering (A & E) specifications. The A & E work

may cover a number of units, buildings, or projects that will not

actually go to construction for some period of time; furthermore, the

construction work might not require the unit to be vacant.

(3) Recognition of Circumstances Beyond an HA's/RMC's Control That

Cause Vacancies. The proposed rule would permit an HA or RMC to be

eligible for full operating subsidies for its vacant units if it can

show that the circumstances or actions causing the vacancies are beyond

the HA's/RMC's control and are prohibiting it from occupying, selling,

demolishing, rehabilitating, reconstructing, consolidating, or

modernizing the vacant units. A listing of eligible circumstances is

provided in the section of this preamble titled Components of the

Proposed Rule. The existing regulation gives special recognition only

to vacant units in projects with funded, on-schedule modernization

programs.

(4) Elimination of Comprehensive Occupancy Plans (COPs). Under the

proposed rule, no new COPs would be approved. An HA that has a HUD-

approved COP at the time the new vacancy rule becomes effective will

have the option of choosing to determine its PFS eligibility under the

existing rule or to terminate its COP and be subject to the new rule.

HAs are still encouraged to undertake the structured, analytical

approach encompassed in the COP concept, i.e., to identify the causes

of their vacancy problems and develop vacancy reduction strategies and

actions that are responsive to the problems and appropriate to the

management and resources of the HA.

Other Matters

Public Reporting Burden

The information collection requirements contained in this proposed

rule have been submitted to the Office of Management and Budget under

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

Department has determined that the following provisions contain

information collection requirements.

Tabulation of Annual Reporting Burden--Contributions for Operating Subsidies--Performance Funding System; Low-

Income Public Housing--Vacancy; Proposed Rule

----------------------------------------------------------------------------------------------------------------

No. of

Section of No. of responses Total Hours per Total

Description of information collection 24 CFR respondents per annual responses hours

affected respondent responses

----------------------------------------------------------------------------------------------------------------

Determining operating income level......... 950.725;

990.109 3,100 1 3,100 1 3,100

Total reporting burden................. ........... 3,100 1 3,100 1 3,100

----------------------------------------------------------------------------------------------------------------

Environmental Impact

In accordance with 40 CFR 1508.4 of the regulations of the Council

on Environmental Quality and 24 CFR 50.20(o) of the HUD regulations,

the policies and procedures contained in this proposed rule relate only

to operating costs that do not affect a physical structure or property

and, therefore, are categorically excluded from the requirements of the

National Environmental Policy Act.

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this proposed rule before publication and

by approving it certifies that this proposed rule will not have a

significant economic impact on a substantial number of small entities.

The proposed rule would result in eligibility criteria for low-income

public and Indian housing operating subsidies that may impact those HAs

with large numbers of long-term vacant units. However, HUD's data

incident to establishing the Vacancy Reduction Program indicates that

high-vacancy PHAs are relatively few in number (and high-vacancy IHAs

virtually nonexistent), and that a preponderance of the program's

vacancies are in a very limited number of the larger PHAs. Most HAs

will be unaffected by this proposed rule.

Executive Order 12612, Federalism

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

of Executive Order 12612, Federalism, has determined that the policies

contained in this proposed rule would not have substantial direct

effects on States or their political subdivisions, or the relationship

between the Federal government and the States, or on the distribution

of power and responsibilities among the various levels of government.

As a result, the proposed rule is not subject to review under the

Order. The rule will refine the criteria under which operating

subsidies are paid on HUD-assisted housing owned and operated by HAs,

but will not interfere with State or local government functions.

Executive Order 12606, the Family

The General Counsel, as the Designated Official under Executive

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

not have potential for significant impact on family formation,

maintenance, and general well-being, and, thus, is not subject to

review under the Order. No significant change in existing HUD policies

or programs will result from promulgation of this proposed rule, as

those policies and programs relate to family concerns. The proposed

rule merely involves the amount of funding that an HA should receive

under a refinement of an existing procedure.

Regulatory Agenda

This proposed rule was listed as Item No. 1526 in the Department's

Semiannual Agenda of Regulations published on May 8, 1995 (60 FR 23368,

23402), in accordance with Executive Order 12866 and the Regulatory

Flexibility Act.

The Catalog of Federal Domestic Assistance Program numbers for

this proposed rule are 14.145, 14.146, and 14.147.

List of Subjects

24 CFR Part 950

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

programs--Indians, Disability, Homeownership, Indians, Low and moderate

income housing, Public housing, Reporting and recordkeeping

requirements.

[[Page 37301]]

24 CFR Part 990

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

Reporting and recordkeeping requirements.

For the reasons set out in the preamble, parts 950 and 990 of title

24 of the Code of Federal Regulations are proposed to be amended as

follows:

PART 950--INDIAN HOUSING PROGRAMS

1. The authority citation for part 950 would continue to read as

follows:

Authority: 25 U.S.C. 450e(b); 42 U.S.C. 1437aa-1437ee and

3535(d).

2. Section 950.102 would be amended by adding definitions for

``Long-term vacancy'', ``Units vacant due to circumstances and actions

beyond the IHA's control'', and ``Vacant unit undergoing

modernization'', and by revising the definition for ``Unit months

available'', to read as follows:

Sec. 950.102 Definitions.

* * * * *

Long-term vacancy. This term means the same as it is used in the

definition of ``Unit Months Available'' in this section.

* * * * *

Unit months available. Project Units multiplied by the number of

months the Project Units are available for occupancy during a given IHA

fiscal year. For purposes of this subpart, a unit is considered

available for occupancy from the date established as the End of the

Initial Operating Period for the Project until the time the unit is

approved by HUD for deprogramming and is vacated or is approved for

nondwelling use. A unit will be considered a long-term vacancy and will

not be considered available for occupancy in any given IHA Requested

Budget Year if the IHA determines that:

(1) The unit has been vacant for more than 12 months at the time

the IHA determines its Actual Occupancy Percentage;

(2) The unit is not either:

(i) A vacant unit undergoing modernization; or

(ii) A unit vacant for circumstances and actions beyond the IHA's

control, as these terms are defined in this section; and

(3) The IHA determines that it will have a vacancy percentage of

more than 3 percent and will have more than five vacant units, for its

Requested Budget Year, even after adjusting for vacant units undergoing

modernization and units that are vacant for circumstances and actions

beyond the IHA's control, as defined in this section. (Reference in

this subpart to ``more than five units'' or ``fewer than five units''

shall refer to a circumstance in which 5 units equals or exceeds 3

percent of the number of units to which the 3 percent threshold is

applicable.)

Units vacant due to circumstances and actions beyond the IHA's

control. Dwelling units that are vacant due to circumstances and

actions that prohibit the IHA from occupying, selling, demolishing,

rehabilitating, reconstructing, consolidating or modernizing vacant

units and are beyond the IHA's control. For purposes of this

definition, circumstances and actions beyond the IHA's control are

limited to:

(1) Litigation. The effect of court litigation such as a court

order or settlement agreement that is legally enforceable. An example

would be units that are being held vacant as part of a court-ordered or

HUD-approved desegregation plan.

(2) Laws. Federal, Tribal, or State laws of general applicability,

or their implementing regulations. Units vacant only because they do

not meet minimum standards pertaining to construction or habitability

under Federal, State, or local laws or regulations will not be

considered vacant due to circumstances and actions beyond the IHA's

control.

(3) Changing market conditions. For example, IHAs may face a lack

of demand in the foreseeable future, even after the IHA has taken

aggressive marketing and outreach measures.

(4) Natural disasters.

(5) Insufficient funding for otherwise approvable applications made

for Comprehensive Improvement Assistance Program (CIAP) funds.

(6) Resident Organization Funding. The failure of an IHA to fund an

otherwise approvable RO request for Federal modernization funding;

(7) Casualty Losses. Delays in repairing damage to vacant units due

to the time needed for settlement of insurance claims.

* * * * *

Vacant unit undergoing modernization. Except as provided in

Sec. 950.775(a), a vacant unit in an otherwise viable project (as

determined using the indicia in Sec. 970.6 of this chapter), when the

project is undergoing modernization that includes work that is

necessary to reoccupy the vacant unit, and in which one of the

following conditions is met:

(1) The unit is under construction (i.e., the construction contract

has been awarded or force account work has started); or

(2) The treatment of the vacant unit is included in a HUD-approved

modernization budget (e.g., the Annual Statement for the Comprehensive

Grant Program (CGP) (Form HUD-52837 or its successor), or the

Comprehensive Improvement Assistance Program (CIAP) Budget (Form HUD-

52825 or its successor)), but the time period for placing the vacant

unit under construction has not yet expired. The IHA must place the

vacant unit under construction within two Federal Fiscal Years (FFYs)

after the FFY in which the modernization funds are approved.

* * * * *

3. Section 950.720 would be amended by revising paragraph (b), to

read as follows:

Sec. 950.720 Other costs.

* * * * *

(b) (1) Costs attributable to units approved for deprogramming and

vacant may be eligible for inclusion, but must be limited to the

minimum services and protection necessary to protect and preserve the

units until the units are deprogrammed. Costs attributable to units

temporarily unavailable for occupancy because the units are utilized

for IHA-related activities are not eligible for inclusion. In

determining the PFS operating subsidy, these units shall not be

included in the calculation of Unit Months Available. Units approved

for deprogramming shall be listed by the IHA, and supporting

documentation regarding direct costs attributable to such units shall

be included as a part of the Performance Funding System calculation in

which the IHA requests operating subsidy for these units. If the IHA

requires assistance in this matter, the IHA should contact the HUD

Field Office.

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

sufficiency services and anti-drug activities are eligible for

operating subsidy under the conditions provided in this paragraph

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

the operating budget. If a unit satisfies the conditions stated below,

it will be eligible for subsidy at the rate of the AEL for the number

of months the unit is devoted to such use. Approval will be given for a

period of no more than 3 years. HUD may renew the approval to allow

payments after that period only if the IHA can demonstrate that no

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

are available. The conditions the unit must satisfy are:

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

activities

[[Page 37302]]

directly related to maximizing the number of employed residents or for

anti-drug programs directly related to ridding the development of

illegal drugs and drug-related crime. The activities must be directed

toward and for the benefit of residents of the development.

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

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

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

committed to make the space safe and suitable.

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

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

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

in the operating subsidy calculation.

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

one or more contiguous units) per public housing development for

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

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

service or program. Operating subsidy for any additional sites per

development can only be approved by HUD Headquarters.

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

Funding System Calculation that the units are being used for the

purpose for which they were approved and that any rental income

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

operating subsidy calculation. The IHA must maintain specific

documentation of the units covered. Such documentation should include a

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

control numbers.

(3) Long-term vacant units that are not included in the calculation

of Unit Months Available are eligible for operating subsidy in the

Requested Budget Year at the rate of 20 percent of the AEL. Allowable

utility costs for long term vacant units will continue to be funded in

accordance with Sec. 950.715.

* * * * *

4. In Sec. 950.725, paragraph (b)(3) would be revised, to read as

follows:

Sec. 950.725 Projected operating income level.

(b) * * *

(3) Projected Occupancy Percentage. The IHA shall determine its

projected percentage of occupancy for all Project Units (Projected

Occupancy Percentage), as follows:

(i) General. Using actual occupancy data collected before the start

of the budget year as a beginning point, the IHA will develop estimates

for its Requested Budget Year (RBY) of: how many units the IHA will

have available for occupancy; how many of the available units will be

occupied and how many will be vacant, and what the average occupancy

percentage will be for the RBY. The conditions under which the RBY

occupancy percentage will be used as the projected occupancy percentage

for purposes of determining operating subsidy eligibility are described

below.

(ii) High Occupancy IHA--No Adjustments Necessary. If the IHA's RBY

Occupancy Percentage, calculated in accordance with Sec. 950.760, is

equal to or greater than 97%, the IHA's Projected Occupancy Percentage

is 97%. If the IHA's RBY Occupancy Percentage is less than 97%, but the

IHA demonstrates that it will have an average of five or fewer vacant

units in the requested budget year, the IHA will use its RBY Occupancy

Percentage as its projected occupancy percentage.

(iii) Adjustments in Determining Occupancy. If the IHA's RBY

Occupancy Percentage is less than 97% and the IHA has more than 5

vacant units, the IHA will adjust its estimate of vacant units to

exclude vacant units undergoing modernization and units that are vacant

due to circumstances and actions beyond the IHA's control. After making

this adjustment, the IHA will recalculate its estimated vacancy

percentage for the RBY.

(A) High Occupancy IHA after adjustment. If the recalculated

vacancy percentage is 3% or less (or the IHA would have five or fewer

vacant units), the IHA will use its RBY Occupancy Percentage as its

projected occupancy percentage.

(B) Low Occupancy IHA--adjustment for long-term vacancies. If the

recalculated vacancy percentage is greater than 3% (or more than 5

vacant units), the IHA will then further adjust its RBY Occupancy

Percentage by excluding from its calculation of Unit Months Available

(UMAs), all units that have been vacant for longer than 12 months that

are not vacant units undergoing modernization or are not units vacant

due to circumstances and actions beyond the IHA's control.

(iv) Low Occupancy IHA after all adjustments. An IHA that has

determined its RBY Occupancy Percentage in accordance with paragraph

(b)(iii)(B) of this section will be eligible for operating subsidy as

follows:

(A) Long-term vacancies removed from the calculation of UMAs will

be eligible to receive a reduced operating subsidy calculated at 20% of

the IHA's AEL.

(B) If the recalculated RBY Occupancy Percentage is 97% or higher,

the IHA will use 97%.

but the vacancy rate after adjusting for vacant units undergoing

modernization and units that are vacant due to circumstances and

actions beyond the IHA's control is 3% or less (or the IHA has five or

fewer vacant units), the IHA may use its recalculated RBY Occupancy

Percentage as its projected occupancy percentage.

(D) If the recalculated RBY Occupancy Percentage is less than 97%

and the vacancy percentage is greater than 3% (or the IHA has more than

five vacant units) after adjusting for vacant units undergoing

modernization and units that are vacant due to circumstances and

actions beyond the IHA's control, the IHA will use 97% as its projected

occupancy percentage, but will be allowed to adjust the 97% by the

number of vacant units undergoing modernization and units that are

vacant due to circumstances and actions beyond the IHA's control. For a

small IHA using five vacant units as its occupancy objective for the

RBY, the IHA will determine what percentage five units represents as a

portion of its units available for occupancy and subtract that

percentage from 100%. The result will be used as the IHA's projected

occupancy percentage, but the IHA will be allowed to adjust the

projected occupancy percentage by vacant units undergoing modernization

and units that are vacant for circumstances and actions beyond the

IHA's control.

* * * * *

5. Section 950.760 would be revised to read as follows:

Sec. 950.760 Determining Actual and Requested Budget Year Occupancy

Percentages.

(a) Actual Occupancy Percentage. When submitting Performance

Funding System Calculations for Requested Budget Years beginning on or

after January 1, 1996, the IHA shall determine an Actual Occupancy

Percentage for all Project Units included in the Unit Months Available.

The IHA shall have the option of basing this option on either:

(1) The number of units occupied on the last day of the month that

ends 6 months before the beginning of the Requested Budget Year; or

(2) The average occupancy during the month ending 6 months before

the beginning of the Requested Budget Year. If the IHA elects to use an

average occupancy under this paragraph (a)(2),

[[Page 37303]]

the IHA shall maintain a record of its computation of its Actual

Occupancy Percentage.

(b) Requested Budget Year Occupancy Percentage. The IHA will

develop a Requested Budget Year Occupancy Percentage by taking the

Actual Occupancy Percentage and adjusting it to reflect changes up or

down in occupancy during the Requested Budget Year due to HUD-approved

activities such as units undergoing modernization, new development,

demolition, or disposition. If after the submission and approval of the

Performance Funding System Calculations for the Requested Budget Year,

there are changes up or down in occupancy because of modernization, new

development, demolition or disposition that are not reflected in the

Requested Budget Year Occupancy Percentage, the IHA may submit a

revision to reflect the actual change in occupancy due to these

activities.

and upon HUD's request, make available to HUD specific documentation of

the occupancy status of all units, including long-term vacancies,

vacant units undergoing modernization, and units vacant due to

circumstances and actions beyond the IHA's control. This documentation

shall include a listing of the units, street addresses, and project/

management control numbers.

Sec. 950.770 [Removed and Reserved]

6. Section 950.770, Comprehensive Occupancy Plan (COP)

Requirements, would be removed and reserved.

7. A new Sec. 950.775 would be added, to subpart J, to read as

follows:

Sec. 950.775 Transition provisions.

(a) Treatment of units already under an approved modernization

budget. Vacant units to be rehabilitated under modernization budgets

approved in FFY 1995 or prior are subject to the modernization

implementation schedule, without extension, previously approved by HUD.

It is the intent of HUD not to penalize IHAs that have longer

construction schedules in an approved modernization budget.

(b) Treatment of Existing COPs. (1) An IHA that on [effective date

of final rule] is operating under a Comprehensive Occupancy Plan (COP)

approved by HUD under Sec. 950.770, as that section existed before

[effective date of final rule] may, until the expiration of its COP,

continue to determine its PFS eligibility under the provisions of part

950 effective on [1 day before effective date of final rule]. If the

IHA does not elect to continue to determine its PFS eligibility using

its COP, the IHA's PFS eligibility will be calculated in accordance

with this part.

(2) HUD will not approve any extensions of existing COPs.

8. A new Sec. 950.777 would be added to subpart J, to read as

follows:

Sec. 950.777 Waivers.

(a) Documentation for Waiver. A waiver may be granted in accordance

with Sec. 999.101 of this chapter. Any request for a waiver should

include documentation that the IHA has made best efforts to correct the

problems underlying its excess vacancies and could not correct the

problems in a cost-effective manner.

(b) Effect of Rescission. If there is a rescission of appropriated

funds that reduces the level of Comprehensive Grant Program funding in

an approved Annual Statement under the CGP, to the extent that the IHA

can document that it is not possible to complete all the vacant unit

rehabilitation in the IHA's approved Annual Statement, the IHA may seek

and HUD may grant a waiver for 1 fiscal year to permit full PFS

eligibility for those units approved but not funded.

PART 990--ANNUAL CONTRIBUTIONS FOR OPERATING SUBSIDY

9. The authority citation for part 990 would continue to read as

follows:

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

10. Section 990.102 would be amended by adding definitions for

``Long-term vacancy'', ``Units vacant due to circumstances and actions

beyond the PHA's control'', and ``Vacant unit undergoing

modernization''; by revising the definitions for ``Unit approved for

deprogramming'' and ``Unit months available''; and by removing the

definition for ``Vacant, On-Schedule Modernization Units'', to read as

follows:

Sec. 990.102 Definitions.

* * * * *

Long-term vacancy. This term means the same as it is used in the

definition of ``Unit Months Available'' in this section.

* * * * *

Unit approved for deprogramming. (1) A dwelling unit for which HUD

has approved the PHA's formal request to remove the dwelling unit from

the PHA's inventory and the Annual Contributions Contract but for which

removal (i.e., deprogramming) has not yet been completed; or

(2) A nondwelling structure or a dwelling unit used for nondwelling

purposes that the PHA has determined will no longer be used for PHA

purposes and that HUD has approved for removal from the PHA's inventory

and Annual Contributions Contract.

Unit months available. Project Units multiplied by the number of

months the Project Units are available for occupancy during a given PHA

fiscal year. For purposes of this part, a unit is considered available

for occupancy from the date established as the End of the Initial

Operating Period for the Project until the time the unit is approved by

HUD for deprogramming and is vacated or is approved for nondwelling

use. A unit will be considered a long-term vacancy and will not be

considered available for occupancy in any given PHA Requested Budget

Year if the PHA determines that:

(1) The unit has been vacant for more than 12 months at the time

the PHA determines its Actual Occupancy Percentage;

(2) The unit is not either:

(i) A vacant unit undergoing modernization; or

(ii) A unit vacant for circumstances and actions beyond the PHA's

control, as these terms are defined in this section; and

(3) The PHA determines that it will have a vacancy percentage of

more than 3 percent and will have more than five vacant units, for its

Requested Budget Year, even after adjusting for vacant units undergoing

modernization and units that are vacant for circumstances and actions

beyond the PHA's control, as defined in this section. (Reference in

this part to ``more than five units'' or ``fewer than five units''

shall refer to a circumstance in which five units equals or exceeds 3

percent of the number of units to which the 3 percent threshold is

applicable.)

Units vacant due to circumstances and actions beyond the PHA's

control. Dwelling units that are vacant due to circumstances and

actions that prohibit the PHA from occupying, selling, demolishing,

rehabilitating, reconstructing, consolidating or modernizing vacant

units and are beyond the PHA's control. For purposes of this

definition, circumstances and actions beyond the PHA's control are

limited to:

(1) Litigation. The effect of court litigation such as a court

order or settlement agreement that is legally enforceable. An example

would be units that are being held vacant as part of a court-ordered or

HUD-approved desegregation plans.

(2) Laws. Federal or State laws of general applicability, or their

implementing regulations. Units vacant only because they do not meet

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minimum standards pertaining to construction or habitability under

Federal, State, or local laws or regulations will not be considered

vacant due to circumstances and actions beyond the PHA's control.

(3) Changing market conditions. For example, small PHAs that are

located in areas experiencing population loss or economic dislocations

may face a lack of demand in the foreseeable future, even after the PHA

has taken aggressive marketing and outreach measures.

(4) Natural disasters.

(5) Insufficient funding for otherwise approvable applications made

for Comprehensive Improvement Assistance Program (CIAP) funds.

(6) RMC funding. The failure of a PHA to fund an otherwise

approvable RMC request for Federal modernization funding;

(7) Casualty losses. Delays in repairing damage to vacant units due

to the time needed for settlement of insurance claims.

* * * * *

Vacant unit undergoing modernization. Except as provided in

Sec. 990.119(a), a vacant unit in an otherwise viable project (as

determined using the indicia in Sec. 970.6 of this chapter), when the

project is undergoing modernization that includes work that is

necessary to reoccupy the vacant unit, and in which one of the

following conditions is met:

(1) The unit is under construction (i.e., the construction contract

has been awarded or force account work has started); or

(2) The treatment of the vacant unit is included in a HUD-approved

modernization budget (e.g., the Annual Statement for the Comprehensive

Grant Program (CGP) (Form HUD-52837 or its successor), or the

Comprehensive Improvement Assistance Program (CIAP) Budget (Form HUD-

52825 or its successor)), but the time period for placing the vacant

unit under construction has not yet expired. The PHA must place the

vacant unit under construction within two Federal Fiscal Years (FFYs)

after the FFY in which the modernization funds are approved.

11. Section 990.108 would be amended by revising paragraph (b), to

read as follows:

Sec. 990.108 Other costs.

* * * * *

(b) (1) Costs attributable to units approved for deprogramming and

vacant may be eligible for inclusion, but must be limited to the

minimum services and protection necessary to protect and preserve the

units until the units are deprogrammed. Costs attributable to units

temporarily unavailable for occupancy because the units are utilized

for PHA-related activities are not eligible for inclusion. In

determining the PFS operating subsidy, these units shall not be

included in the calculation of Unit Months Available. Units approved

for deprogramming shall be listed by the PHA, and supporting

documentation regarding direct costs attributable to such units shall

be included as a part of the Performance Funding System calculation in

which the PHA requests operating subsidy for these units. If the PHA

requires assistance in this matter, the PHA should contact the HUD